Questioning the Widely Publicized Savings Reported for North Carolina Medicaid

The recently released study on Community Care of North Carolina (CCNC), conducted by Milliman USA,¹ has found by far the largest savings and utilization reduction ever formally reported in any care management program, $382,000,000 per year after only 3 years. While the study relied upon proprietary data provided by the state to identify these savings, the 2 relevant online federal, publicly accessible data sources overlooked in that evaluation report—the Healthcare Utilization and Quality Project (HCUP)² and the MACPAC Report to Congress³—support the opposite answer: that there was no utilization reduction or savings, and that North Carolina’s Medicaid program is higher cost than its peers.

It was especially disappointing not to see HCUP mentioned in this study, because 2 well-publicized public presentations,^4,5 along with the Kaiser Family Foundation,⁶ specifically noted that a previous consulting firm’s main savings claims covering the earlier period (2000 to 2006) also arrived at a conclusion directly contradicted by the HCUP data.

Three Questions Raised by the Federal Databases About Conclusions and Methodology

Milliman concluded that roughly $250,000,000 of the 2009 savings came from children’s admissions and emergency department (ED) visits,1,p5 presumably relative to a 2006 baseline. (Because the federal data are based on calendar years and the state data are based on fiscal years starting July 1, $250,000,000 is used as the calendar 2009 estimate,roughly halfway between Milliman’s $261,000,000 savings estimate for fiscal 2009 and $238,000,000 savings estimate for fiscal 2010.) The actual baseline year was not disclosed, but the analysis below would reach roughly the same conclusion no matter what baseline year had been used from 2003 to 2006, because there has been no significant change in the key metric—the children’s admission rate either absolutely or relative to neighboring “control states”—in many years.

The state Medicaid ED rate climbed over the period (starting in 2007; 2006 is not available on HCUP; breakouts by age category are not available), meaning that the savings could only be found in inpatient admission reduction. However, because only $114,000,000 was actually spent by the state on children’s admissions in 2006 according to HCUP² (this number does not include profit margin charged by the hospitals to Medicaid but does include costs for treating disabled children), one might first question how it is possible to save $250,000,000 a year on a base of $114,000,000 a year even with 15% growth in the children’s population over the period.⁷ While it is true that the savings claim was based on all healthcare costs, not just inpatient and ED, the consensus view in the literature is that other costs will rise. In fact the report evaluation of the CCNC program notes that that this PCMH model, like every other model used to manage chronic disease, “has a cost, as members receive more primary care services and prescription drugs. Also, the medical home model has direct costs, related to required infrastructure and increased medical management activities. Under the medical home model, it is assumed that these additional costs will be more than offset [emphasis this author’s] by reduced costs for emergency room visits, inpatient hospital admissions, and other services as members receive improved access to primary care, prescription drugs, and other appropriate treatments for chronic conditions.”¹,p3 Therefore, it is quite possible that inpatient expenses would have to fall considerably more than $250,000,000 for the net reduction to be $250,000,000 once the other higher costs of other services are accounted for.

Further, even if mathematically possible—meaning even if the initial spending figure had exceeded the savings figure— HCUP reveals that the children’s admission rate fell only from 36 per 1000 to 34 per 1000 from 2006 to 2009. The second question would be: how is it possible to show such substantial savings on such a modest decline in children’s admissions? While we would look to the state or its consultants to answer that question, we can rule out changes in risk status as an answer: there is no a priori reason to expect that a massive, sudden, and otherwise unnoticed change in non-disabled children’s health status would have caused the children’s admission rate to rise by more than 200% absent the program, after having been roughly unchanged for many years.

In addition to the 2 questions about the apparent impossibility of the conclusion in absolute terms, there is a third, methodological question about relative performance: As modest as that admissions decline of 2 per 1000 is in absolute terms, the 2 neighboring states (South Carolina and Tennessee) for which HCUP data are available declined as much or more over the same period⁸ absent a PCMH model, using a much lower cost health maintenance organization model. (Tennessee had exactly the same admission rates in both years as North Carolina, while South Carolina declined from a higher 2006 rate to a lower 2009 rate.) Why, despite the fortuitous “natural experiment” opportunity presented by having access to 2 neighboring states’ longitudinal data also reported to HCUP using the identical algorithm, didn’t the study take note of those states’ results, if only to explain why these prima facie highly relevant comparisons were deemed unimportant or misleading enough to be omitted from the report?

Answers to these 3 questions are critical because (1) either the federal database designed for and used by many researchers to measure cost and utilization by payer is so fatally flawed that it failed to register the largest decline in children’s utilization and cost ever achieved by any payer, and therefore must be redesigned; or (2) consultants for the state often called the “poster child”⁹ for Medicaid medical homes claimed a mathematically impossible amount of savings when in fact there were none.

Corollary Question About North Carolina Medicaid’s Performance Over the Decade