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Pending Legislation to Restructure North Carolina

Pending Legislation to Restructure North Carolina's Medicaid Program

Health Care Law Note
(September 8, 2015)

Multiple bills introduced in the General Assembly in the 2015-2016 legislative session seek to promote budget predictability by dramatically changing North Carolina's Medicaid program, replacing the current "fee for service" model with a full-risk, capitated structure administered by private contractors. House Bill 372/Senate Bill 574 (the "Bill") appears to be the main focus of legislative activity. Version 6 of the Bill is currently under consideration by conference committees in the House and Senate.

If enacted, the Bill would require a competitive bidding process to select private contractors to oversee delivery of all Medicaid health care items and services statewide. Full-risk capitated contracts could begin as early as late 2017. The Bill would also remove Medicaid from DHHS oversight and create the Department of Medicaid as a new executive branch department under the direction of the Secretary of Medicaid, to be appointed by the Governor and subject to legislative confirmation.

New Department of Medicaid

The Department of Medicaid would be created immediately and become the single state agency for Medicaid effective January 2016. The Department would establish and adjust all components of the Medicaid program except for recipient eligibility, would contract with private entities to administer the program, and would establish performance measures for quality and efficiency of service delivery and administration using nationally recognized quality improvement efforts such as the CMS Medicaid Quality Measurement Program or the Baldridge Quality Program.

The Department of Medicaid would determine medical coverage policy as the Division of Medical Assistance currently does. However, the Bill would repeal NCGS § 108A-54.2(d), which currently requires a 5-year fiscal analysis of the cost of a proposed change in medical coverage policy that would affect the amount, sufficiency, duration, and scope of health care services and who may provide services.

Legislative Oversight

The Department of Medicaid would be overseen by a newly-created Joint Legislative Oversight Committee on Medicaid ("Oversight Committee"), comprised of seven representatives and seven Senators appointed by the Speaker of the House and the President Pro Tempore of the Senate, respectively. At least two members from each chamber must be members of the minority party. The Oversight Committee would examine budgeting, administrative, operational and other issues and report to the General Assembly.

Statewide and Regional Administrative Contractors

The administrative contractors would be called Managed Care Organizations or "MCOs." However, the structure would be a hybrid with some aspects of an accountable care organization ("ACO") structure similar to ACOs under the Affordable Care Act, and some aspects of the MCOs that currently administer Medicaid-covered mental health services under the Section 1915(b) waiver program. The Bill also provides for a combination of statewide contracts and regional contracts.

Specifically, MCOs could be either commercial insurers or provider-led entities ("PLEs"). PLEs can be health care providers, entities formed to own providers, or entities controlled by providers. The Bill requires three statewide contracts with either a commercial insurer or a PLE to administer the delivery of all Medicaid health care items and services. In addition, the State would be divided into 5-8 regions. In each region, there would be up to two MCO contracts for the delivery of all Medicaid health care items and services throughout the region. Only PLEs may obtain regional contracts. As a result, a Medicaid recipient living in any region will have a choice among 3-5 MCOs with which to enroll, at least one of which would likely be a regional contractor and/or a PLE.

Provisions Affecting Health Care Providers

Several highlights of the Bill's provisions:

  • All MCO contracts would be full-risk capitated. MCOs would be paid negotiated, competitive rates based on CMS actuarial soundness (as required by 42 CFR § 438.6) and industry standards. A portion of the rates must depend on the achievement of quality and outcome measures.
  • MCO contracts would be subject to negotiated medical loss ratios.
  • MCOs would be subject to solvency requirements determined by the Commissioner of Insurance, similar to Medicare Advantage contractors.
  • Medicaid providers would be paid value-based payments to support the achievement of performance, quality and outcome measures. The Bill appears to leave the specifics of the value-based payment systems to the MCOs' discretion, creating the potential for reimbursement systems and rates to vary by region or by MCO. Also, the Bill does not specify the extent to which MCOs may require providers to accept capitated payments.
  • Providers would not have a right to participate in an MCO's network. MCOs can exclude providers from their networks based on "economic or quality standards" (although the current version of the Bill also includes general language that small providers shall have an equal opportunity to participate).
  • Bids submitted by prospective MCOs must describe how they would ensure adequate access to appropriate care throughout the state or region, and each MCO contract must contain measures and goals for access. However, the Bill does not state what level of access to care is adequate.
  • MCOs must accept full responsibility for all grievances and appeals. Currently, NCGS § 108C-12 (which would be recodified into a new Chapter 108E) allows a provider to appeal from an adverse determination by "the Department" by filing a contested case in the NC Office of Administrative Hearings ("OAH"). However, since the Bill would require MCOs to take full responsibility for appeals, an MCO's decision to terminate a provider's participation, recoup payments, etc. would arguably not be a decision of the "Department." Therefore, the Bill does not specifically give providers any recourse to OAH or the courts for the actions of an MCO.
  • MCOs must adopt methods to ensure program integrity against fraud, waste and abuse.

The full text and current status of House Bill 372/Senate Bill 574 can be obtained on the North Carolina General Assembly web site.

NOTE – This article has been updated as of September 21, 2015 in light of a committee substitute bill that amended several key provisions of House Bill 372.  Please see the update to this article at

Marc Hewitt is a partner at Smith Moore Leatherwood. He practices from our Raleigh's office and can be reached at (919) 755-8776.

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