Featured Health Business Daily Story, April 15, 2014

N.C. Medicaid ACO Program Could Save $1B Over Five Years Via Downside Risk

Reprinted from ACO BUSINESS NEWS, a hard-hitting monthly newsletter on the latest industry actions to design and create ACOs, for hospitals, physicians, health plans and their advisers.

By Jane Anderson, Editor
April 2014Volume 5Issue 4

North Carolina Gov. Pat McCrory (R) hopes to use a combination of existing accountable care organizations and new ACOs to serve most of the state’s Medicaid population in a plan he estimates could save $1 billion over five years, in part by requiring the ACOs involved to accept downside risk.

The program, which was unveiled in late February and still needs approval from state lawmakers, replaces McCrory’s original plan to implement managed care within North Carolina’s Medicaid program. The ACO plan has been submitted to the state legislature, where it has prominent supporters, and may get action during a legislative session that begins in May.

If approved, the North Carolina Medicaid ACOs would open for business in July 2015, and should cover up to 90% of the state’s beneficiaries by year four or five of the program, says Bob Atlas, a Medicaid consultant to North Carolina’s Department of Health and Human Services (DHHS). “We’d like to get to 100%, but we need to allow for some pockets of the state to be hard to serve,” says Atlas, a former chief operating officer of Avalere Health LLC and longtime CEO of The Lewin Group.

“The number of ACOs will be driven by beneficiary need, provider types, and population size within certain geographic areas,” Atlas tells ABN. “It’s this kind of flexibility in the ACO model that focuses on putting patients first.”

N.C. Medicaid Turns to ACOs

The reform plan’s design consists of three components: physical health care, mental health services, and long-term services. Under McCrory’s vision, ACOs will direct physical care, while the state will re-evaluate its mental health services and work on long-range solutions for the aged and disabled. The ACOs chosen to participate in the program will share both savings and losses with the state. They also will be responsible for meeting quality benchmarks, according to the proposal.

Assuming the state legislature approves the plan and CMS also gives its OK for the move, DHHS says it plans to solicit applications from ACOs by late 2014 and to begin enrolling Medicaid beneficiaries in ACOs in July 2015.

The department says it hopes to take advantage of the existing ACOs and patient-centered medical home practices in the state.

“There are currently about a dozen Medicare ACOs in North Carolina, including those in the Medicare Shared Savings Program [MSSP], and we hope most of them also will participate in Medicaid,” says Atlas. “We know of other provider groups that are interested in forming ACOs to serve the Medicaid population.”

Under the proposal, ACOs could consist of clinicians in group practice arrangements, joint ventures between hospitals and clinicians, networks of individual professional practices, and hospitals employing providers.

Safety net organizations such as critical access hospitals, federally qualified health centers and rural health clinics would be able to participate in ACOs or form their own. In addition, other health care providers — for example, home health agencies or diagnostic centers — can participate in ACOs by partnering with eligible provider groups, according to the proposal.

As with Medicare ACOs, North Carolina’s Medicaid ACOs must have a minimum of 5,000 attributed patients.

Each ACO will have a benchmark spending level for its assigned beneficiaries each year, and will share both in savings and in overruns, the state proposal says. “Much as this model aims to shift risk and reward to organized provider groups under ACOs, it does not at any point in time impose full risk on those provider groups. In that respect it is quite unlike capitation payment to managed care organizations,” it says.

ACOs Risk 10% of Benchmark

The ACOs’ savings and loss shares will rise over time, and total awards and penalties will be capped at defined percentages of the benchmark spending amounts. For example, in Year 5 of the program, an ACO that meets all quality goals would be able to earn between 80% and 100% of the total savings it achieves, up to a limit of 15% of its benchmark spending level. Meanwhile, an ACO that exceeds its benchmark spending level would be responsible for paying a penalty that could reach 10% of its benchmark.

The state will pay shared savings directly to the ACOs, and each ACO will be required to establish a method to repay losses to the state.

ACOs will not be responsible for mental health services, long-term care services, dental care, part of outpatient prescription drug costs, or other services such as high-cost imaging procedures that are covered under a capitation contract with a private vendor, the proposal says.

North Carolina has a provider community with considerable clout. Home to major academic medical centers and multiple MSSP participants, the state has a long history of resistance to managed care and to out-of-state managed care organizations. With those kinds of feelings widespread, there was a backlash against McCrory’s original plan, unveiled a year ago, that called for the state to adopt managed care within the Medicaid program.

As a result, McCrory and DHHS expended considerable effort to solicit provider and other stakeholder support for the Medicaid ACO plan, holding open forums and actively soliciting input, Atlas says. “This input generated several program designs that were tested with stakeholders and modified until we reached the point where we are today. This input also guided the principles behind the reform plan.”

Reaction to the plan among provider groups in North Carolina has been positive. Laura Easton, immediate past chair of the North Carolina Hospital Association Board of Trustees and CEO of Caldwell UNC Health Care in Lenoir, N.C., said the ACO model “puts patients first by allowing providers, rather than insurance companies, to manage care and aligns payment incentives both with quality and cost effectiveness.”

Meanwhile, the North Carolina Medical Society, the North Carolina Pediatric Society and the North Carolina Academy of Family Physicians also expressed support for the proposal.

“We’ve clearly heard that the health care provider community said they’re ready to stand up and be accountable,” Atlas says. He acknowledges that there is lots of resistance to managed care and full risk in North Carolina but points out that a portion of the state’s Medicaid spending — the portion that covers mental health and substance abuse services — already is capitated. Those services are provided by “quasi-public” Local Managed Entities (LMEs).

Program Could Save $15 Million in 2016

Savings from the new Medicaid ACO program are expected to accumulate over time, according to DHHS. Next year is designated a “start-up year,” in which the federal government and state would spend an estimated $8 million to implement the program. In 2016, overall Medicaid savings could reach $15 million, and that number would grow to $329 million by 2019, according to state budget estimates.

North Carolina currently spends about $13 billion each year on its Medicaid program, which serves approximately 1.7 million beneficiaries.

When the ACOs open for business in July 2015, health care providers won’t be required to participate in ACOs in order to participate in Medicaid. However, “it is the state’s goal that all, or nearly all, eligible Medicaid beneficiaries will be cared for through ACOs,” the DHHS proposal says.

Therefore, if the state eventually concludes that the ACOs aren’t caring for enough Medicaid patients, it may reduce fees to non-ACO providers or take other measures to broaden the scope of its ACOs, the proposal says. The state intends to have 40% of beneficiaries enrolled in ACOs by July 2016, 60% by July 2017, 80% by July 2018, and 90% thereafter.

Asked if the cost-savings expectations timetable will have to be slowed under the new recommendations, Atlas responds that it could, depending on several factors. Even Medicaid managed care organizations might have problems with the current provider payment structure, under which North Carolina Medicaid pays providers “fairly generous” fee schedules that don’t leave much room for new managed care organizations to raise as part of an effort to induce providers to join managed care networks, he adds.

Furthermore, in some markets in the state, there are a few “heavily consolidated” providers that have the power to resist managed care contracting in any case, he asserts. “We believe there is some savings potential with ACOs, that going on a gradual slope to increasing risk will create a partnership with providers” and do it in a “non-disruptive way,” Atlas says.

© 2014 by Atlantic Information Services, Inc. All Rights Reserved.

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