North Carolina legislators should aim for a hybrid strategy — blending affordable care organizations with private providers — in their next attempt at Medicaid reform, a Wake Forest University law professor recommends.
A brief by Mark Hall and Edwin Shoaf is the first from the law school’s recently launched Health Law & Policy program. Hall is a professor of law and public health; Shoaf is a research associate.
The state’s $14 billion Medicaid program covers about 1.9 million North Carolinians and has had a financing gap of almost $2 billion since the start of the 2009-10 fiscal year.
Hall shares the opinion of most legislators, as well as that of Gov. Pat McCrory, that the state Medicaid program “stands at a crossroads” in terms of reform. The current system is based primarily on a fee-for-service format.
Medicaid reform arguably is the biggest sticking point between state Republican leaders and McCrory. The governor declared from day one of his term that the program is broken, though some health care advocates dispute that assessment.
Senate leaders tout privatization, including hiring out-of-state, for-profit insurers operating as managed care organizations (MCOs), as the best approach to fix it.
Meanwhile, House leaders, health Secretary Dr. Aldona Wos and McCrory prefer the ACO model with existing in-state providers and health care systems leading the way. Those groups typically are controlled by health care systems, hospitals and physicians.
Among the ACOs operating in the Triad are Cornerstone Health Care of High Point, Community Care of N.C. and Triad Healthcare Network of Greensboro.
Medicaid reform bills introduced in each of the legislature’s chambers this year have failed to gain a groundswell of support.
A bill introduced by Rep. Donny Lambeth, R-Forsyth, embraces the hybrid strategy, but has limited details. Lambeth plans to expand on his reform strategy after the House state budget proposal is submitted.
Although Hall supports combining the best of the for-profit and ACO approaches, he cautioned that by doing so, “do we create a better functioning Medicaid system, or a Frankenstein’s monster?”
“By themselves, neither MCOs nor ACOs have yet achieved a strong track record of making health care organizations and providers accountable for both costs and quality,” Hall said.
“If both sides are motivated to reach a solution, compromise is very feasible. One side objects to ACOs that have no capped budgets. The other side objects to MCOs that lack control by hospitals and physicians.
“Provider-led organizations that receive capped payments seems like a viable compromise that addresses each side’s concerns, in broad principle,” Hall said.
Best of both worlds
A major, bipartisan criticism of the N.C. Department of Health and Human Services’ handling of Medicaid the past 2½ years has been the lack of dependable data and forecasting, though much of its work had been outsourced to an out-of-state vendor.
“But, a combination of both approaches could achieve the General Assembly’s key goals, as long as administrative expenses and profiteering are minimized,” Hall said.
Hall said the main advantage of MCOs is their budget control, since they operate on a fixed-fee model for each person, also known as capitation. The groups contract to provide all needed care and absorb budget shortfalls.
The state’s nine behavioral health MCOs, including CenterPoint Human Services and Partners Behavioral Health Management in the Triad, operate with that model.
The ACO model puts more focus on quality standards and providing patient-centered care. They typically don’t have the same level of budget certainty since providers are paid primarily on a fee-for-service basis.
“While Medicare ACOs have done better in other states, the current North Carolina participants are having trouble hitting their savings stride,” Hall said. He said just three of the eight large-scale ACOs operating in North Carolina are saving money, “but those savings were fairly substantial.”
For example, studies have shown that Community Care has achieved savings of nearly $1 billion over a four-year period.
Hall said that several states, including Ohio and Oregon, have gone the hybrid route through coordinated care organizations, which are mostly nonprofits owned either by providers or by MCOs. Those groups focus on quality and are paid for most of their services on a capitated basis.
A legislative committee heard a presentation from Ohio Medicaid officials in October.
“Drawing from experience both in North Carolina and elsewhere, a workable approach to Medicaid reform should combine the best of both MCOs and ACOs by using a fixed-fee payment system that ties payments to quality performance and accountability, and that includes nonprofit and provider-based organizations,” Hall said.
Health Benefits Authority
One version of Medicaid reform — disclosed in House Bill 525 and Senate Bill 696 — would take the drastic approach of establishing an independent authority within DHHS, known as the Health Benefits Authority.
It would be governed by a paid, seven-member board of directors. The authority would feature experts in administration, insurance, actuarial science, economics, and law and policy. The bills do not disclose the cost of establishing the authority, although at least $800,000 could be spent on the combined salaries of the board members.
Rep. Debra Conrad, R-Forsyth, said she supports House Bill 525 in part because Medicaid may have become too big for DHHS to handle as efficiently as possible.
“This authority would allow Medicaid its own focus,” Conrad said. “My hope is for this bill to reinvigorate the conversation about Medicaid reform and get some movement going if we want to truly get past the Medicaid turfs this session.”
By comparison, House Bill 372, sponsored by Lambeth, supports having N.C. providers and health care systems involved in ACOs carry a larger risk-reward expenditure role. Lambeth said he was not contacted by Hall for his brief.
“Even with that, it is actually on target with our notion of a hybrid model that is unique to North Carolina and the citizens Medicaid serves,” Lambeth said. “We hope to create a model of care based on quality and access, yet is fiscally responsible for the providers of care and the state.”
Senate Bill 703, sponsored by President Pro Tem Phil Berger, R-Rockingham, would require DHHS to convert Medicaid by Jan. 1, 2017, to one organized as a “capitated, risk-based, managed care” program. DHHS would be required to enter into “risk contracts with at least three statewide Medicaid physical health MCOs that assume full risk for all Medicaid benefits.”
Sen. Joyce Krawiec, R-Forsyth, said her Medicaid reform concern relates to a $2 billion deficit.
“If this is allowed to continue, there could be serious consequences for North Carolinians with regards to maintaining schools, roads and other state services,” Krawiec said. “That is why we must get this runaway spending back under control.
“We need to provide quality care while being fair to North Carolina taxpayers, whether that means an MCO model, an ACO model, or some combination of the two.”