House Bill 403: A Potential Upheaval of Medicaid!

Is this the end of the managed care organizations (MCOs)?

If the Senate’s proposed committee substitute (PCS) to House Bill 403 (HB 403) passes the answer is yes. The Senate’s PCS to House Bill 403 was just favorably reported out of the Senate Health Care Committee on June 15, 2017. The next step for the bill to advance will be approval by the Senate Rules Committee. Click here to watch its progress.

As my readers are well aware, I am not a proponent for the MCOs. I think the MCOs are run by overpaid executives, who pay themselves too high of bonuses, hire charter flights, throw fancy holiday parties, and send themselves and their families on expensive retreats – to the detriment of Medicaid recipients’ services and Medicaid providers’ reimbursement rates. See blog. And blog.

Over the last couple days, my email has been inundated by people abhorred with HB 403 – urging the Senators to retain the original HB 403, instead of the PCS version. As with all legislation, there are good and bad components. I went back and re-read these emails, and I realized multiple authors sat on an MCO Board. Of course MCO Board members will be against HB 403! Instead of hopping up and down “for” or “against” HB 403, I propose a (somewhat) objective review of the proposed legislation in this blog.

While I do not agree with everything found in HB 403, I certainly believe it is a step in the right direction. The MCOs have not been successful. Medically necessary behavioral health care services have been reduced or terminated, quality health care providers have been terminated from catchment areas, and our tax dollars have been misused.

However, I do have concern about how quickly the MCOs would be dissolved and the new PHPs would be put into effect. There is no real transition period, which could provide safety nets to ensure continuity of services. We all remember when NCTracks was implemented in 2013 and MMIS was removed on the same day. There was no overlap – and the results were catastrophic.

The following bullet points are the main issues found in HB 403, as currently written.

  • Effective date – MCOs dissolve immediately (This could be dangerous if not done properly)

Past legislation enacted a transition time to dissolve the MCOs. Session Law 2015-245, as amended by Session Law 2016-121, provided that the MCOs would be dissolved in four years, allowing the State to implement a new system slowly instead of yanking the tablecloth from the table with hopes of the plates, glasses, and silverware not tumbling to the ground.

According to HB 403, “on the date when Medicaid capitated contracts with Prepaid Health Plans (PHPs) begin, as required by S.L. 2015-245, all of the following shall occur:…(2) The LME/MCOs shall be dissolved.”

Session Law 2015-245 states the following timeline: “LME/MCOs shall continue to manage the behavioral health services currently covered for their enrollees under all existing waivers, including the 1915(b) and (c) waivers, for four years after the date capitated PHP contracts begin. During this four-year period, the Division of Health Benefits shall continue to negotiate actuarially sound capitation rates directly
with the LME/MCOs in the same manner as currently utilized.”

HB 403 revises Session Law 2015-245’s timeline by the following: “LME/MCOs shall continue to manage the behavioral health services currently covered for their enrollees under all existing waivers, including the 1915(b) and (c) waivers, for four years after the date capitated PHP contracts begin. During this four-year period, the Division of Health Benefits shall continue to negotiate actuarially sound capitation rates directly with the LME/MCOs in the same manner as currently utilized.

Instead of a 4-year transition period, the day the PHP contracts are effective, the MCOs no longer exist. Poof!! Maybe Edward Bulwer-Lytton was right when he stated, “The pen is mightier than the sword.”

Again, I am not opposed to dissolving the MCOs for behavioral health care; I just want whatever transition to be reasonable and safe for Medicaid recipients and providers.

With the MCOs erased from existence, what system will be put in place? According to HB 403, PHPs shall manage all behavioral health care now managed by MCOs and all the remaining assets (i.e., all those millions sitting in the savings accounts of the MCOs) will be transferred to DHHS in order to fund the contracts with the PHPs and any liabilities of the MCOs. (And what prevents or does not prevent an MCO simply saying, “Well, now we will act as a PHP?”).

What is a PHP? HB 403 defines PHPs as an entity, which may be a commercial plan or provider-led entity with a PHP license from the Department of Insurance and will operate a capitated contract for the delivery of services. “Services covered by PHP:

  1. Physical health services
  2. Prescription drugs
  3. Long-term care services
  4. Behavioral health services

The capitated contracts shall not cover:

  1. Behavioral health
  2. Dentist services
  3. The fabrication of eyeglasses…”

It would appear that dentists will also be managed by PHPs. As currently written, HB 403 also sets no less than three and no more than five contracts between DHHS and the PHPs should be implemented.

Don’t we need a Waiver from the Center for Medicare and Medicaid Services (CMS)?

Yes. We need a Waiver. 42 CFR 410.10(e) states that “[t]he Medicaid agency may not delegate, to other than its own officials, the authority to supervise the plan or to develop or issue policies, rules, and regulations on program matters.” In order to “Waive” this clause, we must get permission from CMS. We had to get permission from CMS when we created the MCO model. The same is true for a new PHP model.

Technically, HB 403 is mandating DHHS to implement a PHP model before we have permission from the federal government. HB 403 does instruct DHHS to submit a demonstration waiver application. Still, there is always concern and hesitancy surrounding implementation of a Medicaid program without the blessing of CMS.

  • The provider network (This is awesome)

HB 403 requires that all contracts between PHPs and DHHS have a clause that requires PHPs to not exclude providers from their networks except for failure to meet objective quality standards or refusal to accept network rates.

  • PHPs use of money (Also good)

Clearly, the General Assembly drafted HB 403 out of anger toward the MCOs. HB 403 implements more supervision over the new entities. It also disallows use of money on alcohol, first-class airfare, charter flights, holiday parties or similar social gatherings, and retreats, which, we all know these are precisely the activities that State Auditor Beth Wood found occurring, at least, at Cardinal. See Audit Report.

HB 403 also mandates that the Office of State Human Resources revise and update the job descriptions for the area directors and set limitations on salaries. No more “$1.2 million in CEO salaries paid without proper authorization.”

  • Provider contracts with the PHPs (No choice is never good)

It appears that HB 403 will not allow providers to choose which PHP to join. DHHS is to create the regions for the PHPs and every county must be assigned to a PHP. Depending on how these PHPs are created, we could be looking at a similar situation that we have now with the MCOs. If the State is going to force you to contract with a PHP to provide Medicaid services, I would want the ability to choose the PHP.

In conclusion, HB 403 will re-shape our entire Medicaid program, if passed. It will abolish the MCO system, apply to almost all Medicaid services (both physical and mental), open the provider network, limit spending on inappropriate items, and assign counties to a PHP.

Boy, what I would give to be a fly on the wall in all the MCO’s boardrooms (during the closed sessions).

About kemanuel

Medicare and Medicaid Regulatory Compliance Litigator

Posted on June 20, 2017, in "Single State Agency", 1915 b/c Waiver, Access to Care, Accountability, Administrative Costs, Administrative Remedies, Adult Care Homes, Alliance, Assisted Living Facilities, Audits, Behavioral health, Cardinal Innovations, CenterPoint, Dental Medicaid Providers, Dentistry Services, DHHS, Doctors, Durable Medical Equipment, EastPointe, ECBH, Federal Government, Federal Law, General Assembly, Gordon & Rees, Group Homes, Health Care Providers and Services, Home Health Care Agencies, Home Health Services, Hospice, Hospital Medicaid Providers, Hospitals, Knicole Emanuel, Laboratory Services, Legal Analysis, Legislation, Long Term Care Facilities, Managed Care, MCO, Medicaid, Medicaid Advocate, Medicaid Attorney, Medicaid Providers, Medicaid Recipients, Medicaid Reform, Medicaid Reimbursements, Medicaid Services, Medical Necessity, NC, NCTracks, NCTracks Billing Issues, North Carolina, Nursing Homes, Pharmacy, Physicians, Prescription Drugs, Primary Care, Primary Care Physicians, Provider Led Entities, Provider Medicaid Contracts, Psychiatrists, Tax Dollars, Taxes, Taxpayers, Trillium and tagged , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 7 Comments.

  1. Leslie Wolff, PT

    Hi, I am co-owner of a small business that provides physical therapy, occupational therapy speech therapy and educational therapy to children ages 0-21. Our primary caseload is for children in the Early Intervention program (ages 0-3).

    Our clinic provides services in homes, daycare or in our independent clinic. Currently we have 14 employees. I am not clear how HB403 would impact my business and therefore what I should tell my employees what to expect. Can you give me some insight? Thank you.

  2. Thank you for this information. I read the entire audit report you referenced in your blog. Is it really true that Cardinal Innovations can “save” $70 million over a two year period to spend as they see fit while there is a waiting list for participants for services on the Innovations Waiver of years? If so, how can that be since the majority of those funds are to provide those services?

  3. HB403 looks like another change to change previous changes that changed other changed changes that were initially changed in response to past unsuccessful changes.

  4. It is misleading, and a disservice to the many dedicated, hardworking, and modestly-paid public servants in the MCOs and their provider networks, to paint all LME/MCOs with the broad brush of the State Auditor’s Report on Cardinal Innovations without any evidence that the other MCO’s have engaged in the kinds of activities that are outlined in the Auditor’s Report. Further, the Senate version of H 403, while addressing the expenditure of funds on alcohol and board retreats, would legalize the current Cardinal CEO salary upon the effective date of the bill, a salary that, without the bill, is being paid in violation of state statute. It is the amazingly high salary and benefits of the CEO that precipitated the ire of legislators in the first place, which led to the call for the State Auditor’s report. The Senate version of the bill punts that issue down the road while letting the Cardinal CEO keep that salary in the meantime. Finally, the primary difference between an “MCO” under the current behavioral healthcare system and a “PHP” under the 2015 Medicaid Transformation Act, other than the integration of care, is that the former is a public entity and the latter is a private, commercial entity. To assert that a reason to support the Medicaid Transformation is that, under the current MCO system services have been reduced and providers have been terminated, without analyzing why that may be true and whether anything would be different by transferring MCO functions to Aetna or United Healthcare, is an assertion without any explicit rational basis. There may be pros and cons to a public MCO versus a private, for-profit MCO (PHP), and there may be things about the current system that should be changed, but one should first look at current policy–including the consistent cuts in state funding to the public MCOs over the last several years for the non-Medicaid (uninsured)–before assuming that having a private commercial entity managing the dollars will change current complaints about the system. Further, i see no evidence that the clinical guidelines and rules that will apply to the private insurance plans under Medicaid Transformation will be any different–or lead to any more services–than the current rules that govern what services MCOs can pay for.

  5. Michael W Davis, DDS

    “I think the MCOs are run by overpaid executives, who pay themselves too high of bonuses, hire charter flights, throw fancy holiday parties, and send themselves and their families on expensive retreats – to the detriment of Medicaid recipients’ services and Medicaid providers’ reimbursement rates.”

    Oh, you know I fully agree w/ that, and more. Have you been following how dental MCOs & insurance companies are now buying up groups of dental providers? Guardian has purchased dental practices in TX. DentaQuest has purchased Sarrell Dental (AL,TN, etc.), & it’s expanding provider clinics. MCOs and insurance companies are seeking vertical & horizontal control of the dental industry, which is increasingly evident in the Medicaid sector. Can you say, “conflict of interest”?

    Michael W Davis, DDS
    Santa Fe, NM

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