News: CJ Exclusives

Medicaid Reform Part of Senate Budget Plan

Proposal also would end certificate of need and create separate Medicaid agency

RALEIGH — Senate leaders’ $21.63 billion General Fund budget proposal includes major policy initiatives related to Medicaid, removing responsibility for Medicaid from the state Department of Health and Human Services while creating a Cabinet-level Health Benefits Authority to administer the $14 billion government insurance program for the poor and disabled.

The budget also would eliminate the state’s certificate-of-need laws controlling the expansion and location of medical facilities, and allow more health provider networks to compete for coverage of Medicaid patients.

At the Monday press conference rolling out the Senate budget, Senate Majority Leader Harry Brown, R-Onslow, said the Medicaid proposals are intended to shift a “troubled and over-budgeted Medicaid program towards a patient-focused, cost-minded vision for the program.” Among the goals, Brown said, was creating “a new system that will achieve budget predictability and sustainability to promote competition, and ensure Medicaid recipients receive the best care at the lowest cost to taxpayers.”

The House budget proposal, enacted earlier this month, left Medicaid under the control of DHHS, but senators’ confidence in the bureaucracy to fix its flaws is waning.

The Senate would end certificate of need laws — which require hospitals and doctors to get permission from their competitors and state regulators before opening new facilities, purchasing equipment, or gaining entry into the market — in three phases.

“The first phase will be immediately, the second phase in 2017, and [then] about a year and a half after that we would completely eliminate CON in the state,” said state Sen. Ralph Hise, R-Mitchell, co-chairman of the Senate Appropriations Committee on Health and Human Services.

Gov. Pat McCrory so far has been silent on the Senate budget plan, but in the past he strongly has opposed using budgets to implement policies instead of debating and approving them in a more deliberative process.

“There are some things we need to improve upon,” McCrory said at a news conference after last year’s budget was hammered out. “In future sessions I’m going to continue to express disagreement about policy being put into budgets that have no direct relationship to the budget.”

The Senate Medicaid reform plan would select three operators through a competitive bidding process to establish statewide Medicaid networks. The state also would be divided into six regions, and two provider-led networks would be allowed to set up shop in each region.

Hise expects the majority of regional networks to be driven by hospitals, with some provider-led entities created by physician networks.

“I think the majority of the statewide entities will be done by managed care organizations, although I have heard some interesting things from UNC [Health Care] and others that they are considering doing it statewide,” Hise said.

The House plan, by contrast, allows for only provider-led entities, sometimes called Accountable Care Organizations, and preserves Medicaid as a division of DHHS rather than creating a separate agency to run it.

The House plan would be implemented over a five-year time frame. The more aggressive Senate version would complete the transition in two years. The House version includes a medical loss ratio of 90-10, requiring 90 percent of spending to be on patient services, and 10 percent on administrative costs.

Hise said the Senate plan does not set a medical loss ratio, but includes that as a negotiating point with the House. He said there is some concern about what are included as eligible expenses in the House plan.

The Senate budget increases Medicaid payment rates to primary care physicians by 22 percent and to obstetricians by 26.5 percent to encourage more physicians to accept Medicaid patients, Brown said.

“The lower-cost providers, primary care doctors and OB-GYNs, are the ones that are more difficult to recruit into those networks, and we think getting those rates up consistent with Medicare rates puts us in a much better position to recruit them into the network,” Hise said.

Having greater choice and doctor access is vital in getting a federal plan waiver that is essential before moving to a new system, he said.

The plan would encourage greater use of preventive care, reduce unnecessary emergency room costs, and build a stronger health care information exchange to increase access to critical information that helps doctors and hospitals create better tools for improving health outcomes, Brown said.

“It prevents monopolies and allows low-cost, high-quality health care providers to compete in an open market by responsibly phasing out the outdated and failed certificate of need [CON] system by 2019,” Brown said. The House budget does not tackle that thorny issue, which viscerally divides doctors and hospitals.

“We have not seen the detailed budget yet,” said Julie Henry, spokeswoman for the North Carolina Hospital Association. “We are waiting for the bill to be released.”

She said her organization supports “keeping the current CON law, and we join other Medicaid care providers in supporting provider-led Medicaid reform rather than HMOs,” which is another acronym for Managed Care Organizations.

The North Carolina Medical Society, which represents physicians, did not respond to a request for comment on the Senate budget provisions.

Hise said the Senate has “a more stable plan” than the House because it offers consumers more choices, a condition federal regulators look for when approving any Medicaid reform provisions.

“We’re not picking one type of provider and saying you will be the only provider-led entities that we have in the state,” he said.

The Senate plan would eliminate in two years the fee-for-service system now in operation, under which health care providers get paid for every patient visit.

In its place would be a model, starting Aug. 1, 2017, in which providers would be paid a set fee each month for each patient. The organizations operating Medicaid plans would be responsible for meeting budgets set by the General Assembly and paying cost overruns now assumed by state taxpayers.

Hise said lawmakers are still unable to get updated budget numbers from DHHS as the fiscal year approaches its June 30 conclusion. He does not know whether Medicaid will exceed its budget again this year.

“I’m always waiting. It would actually be the exception” for spending to meet budgeted levels, he said.

The Senate budget sets aside $371 million to shift the Medicaid program to the new authority.

There are also start-up costs of $5 million each year of the two-year cycle to launch the board, hire initial staff, hire lawyers, and prepare a waiver application to the federal government, Hise said. He said matching federal funds would cover an additional $5 million annually.

“You will see a lot of simplification of what is needed for NCTracks as we move to the new system,” Hise said of the troubled DHHS computer billing system. Switching to a per-member-per-month payment would reduce much of the coding needed to process claims and payments.

“It will be the responsibility of the Health Information Exchange at that point, which we also fund in this budget, that will provide the Benefits Authority with the clinical information so we can look at what’s actually occurring with the patients, and not rely on the billing system,” Hise said.

All Medicaid providers eventually would be linked into the exchange to make patient data more universally accessible.

Hise said Medicaid expansion under Obamacare is “absolutely not” in the budget.

“Medicaid is doing an exceptional job of growing all on its own without us jumping on that bandwagon,” he said. “Overall Medicaid growth in this budget is still almost 8 percent,” or about $300 million year-over-year.

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