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Breaking Down The NC Medicaid Overhaul: A Mix Of Health Care Models

Gov. Pat McCrory signs the Medicaid overhaul into law

Medicaid is always one of the biggest expenditures for states, and North Carolina is overhauling its program to try to make its budget more predictable. The overhaul is essentially a mixture of health care models that are gaining national prominence. The result will change who's in charge of keeping low-income patients healthy and how North Carolina pays for it.

Many North Carolina lawmakers consider Medicaid the budget Pac-Man that eats up all the money they could spend on other priorities.

That's a big reason Republicans in control of the legislature passed the overhaul.

"It is a huge win for the taxpayers of this state, the folks that are actually footing the bill for these services," Rep. Bert Jones said on the House floor.

In fact, all American taxpayers foot the bill. It's a mix of federal and state dollars.

North Carolina struggled with huge Medicaid cost overruns from 2010 through 2013. That sent lawmakers looking for a better way to manage it. They settled into two camps, and here's where we'll get a little wonky:

One camp wanted to use a managed care model, which basically means putting large insurance companies in charge of managing care and containing costs. 

"The alternative idea was to contract with what are called Accountable Care Organizations," Wake Forest professor Mark Hall says, "which is a newly emerging idea both at the state level and the federal level to organize systems of health care finance and delivery that are led by doctors and hospitals."

The federal government is pushing that model for Medicare, the government insurance program for the elderly. A Health and Human Services video about the concept uses the tagline: "Better health care quality. Better outcomes for patients. ACOs are a win for patients and health providers."

When you hear Accountable Care Organization or ACO, think: large system of doctors and hospitals. The idea is to put the people providing the care on the hook for how it goes and what it costs.

In North Carolina, some lawmakers worried the doctor-and-hospital model wouldn't save enough money. Others worried the insurance company model would skimp on care. So they settled on a mixture of both.

Will that create "a Frankenstein's monster?" That's the question Hall, the Wake Forest professor, asked earlier this year.

"We proposed the thought that hybridizing these two separate ideas might be freakish," he says. "But in fact, I don't think it is. I think it's actually a very sound and carefully thought-out use of the best of both models."

North Carolina is using the managed care/insurance company model to change how it pays for Medicaid. As of now, doctors bill Medicaid after they provide services, so the incentive is to provide more services.

In the new system, the state will set budgets up front for whoever it puts in charge of managing care. If those managers go over budget, they're on the hook – not the state.

That's becoming the standard approach to payment, says Dan Mendelson, CEO of consulting firm Avalere Health.

"Most states contract for Medicaid through managed care because states don't want open-ended financial liability," Mendelson says.

Normally, those states contract with insurance companies. But here's where the doctor-and-hospital model comes in. North Carolina will open up its bids to insurance companies and doctor-and-hospital systems. It will also set up quality metrics to track how they do.

Game on, says Julie Henry of the N.C. Hospital Association.

"We're moving in this direction in other arenas in health care, not just for the Medicaid population, but for commercially insured patients and for Medicare patients," she says.

Henry points out some doctor-and-hospital systems in North Carolina are already meeting quality metrics and saving money under Medicare.

Some insurance companies are posting similar results. Patient advocates say one isn't necessarily better than the other. Corye Dunn is with Disability Rights North Carolina.

"We think it's important to focus on not just who we hand a big bucket of money to, but what are the rules for spending that money," she says.

Dunn says developing effective quality metrics will be a crucial part of the overhaul process.

Also, lawmakers set a cap of 12 percent for how much money can go toward administrative costs and profits. Here's some perspective from Joan Alker of the Georgetown University Center for Children and Families:

"The challenge lies in the fact that Medicaid is already a very lean program, and there's just not a lot of fat to cut out there," Alker says. "The concern is: will the managed care company save money the right way or the wrong way?"

Some worry the risks of the overhaul outweigh the benefits. Cost overruns have not been a problem the past two years. Also, a signature part of North Carolina Medicaid has won national awards for quality and cost.

A Republican legislative leader on health care policy, Rep. Nelson Dollar, voted against the overhaul. And Democratic Rep. Gale Adcock, a nurse practitioner from Wake County, told other lawmakers to consider a guiding principle in health care:   

"That is: first, do no harm," Adcock said on the House floor. "I'm very fearful that if we pass this bill, we will do harm."

The version that passed will change the award-winning part of the program, called Community Care of North Carolina. Community Care is a network of doctors, nurses and pharmacists who coordinate care for roughly 80 percent of Medicaid patients.  

As insurers and hospital systems take over those functions, Community Care president Dr. Allen Dobson says his organization will look to partner with them.

"We expect we'll play a fairly significant role," he says. "It will be different. We may move from having one customer, which has been the state, to having multiple customers."

One of the Republicans who led the overhaul effort, Rep. Donny Lambeth, says Medicaid is not broken in North Carolina. But he says as health care evolves, the state needs to keep up.   

"Fact is, we can actually do better in North Carolina for these Medicaid beneficiaries!" he said on the House floor. "Do you think quality in North Carolina across all the providers is equal and good? I can tell you it is not."

Lambeth says the new quality metrics will make it easier to track that. He says it'll take three to four years to get federal approval and implement the changes.