Governor McCrory recently announced his intention to fix Medicaid by shifting its management from state government to private, for-profit companies operating under capped, pre-determined contracts. The goals are to contain run-away costs and to achieve greater year-to-year predictability in North Carolinas budgetary share of Medicaid, a program that is funded two-thirds by federal dollars and one-third by state appropriations. This fix will work to the advantage of North Carolina only if the incentives built into these vendor contracts are carefully structured to promote quality of care while controlling costs.
Controlling costs via contract can be accomplished by replacing expensive and unmanaged pay as we go patterns of health care usage with affordable and more appropriate patterns of use. To do this, each private company will be authorized to pay for a mix of medical, mental health, substance abuse, and disability services for Medicaid-eligible individuals with no additional funding if expenditures were to exceed the dollar amount in its fixed-price contract. In theory, the incentives in these Medicaid management contracts restrict payments for unnecessary or ineffective service use while encouraging the delivery of appropriate health care services for identified needs.
In practice, cost controls often over-ride quality of care concerns. A 2007 study in the Journal of the American Medical Association, for example, found that Medicaid-eligible individuals enrolled in managed care plans received lower quality care than their non-Medicaid-eligible counterparts. This leads to an undesirable situation whereby vendors can increase their profits by underserving the Medicaid population. Most vendors are willing to assume the financial risk of a fixed-price contract only if they can retain as profit the unspent dollars that result from service provision that ends up costing less than the annual contract amount. Medicaid serves a high-needs population comprised of children, pregnant women, disabled individuals, elders, and persons with severe mental illness. Without further protections, vendors can realize financial gains by providing low quality, low cost services to these beneficiaries, or by not serving the neediest individuals at all, and the n seeing their care shifted off budget to other sectors, including jails and prisons.
North Carolina can avoid this fate if the Division of Medical Assistance (Medicaid) requires vendors to do three things. First, provide services according to best practice standards of care. Second, abide by well-defined performance indicators. And third, establish a performance monitoring mechanism whereby an entity independent of DMA can regularly report levels of health care access and quality for all of the Medicaid eligibles assigned to each vendor. Contracts meeting these stipulations will go a long ways toward ensuring that this vulnerable population routinely receives high quality care without falling victim to the contradictory incentives often associated with a managed care approach.
Other states have used these types of contracts for years and we need to learn from their experiences. The Governors plan for privatizing Medicaid (Partnership for a Healthy North Carolina) is long on goals but short on operational details. Assuming that vendors will routinely offer high quality of care can be a big mistake. Effective contracts require built-in accountability and performance standards. According to a 2004 study in Health Affairs, just 16 percent of states using Medicaid managed care plans contractually required their vendors to deliver minimal standards of care; and 50% or more did not monitor, evaluate, and/or seek to improve the delivery of care in relationship to quality indicators. Furthermore, over 60% did not use financial incentives to promote access to quality care. Lax accountability has led to widespread dissatisfaction with Medicaid managed care in other states.
Purchase of service contracting has not been a strong suit of the Division of Medical Assistance (DMA) in recent years as demonstrated by the community support fiasco where according to the News & Observer over $600m dollars in Medicaid reimbursements was misspent. According to the State Auditor, DMA has also spent $484m over the past several years with two different vendors for a new Medicaid computer system for processing reimbursement claims without yet having a usable product.
So now is a good time to urge the Governor and Secretary of Health and Human Services (DHHS) to consider carefully how management contracts will be structured with Medicaid vendors. Lets make certain that our vendor contracts include tangible, pay-for-performance incentives to contain costs, avoid profiteering, and promote quality care for the many thousands of North Carolinians who depend upon Medicaid for their health care needs.
Jennifer Jolley, Ching-Ching (Claire) Lin, and Mona Kilany and Gordon Gauchat, who also contributed, are members of the Behavioral Health Carve-Out Study Group sponsored by the UNC-Duke Training Program in Mental Health Services Research at the Cecil G. Sheps Center for Health Services Research.