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Medicaid reform: as risky as changing horses in midstream

Non-Profit Management
Rochester Business Journal
January 11, 2013

"You just can't beat the person who won't give up."
  -Babe Ruth
You can lead a horse to water, but you can't look in its mouth.
My administrative assistant has some unusual calendars, one of which provides daily malapropisms. That horse reference prompted me to develop the topic for this column.
In a nutshell, New York is leading the country in a dramatic attempt to reform the health care delivery system for the state's 5 million Medicaid recipients. With President Barack Obama being re-elected, an additional 1 million New Yorkers will be added to the state's Medicaid enrollment when the Affordable Care Act takes effect in January 2014.
At that point, approximately 30 percent of New York's population will be eligible for Medicaid benefits, and the services they receive will approach an annual cost of $60 billion.
Now, if you are a conservative Republican, please stay with me on this. In my opinion, it is an absolute shame that 30 percent of New Yorkers qualify for Medicaid, the joint federal-state program for the poor and disabled among us. We must and can do better at providing services and support to this portion of our population. As a Democrat, generally surrounded by Republicans in my chosen profession, I also recognize that $60 billion is an unsustainable financial commitment for New York taxpayers to absorb.
Gov. Andrew Cuomo and his administration wholeheartedly agree. In fact, the governor has obtained a Medicaid waiver from the Federal government to give New York the regulatory flexibility to reform and restructure our Medicaid service system.
The waiver application said it best: "The goal is to transform New York State's health and human service care delivery system into one that is completely integrated and provides access and coordinated care to every New Yorker. We need to shift from an emphasis on fragmented institutional care to an integrated system that has a foundation of primary and preventive care."
In my opinion, the objective described above has tremendous merit and should receive universal support. However, as is true with leading horses to water, you can't necessarily make them drink. So the challenge is significant and will affect every Medicaid service provider in the state, many of which are tax-exempt organizations.
The transformational change contemplated by the Cuomo administration is expected to occur rapidly. Therefore, a tax-exempt organization providing Medicaid services must be flexible and responsive, embracing change as a constant.
With the state's goal of a three-year phase-in for "care management" for all Medicaid beneficiaries, maintaining compliance with regulations will be a continuous challenge.
The state intends to eliminate fee-for-service Medicaid within five years and move entirely to global/bundled/capitation payments tied to "value," defined as quality and efficiency. As this managed care system is implemented, every service provider must be prepared to develop a strategic position regarding:
Clinical and financial integration-easier said than done.
Focus on care coordination instead of service volume.
Assuming increased financial risk.
Developing robust and sophisticated information technology.
Successful providers that achieve the desirable strategic position will also be able to satisfy the state's mandate for quality-driven, patient-centered service delivery.
In keeping with my ongoing homage to David Letterman and his Top Ten lists, the following strategies and recommendations are specifically designed to address organizational risks associated with the state's Medicaid reform initiative.
10. Update training for staff, senior management and board members to address the changing risk environment in a managed care model of service delivery.
9. Both the transitional and ultimate Medicaid payment models will result in new regulatory, eligibility and documentation requirements for providers. Your compliance officer (You do have one, right?) should be assigned responsibility to maintain current knowledge of all Medicaid regulatory changes.
8. There is a risk of complacency in organizations that have had successful regulatory audits in the past and consider themselves "as clean as a whistle."
7. The transition to a care management model employing care coordinators will bring new educational or certification requirements for your staff.
6. Transitional payment models during several years of phasing in the new methodology will create greater complexity in program documentation and billing processes. At its worst, this could mean that an organization will have to maintain dual systems during the transitional payment period, which may be as long as five years.
5. Organizational compliance with provider network contract provisions must be verified. The new payment methodologies and the state's objective for regional provider networks will create a plethora of new contract provisions that must be monitored for compliance.
4. Ultimately, the state's objective of eliminating fee-for-service Medicaid payments will require systemic change in electronic medical records and billing software systems, as well as in compensation arrangements for billable providers.
3. Employee frustration resulting from massive reform and changing job requirements will increase the risk of whistleblower allegations resulting from the perception of increased responsibility without a corresponding increase in compensation.
2. Inevitably, the drive for cost efficiency will put downward pressure on compliance budgets. But reducing compliance costs will increase the difficulty of maintaining compliance in a changing risk environment.
1. The demand for technological sophistication in coding, service documentation, billing processes, eligibility changes and similar matters will challenge each organization to consider outsourcing or collaboration.
To determine your organizational readiness for the risks I've described, I strongly suggest that your management team thoroughly document an action plan that responds to these questions:
What changes in your current system will be required to ensure future compliance?
Who is responsible for determining which services will be paid by what funding source as a result of the move toward bundled or capitation payments?
What level of confidence does your organization have in its ability to determine accurate costs on a cumulative service basis?
How prepared is the provider for increased frequency of regulatory recoupment audits?
How will your compliance risk assessment and related audit testing have to change in this new and evolving managed care system?
If you're not yet convinced of the importance of these changes for your organization, consider the following sound bite from Dan Sisto, CEO of the Healthcare Association of New York State: "We must transform to this new system while we provide care to millions of New Yorkers under the old model. This is like having one foot on the dock and one foot on a boat anchored five feet offshore. The destination may be clear, but the ability to shift successfully while under attack is highly problematic."
Sisto has decades of experience in New York State health and human services. Please be sure that this column leads your organizational horse to the water's edge. And take a drink!
Gerald J. Archibald, a CPA, is a partner in charge of management advisory services at the Bonadio Group and is known for expertise in non-profit and tax-exempt accounting, management and governance. He can be reached at (585) 381-1000 or Download podcasts of his articles at 1/11/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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