When legislators passed their Medicaid reform bill last fall, critics charged they were asking the Department of Health and Human Services to adhere to deadlines that would be impossible to meet. But the department just delivered.

By Rose Hoban

Not quite six months after the state General Assembly passed a sweeping overhaul of the state’s Medicaid program, state officials presented a detailed outline of what that reform will look like once it’s implemented about three or four years from now.

“This is really the end of the beginning; this is the first hurdle,” said Dee Jones, who was hired to lead the new Division of Health Benefits, which will run the new Medicaid program. “There’s a lot of work to be done.”

The plan, in the form of two reports totaling more than 100 pages, met the legislative deadline of March 1.

Currently, North Carolina Medicaid, which serves about 1.9 million low-income children, some of their parents, pregnant woman and low-income elderly, is operated on a fee-for-service basis, where the system’s approximately 80,000 providers bill for each service delivered.

HHS Secretary Rick Brajer (second right) delivered an outline for Medicaid reform to the Joint Committee on Health and Human Services, meeting a tight legislative deadline.
HHS Secretary Rick Brajer (second right) delivered an outline for Medicaid reform to the Joint Committee on Medicaid and N.C. Health Choice Tuesday, meeting a tight legislative deadline. Photo credit: Rose Hoban

But legislators have mandated that Medicaid move to a so-called capitated system, where hospitals, clinics, doctors and other providers will be paid a set per-person, per-month payment in exchange for delivering all the care needed to those Medicaid beneficiaries.

Because the federal government pays more than two-thirds of North Carolina’s Medicaid expenses, federal regulators will exercise the final say over whether the state’s plan is acceptable. What DHHS officials presented to the Joint Legislative Oversight Committee on Medicaid and N.C. Health Choice Tuesday was the outline of that application to federal authorities.

The final application will be presented to the legislature on June 1, another deadline specified in the Medicaid reform law last year.

Innovation required

The application for change North Carolina will present to federal regulators, called an 1115 waiver,  requires that the state come up with innovative ways to reduce cost while maintaining quality.

DHHS officials said they had two other primary goals in creating the plan: to improve the experience for patients and keep providers happy.

“If we focus only on cost, we’ll miss some things that are very, very important for North Carolina,” said Warren Newton, a physician who has been hired by DHHS as an advisor in creating the federal application. Newton is also the head of the state’s Area Health Education Centers program.

For example, he said, an adult Medicaid patient admitted to a North Carolina hospital has “about a one-in-five chance of being readmitted in 30 days. We can do better than that.”

Newton told lawmakers the new Medicaid system would compel doctors, hospitals and other providers to change the way they operate.

“It is working with them at their elbows to improve care, to change care moving forward,” he said. “And it’s also about creating the workforce that they will need in order to take care of patients in these new ways.”

Newton also talked about embedding mental health providers into clinics and physicians’ offices.

“We can’t begin to bend the cost curve until we deal with behavioral health, until we attach the head to the body,” he said.

Newton said North Carolina has had success in creating innovative programs such as enhanced pharmacy services and telepsychiatry, along with the state’s patient-centered medical home network, known as Community Care of North Carolina.

“Ultimately, an 1115 demonstration waiver grants broad flexibility to use funds to research and test new ideas in program design and administration,” said DHHS Sec. Rick Brajer, who asserted that other states will end up adopting some of the ideas generated by the 1115 waiver.

Seat at the table

Brajer told legislators that he and his team have met with dozens of stakeholder groups as they’ve worked on their plan. He later added that he’d met with organizations that will potentially bid for contracts to manage Medicaid patients’ care, including representatives from the state’s largest hospitals.

“Interest is strong, people are highly engaged; therefore, I expect there to be a high degree of involvement and interest,” he told reporters.

Brajer presented a plan for dividing the state into six regions where different management companies will operate. Each region (see map) would contain at least two major medical centers (except for Region 1) and approximately equal numbers of Medicaid beneficiaries. The regions also reflect existing Medicaid data on where patients in those counties already receive their care.

Brajer told lawmakers he has met with representatives from most of the large hospitals, which could develop provider-led entities that would manage care for patients within those regions. He also said he’s met with representatives from commercial managed care companies eager to do business in North Carolina.

DHHS officials' proposal for dividing the state into Medicaid service regions. They also asked lawmakers for a change to the law to allow 12 local "provider-led entities," two for each region.
DHHS officials’ proposal for dividing the state into Medicaid service regions. They also asked lawmakers for a change to the law to allow 12 local “provider-led entities,” two for each region. Map courtesy DHHS

North Carolina is the largest state that has not moved from a fee-for-service system to capitated payment. Most states have some level of managed care in their Medicaid systems, according to the Kaiser Family Foundation.

Brajer said his department is planning public comment “listening sessions” in 12 regions of the state over the next 45 days,

“We wanted to make sure that all people in North Carolina had a chance to provide input over this process,” he said. “There may be modifications to the waiver based on what we’ve heard as well.”

DHHS spokeswoman Kendra Gerlach said the department is still finalizing preparations and will announce dates and locations next week.

Warm and fuzzy

Lawmakers lavishly praised Brajer and his team for delivering their draft plan within the tight deadlines they set in the Medicaid reform bill.

They also praised Brajer’s team for the news that, thus far, Medicaid is running about $185 million below budget.

“I do not want to minimize the good news here,” said Sen. Tommy Tucker (R-Waxhaw), who has been vocal in his criticism of the department in the past.

“I don’t want us to minimize the effort of these folks and the previous secretary in the reform of the department,” he said. “It has allowed us to look at $200 or $300 million in surplus.”

“I got a warm-and-fuzzy feeling this morning,” Tucker said. “Thank you.”

DHHS reports that the savings came largely from increased rebates from drug manufacturers, fewer new Medicaid enrollees as a result of the Affordable Care Act and lower utilization of services.

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