News: CJ Exclusives

State Wrestles With Medicaid Costs, Solutions

CCNC, held up as model for nation, generates skepticism

As North Carolina continues to shift most of its Medicaid recipients into its showcase Community Care of North Carolina program, some say the centralized system needs free-market reforms to avoid chronic and costly budget overruns.

But state lawmakers have little interest in embracing the full-risk, managed care programs used in other states. Health care provider organizations also oppose tinkering with a CCNC plan they say has improved patient outcomes while reimbursing them at higher rates than the national average.

The debate mirrors arguments in other states that are seeking, with limited success, to constrain spending on Medicaid, the program that provides health care to the poor and disabled. CCNC often is cited as a model that works.

“There is no silver bullet” that addresses all Medicaid challenges in every state, said Rep. Nelson Dollar, R-Wake, who chairs the Joint Legislative Oversight Committee on Health and Human Services. But he is optimistic about North Carolina.

“We have found the solution. What we are working on now is maximizing better ways of what can be done with CCNC, what sort of innovations, what sort of additional programs” can be added to the nationally recognized plan, Dollar said.

Despite that praise, Medicaid spent $200 million more three years ago than lawmakers allocated in their initial budget and about $600 million too much two years ago. In the budget year ending June 30, Medicaid had a budget of $14.2 billion but still amassed a deficit of $375.4 million, said State Budget Director Andy Willis.

Craigan Gray, director of the Medicaid program, was fired in June after failing to curb the deficits.

CCNC is a nonprofit management organization with 14 regional networks around the state. The state paid the company $7.2 million to manage the program in the 2010 fiscal year, the most recent period for which it filed a financial report with the IRS.

The CCNC model is described either as a primary care case management program or an enhanced, coordinated fee-for-service program.

It assigns patients to a “medical home” — a primary care physician whose services are paid by the state at 95 percent of the national Medicare reimbursement average. At that rate, doctors receive 127 percent of the national average for Medicaid reimbursement, and physicians also receive a separate fee per patient, per month.

The medical home goal is to provide regular care with the hope of avoiding high-cost emergency room visits and hospital admissions.

A full-risk managed care model also may include options similar to a medical home. But managed care is capitated, meaning the state negotiates a set price with each provider. If medical costs exceed the capitated rate, the management companies absorb the additional costs. They risk losing future state contracts if they perform badly on quality or cost.

By contrast, under CCNC, budget overruns are passed on to the state. That is a major problem, supporters of the full-risk model say.

“If you don’t have the risks, and all I’m doing is spending your money, why would I worry how much money I spent?” Mark Trail, former Medicaid director for the state of Georgia, said of CCNC and similar programs that are not built around market-oriented incentives.

“Until you align incentives to make that matter, especially in a financial kind of way, you’re not likely to get much different [results],” Trail said.

But North Carolina’s system has passionate defenders.

“CCNC is a free-market intervention, but is readily distinguished from the managed care model in that it strikes at the cost and quality problems in a fundamentally different way,” said Robert Seligson, executive vice president and CEO of the North Carolina Medical Association.

Like managed care, CCNC looks at financial performance data to identify potential cost-saving strategies, Seligson said.

But it also implements strategies at the provider level that “are clinically driven, and make use of clinical expertise that is seriously lacking in traditional managed care models,” Seligson said.

“Our feeling is this: A lot of the things that full-risk managed care will say it can do to reduce Medicaid costs are already being done though CCNC,” said Don Dalton, vice president of public relations at the North Carolina Hospital Association.

“I’m not really sure why it makes a difference who runs Medicaid” if quality care is delivered, budgets are met, and savings are realized, said Christie Herrera, vice president of policy at the Foundation for Government Accountability, a free-market think tank in Naples, Fla. State-run plans also have high overhead costs, but “are able to hide their costs more” than full-risk managed care providers, she said.

Empowering patients to make their own choices among competing plans reduces the political power of entrenched advocacy groups, she said. As an example, she cited a five-county pilot program in Florida that has saved $118 million annually.

CCNC savings cited

“Since the inception of CCNC, we saved state and federal funds in excess of $1 billion, and those figures are verified by a couple of reports that had been done,” Dollar said.

“We expect in [the current] two-year period of the budget to have achieved around more than $600 million in federal and state savings to the Medicaid program,” he said.

But in a peer-reviewed article in the August edition of The American Journal of Managed Care, Al Lewis, a health care consultant and founder and president of Disease Management Purchasing Consortium, challenged claims that CCNC cuts costs.

Lewis has written a book, Why Nobody Believes the Numbers, published in late June. One chapter of the book blistered three state-ordered evaluations for claiming what he called impossible savings.

“At this point it would be easier to conclude that North Carolina lost money than that the state saved $300 million in 2006 alone, let alone a [projected 2009] rate of either $681 million or almost $1 billion/year today, depending on which stud[ies] you want to believe,” Lewis wrote in his book.

Lewis also reported that one of the consultants “claimed about $250 million in savings in children’s inpatient admissions, but HCUP [a federal database using state-supplied numbers] says the state only had $114 million in those admissions during the year of 2006, so it would have been impossible to save $250 million in 2009.”

“That book that came out, I put no stock in that,” Dollar said. “I don’t see that that author had the depth of analysis. It seemed to be more throwing slings and arrows as opposed to any sort of real objective analysis.”

Dan Way is an associate editor of Carolina Journal.