Policy Position

Medicaid Reform and ACOs

in Health Care
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In just one year, plans for North Carolina’s Medicaid reform have changed quite a bit.

One year ago, Gov. Pat McCrory proposed a Medicaid reform that would have statewide managed care organizations (MCOs) compete to provide health care services to North Carolina’s Medicaid patients. Each patient would be risk-adjusted for individual health status. These MCOs would be awarded fixed contracts from the state to have providers deliver care and would bear full risk in the event of cost overruns. Taxpayers would only be on the hook for Medicaid enrollment fluctuations. MCOs would be responsible for all Medicaid populations, coordinating both mental and physical health care needs.

However, the North Carolina Department of Health and Human Services (DHHS) has reported that providers were concerned with not maintaining full autonomy when delivering care to patients within a managed care system. Providers also did not have an appetite to deliver care at full risk to their patients. So a year later, the Medicaid reform gears have shifted toward a less risky and more flexible initiative, Accountable Care Organizations (ACOs).

Key Facts

  • An ACO is a health care delivery model in which hospitals, physician groups, or both, clinically integrate to manage patient care. An ACO network aims to reduce fragmented care, thereby reducing unnecessary health care utilization over time.
  • Each ACO must manage a Medicaid population of at least 5,000 people. Provider reimbursement is dependent on whether providers achieve quality health measures via delivery of standardized services within a set budget.
  • The ACO benchmark budget will be projected based on previous medical claims of a Medicaid population within the ACO’s geographic region of the state. All ACOs will share with the state any savings or losses.
  • With each passing year, ACOs will take on greater degrees of risk when managing their Medicaid populations under an annual projected budget. ACOs will also be responsible for providing care to 40 percent of the Medicaid population in year 1. The proposal urges ACOs to incrementally manage more Medicaid patients.
  • Physical health, mental health, and long-term support services represent the three foundations of Medicaid reform. ACOs are primarily responsible for managing physical health services, although reform stakeholders have addressed that ACOs may be pressured to help manage prescription drugs for mental health patients down the line.
  • Certain Medicaid populations will not fall under the fiscal responsibility of ACOs, as providers have only so much control over the physical wellbeing of their patients. Furthermore, ACO providers will only be held accountable for 90% of claims costs for patients suffering catastrophic or chronic health conditions exceeding $50,000 in medical care per year.


Independent consultants hired by the NC DHHS project that North Carolina’s Medicaid reform proposal will reduce the state share of the Medicaid budget by $325 million over the next 5 years. This savings equates to just a drop in the Medicaid bucket. Overall, it looks as if the new reform proposal strays from the original proposal in which budget predictability ranked top priority.

What lies ahead remains one big unknown. The Legislature has yet to approve full implementation. Should the state continue to pursue Medicaid reform through an ACO approach, we recommend the following:

  1. North Carolina’s Medicaid reform proposal states that medical providers can voluntarily formulate an ACO. If, over time, providers refuse to participate, Medicaid reimbursement rates will be cut. The state should rescind this penalty, as only a quarter of physicians accept new Medicaid patients. Penalizing providers for noncompliance will not help solve the access issue.
  2. One of the central tenets of an ACO is to provide a continuum of care to patients in less expensive settings outside of hospitals.Repealing Certificate of Need (CON) laws would promote a more robust and competitive ACO delivery system for Medicaid populations.
  3. For any Medicaid reform system to effectively reduce fragmented care, improve quality, and cut costs, patients should have skin in the game as well. For example, patients could be rewarded for showing up to appointments and complying with prescriptive actions that enhance overall wellbeing. Patients who infrequently show for scheduled appointments should be penalized, as this crowds out other Medicaid patients from gaining access to a provider.



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