Critics: New Medicaid Plan Fails To Fix Cost Overruns

Skeptics of the Medicaid reform plan announced in February by the McCrory administration are wary of using a relatively untested framework of what are known as accountable care organizations to administer and deliver Medicaid services.

Unlike the managed-care model McCrory officials rolled out last year, the new proposal maintains the fee-for-service payment method to providers that critics have said drives up Medicaid costs. The new plan does not require providers to compete among one another or to offer a variety of coverage options to recipients. Nor would the plan force providers to assume financial risk if spending goes over budget.

In rolling out the plan Feb. 26, Bob Atlas, a consultant hired by the state Department of Health and Human Services to explore reform options, said accountable care organizations would be local and regional networks of medical providers giving coordinated care to a minimum 5,000 beneficiaries. At first, providers would have the option of joining an ACO, but if participation lagged, the state could force them to join. Under the guidelines, doctors could work with only one ACO. Atlas said there could be multiple ACOs in a community.

ACOs would share savings with the state, beginning with a 60-40 percent split the first year, Atlas said. Of the $13 billion-plus Medicaid budget, about $5 billion would pass through the ACOs, Atlas said. Savings might reach $100 million per year, or about 2 percent, Atlas said.

“There’s an imbalance in favor of the ACO” on penalties for not meeting cost savings and health outcome benchmarks, Atlas said. ACO penalties would be no more than 5 percent of total budget costs the first year, accelerating to 10 percent by year five.

The goal is to finalize the skeleton plan with the help of outside consultants, submit it to the General Assembly by March 17, award contracts early in 2015, and have the ACOs operational by July 2015.

“We believe that placing incentives for cost efficiencies and improvement of patient outcomes belongs with the people who take care of those patients,” said Robert W. Seligson, North Carolina Medical Society CEO and executive vice president.

“We are confident that with the right flexibility in the system and the latitude necessary to serve our patients to the best of our ability, the state will soon achieve its goals of cost predictability and long‐term sustainability for Medicaid,” Seligson said.

The new system will preserve the existing medical home model that has been a hallmark of Community Care of North Carolina, the nonprofit currently administering Medicaid. It features a primary care physician who coordinates individualized care for Medicaid patients.

Ironically, the proposed Medicaid reform framework was rolled out the same day the Journal of the American Medical Association published a study critical of the patient-centered medical home model.

The nonprofit RAND Corporation research group studied 32 primary care practices in the Southeastern Pennsylvania Chronic Care Initiative, which it called “one of the earliest and largest multipayer medical home pilots conducted in the United States.”

It found “statistically significantly greater performance improvement” on only 1 of 11 quality measures compared to other types of provider practices.

RAND researchers found the medical home system “was associated with limited improvements in quality and was not associated with reductions in utilization of hospital, emergency department, or ambulatory care services or total costs over three years.” Those are the costs North Carolina medical home supporters claim to be reducing.

Al Lewis, a nationally recognized health care management analyst, is author of the book Why Nobody Believes the Numbers, which included a data-driven takedown of North Carolina’s Medicaid delivery system and what he called impossible savings claimed by CCNC.

Lewis believes hospitals and doctors, which vigorously opposed managed care organizations, are the big winners in the governor’s new proposal, which DHHS Secretary Aldona Wos admitted was “a compromise.”

“All in all, this is the North Carolina Health Care Provider Full Employment Act, designed to maintain all the revenue increases ‘stakeholders’ achieved in the CCNC era,” Lewis said, tartly.

“Since the state’s costs are so high now, this proposal will simply lock in those high costs, and base savings off the status quo,” Lewis said.

“I’d like to see savings based on performance vs. surrounding states, measured using federal data” to determine how well the Medicaid system is performing, Lewis said.

State Rep. Hugh Blackwell, R-Burke, a member of the House Health and Human Services Committee, has mixed feelings about the proposal. He said it might “be better than what had been under discussion” in Gov. Pat McCrory’s 2013 proposal.

That plan, since scrapped, would have allowed three or four managed care organizations to operate in separate regions of the state. The MCOs would have assumed full risk for all costs. The plan also would have capitated payments, meaning that plans would have been given a fixed payment annually to provide care for each recipient, allowing higher payments for patients with greater health problems or demands. If the cost of care exceeded the payment from the state, the MCO would have been required to make up the difference. Blackwell supported the concept, but he wanted more competition rather than a handful of super-agencies dominating the market.

He suggested the new proposal should allow ACOs to keep 100 percent of savings but also bear 100 percent of the cost risk.

Ideally, he said, he would prefer a variation of the Florida model, which caps payments to competing state and private plans, allowing Medicaid enrollees to select coverage among several providers.

Jeff Myers, president and CEO of Medicaid Health Plans of America, a national trade association, was “surprised that the governor chose to go down the route of an accountable care model rather than managed care model.”

“The accountable care model that he’s envisioned is not a risk-based model. It is a shared savings model,” said Myers, whose organization has members that could provide managed care or accountable care models to North Carolina Medicaid.

“The truth is that unless the organizations bear the full risk of their beneficiaries, it is awfully hard to drive costs down,” Myers said.

“In the plans that we represent, we are required to be actuarially sound in all the states that we operate in,” Myers said. In the event of budget overruns, their members must have “significant reserves to make the state whole, make the provider payments whole, and to continue to provide the services for which we have been contracted.”

Without that safety valve, the ACO networks will either ask the state for more money to fund their losses, “or they stop providing the service,” Myers said. “That is not a balanced approach for the North Carolina taxpayer, and it puts the state at continued financial risk.”

Preserving the fee-for-service model CCNC has championed in the ACO framework is unwise, Myers believes.

“CCNC would make the argument that it works really well. We would suggest that year after year of missing the Medicaid budget would suggest that maybe it isn’t working as well as they hoped,” Myers said.

Indeed, CCNC’s savings and health outcomes claims are increasingly under scrutiny, and are currently subject of a state audit. Wos called the reform proposal “a vast improvement” over the existing system under CCNC.

Despite those growing concerns, DHHS senior adviser Mardy Peal said CCNC is among existing agencies that “will have key roles” going forward. A “virtual ACO” using the CCNC platform in low-population regions lacking an ACO is one possibility.

State Rep. Nelson Dollar, R-Wake, a member of the Medicaid Reform Advisory Group that helped to devise the ACO concept, is one of CCNC’s most steadfast champions. He doesn’t believe capped-cost accountability would have prevented Medicaid cost overruns that exceeded $1.5 billion over the past three years under CCNC’s watch.

He blamed those in the General Assembly being “overly ambitious” in its budget reform efforts, and correcting “off-book” errors committed by DHHS.

But according to the 2011 annual report by MACPAC, the Medicaid advisory committee to Congress, North Carolina spends $7,197 for a full-year equivalent Medicaid beneficiary, Myers said. South Carolina spends $6,822, Tennessee $6,639, and Georgia $5,345.

North Carolina might continue to say differences in state populations are to blame for those cost disparities, Myers said, or when every surrounding state uses managed care, “you can suggest … maybe you’re doing it in a way that’s costing you more money.”

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.