Future of mental health service management stuck in legislative conference

House and Senate Republicans are stuck in a debate about oversight of the state’s largest mental health provider and who will control mental health services for hundreds of thousands of North Carolinians.

A conference committee could decide the fate of House Bill 403, which passed each legislative chamber in dramatically different versions. The House, and some senators, want tougher oversight of Cardinal Innovations Healthcare Services, the state’s largest mental-health provider. The Senate version of the bill goes easier on Cardinal, critics say. It also would replace a system of regional, state-regulated managed-care entities (known as Local Management Entities/Managed Care Organizations) with managed-care groups that could be run statewide by for-profit companies or medical provider networks.

Cardinal came under fire after a state performance audit cited the health care giant for improper and questionable practices. The Cardinal audit unearthed a large pool of cash reserves. It also concluded Cardinal improperly paid $1.2 million in executive salaries, issued exorbitant bonuses, held expensive staff events, rented high-end office space, and booked charter jet flights for in-state meetings, among other findings.

The House unanimously passed H.B. 403 to boost oversight of Cardinal, and improve the operation of all LME/MCOs.

“I would think based on the people that they serve they’ve lost their way,” Sen. Tommy Tucker, R-Union, said of Cardinal. He helped to create the LME/MCO system, and supports the House-passed version of H.B. 403.

House members say the Senate is too lenient in its treatment of Cardinal, whose lobbyists include former state Sen. Tom Apodaca, R-Henderson, and for which former state Rep. Rob Bryan is a senior vice president.

The House and some Senate Republicans want the state to maintain control of the mental health system using the LME/MCO model.

Sen. Ralph Hise, R-Mitchell, and other Senate Republicans instead want to dissolve the LME/MCOs and transfer their assets to the state Department of Health and Human Services. Hise and his legislative allies hope to create a new system of for-profit managed care organizations and provider-led entities.

Hise, a co-chairman of the Senate Health Care Committee, rewrote H.B. 403 when it reached the Senate. His version would overhaul Medicaid policy and accelerate mental health reforms. It passed the Senate by a 36-10 vote a couple of days before the General Assembly recessed.

“We would like to resolve this, but only if the Senate abandons their attempts to renegotiate the previously agreed-to Medicaid reform plan. The House is not interested in changing that plan,” said Rep. Donny Lambeth, R-Forsyth. Lambeth, former president of N.C. Baptist Hospital, is one of the three House conferees.  

With legislative sessions set for August and September, the two chambers could make a deal “if the Senate desires to talk,” Lambeth said.

State Rep. Nelson Dollar, R-Wake, an architect of the LME/MCO system, said nothing in the Senate plan would improve behavioral health care. Both DHHS and medical providers oppose it, and the Senate shakeup could reverse gains in mental health care delivery.

The current public/private managed care system helps patients, Dollar said. He is not confident the Senate’s alternative would do as well.

The LME/MCO system has saved hundreds of millions of dollars a year in Medicaid spending, Dollar said, replacing massive annual deficits with surpluses. Keeping taxpayer costs under control has “created stability in the behavioral health system that was not true in the prior decade.”

Hise, who chairs the Senate conference committee, has not responded to requests for comment.

Seven geographically arranged LME/MCOs administer services for mental health, substance abuse, and intellectual and developmental disabilities. Critics worry Cardinal could become one of a handful of statewide commercial managed care networks administering mental health services under the Hise plan, at the expense of smaller entities that have not abused the system.

Mary Hooper, executive director of the NC Council of Community Programs, which represents the state’s LME/MCOs, opposes Hise’s plan. She says it would disrupt a service and payment system that works well.

“Consumers are being served, providers get paid, and savings are being reinvested into more services” by the managed-care groups, Hooper said.

Tucker said most LME/MCOs are doing their job. “They seem to be overshadowed by the extravagance of Cardinal.”

Critics of the regional networks say they have accumulated $1 billion in reserves that should have been spent providing services.

The NC Council of Community Programs denies that contention.

A financial-standing document for March 2017 shows LME/MCOs all told had nearly $724 million in cash and short-term investments from funds allocated for mental health, substance abuse, and intellectual and developmental disability services.

But they owed money to providers, had a statutory obligation to maintain a 30-day operating cash reserve, and had to replace state budget cuts to indigent services, totaling $472 million.

Federal law also requires the LME/MCO system to maintain a Medicaid Risk Reserve fund of $224.3 million.