Senate committee substitute makes the following changes to the 2nd edition.

Amends the long and short titles.

Provides that on the date when Medicaid capitated contracts with Prepaid Health Plans (PHPs) begin, all of the following shall occur: (1) PHPs shall manage all publicly funded behavioral health services currently managed by local management entities/managed care organizations (LME/MCOs) under contracts with the Department of Health and Human Services (DHHS), (2) LME/MCOs shall be dissolved, and (3) all remaining assets of LME/MCOs shall be transferred to DHHS to be used to satisfy the LME/MCO's liabilities and costs of PHP contracts. If there are insufficient funds, it is the Secretary's responsibility to satisfy LME/MCO liabilities.

Makes amendments to GS 122C-112.1 effective January 1, 2018, and applicable to contracts entered into on or after that date.

Deletes all amendments to the following laws: GS 122C-115.4(b) (regarding the primary functions of an LME); GS 122C-116 (Status of area authority; status of consolidated human services agency); GS 122C-118.1 (Structure of area board); GS 122C-124.2(c) (regarding the Secretary's responsibilities if the Secretary does not provide an LME/MCO with certification of compliance under that statute based upon the LME/MCO's failure to comply with certain requirements); GS 122C-121 (Area director); GS 122C-154 (Personnel); GS 126-11 (Local personnel system may be established; approval and monitoring; rules and regulations); and SL 2015-241, Section 12F.2(a) (directing DHHS to distribute at least one-twelfth of each LME/MCO's base budget at the beginning of the fiscal year).

Deletes provisions applying the compensation limitations of GS 122C-121 to currently employed area directors, regardless of when they were hired, as well as provisions directing LME/MCOs to submit copies of current employment agreements to the Secretary and the Office of State Human Resources.

Deletes proposed GS 122C-117(a2) (authorizing an area authority to subcontract certain managed care functions to other entities). Retains other amendments to that statute.

Deletes proposed GS 122C-147.3 (LME/MCO use of funds).

Amends GS 122C-124.1. Amends the caption to read Actions by the Secretary upon area authority or area director failure to comply or when area authority is not providing minimally adequate services. Deletes all references to county programs. Further directs the Secretary, upon the Secretary's determination that an area director has failed to comply with any requirement of State or federal law, rule, or regulation, or any requirement of the area authority's contract with the Department, or is doing any of the other currently listed things, to withhold funding for and assume control of the services as currently specified.

Amends GS 122C-151 (Responsibilities of those receiving appropriations). Directs area authorities to not use resources for any of five listed expenses, including alcohol and first-class airfare. Authorizes the Secretary to delay, reduce, or deny payment upon an area authority's failure to complete actions necessary for the memorandum of agreement (was, for the development of a specified memorandum of agreement), or other listed actions.

Applies the definitions of GS 122C-3 to the following section: Directs the Office of State Human Resources (OSHR), the Secretary of DHHS, and the LME/MCO area boards to revise and update the job description for area directors, as specified, by September 1, 2017. Directs OSHR to recommend to the State Human Resources Commission (Commission) a revision to the salary range for area directors, as specified, by December 1, 2017. Directs the Commission to revise the salary range for area directors based on the base of OSHR's recommendation by March 1, 2018. Makes the salary range for area directors, last updated in 2010, void. Prohibits LME/MCO area boards from authorizing any increase in the salaries of an area director until OSHR and the Commission complete a revision and update of the job description and salary range of area directors as directed. Does not prohibit an LME/MCO from authorizing a salary under GS 122C-121(a1) to be paid to an area director filling a vacant position after this act becomes law. Directs LME/MCO area boards to reestablish the salary for its area director upon completion of the revision and update by the OSHR and the Commission. Authorizes OSHR, after the date that the Commission revises the salary range for area directors, and until the LME/MCOs are dissolved under Section 1 of this act, to recommend adjustments to the salary range for area directors to the Commission. Provides requirements for forming such a recommendation.

Amends SL 2015-245, as amended. Authorizes DHHS to adopt rules related to the activities listed in Section 4 of that session law (including the organization of the transformed Medicaid and NC Health Choice programs), and the regulation of PHPs, except that rules relating to PHP licensure under GS Chapter 58 or SL 2015-245, Section 6, are to be adopted by the Department of Insurance. Amends the definition ofprepaid health plan (PHP), requiring an entity not to be a provider-led entity to qualify as a commercial plan, and requiring a majority of a provider-led entity's governing body to have sufficient experience treating beneficiaries of the NC Medicaid program, as determined by the Secretary of DHHS (was, to have experience treating beneficiaries of the NC Medicaid program). Deletes the provision prohibiting capitated PHP contracts from covering behavioral health services for Medicaid recipients currently covered by LME/MCOs for four years after the date capitated contracts begin, and dental services, and prohibits capitated PHP contracts from covering the fabrication of eyeglasses. Provides that capitated PHP contracts do not cover recipients who are dually eligible for Medicaid and Medicare for two years after the date capitated contracts begin, recipients enrolled under the Medicaid Family Planning program, or recipients who are inmates of prisons. Deletes the provision directing the Division of Health Benefits to develop a long-term strategy to cover dual eligibles through capitated PHP contracts, and provides that enrollment of dually eligible recipients shall begin two years after the date capitated contracts begin, may be phased as described in a specified DHHS report, and shall be completed within two years after the date that dually eligible recipients are first enrolled with PHPs. Amends the number of required statewide capitated PHP contracts to be no less than three and no more than five. Amends the number of regional contracts to be up to 4 (was, up to 12). Directs PHPs to comply with 42 CFR 438 (was, GS Chapter 58, to the extent allowed by federal law and consistent with SL 2015-245), and deletes the provision stating that this requirement does not require PHP to cover services not covered by the Medicaid program. Deletes the provision instructing LMC/MCOs to continue to manage the behavioral health services currently covered for their enrollees for four years after the date capitated PHP contracts begin.

Amends SL 2015-245, Section 5, as amended. Amends the description of DHHS's role and responsibility during Medicaid transformation, requiring DHHS to (1) submit to CMS modifications to the currently required submissions, including to the demonstration waiver applications. Requires DHHS to provide notice under GS 108A-54.1A if it submits any modifications; (2) define regions (was, define six regions), as specified, to ensure effective delivery of healthcare; (3) further develop standardized contract terms for capitated PHP contracts that require PHPs and hospitals to negotiate mutually acceptable rates, methods, and terms of payment, and require negotiated payments to hospitals to not exceed 125% of the fee-for-service Medicaid rate unless specifically approved by DHHS; and (4) within 30 days of this bill becoming law, or upon CMS's approval of a waiver when a waiver is required, requiring providers enrolling or re-enrolling as a Medicaid or NC Health Choice provider to agree to accept 90% of the Medicaid fee-for-service rate for the services they provide to PHP enrollees if the provider has been offered a contract with a PHP but is not under a contract with that PHP, or if other conditions are met.

Amends GS 108A-54.1A (Amendments to Medicaid State Plan and Medicaid Waivers). Directs DHHS to notify the Joint Legislative Oversight Committee on Medicaid and NC Health Choice and the Fiscal Research Division of the submission of an amendment to the State Plan or a modification of a previously submitted amendment to the State Plan to the federal government, and of a determination that an amendment posted on its Web site will not be submitted to the federal government.

Amends GS 108D-1 (Definitions), GS 108D-12(a), GS 108D-13, GS 108D-14, and GS 108D-15, replacing the termmanaged care actionwithadverse benefit determination.

Further amends GS 108D-13 (LME/MCO level appeals). Requires a request for an LME/MCO level appeal of a notice of adverse benefit determination to be filed within 60 (was, 30) days of the mailing date of the adverse benefit determination. Directs the LME/MCO to resolve the appeal within 30 days (was, 45 days) of receiving the request for appeal. Requires, as an alternative to the requirement that an enrollee or network provider has exhausted the appeal procedures described in this statute or GS 108D-14, an enrollee to have been deemed to have exhausted the LME/MCO level appeals process under 42 CFR 438.408(c)(3), in order to file a request for a contested case hearing under GS 108D-15.

Further amends GS 108D-14 (Expedited LME/MCO level appeals) to require an LME/MCO to resolve a granted expedited appeal no later than 72 hours (was, three working days) after receiving the request for an expedited appeal. Provides the same alternative requirement to request a contested case hearing as is provided in GS 108D-13.

Further amends GS 108D-15 (Contested case hearings on disputed managed care actions). Requires a request for an appeal to be sent no later than 120 (was, 30) days after the mailing date of the notice of resolution.

Makes the act effective when it becomes law, except as otherwise provided.