November 26, 2020

Volume X, Number 331


November 25, 2020

Subscribe to Latest Legal News and Analysis

November 24, 2020

Subscribe to Latest Legal News and Analysis

November 23, 2020

Subscribe to Latest Legal News and Analysis

North Carolina Medicaid Reform – House Bill 1181, the Medicaid Modernization Act

​With about 2.3 million North Carolina residents receiving Medicaid services for at least part of 2013, Medicaid reform is a top priority for the General Assembly. The significant funding allocations required to supplement the appropriated budget over the past three years have reduced the confidence of many legislators in the Department of Health and Human Services’ (DHHS) ability to accurately predict Medicaid costs. As a result, the N.C. House of Representatives and the N.C. Senate have proposed radically different plans they each believe would hold providers accountable for meeting budget and quality care goals while providing “whole-person care” to North Carolina Medicaid recipients, who include the state’s low-income, disabled and pregnant patients, and young and old residents. With no resolution in the current short session, the question remains whether the transition will be to a plan using both provider-led and non-provider-led capitated health plans or solely provider-led plans, and whether that transition and plan will be under the supervision of DHHS or a separate Department of Medical Benefits (DMB).

Medicaid reform has been in the news most of 2014, after DHHS’s initial proposal to bring in for-profit managed care companies to run the state’s Medicaid program met tremendous opposition from the health care provider community. The agency subsequently changed its proposal to instead use accountable care organizations (ACOs) to provide care to North Carolina Medicaid recipients. The N.C. House’s original plan would have followed DHHS’s lead in part and restructure the Medicaid system using ACOs.  In House Bill 1181 (HB 1181), filed May 21, 2014, by Representatives Nelson Dollar, Marilyn Avila, Justin Burr, and Donny Lambeth, the House stated its intent “[i]nstead of paying for medical services on a purely fee-for-service basis that merely rewards volume and intensity of services, the state can redesign payment and care coordination models to reward advances in quality and patients’ health outcomes” and hold “providers accountable for meeting budget targets and quality goals.” While transitioning to “more prevention-focused” care, they would also integrate care “across physical, behavioral, and long-term care domains.”  In the original House plan, DHHS would establish a Medicaid ACO Program, modeled after the federal Medicaid Shared Savings Program found in 42 C.F.R. Part 425, that would utilize shared savings and losses with providers as incentives to meet budget targets.

One month later, with the support of the Governor, the House changed course and proposed moving to a provider-led capitated health plan model, in a House Committee Substitute originating in the House Committee on Health and Human Services.  The stated goals of the revised legislation were to: (1) provide budget predictability, (2) slow the rate of cost growth, (3) achieve cost savings through efficient reductions in programmatic costs, (4) create more efficient administrative structures, (5) improve health outcomes for the state’s Medicaid population, and (6) require provider accountability for budget and program outcomes. The plan was to be implemented for the majority of the Medicaid population by July 1, 2020, beginning with sharing limited risk with providers that would increase over time. The plan in this substitute bill proposed that DHHS would lead the transition and report to the General Assembly on the status of implementation in March of 2015.

A third version came out of the House Committee on Appropriations as another committee substitute. The only substantive change between it and the previous version was to create a study of “issues related to the development of a demonstration pilot to test the feasibility of single payments to an entity that would cover the full array of Medicaid services for Medicaid recipients with intellectual and developmental disabilities.” This third version of HB 1181 passed out of the House on July 2, 2014, with unanimous and bipartisan support, 113-0.

The Senate has demanded more radical changes to the current program and desires greater and more direct control over Medicaid expenditures. Led by Senators Ralph Hise and Louis Pate, this plan was first proposed as a Senate Committee Substitute for HB 1181 and reported favorably on July 17, 2014, in the Senate Committee on Rules.The Senate plan, which is now the sixth edition of HB 1181, would have established by September 1, 2014, a new Department of Medical Benefits (DMB) to oversee the transition to multiple provider-led and non-provider-led health plans (described by critics as “private for-profit managed care companies”), instead of oversight by DHHS and the Division of Medical Assistance (DMA). The Senate plan included the following goals or features:

  • Create competition among multiple provider-led and non-provider led health plans as a way to reduce costs, improve quality, and increase patient satisfaction.

  • DMB would commence capitated health plans and phasing in full risk for provider-led plans over two years, transitioning the state entirely to full risk provider-led plans by July 1, 2018.

  • Include mechanisms to provide incentives for personal accountability for patients’ health choices and outcomes, and ways to identify and refer Medicaid patients for further beneficial and appropriate services and programs. 

  • DMB’s board would be comprised of seven members, including experts in the administration of large health delivery systems, public assistance, managed care, health insurance, large business leadership, and an actuarial fellow with experience in health insurance. The Secretary of DHHS would sit on the board but would serve as an ex-officio, non-voting member.

The Senate passed the sixth edition of HB 1181 out of the chamber on July 28, 2014, by a vote of 29 to 17, almost entirely along party lines. On July 30, 2014, the House rejected the Senate plan, again voting with unanimous and bipartisan support, 106-0.

The General Assembly has adjourned sine die, but it may return before the 2015 session scheduled to begin in late January 2015 if three-fifths of the members of each house vote to do so. Section 11(2) of Article II of the North Carolina Constitution.  The more likely scenario for the General Assembly to return would be for a special session called by the Governor, as is permitted “on extraordinary occasions, by and with the advice of the Council of State,” pursuant to Section 5(7) of Article 3 of North Carolina Constitution.

Although neither the House nor the Senate has appointed conference committee members to negotiate a resolution concerning their sharply differing versions of HB 1181, the General Assembly remains committed to Medicaid reform. The Appropriations Act of 2014, Session Law 2014-100, signed by the Governor on August 7, 2014 (Act), included the following provisions regarding plans for Medicaid reform: 

  • Under Subpart XII-H, DMA (Medicaid), Section 12H.1, the Act states that “[i]t is the intent of the General Assembly to continue to work toward the details of Medicaid reform during a special session in November 2014.” 

  • Section 12H.19 of the Act repeals the payment per member per month to Community Care of North Carolina (CCNC) appropriated in the Appropriations Act of 2013, stating “[i]t is the intent of the General Assembly that the structure of per member per month (PMPM) payments or other payments to providers participating in Community Care of North Carolina (CCNC) programs be considered as a part of any Medicaid reform plan for the state.”

  • Section 12H.20A requires DHHS and DMA to include in all its contracts containing Medicaid-related or N.C. Health Choice-related provisions a clause that allows its cancellation without cause and upon 30 days’ notice.  All contracts entered into on or after August 7, 2014, will be deemed to include that provision whether or not it actually appears in the contract.

The two houses of the N.C. General Assembly have remained at odds throughout the past short session concerning a solution to the consistent problems with North Carolina’s Medicaid program. Hospitals, other providers and consumers remain watchful as to whether an agreement will be reached either in November or in the 2015 legislative session, what form it will take, and whether the resolution can begin to solve the difficult issues facing that program.

© 2020 Poyner Spruill LLP. All rights reserved.National Law Review, Volume IV, Number 253



About this Author

With change constant, and accelerating, health care organizations encounter ever widening obstacles to their success. They need legal guidance from a law firm that understands the challenges they face and can fashion responses to meet their needs.

At Poyner Spruill, we provide just that.

We work with hospitals and health systems, physicians and other licensed medical professionals, physician and other clinical practices, managed care organizations, provider associations, nursing homes, home health agencies, assisted living facilities, hospice agencies, dialysis centers,...