North Carolina on the brink of transforming Medicaid for 2 million people

Jul. 2--RALEIGH -- North Carolina is set to overhaul a large part of the health care industry. The changes will give doctors incentives to focus more on preventive care or outside-the-box solutions for their low-income patients, and they could also be lucrative for health care companies.

It's not Medicaid expansion -- a divisive topic in state politics -- but politicians in both parties told The News & Observer that these changes could kick start that separate debate over expansion.

The changes are called Medicaid transformation, and they were supposed to have started already.

But after false starts and delays, including vetoing it last year, Democratic Gov. Roy Cooper signed the transformation into law on Thursday. It now will begin no later than July 2021.

"Hallelujah, we're finally there" said Ralph Hise, a Republican state senator from Mitchell County, just before midnight June 25. The bill was just about to pass, in a late-night session that wrapped up lawmakers' work for the near future.

NC Medicaid serves more than 2 million North Carolinians, many of them children and people who are either low-income or have a disability. Transformation would change how all of them interact with hospitals and doctors in the future.

"This is a critically important topic," WakeMed President and CEO Donald Gintzig said in a statement to The News & Observer, adding that it has been highlighted even more by COVID-19.

Transformation will give health care providers more of an incentive -- and, in some cases, brand-new abilities -- to focus more on long-term, personalized or creative solutions for their patients.

"By implementing thoughtful and thorough policy changes, this is an opportunity for our state leadership to create a healthier North Carolina for generations to come," Gintzig said.

What is Medicaid transformation?

Right now, whenever someone on Medicaid goes in for health care, the state is billed for each procedure or test they get. But under Medicaid transformation, the state will divvy up its Medicaid budget into lump sums that will then get sent to private health plans, which Medicaid patients will soon be asked to sign up with.

Those companies, called managed care organizations or MCOs, will get to keep any Medicaid money they have left over at the end of the year. In theory that will create an extra incentive not only to treat patients but to work on preventative care and more personalized approaches.

"What we're really trying to cut down on is unnecessary care," Hise said in an interview.

Most of the 2.1 million people on Medicaid will start hearing from the state within the next few months about what the changes will mean for them, said Dave Richard, the deputy secretary for NC Medicaid. The first wave of changes will include everyone except those in more specialized situations, like disabled adults, children with severe health issues and elderly people who qualify for both Medicaid and Medicare.

Richard said the new system is intended to improve people's long-term outlook by focusing more on their personal situation, as well as broader issues like how race, gender and poverty relate to health.

"We'll have much more aggressive work around care management, and how that helps the patient," he said, adding: "We hear people across the country say once it's implemented, we'll be best in class."

Not everyone is as enthusiastic, however. Democratic Rep. Verla Insko of Chapel Hill -- who previously worked in health care and has been involved in much health care legislation in her 25 years at the General Assembly -- said she likes the general theory behind Medicaid transformation but is worried by some of the specifics planned for North Carolina.

Oversight of private companies

"I think managed care itself is a good philosophy," Insko said in an interview. "If you can keep people healthier it's a lot less expensive than treating sick people."

But she's worried that the state won't have enough oversight or accountability for the private companies who are about to be put in charge of billions of dollars of taxpayer money.

MCOs have already been working on a smaller scale, most notably on mental health care, in recent years. It has sometimes erupted in scandal.

In 2017 the state took over Charlotte-based Cardinal Innovations and fired its leaders, later claiming its executives had inappropriately paid themselves millions of dollars in addition to other misspending. According to the Charlotte Observer that meant "lavish Christmas parties and board retreats, charter flights for executives and 'questionable' credit card purchases, including alcohol."

In 2018 the state gave back control over the company and expressed confidence in its new leaders.

Richard said the state probably should have put more time and resources into accountability before then, "but we've learned a lot," he said. "And our contract process, and how we provide oversight, is getting better every day."

Cardinal's new CEO, Trey Sutten, said in a written statement that: "We know that the best health outcomes emerge from caring for the mind and the body -- simultaneously, while also considering the individual's environmental factors such as housing, food security, and other important drivers of health."

And while Insko is worried about oversight and regulations not being stronger, Hise said the increased flexibility should actually lead to cost savings -- as well as an increase in common-sense solutions.

Hise and Richard both said Medicaid is currently banned from taking proactive, outside-the-box steps to help solve people's underlying health issues. But the new system will allow for more creativity.

For example, once Medicaid transformation goes into place, MCOs could help their patients with breathing problems by replacing moldy carpeting in their home. They could buy AC units for people who keep coming to the emergency room for overheating. For people with chronic issues stemming from malnutrition, the companies could help them get meals.

"COVID has given us a great example of this," Richard said. "For example, when people have underlying health issues because they're food-insecure, they're more at risk."

Political pressures

The changes have been supported by the health insurance industry. An industry-backed group called NC Medicaid Choice recently sent a letter to Cooper and legislative leaders emphasizing their urgency.

"As a state, we were promised better health outcomes through Medicaid Transformation," the letter said. "Beneficiaries were promised the opportunity to choose the health plan that best fits their individual needs. And they were promised whole-person care that addresses physical, behavioral and social health needs. But today, we are still awaiting action."

The Medicaid transformation bill passed a few days later.

There will be five MCOs at least at first, including plans run by insurance giants like Centene and Blue Cross Blue Shield of North Carolina. But others including Aetna have filed a legal challenge, fighting for a slice of the pie, NC Health News reported.

These changes have been in the works for years now, and had been scheduled to start in February. But then, late last year, Cooper vetoed a bill to implement the new system. It was largely overshadowed at the time by Cooper's more high-profile fight with Republican lawmakers over whether to expand Medicaid to make more people eligible, as most other states have done.

Hise said that this year, Republicans worked with Cooper's office and the Department of Health and Human Services to write a more agreeable version of the bill.

Those negotiations included deals like boosting the DHHS budget for coronavirus contact tracing from $25 million to $125 million. Last month, the N&O reported that North Carolina had 1,500 people working in contact tracing but, according to one study, should've had more than 7,000 in order to keep up with the state's coronavirus caseload.

When Cooper signed the Medicaid transformation bill into law Thursday he issued a short statement about Senate Bill 808 that never mentioned the transformation, instead focusing on the extra money in the bill for coronavirus efforts.

"This bill contains additional funding for COVID-19 testing and tracing, which are vital in our fight against the pandemic," he said. "I will continue working with legislators and the federal government to increase our testing and tracing capabilities to protect North Carolinians from this virus."

Medicaid expansion

Insko said she thinks one unintended consequence for Republicans who supported Medicaid transformation is that it will also increase political pressure from the health care industry to pass Medicaid expansion.

"It'll mean they'll get more patients," she said.

More than 1 million people in North Carolina don't have health insurance, according to the Kaiser Family Foundation, including around 357,000 people who would be eligible for Medicaid if the state were to approve expansion.

Hise said that like many of his fellow GOP state legislators, he's skeptical of Medicaid expansion but might be more willing to hear the other side out once this other push, for Medicaid transformation, is finished.

"Most senators I talk to, and others, aren't really ready to begin that conversation until we finish the transformation process," Hise said.

For more North Carolina government and politics news, listen to the Domecast politics podcast from The News & Observer and the NC Insider. You can find it on Megaphone, Apple Podcasts, iHeartRadio, Stitcher or wherever you get your podcasts.

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