News: CJ Exclusives

Governor Draws Line on Medicaid Reform

McCrory, lawmakers remain divided over fee-for-service vs. managed care

An impatient Gov. Pat McCrory used his bully pulpit and a wall of white coats Wednesday to push for immediate legislative action on his administration’s stalled proposal to run the state’s Medicaid program using an Accountable Care Organization system operated by doctors and hospitals.

“We need both the House and Senate to come together and start taking progressive action,” McCrory said from the grounds of the Executive Mansion, surrounded by roughly 150 doctors and hospital officials, many clad in white lab coats.

“I’m looking for reform, not stagnation,” he said. “What we can’t afford is to have people sit on the sidelines and delay reform.”

The news conference was a pushback against the Senate’s call to run Medicaid through Managed Care Organizations — private, competing contractors that would have payments capped and would be required to accept all financial risk for budget overruns, relieving taxpayers of the burden. About three-fourths of the nation’s Medicaid patients are treated under managed care.

“Any system that transfers full risk is what we’re looking for in the legislature, whether that’s provider-led or managed care that’s coming forward,” said state Sen. Ralph Hise, R-Mitchell, co-chairman of the Senate Appropriations Committee on Health and Human Services. “Then the only part that remains the state responsibility from year to year is changes in enrollment.”

Hise and other critics say the ACO model would not cut costs aggressively enough and remains largely untested.

McCrory characterized his Medicaid overhaul to stanch $2 billion in state budget overruns the past four years as a bipartisan mission for budget predictability. The plan was crafted during a 16-month process led by Aldona Wos, secretary of the Department of Health and Human Services.

“I welcome any other detailed plans that do better than this, but right now this is the plan on the table and it’s time for that plan to be discussed and voted on,” McCrory said.

Saying “we cannot wait any longer” to improve the Medicaid delivery system, Wos said the administration plan reduces the growth in Medicaid spending, cuts waste, and meets “a fundamental goal of making our citizens healthier.”

Plan architects have been attentive to “our obligation towards the taxpayers and our limited resources,” Wos said. The state pays $5 billion annually for Medicaid; the budget approaches $14 billion with federal allocations.

The ACO model maintains a “consistent vision” of stability through four pillars, she said — sustainability, acceptance by medical providers, meeting basic needs of patients, and being tailored to North Carolina.

“This new model would reward doctors for the quality of their care, not the quantity,” said Devdutta Sangvai, president of the North Carolina Medical Society. “It would treat the whole person, not just episodic care.”

The Senate’s preference for outside managed care “seeks to turn back the clock,” Sangvai said.

Dr. Bill Dennis, president of the North Carolina Academy of Family Physicians, with a practice in Henderson, said the governor’s plan “is a responsible way to safeguard and improve the health care delivery system for all North Carolinians, especially the most medically needy, the elderly, blind, and disabled.”

The Senate plan “disregards not only months of good faith, collaborative effort, but also a decade and a half of foundation building that includes our nationally recognized Community Care of North Carolina program” that administers Medicaid, Dennis said.

Katherine Restrepo, health and human services policy analyst at the John Locke Foundation, is leery of Accountable Care Organizations because they lack accountability.

“Providers would primarily be responsible for the least costly Medicaid patients. Why should providers be responsible for patients who have no skin in the game?” she said. “No Medicaid reform can truly be effective unless patients bear some form of responsibility.”

Managed care can create conditions for a predictable budget, she said, “but it is not the only solution [necessary] to put a leash on our state’s Cadillac Medicaid program.”

State Rep. Hugh Blackwell, R-Burke, worries that if the provider-led organizations lose money under the ACO plan, the state would be forced onto “the same old treadmill” of seeking state reimbursement for cost overruns.

Blackwell said he prefers a system in which effective competitors flourish and prosper, “and some people who don’t do it economically having to change their manner of operation.”

He disputes that the McCrory plan treats the whole person, as promoted. He said he is concerned that behavioral health remains mostly carved out from physical health.

“It seems to me that those things are connected in the real world,” but have an artificial division in the McCrory plan, which is “more about how we have traditionally done things than it is about reforming the way we provide the services to a model that may make more holistic sense,” Blackwell said.

“A managed care organization is probably better, which is why every single state that surrounds North Carolina uses managed care,” said Jeff Myers, president and CEO of Medicaid Health Plans of America.

Because managed care operators own all financial risk, they have a financial incentive to more aggressively treat and manage a patient’s illness, and try innovative approaches of better quality of care to contain costs, Myers said.

“In an ACO model, you are subject to whatever providers are included in that model. Presumably an ACO model is not going to be a full network like an MCO would be, and therefore the choices of how you can provide that care are limited,” Myers said.

North Carolina’s fee-for-service component pays a doctor for every trip a Medicaid patient makes to the office. Critics say that provides doctors a financial incentive to schedule repeat visits for patients.

“In the fee-for-service model in the ACO model that the governor has proposed, and frankly even the way CCNC works, the idea is by helping people choose the least expensive fee-for-service provider to get their health needs addressed, you would save some money through the process,” Myers said.

But the success of the federal Medicare ACO model already in use “is still up for debate as to whether it’s going to work because it is relatively new,” Myers said. They are nearly all shared-gain, meaning providers get bonuses for performing well, but seldom share the risk for breaking budget.

“Some have actually provided a savings over a year or two-year cycle. Many haven’t, so those would obviously be considered failures,” he said.

State Rep. Verla Insko, D-Orange, is among CCNC’s fiercest supporters, and opposes Senate reform proposals.

“We have a program that works,” Insko said. “All health care costs are going up, but our Medicaid program is going up slower than other states, so it’s not rational” to deconstruct CCNC.

North Carolina did top the nation for slowest average annual Medicaid spending growth in 2007-10 at 3.5 percent, compared to a national average of 6.8 percent, according to data tracked by the Kaiser Family Foundation.

But that brief trend appears to be an outlier for North Carolina. The most recent records show average annual growth in Medicaid spending in North Carolina was the 11th highest among all states from 2010-12 at 6.1 percent.

During that same period the national average was just 3.3 percent. Among Southern states during that period percentage growth rates were: Alabama, 2.9; Arkansas, 2.7; Florida, 1.5; Georgia, 4.6; Louisiana, 2.8; Mississippi, 3.8; Tennessee, 1.6; Texas, 2.0; and Virginia, 3.3. South Carolina saw rates decline by 3.2 percent over that period.

Among all states, North Carolina had the 11th highest average spending growth in 2004-07 (5.5 percent vs. 3.6 nationally), 23rd highest from 2001-04 (9.8, 9.4), and 8th highest from 1990-2001 (14.0, 10.9).

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