1. ********************************************************
IV.
Medicaid Reform in North Carolina–
Forecasting Structure and Preparing
for the Transition
Representative Nelson Dollar
North Carolina House of Representatives
Raleigh, NC
Cody R. Hand
North Carolina Hospital Association
Cary, NC
Lou Patalano, IV
Blue Cross Blue Shield of North Carolina
Durham, NC
Andrew M. Walsh
Partners Behavioral Health Management
Gastonia, NC
**********************************************************

3. 2016 Health Law Section
Annual Meeting
Medicaid Reform in North Carolina -
Forecasting Structure and Preparing
for the Transition
Panelists: Representative Nelson Dollar, Cody R. Hand,
Lou Patalano IV & Andrew Walsh

4. TABLE OF CONTENTS
PROGNOSIS ................................................................................................................................................ 4
PARKER, “NORTH CAROLINA’S MEDICAID PROGRAM TRANSITIONS TO MANAGED CARE,” 32(1) PROGNOSIS 1 (DEC. 2015).
WALSH, “MEDICAID TRANSFORMATION: EXPANDING MANAGED CARE IN NORTH CAROLINA,”33(2) PROGNOSIS 1 (APRIL 2016)
PROPOSED REGIONS..............................................................................................................................17
STATE ANNOUNCES NEW LME/MCO SERVICE REGIONS
LEGISLATIVE REPORT:
TRANSFORMATION AND REORGANIZATION
OF NORTH CAROLINA’S MEDICAID AND HEALTH
CHOICE PROGRAMS...............................................................................................................................25
DHHS “LEGISLATIVE REPORT TRANSFORMATION AND REORGANIZATION OF NORTH CAROLINA’S MEDICAID AND NC HEALTH
CHOICE PROGRAMS,” STATE OF NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES (2016)
HTTPS://NCDHHS.S3.AMAZONAWS.COM/S3FS-PUBLIC/MEDICAID-NCHC-JLOC-REPORT-2016-03-
01.PDF
DEPARTMENT OF HEALTH AND HUMAN SERVICES
REVIEW OF MEDICAID REFORM REPORT AND
SECTION 1115 WAIVER APPLICATION..............................................................................................73
LEGISLATIVE OVERSIGHT COMMITTEE ON MEDICAID AND NC HEALTH CHOICE, “DEPARTMENT OF HEALTH AND HUMAN SERVICES
REVIEW OF MEDICAID REFORM REPORT AND SECTION 1115 WAIVER APPLICATION,” STATE OF NORTH CAROLINA DEPARTMENT OF
HEALTH AND HUMAN SERVICES (2016)
HTTPS://NCDHHS.S3.AMAZONAWS.COM/S3FS-PUBLIC/JLOC-PRESENTATION-REPORT-WAIVER-2016-03-01.PDF
LEGISLATION PROVIDED THE FRAME..............................................................................................................74
SESSION LAW 2015-245 DIRECTIVES
SIGNIFICANT EXTERNAL STAKEHOLDER ENGAGEMENT ..................................................................................75
A process built on collaboration
VISION BUILDS ON THE UNIQUENESS OF NORTH CAROLINA............................................................................76
OVERVIEW OF 115 DEMONSTRATION WAIVERS ..............................................................................................77
KEY TAKEAWAYS ..........................................................................................................................................78
AGENDA.........................................................................................................................................................79
THE TRIPLE AIM..............................................................................................................................................80
115 DEMONSTRATION WAIVER RATIONALE ..................................................................................................81
PERFORMANCE MEASURES ............................................................................................................................82
LEGISLATIVE CHANGES TO SUPPORT PROGRAM..............................................................................................83
SUPPLEMENTAL PAYMENTS............................................................................................................................84
SUPPLEMENTAL FUNDING UNDER REFORM.....................................................................................................85
BUDGET NEUTRALITY....................................................................................................................................86
LOOKING AHEAD ............................................................................................................................................87
HYPOTHESIS...................................................................................................................................................88
1115 DRAFT WAIVER......................................................................................................................................89
Next Steps
DIVISION OF HEALTH BENEFITS ......................................................................................................................90
KEY ACCOMPLISHMENTS................................................................................................................................91
JLOC REPORT OVERVIEW...............................................................................................................................92
AGENDA .........................................................................................................................................................93
REGIONAL CAPITATED PHP CONTRACTS .........................................................................................................94
Anticipated Distribution
PROPOSED REGIONS........................................................................................................................................95
APPLICATION OF INSURANCE STATUTES .........................................................................................................96
PHP licensure and applicable Chapter 58 Provisions
BENEFICIARY ENROLLMENT IN PREPAID HEALTH PLANS ................................................................................97
BENEFICIARY ACCESS STANDARDS ................................................................................................................98
FOSTER CARE AND ADOPTIVE PLACEMENT CARE............................................................................................99

5. PROPOSED INCLUSION OF PROVIDER PROVISIONS .........................................................................................100
PERFORMANCE MEASURES ...........................................................................................................................101
SUSTAINABILITY MEASURES.........................................................................................................................102
NC COMMUNITY CARE NETWORK CONTRACT..............................................................................................103
TIMELINE FOR PHP CONTRACTING.................................................................................................................104
STATUTORY CHANGES..................................................................................................................................105
Administrative
NEAR TERM NEXT STEPS...............................................................................................................................106
RELEVANT LEGISLATION..................................................................................................................107
SECTION 5(12) OF SESSION LAW 2015-245...................................................................................................107
2015 MEDICAID AND NC HEALTH CHOICE REFORM......................................................................................108
FISCAL RESEARCH DIVISION “2015 MEDICAID AND NC HEALTH CHOICE REFORM,” HEALTH AND HUMAN SERVICES (2016)
http://www.ncleg.net/documentsites/committees/BCCI-6660/2015-
16%20Interim/March%201,%202016/Handouts/2015%20Medicaid%20and%20NC%20Health%20Choice
%20Reform%20Leg.%20Brief_Fiscal%20Research_2016_02_29.pdf
PREPAID HEALTH PLANS (PHP) RECOMMENDED SOLVENCY,
LICENSING AND FEE REQUIREMENTS.............................................................................................................118
GOODWIN, “HOUSE BILL 372 AN ACT TO TRANSFORM AND REORGANIZE NORTH CAROLINA’S MEDICAID AND NC HEALTH CHOICE
PROGRAMS,” NORTH CAROLINA DEPARTMENT OF INSURANCE (2016)
HTTP://WWW.NCLEG.NET/DOCUMENTSITES/COMMITTEES/BCCI-6660/2015-
16%20INTERIM/MARCH%201,%202016/REPORTS/NCDOI%20REPORT%20ON%20PHPS_2016_03_01.PDF
BENEFITS OF MEDICAID MANAGED CARE...................................................................................135
MEDICAID HEALTH PLANS OF AMERICA, “BENEFITS OF MEDICAID MANAGED CARE,” (2016)
http://www.mhpa.org/_upload/MMC%20Primer%203%20Benefits.pdf

6. Greetings to my fellow Health
Law Section Members! I am ex-
cited and honored to be serving
as Chair of the Health Law Sec-
tion Council this year. Honored
to be serving our membership and
working with such a great and tal-
ented group of volunteers on the
council – and, excited about all
of the projects and initiatives on
which the section is working!
For those who may not be aware of the section’s orga-
nizational structure, the council serves – essentially – as the
“board of directors” of the section. We help to navigate the
section’s course and manage our resources all with the goal
of providing value for our membership. We strive to pro-
vide that value in the form of opportunities for networking,
education, and volunteering. And you do not need to be on
the council to play an active role in the section’s activities.
There are so many ways for you to get involved!
The section regularly publishes newsletters like this
one. Please reach out to Michael Murchison if you have
an idea for an article or are interested in contributing to
a future publication. As the NCBA continues to update its
technology platform, keep an eye out for new ways we will
be pushing out valuable content to our membership, in-
cluding blog posts on timely and relevant topics!
The section also continues to play a leading role in
promoting and supporting advanced care planning. Our
End-of-Life Subcommittee, born from the efforts of dedi-
cated section leaders and volunteers a few years ago, con-
tinues to evolve and expand, helping so many in our com-
munity as it does so. The subcommittee, in collaboration
with the NCBA’s Elder Law Section and the NC Partner-
ship for Compassionate Care, has recently introduced its
latest project initiative - “A Gift to Your Family.”
The goal of the project is to hold advance health care
planning workshops to assist members of the public with
completion of Health Care Powers of Attorney and Liv-
ing Wills. Ultimately, we would like to hold workshops in
all 100 counties across the state twice per year—in April
to help promote National Healthcare Decisions Day and
in November to promote National Hospice and Palliative
Care Month. To accomplish this goal, WE NEED VOLUN-
TEERS! This is an incredible opportunity not only to get
Published by the Health Law Section of the North Carolina Bar Association and the North Carolina Society of Healthcare Attorneys • Vol. 32, No. 1 • December 2015
Prognosis
North Carolina’s Medicaid
Program Transitions to
Managed Care
By Shawn Parker
The U.S. Centers for Medicare & Medicaid Services (CMS) recently
reported that 58 percent of all Medicaid recipients across the country in
2011 (the latest year for which complete data are available) were enrolled
in a risk-based managed care plan through which they obtained some,
most or all of their health services. Some estimate that figure will increase
to 70 percent by the time data from 2015 is received and made available.
What is clear is that managed care has become the dominant means by
which Medicaid services are organized, delivered and financed in the U.S.,
and North Carolina policy makers have decided to join this trend.
On Sept. 23, 2015, Gov. Pat McCrory signed into law House Bill
372, which begins the transition of North Carolina’s Medicaid program
to managed care. Once the transition is complete, the vast majority of
Medicaid recipients and will receive nearly all of their services from a
risk-based health plan. This transformation seeks to modernize the cur-
rent Medicaid delivery system, with the goal of ensuring quality health
outcomes and improving the beneficiary experience, while also effec-
tively managing costs and providing greater budget predictability for the
taxpayers of this State.
This article provides a brief overview of Session Law 2015-245
(House Bill 372), An Act to Transform and Reorganize North Caro-
lina’s Medicaid and NC Health Choice Programs.
The Chair’s Comments
2 | NCSHCA President’s Report
5 | ‘A Gift to Your Family’ Gains Momentum
6 | Breaching the Bankruptcy Barrier With the
Hospital Board
8 | Case Law Updates
Inside this Issue...
Joe Kahn
www.ncbar.org
919.677.0561
@NCBAorg
Continued on page 3
4

7. Part One of the law addresses the plan for Medicaid transfor-
mation. The plan features full-risk capitated contracts with commer-
cial insurers and provider-led entities, which would be responsible
for the provision of all services to all Medicaid and Health Choice
beneficiaries except for individuals dually eligible for both Medicaid
and Medicare; behavioral health services covered by area authori-
ties known as Local Management Entities/Managed Care Organiza-
tions (LME/MCOs) until 4 years after the date capitated contracts
begin; and dental services. A newly-created Division of Health Ben-
efits (DHB), within the Department of Health and Human Services
(DHHS), is responsible for implementing reform and will succeed
the duties and responsibilities of Division of Medical Assistance
(DMA) when it is eliminated twelve months after capitated contracts
begin or earlier as determined by the Secretary. DHHS will remain
the single state agency responsible for both programs.
Section 1 outlines the intent and goals of the transformation; that
being: “...transform the State’s current Medicaid program to a sys-
tem that provides budget predictability for the taxpayers of this
State while ensuring quality care to those in need.”
Section 2 provides the roles and responsibilities of the North Caro-
lina General Assembly (NCGA) in transformation and governance
including:
· Defining the overall goals and structure of the delivery
system
· Defining and approving eligibility and income standards
for programs and determining which populations are
covered by the capitated pre-paid health plans
· Appropriating annual budget for the Medicaid pro-
gram and providing legislative oversight through a new
standing interim oversight committee the Joint Legisla-
tive Oversight Committee on Medicaid and NC Health
Choice (JLOCMHC)
· Beginning Jan. 1, 2016, confirming the Director of the Di-
vision of Health Benefits
Section 3 provides the timeline for transformation:
· Effective when the act becomes law- DHB is created and
must begin developing 1115 waiver application and any
additional State Plan Amendments; JLOMHC is also cre-
ated.
· March 1, 2016- DHHS to provide progress report to
JLOCMHC
· June 1, 2016- DHHS to submit waivers and State Plan
amendments to CMS
· 18 months after obtaining federal approval- Capitated
PHP contracts to begin with staggered terms. Initial re-
cipient enrollment is to be complete by this date.
Section 4 outlines the structure of the delivery system which
requires DHHS to enter into capitated contracts with PHPs and
includes principles and parameters that include, but are not limited
to, the following:
Prepaid Health Plans (PHPs).
A PHP is defined to include commercial insurers and provider-
led entities (PLEs). The awarded contracts will be a result of a suc-
cessful competitive bid to a DHHS-issued RFP. PHPs will be re-
sponsible for all administrative functions for recipients enrolled in
their plan including claims processing, care and case management,
grievances and appeals. All PHPs must hold a license issued by the
Department of Insurance, and PHPs are subject to the require-
ments of Chapter 58, the Insurance Law of North Carolina.
Capitated contracts.
Capitated contracts will cover all services and program aid cat-
egories including but not limited physical health, prescription drugs,
long term care services and supports, and behavioral health services
for NC Choice recipients. Exceptions include dental services; behav-
ioral health services provided by LME/MCOs (until 4 years from the
initial capitated contracts); and dual-eligible populations. (DHB to
develop long term strategy for including dual eligibles).
There shall be:
· Three contracts to PHPs covering recipients statewide
· Up to 10 regional contracts with PLEs to provide services
within six defined regions across the state.
· DHHS shall determine the regions comprised
of whole contiguous counties (no population
threshold)
· PLE may provide service in more than one re-
gion provided the regions are contiguous
Section 5 outlines the role of DHHS in the transformation including:
· Submitting all waivers and Medicaid state plan amend-
ments (SPAs) necessary to implement reform
· Defining six regional catchment areas that reasonably dis-
tribute covered populations
· Monitoring PHP contract performance
· Setting rates- capitated rates should be actuarially sound
and risk adjusted. Rates shall include a portion that is at
risk to be used for value based payments. Rate floors for
PCPs, specialty physicians, and pharmacy dispensing fees.
Rates for any remaining fee for service programs.
· Entering into capitated contracts with PHPs, which shall
include:
· Risk adjusted cost growth at least 2 percent be-
low national Medicaid spending growth
· Adhering to single drug formulary established
by DHHS, through DBH
· Minimum medical loss ratio (MLR) of 88 percent
· The inclusion of “designated essential providers”
(DEPs) within network and prohibitions on ex-
cluding providers that accept network rates and
meet objective quality standards. DEPs shall in-
cludefederallyqualifiedhealthclinics,ruralhealth
centers, free clinics, and local health departments.
· Auto assignment of enrollees who fail to select a
primary care physician (PCP)
Medicaid, continued from the front page
3
Prognosis
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8. 4
Prognosis
www.ncbar.org
· Requiring consultation with JLOCMHC prior to issuing
RFP
· Developing auto assignment criteria for PHP criteria to
include recipient’s family unit, quality measures, and pri-
mary care physician.
· Defining methods to ensure program integrity against
provider fraud, waste and abuse.
· Requiring all PHPs and Medicaid and Health Choice pro-
viders to submit data through the NC Health Information
Exchange network.
· Establishing an advisory committee to create long range
planning on inclusion of dually eligible populations into
the capitated system.
· Reporting to JLOCMHC by March 1, 2016 on a number
of enumerated criteria.
Section 6 directs the Commissioner of Insurance to establish sol-
vency requirements for PHPs and to propose fees to offset the cost
of licensure.
Section 7 directs DHHS to renegotiate its contract with Commu-
nity Care of North Carolina to reduce the payments for admin-
istration and informatics and include performances measures.
When PHP contracts begin, any contract with Community Care
shall terminate.
Section 8 directs DHHS to submit a program design and budget
to create a Medicaid and NC Health Choice Transformation In-
novations Center within DHB. The center should support provid-
ers through technical assistance and a learning collaborative using
Oregon’s Transformation Center as a design model.
Section 9 directs DHHS to attempt to preserve existing levels of
funding generated from Medicaid-specific funding streams paid to
hospitals, such as assessments, to the extent that the levels of fund-
ing may be preserved.
Part Two provides the statutory framework and restructuring
of DHHS to implement the act.
Section 10 establishes the Division of Health Benefits (DHB) as a
new division of DHHS and provides that DBH will be responsible
for implementing Medicaid transformation.
Section 11 provides that DMA shall be eliminated 12 months after
capitated programs begin or earlier as determined by the Secretary
of DHHS. All positions within DMA shall be eliminated.
Section 12 amends Article 3 of Chapter 143B (Executive Organiza-
tion Act of 1973) to add to Part 36 the creation of the Division of
Health Benefits and, effective January 1, 2021, to include a section
on the appointment and removal of the Director of the Division of
Health Benefits. Specifically, the Director will be appointed by the
Governor subject to confirmation by the General Assembly.
Section 13 provides the statutory powers and duties of the Secre-
tary of DHHS through the DHB including:
· Administering the Medicaid and NC Health Choice pro-
grams
· Employing clerical and professional staff including con-
sultants and legal counsel.
· Entering and managing contracts for the administration
of the program including contracts that are advisory or of
a consulting nature
· Adopting rules
· Developing and implementing midyear budget correction
plans
· Overseeing (approving and disapproving) all expendi-
tures to be charged or allocated to the program by other
State departments and agencies
· Presenting yearly to the JLOCMHC
· Publishing on its website on a monthly basis
· Enrollment by program aid category by county
· PMPM spending by category of service
· Spending and receipts by fund along with de-
tailed variance analysis
· Limited authority for adopting temporary and perma-
nent rules regarding eligibility so long as they do not con-
flict with determinations set by the NCGA
· Exemption from requirements of the state personnel act
(referred to as NCHRA) for all DBH employees along
with the ability to hire independent counsel
Section 14 provides a cooling off period for vendor re-employment
of certain former DHHS employees on contracts entered into on or
after Nov. 1, 2015 by requiring the vendor to certify it will not use
a former employee of DHHS. A former employee is defined as a
person who, within the six months preceding termination, partici-
pated in either the award or management of a DHHS contract with
the vendor.
Section 15 establishes a Joint Legislative Oversight Committee
on Medicaid and NC Health Choice (JLOCMHC) consisting of
14 legislative members charged with examining the budgeting, fi-
nancing, administrative, and operational issues related to Medic-
aid and NC Health Choice Programs.
Sections 16 and 17 make a conforming change for the newly cre-
ated JLOCMHC to amend N.C.G.S. 120-208.1(a)(2)(b) by remov-
ing oversight of “Medical Assistance” from the purview of the Joint
Legislative Oversight Committee on Health and Human Services.
Section 18 amends N.C.G.S. 108A-54.1A to provide that the
DHHS is authorized and required to take any and all necessary ac-
tion to amend the Medicaid State Plan and waivers in order to keep
the program within the certified budget.
Section 19 repeals N.C.G.S. 108A-54.2(d) imposed limitations on
DHHS’s ability to change medical policy unless directed by the
General Assembly.
6

9. 5
Prognosis
www.ncbar.org
Section 20 amends N.C.G.S. 126-5 to exempt employees of the
DHB from all but Article 6 (Equal Employment and Compensa-
tion Opportunity, Assisting in Obtaining State Employment) and
Article 7 (Privacy of State Employee Personnel Records) of the
State Human Resources Act.
Sections 21 and 22 direct funds appropriated in the 2015 Appro-
priations Act (Session Law 2015- 241) to be used to implement the
act and repeals the provision discontinuing the State’s primary care
case management (PCCM) program as of March 1, 2016. The State’s
current PCCM vendor is Community Care of North Carolina.
Session Law 2015-245 provides the instructive provisions to
implement Medicaid reform and represents a deliberate commit-
ment from the General Assembly and the Department of Health
and Human Services for the State to reshape how health care is
funded, how it is delivered, and how care and quality is measured
and analyzed within the State Medicaid program.
Shawn Parker is a managing partner of The Paratum Group,
a public policy consulting firm that serves clients in government
agencies and the private sector. Shawn served the North Carolina
General Assembly from 2004 through 2012 as a Staff Attorney and
Senior Legislative Analyst within the Research Division.
The Health Law and Elder & Special Needs Law Sections of
the NCBA, together with the N.C. Partnership for Compassionate
Care, are collaborating to hold advance health care planning work-
shops to assist the public with completion of health care powers of
attorney and living wills. The Health Law Section held pilot work-
shops in January in Durham and in Asheville, Gastonia, Manteo,
Wilmington, and Winston-Salem in April. Ultimately, the goal is to
have workshops in all 100 counties across the state twice per year –
in April to help promote National Healthcare Decisions Day and in
November to promote National Hospice and Palliative Care Month.
This past spring, the Health Law Section Council formally re-
quested the Elder Law Section to form a joint committee to orga-
nize the effort among the bar and others. The Elder Law Section
accepted the invitation. This is the first year of the joint committee.
The current plan is that a local organization, such as a local
hospice organization or a regional chapter of the Partnership for
Compassionate Care, will host a local, free clinic for members of
the public to learn about advance health care planning and, if they
desire, to execute their living will or health care power of attorney.
The local entity hosting the event will need attorneys experienced
with and knowledgeable of N.C. law governing living wills and
health care powers of attorney.
The local host entity will contact the Bar Association, and the
Bar Association will then locate a local attorney or attorneys who
are willing to volunteer their time for the event. The community
organization will be responsible for promoting and planning the
event. The attorney will be on hand to answer questions about the
documents and possibly serve as a Notary, or have the services of
a Notary available. Recently, several counties who had commu-
nity organizations wanting to host an advance directives clinic but
could not find an attorney to be on hand for the clinic.
The Health Law Section and the Elder Law Sections are seek-
ing attorneys in all counties across the state who would be willing
to assist with one of these clinics. Interested attorneys can receive
training from an online CLE course that is already available, and
can receive other materials through the Bar Association. At each
event, at least one attorney with experience in the legal area will be
on hand to assist local volunteer attorneys.
Interested attorneys should contact Ken Burgess (kburgess@
poynerspruill.com).
Jim Wall is the immediate past chair of the Health Law Section.
He practices with the firm Wall Babcock in Winston Salem.
‘A Gift to Your Family’ Gains Momentum
By Jim Wall
Follow us on Twitter: @NCBAorg
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Medicaid Transformation: Expanding Managed Care in North Carolina
By Andrew M. Walsh
Last summer in the longest session of the North Carolina General Assembly (NCGA) in over a decade,
Session Law 2015-245 (House Bill 372) was passed and signed by the Governor effective September 23,
2015. This “Act to Transform and Reorganize North Carolina’s Medicaid and NC Health Choice
Program” ushers into North Carolina an expansion of Medicaid managed care much like the majority of
other states.1
Medicaid managed care has existed in North Carolina since perhaps 2006, but only for
behavioral healthcare and even that nominal sector was not fully expanded statewide until April 2013.
N.C. Session Law 2011-264. While this experiment with non-profit public-authority managed care
successfully “bent the cost curve” for Medicaid, improving savings without sacrificing services or close
local touch in North Carolina communities, it still remained a small part of the high and growing
Medicaid budget.2
Thus, the question heavily debated by our legislators last session was not whether to expand managed
care to physical health, but how to do so. The House supported a bill that would build on local
homegrown structures already existing in North Carolina. The Senate preferred to bring in large,
experienced health plans already serving other states. Both involved for-profit entities. The final
enactment was a compromise, summarized section by section in the last issue of this newsletter. Parker,
“North Carolina’s Medicaid Program Transitions to Managed Care,” 32(1) Prognosis 1 (Dec. 2015). This
article goes the next step, describing what the federal government will expect from managed Medicaid,
how the new state law is being implemented and apropos for this newsletter: a prognostication of what to
expect in the near and long-term future.3
A Sneak Peek at the Future
Currently, only behavioral health (mental health, substance abuse and intellectual/developmental
disabilities) (MH/SA/IDD) is under a Medicaid managed care system in North Carolina. It has eight
geographically exclusive public authorities called Local Management Entities/Managed Care
Organizations (LME/MCOs) with mandatory enrollment within their “catchment areas.” Those eight
public authorities are a consolidation from over 45 or more LMEs in the past, which was a reduction from
the 60 plus pre-LME MH/SA/IDD “area authorities.” As of March 17, 2016, the Secretary of the North
Carolina Department of Health and Human Services (NCDHHS) published his plan for further
consolidation to four, requiring each LME/MCO to merge with a specified neighboring LME/MCO, but
under terms and timelines not yet determined.4
The new behavioral health Medicaid map would look as
follows:
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Meanwhile, on March 1, 2016, at a meeting of the NCGA’s Joint Legislative Oversight Committee on
Medicaid and NC Health Choice (JLOC Medicaid), the NCDHHS unveiled its proposed map for creating
the six regions for bidding by provider-led entities (PLEs)5
to manage physical health Medicaid:
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As directed by Session Law 2015-245, the State will issue an RFP for up to ten regional contracts with
PLEs for one or more contiguous regions and up to three statewide contracts with large commercial plans.
At the March 1st
JLOC Medicaid meeting, regulators indicated an intent not to contract with more than
any one region can successfully support. As a result, you might expect two or three statewide contracts,
but in some regions maybe only one or two PLEs. Regardless, each Medicaid enrollee will likely have
choices of about four Medicaid healthcare “prepaid health plans” (PHPs) in their county: two or three
statewide commercial plans and one or more regional PLE plans. How this might look is discussed
further below.
What is Medicaid managed care and why is it preferred?
For years, nationwide Medicaid was operated on a fee-for-services (FSS) basis, which remains the default
Medicaid delivery system historically and by law. With some exceptions, services were paid on a set fee
schedule without prior approval and minimal control by a payer over cost, utilization, and quality of care.
There was no “closed provider network,” but rather all eligible healthcare providers and professionals
were enrolled into Medicaid. Your doctor would perform the necessary services and Medicaid would pay
on a per-visit, per-test, per-procedure or other per-unit basis. In the 1990s, health maintenance
organizations (HMOs) experimented with managed care, but overall were not well received. The debate
about why continues. However, at least one significant reason was concern that financial and
administrative considerations might and arguably did trump sound medical professional judgment and
patient choice of quality providers.
A problem with the Medicaid FFS delivery model is that it incentivizes volume. While ethical healthcare
professionals resist the pressure, it is nonetheless there. For regulators, legislators, and taxpayers, the
common pattern was a never-ending increase in the Medicaid budget from year to year to year. Although
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federal matching participation funding rules had states only paying a small percentage of the total bill,
that percentage of Medicaid still remained a significant percentage of the North Carolina budget. While
arguably the budget overruns North Carolina has experienced in the past were partially due to unrealistic
budget forecasts, there can be no doubt that the North Carolina Medicaid budget is fundamentally
unpredictable, large, and unsustainable.
Medicaid managed care in its simplest form merely requires that Medicaid healthcare services be
monitored and managed. In most instances, that is done a couple of ways. First, generally, prior approval
is required before services can be rendered. For most services, the healthcare provider must request the
service in advance from the state or more often it’s designated managed care organization (MCO) or
entity (MCE).6
Under federal law discussed below, there are tight deadlines by which each MCO’s
utilization management (UM) qualified clinicians must make “medical necessity” determinations as to
each of the service or treatment authorization requests. While the clinicians are not allowed to have
financial incentives, and their decisions are subject to a rather robust due process review, see 42 CFR,
Part 438, Subpart F, most managed care programs shift some or all of the risk to the MCO. This is done
usually through capitated payments by the state to the MCOs, generally on a “per month, per member”
(PMPM) basis, creating an at-risk model for MCOs, including the future NC PHPs.
Medicaid managed care can also provide services beyond the array of Medicaid benefits, most notably
care coordination and quality management. Care coordination is generally performed by payer staff who
assist Medicaid patients and providers through the UM process, facilitate discharge planning by
providers, ensure annual person/patient-centered health plans, and guide or “link” patients to providers,
services and more. Quality management involves a number of monitoring tools, including program
integrity to ferret out “credible allegations” of fraud, waste or abuse (FWA) that require action ranging
from recoupment of overpayments and plans of correction to state and federal prosecution.7
In the end, Medicaid managed care is preferred to FFS because it gets closest to the Triple Aim: the Holy
Grail of healthcare policy wonks and academicians. The Triple Aim strikes the optimal balance between
cost, quality and population health. But as with all things, the devil is in the details. Which Medicaid
managed care delivery system comes closest and how can it be directed to the intended goals with
minimal regulation, oversight cost and micromanagement?
How is Medicaid managed care regulated?
There are a number of risks with Medicaid managed care, not the least of which is ensuring that financial
considerations do not overshadow patients’ true medical needs, the availability of provider choice, and
timely access to quality services.
In 2002, the Centers for Medicare and Medicaid Services (CMS) promulgated Medicaid rules and
regulations, including those specifically for managed care, which was perhaps still in its nascent years.
See 42 C.F.R., Part 438; 67 FR 40989 (June 14, 2002). Those rules, mostly unchanged to date, contain
detailed requirements to avoid such excesses, especially as to the contract terms between states and
MCOs, constraints on utilization management, adequacy of provider networks, and availability of due
process by enrollees. For example:
 MCOs must maintain, monitor and document a network of appropriate, contracted, compliant and
culturally competent providers sufficient to provide adequate access to all covered services,
including as needed 24/7 services and out-of-network providers. See 42 CFR 438.206 and .207.
 Service requests must be approved or denied within 14 days – shorter (3 working days) for urgent
matters, longer (up to 28 days) in special circumstances. See 42 C.F.R. §438.210(d).
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 UM staff cannot be compensated in any way to incent denials, limits or discontinuances of
enrollee services. See 42 C.F.R. §438.210(e).
 The “amount, duration, or scope” of Medicaid services must be identified and defined within
certain parameters, including that they be no less than FFS Medicaid services and “to reasonably
be expected to achieve the purpose for which the services are furnished.” See 42 C.F.R.
§438.210(a)(1)-(3).
 The “medical necessity” of Medicaid service must be well-defined consistent with certain
authorities. See 42 C.F.R. §438.210(a)(4). “Medical necessity” in North Carolina is currently
defined by Clinical Coverage Policies (CCPs) promulgated by the North Carolina Department of
Health and Human Services (NCDHHS), Division of Medical Assistance (DMA). They are
online at http://dma.ncdhhs.gov/document/clinical-coverage-policy-ccp-index.8
 Service request denials or partial denials must be made by qualified clinical professionals. See 42
C.F.R. §438.210(b)(3).
 Due process must be robust and offered on almost every Medicaid service request denial and
partial approval, even if the same parties and services, just different scopes, durations or service
dates. See 42 C.F.R. Part 438, Subpart F (“Grievance System”) and N.C. Gen. Stat., Chapter
108D. Such decisions are “managed care actions,” 42 CFR §438.400(b)(to be renamed “adverse
benefit determinations” in pending new federal regulations), subject to strict timelines and
content requirements for notice and opportunity to appeal within the MCO to an independent
clinician (called “reconsideration” in North Carolina), and then if desired via a State fair hearing
(called “appeal” in North Carolina), 42 C.F.R. §438.402-.410.
 Medicaid service benefits must continue to the disputing Medicaid enrollee during this due
process provided certain minimum requirements are timely met and sustained. See 42 C.F.R.
§438.420. While the enrollee is at risk of refunding the cost of these continued benefits if they
lose the dispute, see 42 C.F.R. §438.424(a), it has rarely if ever been exercised in North Carolina.
In recent years, North Carolina amended its statutes to reflect and align with these same federal
requirements, especially due process, see N.C. Gen. Stat., Chapter 108D and Session Law 2013-397. 9
However, in some instances North Carolina has significantly deviated from federal Medicaid managed
care requirements.10
The prudent attorney would review both federal and state law when facing issues in
this area.
To ensure compliance by MCOs, Medicaid managed care currently in North Carolina is also regulated by
extensive auditing from the State, federal government, recovery audit contractors (RACs), mandatory
accreditation organizations, and others, with sometimes very specific requirements. For example, current
North Carolina LME/MCOs must meet certain financial solvency and service-spend requirements. See
N.C. Gen. Stat. § 122C-124.2. Also, by contract, Medicaid MCOs in North Carolina must meet certain
“medical loss ratios (MLRs),” based on a state-created variation of a federal formula. The MLR
essentially requires at least 85% of Medicaid funds go to services and quality improvement activities, and
no more than 15% goes to administrative and other expenses.
To complicate matters further, last summer, CMS proposed the first major revision of the Medicaid
Managed Care rules. See NPRM #CMS-2390-P, 80 FR 31097 (June 1, 2015). Those proposed rules
underwent public comment, CMS prepared responses not yet disclosed, and sent the rules to OMB. The
final rules are expected as early as April or May. Over 201 pages (before comment responses), they are
worthy of their own article. In a nutshell, the new rules seek to give states greater guidance on how
Medicaid managed care should work, balancing oversight with flexibility. They flesh out and clarify
much of the confusion in the states over MLRs, program integrity, due process, and more. A key goal is
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to align Medicaid managed care rules across all the “other major sources of coverage,” including private
health insurance, group plans and Medicare Advantage. North Carolina must keep one eye on these
pending federal rules as it makes its own transformation, to avoid mid-course conflicts and changes.
Next Steps for North Carolina Medicaid Managed Care
On March 1st at the JLOC Medicaid hearing, NCDHHS completed the first big deadline created by
Session Law 2015-245: present a plan. The next deadline looming is to present by June 1, 2016 a
Section 1115 Waiver to CMS for federal approval.11
Approval by CMS could be as fast as six months,
but educated prognosticators foresee it taking about 18 months, as it is an iterative process between the
state and federal regulators.12
Assuming CMS waiver approval by January 2018, NCDHHS anticipates
letting contracts between April and September 2018, with “readiness reviews” of those PHPs between
perhaps October 2018 and June 2019:
Meanwhile LME/MCOs, as noted above, likely will be consolidating into four entities. The session law
states that Medicaid behavioral health services will continue to be covered by the LME/MCOs until four
years after the date capitated contracts begin with the PHPs. That would be perhaps some time in 2022 by
these estimates. At that juncture, Medicaid behavioral health service delivery is to be integrated into the
PHP contracts and plans covering physical health. By integrating behavioral and physical treatment into
these 13 or less PHPs, it is hoped that “the whole person” enrollees will be better served; perhaps through
superior information exchange, perhaps through greater coordination of treatment of both the mind and
body by a single entity, if still by different professionals. Others worry that focus will be on whatever
services and needs are most prevalent and profitable and that MH, SA and IDD needs might not get the
attention they do now, nor the local community “touch” and connections.
The law is silent as to what becomes of the LME/MCOs after that 4-year post-PHP contracting deadline.
Some foresee LME/MCOs morphing into entities supporting or even part of the PHPs, perhaps well
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before this deadline, thereby still providing care coordination and/or utilization management expertise
developed over many years. Others speculate the LME/MCOs might become Medicaid managed care
health plans for both behavioral and physical needs, but of smaller, high-need, high-cost specialty
populations like persons with Serious Mental Illness (SMI), Serious and Persistent Mental Illness (SPMI),
and/or Serious Emotional Disturbance (SED).
Who will get those initial PHP contracts and be the main players in the new NC Medicaid world circa
2018? Certainly for the statewide contracts, the legislators have invited into North Carolina to bid the big
commercial plans (CPs), which would include if desired Aetna, Amerigroup, AmeriHealth, Anthem, Blue
Cross Blue Shield, Centene, Cigna, Humana, Magellan, Meridian, Tenet, UnitedHealth and WellCare, to
name a few.
The regional PLEs could effectively be statewide as well, since bidding is allowed for multiple regions, if
contiguous. In December 2015, eleven of North Carolina’s larger hospital and health care systems
formed the Provider-Led, Patient-Centered Care, LLC (PLPCC), “a collaboration to investigate
development of a provider-led and owned Medicaid only Prepaid Health Plan (PHP) in support of the
General Assembly and Governor’s goal to transform the State’s current Medicaid system….”13
In early
March, the joint venture added Presbyterian Health Plan of New Mexico as a partner, ostensibly to serve
utilization management, analytical and administrative roles for the planned PHP. News reports suggest
about 600 jobs in a new office in Mexico and another 600 in North Carolina, administering services for
PLPCC.
Conclusion
Last summer’s new Medicaid Transformation law at best is a broad stroke attempt to change North
Carolina’s Medicaid system toward greater budget predictability and eventually more integrated health
care services. This spring, we saw the plan, with maps. By summer, a waiver undergoing public
comment will be submitted to CMS for approval, leading to implementation likely in 2018. The players
will likely be a mix of big, out-of-state, for-profit commercial plans already with a history in other states,
and smaller, homegrown provider-led entities including at least one already being formed from this state’s
11 largest hospitals and healthcare systems and a New Mexico administrative partner. The competition
between the large and local rivals could be fierce and potentially ruinous. Standardization for providers
and enrollees could be largely replaced with diverse contracts, provider choice, vigorous marketing, and
no small amount of confusion. Where smaller providers will land, in what networks, and what will
become of the existing public LME/MCOs in local communities remains to be seen. Managed care for
both behavioral and physical Medicaid services is inevitable in this state, as is integrated services and
ultimately more budget predictability. However, it is a gamble if this newest wide-reaching Medicaid
reform, with all its fast moving parts and focus on for-profit, competing entities both regional and out-of-
state, will achieve the goals sought, … and what gains might be lost in the process.
Andrew Walsh has worked in North Carolina Medicaid managed care for three of the eight LME/MCOs,
starting only a few years after their creation. He is licensed in North Carolina and three other contiguous
states, practicing law for over 25 years. He is currently General Counsel and Chief Legal Officer at
Partners Behavioral Health Management, and formerly with Cardinal Innovations Healthcare Solutions
(fka PBH) and Smoky Mountain Center. However, the views expressed in this article are those of the
author only, and not to be attributed to any other person or organization.
ENDNOTES
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1
According to the Centers for Medicare and Medicaid Services’ (CMS’) 2013 Medicaid Managed Care Report,
73% of the 62.5 million Medicaid enrollees in the United States were in some Managed Care Organization (MCO)
health plan. Most (27) states had a penetration rate of over 51% for comprehensive MCOs. Seven states had none.
North Carolina was among the 17 states with less than 50% penetration by comprehensive MCOs – but only
negligibly over 0% in North Carolina. This should change dramatically with the new NC Medicaid model.
2
In FY15, the NC Medicaid budget was over $13B, of which behavioral health was 21% (under $3B). Payment
Primer Fiscal Brief (NCGA Fiscal Research Division 3/18/15), at p.4. While North Carolina Medicaid costs are
generally up (11th
highest in the nation in FY14 per Kaiser Family Foundation), not so North Carolina behavioral
health Medicaid, which has flattened spend and increased services with managed care. According to data to the
N.C. General Assembly on March 1, 2016, of $13.8B FY15 Medicaid spend, 60% was federal, 24% was state, and
the remaining 16.7% was miscellaneous receipts or transfers. This is slightly down from the peak $14.2B in 2012,
but up from all other years since 2003 ($7.2B). Fiscal Brief (NCGA Fiscal Research Division 2/29/16).
3
Some changes are not covered in this article, or only tangentially. E.g., transitioning Medicaid from the Division
of Medical Assistance (DMA) to a uniquely structured Division of Health Benefits (DHB); and the creation of the
Joint Legislative Oversight Committee on Medicaid and NC Health Choice (JLOC Medicaid) in addition to the
existing Joint Legislative Oversight Committee on Health and Human Services (JLOC HHS).
4
NCDHHS press release, letter and map issued 3/17/16, available online at https://www.ncdhhs.gov/news/press-
releases/state-announces-new-lmemco-service-regions.
5
“PLE” could as easily stand for physician/clinician-led entity, as “[a] majority of the entity's governing body is
composed of physicians, physician assistants, nurse practitioners, or psychologists.” NCSL2015-245, §4, ¶(2)b.2.
The law defines qualifying PLEs and commercial plans (CPs) collectively as prepaid health plans (PHPs).
6
Technically, federal law distinguishes between MCOs, pre-paid inpatient health plans (PIHPs) and prepaid
ambulatory health plans (PAHPs). 42 C.F.R. § 438.2. And MCEs cover all of these and more. 42 C.F.R. §455.101
(“Managed care entity (MCE) means managed care organizations (MCOs), PIHPs, PAHPs, PCCMs, and HIOs.”)
For purposes of this article, the distinctions are generally not important. But beware: they can be very important in
legal analyses for you or your clients, especially as North Carolina again experiments with new Medicaid delivery
systems and entities. In fact, North Carolina has had perhaps five Medicaid “reforms” in the past 15 years,
culminating in a collection of confusing, arguably inconsistent statutes, entity names, and entity powers and
obligations, including “area authorities,” Local Management Entities (LMEs), and LME/Managed Care
Organizations (LME/MCOs). For definitions, see N.C. Gen. Stat. § 122C-3(1), (20b) and (20c) and -116(a) and §
108D-1. For potentially conflicting authority and duties, compare generally N.C. Gen. Statute, Chapters 122C,
108A, 108C and 108D. Ironically, in 2001 with the "Mental Health System Reform Act," LMEs were created to
separate the management of mental health services from the delivery of those services, thereby avoiding a perceived
conflict of interest inherent in the old HMO system. Now, North Carolina is merging payment management and
service provision together again in PLEs.
7
Medicaid Health Plans of America lauds these managed care benefits over FFS: predictable costs; access and care
coordination; delivery system innovation; fraud and abuse prevention; and quality assurance and improvement.
These closely align with the SL 2015-245 goal of “budget predictability for the taxpayers of this State while
ensuring quality care to those in need.”
8
Under statutory amendments in recent years following McCrann v. N.C. HHS, 209 N.C. App. 241, 704 S.E.2d 899,
rev. denied, 365 N.C. 198, 710 S.E.2d 23 (2011), much of what NCDHHS does in the managed care arena,
including the CCPs, are expressly exempt from the rulemaking requirements of the NC Administrative Procedures
Act. See N.C. Gen. Stat. § 150B-1(d)(9), (20) and (22). However, public comment periods are still common, if not
entirely required, including the current one for the 1115 Waiver application from March 7, 2016 to April 18, 2016
pursuant to 42 C.F.R. §431.408.
9
Due process has been heavily litigated in North Carolina behavioral health Medicaid managed care, and will likely
be so again when expanded to physical healthcare.
10
E.g., federal Medicaid law requires that each participating state have a “single state agency” administering the
program. See 42 CFR 431.10. By Session Law 2013-397, the NCGA deviated from that rule by moving “State fair
hearings” out of DMA and to the North Carolina Office of Administrative Hearings (OAH). This ultimately
required a special exemption by CMS denied or resisted in earlier years.
11
A “waiver” in Medicaid parlance is a vehicle states can use to test new or existing ways to deliver and pay for
health care services in Medicaid and the Children's Health Insurance Program (CHIP), deviating and being “waived”
from some of the traditional Medicaid statutory requirements. North Carolina currently has two waivers
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substantially merged into one: a §1915(b)/(c) waiver. (“§1915” comes from that portion of Title XIX of the Social
Security Act.) The “(b) waiver” allows for Medicaid mental health and substance use (MH/SA) services to be
provided in North Carolina via a managed care delivery model. The “(c) waiver” known in North Carolina as the
Innovations Waiver, provides home and community based services (HCBS) in lieu of institutionalization, but
exclusively for IDD consumers.11
The Innovations Waiver also allows Medicaid managed care delivery by
piggybacking on the (c) waiver. Thus, North Carolina, at least for MH, SU and IDD Medicaid enrollees, has a
§1915(b)/(c) concurrent waiver. It grew from a §1115 research and demonstration project waiver in North Carolina
around 2006. The expansion of Medicaid managed care from behavioral health and into physical health is also to be
done by a §1115 waiver, unveiled on March 1, 2016 at the JLOC Medicaid meeting and posted at
http://www.ncdhhs.gov/nc-medicaid-reform for public comment until April 18, 2016.
12
Some experts have worried that CMS might take longer, given North Carolina is among the 19 states that as of
March 14, 2016, had not adopted Medicaid expansion under “Obamacare.” See Kaiser Family Foundation,
www.kff.org. However, Alabama is another non-expansion state, and its “Regional Care Organization Medicaid
Transformation” §1115 waiver (somewhat similar to North Carolina’s proposed waiver) was approved by CMS in
February 2016 -- about 20 months.
13
PLPCC Press Release dated 12/3/15. At formation, PLPCC members included Cape Fear Valley Health System,
Carolinas HealthCare System, Cone Health, Duke University Health System, Mission Health, New Hanover
Regional Medical Center, Novant Health, University of North Carolina Health Care System, Vidant Health, Wake
Forest Baptist Medical Center, and WakeMed Health & Hospital.
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19. Proposed regions
JOINT LEGISLATIVE OVERSIGHT COMMITTEE ON MEDICAID AND NC HEALTH CHOICE | NC HEALTHCARE REFORM & DRAFT 1115 WAIVER
17

20. State announces new LME/MCO service regions
Agencies to merge to provide behavioral health, intellectual and developmental disability and
substance use services
State health officials announced today that the state- and Medicaid-funded organizations providing
mental health, intellectual and developmental disability and substance use services to North Carolina
citizens will be consolidating into four service regions across the state. Further consolidation will
improve quality of services, accessibility, accountability and long-term sustainability.
“I’m a strong believer in LME/MCOs,” said Rick Brajer, Secretary of the Department of Health and
Human Services. “This population deserves dedicated management.”
The newly consolidated service areas are:
 North Central Region: CenterPoint Human Services and Cardinal Innovations Healthcare
Solutions will be merging
 South Central Region: Sandhills Center and Alliance Behavioral Healthcare will be
merging
 Eastern Region: Eastpointe and Trillium Health Resources will be merging
 Western Region: Partners Behavioral Health Management and Smoky Mountain
LME/MCO will be merging
“We need strong LME/MCOs to achieve our Medicaid reform objectives,” Brajer said. “Now is the right
time to strengthen these organizations for long-term sustainability.”
In addition to their role in the future of Medicaid reform, LME/MCOs will play an important role in
implementing recommendations that come from the Governor’s Task Force on Mental Health and
Substance Use as its members seek innovative ways to streamline systems already in place to address
mental health and substance use needs across the state.
Covering larger regions will allow for more consistent services to be offered to all areas of the state. It
will also foster better coordination of care for people who may temporarily move into different service
areas, such as children in foster care. It is also expected to decrease the administrative burden on
providers who offer services in more than one LME/MCO region.
This consolidation reflects much of what the organizations themselves had proposed when mergers
were first considered in late 2013. Local Management Entities/Managed Care Organizations
(LME/MCOs) proposed regions to serve the east, the west and two to serve central North Carolina.
LME/MCO leaders will work closely with DHHS leadership on implementation plans and timelines
throughout coming months.
###
18

21. 19

22. 20

23. Alamance
Anson
Ashe
Avery
Beaufort
Bertie
Bladen
Brunswick
Buncombe
Burke
Cabarrus
Caldwell
Camden
Carteret
Caswell
Catawba Chatham
Cherokee
Chowan
Clay
Cleveland
Columbus
Craven
Currituck
Dare
Davie
Duplin
Durham
Franklin
Gaston
Gates
Graham
Granville
Greene
Guilford
Halifax
Harnett
Haywood
Henderson
Hertford
Hoke
Hyde
Iredell
Jackson
Johnston
Jones
Lee
Lenoir
Lincoln
Macon
Madison
Martin
McDowell
Moore
Nash
New
Hanover
Northampton
Onslow
Orange
Pamlico
Pender
Person
Pitt
Polk
Randolph
Richmond
Robeson
Rockingham
Rowan
Rutherford
Sampson
StokesSurry
Swain
Tyrrell
Union
Vance
Wake
Warren
Washington
Watauga
Wayne
Wilkes
Wilson
Yadkin
Pasquotank
Perquimans
Proposed Local Management Entity - Managed Care Organizations (LME-MCOs)
Reflects Proposed Regional Entities As Of 3/17/16
Edgecombe
Scotland
Cumberland
Forsyth
Mecklenburg
Yancey
Transylvania
Alexander
Alleghany
Mitchell
Davidson
Montgomery
Stanly
Western Region:
Smoky Mountain Center
Partners Behavioral Health Management
Medicaid Members: 296,658 (21%)
North Central Region:
Cardinal Innovations Healthcare Solutions
CenterPoint Human Services
Medicaid Members: 410,065 (29%)
Eastern Region:
Trillium Health Resources
Eastpointe
Medicaid Members: 351,696 (24%)
South Central Region:
Alliance Behavioral Healthcare
Sandhills Center
Medicaid Members: 378,136 (26%)
Medicaid Members are the number enrolled as of December 2015.
21

24. 22

25. 23

26. 24

27. LEGISLATIVE REPORT
TRANSFORMATION AND REORGANIZATION OF
NORTH CAROLINA’S MEDICAID AND NC HEALTH CHOICE
PROGRAMS
SESSION LAW 2015-245, SECTION 5(12)
FINAL REPORT
State of North Carolina
Department of Health and Human Services
March 1, 2016
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28. TABLE OF CONTENTS
I. INTRODUCTION.......................................................................................................................... 1
II. PROPOSED WAIVER APPLICATION..................................................................................... 3
A. Overview of Waiver Application..................................................................................... 3
B. Summary of Proposed Waiver......................................................................................... 3
C. State Plan and Other Waiver Amendments................................................................... 4
D. 1115 Waiver Budget Neutrality....................................................................................... 5
III. EXPECTED TIMEFRAME FOR SUBMISSION OF THE PROPOSED
WAIVER TO CMS........................................................................................................................ 6
IV. PROPOSED STATUTORY CHANGES ..................................................................................... 7
A. Recommendations Regarding Licensure of Prepaid Health Plans............................... 7
B. Application of Chapter 58................................................................................................ 8
C. Proposed Amendments to SL 2015-245 .......................................................................... 9
D. Changes to Other Statutes ............................................................................................. 11
V. STATUS OF DHB STAFFING................................................................................................... 13
A. Overview and Creation of the Division of Health Benefits ......................................... 13
B. Staffing Plans................................................................................................................... 13
C. Transformation Planning Project Organizational Structure ..................................... 14
D. Approach to Benefits and Compensation ..................................................................... 16
VI. ANTICIPATED DISTRIBUTION OF REGIONAL CAPITATED PHP
CONTRACTS .............................................................................................................................. 17
Regions............................................................................................................................. 17
B. Distribution of PHP Contracts ...................................................................................... 18
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29. VII. PLANS FOR BENEFICIARY ENROLLMENT INTO PHPS................................................ 20
Enrollment Broker.......................................................................................................... 20
B. Auto Assignment Process ............................................................................................... 20
VIII. BENEFICIARY ACCESS STANDARDS ................................................................................. 22
IX. PERFORMANCE MEASURES................................................................................................. 23
A. Overview.......................................................................................................................... 23
B. Guiding Principles for Measure Selection.................................................................... 23
C. Process for Selecting Performance Measures............................................................... 24
D. How Performance Measures Will Be Used................................................................... 24
E. Data and Reporting ........................................................................................................ 24
X. A PLAN FOR THE PROPOSED INCLUSION OF CERTAIN FEATURES ....................... 26
A. Rate Floors....................................................................................................................... 26
B. Essential Providers ......................................................................................................... 27
C. Protections Against the Exclusion of Certain Provider Types ................................... 28
D. Good Faith Negotiations................................................................................................. 28
E. Antitrust Policies............................................................................................................. 29
F. Prompt Pay Requirements............................................................................................. 29
G. Uniform Credentialing Requirements .......................................................................... 30
XI. TIMELINE FOR RFP ISSUANCE............................................................................................ 33
XII. MEASURES FOR SUSTAINABILITY OF THE TRANSFORMED SYSTEM ................... 34
27

30. XIII. PLAN FOR TRANSITION OF CERTAIN N3CN CONTRACT FEATURES ..................... 35
A. Overview.......................................................................................................................... 35
B. Transitioning Medical Home to Person-Centered Health Community ..................... 36
C. Practice Supports............................................................................................................ 36
D. Care Management and Related Activities .................................................................... 36
E. Informatics Center.......................................................................................................... 38
XIV. PLAN TO STABILIZE DMA DURING TRANSITION TO DHB......................................... 39
XV. PLAN TO ADDRESS CONTINUITY OF CARE FOR INDIVIDUALS IN
FOSTER CARE AND ADOPTIVE PLACEMENTS............................................................... 40
Overview.......................................................................................................................... 40
Extension of Coverage for Parents of Children in Foster Care.................................. 40
Expansion of Fostering Health NC................................................................................ 41
PHP Contracting Approach........................................................................................... 41
XVI. OTHER CONSIDERATIONS.................................................................................................... 43
APPENDIX: MAP OF PROPOSED REGIONS.................................................................................... 44
28

31. I. INTRODUCTION
In September 2015, thanks to the leadership of Governor Pat McCrory and the efforts of the
General Assembly, North Carolina enacted legislation for historic reform of its Medicaid
program.
Medicaid is a state and federal program providing medical coverage for low-income and disabled
citizens. It covers more than 1.9 million citizens, or roughly one of every five North Carolinians.
More than 55 percent of all births in the State are to mothers receiving Medicaid benefits. The
program also provides a variety of additional supports including long term care and behavioral
health services.
Session Law 2015-245 (also known as House Bill 372) seeks to transform and reorganize North
Carolina’s Medicaid and NC Health Choice programs. This legislation directs the North Carolina
Department of Health and Human Services (DHHS) to design Medicaid and NC Health Choice
to achieve the following goals:
• Ensure budget predictability through shared risk and accountability
• Ensure balanced quality, patient satisfaction and financial measures
• Ensure efficient and cost-effective administrative systems and structures
• Ensure a sustainable delivery system through the establishment of two types of prepaid
health plans (PHPs): provider led-entities (PLEs) and commercial plans (CPs).
This report and the Section 1115 demonstration draft waiver application builds on what works in
North Carolina by bringing innovation and new tools into the health system to ensure the system
puts people first, and rewards health plans and providers for making beneficiaries healthier while
containing costs. It meets the goals of the legislation by creating a North Carolina solution for
Medicaid beneficiaries. A draft of the waiver is attached to this report.
In preparation for implementing Medicaid Reform, DHHS has proactively sought input from,
and listened to, key stakeholders from across the state – including physicians, beneficiaries,
beneficiary advocates, provider associations, hospitals, and many more. In fact, DHHS met with
more than 50 stakeholder groups multiple times and collected written feedback for consideration
in the development of this report and the Section 1115 draft waiver application.
Session Law 2015-245 requires specific deliverables, as described in Section 5(12), which
directs DHHS, through the Division of Health Benefits, to:
Report to the Joint Legislative Oversight Committee on Medicaid and NC Health Choice by
March 1, 2016. At a minimum, this report shall include:
a. The proposed waiver application.
b. The expected time frame for the submission of the proposed waiver to CMS.
c. Proposed statutory changes required.
d. Status of staffing of the Division of Health Benefits, including a description of staff’s
key competencies and expertise.
29

32. e. Anticipated distribution of regional capitated PHP contracts.
f. Plans for recipient enrollment.
g. Recipient access standards.
h. Performance measures.
i. A plan for the proposed inclusion of the following features as part of Medicaid and
NC Health Choice transformation:
1. Rate floors in addition to those required by subdivision (5) of Section 5 of this act.
2. Antitrust policies.
3. Protections against the exclusion of certain provider types.
4. Prompt pay requirements.
5. Uniform credentialing requirements.
6. Good-faith negotiations.
j. Time line for issuance of RFP and solicitation of bids.
k. Measures for sustainability of the transformed system.
l. A plan for transition of features of the contract with the North Carolina Community
Care Network, Inc., (NCCCN) to the new delivery system, including a plan for
utilizing, at the appropriate time, the Health Information Exchange Network to
perform certain functions presently being performed by NCCCN’s Informatics Center
in conjunction with the primary care case management program.
m. A plan to stabilize the Division of Medical Assistance during the transition of the
Medicaid and NC Health Choice programs to the Division of Health Benefits.
n. A plan that will ensure continuity of services for individuals in foster care and
adoptive placements in the transformed Medicaid and NC Health Choice programs.
The report reflects DHHS’ consideration of, and in some cases, recommendations on how to
address each of the above items. While there are a number of decisions yet to be made, DHHS is
dedicated to working with diverse stakeholders to develop a balanced, North Carolina-specific
approach. DHHS is prepared to meet the timelines and outcomes defined in the legislation and to
assure the successful implementation of Medicaid reform.
We look forward to working with the legislature and all stakeholders as we improve health care
for North Carolina citizens.
30

33. II. PROPOSED WAIVER APPLICATION
Section 5(12)(a) of SL 2015-245 requires the report to the JLOC to include the “[p]roposed
waiver application.”
A. Overview of Waiver Application
Accompanying this report is a draft of the application that DHHS proposes to submit to CMS for
a waiver pursuant to Section 1115 of the Social Security Act. The waiver application includes an
overview of transformation goals and the hypotheses to be tested. Consistent with CMS
instructions, the waiver application also identifies:
• Individuals eligible for the waiver
• Services included in the waiver
• The proposed payment and delivery system using PHPs
• Demonstration financing and budget neutrality
• An overview of plans for implementation
• An estimate of expenditures and enrollment
• A description of the waiver financing
• The legal authorities being requested to accomplish the goals of the waiver.
The next step DHHS must take with the draft waiver application will be to complete the public
notice requirements, including posting the application for public comment, holding public
hearings and conducting Native American tribal consultation. These steps are required by CMS
rules, before the application may be submitted to CMS for review.
B. Summary of Proposed Waiver
The draft application conveys the DHHS vision for next-generation prepaid health plans
supporting advanced, comprehensive medical homes called “person-centered health communities
(PCHCs)” and adoption of value-based payment driving improved outcomes. The waiver also
indicates future plans to explore models for persons dually eligible for Medicaid and Medicare
(“dual eligibles”), and integrating local management entity/managed care organization
(LME/MCO) services to achieve this vision. However, proposals for later stage models are not
included in the draft application. CMS will expect details on these later stage models to be
submitted through an amendment to the waiver once program design features are available.
Section 9 of SL 2015-245 directs DHHS to “work with CMS to attempt to preserve existing
levels of funding generated from Medicaid-specific funding streams, such as assessments, to the
extent that the levels of funding may be preserved.” Furthermore, “if such Medicaid-specific
funding cannot be maintained as currently implemented, then the Division of Health Benefits
shall advise the Joint Legislative Oversight Committee on Medicaid and NC Health Choice,
created in Section 15 of this act, of any modifications necessary to maintain as much revenue as
possible within the context of Medicaid transformation.”
31

34. DHHS is proposing to CMS a program called Care Transformation through Payment Alignment.
This initiative is a blended approach to preserve funding levels, and relies on a combination of
continued direct funding to providers1
through uncompensated care payments and a delivery
system reform incentive payment (DSRIP) program. DSRIP is a federal-state partnership
initiative authorized as part of broader Section 1115 waivers that allows federal matching dollars
for project-driven milestones in order to support hospitals and other providers in changing how
they provide care to Medicaid beneficiaries.
The waiver also will contemplate the possibility of building portions of the current supplemental
payments into the PHP capitation rate to target provider efforts aimed at improving health
outcomes and achieving overall Medicaid goals while helping to preserve funding.
Transitioning payments by way of the Care Transformation through Payment Alignment
initiative will not only require careful consideration of the impact on providers, but also whether
the funding source can be transitioned to the new funding model. DHHS will work closely with
the provider community and other financing sources to further develop this proposal, including
specific recommendations of funding levels dedicated to each payment arrangement. In addition,
DHHS fully expects this proposal to be a primary focus of the waiver negotiations with CMS. If
the approach is altered significantly, CMS may require an additional public notice period; for
instance, to develop the initiatives under the DSRIP. See the fourth demonstration initiative in
the draft waiver application for more description of the DSRIP proposal.
C. State Plan and Other Waiver Amendments
Section 1115 waivers often require amendments to the state plan (SPAs) and existing Section
1915(b) or 1915(c) waivers to fully implement the program goals. However, it is not until further
into waiver negotiations when both the state and CMS will determine the changes that will be
needed when these amendments are submitted. Based on our current understanding, DHHS will
likely need to submit the following amendments to existing authorities:
• Section 2703 SPA for Medicaid Health Homes – terminate this state plan authority upon
implementation of PHPs.
• Section 1932(a) SPA – terminate the North Carolina Community Care Network (N3CN)
SPA pursuant to SL 2015-245, Section 7.
• Community Alternatives Program for Children (CAP-C) and Community Alternatives
Program for Disabled Adults (CAP-DA) Section 1915(c) home- and community-based
services (HCBS) waivers – reflect the capitated PHP delivery system.
• Amendment to Title XXI CHIP state plan to reflect changes from enrollment in N3CN to
PHPs.
1
Disproportionate Share Hospital (DSH) payments, and hospital graduate medical education payments will remain
outside of the waiver.
32

35. D. 1115 Waiver Budget Neutrality
North Carolina must show that the new initiatives under the 1115 waiver will not cost the federal
government more than it would without the waiver. DHHS will negotiate a “budget neutrality”
agreement with CMS. Some general features of this agreement will be:
• North Carolina will be at risk for the state match if it exceeds expenditure limits
established in the waiver. This is new to North Carolina.
• Once agreement is reached with CMS on budget neutrality, it is much more challenging
to reopen this agreement than it is in Section 1915(b) and 1915(c) waivers that DHHS has
now.
• CMS has its own rules for developing estimates for budget neutrality. They are not the
same as those used for the state budget estimates. The state budget estimates and waiver
projections are likely to appear different.
DHHS must live within the estimates that it agrees to with CMS. Therefore, it is very important
that North Carolina negotiate the most favorable agreement with CMS, and that future spending
decisions are considered in light of the budget neutrality agreement.
For the March 1, 2016 draft waiver application for public comment, CMS only requires
aggregate historical enrollment and expenditure information, and aggregate annual projected
enrollment and expenditure information for the five-year projected waiver period. Once DHHS
has received public input, including input on the Care Transformation through Payment
Alignment proposal, DHHS will prepare a detailed budget neutrality submission that will
accompany the June 1 waiver application to CMS.
33

36. III. EXPECTED TIMEFRAME FOR SUBMISSION OF THE PROPOSED
WAIVER TO CMS
Section 5(12)(b) of SL 2015-245 requires the DHHS report to the JLOC on Medicaid and NC
Health Choice to include “[t]he expected time frame for the submission of the proposed waiver
to CMS.”
DHHS intends to submit the 1115 waiver application to CMS to implement the transformation of
Medicaid and NC Health Choice on June 1, 2016 after conducting the federally required public
notice and comment period, and 60-day tribal consultation period.
The federal requirements for public notice and comment specify the timing and logistics of the
notice and comment process, and require states to summarize and respond to the comments
received during the public comment period. To comply with the federal public notice and
comment requirements, and meet the statutory deadline of June 1 for submission of the waiver
application, DHHS is releasing the draft waiver application for public comment concurrently
with the submission of the draft application to the JLOC and will accept public comments
starting no later than March 7 and through April 18. The tribal consultation period is expected to
occur from March 2 through April 30.
34

37. IV. PROPOSED STATUTORY CHANGES
Section 5(12)(c) of SL 2015-245 requires the report to the JLOC to include “[p]roposed
statutory changes required.”
A. Recommendations Regarding Licensure of Prepaid Health Plans
Background
Section 6 of SL 2015-245 adds a new scope of responsibility to the North Carolina Department
of Insurance (DOI):
“The transformed Medicaid and NC Health Choice system shall include the licensing of PHPs
based on solvency requirements established and implemented by the Department of
Insurance. The Commissioner of Insurance, in consultation with the Director of the Division
of Health Benefits, shall develop recommended solvency requirements that are similar to the
solvency requirements for similarly situated regulated entities and recommended licensing
procedures that include an annual review by the Commissioner and reporting of changes in
licensure to the Division of Health Benefits. …”
Recommendations
DHHS has reviewed multiple options for licensure of PHPs and consulted with DOI. Staff of the
two agencies jointly recommend that:
• PHP solvency requirements be similar to the solvency requirements in the Health
Maintenance Organization (HMO) Act (N.C.G.S. §58-67). This includes the existing
formula for capital/solvency requirements, which recognizes the amount of risk the PHP
assumes – for instance, the number of lives covered – and the degree the PHP retains or
limits its risk – such as paying providers by salary or capitation, or by purchasing
reinsurance. This allows PHP funding structures to be different, and provides equitable
application of reasonable standards intended to protect the interests of those impacted by
the actions of the PHPs: enrollees, providers and the taxpayers financing the program.
• PHP licensure and DOI regulatory oversight will focus on solvency and liquidity
requirements; DHHS will regulate the non-financial aspects of the PHP (e.g., covered
services, provider network, member services, quality improvement) through regulations
and the PHP contract. DHHS will also conduct financial monitoring, with DOI as the
primary regulator of PHP finances.
• Chapter 58 be amended to specify the licensure requirements for PHPs, the applicable
financial requirements, and the regulatory authority of DOI and DHHS with respect to
PHPs.
• PHP licensing process build on existing processes and be efficient for both DOI and
organizations seeking PHP licensure.
35

38. B. Application of Chapter 58
Background
Section 4 of SL 2015-245 requires that Medicaid and NC Health Choice programs be organized
according to certain principles. Section 4(6a) specifies that:
“To the extent allowed by Medicaid federal law and regulations and consistent with the
requirements of this act, PHPs shall comply with the requirements of Chapter 58 of the
General Statutes. The Department of Health and Human Services, Division of Health Benefits,
and the Department of Insurance shall jointly review the applicability of provisions of
Chapter 58 of the General Statutes to PHPs, and report to the Joint Legislative Oversight
Committee on Medicaid and NC Health Choice by March 1, 2016, on the following:
a. Proposed exceptions to the applicability of Chapter 58 of the General Statutes for
PHPs.
b. Recommendations for resolving conflicts between Chapter 58 of the General Statutes
and the requirements of Medicaid federal law and regulations.
c. Proposed statutory changes necessary to implement this subdivision.”
Recommendation
DHHS and DOI recommend that, except for the financial requirements specified for PHP
licensure, PHPs be exempt from Chapter 58 of the General Statutes. DHHS will instead
incorporate key protections from Chapter 58 in its PHP regulations and/or the PHP contract.
DHHS and DOI make this recommendation in the interests of administrative efficiency, ensuring
compliance with federal Medicaid requirements, and consistency with the recommendation
above to have DOI regulate the financial attributes of PHPs and DHHS regulate the non-financial
components of PHPs.
Rationale
A review of Chapter 58 identified a few dozen non-financial provisions setting forth member or
provider protections. These provisions are primarily outlined in the following articles: Article 3,
General Regulations for Insurance; Article 50, General Accident and Health Insurance
Regulations; and Article 51, Nature of Policies. However, many of these provisions are related to
coverage (e.g., coverage for hearing aids), which are not applicable to PHPs because Medicaid
coverage is governed by North Carolina’s Medicaid state plan and Section 1915(c) waivers for
home- and community-based services (HCBS).
Some other provisions (e.g., treatment discussions not limited, prohibition on managed care
provider incentives, provider directories, direct access to obstetrician-gynecologists, grievance
procedures) are not applicable to the PHPs because they are controlled by federal Medicaid law
and regulation. The federal government requires its Medicaid-specific provisions to be included
36

39. in contracts with managed care organizations (MCOs).2
Since the PHPs will be required to
comply with the federal terms, the corresponding provisions in Chapter 58 do not apply to PHPs.
Other provisions (e.g., notice of claim denied, selection of a specialist as a primary care provider,
identification card) are not controlled by federal Medicaid law but are typically addressed in
Medicaid managed care contracts, and DHHS intends to include similar provisions in the PHP
contract. Additionally, DHHS proposes to include any remaining provisions in Chapter 58 that
might be applicable to PHPs (e.g., health plan fee schedules, direct access to pediatricians for
minors) in the PHP contract, as long as they are not inconsistent with federal Medicaid
requirements.
C. Proposed Amendments to SL 2015-245
Amendments Related to Eligibility and Services
While developing the waiver, DHHS identified proposed amendments to SL 2015-245 related to
eligibility and services, and a few areas for clarification. Section 4(5) of SL 2015-245 provides
that all program aid categories, except beneficiaries who are dually eligible for Medicaid and
Medicare (“dual eligibles” or “duals”), be enrolled in a PHP. DHHS interprets the statutory
language regarding exclusion of dual eligibles from PHP enrollment to mean all dual eligibles,
including beneficiaries with disabilities who also have Medicare and those who are “partial
duals” – beneficiaries eligible only for assistance with their Medicare cost-sharing.
Based on careful consideration during program design discussions, DHHS recommends that the
statute be amended to exclude from PHP enrollment these additional Medicaid beneficiary
categories:
• Medically needy beneficiaries
• Beneficiaries who are eligible only for emergency services
• Members of federally recognized tribes, including the Eastern Band of Cherokee
Indians, who could opt to enroll voluntarily in PHPs.
Nationwide, medically needy individuals are generally excluded from capitated contracts (for
example, in Florida and Virginia). These beneficiaries are enrolled in Medicaid for only short
periods, which limits the plan’s ability to effectively manage the beneficiaries’ care. In state
fiscal year 2015, there were 20,000 beneficiaries who were classified as medically needy, but
most of these beneficiaries (approximately 85 percent) were eligible only for three to four
months of coverage. The remaining beneficiaries had an average duration of 5.6 to six months.
Similarly, DHHS proposes to exclude a small number of beneficiaries who are eligible only for
emergency services. These beneficiaries also are enrolled in Medicaid for short periods, and
PHPs will not be able to directly manage their activity or costs.
2
CMS uses the term “managed care organization (MCO)” in reference to entities that the North Carolina General
Assembly has elected to call prepaid health plans, or PHPs.
37

40. Based on initial conversations with the Eastern Band of Cherokee Indians (EBCI), DHHS
recommends that members of the federally-recognized tribes be permitted to enroll in PHPs on
an opt-in basis, but not be required to enroll in a PHP. EBCI members who voluntarily enroll
may disenroll without cause at any time.
The EBCI has also expressed an interest in developing a sub-regional specialty PLE for the
Cherokee community in North Carolina. DHHS will work with the EBCI to explore this option
during and after the tribal consultation period.
While DHHS does not believe that an amendment to the statute is required, it proposes to
exclude the following from PHP enrollment:
• Individuals who are presumptively eligible for Medicaid. These individuals are only
presumptively eligible for a short time and must apply to continue Medicaid eligibility
beyond the presumptive eligibility period.
• Months when a beneficiary is retroactively eligible for Medicaid. Since costs during
retroactive eligibility occur before enrollment with a PHP, the PHP will have no
opportunity to manage those costs; therefore, periods of retroactive eligibility are typically
excluded from capitated managed care.
• Refugees. While refugees receive the Medicaid package of services, they are 100%
federally funded, and are eligible for only up to eight months of coverage.
Section 4(4) of SL 2015-245 provides that PHPs shall cover all Medicaid and NC Health Choice
services excluding LME/MCO services (applicable to Medicaid but not NC Health Choice
beneficiaries) and dental services. However, DHHS recommends that the statute be amended to
exclude Program for All-Inclusive Care for the Elderly (PACE). There are approximately 1,200
beneficiaries in PACE, and approximately 3% of PACE beneficiaries are not dual eligibles. In
addition, PACE beneficiaries are in a separately capitated program.
DHHS recommends the exclusion of, services provided by local education agencies (LEAs),3
and services provided by Children’s Developmental Services Agencies (CDSAs).4
These
services are provided in accordance with the Individuals with Disabilities Education Act (IDEA),
and the state share of these services comes primarily from certified public expenditures (CPE),
making the transition to capitated PHPs difficult and potentially disruptive to the delivery of
these services.
3
Local Education Agencies (LEAs) enrolled with Medicaid provide treatment and assessment services to Medicaid-
eligible children through a child’s Individualized Education Program (IEP) pursuant to Part B of the Individuals
with Disabilities Education Act (IDEA). Services include audiology, speech/language therapy, occupational therapy,
physical therapy, nursing services and psychological/counseling services.
4
There are 16 regional Children’s Developmental Services Agencies (CDSAs) located across the state that are
available to help families, caregivers and professionals serve children with special needs through the Infant Toddler
Program. The program offers early intervention services for children from birth through 36 months of age with a
developmental delay or disorder. Services include evaluation, treatment, service coordination and consultation
services. Administered by the NC Division of Public Health, this program delivers services as outlined in federal
law under Part C of the IDEA.
38

41. In addition, based on initial conversations with the Eastern Band of Cherokee Indians
(EBCI), DHHS proposes to permit Indian health care providers (IHCPs) to choose whether or
not to participate in a PHP’s provider network and to allow IHCPs to continue to be reimbursed
on a fee-for-service (FFS) basis for services they provide as a non-participating provider.
Other Amendments to SL 2015-245
Section 4(6)(b) of SL 2015-245 provides that DHHS can have up to 10 regional contracts with
provider-led entities (PLEs). Thus, if DHHS contracts with one PLE in each of the six regions,
there will be only four contracts remaining. Some regions may have enough population to
support more than four contracts. DHHS would therefore like the flexibility to contract with
additional qualified PLEs where appropriate. Specifically, DHHS requests an amendment to
allow up to 12 regional contracts with PLEs.
The legislative intent is clear that DHHS is the single state agency and DMA continues to
manage the Medicaid program until DHB assumes operations. In several places, however, the
legislation requires DHHS to act through DHB prior to the change taking place. For example,
Part 1 section 3[3] indicates that DHHS, through DHB, shall submit the waiver application.
Since DHHS is the single state agency and DMA is listed in the state plan as the operational
agency for Medicaid under DHHS; submitting the waiver through DHB would conflict with the
state plan. DHHS recommends making changes to SL 2015-245 to clarify that until DHB is in
place – through a SPA – DHHS is the entity named to take action. These clarifications will not
change legislative intent relating to the transition to the new DHB.
SL 2015-245 Section 14(a) requires a six-month cooling off period for certain DHHS employees.
Some of these individuals will not become DHB employees, but have skill sets that will be in
great demand by PHPs. This could have the unintended consequence of key staff leaving DMA
early to avoid the cooling off period. DHHS legal counsel is preparing proposed language that
will meet legislative intent and the needs of the Medicaid program.
D. Changes to Other Statutes
With respect to existing statutes relevant to Medicaid, DHHS has identified at least 21 provisions
in Chapters 108A and 108C that will need clarifying language to reflect the system changes
made by SL 2015-245. They are: NCGS §§ 108A-55, 108A-57, 108A-59, 108A-64.1, 108A-65,
108A-68, 108A-70, 108A-70.5, 108A-70.9A, 108A-70.9B, 108A-70.9C, 108A-70.11, 108A-
70.12, 108A-70.18, 108A-70.21, 108A-70.27, 108A-70.29, 108C-2, 108C-3, 108C-4 and 108C-
14.
As an example, GS 108A-55 speaks to provider reimbursement and states that the “Department
shall establish the methods by which reimbursement amounts are determined in accordance with
Chapter 150B of the General Statutes.” While this would be true for rates for services in the
remaining fee-for-service programs, the reimbursement framework will change under the PHP
structure.
Other potential changes may include clarity to GS 108A-57, which sets out the state’s
subrogation rights. While DHHS will remain the single state agency, and collection of third-
39

42. party resources may, in theory, be dealt with in contract, it will be beneficial to revise certain
language within the statute to facilitate collection of third-party resources by PHPs. As currently
written, GS 108A-57 sets out notification requirements and payment requirements solely related
to DHHS, with no reference to DHHS vendors, contractors or agents. A revision clarifying the
rights of PHPs to pursue third-party resources in the transformed system will be helpful to ensure
maximum recovery of third-party funds. In addition, statutory changes may be required to
implement the recommendation in Section XV of this report to allow parents to retain their
Medicaid eligibility while their children are being served temporarily by the foster care program.
40

43. V. STATUS OF DHB STAFFING
Section 5(12)(d) of SL 2015-245 requires the report to the JLOC on Medicaid and NC Health
Choice to include “[s]tatus of staffing of the Division of Health Benefits, including a description
of staff’s key competencies and expertise.”
A. Overview and Creation of the Division of Health Benefits
DHHS is taking a tactical approach to planning for and hiring the Medicaid transformation
project team. This team will work with internal and external stakeholders, along with appropriate
and necessary third-party assistance, to plan, design and implement Medicaid reform in North
Carolina. Through the Medicaid Leadership Institute sponsored by the National Governors
Association and the nonprofit Center for Health Care Strategies, DHHS has access to change
management and leadership development support until September 2016.
Part II of SL 2015-245 reorganizes the Medicaid and NC Health Choice programs in the
following manner (at a high level):
• Division of Medical Assistance will manage the state Medicaid and NC Health Choice
programs until 12 months after the capitated PHP contracts begin (or earlier, as
determined by the DHHS Secretary).
• Division of Health Benefits is created within DHHS to plan the transformation and
ultimately manage the state’s Medicaid and NC Health Choice programs.
B. Staffing Plans
DHB has begun hiring key staff and contractors to support organizational start-up, 1115 waiver
development and transformation planning. As of March 1, DHB has five full-time employees
and one full-time contractor. Additional hires are expected over the coming months (see
organizational structure in section V.C). Key skill sets for members of the initial team include:
• Finance
• Analytics/actuarial
• Technical
• Operations/organization leadership
• Project management
• Contract management
• Program knowledge (Medicaid, managed care and health care)
• Legal and regulatory
• Clinical and quality measurement
These skill sets are specific to each job and outlined in a job description, and will evolve for
future roles needed to fulfill agency functions.
41

44. DHB intends to contract with a consultant later in 2016 to assist DHB in developing a long-term
staffing and transition plan.
To ensure that DHB has the appropriate staff to manage the new capitated managed care
programs and remaining FFS programs, DHB will focus on:
• Balancing requirements of state and federal partners (see below).
• Building key skillsets to support the planning, design and development of the Medicaid
reform program.
• Developing policies and procedures.
C. Transformation Planning Project Organizational Structure
The transformation planning project team organization structure is a functional structure that
enables development of expertise in each area. Based on discussions with another state that went
through a similar transition, this was determined to be an effective structure.
The organization chart below depicts the anticipated structure and staffing level for the first one
to two years. Positions requiring full-time workloads will be filled with full-time individuals,
employed by DHHS and located within DHB. One-time or seasonal tasks will be performed by
contractors or consultants.
42

45. Transformation Planning Project Organizational Structure
HUMAN RESOURCES
DIRECTOR
JENNIFER COX
PROGRAM
MANAGEMENT
FINANCE &
ACCOUNTING
BUSINESS
RESEARCH ANALYST
IT & HEALTH
ANALYTICS
HEALTH BENEFITS
ATTORNEY
HEALTH BENEFITS
POLICY
OPERATIONS
CHIEF OPERATING
OFFICER
DEE JONES
EXECUTIVE
COORDINATOR
NATASHA ADAMS
HUMAN RESOURCES
GENERALIST
ADMINISTRATIVE
SUPPORT (TEMP)
POSTED
FINANCIAL ANALYST
PROGRAM DIRECTOR
(CONTRACT)
POSTED
CONTRACT
ADMINISTRATOR
POLICY
COORDINATOR
COMMUNICATIONS
LEADER
PROGRAM MGR
PROGRAM MGR
ACTUARIAL
SR PROGRAM MGR
JULIA LERCHE
BUSINESS
OPERATIONS
SR PROGRAM MGR
JAMAL JONES
ACCOUNTANT BUSINESS ANALYST
PROJECT MANAGER
(CONTRACT)
DONALD BROWNING
POLICY
COORDINATOR
POLICY ANALYST
POLICY ANALYST
TIME FRAME FTEs
Oct. 2015 - June 2016 22
July 2016 - June 2017 6
Total DHB Project Staff 28
COMMUNICATIONS
COORDINATOR
43

46. D. Approach to Benefits and Compensation
Per Section 13.G of SL 2015-245, employees of the Division of Health Benefits shall not be
subject to the North Carolina Human Resources Act, except as provided in NCGS 126-5(c1)(31).
The exemption from the Human Resources Act enables DHB to retain current, highly skilled
talent, and attract new skill sets to the state.
Given this exemption, DHB has prepared an employment agreement for current hires until
employment policies are developed. Following is a general comparison of the provisions of the
DHB short-term employment agreement with the state Human Resources Act.
Similarities with NCGS Section 126 Differences with NCGS Section 126
• Frequency of salary payments
• Paid time off
• Retirement plan
• Benefits
• At-will employment
• Recruitment
• Performance-based pay
• No longevity pay
After the initial DHB start-up phase, there will be a review and further discussion of benefit plan
opportunities and options. At this time, participation in the State Retirement system (6 percent
contribution) is required by NCGS Chapter 135.
CMS Expectations
As indicated earlier, in developing employment policies for DHB employees, DHHS must find a
balance between state and federal expectations. CMS has specific tenets related to defining
merit-based employment that must be met to claim administrative match on employee salaries.
With the exemption from the North Carolina Human Resources Act, and the requirement that
DHB policies become effective for staff hired on or after October 1, 2015, DHHS must ensure
that CMS understands and accepts its policies around merit-based employment requirements.
44