N.C.’s nascent Medicaid reform plan-II-Who is covered by Medicaid?

This is the second post in a series on North Carolina’s nascent Medicaid reform, Partnership for a Healthy North Carolina. The first post is here which you should read first. I am skeptical of the plan, but am granting the benefit of the doubt and trying to work through some key issues and asking questions about it in the hopes of helping to move Medicaid reform ahead.

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The most important thing to understand about Medicaid is that it is not one monolithic program. Instead, it is an insurance program for persons across the life course, with very different needs, but who share the common circumstance of finding their income to be below a given line and/or having health circumstances that make them eligible. The table below illustrates the primary “types” of persons covered by Medicaid in North Carolina (all data comes from the Kaiser Family Foundation web pages on Medicaid; an incredible resource).

• 27% of the beneficiaries are aged (65 or older, and also covered by Medicare; so-called dual eligibles) or disabled persons. Together they account for 63% of the Medicaid expenditures in North Carolina, while children and adults represent nearly 3 in 4 beneficiaries, but account for 37% of the program expenditures.
• The per capita costs differ a great deal: the 309,000 Disabled beneficiaries shown above had per capita costs ($16,050),  5 times greater than did the 960,000 children ($2,796).
• Bottom line: children and adults are numerous in Medicaid; the dual eligibles and disabled are expensive.

Why are the per capita costs so much higher for the elderly dual eligible and disabled Medicaid beneficiaries? The vast majority of the care received by children and adults is acute care services (physician, prescriptions, labs & xray, hospital, etc) while for the dual eligibles and disabled, the costs include long term care services in addition to acute care services. The table below provides a broad overview of the distribution of long term care spending in North Carolina’s Medicaid program in FY 2010.

Long term care includes home and community based services as well as institutional care. Nursing facilities above are nursing homes, ICF-ID is institutional/facility care for the intellectually disabled, many of whom will be Medicaid beneficiaries for decades, and home health and personal care covers a broad range of services including traditional home health for things like wound care, targeted case management to address complex problems, hospice care for those near the end of life, and custodial home health for the disabled elderly (visits to help address of Activities of Daily Living, designed to keep them out of nursing  homes).

Children and adult Medicaid beneficiaries are often eligible for a period of time and then move out of coverage, perhaps if they get a job that provides insurance, for example. On the other hand, dual eligible and disabled beneficiaries are much more likely to be persistently eligible for Medicaid, until death.

A reminder that the goal of the Partnership for a Healthy North Carolina is to have 3 or 4 private entities compete to provide this full Medicaid benefit package in all 100 North Carolina counties. To make a significant dent in the cost profile of our Medicaid program, that means you have to address costs of the dual eligibles and the disabled, which further means taking on long term care which includes a vast array of services for people with persistent and profound health and social problems that are not likely to improve. Further, many of these beneficiaries are unable to make decisions for themselves for reasons of intellectual disability or having dementia, for example. This makes the notion of consumer choice driving the system indirect at best for some of the most expensive beneficiaries.

I believe that finding private entities who are willing to bid to guarantee this full benefit package on an at risk basis in a manner that will reduce the rate of Medicaid spending growth, or actually reduce expenditures will be very hard. There is a very strong likelihood, in my opinion, that North Carolina may throw an insurance competition party in Medicaid, and no one will come. Convince me otherwise!

More details in the next post.

The logic behind N.C.’s nascent Medicaid reform plan-I

I am skeptical about the nascent Partnership for a Healthy North Carolina being feasible, but am going to grant the benefit of the doubt and write a series of posts laying out how it could work, along with questions/doubts that I have that supporters could answer to convince me. To be clear, I don’t doubt we need reform, I doubt this can work. I just provide questions and some general logic in this post; later posts will add numbers.

First, here is what I understand to be the big picture goals/parameters of the plan:

• Provide the current Medicaid benefit package in a manner such that care can be accessed in any of North Carolina’s 100 counties. Reduction of benefits is explicitly not the key goal, while the ability to access the benefit package anywhere in the state is key. The Medicaid benefit package spans pre natal care to dementia care in a Skilled Nursing Facility.
• Have the benefits delivered by a private entity that will bid for the right to offer this benefit package throughout North Carolina. I think this could be done by a not-for-profit or a for-profit entity. There has been lots of discussion of this point and clarity is needed. Regardless, these entities will be “at risk’ meaning that if there are cost overruns they will lose money; taxpayers will not be on the hook for overruns.
• The key aspect of the plan is that the private entities will compete for the business of Medicaid beneficiaries, presumably via developing superior networks of services (benefits are uniform). The notion is that price will do down, while quality will go up, due to the private entities competing for the business of Medicaid beneficiaries.
• I have heard it said there will be 3-4 choices of entities offered, each meeting the stipulations above.
• A key goal is the integration of benefits, with special mention of problems with the mental health/substance abuse parts of the system. A key aspiration is to treat “the whole person” in the reform.

I will work through several more bulleted thoughts and points. Again, if I am wrong somewhere about what is intended, let me know. I am doing the best I can to integrate this overview with public statements that have been made.

• What will the capitalization requirements be for these entities? It will require substantial capitalization (money in the bank) for an entity to be responsible for delivering the full Medicaid benefit package statewide. Presumably the Department of Insurance will have to ensure compliance?
• Will this be an insurance-only model? For example, Blue Cross Blue Shield N.C. is by far the largest insurer in North Carolina and would be an obvious entity. This model would be they as insurance company that has created a virtual organization (insurance plus delivery system) via a system of contracts stipulating how much they would pay providers (doctors, hospitals, nursing homes, etc.).
• Could the The State Employees Health Plan be an entity? They probably have the closest thing to the geographical and clinical span being discussed in North Carolina? (but they don’t have the long stay Nursing Home part; more on that below)
• Or would something akin to a Social HMO whereby the insurance and provision function would be joined? In my understanding of this option, providers would be sole-source, meaning they would only deliver services for one entity and not others. I think this precludes this option in the sense that there is no way to provide sole source provision of the full Medicaid benefit statewide. Perhaps a hybrid is imaginable: lets say UNC becomes an ‘entity’ and does a sole source provision arrangement for beneficiaries in some counties, but then has a series of contracts for those in other counties. Is this ok? Can UNC then provide hospital services to another entity under contract?
• Could CCNC be an entity? I say this mainly because one of the reflexive push backs has been ‘what about Community Care North Carolina (CCNC)?’ I will provide what I think to be the answer. Of course CCNC could be an entity if they (1) obtain the required capitalization; (2) can deliver the full benefit package in all 100 counties. This demonstrates how grand this vision actually is. CCNC is basically an integrated primary care delivery organization for Medicaid and Medicare beneficiaries (and the uninsured). I think of it as managed care for the primary care portion of Medicaid. So, managed care is old news in North Carolina, but the span of what is being discussed in terms of benefits and geography is was is new. CCNC does not now have, but would have to develop to become an entity: (1) hospital contracts; (2) contracts specialized mental health and disability services that they would now refer out to, but which they have not had to arrange payment details or disperse the money; (3) nursing home contracts. etc.
• For the risk stratification aspect of the plan (goal is to not allow cherry picking of the healthiest beneficiaries), will the goal be to equalize up front, meaning tie more money (per member per month) to a given patients enrollment that will follow them? Or will the approach be to ‘balance out’ adverse selection after the fact? I am not sure what is envisioned.
• For Nursing Home care, do you envision NHs to become sole source providers to a given entity? Or could all entities involved potentially have a contract in the same NH?  In some areas there may be enough NH supply to imagine a NH becoming a provider for entity 1 only. In others, doing so might ensure empty beds. Will entities seek to negotiate prices in each county in the state? Will they be spot prices, based on supply and demand on a given day, or locked in? I was in a series of NHs last week in an Eastern North Carolina county, and visited 3. 2 had not empty beds, while 1 did have an empty bed. Guess which one you would pick if you needed a transfer that day? If you are a World War II movie buff, trying to bid out skilled nursing care for the long term disabled and/or the dual eligibles seems ‘A Bridge Too Far’. I am open to being convinced.

I will follow up with posts that look closely at who is covered by Medicaid and what that means for reform, as well as the incentives for some of the big players in North Carolina as they decide whether to participate in this nascent Medicaid reform.

Medicaid Meeting in Durham

North Carolina HHS Secretary Wos and Medicaid Director Steckel have been giving interviews and traveling around the state talking about the nascent Medicaid reform plan that Gov McCrory calls the Partnership for a Healthy North Carolina (this 11 slide presentation is the only written overview I have). The details of the plan are somewhat unclear, but the goals are fairly grand: they want private ‘entities’ to compete to deliver the full Medicaid benefit package in every county in the State. In doing so, they want to ensure the ‘whole person’ is treated, with special emphasis on integrating mental with physical health.

There is a good bit of political momentum behind the nascent plan, as Speaker of the House Tillis and President of the Senate Berger joined the Governor in pledging to move ahead with this direction. However, there is more political agreement that something called the Partnership for a Healthy North Carolina will be done, than there are details of exactly what shape the plan will take.

I think any fair observer would have to note than than sales pitch has been rocky so far. On May 10 in Reidsville, Sec. Wos said that the State Health Insurance Commissioner was the one who decided that N.C. would not expand Medicaid; this of course is not true. The N.C. House and Senate passed a bill declining that the Governor signed, and he stated clearly from the beginning of his term in January that he was not ready to move ahead with expansion because Medicaid was ‘broken.’

Did Secretary Wos just say this to survive a tough moment in the public hearing (she was being pressed about N.C. not expanding Medicaid; here is the audio of the snippet)?  Or did she not really understand what had happened with N.C. rejecting the Medicaid expansion? Neither explanation is particularly reassuring.

I attended the public meeting May 15, in Durham (~200 people)  and there were two sentiments that got rapturous applause:

• That North Carolina should undertake the expansion available under the ACA while improving the system
• That North Carolina should not privatize Medicaid via 3-4 ‘entities’ and instead should build from the success of Community Care of North Carolina (which is really an integrated primary care network that cares for Medicaid beneficiaries)

To say there was and is broad skepticism about the direction to which the Governor and now the leadership of the House and Senate have committed is a polite understatement. And to a person, the skeptics know that health reform in Medicaid and otherwise is ongoing and will likely never be done.

I will blog through some specific thoughts and concerns I have about this nascent plan over the next few weeks.

Saving money while improving quality of life

I have a post in the Health Affairs Blog titled “Saving Money While Providing Benefit in Medicare: A Standard Applied Only to Hospice.” Go and read it.

Here is a tag to many posts I have written on similar hospice policy themes if you want more.

The counterfactual in long term care

I was looking at assisted living facilities for my grandmother yesterday and then beginning to navigate the ongoing family discussion about what is best for her (age 89; she still lives alone but has been hospitalized 5 times in recent months) and my mother (age 70), who is increasingly feeling unable to navigate the current situation. There are of course many other people involved: my sister (who lives near both my grandmother and my mother), my step dad, and my uncle who lives about 50 miles from my grandmother. I have become “expert” at assessing such facilities, and have devoted a great deal of my finite creativity over the past 18 months to navigating complicated family long term care situations. I put expert in quotes, because for all that I know about long term care, mixed now with personal experience, it is a truly difficult decision to decide what is best. In large part, this is because there are so many people involved and affected, along with the existence of many sources of uncertainty.

One thing has become clear

• most people reflexively compare the (truly) high cost of something like assisted living to a cost of zero. “Oh my goodness, that is expensive!” is a correct statement, but it wrongly implies that the default, or current arrangement has a cost of zero.

The costs of the current living/long term care arrangement for my grandmother or anyone else can be difficult to estimate

• explicit costs such as paying for walkers, home modifications and paying helpers is straightforward
• implicit costs to caregivers are harder to estimate: the value of time, missed work, worry/anxiety/depression, feeling like you cannot travel, other health impacts, etc.

There are benefits of caregiving, such as connection with loved ones and of course the preferences of my grandmother are important. All of the costs and benefits must be netted out to make a decision. As with the societal level decision of what to do about long term care, having straight the counterfactual is the first step to making the best decision you can.

Scholarships and financial aid

My oldest child is going to be a frosh at American University in the Fall; she wanted to go to school in NY City or DC and is thrilled. We visited many schools, and it was fascinating for me to tag along and watch schools pitch students and families because I spent five years directing the Benjamin N. Duke Scholarship* at Duke–so was very much used to pitching Duke to students with many good options.

Several things became clearer about the opaque nature of college admissions and financial aid/scholarships for me while watching/assisting my daughter navigate these choices.

Universities offered my daughter extremely divergent amounts of scholarships, both merit awards offered via specified competitions (based on a weekend of interviews, etc), as well as money offered under the guise of a variety of names granted outside of an overt scholarship competition, and communicated at the same time that need based aid was denied. Lesson: apply for financial aid even if you know you will be denied.

Duke has a tuition benefit that has a fairly complicated structure but that roughly makes an expensive private University cost $30,000 instead of $60,000 +/-$5,000 depending on tuition versus room and board costs at a given school. This means that a University offering a scholarship simply replaces Duke’s tuition benefit up to its maximum amount. In two cases, my daughter was offered more money than the benefit, which would let me not “use” the benefit and save it for my other two kids (the Duke benefit is limited to two children). One University explicitly discussed this with me (wanting to know how much aid it would take for her to attend sans Duke’s benefit, thus saving it for one of my other kids). Lesson: talk to the financial aid folks at schools.

Back to the other side of the table, I had lunch today with a B.N. Duke scholar that I recruited to Duke several years back. S/he was picking between Duke, Princeton and Harvard. Upon being offered the B.N. Duke, this was communicated by the family to the other schools who upped the financial aid amounts offered (they do not have ‘merit’ scholarships). However, there were limits to what they offered (my experience is that this sort of ‘counter’ depends on the school and how bad they want the student), so the family was faced with a cost of very near zero to attend Duke versus lets say half price at the others (~$120,000 over four years). This family had income in the $150,00-$175,000 AGI territory, and lets say an underwater mortgage on their house. This is precisely the family income range/financial situation at which a scholarship like the B.N. Duke has the maximal recruitment effect.

Lets imagine a different student with family AGI of $40,000 who wins a B.N. Duke. They are going to be getting full financial aid from Harvard and Princeton and everywhere (including Duke, even without a B.N. Duke) if they are the type of kid who wins a B.N. Duke. In such a case, the recruitment effect of the B.N. Duke (or any other scholarship) is greatly reduced for a family with relatively low income; they are going to go to college gratis anywhere they want; they may pick Duke, but it won’t be because of money. And Harvard reports that its yield is 82%; that means Duke has a less than 1 in 5 chance of yielding a kid who is also admitted to Harvard if Duke is average against Harvard. The student I lunched with today came to Duke because of the scholarship (and is thrilled with, and has thrived at Duke).

One of the knocks on merit based aid is that it mostly provides money to families that don’t need the help as much as others. I basically agree and it has been proven to be correct in my experience. However, Universities are responding to incentives by using merit aid to recruit students who otherwise would be less likely to attend. And the maximum impact can be brought to bear on families just above the financial aid cut offs (~$150,000-$200,000) for places like Harvard, Princeton, etc.

Since the B.N. Duke is for kids from North and South Carolina only, we are able to recruit the parents directly as well, since most of them brought their child to campus for a scholarship weekend and we hosted them for dinner. Having a personal connection with the parents is a big advantage that the other scholarships at Duke don’t have (because the students come from all over the world, typically). Hence, the B.N. Duke could be expected to have a higher yield that the other Duke scholarships, which is borne out in most years.

In the end, if you want to provide more money to students based on financial need, that argues for a place like Duke to get rid of merit aid and put it all in needs-based pots of money. However, if you want to recruit kids away from Harvard, merit aid targeted towards families in the $150,000-$200,000 income level is the way to go. A merit scholarship is a surprisingly difficult way to recruit a top student from a low income family to a place like Duke.

*These are my personal thoughts and don’t reflect those of others at the University, or in the scholarship program(s).

Comparing charges & payments at UNC, Duke and Wake Med

CMS last night released 2011 data on the charges and payments for the 50 most common hospital discharges for every hospital in the USA (Aaron McKethan put me onto this via twitter @A_McKethan). A quick primer and then selected comparisons for UNC, Duke and Wake Med hospitals.

• Charges are a fantasy amount that no third party insurance company would ever pay. However, the uninsured might pay this amount (they would often be ‘charged’ this amount and go bankrupt trying).
• Payments are the amount that is actually paid for care (in the data released it is combined amount paid by Medicare, other insurers, and patients).
• Cost is a truly elusive concept in health care, but hospitals of course have systems that state their costs (and likely have many versions depending upon what is included).

Payments are sometimes greater than costs, but in other cases less; this differs by type of care and payer. And of course it depends upon what measure of cost you might use (does it include capital financing costs? If you build a new Cancer hospital, how broadly are those costs apportioned, etc.). Note that no data on costs was released. Charges and payments are an imperfect means of saying something about costs.

The table below compares the charges (fantasy) with the total payments received (actual money changing hands) by UNC, Duke and Wake Med hospitals (Duke and UNC are ~ 8 miles apart, and Wake Med is about 20 miles from each) for 3 DRGs in which I have some interest and which Aaron McKethan was tweeting (280=Heart Attack; 292 Heart Failure & shock; 638 = Diabetes; note that there are other codes relevant to these conditions, I just picked 3; this is based on my analysis).

Several points:

• You cannot easily perform a significance test on the differences here because we don’t know the standard deviation or standard error of the total payments (is Wake Med’s $5,844 in total payments significantly different from Duke’s $8,267 on DRG 638)? And the sample sizes are fairly small. You could make some assumptions, but I haven’t done that.
• The spread on total payments is much less than on charges. Payments are a more meaningful number because it includes what Medicare actually paid to these hospitals and what patients paid OOP along with what other insurers (like private Medigap, employer provided retiree gap plans, or Medicaid) paid in the way of co-pays/deductibles.
• Why do hospitals bother to greatly inflate charges if they are a fantasy in the sense that no third party payer (other than the uninsured) would ever possibly pay them? Charges are likely a starting point for negotiations with private insurers for one thing, and having high charges also allows hospitals to estimate a larger value of charity care most likely.
• Were charges ever important? You betcha. In the ‘good ole days’ (from a hospital bottom line perspective, think late 60s-70s) Medicare paid hospitals on the basis of Usual, Customary and Reasonable (UCR) charges. This was essentially cartel pricing whereby the few sellers (think 3 hospitals in an area) had every incentive to elevate charges since they were typically paid a percentage of this by Medicare and private insurance.
• In the 1980s, Medicare began paying on the basis of prospective payment (average amount based on diagnosis plus adjustments for teaching, DSH payments for caring for the uninsured, capital expenses, etc. and so the rank ordering of private as highest and Medicare below was generally locked into place.
• Charges may/must have some impact on amount paid for care by different payers, but how is unclear. For example, UNC has explicit policies for the uninsured, but as you can see the discount is based on charges; so charges aren’t irrelevant.
• The real question is whether any differences in the amount paid to hospitals are related to quality? That is what we need to get after and it will be hard for both technical and political reasons.
  The ACA nudges us in that direction.
• I could imagine someone reasonably saying that the teaching mission of a hospital is a societal benefit that might not improve quality (could be the opposite). This would argue for more explicit support of this mission and not burying the indirect medical education support in each payment as is now done (there are also direct subsidies to medical schools/hospitals). Note all three of the above hospitals have a teaching mission.
• Any hospital administrator will answer when being questioned about anything related to charges/payments/costs: but we have to care for the uninsured. There is some true amount of cost shifting, that is likely smaller than many think. Expanding insurance coverage is also important for doing away with what you might think of as “the negotiating impact” of the uninsured; when hospitals answer most any question about charges/payments/costs by saying “but the uninsured”. I believe this is more consequential than actual cost shifting.
• I don’t think the release of this data is “a game changer” but I do think that it will serve to increase awareness among the public (along with this Time piece) about the opaque nature of hospital prices, and the word jumble that is charges, payments and costs.