A graphic with money in the background. Medicaid transformation graphic, prepaid health plan, medicaid expansion

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By Rose Hoban

For the past eight weeks, Gov. Roy Cooper and the General Assembly have been locked in a budget stalemate largely over the governor’s desire to expand the Medicaid program to cover an estimated additional half million people, while the Republican majority in the legislature have staunchly refused to move on the question.

State government continues to function on last year’s spending levels, but special projects and new programs lack funding to move forward.

One of the biggest new projects slated to roll out this fiscal year is another Medicaid initiative, this one of transforming the program, which serves more than 2 million low-income children, some of their parents, many people with disabilities and low-income elderly. This transformation will move Medicaid from a traditional fee-for-service program, where the state pays claims filed by providers, to one where the state pays for-profit managed care companies on a monthly basis to administer the program.

The changeover is slated to begin in one part of the state in just 10 weeks.

Funding for Medicaid transformation was included in the budget bill, which moved money from a reserve fund set aside for the purpose. The budget also created new assessments on hospitals and a new tax on those managed care companies, also known as prepaid health plans, that will be administering Medicaid.

So, last week, Republican senators in the General Assembly stripped an existing bill of its language and dropped in language culled from the budget in an attempt to get these necessary tasks passed.

“This is the final enabling legislation,” said Sen. Ralph Hise (R-Spruce Pine) during a Senate Health Care Committee meeting last week. “The budget was the first time we actually had numbers from the department that would actually set what those would be in statute. We set that in the budget and to avoid delaying that process, we’re moving forward.”

Funding shuffle 

Also included in last week’s bill was language lifted out of the budget that cuts funding to the Department of Health and Human Services over the coming two years by more than $70 million dollars.

Hise argued that all of the coming fiscal year’s cuts would be backfilled with transfers from the reserve fund set aside for Medicaid transformation. In the second year, some of the money will be backfilled, but not all.

His rationale is that once the prepaid health plans take over, the expertise for processing claims and coding medical procedures now housed  in the DHHS will be transferred to the companies hired to run Medicaid.

Senate Democrats and lobbyists from the DHHS pushed back. They argue that even though the money will actually appear next year, it will go from being recurring to one-time funding. While the recurring versus non-recurring distinction might seem technical from the outside, for employees, it means the difference between the stability of being an employee and the uncertainty of being a contract worker.

According to DHHS governmental affairs liaison Matt Gross, this will make it harder to recruit top-flight staff, even as the department needs to find people with new skill sets required to provide oversight and administration of the prepaid health plans.

“We’re concerned about accountability for the PHPs that are coming online,” he told lawmakers during a Senate Finance Committee meeting on Thursday. “It’s correct that some of the functions that we perform today around processing claims are going to go away, but we’re going to have new functions that we’re bringing online for oversight and accountability.

“We’ll be becoming an auditor for these folks that are going to be performing the Medicaid managed care program.”

Changes coming to DHHS

Currently, North Carolina’s Medicaid program has hundreds of people who answer phones, review clinical decision-making, authorize care, and process payments to thousands of health care providers across the state.

Once the prepaid health plans come on board, though, those responsibilities will move to the companies. According to Matt Salo, head of the National Association of Medicaid Directors, it’s a commonly held misperception that the move to managed care means that a state can then eliminate a huge part of the state workforce.

“This is a public-private partnership,” Salo said. “You’re not going to have as many people doing … coding or what have you. Actually, we would make the argument that you need a much, much different and more sophisticated skill set in the state workforce.”

Salo ticked off just some of the new skills needed: actuaries who predict and track what spending should be to ensure the prepaid health plans are doing what they should, information technology expertise, forensic accountants to monitor fraud and abuse, legal skills and more.

“You need staff who are able to write a binding 800-page contract with a multi-billion dollar private company that is going to hold them accountable for not just cost, but also quality,” he said. “You might be able to get rid of some functionality, but you’re going to need to add significant more functionality, and that new functionality is going to be more sophisticated, higher skilled, and guaranteed, more expensive.”

He pointed out that across the country, Medicaid is evolving into a very different program, which is “a much more sophisticated and complicated delivery model,” which includes not just paying for care but pushing health care providers to deliver higher quality and better patient outcomes.

“Managed care, while it’s clearly the future of delivery in Medicaid, at the end of the day, it’s a tool. It’s a means to an end, it is not the end of itself,” he said. “You cannot simply say, ‘Oh, hey, look, we’ve got managed care, cool, our job is done.’

“No, it is ‘trust, but verify.’”

And Salo pointed out a cautionary tale of Tennessee, which back in the 1990s, cut departmental funding even as it was rolling out its Medicaid managed care system.

Clawing back

Tennessee’s Medicaid program converted to managed care in 1994. But by the end of the decade, the program was riddled with fraud, embroiled in multiple lawsuits, and spiraling out of control.

Salo said that in the 2000s Tennessee’s program rose like a phoenix from the ashes, and part of that turnaround is due to Darin Gordon, who led the program from 2006 to 2016. Before that, he was the organization’s chief financial officer.

“We didn’t handle that transition well,” said Gordon who was not at the Tennessee Health Department when the state rolled out TennCare. “We didn’t really innovate, we were under resourced, we didn’t invest in the human capital, in technology, really, to oversee and manage the program effectively.

“Plans had little direction from us, there was little to no oversight,” he said. “We saw costs explode because we didn’t have good systems in place even to be able to diagnose what caused the problem.”

Gordon also said that because of a lack of state guidance, some of the plans failed, leaving patients without insurance, leaving providers without pay and generating “mountains of litigation.”

For example, he talked about how Tennessee “decimated” the fraud and abuse investigation division in the state health department and failed to develop the IT services to track spending. The assumption was that the companies would perform those functions.

“You still have a function, you still have a responsibility, right? And the plans have one, too, but  who’s monitoring it across the plans? And are their fraud and abuse policies consistent with what the federal law requires, or what the state law requires?” he asked, noting that states still are accountable to federal regulators for what the managed care companies do in their name.

“You still ultimately are going to have to answer to [the federal Centers for Medicare and Medicaid Services.],” he continued. “You can’t just say, ‘Well, yeah, I gave it to the plans.’ That doesn’t fly. Nobody, I mean nobody, would think that’s an acceptable answer.”

Gordon stressed that each Medicaid plan is unique, and it’s hard to compare staffing numbers from state to state. But he also stressed that before a state goes too far in changing the way its department is staffed, lawmakers and administrators should look at case studies from other states.

“If you say you want to run these things like a business, the number one thing in any good business is get good people,” he said. “And if you try to do that on the cheap, you can look at many case studies out there that have other results.”

Rose Hoban

Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...

One reply on “Legislative funding proposal needed to facilitate Medicaid changeover”

  1. In case it isn’t clear, neither the state, the PHPs or providers are ready for this transition currently scheduled for 11/1 in the Triangle and Triad regions. Far from it. No networks of providers (far from it) and no oversight systems in place.
    DHB knows this but still won’t delay the go-live. The PHPs are spending time lobbying the Senate to get them “their” money when they should be negotiating contract terms in good faith.

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