Members of the General Assembly adjourned the long session last week on Friday, November 15 after passing new U.S. House of Representatives districts, a disaster relief funding bill, and a bill to help fund the North Carolina Department of Transportation in the wake of their cash-shortage needs. While their November session was short and sweet, lawmakers will return sooner rather than later. Both the House and the Senate are scheduled to reconvene on Tuesday, January 14 at 12:00PM noon. During their January session, lawmakers may only consider items related to bills vetoed by the Governor, the selection, appointment, or confirmation of appointees, action on gubernatorial nominations, redistricting litigation legislation, the adoption of conference reports for bills already in conference committee, as well as bills addressing funding and oversight of the Department of Transportation, access to health care, or other modifications to appropriations of State funds. 

From the entire McGuireWoods Consulting team, we want to wish all of you a happy and safe Thanksgiving! Week in Review will resume following the Thanksgiving holiday. 

Transformation Delay

While lawmakers were back for their quick November session, an issue many were hoping would be addressed through one of the conference reports eligible for consideration, did not see any further action. The Department of Health and Human Services (DHHS) has warned that without a budget by mid-November, the Department may have to consider slowing down work towards the implementation of a Medicaid managed care model of service established by the General Assembly in previous sessions. But without a two-year state budget or mini-budget funding bill for the Department, DHHS does not have the money or program authority to move forward with the transition to managed care.

On Wednesday, DHHS released a statement announcing that managed care implementation and open enrollment for the transition must be suspended until further notice. Work on implementation stopped the day after the statement was released. Medicaid managed care will not go live February 1, 2020.  

The original two-phase roll out schedule had already been delayed earlier this year. Rather than rolling out the program in two phases - one group going live with managed care in November of 2019, followed by the rest of the state in the second group on February 1 of 2020. The initial delay shifted the plan from two phases to one, with the entire state going live with managed care on February 1. Open enrollment for all North Carolinians began for phase one-scheduled beneficiaries in July before opening statewide in October. DHHS will no longer enroll beneficiaries in health plans and current beneficiaries will be notified to continue with their current health services rather than a new health plan. 

For now, Medicaid will continue to operate under the current fee-for-service model and will continue to be administered by DHHS. Behavioral health services will continue to be provided by Local Management Entities (LME)/Managed Care Organizations (MCO). the Department noted that a new go-live date has not yet been set, as they must wait until implementation is given program authority in a budget, whether through a full state budget or mini-budget allowing for managed care implementation.

Implementation funding was included in the budget bill, HB 966: 2019 Appropriations Act which was vetoed by the Governor. The Governor's veto was overridden by the House but the Senate has yet to hold a vote to override. The same applies to HB 555: Medicaid Transformation Implementation, the transformation "mini-budget" that would provide the implementation funds needed to DHHS. In addition to not having the funding, in their statement announcing the decision to delay, DHHS also cited provisions from this year's legislative session that may have moved the Department's headquarters from Raleigh to Granville County, a major funding cut to the Department's budget, and the General Assembly's lack of action on Medicaid expansion. 

DOT Audit

The Joint legislative program Evaluation oversight Committee voted to direct the Program Evaluation Division (PED) to conduct a study of the Department of Transportation's (DOT) internal audit office. After a recent cash shortage which prompted the General Assembly to pass a funding bill for DOT before their adjournment in November, many lawmakers have expressed concerns about how the Department was not aware of their financial issues until it was too late. The Program Evaluation Division's preliminary study of DOT's internal audit office found that auditors were tasked with approving funding allocations rather than conducting actual audits. The PED study will begin in February.

The audit of the Department comes in addition to further reporting and oversight requirements placed on DOT through the mini-budget funding bill passed last week before the legislature adjourned for the year. SB 356: DOT Cash and Accountability requires the Department to publish a weekly cash watch report, similar to the General Fund Cash Watch report that is produced by the Office of the State Controller. The bill also directs the Office of the State Auditor to conduct a performance audit of DOT by March 1, 2020 and for the Department to submit a financial management report to the Joint Legislative Transportation Oversight Committee by January 15, 2020. 

PED Studies

CPS Final Report
DEQ Final Report
State Ports Bill Draft
Student Financial Assistance Bill Draft

During the Joint Legislative Program Evaluation Oversight Committee, the Program Evaluation Division (PED) presented two bill drafts and two final reports before the committee along with their recommendations for further legislative action. PED was directed to study where there are differences in how county departments of social services screen child maltreatment allegations and the need for a child protection response. County social services offices were found to have very different rates of referrals that were screened in or out. PED asked a number of County Division of Social Services directors about why they believe there is such a substantial difference in the rates, many of which cited different local policies, a lack of staff familiarity with screening procedures, and a lack of guidance from the Department of Health and Human Services (DHHS). PED concluded that the current intake tool results in a lengthy and redundant reporting process which may add to inconsistencies throughout the state. As a result, PED made four recommendations to the committee: 

• Modify state law to specify that counties are not permitted to use both county and state intake screening policies.
• Direct DHHS to adopt a rapid response line.
• Direct DHHS to address county workers policy comprehension and training needs.
• Direct DHHS to revise the current structure intake screening tool and require the tool to be recertified every five years.

The second presentation to the committee was a follow up to a 2016 study of the Department of Environmental Quality's (DEQ) organizational layers, spans of control, which is the ratio of number of employees a supervisor oversees, and Department permitting processes. The study found 22 industrial and/or agricultural permits that varied in requirements and processes. The study noted that while a cohesive permitting process is not an immediate problem, without a central permit performance management system, DEQ may run into oversight issues in the future. Based on the study’s findings, PED recommended that the legislature should have DEQ develop a return-on-investment measure for the Permitting Transformation Project recently launched by DEQ and create a formalized permit performance management plan to aid in the review of all permit processes.

After reviewing the efficiency of the North Carolina State Ports Authority and its operation of the Wilmington and Morehead City ports, PED recommended legislation that would require the Ports Authority to update legislative transportation committees annually on the implementation of an environmental management system. The recommendations in the bill draft would also require the Ports Authority to include measures to address port utilization, throughput, gate times, and ship turnaround times at Morehead City port and assess the service quality of the ports in its five-year strategic planning process. Finally, the draft recommends revising current law that requires both ports to provide container operations and instead gives the Ports Authority the discretion on whether it is needed. 

Lastly, PED recommended a bill draft dealing with postsecondary educational financial assistance for students throughout the state.  The bill draft would direct the State Education Assistance Authority to include in its report on the Forgivable Education Loans for Service Program the number of students that elect service or cash repayment as well as develop a record-keeping system to monitor repayment methods for State-funded educational loans that are eligible for forgiveness. PED also recommended that the Authority be required to develop a strategic plan that lays out the performance goals of the Authority as they administer State-funded financial assistance programs. Beginning in the 2020-2021 fiscal year, the bill draft recommends an appropriation of $700,000 to The University of North Carolina Need-Based Financial Aid program. The Office of State Budget and Management would also be tasked with developing recommendations on increasing transparency in administrative cost reporting for the Need-Based Scholarships for Students Attending Private Institutions of Higher Education Program.