A Few More Thoughts on N.C. Medicaid Reform

A few more thoughts expanding on my post last week on the Medicaid reform plan the North Carolina General Assembly passed yesterday:

  • North Carolina will have to get a waiver to implement this policy outline. I call it an outline because there are many details to be resolved before the initial waiver is due per the law (June, 2016); the law is 14 pages long, the waiver will be dozens if not hundreds of pages long.
  • The most likely thing to happen to North Carolina’s Medicaid program as a result of this law is nothing. I figure the passed law is 5% of the work, with 95% of the work to be done in the waiver process.
  • If Medicaid expansion is added as a part of the waiver, there is a chance to get a waiver from this policy outline that could be approved. Without expansion, I don’t think it will get approved.
  • The next President’s administration will almost surely judge the waiver. I am hearing the June, 2016 deadline is for a general outline of the waiver, and not the waiver itself to be submitted to CMS. If that is true, there is no way the Obama Administration will decide on this waiver.

North Carolina Medicaid Reform Bill Moves Ahead

The North Carolina General Assembly released what appears to be the compromise version of Medicaid reform that is poised to become law. It is similar to what was released in early August. Several big points.

  • The big idea is to allow private managed care companies to bid for the right to provide Medicaid services on a statewide basis (a bidding process will yield 3 options; full capitation), while also allowing up to 10 “provider led entities” (PLE) to bid to provide services regionally. On PLE, think big health systems and aggregations of same into new organizations here (Duke, UNC, Carolina’s Health Care, etc). The Senate wanted outside managed care companies to run a privatized Medicaid, the House wanted in-state solutions to move toward full capitated care (Sec 4, pp. 2-3). They have set up a test of the two approaches.
  • They have carved out the so-called “dual eligible” population. This makes sense in policy terms, and is something I suggested in my January, 2014 proposal for Medicaid reform along with a Medicaid expansion (they aren’t doing the expansion part). However, the dual-eligibles are also the most expensive part of the Medicaid program, primarily because they are receiving huge amounts of Long Term Care, most typically in nursing homes. The bill calls for study of how to bring dual eligibles into fully capitated plans in the future (Sec 5(11) p. 6). I don’t expect that to ever come about. Let me put it another way: if there are for profit private managed care companies who are (1) going to go fully at risk for widows in nursing homes with Alzheimer’s disease who are dual eligibles at (2) capitation rates that save North Carolina money, I want to make sure I don’t own their stock.
  • Community Care North Carolina (CCNC) gets a reprieve of sorts. They provide primary care case management and are well thought of nationally and in State, but the Senate has been desperate to get rid of them. Here is a post I wrote about 2 years ago on CCNC and statewide bidding for capitated Medicaid. CCNC can continue providing case management, but the bill imposes a contracted rate cut; they are legislating the outcome of a negotiation (Sec 7, p. 7). My hunch is that CCNC in whole, or in part, will turn up as important in some of the provider networks, most likely the homegrown PLE who will bid regionally.
  • Create a Division of Health Benefits to replace the Division of Medical Assistance, and run this program, with all employees exempt from the State Employee Act rules (Sec 13(e)(g)(1), p 10).
  • The sleeper section that I suspect will be revised. There are some very aggressive transparency provisions, that I applaud conceptually, but Sec 13(e)(9) p.10-11 says that the new Division of Health Benefits will put on their website monthly the number of enrollees by county and eligibility category for Medicaid, and the per member per month spending by category of services (itals mine). If they mean the premium the state pays to the company/PLE, then that is straightforward, but that is not what the text says. This sounds like claims based analyses (actual payments for care that the managed care company pays docs, hospitals, etc). The managed care companies will certainly consider this information to be proprietary. Reading this section makes me wonder if the NCGA really understands what they are passing.
  • The biggest fallacy in the entire bill is that the N.C. General Assembly “is not responsible for cost overruns” and so can wash its hands of future mistakes. This is how the entire enterprise has been messaged; if there are cost overruns then the state is not on the hook financially for them, but the managed care companies or or the Provider Led Entities are. That runs afoul of the provision above (if the companies have to eat the losses, why do they have to show the claims?). The impulse of the section above is that the General Assembly knows that cost if not the only important thing, but the care that North Carolinian’s receive is also important. There are some decent ideas in this bill, some bad ones, and most importantly some missed opportunities (not expanding coverage). However, the residual claimant if it all goes bad is the North Carolina General Assembly–they will never be arms length from Medicaid. It, along with education, tax code and corrections, is the fundamental essence of State Government.

New North Carolina Medicaid reform proposal

The North Carolina Senate released a revised Medicaid reform proposal yesterday, that signals the beginning of the last stages of negotiation with the House. Some highlights:

  • Instead of relying totally on private managed care companies as did the initial Senate proposal, the revised version would also allow so-called “Provider Led Entities (PLE)” also enter into capitated arrangements to cover Medicaid beneficiaries (page 1, lines 27-31).
  • Organizes the state into “at least 5 and no more than 8” regions for the purpose of Medicaid contracting, with each county having to be in one region (p 2, lines 3-5).
  • All Medicaid beneficiaries except for Dual-Eligibles must be a part of the new at-risk, capitated program. Excluding the dual-eligibles is a big deal. They are covered by Medicare and Medicaid, and are among the sickest, most expensive Medicaid beneficiaries, in large part because they are receiving lots of long term care in addition to acute care. Excluding them increases the chances this approach will be reasonably successful. However, the dual-eligibles (many posts) are also the most expensive and difficult group of beneficiaries to care for (p 3, lines 14-16).
  • The proposal insists on 3 statewide contracts between managed care companies and/or PLEs that can deliver the full benefit package in all 100 counties; the bill would allow regional contracts as well for subsets of the state in addition to the 3 statewide contracts. Providing such as expansive benefit package in all 100 counties is a big lift for any MCO and PLE (p 2, lines 15-30).
  • Medicaid beneficiaries will have at least 3 choices for open enrollment, but not more than 5 (3 statewide and up to 2 additional in a given region). The proposal also calls for auto-enroll procedures if someone doesn’t make a choice (p 2, lines 29-31).
  • Medicaid contracting for Medicaid primary care case management with Community Care of North Carolina (CCNC) would end as of April 30, 2016 (p 25, lines 15-44). The goal of the Senate (unlike the House) is to end CCNC, but I wonder if portions of CCNC will become a key part of either a statewide and/or regional PLEs?
  • MCOs or PLEs that bid are forbidden from limiting a providers ability to be a part of another bidders network (p 3, 28-29).

I put forward this white paper for Medicaid reform in North Carolina in January, 2014. I don’t have a problem with moving toward managed care, and explicitly favored allowing both managed care companies and providers (like health systems and the like) to bid for covering patients. I have always been skeptical of the grandiosity of the Republican plans (3 choices of plan in each county, rapid shifting of beneficiaries), and would prefer moving slower in terms of adding Medicaid beneficiaries into a such a system. In fact, I would start with newly insured persons covered by a Medicaid expansion (the NC Senate hasn’t proposed such an expansion), while this bill only moves existing beneficiaries without expanding coverage under the auspices of the available Medicaid expansion. This bill does exempt the dual eligibles by my read, which makes good sense.

Key questions that are floating in my mind.

  • Will BCBS NC bid? What will the State Employees Health Plan do? These two entities are the existing N.C. grown groups with the best chance of pulling off the 100 county coverage required for the statewide contract.
  • Is CCNC dead, or will they emerge as important for either a statewide bid, or more likely some regional bids? They are the existing entity in the State with the most experience of coordinating the care of Medicaid beneficiaries.
  • Will the big health systems throw in together in some type of consortia to fight off the out of state managed care companies? I would guess that yes they will.
  • What is the reform plan for the dual eligibles, the most expensive group of beneficiaries in the health care system?

We will see now what the House says.

update: revised for clarity and fixed a couple of typos

N.C. Hospitals to help finance Medicaid expansion?

North Carolina Gov. Pat McCrory says that he is still exploring options for expanding Medicaid, including having hospitals help finance the 10% of the total cost not covered by the federal government in the out years.

“They would have to have skin in the game to cover the extra 10 percent,” McCrory said.

This comment is the strongest signal I have seen that the Governor is serious about moving ahead, because he has laid down the marker of what the hospitals who so favor expansion will have to give to get it (and they will go along under terms like this).
The simplest mechanism through which the largest hospitals (that are most typically linked to University health care systems) would be via the capping of the North Carolina sales tax exemption granted to Not for Profit organizations in the state. This post from Summer, 2013 notes that around 75% of the value of this tax exemption flowed to hospitals. During the last long session of the North Carolina General Assembly, the hospitals were at odds with the N.C. Chamber over this policy, but the real issue between them was Medicaid expansion. Essentially, they were willing to give up the heretofore unlimited state and local sales tax refund, but only if they got Medicaid expansion in return.
The tax reform passed in 2013 capped the amount of state and local sales tax refund that a Not for Profit organization (hospital, University, small 501 c 3) at $45 Million dollars, which was just above the amount that Duke (combining University and Health System) received in 2014, the biggest in the state (G.S. 105-164.14(b) see page 55).
G.S. 105-164.14(b) – Cap on Refunds for Nonprofit Entities and Hospital Drugs: This subdivision is amended to add “[t]he aggregate annual refund amount allowed an entity under this subsection for a fiscal year may not exceed thirty-one million seven hundred thousand dollars ($31,700,000).” The amount applies to refunds of State tax only. A local aggregate annual cap is added in G.S. 105-467(b) in the amount of thirteen million three hundred thousand dollars ($13,300,000). (Effective July 1, 2014 and applies to purchases made on or after that date; HB 998, s. 3.4.(b), S.L. 13-316.)
So, the General Assembly set a cap in 2013 that didn’t apply to anyone yet. Over time it will start to apply, but there are very few Not for Profit organizations that have more than several hundred thousand dollars of this refund, so dropping the cap well below $45 Million annually will most hit (1) Universities; and (2) large hospitals/health care systems. The 10 or so biggest would essentially pay the way for the rest of the hospitals, and smaller 501 3 c organizations could maintain their state and local sales tax refunds.
Inside baseball for sure, but look for this to be the way that hospitals/health systems and the Universities that own the big ones to be the way they “help pay the state’s cost of Medicaid expansion.”

Stance on Medicaid could cost N.C. $10 Billion

So says a Charlotte Observer/McClatchy analysis that was done in conjunction with Kaiser Family Foundation, the best source of non partisan health policy information around (update: it is actually done with Kaiser Health News, and independent, editorial arm of KFF). They quote me in the story, and here is the plan I put out in January, 2014 to which they refer. Here is a post from last year about the fiscal impacts of States sitting out the Medicaid expansion.

After the 2014 election, the political incentives will begin to align in a way that makes possible a reform plan that will likely include some sort of modified Medicaid expansion in North Carolina.

No Medicaid short session in North Carolina

A few weeks ago, there seemed to be an agreement between the N.C. House and Senate to have a special session on Medicaid reform in late November, 2014. That no longer appears to be the case, unless the Governor called the General Assembly back for a special session, which I believe that he has the ability to do if he so wishes.

I have mixed feelings about this. On the one hand, given all the words that Republicans spilled about Medicaid being messed up, it is astonishing they managed to agree among themselves (they control the House, the Senate and Governorship) about …..nothing. Quite a failure if you take their own words about Medicaid seriously. On the other hand, they didn’t do anything really bad, and there were points during short session that outcome was not inevitable.

Conservatives often say it is good when legislative bodies do nothing. Perhaps that was the best realistic outcome possible for the short legislative session.

Who is covered by Medicaid

Kaiser Family Foundation has a great overview of who is covered by Medicaid, what type of care they need, how much it costs, and how it is financed.


When evaluating any Medicaid reform proposal it is key to get straight how a proposal effects these groups. In the North Carolina Medicaid reform discussions (that are apparently going nowhere fast), some have said they want to move all parts of the program into such arrangements quickly. Generally, I think the largest groups (children + adults constitute three fourths of the beneficiaries) could be moved quickly into managed care because most of their care is acute care (physician, hospital), while I think we need to move more slowly for the elderly and disabled. They are of course the most expensive groups, but that is because they tend to have both acute and long term care needs.

In any event, the most important thing to understand about any Medicaid reform proposal is how it would effect each of these groups.

End of the session Medicaid stuff

The N.C. Senate passed their Medicaid reform last night, and it is virtually identical to what I didn’t like much last week. Things haven’t changed much in terms of the House v the Senate since I wrote this, but they will have to work out some sort of deal over the next week or so on this. They are putting together an omnibus technical correction bill and who knows what ends up in that.

However, sometimes decent things can come about in the middle of the night (did you know that the Medicare hospice benefit and the direct precursor to the current Medicare Advantage program were jammed into TEFRA 1982 at the last minute?). Anyway, let me suggest one thing that might be a good thing to stick in while no one is looking–a technical planning grant under section 1311(a) of the ACA. Regardless of what the honorables decide to do about Medicaid, there will a great need for as much information as possible to guide the development of the new plan, and the ongoing functioning of the health care exchange in our state (~350,000 North Carolinians have private insurance purchased with subsidies).

We initially had such a grant as requested by Governor Perdue, that the Republicans sent back with great fanfare once they took over both Houses of the General Assembly and the Governor’s mansion in January, 2013. We could still get such a grant, but must do so prior to January 1, 2015 (here is sec. 1311(a)(4)(B)*

(B) LIMITATION.—No grant shall be awarded under
this subsection after January 1, 2015.

Republicans can pass anything they want simply by agreeing amongst themselves, but of course that means they also own it a la the Pottery Barn rule. Let me humbly suggest there is some chance that they haven’t thought through their health reform plan as much as they might have, that it will be hard to pull it off if the docs and hospitals are opposed to it, and that it would help us all to have more information and data, and not less.

*Bonus. If you want to impress your friends, the sections in dispute in the court cases this week are sec 1311 and 1321. They are quite short; you can print it out and impress your friends (also sec 1401)

N.C. House v Senate Medicaid proposal

I am not opposed to managed care in Medicaid. In fact, in January 2014, I proposed an approach to both expand insurance coverage and reform Medicaid by using private insurance to cover newly eligible persons via Sec 1331 (Basic Health Plan) of the ACA that would have insurance companies and integrated delivery systems compete for the newly eligible beneificiaries. Down the road, the state could opt to place a large proportion of Medicaid beneficiaires into private insurance.

The move toward capitation throughout the health care system and for payers to insist on improved or at least steady quality per cost is inevitable and generally a necessary and good thing. My problem with the Senate Medicaid proposal is that it is too much, too fast. A few points on the two plans (both of which are quite incomplete because they don’t address expanding insurance coverage, and don’t address other things that I did, like the patient safety/medical malpractice situation and scope of practice laws): Read more of this post

Medicaid Managed Care Across the U.S.

The North Carolina Senate  discussed today a proposal for Medicaid reform that would be the broadest application of managed care in any State nationally. By broad I mean:

  • They want all categories of Medicaid beneficiary (children, adults, aged, blind and disabled–including the dual eligibles) to be a part of managed care
  • Soon: 2016 for those covered by private insurance company plans; 2018 for provider-based plans (think Duke offering a plan for Medicaid beneficiaries in Durham, Granville, Vance and Franklin counties)
  • For the full benefit package, including long term care and specialized services for the long term disabled, behavioral, etc
  • Based on a capitated payment (insurance plans or provider organizations get a fixed amount per month to be responsible for the full benefit package)
  • With the capitation rate set low enough so that North Carolina would spend less on Medicaid than it would under the default system

Actually doing this–putting all Medicaid beneficiaries, under full capitation, for the full benefit package within 2 or 4 years and reducing the state’s Medicaid costs–would amount to the grandest health policy change in U.S. history. And you thought liberals had wild eyed schemes! Read more of this post


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