Special Reports

July 4, 2014

PART ONE: For NC Medicaid program, is 'broken' a bad rap?

North Carolina has held per-patient costs down more effectively than many states. But a poor economy and tight state budget have brought budget pressure, and Republicans now in control see Medicaid as a prime example of government gone haywire.

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It was a quick sound bite, but it has resounded through state politics.

“We have a broken Medicaid system that is not ready to go,” Gov. Pat McCrory told a group of business leaders about a month after he took office early last year.

McCrory, a Republican, repeated the assessment in interviews and speeches all year, defending the state’s decision not to expand Medicaid with new federal money. And he emphasized it when he announced that he wanted to make big changes to the program, igniting a debate that has yet to be settled.

There are valid reasons for state leaders to be troubled by the growth of Medicaid in North Carolina, which now costs $13 billion a year. Two-thirds of that is paid for by the federal government, but the program still accounts for nearly 20 percent of all state spending, threatening to crowd out money for more popular programs.

The state spent $2 billion on Medicaid in 2004. By 2013, that spending had grown 80 percent, to $3.6 billion. During the same time, overall state spending increased 36 percent. Estimates of how much more spending will rise have been elusive; in 2012-13, legislators had to add $500 million in spending to what had been a $3.1 billion allocation, though the budget year that ended in June may show a slight surplus.

Still, Senate leaders have lost confidence in state bureaucrats’ ability to manage the program.

Yet by other measures, the state has done much better, a News & Observer review shows. Medical costs per person have declined overall by more than 11 percent since 2008, according to the legislature’s fiscal staff, while Medicaid spending nationally has increased 6 percent using the same measure.

A higher share of North Carolina’s health care providers are willing to serve Medicaid patients than the national average, giving patients better access to care close to home. And on several measures of preventive care, the state’s program ranks higher than commercial insurance plans in other states that cover only Medicaid beneficiaries.

The dropping cost per recipient was attributed to a flood of young, healthy people signing up for coverage during the recession, and to state cost-cutting.

Medicaid provides health insurance for low-income children and their parents, the disabled and elderly who are poor. McCrory and lawmakers want to make dramatic changes to slow down the rise in costs but haven’t agreed how.

McCrory and House leaders want to build on an existing nonprofit network of care but make providers responsible for overruns. Senate leaders would turn the program over to providers or private managed-care companies, giving them a set amount to spend and making them responsible for any overruns.

The Senate proposal would take coverage away from thousands of recipients.

As negotiations continue, McCrory has softened his rhetoric from his assessment that the system is broken.

“I think a better word,” he said in a recent interview, “is the system is not sustainable for the long run.”

A different outlook

Under Republican control, the way the General Assembly approaches Medicaid has been transformed.

For several years, particularly during the recession, legislators saw more state residents – from 1.2 million in 2008 to 1.7 million now – move onto the Medicaid rolls. At the same time, the state budget was either shrinking or growing at a slower pace than usual.

State legislators, mostly Democrats, once uniformly worked to expand Medicaid and absorb all the federal money they could. They believed that treating people before they ended up in emergency rooms was more efficient, and they wanted hospitals to get paid for care they provided. The state built a relatively comprehensive program, providing more optional services than many other states in the region.

Legislative leaders now see the program as an emblem of a big government gone haywire. The shifts in national health care policy, driven by the Affordable Care Act and its thrust to open Medicaid to serve more poor patients, has changed the political calculus.

“So much of what was done for years was maximize the use of federal dollars,” said Lanier Cansler, a former Republican legislator who worked at the state Department of Health and Human Services as a deputy secretary and secretary.

One of the recent program expansions occurred in the late 1990s, when Republicans ran the state House, and the legislature loosened income restrictions to allow more elderly people to qualify. State leaders think differently today, Cansler said.

“It’s a different political climate. They feel Medicaid is sucking dollars out of the system. They want a smaller government in many ways.”

Efficiencies can also come with better health care, Republican legislators say. Sen. Ralph Hise of Spruce Pine, a key budget leader on Medicaid issues, said the state can get more control of costs by better integrating physical and mental health.

Senate Republicans propose to do that by converting Medicaid to managed care, which they say will lead to better patient care at predictable costs.

“I think there’s a lot of things we can do to reach savings and provide better outcomes,” Hise said.

Reduction in benefits?

Medicaid dates back to Lyndon Johnson’s Great Society, built on the the idea that the poor need a safety net for health care; the state’s program started in 1970.

But not all poor people qualify. Medicaid covers low-income children and a select group of poor parents, but most poor adults without children at home aren’t eligible for the insurance.

Children and their parents account for most of the people on Medicaid, but, as a group, they cost less to cover. There are far fewer elderly and disabled people on Medicaid than parents and children, but care for the elderly and disabled costs much more.

Last year in North Carolina, care for 1.5 million parents and children cost Medicaid $3.7 billion, while 540,000 elderly, blind and disabled beneficiaries cost $6.6 billion. The numbers add up to more than 1.7 million because people move on and off the rolls.

States establish and run Medicaid programs within federal guidelines. Usually, the state must seek federal permission to make changes.

Over the years, North Carolina decided to do more than the federal government requires by offering Medicaid to people with high medical bills or older people with higher monthly incomes than federal minimums. Now, Senate Republicans are looking to cut back and eliminate Medicaid support for the medically needy and some of the elderly, which could save more than $30 million a year.

Nowhere to go

Anthony Leiro says the public generally believes that people on Medicaid are poor and have always been poor.

But some are like his mother, 73-year-old Lourdes Real. She worked most of her adult life, owned a condo in Durham and was working part time as a translator after retirement. Then a massive stroke left her mostly confined to a bed and dependent on nursing care paid for by Medicaid.

After his mother’s stroke seven years ago, Leiro had to sell her condo to pay for her nursing home care. After that money ran out, they turned to Medicaid. Leiro said he wouldn’t be able to afford $6,000 a month to pay for his mother’s care if the state makes her ineligible for the insurance.

Leiro discovered recently that his mother could lose Medicaid coverage because she qualifies as medically needy.

“I don’t think they get it,” he said of Senate budget writers. “They obviously want as many people off the rolls as they can get. I don’t think they realize people won’t have anywhere to go.”

Debera Kucharski has had trouble sleeping since the Senate proposed Medicaid cuts that would make her mother ineligible.

Kucharski’s mother, Margaret DeViney, lives in The Covington, a Raleigh assisted living facility, in a special section for people with Alzheimer’s and other forms of memory loss. Kucharski searched for a spot close to their Raleigh home for her mother, whose hands-on care is paid by Medicaid.

DeViney, 79, lived with her daughter until 2011, when it was no longer safe for DeViney to stay in the apartment they shared while Kucharski worked her full-time job.

Kucharski would come home to find that her mother had wandered from their apartment without her identification and cellphone. Once Kucharski found her mother sitting on the sidewalk on a 100-degree day.

Kucharski returned home one day to find DeViney sitting in the apartment as it filled with smoke. In the microwave was a loaf of bread with a burned wrapper. Kucharski started to sleep on the couch, afraid that her mother would walk away from home in the middle of the night.

If DeViney loses Medicaid, there’s no way she could afford to remain in The Covington, Kucharski said.

“It’s not just my mom,” she said. “There are thousands of people out there.”

The state has used several strategies to try to slow increases in Medicaid costs. Lowering payments for health services and trimming the list of things the program will pay for are the tactics the state turns to most often.

As long as they stay within federal guidelines, states can also decide some people are no longer eligible, as Senate Republicans have proposed. They don’t believe the predictions of dire consequences of cutting eligibility.

Hise, the Republican senator, says nursing homes that mostly house Medicaid patients would be able to keep those suddenly ineligible for coverage if they find more residents who pay the full cost. He said the state’s program has grown too robust; in some cases, the Senate would scale back coverage to only what is required by federal regulations.

“There are large populations we cover that are not covered in other states,” Hise said.

Better outcomes here

At the core of North Carolina’s efforts for effective medical care is Community Care of North Carolina – a coalition of 14 networks of doctors paid to offer more hands-on care to people with severe or chronic illnesses.

Evaluations show that the arrangement delivers care “that’s more patient-centered, more coordinated,” said Julia Paradise, associate director of the Kaiser Commission on Medicaid and the Uninsured in Washington, a nonpartisan health policy and information organization.

A 2011 analysis for the state Department of Health and Human Services concluded that CCNC saved about $984 million over four years by avoiding more costly treatment.

CCNC coordinates care for most Medicaid patients. About 90 percent of the state’s primary care doctors participate to offer more attention to people with chronic diseases such as asthma and diabetes. Doctors receive feedback on the effectiveness of their work.

Ongoing support for people with chronic illnesses “helps keep people out of more expensive settings by managing their care more effectively on an outpatient basis,” Paradise said.

For some of the illnesses that receive special attention, CCNC does better in health care measures than Medicaid HMOs, managed-care organizations that operate in other states.

CCNC patients in 2013 did significantly better on measures of blood sugar, blood pressure and cholesterol control, markers for whether patients’ diabetes is in check. CCNC patients with chronic asthma also did better at taking their medicine than Medicaid HMO patients in 2012.

Nearly 61 percent of CCNC patients with diabetes had their blood sugar levels under control in 2013, according to one level of review. The mean for Medicaid HMO patients was 46.5 percent in 2012.

More than 97 percent of CCNC patients with chronic asthma were receiving appropriate drug therapy, while the mean for Medicaid HMOs was 84 percent.

CCNC did not do as well with cancer screenings or routine pediatric visits. About 44 percent of adolescents received annual checkups in the 12 months ending in March 2013, while the 2012 HMO mean was nearly 50 percent.

The primary care doctors, the 14 regional networks and the main CCNC office are paid fees for each patient in a network to participate in patient care coordination. Those fees, including fees to local health departments for help with pregnant women and young children, totaled about $180 million last year.

The network sometimes gets orders from the legislature to save money, but it doesn’t have to soak up any overruns in planned state spending. That’s different from the managed-care model legislators are pushing, where providers or insurance companies would get a certain amount of money and be required to provide care without overspending.

Keeping people well so they don’t need to seek emergency treatment is thought to benefit both patients and budgets. A 2010 report from The New England Healthcare Institute said that overuse of U.S. emergency departments among patients with public and private insurance resulted in $38 billion a year in wasteful spending.

“One of the biggest things we treat is diabetes,” said Dr. William Dennis, president of the N.C. Academy of Family Physicians. “If someone ends up not having well-controlled diabetes and has to go to the emergency room, you’re looking at $5,000 to $6,000 just for the emergency room visit.”

Not all Medicaid patients are enrolled in CCNC, and the networks are responsible for less than half the state’s Medicaid spending. The networks don’t have a say in some of the state’s biggest Medicaid expenses, such as personal care services, medical equipment, nursing homes and mental health.

Repeated shortfalls

North Carolina already has managed care for Medicaid patients who need mental health treatment. For medical care, doctors and hospitals bill for each service. Often, mental and medical care providers for the same patient don’t communicate; legislators, state administrators, and health care providers want better coordination to save money.

That would help the budget. And there’s universal agreement that Medicaid budgets need to be more predictable.

Year after year, frustrated legislators in winter and spring look for ways to plug Medicaid budget shortfalls that have ranged from $335 million to more than $600 million between 2010 and 2013. One of the problems has been estimating how much the federal government would kick in each year.

In the recession, as more people enrolled in Medicaid, the federal government responded by increasing the percentage of costs it picked up. The state’s share of Medicaid costs dropped between 2008 and 2010 as the federal government took on a bigger slice.

But when the federal government removed the crutch, state spending shot up again.

Cansler, the former legislator and DHHS secretary, said he always wanted state budget writers to make sure state money was available when the federal government pulled back.

“One thing that is broke is the way we budget for Medicaid,” he said. “When the economy gets better, the federal match goes down. When you ride that roller coaster ... sooner or later you have to fill that hole.”

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