State senators unveiled plans Monday for a drastic overhaul of the state Medicaid program, and how the state determines whether new health care facilities and equipment are needed.

The Senate budget for 2015-16 continues the push for a major for-profit component to state Medicaid reform that was previewed in Bill 696.

The budget proposal also goes beyond limiting the reach of the state’s certificate-of-need (CON) regulations to eliminating it altogether by 2019, as proposed in Bill 702. Senate leaders consider the CON system as “outdated and failed.”

The state’s $14 billion Medicaid program covers about 1.9 million North Carolinians and has had a financing gap of almost $2 billion since the start of the 2009-10 fiscal year.

Most legislators, as well as Gov. Pat McCrory, agree the program “stands at a crossroads” in terms of reform. The current system is based primarily on a fee-for-service format.

How to reform the program arguably is the biggest sticking point between state Republican leaders and McCrory.

Senate leaders tout privatization, including hiring out of-state, for-profit insurers as the best approach to fix it. The companies would operate as managed-care organizations (MCOs)

Meanwhile, House leaders, health Secretary Dr. Aldona Wos and McCrory prefer the accountable care organization (ACO) model with existing in-state providers and health care systems leading the way. Those groups usually are controlled by health care systems, hospitals and physicians.

Senate leaders remain committed to establishing the Health Benefits Authority, an oversight board nominally within the N.C. Department of Health and Human Services, which currently handles the state Medicaid program.

The authority would be governed by a paid, seven-member board of directors. The authority would feature experts in administration, insurance, actuarial science, economics, and law and policy. At least $800,000 could be spent on the combined salaries of the board members.

Supporters of the authority say Medicaid may have become too big for DHHS to handle efficiently.

Sen. Phil Berger, R-Rockingham, and president pro team, and Sen. Harry Brown, R-Onslow, majority leader, said the authority would take a major step toward overhauling the “chronically troubled and over-budget Medicaid program and lead the state toward a patient-focused, cost-minded vision for the program.”

A House Medicaid reform bill, introduced Thursday and co-written by Rep. Donny Lambeth, R-Forsyth, promotes a provider-led format for addressing the risk involved in the program. It has the support of the N.C. Hospital Association, which helped form a draft version of the bill.

The provider-led entities, such as health-care systems, hospitals and physician groups, would take the risk of Medicaid enrollees’ use of services through a capitated, or fixed-fee per individual, payment format.

“The news that the Senate plans to deal with some of these structural issues in the budget could signal that something could be agreed to this session,” said John Dinan, a political sciences professor at Wake Forest University.

“Now, perhaps the differences between the House and Senate are still so significant that legislative leaders will decide to deal with the budget first, and then deal with Medicaid reform separately, whether later this summer or at a later time.”

CON changes

A CON is required by state law before a health care system or provider can build a medical facility, buy equipment or offer a medical procedure. The primary goal is preventing unnecessary duplication of services within a community or region as a means of controlling costs.

The CON program has helped fortify the revenue streams of not-for-profit health care systems, such as Cone Health, Novant Health Inc. and Wake Forest Baptist Medical Center.

Analysts say the program has made it more financially challenging for for-profit groups to obtain a meaningful ownership presence, as well as independent physicians or physician groups to compete against the systems.

Senate leaders said ending CON regulations “prevents monopolies and allows low-cost, high-quality health-care providers to compete in an open market.”

House Bill 200 would exempt diagnostic centers, ambulatory surgical centers, gastrointestinal endoscopy rooms and psychiatric hospitals from CON review. It has not been acted upon since March 11.

“Our position is that N.C. hospitals support keeping the current CON law,” said Julie Henry, a spokeswoman with the N.C. Hospital Association.

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