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Goodbye Insurance Companies, Hello Doctors, Hospitals In New NC Medicaid Proposal


Governor Pat McCrory's administration is changing course on its plan to overhaul North Carolina's most expensive health care program. Medicaid serves roughly 1.7 million low-income parents, children, seniors and people with disabilities. McCrory had rolled out a plan that some called a privatization scheme. Now, state leaders are finalizing details on a different approach that they'll present to the General Assembly by March 17.

The original plan would've put a few huge organizations, probably insurance companies, in charge of managing Medicaid for everyone. The state would've given the companies all the money up front. If they go over budget, they're on the hook. If they save money, they turn a profit. 

Many doctors and advocates for the poor made it clear they were not fans of that proposal. And the state listened, said Mardy Peal, senior advisor to the North Carolina Secretary of Health and Human Services.

"We've met with these folks; we have collaborated with them," she said. "And we have come up with a solution that we think meets the needs of the state."

So here's the new plan: instead of insurance companies, put accountable care organizations in charge of managing the program. I know, it's jargon, but here's what you need to remember, accountable care organizations are run by the people who provide the care, like groups of doctors and hospitals.

And while the original plan would've likely brought in out-of-state companies, the new one aims to take advantage of something North Carolina already has. 

"We have 22 accountable care organizations - the ones that are already up and running are in all but 10 or 11 counties," said Melanie Phelps with the North Carolina Medical Society, which represents doctors. Phelps said doctors and hospitals have set up the organizations over the past couple years to serve Medicare patients.

The one in the New Bern area is called Coastal Carolina Health Care. In its first year, it reduced spending for some of the highest cost categories of patients between 9 and 24 percent, according to data the federal government reported to the organization.

Stephen Nuckolls is Coastal Carolina’s CEO.

"We did achieve overall savings, but more importantly, we were able to impact a number of key measures," he said. "For example, our readmissions were down 16 percent."

Nuckolls said depending on what the state's final plan looks like, it could be easy to make Medicaid patients a bigger part of who his organization serves. 

"Many of the services are already provided," he said. "This would just create increased incentives to take on these patients and to do the extra things from a care management standpoint that we are already doing for the Medicare population."

To convince the groups of doctors and hospitals to do those things for Medicaid, the state would set up incentives. Here’s how it would work: the state would continue paying providers after they provide services, just like it does now. But it would also set budget targets based on how much it estimates Medicaid services should cost in different areas. 

"And then if you come in under budget, then you can share in the savings with the state," said Peal, the senior advisor.

At first there'll be only upside for the accountable care organizations. But after they get the hang of Medicaid over a few years, the state will ask them to share in losses, too, if they miss the budget targets.

For this model to work, you have to be able to set accurate, realistic budgets. That is not something the state has done well – large cost overruns have become an annual thing for Medicaid, and a scathing state audit last year laid out North Carolina’s budgeting incompetence.

In response, Peal said the state is overhauling its Medicaid budgeting division.

"We are making all sorts of organizational and structural changes to handle tasks such as these, so part of Medicaid reform is also adapting our own organization to better serve the providers and beneficiaries in this model," she said.

She said the state recognizes that without sound estimates, the incentives in this model won’t mean a thing.

She also points out the incentives won’t just be tied to the budget – accountable care organizations will have to meet certain quality benchmarks, too, like lowering readmission rates.

And there’s another key part of the new overhaul:

"Patients will continue to choose their primary care physician," she said. "Patients will also have free mobility, where they can, if they are displeased with someone's service, they may choose an alternative primary care physician."

For that and a variety of other reasons, many in the North Carolina medical community like this approach way better than the McCrory administration’s first proposal.

But it doesn’t really address another problem with the state’s Medicaid program: silos between mental and physical health.

For now, Peal said this is a realistic way to get started with overhauling the state's biggest health program. The McCrory administration will iron out the details and formally submit its plan to state lawmakers in the next week.