How One Governor Boosted Competition In The Health Care Market, But Shunned It With Medicaid Contracting

Not only is North Carolina a political battleground state whose voters will help determine the balance of power in the U.S. Senate this November, it’s among the dozen states where lawmakers continue to debate Medicaid expansion. While there is disagreement over whether to expand the 57 year old entitlement program that provides health insurance to low-income households, resistance in the GOP-led North Carolina General Assembly has eroded over time.

Even those who would prefer to avoid Medicaid expansion, among whom there are still many, concede that if it is to be done, it should be tied to other policy changes that reduce health care costs. Recognizing the need for reform that bends the health care cost curve, earlier this year North Carolina Senate President Pro Tempore Phil Berger (R) proposed legislation that removes costly regulations that were inhibiting nurse practitioners’ ability to provide care and partially repeals state certificate of need (CON) requirements, which research has shown reduce access to health care and inflate costs.

As the North Carolina Department of Health and Human Services (HHS) explains, the state’s CON law prevents “health care providers from acquiring, replacing, or adding to their facilities and equipment, except in specified circumstances,” without first obtaining permission from state government. Aside from North Carolina, 34 other states have CON laws on the books. Recognizing how such laws drive up the cost of care, several states have repealed or reformed their CON requirements in recent years.

“Controlling for other factors, researchers find that the average patient in a CON state has access to fewer hospitals, fewer hospice care facilities, fewer dialysis clinics and fewer ambulatory surgery centers (ASCs),” notes Mercatus Center senior fellow Matthew Mitchell. “There are fewer beds in these states and fewer medical imaging devices.”

On August 30, 2021, a little over one year ago, Governor Roy Cooper (D) signed into law a CON reform bill sponsored by Senate Health Committee Chairwoman Joyce Krawiec (R). That legislation, Senate Bill 462, which was approved with bipartisan support in both chambers of the General Assembly, increased the value threshold above which a certificate of need must be obtained for the installation of new medical equipment. The bill also established a time frame under which a CON must be approved or denied.

Dr. Jay Singleton, a New Bern-based ophthalmologist, has filed a lawsuit challenging North Carolina’s CON law as a violation of the state constitution. That lawsuit was dismissed in state superior court in June, but Singleton has since petitioned the North Carolina Supreme Court to take up his case. The North Carolina Justice Department, whose leader Attorney General Josh Stein (D) is seen as a likely a candidate to succeed Governor Cooper in 2024, recently filed a motion asking the North Carolina Supreme Court to dismiss Dr. Singleton’s appeal.

Not all statewide officials oppose Singleton’s case. North Carolina Treasurer Dale Folwell, for example, filed a motion supporting Singleton’s petition, noting that “CON laws create insurmountable barriers to entry that shield existing institutional health care providers from competition.”

State Officials Embrace Greater Competition In the Health Care Sector, But Not For Medicaid Procurement

Repeal or reform of CON laws isn’t the only way in which North Carolina lawmakers can improve the provision of health care and reduce costs through greater competition. Members of the North Carolina General Assembly might also take a look at how the Cooper administration has potentially stifled the competitive bidding process through which a technology vendor was selected for a new pilot program run through Medicaid.

Referred to as the Healthy Opportunities Pilot (HOP), the North Carolina Department of Health and Human Services describes it as “the nation’s first comprehensive program to test and evaluate the impact of providing select evidence-based, non-medical interventions related to housing, food, transportation and interpersonal safety and toxic stress to high-needs Medicaid enrollees.”

Five months into the HOP experiment, North Carolina Health News reported that those participating in the pilot have documented plenty of “bumps and growing pains.” The federal government has authorized $650 million for the HOP program. Yet as of this spring, after three years and $27 million spent, the program was only delivering boxes of food to 10 people.

As North Carolina Health News reported on August 18, “many organizations describe the referral process as painfully clunky.” A follow up report on the HOP explained that “it’s a complicated web of entities with many steps and handoffs. Sometimes it works like a well-oiled machine, and other times it’s like there’s no machine at all, just a series of gears grinding against each other.”

Some attribute the HOP’s rocky launch and reportedly substandard service to the anti-competitive manner in which the private company serving as the lead contractor for the HOP program, Unite Us, was chosen. While the standard government procurement process for vetting such contracts is typically run by the state’s IT Department, that’s not the case when Medicaid is involved. That is why the Department of Health and Human Services was able to forgo issuance of formal request for proposal to prospective vendors and instead awarded a sole-sourced contract to Unite Us.

The Department of Health and Human Services, in a statement, explained that “for NC Medicaid related procurements; such procurements are not required to be reviewed by North Carolina’s Department of Information Technology.”

“To support its pilot program, NC Medicaid used the alternative procedures to procure a sole-sourced contract with Unite Us,” HHS added. “The company built the existing NCCARE360 referral platform, and it added functionality to power the Health Opportunities Pilot.”

Emails sent by Mandy Cohen, the former state HHS Secretary who led the department at the time of the HOP’s advent, suggest Cohen may have intervened to ensure that Unite Us, a company providing coordination platforms that integrate healthcare and social services, won the contract to be the sole technology vendor for the HOP. In fact, emails made available through Freedom of Information Act requests indicate another vendor (not Unite Us) was preferred by state health systems. But the contract awardee was changed after then-Secretary Cohen got involved at the request of a Unite Us co-founder and contacted health system executives. Following that intervention, it appears at least one health system felt required to use Cohen’s preference.

“Competition breeds our greatness,” ESPN’s Stephen A. Smith, a North Carolinian, said recently when offering his take on the controversy roiling professional golf, in which a new professional tour has sprung up to compete with the PGA. Yet Smith’s point about competition is global, extending far beyond the world of sports. Smith’s remark also describes an important phenomenon that is true in many other facets of human life and the modern economy, particularly in the health care sector.

Competition in business leads to better products and services for customers at lower prices. Competition in health care leads to lower patient costs. Competition in government contracting, meanwhile, results in better program operation at reduced cost to taxpayers.

At an upcoming Joint Legislative Oversight Committee on Health and Human Services hearing, lawmakers will have an opportunity to ask key members of the Cooper administration why the Health Opportunities Pilot program has so little to show despite millions of dollars in taxpayer money having already been spent. That hearing, which will held be on October 11, will also give Cooper administration officials a chance to explain the uncompetitive process through which the Unite Us contract was awarded. At this hearing, lawmakers will also have the opportunity to learn how the Cooper administration decided to mandate one technology platform rather than allow North Carolina businesses and organizations to decide the platform that best suits their unique needs.

The prevailing wage mandates and other anti-competitive provisions in the Inflation Relief Act signed by President Joe Biden over the summer have been criticized by Republicans for the way in which they will drive up taxpayer costs by reducing competition in the bidding process for infrastructure projects. Yet the failure to leverage competition in order to improve government services and reduce taxpayer cost is also a problem at the state level, in both blue and red states. Whether or not North Carolina legislators expand Medicaid, looking into how exactly the lead technology vendor for the HOP was chosen by the Cooper administration and what can be done by the General Assembly to rectify that process so that there is greater competition for such state contracts moving forward is likely to be a priority.