Raleigh, N.C. — North Carolina is in the midst of an effort to remake the state’s public safety net for those with mental health, substance abuse and developmental disabilities.
Lawmakers, administrators and taxpayers want to see if the change to a “managed care” model can really save millions of dollars and avoid the over-spending debacles that marked the first system remake a decade ago.
At stake is how the North Carolina manages more than $2.4 billion in state and federal mental health dollars that flow through local mental health agencies, and how individuals with mental illness will live their lives every day.
“All I want to do is keep my daughter at home,” said Laurie Haley.
For her, reforms success or failure will be measured by how it affects her daughter, Alissa. The 27-year-old woman has severe developmental disabilities and also suffers from seizures. Alissa needs help dressing, eating and taking care of other needs. Those who help her need to be able to administer medicine and prepared to act in case a seizure makes her fall in the shower or comes on her in public.
Haley says that she has, for now, ensured that the transition to managed care won’t mean fewer services for her daughter. But she said other families making the switch are still encountering problems.
“What I’m hearing is that they’re still trying to reduce services for people,” Haley said.
That small-scale skepticism of the new system was amplified this summer when a blistering report said that one of the first local mental health authorities given permission to make the transition was not ready for the switch to managed care.
State and local mental health administrators say that one experience should not color the entire transition effort and that the system is on the road to improvement. Advocates, some who work providing services to clients and even some lawmakers say the process may be moving too fast. They worry that counties such as Wake and Durham, which have just begun the move toward managed care, could encounter the same mistakes and problems seen elsewhere.
A dozen years of change
Prior to 2001, the state had 39 local mental health authorities that, along with state-run institutions, provided care to those with mental health and substance abuse problems and oversaw care for the developmentally disabled population.
A combination of court decisions, declining quality and national efforts to allow those being treated for mental health issues to remain in the community as much as possible pushed lawmakers toward their first reform effort. In 2001, legislation demanded that local mental health agencies stop providing services themselves and act as administrators who coordinated a group of contractors to service clients.
There were positive aspects to this approach. Efforts to limit the number of people institutionalized may have both saved money and been better for individuals. But audits, news reports and legislative review from the time found that the state wasted millions of dollars, particularly on community support programs that were over-used and poorly monitored. And in addition to problems found at state mental health facilities, there were reports that some contractors who ran group homes for local mental health agencies were unqualified to take care of their charges.
As those reports broke, Piedmont Behavioral Health stood out.
“When the community service issue came up, they were not impacted,” said Sen. Fletcher Hartsell, R-Cabarrus.
Piedmont Behavioral Health, or PBH for short, had asked to use a different management system. The agency – which oversaw care for people in Cabarrus, Davidson, Rowan, Stanly and Union counties – became a managed care organization.
Unlike its counterparts in other parts of the state which were still firmly rooted in their origins as government-run mental health agencies, PBH began to look and act more like an insurance company. In exchange for certain performance guarantees, the agency would be able to limit how many contractors it did business with and more closely monitor spending on its patients.
One of the most important differences was that the same people who oversaw state spending in the PBH area also managed Medicaid dollars, said Rep. Verla Inkso, D-Orange. In other areas, an out-of-state private contractor provided this “utilization review” function.
Insko and PBH executives said the dual responsibility of both overseeing care and closely monitoring spending allowed PBH to spot excess spending on unnecessary services by patients who didn’t know any better or contractors who were trying to game the system.
For example, investigators looking into overspending elsewhere found public dollars were used to pay exorbitant rates for people to get help with grocery shopping or to be taken on trips to the movies. Because PBH was more familiar with its clients and could limit the number of service providers with which it dealt, the company avoided those over-payment issues.
“In a managed care system, everything has to fit together,” said Pam Shipman, a long-time PBH employee who recently took over as CEO.
In 2011, lawmakers looking for a way to control ballooning spending on Medicaid – a joint state and federal health insurance program – saw the PBH model as a panacea. They ordered the remainder of the state’s local mental health agencies to follow the PBH model, and to do so quickly.
Statewide conversion to PBH’s managed care model is due to be complete by July 1, 2013. In order to make the conversion work, systems have had to merge into a series of 11 regional mental health authorities, down from 39 in 2001. Five have already made or are putting the finishing touches on the transition, while the remaining six are scheduled to make the jump to managed care in January.
“We didn’t complain about going to managed care organizations,” said Noel Watts, president of MARC Inc, a group of businesses that provide vocational education for those with disabilities in western North Carolina. “What our complaint was, is this thing is going too fast.”
That speed, he said, has come already come back to hurt the state’s efforts in the Westerns Highlands area. Those watching the system closely worry that other problems will arise because of how quickly parents, providers and bureaucrats are being asked to make the change.
Advocates for the developmentally disabled push back against cost cutting
Laurie Haley has seen ups and downs as North Carolina has slogged through mental health reform efforts over the past decade. For a three-year period from 2005 through 2008, she said, reform seemed to have worked for her daughter, Alissa. Other times, dealing with local and state mental health bureaucrats was more fraught.
As 2011 drew to a close, Granville County and four other counties in the Five County local mental health agency that had overseen her daughter’s care were getting ready to join Piedmont Behavioral Health. The Haleys would be among the first people in the state to make the jump into the managed care model that PBH had been testing for seven years.
Although people with developmental disabilities are supposed to be “cross-walked” from their current set of services to a new set of services under managed care, Haley said she ran into problems almost immediately. Foremost among her problems, reflected in emails she saved from the time, was that PBH wanted to give Alissa a lower level of personal care services.
Paying a lower rate would cost less but mean lower-skilled workers would care for her daughter. It took time, and savvy built up over years of tilting with various mental health systems, to get her situation settled, Haley said.
“A lot of people are getting a lot of reductions,” she said. Parents of other developmentally disabled adults say they are seeing the number of hours of service or other services cut when they make the transition.
That isn’t the first time PBH has seen push back.
The company has been sued more than once related to issues with how it assesses the needs of its clients. One prominent, recent suit, which the company lost in federal district court but is appealing, dealt with how and when consumers such as Haley could appeal what level of service they were granted.
Managed care “puts a lot more responsibility on the families to understand the system, to understand what the rules are,” said John Rittelmeyer, litigation director at Disability Rights North Carolina, which has been involved in lawsuits with PBH.
Rittelmeyer and others knowledgeable about the system say that those with psychiatric illnesses or substance abuse problems will likely fare better under the managed care model.
Developmental disabilities defy ‘medical model’
Skeptics of managed care often label it a “medical model,” that achieves savings in part by keeping people with acute illnesses out of hospitals and other expensive care settings. Since people with developmental disabilities do not have a disease that can be cured or go into remission, critics say they don’t fit neatly into the cost-containment practices brought to bear by managed care.
Shipman rejects this notion, saying managed care can work for those with developmental disabilities. But she acknowledges the skepticism.
“Change is hard,” Shipman said.
One of the biggest changes for people in the developmental disability community is the loss of “targeted case management,” a service offered under the old mental health model.
Case managers were hired independently from the mental health authority and would help design the set of services provided for an individual. They would serve as the family’s liaison and informal advocate and be available to help manage in a crisis.
Targeted case management isn’t available under managed care. Proponents of the change quickly note that “advocacy” was never a function that Medicaid should have paid for and say care individuals received too often depended on the skill of their case manager rather than their actual needs.
In the new managed care system, care coordinators who work directly for the agency put together the set of services for each client. That plan is reviewed in another part of the company and, Shipman says, there is “a firewall” between to the two functions.
But those used to having an independent voice managing their care are uncomfortable. Will someone who works for what amounts to a government-run insurance company really work hard to ensure a patient gets all that they need, even if it costs the company more?
“It seems like it’s a conflict of interest,” Haley said.
Managed care, Shipman says, only works if the agency’s clients are kept healthy. The company, she said, has an incentive to make sure everyone is well cared for. Proof, she said, will come over time, as other areas of the state have success with the model.
Shipman also acknowledged that some of the general skepticism about managed care has become skepticism about PBH and the motives of its leaders.
“Right now, if you don’t like managed care, PBH is your target,” she said.
Public purpose, private attitude
Under the public-private managed care model, each agency is allotted a certain amount of money based on the number of people it could potentially serve in a given year. By design, those companies aim to spend less than they are given on mandatory services.
“We operate like a private business, for a public purpose,” Shipman said.
That doesn’t sit well with critics.
“Our primary disagreement with PBH is they should act like a human service agency first and a money-making organization second,” Rittelmeyer said.
The company has roughly $69 million in various reserves at the same time it is seeking to limit the number of services it provides to clients.
Rittelmeyer says PBH has built up this reserve by being “parsimonious.”
State regulators point out managed care companies have to have a “risk reserve” to meet unplanned expenses. As well, money that managed care companies save can be put into other services not normally provided by Medicaid.
“This is not about making a profit,” said Beth Melcher, chief deputy secretary of the Department of Health and Human Services.
Critics also key on PBH’s political connections. Hartsell’s wife was, until recently, a PBH board member. Hartsell himself, who chaired the Senate mental health committee and helped push the legislation, is a general counsel for a company that does business with PBH.
Former Rep. Jeff Barnhart, R-Cabarrus, who authored H 916 is one of six lobbyists who are registered to work for PBH.
“I’m one of those who believes that PBH put themselves out front. They marketed their success to the administration and the legislature,” said Dave Richard, executive director of The ARC of North Carolina.
Shipman said the lobbyists were a matter of time management. She could not monitor everything going on with mental health legislation, which would affect how PBH does business. And as the company became an increasing target of criticism, it needed help looking out for its interests in Raleigh.
It is worth that noting critics of managed care generally, or PBH in particular, also have a financial stake in the transition. The ARC used to provide targeted case management for local mental health agencies, business Richard acknowledges it is now losing. But it is also an advocacy group, and he said that people with developmental disabilities stand to lose out under the PBH model.
“The people they marketed to didn’t quite understand what they were buying,” Richard said. “The kind of savings that people are talking about are really cuts; it’s really just a way of saying cuts.”
Melcher and Shipman say that’s not so. Managed care saves money through keeping a close eye on spending and saving on administrative costs.
Still, by the end of the year, PBH is scheduled to have 15 counties as part of its network, triple its size from a year ago. Critics eye that expansion warily, wondering if the company’s ultimate goal is a much wider expansion.
They point out that PBH has sold its cost-monitoring computer system to Eastern Carolina Behavioral Health, another agency that has made the jump to become a managed care organization. Selling that same system to others could net PBH millions.
Shipman said ECBH is the only entity that has bought its computer system. And any expansion may be over for the moment.
“We don’t have an agenda to expand,” Shipman said. Asked if PBH would be willing to take more counties into its system, she expressed doubt. The fit, she said, would have to be right. “I don’t want to risk the company on something that doesn’t fit us.”
Fidelity to the PBH model
Piedmont Behavioral Health will soon change its name to Cardinal Innovations Health Plan, a nod to its expansion outside the company’s original five counties.
And whether it expands further or not, the company’s DNA will be part of North Carolina’s mental health system for the foreseeable future. The legislation driving the transition calls for “fidelity to the Piedmont Behavioral Health (PBH) demonstration model.”
Lawmakers hope that fidelity will mean costs savings in the long run. Melcher says that it really means using the same set of guidelines and waivers that PBH did to create a public-private managed care organization.
“There’s a whole process of readiness they need to demonstrate to us before we let them become a (Managed Care Organization),” Melcher said. State regulators and consultants examine computer systems, make sure would-be managed care executives are ready to use the data coming their way and are otherwise ready to pay providers.
So when Western Highlands Network, the first local mental health agency to follow PBH into the managed care model, posted a $3 million loss for its first six months, that came as a surprise. Then in a July 23 report, Mercer, a consultant for the state, ripped into Western.
According to the consultant’s report, Western Highland’s managers failed to use key information, the agency’s computer systems still aren’t able to handle billing functions and clinical operations are not closely supervised.
Watts, of MARC Inc, says that the agency vendors could interrupt services for clients and some service providers haven’t been fully paid for months. To make up for those deficiencies, he said, the agency is having to look at cutting services for its clients.
“We were pretty much promised that wouldn’t happen and it is happening,” Watts said.
Melcher and others say Western Highlands is an unusual case that proves how hard the transition to managed care can be. There is a limit, she said, to what can be learned during the testing phase.
Other agencies that have made the transition have done better and the lessons they have learned will help others.
“It may not be all Western Highlands’ fault,” said Sen. Tom Apodaca, R-Henderson. “We can screw up a one-car funeral in Raleigh.”
Still, he said, the state’s dozen-year of history with mental health reform tells him there will be more speed bumps before the transition is complete.
“I think we’re going to continue to see this as we merge the programs,” he said.
At least one board member for Eastern Carolina Behavioral Health is convinced he’s seeing signs of trouble.
“Since this conversion process, the organization has managed to lose $11.4 million,” said Michael McLain, a ECBH board member and Camden County Commissioner. The organization, he said, is spending more than it has been given in revenue from the state.
But Leza Wainwright, a former Division of Mental Health official who now runs ECBH, says those were planned transition costs. She understands the concerns – a public mental health agency in the area essentially went bankrupt and had to be absorbed by ECBH in recent years – but this transition is going well, she insists.
“The last decade, while incredibly painful in some respects, gave us a lot of knowledge about what can go wrong,” Wainwright said.
Managed care coming to more urban Triangle
Alliance Behavioral Health, the soon-to-be managed care entity that will provide for people in Wake and Durham Counties, could turn out to be the beneficiary of that hard-earned knowledge, said Rob Robinson, the agency’s executive director.
While Alliance will follow the mandate of fidelity to the PBH model, he said, that doesn’t mean Alliance will be a clone.
“There are lots of things that we plan to do slightly differently,” he said. Wake and Durham are large urban counties, much different from the suburban mix that spawned PBH.
As for skepticism about managed care, Robinson said that Alliance is very conscious of its public mission.
“We are not in the business of cutting services for people in the need of the service,” he said. “We really think this move is going to result in better outcomes for people.”
That said, even the most optimistic acknowledge there will be problems. For example, some 6,000-to-8,000 people with developmental disabilities across the state may still be waiting for Medicaid-funded services, even after the transition happens. While those with mental health and substance abuse problems have a right to treatment, once funding for those with developmental disabilities runs out, there are no more slots available. State-funded services help fill in those gaps, but they typically are not as extensive.
Rittelmeyer, of Disability Rights, said the transition could make some problems harder to solve. For example, the state is working to move people with mental illness out of assisted living homes primarily designed to take care of the elderly. He worries that local managed care agencies will not have the right incentives to get those people back into the community.
The federal government’s National Council of Disability has a similar criticism of managed care systems such as North Carolina’s. In a recent report it noted that local managed care entities did not have to pay for the costs of state mental health facilities, which cost North Carolina $703 million in state and federal dollars every year.
That’s money outside of the $2.4 billion flowing through the local mental health system, so local managed care organizations actually have an incentive to use the most expensive and restrictive form of treatment possible.
“Taking the most expensive support alternative out of the cost calculation not only will decrease any savings that might otherwise occur, but also will provide the option for managed care programs to divert high-cost individuals to institutional services, thus increasing the numbers serviced in the most costly support option,” the report said.
Lawmakers and others involved with the system acknowledge the need for further changes and improvements. But North Carolina, they say, needs to make this latest round of reform work.
“For the most part, it has been a very successful transition,” said DHHS’s Melcher. “Will it be perfect? No. Will there be changes in some of these MCOs before it all settles out? Probably.”
And while statewide success will be measured in millions of dollars, Haley and others like her will measure it in terms of what it means for their loved ones.
“My daughter is not a disability, she’s a human being with a disability,” Haley said. “If I have the right to live at home and you have the right to live at home, she should too.”