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First do no harm: Dr. Aldona Wos and the path to Medicaid reform in North Carolina

by Jordan Green

DR. ALDONA WOS AND THE PATH TO MEDICAID REFORM IN NORTH CAROLINA

Cruising towards electoral victory last August, Republican gubernatorial candidate Pat McCrory took star billing at a reception in the genteel banquet hall at Starmount Country Club in Greensboro among a group of local GOP luminaries that included US Rep. Howard Coble and a scrum of candidates for council of state, General Assembly and county commission.

A Jamestown native, McCrory recognized two of his former classmates from Ragsdale High School, Guilford County Sheriff BJ Barnes and NC Supreme Court Justice Paul Newby. The former Charlotte mayor also thanked another local figure, somewhat less known: his campaign co-chair, Dr. Aldona Wos.

“They are important leaders and advisors,” McCrory said. “And it’s an example, as you can see with Aldona and Paul and BJ, if I’m elected governor — and we hope we will be — I have no problem surrounding myself with people who are smarter than me. Because that’s what we need. We need people who are confident and intelligent and pragmatic people. And these are the people I want to have around me to advise us on how to implement the future vision of North Carolina.”

McCrory went on to say that Wos was a “closely trusted advisor” who would continue to advise him as governor.

Accolades from powerful Republican leaders were nothing new for Wos. In 2004, she chaired the second President Bush’s reelection campaign in North Carolina. Bush publicly recognized Wos, who raised more than $200,000 for the campaign according to the Center for Responsive Politics, during a 2004 speech at the Benton Convention Center in Winston-Salem, and appointed her to serve as ambassador to Estonia that year.

Wos and husband Louis DeJoy, who owns New Breed Logistics, belong to the community of new wealth in Greensboro that has succeeded the traditional fortunes in textiles, pharmaceuticals and insurance. The couple’s $4.4-million house facing a private golf course in the elite Irving Park neighborhood was previously owned by textile baron Herman Cone. Their annual Christmas party is described as “a fun affair” by one social acquaintance.

President Bush attended a fundraiser at the Wos-DeJoy residence to help raise money for Republican congressional candidates during the 2006 mid-term election.

The following year, as GOP leaders cast about for a new standard-bearer, Wos and DeJoy turned their fundraising efforts to support former New York mayor Rudy Giuliani’s quest for the White House. DeJoy served as Giuliani’s North Carolina finance chairman and Wos chaired North Carolina Women for Rudy. Wos officiated the program during a Greensboro campaign stop by Giuliani at NC A&T University.

The Warsaw-born daughter of a Polish Home Army member who survived the Nazi’s Flossenburg concentration camp, Wos is a woman with strongly-held views. She rarely grants interviews and declined through a spokesperson to comment for this story, but this nugget of insight stands out amidst the list of achievements in her official bio: “As a child of a survivor, Dr. Wos is passionate about presenting and preserving full and accurate information about the Polish experience during World War II.”

As a campaigner and public administrator, she comes across as a dynamic organizer of persons with a special interest in developing the leadership of women in the upper echelons of politics and business. As a member of the board of directors of the hawkish Institute of World Politics in Washington, Wos invited the organization’s president to speak at the Greensboro Country Club in October 2009 about the national security threat posed by China. Wos personally selected the 300-some guests, many of whom were students and parents from Greensboro Day School, for the invitation-only event.

Wos earned her medical degree at the Warsaw Medical Academy and completed her residency in New York, where she practiced medicine for a number of years, according to her official biography.

Following his election as the first Republican governor in 20 years in November 2012, McCrory announced his first three appointments on Dec. 13. The new governor appointed Wos to serve as secretary of health and human services. Among the broad directives outlined by McCrory for his cabinet were “instituting a culture of customer service,” pursuing “efficiencies in state government,” and upholding “the highest ethical standards” among his staff.

Almost immediately the new administration identified cost containment in Medicaid spending as a top priority. With more than 17,000 employees on the payroll and an annual budget of around $18 billion, the Department of Health and Human Services, or DHHS, is a major budget driver in state government. Among the largest items in the DHHS budget is Medicaid, a program that provides health services to more than 1.5 million North Carolinians, including the poor, the severely disabled, and people with mental illness and substance abuse challenges. Medicaid sucks up $13 billion, or 15 percent of the overall state budget.

McCrory came into office decrying what he saw as disarray in the various departments, not least of them DHHS.

“Probably what surprised me the most was there was no attention on the operations of state government — on the day-to-day operations of state government,” McCrory told host Tom Campbell on the program “NC Spin” on WUNC-TV in September. “And that’s the first thing my cabinet members told me. And I’ve got the best cabinet in the United States of America. I’d put my cabinet team with any corporate board in the United States of America.”

When Campbell asked about the impact of challenges in information technology, building maintenance and inter-departmental communications, the governor immediately homed in on Medicaid spending.

“It’s impacting the budget, because what we had was a over $500 million overrun based on Gov. Perdue’s projections on Medicaid,” McCrory said. “And our costs are about 30 percent higher than most states in Medicaid administration. And so we’ve had to spend so much time — Aldona Wos, who is an excellent DHHS secretary. She’s under fire.”

The governor punched his fist into a cupped hand, and jabbed his index finger in the air.

“She’s working for a dollar a year,” he said. “A dollar a year. A public servant. She’s probably averaging 16 hours a day at work right now.”

Administrative costs in North Carolina’s Medicaid program are about 30 percent higher than the national average.

The factoid has been repeated almost as a mantra by McCrory and Wos as they’ve built a case for reform over the past 10 months. The finding came from a report released by the state Auditor’s office. The office is headed by an elected official, Beth Wood, who happens to be a Democrat. Wood’s report found that the state of North Carolina spent about $648.8 million, or 6.3 percent of overall Medicaid spending on administrative costs, compared to an average cost ratio of 4.6 percent among eight other states with similarly sized Medicaid budgets. They ranged from 1.7 percent in Arizona to 5.4 percent in New Jersey, the audit found.

The new administration at DHHS enthusiastically agreed with the findings. But the agency did not share an analysis drafted by a DHHS employee under the prior administration that countered the conclusions drawn by the Auditor’s office. A response from DHHS contained in an early draft of the audit characterizes the Auditor’s findings as “incomplete and misleading.”

The response goes on to say, “A very important factor is that it does not appear to recognize the administrative cost embedded in capitation [spending per patient] rates paid by other states to managed care organizations which results in ‘an apples and oranges’ comparison.”

Under the managed care model, an outside organization or consortium of providers typically assigns a cost per capita to patients and then manages services to try to contain costs and improve quality.

Estimates of embedded administrative costs in the Medicaid budgets of states that use managed care led DHHS to conclude that, in fact, North Carolina’s administrative costs are the second lowest in the sample selected by the Auditor’s office. But the internal document would not surface for another eight months.

With Gov. McCrory standing at her side, Wos praised the audit report that found that North Carolina was overspending on Medicaid administration during a press conference at DHHS.

“Now, this information is actually critical for us,” she said. “It’s critical for us to move ahead and reform this Medicaid system in North Carolina.”

The DHHS secretary used the occasion to publicly introduce the state’s new Medicaid director.

“I am pleased to say that we are already taking steps to address some of these issues,” Wos said. “Now, the most important of this is that we have hired Ms. Carol Steckel, a nationally recognized — nationally recognized — expert in Medicaid to run our Medicaid program for the state. Carol is already moving ahead with systemic reviews of operations in this division. She is reviewing and establishing new policies and procedures.”

During the press conference McCrory told reporters that he couldn’t consider expanding Medicaid until the system was fixed. Expansion of Medicaid was a major component of Obamacare, but a 2012 Supreme Court decision gave states the right to opt out.

McCrory told reporters at the press conference that there were “serious broken operational issues within” DHHS, and then went on to mention two technology projects that had been set in motion by previous administrations. One was a Medicaid billing system called NC Tracks. The other, called NC Fast, would administer food stamps benefits as the first part of what was contemplated as a “one-stop shop” for North Carolinians that receive a variety of types of assistance.

In May 2013, a little more than a month before the planned July 1 rollout of NC Tracks, the state Auditor’s office released a second report finding that DHHS had failed to test the system and that the testing process was flawed. The audit found that key decisions about the addition of 1,500 user accounts for hospitals and other service providers had yet to be made, and that no formal criteria had been established to determine whether the new system was ready to go live. Moreover, the audit found that a vendor hired to provide oversight of the project did not conduct any independent verification. Instead the company, Maximus, “merely collected information from DHHS and vendor Computer Sciences Corp. and summarized it in a report.”

“The department created a conflict of interest for CSC, by asking the vendor to propose the acceptance criteria for production testing,” the audit found. “This conflict risks the credibility of test results and operational readiness of the system to go live.”

The audit noted that Maximus’ contract did not specify that if should independently verify and validate the testing. Wood acknowledged in an interview with YES! Weekly that the terms of the contract were finalized prior to Wos’ tenure at DHHS.

Computer Sciences Corp., a Virginia IT company, received a $484.9 million contract to build and administer the NC Tracks Medicaid billing system from December 2008 through June 2020.

The state audit reported that the federal government was funding 90 percent of the cost of the program up to its go-live date and then was expected to fund 50 percent of operational costs. If and when the federal Centers for Medicare and Medicaid Services certifies the program, the audit reported, the feds will increase funding participation to 75 percent.

Critically related to federal certification, the audit found that “Maximus did not help minimize system implementation risks as required by the Centers for Medicare and Medicaid Services.”

Finally, the audit concluded that DHHS should reevaluate its current ‘go’ decision for July 1, 2013, once final go/no-go criteria was established and documented. DHHS agreed with the finding, but went ahead with the July 1 launch.

Almost immediately, complaints arose from hospitals, care providers and medical device companies that they were not getting reimbursed in a timely manner for Medicaid services. The rollout of the billing system has been widely considered disastrous, and state lawmakers from both parties peppered Wos and her staff with critical questions in hearings in October and November.

Sen. Tamara Barringer, a Wake County Republican, told Wos during a legislative oversight hearing last week that her office continues to receive complaints from medical equipment providers that they are not getting paid properly by DHHS.

“That’s a particularly troublesome part because these businesses are going out and borrowing money,” she said. “They have financing statements on the equipment. By ‘financing statement,’ I mean there’s a mortgage on the equipment for personal property. The equipment is then with a Medicaid recipient. And they can’t pay because they’re not being paid. And there’s even threats of repossession and those types of things.

“We’re talking about people’s oxygen,” Barringer added. “We’re talking about really machines that they rely on for their lives.”

DHHS Chief Information Officer Joe Cooper told Barringer that “the vast majority of claim denials are tied to the wrong taxonomy being used by the provider,” meaning that the providers used an incorrect method of requesting reimbursement.

Rep. Marilyn Avila, also a Wake County Republican, asked why providers were not being paid under the new NC Tracks system administered by Computer Sciences Corp. when they had been paid under the previous system run by Hewlett-Packard.

Cooper dodged the question by saying that the agency would need specific examples “so we can zero in on whether it’s a policy issue or a defect.” Avila found the answer less than completely satisfying.

“It seems to me that with policy not having changed from HP to NC Tracks,” she said, “that all of a sudden with so many of the durable medical equipment people running into problems, it seems like it might be something else.”

While dissatisfaction with NC Tracks has mounted, some DHHS employees have defected from the agency to enjoy the greener pastures of the private sector.

Paul Guthery, an IT manager office responsible for the implementation of NC Tracks, left DHHS in August to take a job as an account executive with Computer Sciences Corp.

“I just think that’s a huge conflict of interest when you’ve got someone who’s involved in the decision-making and they have a say about what’s going on, and they’re working for the contractor,” state Auditor Beth Wood told YES!

Weekly. “It’s a conflict of interest, and it shouldn’t be allowed.”

Wos told lawmakers that she continues to emphasize to her staff and to the private vendor that healthcare providers need to be paid for their work. DHHS has assessed almost $250,000 in penalties against Computer Sciences Corp. since the system was launched, Cooper told lawmakers.

“We are forcefully addressing these issues, and although progress is being made, we will not rest until each of these issues is fully resolved,” Wos said. “I assure you that, where necessary, I will hold people accountable.”

The rollout of the food stamps component NC Fast, which stands for North Carolina Families Accessing Services through Technology, was only slightly less tumultuous than the implementation of NC Tracks.

Guilford was one of four pilot counties to go live with NC Fast in May 2012 under the Democratic administration of Gov. Bev Perdue. Thousands of recipients were left without access to benefits and were forced to turn to pantries such as Urban Ministries for emergency food at the time.

The rollout was completed in all 100 counties across the state, including Forsyth, by March 2013 under Wos’ watch.

The first reports of food-stamp recipients experiencing months-long interruptions in their benefits surfaced in early July 2013, and by the middle of the month food pantries were reporting that they were being overwhelmed by clients seeking emergency food assistance.

While lawmakers monitoring the program have reported that DHHS has improved in its delivery of food-stamp benefits, complaints have continued to surface.

“My children and I are starving from this new system delaying our food stamps being processed,” Yaruba Crawford wrote to YES! Weekly through an electronic contact form in late September.

Meanwhile, as questions about the state’s new Medicaid billing system mounted, Medicaid Director Carol Steckel abruptly resigned and took a position with Wellcare Health Plans, a Florida managed care organization that contracts with governments to provide Medicaid and Medicare services.

Sen. Chad Barefoot, a Wake County Republican, asked Wos if there were any concerns that there was an ongoing conflict of interest while Steckel was DHHS, and what the agency would do to ensure that her eight-month tenure did not provide her new employer with any unfair contracting advantages.

“To the best of our knowledge, during the time that Ms. Steckel was with us, there was no conflict of interest,” Wos responded.

David Oglesby, senior legal advisor for grants, contracts and compliance, fielded the second question.

“There will be no prohibition about the company coming forward,” he said. “Every step will be taken to make sure there is insularity.”

During the first hearing, on Oct. 8, Sen. Earline Parmon, a Forsyth County Democrat, asked Wos whether the agency had received any professional opinions that NC Tracks might not be ready to launch on July 1.

“No, senator,” Wos responded. During a joint program evaluation oversight meeting held last week, state Auditor Beth Wood told lawmakers that Wos, along with DHHS Chief Information Officer Joe Cooper, had provided “incorrect information” during the earlier hearing, reviewing the audit that recommended the agency reevaluate its plans to go live on July 1.

Wood also challenged a statement by Cooper indicating that DHHS had no choice but to launch NC Tracks on July 1.

“On Feb. 28 we reached a point of no return when the state had to cancel the HP contract,” Cooper told lawmakers on Oct. 8.

Wood said that contradicted what Cooper told auditors as they were preparing their report on NC Tracks in March 2013. The audit reported, “The department has indicated that if the NC Tracks system is not ready to go live on July 1, 2013, HP will be willing to continue its services as long as needed.”

Wood told lawmakers that accountability for the poor performance of NC Tracks lies at the secretary and governor’s level, but clarified to YES! Weekly that she didn’t intend to specifically infer Wos in her comments.

“That’s just as applicable to this system being built poorly by the prior administration as it is being implemented poorly by the current administration,” she said. “I don’t care who the secretary is and who the governor is — that’s where the accountability lies.”

Gov. McCrory told YES! Weekly through a spokesman that he retains “full confidence in his secretaries.”

Wos and DHHS Communications Director Ricky Diaz both declined to comment for this story, citing busy schedules.

Criticism from lawmakers and the state auditor, along with newspaper editorialists across the state, seems to have done little to dent Wos’ confidence. In legislative hearings, she and her leadership come across as self-assured. As the headstrong secretary called on subordinates to address specific questions, it was clear who was in charge.

Wos talks about moving “aggressively” to cut costs, uses terms like “monumental” and “enormous” to characterize the significance of her staff’s work and describes the scale of their efforts as “herculean.”

“Their obligations far exceed their predecessors, the amount of people reporting to them exceeds their predecessors, and the work they do is invaluable,” Wos said of senior-level staff. “I trust them. I trust them not only personally, but I trust that the work they produce for this state and for the citizens is monumental.”

While controversy has swirled around Wos’ leadership at DHHS, McCrory forged ahead on Medicaid reform.

The governor announced the formation of the Medicaid Reform Advisory Committee on Nov. 1. McCrory appointed Dennis Barry, the former CEO of Cone Health in Greensboro, to chair the committee, along with Peggy Terhune, who leads a nonprofit that serves people with intellectual and developmental disabilities, and Richard Gilbert, an anesthesiologist from Mecklenburg County. The five-member panel also includes one appointee each by Senate President Pro Tem Phil Berger and House Speaker Thom Tillis. DHHS is expected to present a reform proposal to the General Assembly by March 17.

Barry said it would premature to speculate about what type of reform model the committee might recommend, but said the two broad alternatives are keeping the current approach, which he described as “a system of care management for primary care services coupled with a typical fee for service” and “some other kind of payment system.”

Meanwhile, the dispute over the magnitude of administrative costs the North Carolina Medicaid system — cited by McCrory and Wos as evidence of the need for reform — sharpened considerably when analysts from the nonpartisan state Fiscal Research Division presented a report contradicting the findings of the state Auditor.

A presentation by Fiscal Research Division analyst Steve Owen echoed the findings of the December 2012 cost comparison by DHHS that had been buried prior to the publication of the audit when the new administration came in a month later.

Similar to the buried in-house analysis at DHHS, Owen found that far from having the highest administrative costs, North Carolina’s Medicaid program had the third lowest administrative cost compared to eight states with programs of comparable size. Owen said he developed an “apples to apples” comparison by subtracting medical loss ratios from overall costs for states whose Medicaid programs were contracted out to managed care organizations, and interviewed staff in five states to determine the amount of administrative cost embedded in capitation rates through contracts with managed care organizations.

Under Owen’s analysis, administrative costs in North Carolina’s Medicaid system remained at 6.4 percent, while Tennessee’s costs leapt from 5.2 percent to 11.4 percent and Arizona’s costs soared from 1.7 percent to 11.2 percent.

“[Managed care organization] administrative costs include the traditional costs for provider enrollment, contracting, claims adjudication and appeals,” the Fiscal Research Division Report states. “Unlike a state’s Medicaid program, the MCO must also provide for a profit in the administrative percentage.

“All else being equal, it is reasonable to expect Medicaid MCO administrative cost to be higher than fee for service programs because of profit and the requirement for the MCO to actively manage utilization,” the report continues.

Wood has stood by her numbers. She told YES! Weekly that it’s not possible to make an accurate comparison between Medicaid programs contracted out to managed care companies and those that are directly run by states. It’s more appropriate to look at the costs per person compared to quality of care to assess the efficiency of the programs.

Wood also noted that Owen was serving as the chief business operations officer in the Medicaid unit at DHHS during the period of review of the audit.

“You can imagine he was not pleased with my audit,” Wood said.

Sen. Martin Nesbitt, a Buncombe County Democrat, praised the Fiscal Research Division’s analysis.

“We’re trying to figure out: Are we going into an MCO operation, or are we going to continue to manage our Medicaid?” he said. “And what we care about is how much money’s getting to the people? And when you look at these numbers it’s an almost absolute that when you go to the managed-care model with for-profit companies, your cost of administration goes up; therefore your percentage going to the people goes down.”

Wos and McCrory have given lawmakers plenty of reasons to think that a proposal to convert North Carolina’s Medicaid program into some kind of managed care model will land on their desks in March. During the contentious Oct. 8 hearing, Wos publicly introduced Bob Atlas, an expert consultant hired for $250 per hour to advise the department on Medicaid reform.

“I’ve been doing managed care for 35 years,” Atlas told lawmakers. “I’ve been doing Medicare and Medicaid program work for most of that time. And while my background is managed care, I can assure you that the opinions and analysis that I will bring to bear will be objective and independent, and will not necessarily promote a so-called managed-care solution.”

Atlas also told lawmakers he was the former president of the Lewin Group. The consulting firm’s website discloses that the Lewin Group is a unit of OptumInsight company, a wholly owned subsidiary of UnitedHealth Group. The website vouches for the independence of the Lewin Group’s analysis and pledges that UnitedHealth does not review the consulting firm’s editorial work product.

As of Dec. 31, 2012, UnitedHealth’s community and state unit was contracting with 25 states and the District of Columbia, according to the company’s most recent annual report. The Minnesotabased health insurance company views government work as a growth area as states “struggle to balance unprecedented budget pressures with increases in their Medicaid expenditures.”

Nesbitt mocked protestations by Wos and others that it was too early to say whether DHHS would recommend a managed-care model.

“If it looks like a duck and sounds like a duck, it’s a duck,” he said during the Oct. 8 hearing. “We have started by putting together a committee to recommend managed care, hired a consultant who’s an expert in managed care…. What concerns me about this is that it puts the cart before the horse, and we started moving toward it not knowing what we’re doing. With the concerns we’ve had today on NC Tracks and NC Fast, I think we all know what happens when we precipitously move and haven’t laid the proper groundwork and don’t have the correct facts.”

When Atlas returned to the General Assembly last week, he laid out the options for North Carolina Medicaid on a spectrum with a “fee-for-service” model in which “the full risk is retained by the state” at one extreme. He described North Carolina’s system as “primary care case management, which is an add-on to fee-for-service, with care coordination.”

Atlas acknowledged that the state does receive some benefits from the current model. He did not mention that a nonprofit called Community Care of North Carolina, or CCNC, provides care coordination for the state’s Medicaid system. A December 2011 report by the national consulting firm Milliman found that CCNC saved the state $984 million over a four-year period. “It’s not that we’re all consumed with cost,” US Sen. Richard Burr said during a ceremony at Baptist Hospital in Winston-Salem, when CCNC received a national award. “It’s that we understand that if we have the optimal outcome, then the cost takes care of itself.”

Despite Atlas’ earlier commitment to independence and objectivity, few legislators were likely surprised by his favorable comments about managed care.

“If you’re looking for all of these things realizing their full potential, then I do think you’ve got to seriously look at risk-based managed care,” Atlas said. He added, “Let’s talk about ways that you can transfer the risk to providers and others.”

He told lawmakers that numerous states are moving towards some type of managed care.

“This is pretty widespread and pretty pervasive,” he said, “and definitely something that needs to be considered in North Carolina.”

Atlas tried to soften perceptions of managed care.

“We hear a lot about ‘the only people who do this are for-profit companies,’ often ones that are operating nationally,” he said. “You can do these kinds of arrangements with healthcare providers and groups of providers that come together for the purpose of serving the Medicaid program in a more organized and orderly way.”

Atlas also said the new system would likely be customized to the needs of different populations.

“The proposal isn’t going to necessarily be 100 percent full risk care right off at the beginning,” he said. “We think we’ll have different solutions for three population groups. Sort of the general population — mostly the [Temporary Assistance for Needy Families] population, one for the population that has longterm care needs, and another one for the one that has mostly developmental and intellectual disabilities as well as serious mental illness. Those things may phase in at different rates. And they may have different rates of risk assumption by the participants.”

There are pitfalls, he allowed, “in that if you do it too radically and too fast, you’ll have implementation challenges.”

Lawmakers in the committee room could not have missed the irony that they had spent the past couple months grilling DHHS staff about the implementation of NC Tracks and NC Fast.

“The big fear on managed care is that if you’ve got somebody at risk on a per capita basis, that they’re gonna deny care — they’re gonna deny necessary care,” Atlas said. “There’s always gonna be arguments about that. But states are designing very robust processes for quality assurance, measuring quality, measuring access to care, addressing consumer complaints and having robust appeals provisions.”

For her part, Dr. Wos was more circumspect about the plans for reform in an interview with WRAL’s David Crabtree earlier in the month, while using a military catchphrase from two decades past to describe her agency’s relationship with other stakeholders.

“We will be very specific to North Carolina, using as much as we can a North Carolina homegrown what-works-what we have.” she said. “And as I say, the coalition of the willing.” !

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