Democratic Lawmakers Spar With Democratic Auditor Over Medicaid Costs | Eastern North Carolina Now

    Publisher's note: The author of this post is Dan Way, who is an associate editor for the Carolina Journal, John Hood Publisher.

Wood defends audit, saying it has nothing to do with shift to managed care

    RALEIGH     Legislative Democrats took a few jabs at state Auditor Beth Wood, a fellow Democrat, at a Tuesday meeting of the Joint Legislative Oversight Committee on Health and Human Services. The lawmakers cited a new legislative report taking issue with a scathing audit issued earlier this year that showed mismanagement and excessive administrative costs in the state's Medicaid program.

    In its monthly meeting, the committee received budget and spending updates, a progress report on the NC TRACKS computer program, Medicaid program changes, and a discussion of the state's health information exchange for electronic medical records, among other items.

    But one focal point was the conflict over Wood's January audit, and a report issued Tuesday by the legislative Fiscal Research Division showing North Carolina's administrative costs for Medicaid are lower in percentage terms than eight other states selected for comparison.

    Wood and several committee Democrats sparred over the validity and meaning of the new report.

    Democrats inferred the legislative staff report shows that states using Medicaid managed care organizations face higher costs up compared with North Carolina's fee for service model.

    Wood said the new report used faulty data in an unorthodox manner, and her audit took no position on the policy debate over managed care.

    Gov. Pat McCrory has instructed the Department of Health and Human Services to convert the present system, which has a single administrator, to a model using three or four for-profit, managed-care entities that would bid to cover patients. The state is designing criteria for the new system and preparing to seek candidates to administer portions of the program.

    "Apparently, the state auditor doesn't feel comfortable computing what the administrative cost is for managed care, but our staff does, that's what they do, and they're very good at it," said Sen. Martin Nesbitt, D-Buncombe.

    Once Fiscal Research staff completes its work, lawmakers will have a better and more accurate picture of administrative costs, he said.

    "When you look at these numbers, it's almost an absolute that when you go to a managed care model with for-profit companies your costs of administration goes up," and the percentage of money being spent on Medicaid patients would go down, Nesbitt said.

    Sen. Floyd McKissick, D-Durham, said in reviewing the chart prepared by Fiscal Research, "It looks as if our costs are among the bottom three states" of the nine investigated.

    Even though each state has its own criteria and offers different services, "How can we make a determination that our costs are high administratively when doing these apples-to-apples comparisons are quite difficult, and based upon the apples-to-apples we see in the chart before us we are significantly lower than these other states," McKissick said.

    "There still seems to be a lot of controversial information about that," Wood said of her audit. "One thing I don't want the committee to lose sight of is that the audit that we did showed that the state of North Carolina is going to continue to be a fee-for-service state," not a managed care model. The audit was completed before McCrory announced plans to switch Medicaid to managed care.

    "That was not the issue of our audit, but it has been made an issue by others, when in reality we were reporting back to the General Assembly why DHHS [has been] $400 million to $500 million over budget four consecutive years and why [shortfalls are] hitting in the last quarter when there's so little time to make up the money," Wood said.

    "So we took a look at administrative costs. We saw that compared across the United States, North Carolina was higher than the average or higher than other states that get more money than we do," Wood said.

    In 2012, four divisions of state government spent $786 million in administrative costs for Medicaid, Wood said.

    "The other piece that we noted in our finding is that the state of North Carolina spends in the Division of Medical Assistance $120 million in contracted services for administration of the program, and that $120 million is anywhere from $25 million to $50 million over budget for the last two or three years," she said.

    Steve Owen of the Fiscal Research Division said legislative staff reviewed a number of sources to come up with its findings of how North Carolina compares to other states in percentage of administrative costs to all service costs.

    Those included the Centers for Medicare and Medicaid Services website to pull down actual state spending data, a report by the Milliman consulting firm on medical loss ratio, public information from a variety of state websites, and conversations with state program staff in several states.

    Percentages ranged from 11.35 percent to 5.36 percent. North Carolina was ranked seventh of the nine states at 6.4 percent.

    Owen noted that Arizona has total service expenditures of nearly $9 billion, with MCO (managed care organization) costs of $6.4 billion. That compares to North Carolina with $10.3 billion in total service expenditures but $128 million in administrative costs.

    "All else being equal, you look at a traditional managed care for Medicaid and you would expect those expenses to be higher," Owen said. In part, he said the higher costs result from profits for MCO shareholders and state and federal requlations requiring MCOs to be sustainable.

    Wood scoffed at the findings, particularly the inclusion of Arizona because of its spotty records. She noted that the Milliman report  -  one of the pillars of the Fiscal Research study  -  "indicates that the state of Arizona was not included in their numbers because of their inconsistency in their reporting and their differences in their Medicaid services that they offer," Wood said. "Arizona, like California, doesn't even bother to issue the financial statements [required by] other states."

    Milliman's report offers "no standing declaration of what they call administrative expenses," Wood said. Without such standardization, each state can use different criteria and skew what are labeled as administrative costs, she said.

    "The Milliman report also puts qualifications in their report and basically says that their medical loss ratios that Mr. Owen is using, they are not audited and should not be relied upon," Wood said.

    "Those numbers are not audited, and the report they were pulled from are basically saying they are unreliable. These are self-reported by every state ... and we haven't seen anyone else extract those numbers and do these calculations for the purpose of determining administrative costs anywhere else across the United States," Wood said.