NC leaders still at odds over future of costly Medicaid program

Posted June 8, 2014

DHHS Sec. Aldon Wos speaks during an N.C. Medical Society news conference at the governor's mansion. Wos and Gov. Pat McCrory (left) oppose a plan by the state Senate to turn North Carolina's Medicaid program over to managed care.

— State Senate leaders don't just dislike Gov. Pat McCrory's plan to remake the Medicaid health insurance program for the poor and disabled. Their budget would legally bar the Department of Health and Human Services from working on it anymore. 

McCrory and his fellow Republicans in the state Senate agree that, for too long, Medicaid has been the $13.5 billion tail that has wagged the budget dog, soaking up tax dollars that leaders would rather spend on other priorities.

Where they disagree is on how to control spending while still maintaining the state's safety net. When the state House unveils its own budget in the coming days, it's unlikely to embrace either of the options currently in the public domain. 

"I think they've left us plenty of room to negotiate and find middle ground," said Rep. Justin Burr, R-Stanly. "I suspect you'll find we'll be somewhere in that very, very wide field."

While there was effectively no option for Medicaid reform on the table nine months ago, having three different plans presents its own problems. The state can't pursue all three at once, and reconciling drastically different approaches by the end of the month – when lawmakers expect to leave town – is a Sisyphean task.

Who bears the risk?

Medicaid is jointly funded by the state and federal government. Although the state pays $3.5 billion of the $13.5 billion cost, it is an unpredictable and fast-growing part of the state budget. DHHS logo, N.C. Department of Health and Human Services Senate plan means Medicaid cuts, changes to DHHS DHHS Secretary Aldona Wos NC health agency rolls out Medicaid overhaul plan

The biggest philosophical difference between the governor's and Senate's Medicaid plans is who will bear the risk for especially expensive patients. While there are roughly 1.5 million people eligible for Medicaid coverage in North Carolina, a subset of those patients has multiple health issues or long-term needs. Most health policy experts agree that effectively caring for those with complex and chronic health issues not only would lead to better health outcomes but would control costs by avoiding costly crisis care. 

Dr. William Dennis of Henderson said he sees a lot of diabetes patients in his practice, and it makes little sense to deal with them only when they're having a crisis.

"If we can manage her care and keep her doing the right things – taking her medicines, making sure she watches her weight daily and she's not retaining fluid – if we can keep her out of the emergency room and out of the hospital, that's the kind of approach we try to do,"  Dennis said.

McCrory's plan builds upon the state's current system by creating networks of doctors known as accountable care organizations, or ACOs, that would have a financial incentive to hold down the cost of treating individual patients. Organizations that save money by keeping patients healthy – doing things that they might not be able to charge for under a traditional fee-for-service model – would be eligible for financial bonuses. 

"This is the plan on the table, and it's time for that plan to be voted on," McCrory said during a Wednesday news conference. 

Senators are ready to take McCrory's plan off that table entirely. 

A provision in the Senate budget would order DHHS to stop all work on the accountable care model. Their budget would take responsibility for Medicaid away from the department and create a new independent agency. In addition to paring back who is covered by the Medicaid system and reducing the number of services covered for those who remain, the Senate says the state will move toward "full-risk capitated health plans."

Those last five words signal to those in the health care community that the Senate would like to move to a managed care system under which an insurance company or other organization would be paid a flat fee per covered individual. Unlike an ACO, there is no government backstop when costs skyrocket. Managed care companies would profit or lose money based on how well they control health care costs. 

"They would have the ability to control their own costs as a provider that we don't have a state," said Sen. Ralph Hise, R-Mitchell, one of the architects of the Senate plan.

Resisting managed care

During McCrory's news conference, he was flanked by doctors in white lab coats, each bearing a yellow sticker with a big red X over the letters HMO, signaling their dislike of health maintenance organizations and other forms of managed care. 

Gov McCrory 060414The Senate is "seeking to turn back the clock and set the stage for an outside managed care company to take over our Medicaid program," said Robert Seligson, chief executive of the North Carolina Medical Society. "We strenuously object to this disproven model." 

Doctors fear managed care companies will ensure profits at the expense of patients, restricting access to needed treatments or cutting the rates doctors are paid for particular services. 

Hise, the Senate budget writer, said that the Senate plan would not necessarily lead to an out-of-state HMO taking over the state Medicaid program, although he acknowledged it was a possibility.

"We have hospitals that are interested and other medical professionals that are interested in taking over parts of the Medicaid population and fully taking the risk for that population," Hise said.

But Seligson said the Senate plan bears oft-seen hallmarks seen in others states that move to an HMO model. For example, it scales back funding for NC FAST and NCTracks, a pair of high-profile, but troubled, information technology systems that handle Medicaid applications and process claims, respectively.

He also points out that senators seem ready to do away with the state's existing effort to control costs.  

"The Senate document terminates the state’s contract with Community Care of North Carolina, our homegrown network on which to build an accountable care Medicaid model," Seligson said. 

One of the biggest cost-cutting moves in the Senate budget, he said, is actually designed to make North Carolina's Medicaid population more appealing to potential managed care contractors.

"The Senate proposal reduces eligibility for aged, blind and disabled citizens – often those who require the most costly care – positioning the state as more desirable for a profit-driven company to manage the health care of our most vulnerable citizens," he said. 

Whether North Carolina goes with the accountable care model favored by McCrory or treads the path toward managed care, experts say the state needs to step carefully.

Careful planning needed

As much as they differ over what needs to be done, the Republicans in charge of the House, Senate and governor's office all seem to agree that doing something is preferable to doing nothing. 

"I would love to see an agreement reached so we all know where we're going," said Sen. Louis Pate, R-Wayne, one of the health care budget writers in the Senate. 

"We cannot wait any longer," McCroy said this week.

Burr, a top budget writer in the House, said, "It's critical that we keep the momentum of Medicaid reform going and that we don't let up."

Oddly enough, McCrory's first stab at Medicaid reform, put forward in the first half of 2013, would have been a form of managed care. But lawmakers rebuffed that measure, asking him to come up with something different. In the past nine months, the architect of McCrory's managed care model has left the state, and he put out the accountable care model.

Either way the state goes, experts say, there are downsides. While a managed care model might make annual costs more predictable, they won't necessarily go down.

"Community Care of North Carolina has done a fairly good job of putting physician and regional networks in a position to do coordinated primary care," said Debra Lipson, a senior researcher at the think tank Mathematica Policy Research.

Many of the cost savings and patient benefits the state might get from either an HMO or accountable care model are already being realized through CCNC, she said.

To make the transition, Lipson said, would require massive data systems capable of providing real-time – or at least quarterly – data along with tightly drawn contracts that have penalties for bad actors and good measures of performance. IT systems and contracting have been an Achilles heel for the state, and particularly DHHS, over the past decade. 

Any such switch, she said, can't be done in a rush. 

"Kentucky is a good example of what can happen if you don't give it enough time and you don't calibrate the rates correctly," Lipson said.

Before 2011, Kentucky had a Medicaid system that was not unlike North Carolina's, complete with a entity that looked something like CCNC. Starting in 2011, it made the switch to managed care. 

Patients there have complained that the managed care companies caring for the Medicaid population have denied needed treatments, and finding a doctor that serves patients in the program can be difficult after health providers were driven off by low payment rates. 

"You can't get enough participating providers in your network unless you pay them," Lipson said. "There were lots and lots of problems because the state didn't have a group of people in charge who understand all the things that go into effective management and oversight of a managed care program."


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  • goldenosprey Jun 10, 2014

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    Conservatives don't hate poor people who do not avail themselves of public benefits. Otherwise, they become "takers" worthy only of disdain.

    The middle class is sick of watching the 1% investment class accumulate untaxed and undertaxed wealth like crazy while job security, economic security and purchasing power declines for everyone else. The 1% goes unscathed while the rest of us lose jobs, then UI benefits, health benefits, retirement savings and access to decent or affordable education. The conservative response: work harder and someday you may sit atop your gold and tell humanity to shove off, just as our betters do now.

  • "Screen Name-8/20" Jun 9, 2014

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    Indeed, respect IS earned, and so far, I haven't seen many politicians of either party deserving of it lately.

  • Jackson Smith Jun 9, 2014
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    We have members of the GA that have told me one thing and voted another way. I call that not being truthful (actually it is a much worse word). This has happened at least six times in the past year with members that have either spoke to me or emailed me.. Yes they are also all members of the GOP in either the House or Senate. Two are not running for election again. YES!!

  • Michael Hart Jun 9, 2014
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    respect is earned

  • Hecate Jun 9, 2014

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    No one hates the poor.. but the average, middle class worker is tired of watching the masses get free healthcare, free school lunch, free education, free food, free phones (and the list goes on and on... ) If I truly love my brother I will help him, but he must also help himself.. and unfortunately, I am not seeing this happen... I'm seeing an entire generation of non-productive, parasitic "citizens" who want to live off the sweat of someone else... (see WRAL's top story this am "Where Have all the Workers Gone?"

  • Jackson Smith Jun 9, 2014
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    To call the current General assembly in NC leaders is a real joke.

  • Listen2MeNowHearMeLater Jun 9, 2014

    The ancient chinese system had it right. You pay your doctor every month that you are healthy, and receive free treatment when you are ill. Very simple and properly incentivised on both ends.

  • Confucius say Jun 9, 2014

    The ponzi scheme can't go on forever.

  • miseem Jun 9, 2014

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    So I assume you are referring to the wealthy and corporations as Paul and the middle and lower income working class as Peter, right? Because that's the way the US economy has been heading for the last 20 years. Upper income has been increasing wealth hand over fist. Middle and lower income workers have been stagnant or declining in wealth.

  • Michael Hart Jun 9, 2014
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    Perth...... your measly percentage that you do pay, of that portion a mere 1% (if that) actually goes to any entitlement programs, the fact that you seem to think your footing the bill for hundreds of folks on welfare, foodstamps and the like is laughable! why aren't you paying more? because as you've been told numerous times before, tax's are the lowest in the US than ever before...... and yet we still have poor, disabled, children needing care.......why do you hate these people so?