Why is North Carolina Getting Rid of Medicaid Managed Care Plan that Saves State Money?

Policymakers in many states have turned more and more to private managed care insurers to manage their Medicaid programs. More than half of people on Medicaid across the country are in some sort of “risk-based managed care organizations (MCOs)” and 39 states – according to comprehensive research by the Kaiser Family Foundation – use such entities. The key difference from delivery of traditional Medicaid services with these MCOs is that (in theory) the state pays the MCO a fixed fee per beneficiary and in return the MCO agrees to deliver all the needed care that beneficiary needs for that fixed fee. Thus risk for higher costs is – again in theory -shifted to the MCO through this type of contract.

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North Carolina has gone a different path over the past 15 years towards introducing managed care into its Medicaid program and is often held up as a model for other states looking for innovative change. There, networks of hospitals, doctors and other providers are organized into fourteen regional systems across the state where managers work with primary care physicians to coordinate and direct care for each Medicaid patient. A fixed fee per patient is paid for this coordination service by the state with Medicaid services still being delivered and paid for under a fee for service system. However, each regional network also makes extensive use of state of the art data, local investment, primary care physician support and reimbursement incentives to identify areas where care can be improved and money can be saved. In North Carolina this Medicaid system is called Community Care or CCNC and it serves 1.3 million out of North Carolina’s 1.5 million total Medicaid recipients.

The North Carolina CCNC model has been popular and successful – so much so that the Commonwealth Fund developed an entire online reference source a few years ago to help other states interested in implementing some portion of CCNC’s systems.

Over the years several studies have been done of the cost savings and health delivery changes attributable to NC’s care management system. For example, the consulting group Milliman concluded in 2011 that over a four year period CCNC had saved the state over $1 billion by reducing costs around 6% by the end of the study period.

A 2012 study by the firm Treo Solutions found significantly lower inpatient hospital admissions and lower ER use among CCNC patients – two critical cost drivers in any insurance plan.

While providers, health policy experts, accounting firms and consultants have praised CCNC, North Carolina’s legislators have been less enamored. The desire among some lawmakers to remove NC’s Medicaid population from CCNC and hire a set of private managed care companies to manage the program culminated in a long and ongoing debate in North Carolina this year. Legislators wishing to change NC’s Medicaid program to one run by private insurers who agreed to accept the financial risk for caring for Medicaid patients was driven in part by a stated desire on the part of lawmakers for more “cost predictability” in the Medicaid program. Shifting the entire financial risk of caring for Medicaid patients to private insurers was seen as the way to achieve this goal although experience in some states shows that costs may not always be so predictable after the initial change.

These concerns have culminated in two results – both summarized neatly in this recent editorial in the Raleigh News and Observer.

First, North Carolina looks poised this year to essentially dismantle the CCNC program and invite bids from private health insurers to manage North Carolina’s Medicaid program. Second, legislators skeptical of previous findings that CCNC had consistently saved hundreds of millions of state tax dollars each year while improving care asked the North Carolina State Auditor to conduct an independent review of the program. That review was released on August 20th and presented a result that was at odds with the criticisms of Medicaid skeptics.

The NC State Auditor’s rigorous study was unequivocal. Looking at nearly a decade of data with a new emphasis on actual patient expenditures and provider use, the report found that CCNC was saving NC taxpayers an average of about $312 per beneficiary per year – a 9% savings or almost $400 million a year. There was decreased spending in almost all service categories with the largest reduction of 25% in inpatient hospital admissions along with “meaningful” reductions of 10.7% in prescription drug use, readmissions and visits for asthma. All these results the Auditor noted point to “improved health outcomes for CCNC members.”

The State Auditor’s research neatly fit in “with prior evaluations, further solidifying the large body of evidence demonstrating CCNC’s impact in reducing preventable hospitalizations, improving outcomes, and generating substantial cost savings that accrue to the state of North Carolina,” noted Dr. Tom Wroth, the acting President of CCNC, in an August 14th letter responding to the audit.

While one might expect such a positive independent review – ordered by the most skeptical state legislative critics of CCNC no less – might have at least some impact on the move of North Carolina towards dismantling its current Medicaid system, the report seems to have had little effect. Absent a major shift as North Carolina lawmakers struggle to complete a budget and bring to a close their longest legislative session in years, it appears that North Carolina’s Medicaid experiment – despite its documented success – is about to come to an end.

Adam Searing
Adam Searing is an Associate Professor of the Practice at the Center for Children and Families

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