NC Medicaid Reform, Explained

>>Politicians in Raleigh have been talking about reforming Medicaid for years. Governor McCrory came into office talking about our “ >>broken ” Medicaid system. Legislators wanted change; they just couldn’t agree on what it should be.

This session, “reform” finally became reality. Legislators passed a >>bill transforming North Carolina’s Medicaid system from a “fee for service” model where doctors are paid per procedure to a “managed care” model where a certain amount is paid per patient.

The reform plan creates two tiers of insurers for Medicaid patients. The first tier is made up of as many as ten local provider-led entities (PLEs), which are operated by groups of doctors, hospitals and others, to provide services regionally. The second tier will include three organizations that provide services to Medicaid patients statewide. Most likely national, for-profit managed care companies will fill these slots. The PLEs are able to bid for one of those slots as well, but they are likely to be priced out by the national companies.

The General Assembly also made some major changes to >>the agency that oversees Medicaid in North Carolina . The legislation creates a new division at the Department of Health and Human Services (DHHS) to administer Medicaid – the Division of Health Benefits. The Division of Medical Assistance (DMA), which currently serves that function, will be eliminated no later than twelve months after the new managed care system is in place. Here’s the kicker – employees of the new division will not be covered by the state personnel act, which provides hiring, firing and other protections.

The legislation changing Medicaid is very complex and many of the details will be ironed out in implementation so there are still many unanswered questions. Most expect that changes will not be in place for three or four years. Here’s a rundown of some of the lingering questions and the answers that are available.

Why will the process take so long?

To change Medicaid, North Carolina will have to apply for a waiver from the federal government, which pays two-thirds of the costs for the $13 billion program. That process in itself is lengthy and complicated. DHHS must also solicit and process proposals for the insurers that will provide services both statewide and regionally.

What happens to CCNC?

Community Care of North Carolina (CCNC) currently provides services to the majority of North Carolina’s Medicaid recipients. It has been lauded nationally for its innovative care management processes that reduce costs over the long term. In fact, a report by the >>State Auditor recently showed that CCNC generates a three-to-one return on investment for the State, with every dollar invested in the nonprofit CCNC program generating over $3 in savings for the state.

The legislation keeps CCNC in place during the transition to managed care. There may very well be a role for the organization to play in the new system, especially given its expertise, extensive networks and experience.

What will this mean for patients?

In the short-term, the changes won’t mean much for patients. With the continuation of CCNC, patients should continue to see the same kind of care and processes they are used to.

What patients will experience under the managed care system remains to be seen. DHHS is tasked with developing a system to assign Medicaid recipients to an organization (a PLE or a managed care organization) to receive services. We don’t yet know what those networks will look like and if patients will be able to keep their current doctors. Much of that depends on where doctors choose to participate – or if they chose to opt out of the system entirely. For the 1.5 million North Carolinians who receive services through Medicaid there is a great deal of uncertainty.

Will the changes contain costs?

The driver behind reform was a desire on the part of legislators – and the Governor – to both reduce Medicaid spending and to create budget predictability. The Medicaid budget makes up about 20 percent of the entire state budget, and legislators wanted those funds for other priorities. Unrealistic budgeting over time and other factors also created cost overruns in recent years that legislators wanted to avoid in the future.

However, it is a huge unknown whether the reform effort will create the cost savings or the predictability envisioned. There will definitely be up-front costs. The just-passed state budget includes $225 million over two years in additional funding to reform the Medicaid program.

While managed care companies have been touted as bringing stability to the program, other states have not had that experience. >>Florida , for instance, continues to see costs rise under managed care and recently approved a 7.7 percent increase for the companies providing care in that state, when the national health care inflation average is just under 4 percent.

Any savings achieved through managed care will be unclear until contracts are developed, and long-term costs will also depend on the level of preventive care and quality care that patients receive.

The long and short of Medicaid reform is that there is still a lot that we just don’t know. We should continue to watch as implementation unfolds and to do our part to ensure that the focus remains on those who need and deserve quality care under Medicaid – the parents, the children, the elderly and the disabled.