House committee substitute makes the following changes to the 1st edition.

Deletes all provisions of the previous edition and now provides the following. 

Changes the act's long and short titles.

Directs the Department of Health and Human Services (DHHS) to specify a standardized electronic format for local management entities/managed care organizations (LME/MCOs) when submitting encounter data to DHHS. Directs LME/MCOs to submit specified data to DHHS using that format. Authorizes DHHS to use encounter data for five purposes, including measuring quality of services by LME/MCOs. Directs DHHS to work with LME/MCOs to ensure successful submission of encounter claims through NC Tracks. Directs DHHS to report to the Joint Legislative Oversight Committee on Health and Human Services by February 1, 2018, on the success of the data submission process. Applies to contracts entered into on or after the date the act becomes law.

Amends GS 122C-112.1(a)(39) to direct the Secretary of DHHS (Secretary) to further develop standard contracts for LME/MCOs for management of State appropriations and federal block grant funds (in addition to contracts for the operation of the 1915(b)(C) Medicaid Waiver). Requires that the contracts include quality outcome measures for mental health, developmental disabilities, and substance use disorders.

Amends GS 122C-3 to delete the terms county program and program director, to redefine area board and area director, and make conforming changes. Amends the definition of area director to apply regulations of area directors to the administrative heads of area authorities, LMEs, or LME/MCOs, regardless of title or contract. Defines LME as an area authority (was, an area authority, county program, or consolidated human services agency).

Amends GS 122C-115.4(b) to require an LME to obtain the prior written approval of the Secretary of the Department of Health and Human Services to enter into a contract with another entity to perform the primary functions of an LME. Applies to contracts entered into on or after the act's effective date.

Amends GS 122C-116. Amends the caption to read Status of area authority. Clarifies the definition of area authority to mean a local political subdivision established by counties for the management and delivery of services for individuals with mental illness, intellectual or other developmental disabilities, and substance use disorders under a 1915(b)/(c) Medicaid Waiver, and clarifies its status and functions as an LME. Clarifies the meaning of LME, and the terminology around it.

Amends GS 122C-117(a) to direct an area authority to maintain disability-specific infrastructure and competency to address the needs of disabilities covered by the 1915(b)/(c) Medicaid Waiver, to maintain administrative and clinical functions, and to maintain full accountability for all aspects of Medicaid Waiver operations and meeting contract requirements. Enacts new subsection (a2), authorizing an area authority to subcontract to other entities the following functions upon the written approval of the Secretary: information systems; customer service operations; claims processing; provider, enrollment, credentialing, and monitoring; professional services; treatment plan development; and referral to services. Provides that new subsection (a2) applies to area authority subcontracts to other entities entered into on or after the date the act becomes law.

Amends GS 122C-118.1 to authorize boards of county commissioners to use an alternative area board appointment process subject to the Secretary's approval. Otherwise requires area board participation from each of the constituent counties of the area authority, and directs the Secretary to appoint members to the area board if the boards of county commissioners do not comply with the requirements of this statute. Requires a member of the board to have expertise in health insurance, health plan administration, or business expertise (currently this seat requires an individual with insurance expertise consistent with the scale and nature of the managed care organization). Requires that at least three-quarters of the constituent counties adopt a resolution to appoint area board members using an alternative process, in addition to obtaining approval from the Secretary, before the boards of county commissioners in a specified sized area can use the alternative appointment method. Sets additional requirements for seeking the Secretary's approval. No longer limits the power to remove members to the initial appointing authority. Requires LME/MCOs to annually notify the Secretary of seven pieces of information, including the area board appointment process, beginning on July 1, 2017. Makes technical changes. Directs area boards not currently in compliance with the revised composition requirements to comply no later than October 1, 2017.

Enacts new GS 122C-147.3 (LME/MCO use of funds). Directs LME/MCOS to use funds only for purposes related to their functions and responsibilities under GS Chapter 122C, or to carry out functions and responsibilities required by state law, federal law, or contract with DHHS.

Amends GS 122C-124.2(c) to further direct the Secretary to take the described actions regarding notification of noncompliance when the Secretary determines that an LME/MCO has failed to comply with new GS 122C-147.3.

Amends GS 122C-121 (Area director) to clarify that area directors are full-time employees who may not be employed in any other capacity for the performance of services while serving as area director. Provides new requirements for salaries higher than those established by the State Human Resources Commission, requiring the area board to submit a request for the higher salary to the Director of the Office of State Human Resources and the Secretary, and obtain prior written approval from both the Director of the Office of State Human Resources and the Secretary. Sets limits on authorizing or paying higher salaries based on the average range of other area directors. Prohibits the area board from authorizing a salary for an area director without complying with the above-described requirements. Directs the area board to reduce an area director's compensation that does not comply with the above-described requirements and notify the Secretary within 60 days of the Secretary's determination of noncompliance. Authorizes the Secretary to appoint a caretaker board of directors if noncompliance continues past 60 days. Subjects the total compensation to area directors to review and written approval by the Director of the Office of State Human Resources and the Secretary on at least an annual basis to determine compliance with the statute's requirements. Directs each area board to submit to the Secretary and the Director of the Office of State Human Resources a copy of all current employment agreements, contracts, and amendments, with its area director. Requires the area director to ensure compliance by the area authority with the powers and duties of the area authority established under GS 122C-117. Requires the appointment of the area director to be based on the recommendations of at least two candidates by a search committee. Requires 30 days' notice of termination of an area director. Applies both to currently employed area directors hired prior to the effective date of this act, and area directors hired after that date. Directs each LME/MCO to submit a copy of all current employment agreements, contracts, and amendments to the Secretary and the Director of the Office of State Human Resources within 30 days of this act's effective date.

Amends GS 122C-154 (Personnel) to delete the provision designating employees appointed by the county program director as county employees, and to make conforming changes. Amends provisions governing when an area authority's employees may be paid more than the established salary ranges.

Amends GS 126-11 (Local personnel system may be established; approval and monitoring; rules and regulations) to provide that the merger or consolidation of two or more LME/MCOs requires a new petition to determine whether any portion of its total personnel system meets the requirements of the statute, and to make technical changes.

Amends SL 2015-241, Section 12F.2(a), to direct DHHS, Division of Mental Health, Developmental Disabilities, and Substance Abuse Services, to distribute 1/11 of each LME/MCO's single stream allocation which remains after substracting the amount of the distribution that was made to the LME/MCO in July of the fiscal year, on the first Tuesday of each month of the fiscal year after July, effective July 1, 2017.

Amends GS 122C-141(d)(1) to allow counties that satisfy their duties under GS 122C-115(a) through a consolidated human services agency to be considered a qualified provider.

Repeals GS 122C-115.1 (County governance and operation of mental health, developmental disabilities, and substance abuse services programs) and GS Chapter 122C, Article 4, Part 2A (Consolidated human services).

Directs the Revisor of Statutes to make conforming changes to GS Chapter 122C.

Except as otherwise indicated, effective when the act becomes law.