McCrory administration retreats from Medicaid privatization

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North Carolina can conservatively expect to save $100 million by putting accountable care organizations in charge of Medicaid spending — a fraction of the $14 billion cost of the program, and about a quarter of the size of recurring annual overages — according to a consultant hired by the state to recommend reform measures.

Bob Atlas, a private consultant hired to help guide the state through a Medicaid reform process championed by Gov. Pat McCrory, characterized the figure as “a calculation off the back an envelope.”

The proposal for reining in Medicaid costs unveiled during a Medicaid Reform Advisory Group meeting on Wednesday in Raleigh represents a significant retreat from initial plans by Gov. Pat McCrory privatize a system through one or a small number of managed care organizations. Under the proposal developed by Atlas, the state would shift some financial risk to accountable-care organizations, which would share in savings and losses.

“Today, the state is solely at risk for Medicaid overruns,” Atlas said, “and tomorrow providers will be rewarded for cost savings.”

The proposal was greeted enthusiastically by the NC Medical Society, which represents physicians across the state.

“We applaud the governor’s team for its willingness to embrace new approaches to Medicaid reform and believe those changes, rather than the traditional managed-care models of the past, are in the best interest of all North Carolinians,” Dr. Robert W. Seligson, executive vice president of the medical society, said in a prepared statement. “We look forward to working closely with the governor, Department of Health and Human Services and General Assembly to implement meaningful Medicaid reform in 2014.”

In January 2013, McCrory cited an audit by state Auditor Beth Wood as the basis for Medicaid reform to contain costs and address administrative oversight. The audit also found that North Carolina spends more on administration of Medicaid than other states, but the nonpartisan Fiscal Research Division of the General Assembly has contradicted that claim with analysis indicating that North Carolina compares favorably to other states.

Atlas’ remarks suggested the reform effort is unlikely to bring about the budget savings hoped for by the McCrory administration.

“For the past several years we’ve had some pretty significant overruns in Medicaid that affected our budget,” said Sen. Louis Pate, a Republican from Mount Olive who represents the NC Senate on the advisory group. “I think we’re looking for budget stability. It looks like we’re looking several years down the road before this plan would bring us to that.”

Rep. Nelson Dollar, a Wake County Republican who represents the NC House on the advisory group, cast doubt on the notion that rising healthcare costs were responsible for the overruns that have plagued the Medicaid program.

“Those huge amounts of money were not driven by substantial increases in billing by providers,” Dollar said. “Those are the ones that were the product of, in some cases, payments that were owed to the federal government for past cost overruns that were, frankly, the fault of the state, and other mistakes that were made that required substantial payments back to the federal government.

“There were other areas where frankly it had to do with how quickly or not so quickly the federal government approves state plan amendments,” the lawmaker added. “Maybe those of us in the General Assembly were a little overly ambitious in the timetables that we were looking at.”

The advisory group, chaired by retired Cone Health CEO Dennis Barry of Greensboro, gave mixed reviews to the proposal crafted by Atlas and the NC Department of Health and Human Services.

Peggy Terhune, CEO of Monarch and one of McCrory’s three appointees to the advisory group, singled out Health and Human Services Secretary Dr. Aldona Wos for praise, saying she believes the department head will be able to maintain the coherence of reform efforts.

“The devil’s in the details,” Terhune said. “What I don’t want to happen is that we have so many people involved that it gets watered down.”

The department is on a tight timetable to submit final plan to the advisory group, before it is forwarded to the General Assembly. Mardy Peel, an advisor to Wos, told Barry that the plan will be withheld from the public while under review by the advisory group, and only released when it is handed off to the legislature.

Dollar expressed reservations about the reform effort, particularly a recommendation to consider shifting long-term services and supports — a program that benefits seniors who live in adult care homes — to a model that requires private providers to assume more financial risk.

“You’ve got a very fragile industry there,” Dollar said. “We don’t need to introduce more uncertainty. My opinion is that everything there needs to be allowed to settle down.”

The department is recommending more gradual changes for long-term services and supports than for physical health services covered by Medicaid.

The department wants to bring accountable care organizations on line to coordinate patient care for physical health by July 2015, with 80 percent of the Medicaid population covered by 2018. The proposal under consideration carves out an exclusion for long-terms services and supports, with a plan taking form through a strategic planning process as late as next year.

Trish Farnham, with the state Division of Medical Assistance, noted that long-term services and supports serve “some of the most vulnerable populations” while the program “is the least coordinated.”

As to the question of whether risk-based managed care is appropriate for such patients, she said, “The answer is: It depends and we’re not sure.”