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House | March 19, 2015 | Committee Room | Health and Human Services

Full MP3 Audio File

[SPEAKER CHANGES] I'd like to introduce our pages who are with us today. Stand up as I call your name please, so that the people may see you. Nicholas Otto from Wake Forest, Nicholas is sponsored by Senator Barefoot. Nicholas is at the rear of the room. Antonio Sims from the House, from Pitt County. Antonio, where are you? Where do you live in Pitt County? Greenville? It's nice to have you here. Antonio is sponsored by Speaker Moore. Glad to have you with us. Sergeants-At-Arms, from the House ?? Bay, Jim Moran, and Bill Morris. Our Sergeants-At-Arms from the Senate are Canton Lewis and Marcus Kitts. Glad to have you folks with us as well to help us as we go along through our meetings. We have a schedule update on the first item on the agenda to be brought to us by Miss Susan Jacobs. Miss Jacobs. [SPEAKER CHANGES] Mr. Chairman and members of the committee, we thought it would be a good idea just to talk before Steve begins his presentations on how we pay Medicaid providers. Where we are on the overall schedule, we lost a couple of weeks because of weather and we've had to cancel a couple of other meetings. So we've had to revise the schedule some, I just want to talk about where we are, but as a reminder of course, we're talking this session about shifting from paying to investing and that's why we're talking today about how we pay for Medicaid. You know that we had originally planned to do Steve's presentation immediately after Tuesday's presentation when the Pew Center was in here. So we would have had his presentation immediately after, talking about funding or a different budgeting strategy, talking about how to fund programs based on evidence. Unfortunately we had to go back because we had to reschedule Dr. Cilenti from yesterday, so we've had to go back a little bit, a little bit back and forth. But, so originally we had planned to include Steve's presentation immediately after the Pew Center, but we're back on track now. Yesterday this came up in the comments or questions you had about why Hispanic women were delivering healthier babies than women in North Carolina-than women born in North Carolina. Just wanted to remind you about this slide where we started at the very beginning of the presentations when, the first presentation I did in here. Not only North Carolina, but America spends twice as much on health care than any other nation. But we don't have the healthiest people and research indicates that spending on health care to treat people--like we'll be talking about today--may actually come at the expense of public health programs meant to keep people from getting sick to start with. So we want you to keep that in mind as we talk about how we pay for Medicaid. We talked about the key questions you should be asking yourself as we go through these presentations about programs and how and what you expect to get back from not only Medicaid but any program that you fund in Health and Human Services. Where we are in the schedule, the-I have included check marks from things that we've actually finished. One item that we've had to cancel, if time allows we may go back and include a program evaluation report on child support incentives, a report that was done by the Program Evaluation Division. Today in bold towards the bottom of the slide, you see that we're on how North Carolina pays providers. We will do part one today, Steve will talk about everyone except for LMECOs and hospitals. He'll wrap that up on Tuesday. I will tell you that the presentations he will do today is the result of work that he's done over the past year. So I'm biased, but I think it's pretty good work. He's gotten input from providers, as you can imagine we ask for their input on whether the document is factually correct. They're not necessarily happy with the work we've done, but I don't believe they found anything factually incorrect with the work that we've done. So we're pretty happy to bring you this work. We get questions all session long and during the interim about how we pay specific providers. How do we pay hospitals? How do we pay nursing homes? It's very complicated and so we have tried to wrap it-he's tried to wrap it up into a presentation that makes sense and simplifies it for you. Before you can talk about how you change the way you pay providers, we thought it was important to talk about the components of how you pay providers, and so for the next two days that's how we're-that's what we're going to talk about. And remember that this is primarily treatment dollar-treatment dollars.

[SPEAKER CHANGES] After we finish those two days, we're going to go back to talking about babies and why this all makes sense and why you've had the presentations you've had from the School of Public Health. It's because healthier babies will eventually result in lower Medicaid costs. So he'll do a presentation on the 25th we hope. That's-that's the intent, on the 25th that he-we-he will do a presentation on how Medicaid payments for infants and cost analysis for high risk deliveries and pre-term births. We'll begin wrap-we'll wrap up our public health presentations, Denise Thomas on our team will do an inventory or go over information we have collected from the Department of Health and Human Services on public health programs for children ages zero to five. We will then talk about options for you to consider for investing in programs that can improve these birth outcomes. Some of the programs you've heard about already. We are putting together options for your consideration now and hope to have something ready for you on the 31st. We have also asked for the School of Public Health to come back with recommendations for you so they are planning to present something for the committee or submit it for your consideration as well, and we're planning to do that on the 31st of March. We will then be finished with public health and we'll have a couple of meetings dedicated to family support programs, because you know it's not just about the health care. It is about the whole family support programs dedicated for children. So Deborah Landry on our team will talk about mainly child care subsidy, the pre-K program and Smart Start. We will then have wrap-up meetings and staff committee discussion and wait for direction from the committee and the chairs as to how they want to proceed from that point. Mr. Chair that concludes my presentation unless there are any questions. [SPEAKER CHANGES] Are there any questions? Representative Brisson? [SPEAKER CHANGES] Thank you Mr. Chair. Maybe not so much a question but, since we're doing the programs and, with the kids, I hope that we have something on with the foster care schedule. I don't know whether y'all have been seeing the news or not. I've been seeing a lot of it and it's a lot of abusement going on with it and somebody needs to come in and let us know what's going on and I'm sure that-Senator Barringer's not here, but I know that she's aware of a lot. I've had a lot of complaints throughout some of my counties and obviously we're-accountability is fading away, so if we could. I think it would be very informative and make sure that we cover that. [SPEAKER CHANGES] Mr. Chair, members of the committee we will add that to the schedule if it's, if the chairs have approved that and assuming that we can get some additional meetings. Plan to have that as a presentation. [SPEAKER CHANGES] Further questions from members of the committee? Seeing none. Thank you very much Miss Jacobs, appreciate that. We'll try to get back on track. Now we're going to hear from Mr. Steve Owen from the Fiscal Research Division on the subject of Medicaid Provider Payments, Part One. Mr. Owen. [SPEAKER CHANGES] Thank you Mr. Chair, members of the committee. You have in front of you a couple of documents that I want to go through before I jump into this. What I'm going to do is give you a very high level presentation on provider payments. I'll give you information about-general information about how we pay, some of the drivers of those payments, some general information about providers in general and then give you some specific information about how we pay health departments, skilled nursing facilities, physicians, drugs, LME-MCOs and hospitals, because those are a little more complex than your tradition-than our traditional basic payment methodology. When you deal with Medicaid there's always a lot of issues, a lot of changes, but one of the things is abbreviations. I've included a document that provides acronyms with what the acronym stands for and what it is, or at least a brief definition. So it's a three page document that gives you anacronym-acronyms that I'm going to be using as I go through this. Today I'm going to talk about in general, health departments, skilled nursing facilities, physicians, and drugs, and then next Tuesday go into LME-MCOs and hospitals. To give a little context, again the rates we pay are extremely important in terms of what we spend.

Wanted to give you some again a reminder of history of spending in Medicaid. This goes back to 2003 and includes the 2015 budget. And the way to read this chart is the blue bars the solid blue bars and the hashed blue bars represent appropriations or appropriations like spending. And the reason I've got the hashed bars on here is that over time we've changed things for instance from 2003 to 2009 the counties contributed a share of Medicaid spending. Which really helped offset appropriations. In 2000 we also had short fall funding where those were recorded as receipts and not as appropriations. So I tried to pull those out again to show those as appropriations. Additionally we had three years where the federal government increased the federal match by ten percentage points during the aura period which displaced or reduced the need for appropriations so I've included those as well in the blue hash. So you can see if you add together the blue boxes you can get a general trend of how appropriations would have trended without those anomalies or changes. The yellow bars represent the receipt side of the equation so if you add everything together it's the total spending. There were beginning in 2012 an item that changed dramatically the total spending which is really driven predominantly by receipts either federal receipts or provider contributions through assessments. And that particular item is the hospital assessment. And we also had issues in 2012, 13 , and 14 were we really weren't looking at twelve months worth of payments. We had eighteen months worth of payments and twelve nine months in thirteen and fifteen months in fourteen. In 2015 were budgeting to have twelve months. Also to give you to carry this a step further the 2016 budget and 17 budget that the governor has proposed would have appropriations in 2016 at three point eight million three point eight billion excuse me and four billion in 2017. So, as we get into this what I'm not going to do today or Tuesday is talk about are the payments adequate. Is there equability between provider groups in terms of payments. I'm not going to spend a lot of times on history of how we pay and how payment policies have changed. I'm not going to spend a lot of time on the spending side of this. What I really want to do what I intend to do is to provide some educational materials about the methodologies Medicare uses to pay providers for services. And I'm going to talk about how the methodologies that are in place today again not spend a lot of time on how those have changed over time. Where these methodologies fit in the equation and I think I've used this in the past this Medicaid spending equation these are the pieces and parts that drive Medicaid spending. Obviously the number of people we have involved how those individuals consume or utilize resources the mix of people the type of person that is enrolled whether it's an age versus child the price we pay which is really what we're going to talk about. And what's the benefits that we cover. And in terms of the general assembly there obviously varying degrees of control that you have over spending. Price is one of those that you do have control pending CMS approval over spending. Enrolment is one without major changes in policies there's not a lot of control that we can exert over that. That's just the number of people and how they fall in the economy. The methodologies that North Carolina uses as in every state are very complex. There a complex set of methodologies that have evolved over time. Some of those have evolved based on changes at the federal government level as Medicare has changed and we've copied or followed that. How the market has changed relative to certain services. How the North Carolina specific need to manage expenses or spending has changed. So all those things have gone into changing the way we pay or contributing to the policies. Nearly everything in Medicaid you want to change requires CMS approve prices is one of those. The key considerations that CMS is looking for as you make changes to price is how does that affect recipients access to care. How does that change or effect the comparability of rates for services that

Either we determine the same service, or they determine the same services. What are the market rates for similar services in our state, and what's the provider's cost in delivering those services? These are all things, as the Department submits for changes, they have to address all these issues and make sure or give that information to CMS as they consider what kind of changes that we approve. There's also staff that DMA and DHHS have that are dedicated just to the setting of rates, the audit of rates, and the oversight of that process. This really gets into the--starts getting into the specifics of payments. North Carolina uses a variety of ways to pay providers. This slide really talks about all the providers that I'm not going to talk about in detail later. This gives you the various methods that are used within the state of North Carolina, and I won't go into each one of these, but it gives you the method of payment, whether it's fee for service, a per-unit rate, cost-based payments, index fees, case rates, etc. It also, in the boxes besides that, tells you which specific provider groups are utilized, or Medicaid utilizes, to pay those provider groups, or uses that model. And the payment calculation is kind of a brief or a basic description of what goes into computing the payment or the calculation of the payment. These methodologies, when you look at the numbers of providers, probably cover the majority of the providers in the state. But in terms of spending, they actually cover the minority of the spending, about 36% of the total spending on claims. If you look at the other areas that I'm going to talk about, in terms of claims spending they represent in this year's budget about 64% of the total claims spending. So this really is intended to give you some picture of all the types of ways we pay, and that we had a complex set of methodologies that have to be managed and maintained. But it--I'd like to say I really want to spend most of my time talking about those that are different than these, because these--for instance, I haven't included in here DRG payments, which is what we'll talk about when we talk about hospitals for in-patient services. We haven't talked about per-diems, which we'll talk about; nursing homes, the supplemental payments, the settlements, all those additional payments. Those really aren't in this chart. This really tries to cover the vast majority of the provider types. In terms of the role that payment methodologies play in the delivery of care, when you look at, I believe, the decision drivers, it's not just clinical decisions that make up the decision process that goes into what care actually gets provided. There's a variety of factors, and I've tried to incorporate those. Again, we're going to focus on the economic incentive fees. We begin with the assumption that people want to provide good care, that people want to take care of people and produce good outcomes. However, our payment incentives, at times, may create an--or payment methodologies, excuse me--may create incentives that may conflict with that premise. Again, there's a variety of things that will incent people to provide care or specific services, and we're going to focus on the economic piece when we talk about methodologies. Our physical health system is primarily paid under a fee-for-service model. Our behavioral health system is paid under a capitated model. Again, behavioral health would include all the mental health services. However, those underlying providers, providers of the LEMCS contract work, are for the most part, again, paid under a fee-for-service methodology. So fee for service is going to be something we talk about a lot. I found this piece of--at least this review, in terms of fee for service, what are the pros and cons of fee for service? On the pro side, at least this particular author believed that--again, fee for service emphasizes productivity. It encourages the delivery of care. It encourages maximizing the visits, the amount of care that you get. That fee for service is fairly flexible, is easily adaptable depending on the size--to the size of the market, the number of providers, the structure of where services are provided. It's a fairly easy system to administer compared to some of the others. Fee for service is easily understood by providers. It's a rate or a code times a rate equals what you get paid, so it's a fairly simple system to understand.

It does promote or support the accountability of the processes. Have you done a CBC? Have you done this test? Have you done this particular function? And it supports the accountability, because you can see those things that we pay for in a billable services. Have those been provided? And it really reimburses providers for all the services they provide. From the con perspective, fee-for-service lack incentives to deliver efficient care. There's not any direct incentive to do that. It lacks incentives to prevent unnecessary care. Under fee-for-service care can be limited to face-to-face visits, which will impede the broad use of tele-medication or tele-medicine or care coordination. It economically rewards volume. The more you do, the more you get paid. Fee-for-service, while it's easy for the provider to understand, is not as easy for the recipient or the patient to understand. Particularly Medicaid is not as complex as some where you've got copays, and deductibles, and you see a bill charge coming through from the provider that's then written down to what your insurance company or Medicaid allows. So you've got a contractual adjustment. People understanding or ability to understand fee-for-service is a little more complex. And then generally fee-for-service is limited to one provider at a time. It doesn't really encourage, or it doesn't create all the incentives to maximize the management of care across the continuum of care. There's organizing providers together. When you look at, again, fee-for-service, with the different kinds of methodologies, what I've tried to do is pull out some of the things. Again, payment methodologies can create incentives that really divert your attention. Having spent 26 years in hospitals in terms of what a payment methodology can do, is you really get diverted away from the outcome you're producing to making sure that you've maximized your revenue, as that was my job at hospitals. Under a fee-for-service system, again what you're, one of the things that the economic incentive it can create is really making sure that you have coded every service completely and accurately at the highest level of justifiable services for what's going to be billed. A per unit rate, again, your focus can be on how many of those you produce. Can you justify the higher intensity of service? Cost reimbursement, it incentivizes, or at least your focus can be on how you allocate costs to those services with higher Medicaid or higher cost-based payment utilization to increase your payments, etc. So this tries to give you some sense of it as you're looking at payment methodologies, how it can distract or divert you from the focusing on outcomes to other activities. So let's talk about some of the specific areas. Health departments. Health departments, like a lot of providers, and I use the example here of hospitals, receive payments from a variety, or receive funding from a variety of sources. They have state and federal funding directly to the health department. They have local funding, obviously, through the county. There are grants: federal, local, state grants. They have Medicaid claims and settlements, as we'll talk about in a minute. They also are paid from individual insurance companies, from individual recipients, or clients that go to the department. The other thing, as you look at health departments, they're all really different. There's not a standard in terms of everyone provides all the same services. They provide different services. They have, some have the ability, for instance, to employ physicians, and they're able to actually contract with a much broader array of insurance companies. Health departments that aren't able to employ physicians, only have medical directors, are limited to the number of insurance companies that will actually contract with them, because they don't have an on-site physician. What's the county's perspective on the role the health department plays relative to its private practitioners in that community to provide services? So all these things go into health departments in terms of what makes them different. I'm going to only really talk about the Medicaid services for health departments. Health departments, like every other provider, when they bill a Medicaid service

they get paid off the same fee schedule for nearly everything they do. There are some negotiated rights but for the most part they get paid off the Medicaid fee schedule. So if they bill a physician visit or a nurse practitioner visit or whatever they are paid the same rate as a private practitioner would be paid. There is one thing that is different about health departments. Then other providers they also receive a settlement cost settlement at the end of the year. That settlement represents the federal share of the difference between what they spend on the Medicaid cost they incurred and the Medicaid claims payment. That is the federal share only. The state is using their spending to cover the state share so theirs no state money involved here it is federal money. To give you some sense of what that means to the state so far this year through February we've paid the state has paid settlements of almost eighty five million dollars. Last year in 2013 and 2014 over a hundred million dollars. So it is a substantial piece of the health departments budget in terms of that settlement payment that gets paid. In addition to the claims payment that Medicaid makes. So again with health departments they are paid off the same fee schedule they also have the cost settlement that comes to them at the end of the year. SCO nursing facilities. SCO nursing facilities are basically are paid a per diem. So much for every day someone is in a bed in a nursing home. Ultimately as you'll see in a minute every nursing home has a unique rate. It's a variety of things that change those rates but at the end of the day whey you put all these factors together every nursing home has it's own rate. And the last time these rates they are based on cost the last time they were reboast was in 2009 and that was using 2005 cost. There are three pieces to that per diem rate that we mention. One is direct care to define each one of these. There's indirect services and there's what's called care rental value. Direct care, what direct care supposed to cover two things the first one is nursing and aid cost. Basically individuals providing direct care to the residence. These two items have historically been subject to a case mix index adjustment which was frozen in this years budget. It also provides payment to the nursing home for skilled nursing facility for nursing supplies, food, activities, social services, and insulator services and these items are not subject to a case mix index adjustment. So you've got the first piece here so basically at the end of every quarter I believe it is when we did the case mix adjustment every nursing home went back and reset based on their individual case mix, average case mix was for all their residence. And then that was used prospectively for the next quarter to adjust the direct care component of their pay of that particular nursing homes rate. The basis for this again you start the same base rate for every nursing home but then that is case mix adjusted and today even though we've frozen case mix adjustment whatever that case mix, relative case mix was for each of the nursing homes stayed in place. So that's how they're paid today. The indirect piece of their rate what that covers is basically their administration, their laundry, their linen and housekeeping, the operation of their plant, their maintenance repairs ect. All the indirect costs of ?? services. So this covers their other costs other than their facilities cost which is their fair rental value. Basically every facility gets again the same rate. It's set at the state wide weighted day rate. So every nursing home or skilled nursing facility gets that same rate. The third and final piece of their rate is fair rental value. This is intended to cover their capitol cost their billing their equipment, their leases, all their facility operations. This is a unique cost for each facility. The state plan cost for this to be updated annually using a national construction cost index so this is one that does get, supposed to be updated annually. Physician payments. For the most part physicians are the most straightforward of all the payer groups. At least in the ones I'm talking about. Basic

All physicians were paid a percentage of the Medicare fee schedule. Now, we did have some two years where the affordable care act required primary physicians be paid at the Medicare rate, not the Medicaid rate, but after January first of 15 that goes away, and now all physicians are paid off the, a percentage of the Medicare fee schedule. On average, looking at most recent information, the evaluation of management codes, which are really those services that are primarily provided in physicians' offices, are estimated around 78% of Medicare. All the other CPT codes which provide, which capture the other services, functions, and procedures of physicians provide, look to be paid at an estimate of 84%, and this is going from April 1 of 2014 which is the last information I had. The other thing that's important about the physician fee schedule is, is other fees are a derivative of that schedule. How anesthesia assistants are paid, how other midwives, and so forth. So other, paid on sort of a derivative of that fee schedule, so it's an important fee schedule. The only ones that are different is UNC in East Carolina have a supplemental payment plan. In addition to the fee schedule, the fee schedule or the claims payment that Medicaid makes as they submit claims, annually they receive a supplemental payment that is equal to the difference between what Medicaid pays on the claim and a study that's done that computes the average commercial rate for those services for those practices. ECU and UNC fund the state share of that through an intergovernmental transfer, so again there's no state dollars in that supplemental payment, so really, what the benefit to those two facilities is the federal share of those payments. To give you some sense of context, last year, that supplemental payment amounted to some $63 million, was 67 in 2013. 2012 it was 98 million, but that represented 18 month's worth of payments, so it was a year and a half worth of payment. So it, it ran in that $63 million range is what this supplemental payment equates to. Drugs. There are basically two pieces to drug payments at a macro level. The first piece is the product cost, the actual cost to how the drug is paid for itself, and the second is the dispensing fees. Pharmacies' product cost is paid off of either a national, indexed off of a national schedule or a state developed schedule. Brand drugs are paid off a national drug schedule called a wholesale acquisition cost. Now, the budget does call for this to change this year to average acquisition cost and today they're paid 1.027% of that wholesale acquisition cost for the non specialty drugs, and 1% above the wholesale acquisition cost for specialty drugs. Generics are paid off of a state developed list. It's the state Medicaid average cost list. This is developed by the department and is then used. Generic drugs are paid 150% of this list that's developed through the Mercer actuaries. Additionally, pharmacies are paid a dispensing fee. This dispensing fee varies or is tiered based on what percentage of generic dispensing that an individual pharmacy has, so the higher their dispensing rate, they actually can qualify for a higher payment or higher dispensing fee. And why is that important? If you look at ?? averages, and this is in total, so a little concern about giving out this number is it's not a rule of thumb, but on average when you look at the average generic drug that Medicaid pays for is about 17% of what the average brand drug is. Now that's averages across all drugs, not specific drugs. So you can see that from the state's perspective, at least from the price that the state pays to the pharmacy, there's a significant advantage, potential advantage that can be derived by paying, by dispensing more generic drugs. I know that there, through the years there have been efforts to change dispensing fees

Payment raised to try to drive that up I believe in the 2011 timeframe we were paying about 63%, 64% ?? drugs for generics, at least in terms of prescriptions. I believe that’s up over 80% today so it’s, those have been successful to drive the spending or at least to drive the dispensing of generic drugs. The product price, though, is not the only consideration. Unlike most expenditures for services in Medicaid, drugs have rebates. The manufacturers provide two types of rebates, one is if they have a contract with the National Health and Human Services they have to offer a rebate which is called a CMS mandated rebate which is the bulk of the rebates the state receives. We also participate in a national or in a pool purchasing group basically with a number of other states so we get supplemental rebates. Supplemental rebates amount to about $50-60 million of additional rebate that we receive a year on top of the CMS mandated rebates. What I’ve given you here is in the first set of red numbers gives you some relative feel of what the pieces and parts are, so even though brand drugs are less than 20% of the total prescriptions, as you can see in the 2014-15 budget they represent almost $1.2 billion of gross spending, what gets paid out to the pharmacies. Generic drugs have about $245 million, dispensing fees is around $112 million and the expectation in the budget is that we would recover $612 million of that in rebates. Again about $50 million of that is supplemental, the other $556 or so is that CMS mandated rebate. When you’re looking, the other thing about rebates to remember is that rebates are billed to the manufacturers on a quarterly basis, so once a quarter the department through CSC actually goes out and then submits an invoice of the specific drugs that were dispensed or paid for to the manufacturer and then they have 45 days to pay that to the department. Unfortunately the interest rate or the penalty for not paying that on time I believe is the State Treasury rate so there’s not a tremendous amount of incentive if they don’t pay it on time. There is a small amount of interest that could be collected, so the state’s really fronting if you will the spending and then recovering those rebates later. When you look at whether we want all generics and no brands, what I’ve tried to do is give you an example of where you really have to look at this on an individual drug basis. The department uses what’s called a preferred drug list to help really understand what’s the most advantageous for the state. This particular drug that I’ve used here, and this is a real drug, Medicaid would pay the pharmacy for a brand drug $283. A generic equivalent for that drug would cost Medicaid $189, however you can see with the rebates the brand drug is actually cheaper in this case. That’s not so that’s always the case, but the department really has to manage down to that drug level to understand what’s the most advantageous economically for what it needs to do through this preferred drug list. Tuesday I’m gonna get into LMEMCOs. We’ll also after Tuesday I’m gonna leave you with a document that tries to put all of this not so much in a PowerPoint presentation but really in a narrative that you can take and use as you get folks, approached with questions. Mr. Chairman, that concludes my presentation. [SPEAKER CHANGES] Thank you, Mr. Owen and we will take some questions from members if you will be so kind. I have one that I’d like to start off on, slide 14, your last bullet point there that talks about the UNC ECU Schools of Medicine I suppose. Can you let me know how the, how the supplemental payment is divided between the UNC school and the ECU school. [SPEAKER CHANGES] It actually goes, the first thing that happens is there’s a survey or schedule or analysis done that computes or determines what’s the average commercial rate for each

service within each practice. That's then applied against the actual experience, so it really gets back ultimately to what was the actual experience in terms of what was paid to them originally from Medicaid, with a differential applied to that to calculate supplemental. So it really is the actual experience within ECU or UNC. SPEAKER CHANGES Senator Tucker. SPEAKER CHANGES Thank you, Mr. Chair. I'll try to be brief here. Steve, thank you for that exhilarating presentation on these rates. I didn't even need a cup of coffee. Let me understand drug rebates. Money has to come from somewhere. Why don't we just get out of that game, or does CMS require that--us to be in that game, where it's just a clean price for it, because all the manufacturers' doing are raising the price to be able to rebate the money back to you. You're calculating that in. Why is that scenario of payment system go on within this group? SPEAKER CHANGES I don't--I can--I don't know that I have a rule, sir, other than from the manufacturers' perspective--again, they're quoting, basically we're paying a, if you will, a retail price. Pharmacy drug benefit managers are negotiating prices, and whether there's a most-favored-nations provision within those contracts, our rebate actually takes us below a lot of those prices, or most of those prices, with Medicaid. And I believe the feds require that we actually--if the manufacturer has a contract with HHS at the national level and they offer a rebate, then we have to, if you will, take that rebate program. SPEAKER CHANGES Follow up sir? SPEAKER CHANGES Yes, sir. SPEAKER CHANGES Switching horses here on the--skilled nursing centers, nursing homes, whatever: They come in and talk to me about the fact that they're already capitated, that they have received a, they get a flat rate of $157 per bed per day for a Medicaid patient. And then they said in the last budget cycle, we froze what--and actually it'd end up costing the state more money because there was higher acuity. Can you clear that up for me? I did not understand that. I was looking at it last night and trying to determine from your presentation, but that's not clear in my mind. What did we do, what happened, and why did it cost the state more money possibly? SPEAKER CHANGES I believe what the nursing homes were saying is that they get a flat amount per day regardless of what services are provided. Now, that amount is adjusted, based on the facility's overall experience for the intensity of service on the direct-care side. So if they're treating a more intense patient, they're receiving a higher rate than a nursing home that is not treating that same level of intensity. What was frozen in the 2015 budget was their case-mix index adjustment. So if you remember, here, historically or prior to January of this year, nursing homes' cost for, or the portion of the rate that was attributable to nursing staff and aid staff, got a case-mix adjustment every quarter. So as they've treated a more intense patient, they would get more money, or if they treated less intense patients, again, on average, prospectively they would get less money. So what this did was freeze that particular adjustment. One of the questions that I've gotten a couple of times is, well, the case mix hasn't really been changing that much. Why are you--by freezing it you really didn't save any money. I think the important thing to remember, where the savings occurred is in the base budget, when it was done, it assumed a growth in spending. We used 5.3% was what was in there. Embedded in that 5.3%, which was applied to all services, was an increase anticipated for growth in enrollment, and an increase that was anticipated for growth in spending, either for this kind of growth or for other growth. For consumption utilization. So where the savings occurred was from budget. You actually wouldn't spend necessarily less money with nursing homes because of that freeze, but you would--the state saved budget dollars because the state--we built in a budget factor to increase that cost. To give you a feel of nursing home spending,

It's been in at one point, in 2011 we spent $1.158 billion. 2014 we spent $1.148 billion. Now they have been subject to rate reductions, and I haven't made an adjustment for what the effect of rate reductions were during that time. But you can see, in terms of total dollars spent, net of the reductions, we've spent pretty much the same amount in 2011 through 2014. So far this year, through February we've spent $765 million. [SPEAKER CHANGES] One other question. [SPEAKER CHANGES] Yes, sir. [SPEAKER CHANGES] Steve, I don't know whether you can answer this, and there are members of DHHS here, and they can get back to me on it. I've heard from hospitals that the physician practices are not getting paid promptly. Have you heard that, or in your position you may not have heard that, and perhaps Adam or someone can address that and get back to me, but physician practices are not being paid as promptly as maybe NCTracks is doing others? So I don't know if you can speak to that or not? [SPEAKER CHANGES] Senator Tucker, I defer to the department. [SPEAKER CHANGES] Please identify yourself, sir. [SPEAKER CHANGES] Good morning, sir. I'm Roger Barnes. I'm the Deputy Finance Director, and I've been working closely with the hospital industry. We meet monthly to discuss many issues that they have. We work basically on the top five. With respect to the physicians' offices and their practices, they have not raised that as an issue of prompt pay. What we're seeing is, is that the payment are going out promptly. There may be an individual case here or there where there may be an issue, but we usually try to take care of those very quickly. [SPEAKER CHANGES] Thank you, Mr. Barnes. Someone else speak? Representative Avila. [SPEAKER CHANGES] Thank you, Mr. Chairman. I'd like to go back and ask Mr. Owen, if I could please, Senator Pate's question regarding the commercial determination with UNC and ECU. Is that determination the same for both of them, or is it adjusted because of locality, an urban versus a rural? [SPEAKER CHANGES] Again I'd like maybe defer to the department for the specifics of how that's done. [SPEAKER CHANGES] Yes, sir. Go ahead, please. [SPEAKER CHANGES] Good morning again. With the ECU and UNC are paid primarily off the physician fee schedule that everybody receives, so those are not adjusted by geographic area within North Carolina. We do, they are adjusted from the national level for geographic. With respect to the supplemental payments that they receive, what we call the UPL payments, they are, the average commercial rate is specific or unique to their specific groups. How the contractor looks at those cases or those groups is, they go out, look at their top five commercial payers that they have contracts with, and then look at the average commercial rate. That is compared to the Medicaid rate, and the difference is the UPL. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] Go ahead. [SPEAKER CHANGES] In terms of slide 11, we talk about the skilled nursing. Is skilled nursing a mix of federal and state, or is it completely state-funded? [SPEAKER CHANGES] Skilled nursing, the basic rate that's paid to the skilled nursing facilities is split between the normal, traditional federal match of approximately 65% and the state appropriation of 35%. The thing to keep in mind, though, is that the nursing homes, they have an assessment program. They contribute about $120 million a year. That amount of money is used to match the state payment, and that was put into their basic rates. So when I was providing the information to Senator Tucker on the spending, included in that $1.2 billion we spend on nursing homes, embedded in that number is a rate increase that has been put in place over the years that has been supported through this approximately $120 million worth of assessments. So you've got the combination of federal share of 65%, you've got this $120 million of assessment, and then the rest is made up by state appropriation. [SPEAKER CHANGES] Final question. I see that we base Medicaid on a percentage of

Medicare. How close is Medicare's rate to actual cost do we have any data on that I mean we hear Medicare Medicaid facilities and providers always losing money it just seems kind of counter intuitive to set up a system where your not getting paid to cover your costs so how close are costs in terms of Medicaid or excuse me Medicare? [SPEAKER CHANGES] I don't have any specific information about provider groups unless the department does. I do have not with me but I can bring this on Tuesday some information on how Medicare rates for instance for hospitals in patient services only compare to the costs that they report on the cost report. I can bring that next Tuesday unless the department has that. [SPEAKER CHANGES] Why don't you bring those that information on Tuesday. [SPEAKER CHANGES] Okay. [SPEAKER CHANGES] For committee. Representative Pendleton. [SPEAKER CHANGES] Steve that the best briefing I've had on Medicare Medicaid payments. As simple as you could make it. That was very good. My question is going back to slide 14. We've been on, the third time we've been on it. I'm very concerned about this payment that UNC and ECU get. It is very unfair to the other hospitals and I'd like I'm going to ask you a question in a minute but basically the question is going to be how can we do away with those payments and treat every hospital in the state the same? UNC will scream but we treat all these engine people. Look at Wake Med they treat a hundred twenty million dollars in engine care a year. So it's the same thing but what UNC has done with their subsidiary recs hospital is entice the largest heart group in Wake county to go with them three years ago. Which really damaged Wake Med in fact they suffered their first loss ever. But anyway I just want to give you some a few figures and then let you answer. So three of the doc's in that practice that was enticed to go over to Recs UNC told me the only reason they went over there was because of this payment they get. It's even gotten worse now ECU in the areas where Wake Med was getting a lot of heart cases they sent there ambulances down and picked the people up, now they're going over to ECU. So it's not just Wake Med it's just not right for the taxpayer of the state to subsidize two hospitals and really do damage to our hospitals. What can we do to cut that payment out? [SPEAKER CHANGES] This supplemental payment was put into place in 2012 again this is funded the state share of this is funded by the two facilities and so this is really about drawing federal funds down. Which is obviously still tax payer paid. The one thing that did happen I believe in last years special provision is there was a provision put in place to limit the number of practices or the number of physicians, physician slots if you will, that can come under this plan so they can't expand the number of physicians that are included in this. This was a state plan a modification to the Medicaid state plan so again it was a policy decision to add. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Okay what can we do to cut it out? [SPEAKER CHANGES] If you were to undo the policy if the direction was to move this from the state plan it would be going back to CMS taking it out of the state plan and eliminating this as a supplemental payment plan. [SPEAKER CHANGES] Senator Mckissick. [SPEAKER CHANGES] Thank you Windell. A couple of questions if I could. Just for points of clarification you were just discussing the UNC ECU payment you indicated that it was done to get additional federal money in. Now is that clearly all federal money that we would not get otherwise that goes toward that if you could clarify that for me first. [SPEAKER CHANGES] Your correct. Basically what this is is again the increase in the payment to the average commercial rate is funded the state share of that increase is funded through the two facilities

in our governmental transferring the money to the state and then the state pulls down the federal share on that additional payment. So it's funded either by the federal receipt or the intergovernmental transfer from the facilities. [SPEAKER CHANGES] Follow up. So can I reasonably conclude that we'd be bringing down federal money if we tried to get rid of this? That would then mean there would be a greater need for state support one way or the other. Is that a reasonable conclusion or? [SPEAKER CHANGES] Miss Jacobs. [SPEAKER CHANGES] Senator Mckissick members of the committee that would be the case if you decided to eliminate if you decided to maintain the payments going out through these two facilities these two programs without the federal money. If you undid it completely then it means that UNC ECU if they decided to maintain it themselves would have to find those funds. It does not necessarily mean the state would have to continue that funding. [SPEAKER CHANGES] One or two additional follow ups. [SPEAKER CHANGES] Go ahead. [SPEAKER CHANGES] I guess back on page ten you were dealing with health department reimbursements. You referring to additional funds that they were receiving from settlement proceeds. How long is it anticipated that those additional funds will be coming in? [SPEAKER CHANGES] Similar to the other supplemental payment plans I mean as long as we continue, this is in the state plan as long as we continue to receive cost reports from the health departments and the CMS allows us to in effect make that settlement payment using their expenditures their certified public expenditures as estacia we can continue to pull down the federal share of their costs. As far as we can see out. [SPEAKER CHANGES] Okay so for the foreseeable future there wouldn't be any change or any potential additional costs that we would have to pick up? [SPEAKER CHANGES] That's right. [SPEAKER CHANGES] Very good. And [SPEAKER CHANGES] Second follow up. [SPEAKER CHANGES] Yes second follow up Mr. Chair. You spoke about the average generic dispensing fee I guess that was on page fifteen for the pharmacies. And they talked about it being individualized based upon specific pharmacies histories in terms of the mix of regular brand name I guess prescription versus generic. I mean is it advantageous to look at that specific history per pharmacy rather that having some broad based guideline for how we would go about doing it because it seem that some larger pharmacies or ones in rural areas or one that have a base of individuals coming in that may not be as using much prescription medications that are generic versus brand name might you know it looks as if that is a very peculiar way of doing it there being some significant regional differences and differences based upon the scale of prescriptions. And I know that's a bit convoluted but do the best you can. [SPEAKER CHANGES] When the tiered system was put into place for pharmacy dispensing fees the purpose that was put into place was the incentive trying to create was the individual pharmacist or pharmacy when they got a prescription in from a recipient that was from a physician if they saw there was a generic alternative they would pick up the phone to call they physician to say did you know about this medication or here's another alternative in an attempt to try an shift that to a generic drug. So the incentive was really to give back to the individual pharmacy and I think that was the reason and in fact as I recall the pharmacies were the ones who were really advocating this type of a structure. The end results were in that the generic prescribing moved from the mid sixties up into the eighty percent range. Over the course of about twelve to fourteen months. [SPEAKER CHANGES] Follow up Mr. Chair. [SPEAKER CHANGES] Final follow up senator. [SPEAKER CHANGES] It sounds like that actually worked to our benefit. The thing I've heard about most recently in terms of some push back from individual doctors, doctor groups, Medicaid providers is about the three percent reduction. And I'm trying to cause I've heard from so many about that I'm trying to be able to adequately respond to that concern and see what legitimate justification can be provided in terms of whatever fee schedule that was being utilized to as the basis for compensation rates to be established. But I mean the doctors obviously believe their already under paid to start with. And it just increases the deficit

that they are incurring in terms of serving this population. So could you speak to that some because I think the doctors have a legitimate concern. [SPEAKER CHANGES] Let me stop first there's a slide on the screen that addresses this it's rather difficult to read but maybe you'll work us through it. But Senator Mckissick. [SPEAKER CHANGES] Okay and we've gotten a lot of questions a lot of requests about this. So what I want to do is go back to where this came from. In the 2013-2014 budget there was an initiative called the shared savings plan. And there were three pieces to that shared savings plan. The first piece was this three percent and was called a with hold. But what it was was a three percent reduction in rates for the providers that were listed here. Which included hospitals, physicians, dentists, optical services and supplies, podiatry, the chiropractors, ect. and I won't read all those. Except for primary care physicians which were being mandated by CMS to be paid mandated by the affordable care act to be paid at hundred percent of Medicare so they were exempted from this three percent piece until January first of 2015. The second piece was a shared savings plan. And what was supposed to happen here is the department was to develop a variety of processes, mechanisms, and methods to actually share savings that were achieved through better care more efficient care, better outcomes so the idea was if the state could lower it's costs through those processes it would share a percentage of that back to the providers. Which was the mechanism providers had to if you will make up a portion of that three percent reduction. the third piece which is not real clear is there was a three percent reduction for instance on providers such as hospitals which have an assessment program it would create additional retention for the state when those reductions and payments were made up through the GAP plan. The three percent again was effective for all providers on January first 2014 except for primary care physicians. Which were to be effective January first 2015. The reduction went into place for all providers except for physicians. Not just primary care but all physicians. The reason it didn't go into effect my understanding from the department is the issues around programming to get that into the claims adjudication system further complicated by this affordable care act provision about primary care it didn't get into place until March second of 2015 at which time from that point forward all physicians were reduced three percent. And were informed they would have to be the department at some point in the future would go back and recover the three percent that it had quote over paid or paid back to January first of fourteen for all non-primary care and January first of fifteen for primary care physicians. During all this period a state plane amendment was submitted to CMS which they approved I believe in June of 2014 with that effective date. So the situation we're in now is that the state doesn't go back and recover those monies from the physicians. The state would then be responsible for the federal share of the funds we have drawn down for those payments over and above the rate CMS has approved. We would be responsible to pay that back. Unless CMS worked to allow a retro active change to a rate they have already approved which is at least my understanding from the department highly unlikely. So the situation we have now is that we have a rate that's been approved by CMS. We had the three percent reduction the shared savings piece of that initiative in 2014 was taken out of the legislation this year. So what we were left with was just the three percent reduction. We've got all other providers have experienced the three percent were included in that except physicians you know we're faced now if we don't recover the money from the physicians it was paid CMS will look for that federal share to be paid back. We're trying to get an estimate of what that federal share might be at this point. [SPEAKER CHANGES] Thank you could I ask one little bit of clarification? [SPEAKER CHANGES] Senator Mckissick I'm sorry but we're gong to have to clear the room in about seven more minutes and we'll have this discussion again on Tuesday if Mr. Owen will be prepared to explain it in 101 terms so that I can understand it [SPEAKER CHANGES] Well his response

.. was just as convoluted as my prior question so, I guess we'll.. we'll wait to Tuesday to get more. [SPEAKER CHANGES] Thank you, thank you much for your own diligence. Representative Insko? [SPEAKER CHANGES] Thank you, Mr. Chairman, and I have several questions too, but I'd be glad to hold them until Tuesday. [SPEAKER CHANGES] I would appreciate that. [SPEAKER CHANGES] I can hold them all, it's fine. [SPEAKER CHANGES] Go ahead and ask one, if you'd like. [SPEAKER CHANGES] On page fifteen. We talked about the cost of drugs here in North Carolina and how they're set, how we figure how much we'll pay for them. I'm curious, you know, to know how we compare with other states in the cost of our drugs, is there any way to make a comparison, with other states? For their Medicaid program? [SPEAKER CHANGES] Representative Insko, I don't have any information with me, I will check to see what I can find out, how we compare in terms of drug payments. [SPEAKER CHANGES] Representative.. correction, Senator Hise? [SPEAKER CHANGES] Thank you Mr. Chairman, two quick questions.. and I think I'll, summarize one up in this manner. When you look at things like, cost settlements, rent adjustments for all our payments, would it be accurate to say that in the final analysis, that we pay more for medical services in urban areas than we pay in rural areas? Based on the medicaid rates? [SPEAKER CHANGES] In terms of.. the rates that are pretty much driven off of ?? schedule, we pay the same rate regardless. Rates that are based on cost, or based.. there is a adjustment factor, for.. they're based on costs. You may pay more.. and I.. it's.. those are the categories I think you'd have to look at to see if we're not paying more for rates. [SPEAKER CHANGES] I think that's a yes. So coming out, the other question I wanted to ask was on this ECU, UNC, UPL, that was in the past.. when was the authority to submit that spot of the federal government approved by the general assembly? [SPEAKER CHANGES] I'm not sure that there was a specific approval by the general assembly but I can follow up on that. [SPEAKER CHANGES] Representative Avila? [SPEAKER CHANGES] Quickly.. we talked about the assessments in different areas. I've read somewhere, in all the reading that I do that there's beginning to be some reservations coming out of DC that that's a game they might want to call a halt to. Is there any validity to that, or is that just kind of scuttlebutt? [SPEAKER CHANGES] The President.. the President has included in his budget as far back as, I think as three years ago, a provision that would reduce the assessment cap from six percent of non-medicare net-patient revenue down to three and a half percent over a three year period. It continues to get attention, we've not seen specific action to take those reductions, but clearly.. for instance, those rates where we have.. nursing home rates as an example, where the rate, the assessment rate increase has been.. embedded in the rate, we would be susceptible to if we don't reduce the rate, if they do go away, that would be additional state appropriation. [SPEAKER CHANGES] One quick follow-up, please? [SPEAKER CHANGES] Last follow-up, yes. [SPEAKER CHANGES] On page sixteen, when you show the illustration, the real example of a brand drug, and the equivalent, and the difference that the ?? makes on that. Is there any adverse effect of the incentives for pharmacies to prescribe generics, that in this particular case, they would be prescribing the more expensive drug, or do we have a least-cost requirement when this situation occurs? [SPEAKER CHANGES] There's not a least-cost, but there's a preferred drug list so, in this particular case, this drug would be listed higher on that list than the generic equivalent for that. [SPEAKER CHANGES] Ladies and Gentlemen, we are running out of time, in deference to the next committee that's coming in here.. thank you very much for your questions, and we look forward to your further presentation on Tuesday, at this time this committee meeting is adjourned.