Medicaid reform contracts give $6B a year to five companies

Five companies won contracts totaling some $6 billion a year to implement a new managed care program that will attempt to rein in health care costs. The state will set average per-person rates to cover health care costs and let the companies keep profits when they stay under the cap.

The providers will negotiate plans with hospitals and other health care providers much like in the private insurance market, and they take a risk that costs will outstrip the taxpayer money flowing from the government.

Some 1.6 million people will move into these plans over the next year or so. Information from the state about the various options, including which plans include their current doctors, will start rolling out this summer, according to the state Department of Health and Human Services.

Four companies will offer plans statewide:

A fifth contract was awarded to Carolina Complete Health, which will offer plans in most of the southern half of North Carolina, including Charlotte and southeastern counties up into Harnett County. Carolina Complete is the only contract winner led by health care providers, which caused some consternation even among reform supporters.

Several of the contract winners are based out of state.

The contracts have been a long time coming. The General Assembly mandated the shift to managed care in 2015, and the goal was to move away from a fee-for-service model with less predictable costs to flat-rates the private insurers have to live within. The state will set rules to protect patients and can claw back money if insurers don't hit targets.

“The logic or the theory is (companies are) incentivized to keep people healthier, or at least not to do expensive unnecessary things," said Don Taylor, who teaches health policy at Duke University.

The ramp up on the reforms spanned two administrations: Republican Gov. Pat McCrory's and, now, Democratic Gov. Roy Cooper, who got DHHS Secretary Mandy Cohen fresh from the Obama administration's Medicaid agency.

“Think of it as (Democrats) put the meat on the bones of a big idea from Republicans," Taylor said.

Taylor also said the realization of GOP reforms may make Medicaid expansion, which would add hundreds of thousands of people to the state's Medicaid roles, more palatable for Republicans in charge at the General Assembly. Expansion is a top priority for the governor and is likely to dominate the legislative session at some point this year.

The initial move to managed care will affect most of the state's Medicaid population, but not all. Those with the most serious and expensive health issues won't make the move for some time.

"We're going live with the population that is the least expensive," Deputy Secretary for Medicaid Dave Richard said this week.

The move is not without critics. Some worry about the profit motive to deny services, despite DHHS' continued oversight and the promise of safeguards. Others question some of the companies that will be involved, and a number of people were disappointed that more hospital groups won't be direct contractors.

"While I believe these are good and reputable companies, I am disappointed that more provider-led entities were not participants and selected," state Rep. Donny Lambeth, R-Forsyth, a former hospital executive, said in an email this week. "I believe a balance of commercial and provider organizations was preferred and allows us to compare both types of organizations. But that did not work out, so we will move forward with good organizations to manage these programs."

The new program is similar to a model already up and running for state- and federally-funded mental health programs. State Auditor Beth Wood criticized that program in a recent audit, saying her office identified $439 million in "excess savings" the private entities managing those programs were allowed to keep.