Members of the N.C. Senate say bringing managed care to run the state’s Medicaid system will save money and improve quality of care, but doctors say it’ll undermine the system. Who’s right?

By Rose Hoban

Last week, at a legislative committee meeting, Jeff Myers, head of the trade group Medicaid Health Plans of America, got up to tell senators that beneficiaries get better care with higher quality outcomes at lower cost in states with Medicaid managed care.

Lobbyist Cody Hand from the North Carolina Hospital Association looks on as Greg Griggs from the NC Academy of Family Physicians testifies at the Senate Rules Committee meeting last week.
Lobbyist Cody Hand from the North Carolina Hospital Association looks on as Greg Griggs from the N.C. Academy of Family Physicians testifies at the Senate Rules Committee meeting last week. Photo credit: Jasmin Singh

“As the 37 states that have moved to managed Medicaid and several more that are considering it, they not just do it for the savings of money – which is absolutely true – but because we’ve seen a noticeable increase in quality metrics for the poorest and the sickest in those states,” Myers told lawmakers at the Senate Rules and Operations committee meeting on Thursday morning.

Immediately after Myers spoke, Greg Griggs, who leads the North Carolina Academy of Family Physicians, stood up and told a contradictory tale of how physicians would be burdened with new regulations, more paperwork, multiple credentialing requirements and lower reimbursement if managed care companies are invited to run Medicaid in North Carolina.

Griggs said the newest Senate plan to reform Medicaid ignores last spring’s proposal to convert the state’s Medicaid system into accountable care organizations in which doctors share in both savings and losses.

Griggs expressed visible frustration over the current plan, which he said ignores more than a year’s worth of work on “a reform plan that is good for taxpayers, good for our most vulnerable citizens who receive the care and good for the physicians and hospitals that provide the care.

“And it ignores good quality and savings we worked to achieve through [Community Care of North Carolina] through the last decade.”

The two men’s variant descriptions of how well managed care organizations run Medicaid are emblematic of the debate between the Senate and the House over the future of North Carolina’s program. House members support the earlier plan that was forged through public and private meetings throughout last fall and winter. Meanwhile, the Senate seems determined to move North Carolina Medicaid into managed care.

The difference of opinion is also emblematic of a debate that’s taken place around the country as states try to reign in the costs of Medicaid, the state and federally funded program that provides care for low-income children, pregnant women, low-income seniors and people with disabilities.

Examples of Medicaid managed care’s failures are well known in health care circles. Kentucky is currently struggling with lawsuits against Centene over the company’s abrupt withdrawal from that state’s Medicaid program. Blue Cross and Blue Shield of New York recently announced it would pull out of providing Medicaid in western New York state, leaving more than 50,000 recipients to find new providers. And in 2012, Connecticut transitioned away from managed care, with the state’s Medicaid director claiming state officials found “diminishing confidence in the value” of what was being provided.

But proponents of Medicaid managed care in the Senate say the method of running state Medicaid programs allows state budgeters to plan better, for lower costs. Many states have decided the proponents are right: About 30 million Medicaid beneficiaries are covered by managed care organizations in 37 states and the District of Columbia.

So who’s right?

“It depends,” said Mark McClellan, a health economist with the Brookings Institution, a Washington, D.C.-based think tank.

Investment needed

If anyone knows Medicaid, it’s McClellan. A physician, he was head of the Centers for Medicare and Medicaid Services in the George W. Bush administration. Before that, he was a professor of health economics and policy at Stanford University, and has spent years studying health care organizations.

Mark McClellan, MD, is former administrator of the Centers for Medicare and Medicaid Services and a health economist.
Mark McClellan is former administrator of the Centers for Medicare and Medicaid Services and a health economist. Photo courtesy: Brookings Institution

McClellan said many states have had success using Medicaid managed care companies, but that it’s not something that comes without investment up front.

“There are many private plans making serious investments in identifying higher-quality provider networks and investing in support systems to help health care providers to take steps to reform the way they deliver care,” he said, citing as examples the systems in Minnesota and Massachusetts.

He referenced research that indicates that provider groups need as much as $2 million in investment up front to prepare for bearing more financial accountability.

Current Senate bills make no mention of providing up-front expenses for provider groups, something that would be vital for rural providers in particular.

McClellan pointed to the accomplishments of Community Care of North Carolina in helping those rural providers create systems to prevent complications and hospitalizations among their patients. That’s due in part, he said, to the state Medicaid program’s investment in “things like nurse practitioners and systems to help physicians help identify patients who are at risk of being hospitalized with a complication and take steps to do something about it.”

“CCNC has made a big difference,” said McClellan, noting that a number of other states have used CCNC as a template for building their own models for care.

He said that in some states, managed care plans have tried to keep costs down by limiting coverage, the networks of doctors and the kinds of medications doctors can prescribe, similar to how HMOs operated in the 1990s.

“While that is one way to reduce costs in the short term, it doesn’t necessarily lead to higher-quality care or better health and hopefully lower costs in the long term,” McClellan said.

Creating a reserve

Another investment that’s been bandied about in the General Assembly is creating a Medicaid reserve, something other states have done. That becomes an issue because if in North Carolina projections are off by as little as 1 percent, that can mean about $140 million. Current legislative proposals call for adding $50 million to a Medicaid reserve.

“In Indiana, we had a 10 percent reserve,” said former Indiana Medicaid director Jim Verdier, who now works as a consultant at Mathematica Policy Research, another Washington think tank.

Medicaid is a cyclical program, he said, so when the economy goes bad more people stream onto the rolls, as happened when North Carolina’s Medicaid population swelled from 1.2 million people in January 2008 to 1.45 million at the end of 2011. As of the close of 2013, the state’s Medicaid program had about 1.6 million beneficiaries, with an additional 98,000 children on North Carolina Health Choice, the state’s health insurance program for children.

“A lot of states have Medicaid reserves. During the kind of bad economy we had, those reserves get drawn down,” Verdier said. “That’s what they’re there for.”

He also said one advantage he had in Indiana was that there were lawmakers in the legislature who had been there a long time and really understood Medicaid. By contrast, in North Carolina a majority of legislators are now freshmen and sophomores.

“It was a fiscally conservative state, but you could sit down and explain to them all the uncertainties and where the vulnerabilities were, and they were grownups about it,” Verdier said. “So no one was mystified or surprised when the forecast was what it was.”

Beating the clock

McClellan hesitated when asked if two years is too little to change over a health care system to managed care.

“It’s understandable to try to move quickly, with health care costs rising and state budgets stretched,” McClellan said. But he said too much focus on short-term savings would constrain providers from experimenting with new ways to deliver care that save money while improving quality and outcomes.

Sen. Ralph Hise (R-Spruce Pine) defends the Senate version of Medicaid reform at the Senate Rules Committee meeting last Thursday.
Sen. Ralph Hise (R-Spruce Pine) defends the Senate version of Medicaid reform at the Senate Rules Committee meeting last Thursday. Photo credit: Jasmin Singh

During committee meetings, Sen. Ralph Hise (R-Spruce Pine) repeatedly cited Florida’s plan as a model for North Carolina to follow. That state is in the process of scaling up managed care statewide on a two-year time frame.

“We don’t have until 2020 to wait to get a system in place that can control the problems we’ve had in Medicaid for nearly a decade now,” said Hise, referring to the plan rolled out by DHHS this spring that would move the state’s program completely to accountable care organizations over five years.

“If we put that off … to allow a slower build up, that is at a huge cost to the taxpayers of the state of North Carolina,” he said, claiming that other states, such as Florida and Texas, have had timelines as aggressive as what he’s proposing.

But for as many states as Hise cited, there are others that have had more trouble with timelines. Kentucky is the most recent example of a state that transitioned its Medicaid program quickly to managed care and encountered multiple problems.

And Florida’s managed care model was initiated in 2005 in five counties, giving the state plenty of time to work out kinks and problems in the system before initiating the two-year scale-up.

Big bites

Another health economist, Don Taylor from Duke University’s Sanford School of Public Policy, called the current Senate plan “grand.”

“The North Carolina Senate proposal is unrealistic; we need to walk before we try to run,” he wrote last week.

Taylor said in an interview that most other states launch managed care by moving less complicated populations such as children and pregnant women onto the program first. They also cost the least.

“Most people don’t realize how big a chunk of the money is for [nursing homes] for elderly people,” he said.

In North Carolina, about 10 percent of Medicaid beneficiaries are elderly people in skilled nursing facilities; they take up about 17 percent of the program’s annual budget (2010 data). Another 17 percent of beneficiaries are people with disabilities; they comprise about 45 percent of the dollars spent on Medicaid.

But the Senate has proposed putting the management of all the state’s Medicaid populations out for bid, including low-income elderly who live in nursing homes, people with disabilities and people with mental health problems.

“You’ve got to have whole-person care if you are ever going to get control of the cost and provide better health outcomes for the individual,” Hise said.

“We have to put that together to one system and look at the whole person; otherwise, we are never going to provide the quality outcomes we need from health care,” he said.

Taylor said the problem may be finding companies to bid on the system.

“There’s a reasonable chance you can hold the auction and no one will bid,” he said. “I don’t think anyone in their right mind will bid this at a price that’ll save the state money as compared to the status quo.”

Taylor cited a study done by the Urban Institute, another policy think tank, which looked at 20 states with Medicaid managed care. All of the states had exclusions – or “carve outs” – for covering specific populations or services. Most often, those exclusions were for behavioral health services.

Only one state, Kansas, is covering all people with disabilities under Medicaid managed care. But that experiment only started at the beginning of this year, with many observers watching the results closely.

Watching other states

Florida’s transition is only now taking place, with some of the largest counties in the state converting to managed Medicaid on July 1.

And there are still many kinks in the system, according to Joan Alker from the Georgetown University Center for Children and Families, who has followed Florida’s Medicaid experiment since the beginning.

In 2008, her center studied early outcomes in the pilot program.

“It wasn’t clear that it saved money,” Alker said. “It looked like doctors were leaving the program and the healthy behaviors they were promoting were not making an impact on people’s health.

“But people liked the program because they got incentive rewards they could use at drugstores.”

The Affordable Care Act forced some changes to the program, and Alker said it then “started to look more like regular Medicaid managed care.”

More recently, researchers at the University of Florida studied the pilot and found some savings.

“But again, it was not clear how those savings were achieved,” Alker said.

In the meantime, one company involved in the pilot, Wellcare Health Plans, had the largest fraud indictment in the history of Medicaid. The company agreed with the U.S. Department of Justice to pay $137 million to nine states, including Florida, for fraudulent billing.

“The irony of this whole thing is that when reporters would ask me about what was happening in Florida, I would say, ‘Well, a better alternative would be North Carolina, because they have a model Medicaid program,’” Alker said.

Another large-scale study of Medicaid managed care done by researcher Michael Sparer from the Mailman School of Public Health at Columbia University also found questionable evidence for savings across the country.

“It’s hard to generalize results, not only because each state has its own programs, but there’s often variation within states; there’s a lot of concern over comparing apples to oranges.” Sparer told N.C. Health News in 2013. “There’s … variation in every aspect of Medicaid managed care: limited risk, safety-net plans, reimbursement plans, competitive biddings, negotiated rates.”

Sparer said one of the problems with calculating savings is that beneficiaries often cycle on and off Medicaid as they gain or lose employment and their families gain or lose other coverage. So managed care companies don’t have enough time to see the longer-term benefits of changing behavior that can improve health outcomes.

Sparer said that in the past, managed care companies focused on pregnant women and children, because their care is easier to manage and savings are more readily gained. But he said states looking to use managed care need to focus on the aged, blind and disabled populations.

“Everyone now realizes that they’re the highest-cost chronically ill,” Sparer said. “There’s not a lot of evidence of significant cost savings, until now.

“There’s potential for cost savings for high-cost populations if you do it right. And CCNC is an example of how you do it right,” he said.

This story has been altered to reflect the correct spelling of Jeff Myers’ name.

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