Auditor: NC Didn’t Monitor Managed-Care Groups Serving Medicaid Recipients

News & Observer (Raleigh, NC)

The N.C. Department of Health and Human Services has failed to effectively monitor the performance of the managed-care organizations that handle behavioral health care for the state's Medicaid recipients -- increasing the risk that health care costs were unreasonable and that performance standards were not met, the state auditor's office says.

An audit released on Monday is one of a series of reports the auditor's office has done while the state begins to transition to a managed-care model for most of its Medicaid system for low-income, disabled and elderly residents.

That transition is set to begin toward the end of this year. The amount of Medicaid funds managed by managed-care organizations, also known as MCOs, will more than quadruple -- from $3.2 billion to nearly $13.9 billion in the coming years.

The managed-care approach, already adopted by most other states, was mandated in North Carolina in 2015 by the state legislature in response to chronic budget overruns and alleged mismanagement. Instead of paying doctors and hospitals for work performed, the state will now pay independent insurers a flat monthly fee for each patient covered, so that the organizations can share in the profits if they keep down costs but will be financially responsible for any cost overruns.

In February, five private health insurance organizations were selected to run that expansion, receiving contracts totaling $6 billion a year to provide health care under a privatized state Medicaid program for low-income, disabled and elderly residents.

Since 2011, however, the state has already used seven state-established managed-care agencies, which operate like government-funded mental health insurance agencies, to run the state's mental health care system. They serve Medicaid recipients with mental illness, substance abuse issues and those with intellectual and developmental disabilities .

The auditor's office has decided to study the first seven years of that approach, before the model is expanded in November.

"If we are not doing a great job with the first seven (MCOs), then when we transition the vast majority of the rest of the Medicaid program over to MCOs, we stand to be doing a lot wrong there, too," State Auditor Beth Wood said in a phone interview. "We are pointing out what deficiencies that they might have, so we can get it right" with the next five MCOs.

Wood added that she has a five-person team that is tasked with only looking at Medicaid issues in the state. Her office has routinely turned a critical eye toward the Medicaid system in the state, previously criticizing one of the MCOs, Cardinal Health, for having excess savings and spending too much money on things such as salaries, corporate events and travel, The News & Observer previously reported.

The report doesn't state whether or not the lack of monitoring led to excess costs. But earlier this year, another audit found that those seven state-established MCOs had excessive savings of nearly $440 million over a three-year period -- money that could have been used for additional medical care or other public expenditures.

Additionally, this latest audit found that DHHS did not monitor the reports necessary to ensure that services from those MCOs were actually provided, that costs were reasonable or that performance standards were met. Specifically, DHHS was "unable to provide evidence that it obtained complete encounter data submissions from (MCOs) in a timely manner."

Encounter data, which is an electronic record for every incident between a network provider and a Medicaid enrollee, is important because it is used to create rates that determine the amount of money each MCO gets every year. These rates are based on patient numbers and previous financial outlays and are adjusted for expected changes.

The report notes that without complete encounter data, "it is not possible to analyze costs, utilization or trends; evaluate benefits; or determine the quality of services being provided to members."

"They really just weren't monitoring what was going on at the MCOs," Wood said. "There was no way to really measure if these MCOs were really doing their job."

DHHS was reliant on an outside contractor to conduct annual quality reviews of the MCOs, the report notes, but because those reports were only done annually, "any performance problems ... could continue for a full year before the next evaluation if (DHHS) does not perform its own monitoring responsibilities."

Beyond encounter data, DHHS also did not obtain reports that documented if a provider failed to ensure adequate staff was available to provide services, nor did it obtain annual budgets from the MCOs to monitor their revenues and costs. On top of that, when deficiencies were noted at MCOs, DHHS did not create "corrective action plans" or assess penalties, creating an "increased risk of uncorrected performance issues."

In conclusion to the findings, the auditor's office recommended that DHHS create a centralized tracking mechanism for the receipt of MCO reports and data, create formal policies and procedures for evaluating MCOs as well as assess penalties and create corrective plans to hold MCOs accountable for their performances.

In a written response to the audit on April 30, DHHS Secretary Mandy Cohen said her department recognized the need to improve its oversight of MCOs and that it would be taking steps to improve its monitoring capabilities. She added that while DHHS often was receiving reports from MCOs, the process was decentralized and "timestamp data was not specifically maintained" leading to many issues identified in the audit.

To correct that problem, Cohen said DHHS has designed a new, formal system to provide oversight of MCOs, which will include automating the tracking of the reports and data they create. It will also be hiring employees to oversee that data and reports created by MCOs are delivered and seen by the department.

Cohen also said DHHS is in the process of recruiting a new associate director position that would be in charge of all MCO oversight.

Wood said she was encouraged that DHHS planned to make the oversight process more formal.

"I am appalled by the lack of monitoring," Wood said. "But what I am encouraged by is Dr. Mandy Cohen's response to our audit and her plans to respond."

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