At a lectern in dark suit and pale-blue tie, he sounds like a doctor addressing medical students on a spring day at Winston-Salem’s Wake Forest Baptist Medical Center. “If we have optimal outcomes, cost will take care of itself,” Sen. Richard Burr says as he presents an award to Community Care of North Carolina, citing how the nonprofit group saved the state almost $1 billion in four years of overseeing the health of the poor and disabled. “I can’t think of anybody better to receive this award.”
Gov. Pat McCrory says he can. In Raleigh, one day after Burr’s speech in April 2013, he’s also at a lectern. He declares North Carolina’s $14 billion annual Medicaid program “broken,” trumpeting his plan to hand it over to for-profit insurance companies. “Our total focus is on reform,” he says, with no clear role for Raleigh-based Community Care and its statewide network of more than 1,500 health care professionals who’ve been crucial players in state Medicaid for more than two decades.
Three years later, details of North Carolina’s effort to remake Medicaid are being hammered out after months of rancorous debate, culminating in a law passed in September. Beyond the program’s essential safety-net role for nearly 1.9 million enrollees, or one of every five citizens, the doctors and hospitals that treat them have an enormous stake. So do all Tar Heels. Medicaid spending takes up about a third of the annual state budget, or $3.7 billion, ensuring the program is a never-ending political lightning rod. The federal government pays the rest of the tab, about $10.5 billion, but states decide who is eligible. So it gets ever-more complicated: While the Obama administration hoped to expand Medicaid coverage in concert with the Affordable Care Act, North Carolina and 18 other states said, “No thanks.”
The state Medicaid reform law was molded by insurers and political action committees that supported McCrory and other lawmakers. But consumer advocates and providers on the front lines of the state’s $80 billion annual health care economy also had a voice. McCrory’s initial plan relied solely on insurers, but gaining the blessing of influential doctors, hospital executives and their boards required compromise. Now, the state’s large hospitals will be allowed to insure Medicaid patients through an affiliate company that could compete with traditional insurance giants.
The law’s thrust is simple, say proponents and critics. The state will pay insurers a set amount per year to care for each Medicaid recipient. The reform has an alluring rationale: Those bearing the risk can profit if the patient stays healthy with bills totaling less than the state’s payment. Conversely, if the patient runs up large tabs by neglecting chronic illnesses like diabetes or makes too many emergency-room visits, the insurer — not the state — is on the hook for extra costs.
The biggest question is whether the reform will ever take place. North Carolina must submit its detailed plan to Washington by June 1, and federal officials face no deadline to respond. Because state legislators declined to expand North Carolina Medicaid, a quick approval seems unlikely. “President Obama will have six months left in office,” says Adam Linker, co-director of the Raleigh-based Health Access Coalition, a nonprofit that advocates for low-income families. “You have a huge federal agency getting ready to hand off control to new leadership.” Even under routine circumstances, approval could take a year or more.
After Washington’s approval, it would take at least another 18 months to implement changes in North Carolina, according to the law’s authors and Bob Seligson, chief executive officer of the North Carolina Medical Society. “It’s going to be the good, the bad and the ugly,” he says. The bottom line: The new Medicaid system probably won’t see light before 2020.
“I’ve talked to hospital CEOs and leaders, and they’re embracing [reform],” says N.C. Rep. Donny Lambeth, a Forsyth County Republican who is a former president of Wake Forest Baptist and smaller institutions in Lexington and Mocksville. “But are they nervous? Yes. Would I have been nervous? Yes. This is going to shift the risk from the state to the providers. If I was still in that seat, I’d probably have a few more gray hairs.”
Flanked by senators and representatives, McCrory leans forward and inks his name. It’s Sept. 23, and on the table is a sign in block letters: “Patient-Centered Reform.” It means, the governor says, doctors and hospitals will be paid “based on improving patients’ health, not how many services patients receive.” But is North Carolina’s Medicaid program really in need of reform?
State Sen. Ralph Hise, a Spruce Pine Republican and a principal architect of the reform, insists change is necessary because Medicaid costs have become too unpredictable. “The human services department had missed estimates by as much as $700 million a year,” creating shortfalls that forced tough budget decisions at the capital. Hise points to a state audit noting overruns totaled $1.4 billion between 2010 and 2013. Reform proponents and others blame rising medical costs and the traditional model of paying doctors and hospitals per visit or procedure, rather than tying spending to patient outcomes. Recent results show less uncertainty: Medicaid spending was $181 million under budget in the first half of this fiscal year.
“Somebody asked me, ‘Didn’t you care when Medicaid patients came to your emergency department?’” says Lambeth. Medicaid patients sometimes make expensive emergency room visits for routine care because they lack a primary care physician. “I said, ‘Why would I?’ They’re actually pretty good-paying patients; they’re great for volume and great for market share. But when you look at data, you see 50% of their visits to emergency rooms are coded as [non-emergency] by Medicaid.”
The insurance program available to families of four with household income of less than $23,000 has been booming. Over the last decade, enrollment jumped by about 800,000 people, or 66%, to 1.81 million in 2015, according to Alexandra Lefebvre, a Department of Health and Human Services spokeswoman. The budget soared 47%, to
$14.3 billion, from $9.7 billion in 2004.
Hise and other critics blame Community Care for a poor job of holding down costs. Since 2001, it has been the state’s sole agency to contract with the federal Medicaid program, except in Mecklenburg County, which has a pilot managed-care program. Staffers oversee recipients’ care, visiting homes to monitor their health and diets, steer them to appointments and help them control chronic illnesses.
“We’ve been at this for quite a while, and we’re probably one of the best in the country at it,” says CEO Allen Dobson Jr., a former state Medicaid director under Gov. Mike Easley. Community Care gets about $100 million a year from Medicaid to coordinate care.
Dobson, a family physician, can back up his claim. The award Burr presented was from Harvard Business School and was based on research showing the group returned $3 in savings for every $1 received from the state. A private audit in 2011 showed it had saved North Carolina $984 million from 2007 through 2010. When suspicious legislators ordered another audit, it arrived at a similar conclusion the following year. Community Care pioneered the “medical home” concept — each patient has someone overseeing care — that is a key part of managed-care Medicaid, Dobson says.
The program serves low-income seniors, people with disabilities, pregnant women and children from poor families, even if family income is too high to qualify. North Carolina Medicaid has also expanded because of aggressive state efforts to enroll more children on the theory that better care early in life can avert later-stage health problems.
While Community Care produces some savings, “it has never been involved in the large drivers of Medicaid, such as long-term care and mental health,” says Hise, a special projects director at Mayland Community College. “It’s narrowly focused on primary care and hospitalization.” About 400,000 Medicaid recipients live in nursing homes or receive care outside Community Care’s umbrella, and costs of their care defy accurate budget setting. Lambeth has a more favorable view. As a hospital president, “I frankly was a big advocate because they did really good work and created databases and protocols that controlled costs.”
Politics played a significant role as the reform rolled through the General Assembly. “Legislators and the governor simply don’t like Medicaid, and that’s a longtime thing,” Linker says. “Every time there’s a recession, because Medicaid is countercyclical, enrollment and costs go up, and it’s harder to predict enrollment. Then when the economy tanks, they say costs are out of control.” Critics often cite cases of abuse and fraud by recipients and providers, while some conservative lawmakers oppose entitlement programs, Linker and others say.
McCrory’s office declined requests for interviews with him or DHHS Secretary Rick Brajer, who took over state Medicaid oversight after predecessor Aldona Wos resigned last year.
When McCrory promoted Medicaid reform in the 2012 election, he mirrored a national Republican theme of privatizing various governmental functions. Transferring risk for Medicaid to private insurers and blocking the program’s expansion are goals of various groups including the American Legislative Exchange Council, or ALEC, which hosts conferences for lawmakers. North Carolina and 18 other states have not budged on Medicaid despite pressure from hospitals, leaving as uninsured 2.9 million who otherwise would be covered, according to the Kaiser Health Foundation. ALEC is among the public policy groups backed by the libertarian Koch brothers, who sponsored a California gathering of conservative donors attended by McCrory and six other governors in August.
McCrory’s reform had strong Senate backing but faced more opposition in the House. “The story became, ‘Medicaid’s a mess,’” says a former DHHS staffer familiar with the legislative negotiations. “It became clear just turning it over wholesale to an insurance company was not the path forward.” The hybrid plan signed into law calls for a mix of provider-led insurers and commercial insurers. It also showed the political dangers of defending Medicaid.
State Rep. Nelson Dollar, a Cary Republican who opposed the Medicaid revamp and chairs the House Budget Committee, is facing his first primary opponent after 12 years in office. Community Care, which was touted by previous Democratic governors, became a target too. “There was definitely a bias against CCNC and an unwillingness to see the success it has had,” says a provider-side executive, who also asked to remain anonymous.
Now, the reform’s partisan identity could become a stumbling block. “North Carolina doesn’t necessarily have the best relationship with the Centers for Medicare and Medicaid Services right now for political reasons, mainly because of their desire to force Medicaid expansion on us,” Hise says. CMS is the federal department that administers Medicaid. “It’s a ‘mother may I’ situation, and I believe strongly they’ll do whatever they can to slow down approval and drag their feet. It’s a sad commentary on the political nature of CMS.”
An irony of the push for managed care is its troubled history in North Carolina in the 1980s and ‘90s, after state leaders promoted strategies to make health insurance more competitive, including insurer-owned plans that provided medical services for a fixed fee. It didn’t pan out. Patients routinely complained that insurers were throwing up roadblocks to prevent access to care, while costs soared. “Unfortunately, it often became ‘care by denial,’” says Julie Henry, vice president for communications at the N.C. Hospital Association. Patient advocates, hospitals and doctors rebelled, and Kaiser Permanente, the state’s most prominent managed-care insurer, pulled out in 2000.
Nelson Dollar pointed to that legacy during a General Assembly debate, contending that managed care would benefit stockholders rather than beneficiaries. “We were obviously against managed-care companies coming in and being part of this process,” says the medical society’s Seligson. “They were devised to help save money and improve quality. They didn’t do that.” Eventually the N.C. group joined peers in 19 other states in a lawsuit accusing insurers of unfair business practices.
This time, the doctors’ and hospital lobbying organizations concluded they had to get on board because powerful state lawmakers had committed to Medicaid reform. The end result directs North Carolina to contract with three commercial insurers that would offer statewide health plans, along with 10 regional plans made up of hospital and physician networks. Details remain shrouded in secrecy, but Linker and legislative sources say Minnesota-based UnitedHealthcare, Virginia-based AmeriGroup Corp., and Kentucky-based Humana Inc. are among the companies that have expressed interest.
Meanwhile, 11 large N.C. health care systems have formed Provider-Led and Patient-Centered Care LLC, which will act as an insurer. The group includes Cape Fear Valley Health System, Carolinas HealthCare System, Cone Health, Duke University Health System, Mission Health, New Hanover Regional Medical Center, Novant Health, UNC Health Care, Vidant Health, Wake Forest Baptist Medical Center, and WakeMed Health and Hospitals.
Medicaid members will see little difference among the various plans because the law requires the same benefits statewide. But hospitals hope to attract members by projecting themselves as more sensitive and less motivated by profit, says Kelly Vogel, an ex-insurance industry lobbyist who leads the new group.
Lawmakers want competition. “Giving the individual a choice will require the provider to market their services and offerings,” Hise says, while fixed payments will nudge providers to examine their charges. “If you look at hospitals across the state, which emergency room you go to could vary from $1,000 to $4,000 a visit.” Patients will have choices, but 70% or more are likely to opt to be assigned at random.
Putting doctors and hospitals at financial risk will pressure them to provide better care, Hise adds. The hospital association’s Henry counters that argument. “We haven’t been operating as insurance companies, but that doesn’t mean we haven’t been risk-bearing,” she says, citing federal provisions that penalize them for excessive readmissions and induced infections. New technology to determine the most effective care places hospitals “in a much better position to manage risk than in the ‘90s.”
The new plan addresses concerns of excessive profits by limiting how much insurers spend on overhead costs, instead of patient care. “One of the criticisms we were getting from providers was that the managed-care companies would put too much money into administration,” Lambeth says. “We said, if you want to do business with North Carolina, you’re going to have to put 88 cents of the dollar directly into patient care.” A similar provision in “Obamacare” sets an 80-cent minimum.
An unresolved question is the future of Community Care of North Carolina, which has played health care confidante to generations of the state’s poor. Until the change is approved, business will go on as usual. Some legislators have said they favor dumping it, forcing it to compete for a niche in the new system. Dobson says it’s OK to redesign the group’s model.
“We have relationships with all the people of North Carolina who provide care to Medicaid patients, we have the infrastructure, and we’re probably the best in the nation at what we do,” he says. “Regardless of who pays the bills, there will still be the same doctors and hospitals taking care of the patients.”
Hospitals and doctors share that strategy. “We’re not going to just sit on our hands and wait for the federal government to act,” Henry says. “We still have to figure out how to manage the care and cost of health care for the almost 2 million people who rely on Medicaid.”