Raleigh, N.C. — The federal government is raising questions about how North Carolina pays managed care companies that provide services to mentally ill and developmentally disabled people at the same time the state is looking at making broader use of managed care to control Medicaid costs.
State officials say they were "surprised" by the missive and seem unsure what to make of the federal government questioning a system that the U.S. Centers for Medicare and Medicaid Services, CMS, has reviewed and approved numerous times. At the very least, the letter roils the bureaucratic waters at a time when state lawmakers and the McCrory administration are trying to push forward with a remake of the state's Medicaid system.
Currently, 10 Local Management Entities / Managed Care Organizations, abbreviated as LME/MCOs, provide care for low-income people with mental illness, substance abuse problems or developmental disabilities throughout the state. The "managed care" part of that system is seen as an essential part of controlling the state's costs. Each organization gets a set amount of money to care for people in its geographic area, rather than charging the state for each service provided. For purely physical ailments, Medicaid pays for care through a fee-for-service model.
Those LME/MCOs evolved over the past 15 years from a system of county mental health departments, a transition that has been, at times, chaotic for both the state and mental health consumers.
Federal officials appear to be asking the state to either put those mental health contracts to bid or pay those LME/MCOs based on a fee-for-service model, either of which could undermine the delivery system North Carolina has been building and mean another round of changes for mental health consumers.
"We intend to have continued conversations with CMS on this very complex topic because LME/MCOs are important partners in our behavioral health system," Ricky Diaz, a spokesman for the Department of Health and Human Services, said in an email.
Asked what the eventual impact on the state would be, he said, "We are still gathering information in preparation for more thorough conversations with CMS on this very complex topic. The state is currently exploring this matter further, and it would be too early to predict what impact this might have."
Immediate change not required
CMS' letter reads as if federal officials anticipate big changes could be required.
"We recognize that changing a long-standing delivery system will take time and potentially state legislation," said Nancy Klimon, director of CMS' Division of Integrated Health Services. "We know the process begins with a frank discussion of these issues, which we would like to schedule in the near future."
Although the state has been considering changes to how Medicaid administers both metal and physical health services, lawmakers have been hoping to proceed on their own terms rather than in response to a federal mandate.
"The federal government has been a partner in the development of our pilot seven or eight years ago and the decision of the state to expand that pilot statewide," said Rep. Nelson Dollar, R-Wake, a senior budget writer. "We have invested hundreds of millions of dollars in mental health reform, particularly over the last three years. We do not want to see the federal government seriously damage our mental health system at a very critical time at the development of that system."
Dollar said that, if the CMS letter can be taken at face value, it could have "serious impacts" for mental health consumers and their families.
He and other lawmakers, including Sen. Ralph Hise, R-Mitchell, and Sen. Fletcher Hartsell, R-Cabarrus, all legislators who sit on a committee with some oversight of health spending, speculated Thursday that federal officials may be looking for information from the state rather than demanding any wholesale change.
That theory seems to be at least bolstered by a spokeswoman for CMS' Atlanta who responded to an inquiry about the letter from WRAL News.
"The intent of the letter and request to meet is not to require North Carolina to change its arrangement with the LMEs but for CMS to gain a better understanding of the type of entities (public/private) the LMEs are designated as. The entity needs to be determined to understand how federal funding is expended," the spokeswoman wrote.
Doubling down on managed care
Managed care is attractive to policymakers and budget writers because it caps the state's liability for providing health care, transferring the risk of big cost-overruns to the insurer.
Earlier this year, Gov. Pat McCrory pushed a plan that would move all Medicaid patients into a managed care-like system, whether they had mental health problems or not. This plan was not well received at the General Assembly, but the idea of pushing more toward a managed care model has not died away.
During a Health and Human Services Oversight Committee hearing this week, Bob Atlas, a consultant hired to advise DHHS leaders on Medicaid reform, told lawmakers that the state was considering placing more responsibilities on the mental health LME/MCOs. In addition to potentially condensing the 10 LME/MCOs down to three to five organizations, he told legislators they may become responsible for administering physical health services for those adults whose primary health issue is a mental illness.
"We're considering the possibility of having the LMEs take responsibility for the whole person, if you will," Atlas said.
Given the potential to expand the responsibility of existing LME/MCOs, as well as the potential to expand managed care in other areas of Medicaid, CMS' questions about how it is used in the mental health arena is a concern to lawmakers. It adds yet another element of uncertainty to the state's Medicaid reform efforts. Currently, both DHHS and a five-member panel are studying how to change the system.
It is possible, Hise said, that a reform plan developed by that group could be considered when the legislature reconvenes in May. He said it is unclear whether that plan would pass the General Assembly.
"We came into the long (legislative) session last year with the intent of a large-scare Medicaid reform, and that didn't go very far," Hise said. "If it's a good proposal, you could see us in the short session (in May) do the authorizations you would need."
However, if lawmakers decide not to proceed with a broad-based reform, the recent CMS letter indicates the state may need to make some sort of stop-gap change to its mental health system. That would have both state officials and advocates for the mentally ill carefully watching what happens in the wake of this letter.
"This certainly has implications for how the state moves forward," said Vicki Smith, executive director with Disability Rights North Carolina.
Dollar, too, said that the state would have to take the letter into account moving forward.
"It certainly causes us significant concerns," he said.