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NC’s Medicaid privatization could be in for long delays as legal challenges loom

McCrory Signs Medicaid Reform

North Carolina Governor Pat McCrory touts the new Medicaid privatization legislation that was recently passed by the legislature before signing it into law during a ceremony at the Executive Mansion on Wednesday, September 23, 2015 in Raleigh, N.C
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North Carolina Governor Pat McCrory touts the new Medicaid privatization legislation that was recently passed by the legislature before signing it into law during a ceremony at the Executive Mansion on Wednesday, September 23, 2015 in Raleigh, N.C

North Carolina is moving ahead with a plan to turn over its Medicaid health insurance program to five health insurers that will replace the state government as a provider of health coverage to 2.1 million residents.

But one North Carolina organization rejected by state authorities for the coveted $6 billion Medicaid contract said Tuesday it wants to appeal the state’s Feb. 4 decision not to let it participate. My Health by Health Providers, a Morrisville-based consortium of 12 North Carolina hospital systems, is the first to announce that it plans to ask the N.C. Department of Health and Human Services to reconsider the contract award.

The planned appeal could signal months of delays for North Carolina’s long-awaited entry into the realm of privatized Medicaid, the federal health insurance program for the poor, elderly and disabled.

Two other organizations that also failed to win a contract, Aetna Better Health and Optima Family Care, have not announced whether they plan to appeal the decision. They have until March 6 to decide.

The state’s rejection of My Health for a Medicaid contract surprised health care experts and advocates for the poor, largely because the 2015 state law requiring that Medicaid be turned over to insurers says that provider-led entities, such as hospital systems, should be encouraged to participate in privatized Medicaid.

Last week, DHHS awarded statewide contracts to AmeriHealth Caritas, Blue Cross and Blue Shield, UnitedHealthcare and WellCare. The agency also awarded one regional contract to Carolina Complete Health, a consortium of the N.C. Medical Society, N.C. Community Health Center Association and national insurer Centene Corp.

“I do have some concerns about some insurance companies having a true monopoly in the state,” said Rep. Gregory Murphy, a Pitt County Republican, in a phone interview Monday evening. “Why just have insurance companies and not one of these companies that have integrated health care?”

Murphy, a urologist, is the senior chair of the N.C. House Committee on Health, which held a hearing Tuesday morning on the Medicaid contract award. Several lawmakers expressed concern that the insurers will benefit from privatized Medicaid at the expense of local hospital networks and other health care providers.

Under privatized Medicaid, the insurers will be paid flat monthly fees for every person they cover, whether that person gets minimal medical care or requires costly treatment, and it will be the insurers’ responsibility to keep their expenses within budget. In the traditional approach, now being phased out, the state simply cut checks to doctors and hospitals for every medical service they provided.

DHHS Secretary Mandy Cohen said her agency is moving ahead with implementing the new approach, also called Medicaid managed care, even though appeals are expected. She said that it would not be surprising if Aetna, whose proposal was awarded a total of 704.6 points in the state contract assessment, challenged the state contract award that included assigning 706.66 points to AmeriHelath Caritas. The difference of just 2.06 points separated a contract winner from a contract loser.

“There are cases where a point here or a point there really made a difference whether you were No. 4 or No. 5,” Cohen told lawmakers, explaining that the top four scoring health insurance companies were picked.

She said that appeals will be handled internally by DHHS staff but could also end up in court, taking months to resolve. Cohen noted that courts in some states have instructed state agencies to halt implementing Medicaid manage care while pending legal disputes are resolved.

Cohen also said that state law allows only four major insurers to receive statewide Medicaid contracts. That means that if Aetna or My Health were to win on appeal, the state would have awarded five contracts, a situation that would require one of the other contracts to be retroactively rescinded. If that were to happen, another appeal would be almost certain from the company that lost the contract, Cohen said.

However, North Carolina could potentially award a regional contract in parts of the state to My Health, because state law allows provider-led entities to apply for statewide or regional contracts. My Health is 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.

Lisa Farrell, the president and CEO of My Health, said Tuesday by phone that a regional contract would allow My Health to provide Medicaid coverage in all six regions in the state. She said that is not the same as a statewide contract, even though the same geographical region would be covered. That is a legal nuance that DHHS staff will have to assess.

Farrell said that My Health management will be recommending to the organization’s board this Thursday to challenge the DHHS decision not to award My Health a contract. The $6 billion annual contract, the agency’s single largest financial outlay, will total $18 billion over three years, with an option to extend for two additional years.

Medicaid managed care will be rolled out in phases, starting with the Triangle in the first wave. Medicaid beneficiaries will be selecting insurers this summer. In November, privatized Medicaid will make its debut in a 14-county region including Wake, Durham, Johnston, Chatham and Orange counties, where it will be tested with 300,000 Medicaid beneficiaries three months before a statewide roll-out in February 2020.

“Enrollment with an insurance company is going to be a new thing for all of our beneficiaries,” Cohen said. “This is a big change for everyone.”

Medicaid managed care will first affect 1.6 million of the 2.1 million state residents on the federal program. The remaining 500,000, who have developmental disabilities and severe substance abuse, will be phased in later.

Farrell said that some of the state’s contract criteria, spelled out in the request for proposals last August, favors large health insurers that operate in many states, disadvantaging hospital networks in a single state.

For example, she said that several of the criteria require applicants to list Medicaid contracts and experience in other states. My Health is able to list just one state, New Mexico, where partner Presbyterian Healthcare Services provides privatized Medicaid insurance, even though the 12 North Carolina hospitals’ 15,000 doctors, nurse practitioners and physician assistants treat 80 percent of the North Carolina’s Medicaid population.

This deficiency penalized My Health particularly in the quality and value section of the application, where My Health received just 50.4 points., while the four statewide winning contracts scored between 89.25 and 98.7 points.

My Health also received zero points based on current or planned offering of Affordable Care Act coverage in the state. As a coalition of hospitals, it is not practical for My Health to offer ACA plans because My Health does not operate as a traditional health insurer, and was formed expressly for the purposes of the Medicaid contract.

Blue Cross received the maximum 25 points for offering ACA plans in all 100 counties, while WellCare scored 25 points for promising to offer ACA plans statewide in 2021. Three applicants received 5 points because they promised to offer ACA plans but didn’t specify in how many counties.

My Health received more competitive scores in other areas of the application — such as administration, compliance, financial and claims — tying or outscoring at least one of the four statewide contract winners in most categories.

Overall, My Health received a total of 629.71 points from the state out of a possible maximum total 1025 points. The top statewide applicants received between 706.55 and 736.19 points. Meanwhile, provider-led entity Carolina Complete won a regional contract with just 628.4 points, while Aetna was rejected for a statewide contract with 704.60 points.

Carolina Complete was picked over My Health even though Carolina Complete got 1.31 points less. That’s because Carolina Complete applied for a regional contract and came in first for regional applicants, whereas My Health had sought to cover the entire state and competed against multi-state health insurance companies.

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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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