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NC awards contracts worth unprecedented $6 billion a year in privatization of Medicaid

Five health insurance organizations were named Monday to share in contracts totaling $6 billion a year to provide health care under a privatized state Medicaid program for low-income, disabled and elderly residents that is set to start providing health care coverage in November.

The announcement represents the biggest financial outlay in the history of the N.C. Department of Health and Human Services, and will change the way the Medicaid program has operated for decades. 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.

This 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.

Still, the announcement frustrated some advocates for low-income residents. The state health department rejected a Medicaid contract application by the 12 biggest hospital networks in North Carolina, but handed out multi-billion dollar contracts that will last three to five years to out-of-state bidders, including at least one insurer, Centene Corp., with a controversial track record.

“I was very surprised that the hospitals’ bid was rejected, and that two plans that have no real North Carolina experience and bad track records in other states were accepted instead,” said Douglas Sea, senior attorney at the Charlotte Center for Legal Advocacy, in an email.

The contract winners for statewide Medicaid services are AmeriHealth Caritas, Blue Cross and Blue Shield, UnitedHealthcare and WellCare. There is also one regional insurer: Carolina Complete Health — a consortium of the N.C. Medical Society, N.C. Community Health Center Association and insurer Centene Corp. It will operate regionally in two of the areas slated for the phase two roll-out in February. Sea was particularly concerned that Missouri-based Centene and New Jersey-based AmeriHealth were chosen.

Centene is the nation’s largest provider of health insurance under the Affordable Care Act. The Fortune 500 corporation and its subsidiaries have faced charges and sanctions in more than a dozen states, resulting in at least $23.6 million in penalties, according to an investigation by the Des Moines Register.

The News & Observer wasn’t able to reach Centene spokeswoman Marcela Manjarrez-Hawn by email for comment.

Brendan Riley, a policy analyst with the N.C. Justice Center in Raleigh, said the applications for the contracts were not publicly released, so it has been difficult to assess how North Carolina residents will fare under privatized Medicaid, the majority of whose beneficiaries are low-income children and minors under age 18.

“Some of the old concerns remain,” Riley said. “We’ll take a really close look at the track record of some of these plans in other states. We hope the health department will effectively oversee and hold accountable these organizations to do a good job.”

The new version of Medicaid will be rolled out in phases, with the Triangle being in the first wave, DHHS said Monday. Wake, Durham, Johnston, Chatham and Orange counties are part of a 14-county region with 300,000 Medicaid beneficiaries where privatized Medicaid will be tested before a statewide roll-out in February. The other test region includes 13 counties in western North Carolina with 265,000 Medicaid beneficiaries.

Most people covered by Medicaid will be able to keep their doctors and to choose any of the five new Medicaid private insurance options in which their doctor participates, Dave Richard, the state’s deputy secretary for Medicaid, said in a conference call Monday. Doctors can participate with all the Medicaid contractors in their area, with only some, or they can drop out.

“The vast majority of beneficiaries will continue to go to their provider,” Richard said. “Some providers may choose to move out of Medicaid because of this transition, and some may choose to come in.”

DHHS Secretary Mandy Cohen said that Monday’s announcement clears the way for the five insurer groups to set amounts they will pay doctors and hospitals for treating Medicaid patients. The new system is designed to foster competition, so that each of the five Medicaid contract winners will try to develop the most comprehensive provider networks they can assemble in order to bring in as many patients as possible.

“Starting today,” Cohen said in a conference call with reporters, “folks are going to reach out to doctors and hospitals to do contract negotiations.”

Three applicants for the Medicaid contract were not accepted, and Cohen said they could appeal and have 30 days to do so. They are national health insurers Aetna and Optima Health, as well as My Health by Health Providers, a consortium of Presbyterian Healthcare Services in New Mexico and 12 North Carolina health care systems, including UNC Health Care in Chapel Hill, Duke University Health System in Durham and WakeMed Health & Hospitals in Raleigh.

My Health spokeswoman Cathy Rothey could not be reached for comment by phone and email.

The privatized version of Medicaid will mean big changes for 1.6 million of the 2.1 million people on the federal program. In June Medicaid residents in the two test regions, including the Triangle, will receive information on which insurers are providing Medicaid health coverage in their areas, so that they, or their parents or guardians, can pick the right insurance plan in July that includes their regular doctors. Their coverage will begin in November.

Cohen assured the public that the new payment system, under which insurers will be on the hook for cost overruns, will not incentivize private Medicaid contractors to skimp on medical services in a strategy to stanch losses or boost profits.

She said that the Medicaid contracts impose strict quality measures and other standards upon the organizations receiving the Medicaid funds. For example, a provision called the medical-loss ratio requires that 88 percent of the state Medicaid funds be spent on medical services, and only 12 percent can be spent on administrative functions.

But Monday’s announcement did not appease those who advocate for Medicaid beneficiaries.

“No one has done Medicaid managed care in North Carolina before,” said Corye Dunn, director of public policy at Disability Rights NC, in a phone interview. “There’s an inherent tension between wanting folks who know the state and folks who know managed care.”

About 500,000 Medicaid beneficiaries in North Carolina are considered medically complex patients and are among the most expensive to treat. They will remain on the traditional Medicaid program, in which the state government pays doctors and hospitals for services provided — a system known as fee-for-service — regardless of cost. These patients have mental illness, developmental disabilities or substance abuse problems, and they won’t become part of privatized Medicaid for several years until the new system is better understood.

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John Murawski covers health care and environmental issues and has won numerous awards from the N.C. Press Association for his news coverage as well as his book reviews. He has previously worked as a journalist in South Florida, the Philadelphia area and Washington, D.C. He attended Virginia Commonwealth University and Indiana University, and has taken classes at Veracruz University (in Mexico) and the Jagiellonian University (in Poland). He can be reached at jmurawski@newsobserver.com or 919-829-8932.
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