Dr. Jugta Kahai had a problem. One of her patients, a 9-month-old boy with asthma, kept showing up in the emergency room. He was struggling for breath. His mother was distraught. And Dr. Kahai was puzzled. During office visits, she had talked at length with the mother about the importance of keeping the home clean and free of environmental factors that might trigger an attack. The mother seemed to understand the doctor's suggestions. And yet the child was still arriving in the emergency room in extreme distress.

Fortunately, the baby's physician had access to a resource most doctors only dream of -- a local case manager, funded by the state, who could assist her in caring for patients with chronic illnesses. What the case manager found when she went to see the baby and his mother was surprising. The family's mobile home was in a rough part of town but it was spotless -- too spotless. The mother proudly explained that she cleaned the house every three days using half a gallon of bleach. And that, it turns out, was the problem. The overuse of a high-powered cleanser was triggering asthma attacks.

The bleach-cleaning stopped. Soon after, so did the emergency room visits. And North Carolina's Medicaid program was spared tens of thousands of dollars in unnecessary expenses.

It wasn't a random good catch. Over the course of the past decade, North Carolina's Community Care program has quietly made major strides toward achieving one of the most-discussed goals in health reform -- a patient-centered form of care that replaces episodic treatment based on individual illnesses with a long-term coordinated approach. It's what health experts sometimes refer to as "the medical home."

Some of that coordination is more complicated than a call to a case manager to make a home visit. Sometimes, the case manager becomes a regular and long-term team member in caring for a patient who has several chronic illnesses, as well as other serious problems.

One recent morning, for instance, Elissa Hanson, a case manager in the Wilmington area, went out to pay one of her Medicaid patients a visit. Linda, who is 52 and diabetic, had reported a dangerously low blood-sugar reading earlier that morning. Hanson wanted to find out what was amiss and prevent further complications.

When she got to Linda's house, Hanson chit-chatted with her patient for a while and then got down to business: What had happened to cause the dangerously low reading? Linda said she had hurt her arm and was unable to eat. After making sure that Linda had gotten medical care for the arm -- she'd gone to a nearby walk-in clinic -- Hanson turned to a routine she usually goes through on visits with Linda: a review of all the medications she currently is taking -- glipizide and insulin for diabetes, as well as pills for hypertension, heart disease and high cholesterol. Hanson walked her through each one, explaining why and how often Linda should be taking each. For Linda, this is essential. She can't read.

There's another complication. Linda is an alcoholic. "But I never preach to her not to drink," Hanson says. "I talk about what you need to do to manage your diabetes when you're drinking alcohol. Her promise to me is that she'll eat something when she drinks."

The deal between case manager and patient is working. Linda is no longer showing up routinely in the emergency room in diabetic shock -- and that is good for her health and for the Medicaid program's bottom line.

In 2006, health spending in the United States was twice the amount per capita of the average developed country. Health care now accounts for more than 16 percent of the country's gross domestic product, but the nation's 750,000 physicians, 5,000 hospitals, and 16,000 nursing homes remain bits and pieces of a fragmented system. Steven Schoenbaum, executive director of the Commonwealth Fund's Commission on High Performance Health Care, sees the lack of coordination among providers and facilities as adding up to a non-system. And that's a problem because studies show that the more care is organized, the better the outcomes are of that care.

By virtually any measure, U.S. outcomes are bad. To cite just one: According to the Organization of Economic Development, the United States ranks dead last among developed nations in avoiding preventable deaths.

Policy makers have reacted to the organizational issue in several ways. One of the most common responses for Medicaid programs has been to steer recipients into managed-care plans run by insurance companies that are paid a per capita fee to provide care for beneficiaries. They coordinate care in the sense that a primary care physician acts as a gatekeeper to specialty care. But managed care often doesn't work well in rural areas where doctors are scarce. Nor do managed-care plans typically include doctors in small practices -- urban or rural. But small, one- or two-doctor practices account for 45 percent of the nation's primary-care physicians. They often lack the resources to make investments in forms of health information technology that would make it easier to share patient information. And they don't have the time to coordinate care for patients with complex chronic conditions such as asthma, hypertension, diabetes and heart disease.

Yet it is precisely this small subset of patients who most need coordinated care. Research indicates that patients with multiple chronic illnesses -- some of which are preventable, all of which are treatable -- account for as much as 75 percent of total health care spending. Within Medicaid, the numbers are formidable: 5 percent of all beneficiaries account for up to 50 percent of total Medicaid spending. More than 80 percent of these high-cost beneficiaries have three or more chronic conditions, and up to 60 percent have five or more. Yet, the Center for Health Care Strategies reports, "the majority of these patients receive fragmented and uncoordinated care often leading to unnecessary and costly hospitalizations and institutionalizations."

The medical home is seen as one solution to the problem of fragmented care. The private sector has begun to make some progress: The Geisinger Health System in Pennsylvania is currently the most notable model. It ties doctors, hospitals, labs, case managers and other health providers and institutions into one seamless system in which the primary-care physicians can coordinate all inpatient and outpatient medical care.

North Carolina's Community Care is not as ambitious. But it has patiently grafted a means for coordinating care for its Medicaid patients onto a traditional fee-for-service medical system. In doing so, it has created a model of care with many of the attributes of a medical home.

Primary-care physicians and case managers, guided by claims data and chart audits, work together to improve care and coordinate treatment across 1,200 medical practices serving more than 884,000 Medicaid recipients -- nearly 10 percent of the state's population. This systematic approach to coordinated care has contributed to dramatic reductions in childhood asthma and better diabetes control. It also has saved the state serious money -- more than $150 million a year for the past two years.

This isn't traditional case management, where a nurse or outside vendor calls and visits patients, independent of their physician, in an effort to get them to take their medications or be compliant. Instead, it's something new -- an integrated, team-based approach. Not surprisingly, policy makers from other states -- and in the U.S. Congress -- are now taking a close look at the program.

"This has national significance," says Emory University's Kenneth Thorpe, a close adviser to some of the congressional Democrats who are crafting health legislation. "It has a good shot at being part of health reform."

North Carolina has built its coordinated care/medical home system gradually and from the ground-up. Community Care started as a small-scale pilot project in rural Wilson County in 1988. Medicaid agreed to pay participating physicians in two medical practices a reasonable reimbursement rate, plus a small case management fee ($2.50 per patient per month), if the physicians would agree to coordinate care for their patients. The program proved popular and cost-effective, leading the state to secure a waiver from the federal government to expand the program to other counties.

When lawmakers decided to roll out the program statewide in 2005, they made a critical decision. They would not run the program from the state capital in Raleigh. Instead, they set up 14 networks around the state. Each network has an executive director, who oversees a team of case managers, as well as a medical director, invariably a well-regarded local doctor, who works with local physicians. The state sets broad treatment priorities (childhood asthma, diabetes) and provides support. Consultants help develop treatment strategies and a sophisticated electronic database gives case managers access to their clients' medical histories. The state also draws on claims data to provide feedback to participating physicians and to help local networks conduct chart audits to identify areas of improvement.

In general, the state touch is light. Local networks have great leeway in setting specific goals and figuring out how to meet them. The program is emphatically personal. Instead of interacting with state bureaucrats in Raleigh, local physicians work with case managers (often registered nurses) who spend a day or two in their offices every week. Instead of discussing their current practices with some distant M.D. employed by a bottom-line oriented insurance company, doctors talk about best practices with a local medical director who is a colleague and, most likely, a friend from the neighborhood.

"The local structure is a key element," says Laura Gerald, a physician who serves as an asthma consultant to the state. "Problems are local. Solutions are local. You need people who know the resources and who know the players to figure this out, locally. So that's critical."

But it is the teamwork and inside support that marks the program. "I can call anytime, and they'll send over caseworkers," says Nanili Baijnath, the medical director of the New Hanover Community Health Center in Wilmington. One case manager has arranged a group office visit for several patients with diabetes, which uses the doctor's time more efficiently and offers patients a chance to be part of a support group. Others have helped the clinic staff connect patients with mental health resources. Or the medical director helps find specialist referrals. The services keep everyone connected. "I feel I'm part of a far bigger community," Baijnath says.

Since its statewide rollout four years ago, Community Care has made impressive strides in improving the lives of Medicaid patients, particularly those with asthma and diabetes. It's also saved the state significant money. Given those results, the legislature last year directed the program to save an additional $29 million by focusing even more of its efforts on managing patients with multiple chronic illnesses.

"We had been working on it from a disease-management standpoint -- asthma, obesity, other kinds of things like that," says Tara Larson, acting director of North Carolina's Medicaid program. "But when you start to look at people with multiple conditions -- the aged, blind and disabled -- you start to see how things are interrelated." The focus on multiple chronic illnesses, she says, is "a natural step forward."

It's also quite a big challenge. For while the potential savings are obviously large, so are the costs and difficulties of addressing these patients' needs, which are rarely limited to medical ones. For case managers such as Elissa Hanson, coordination and cost control are proving to be Community Care's toughest assignments to date.

The same day that Hanson stopped by to check on Linda, case managers in the same network -- Access III of Lower Cape Fear, which serves 50,000 Medicaid patients who live in and around the city of Wilmington -- assembled to talk over their most challenging cases. Case manager Beverly Newton started with one of her patients, a 40-year-old woman with diabetes.

"She can tell you all the medicines -- what she should take," says Newton. "She can tell you what you should eat. She's the perfect patient." But only in theory. Newton notes that the patient has been admitted to the hospital three times for diabetic ketoacidosis -- a build-up of acid in the blood stream that can lead to a coma or death. In between, she has been treated at a local hospital emergency room multiple times for having blood sugar that was either too high or too low. Although she knows them by heart, the patient has been unable to stay on her meds or follow nutritional guidelines. She also shows several signs of cognitive deficiency, perhaps connected to a past history of traumatic brain injury.

But Newton wasn't giving up. She'd called the home health agency responsible for the patient's care and arranged for a diabetes counselor to pay her a visit. She and the client's primary care physician had finally persuaded her to agree to see a psychologist. They also had identified another problem -- her responsibilities as a parent.

"She has two kids, one who's two and one nine years old," Newton reports, "and when you go there, the little girl is just all over the place." The kids' father appeared to be the landlord of the trailer park where the mother lives -- but he is married to someone else. Most of the parenting fell to the client, who was obviously overwhelmed. So Newton and the diabetes counselor signed her up for a parenting class. "The next step," Newton says, "will be getting the two-year-old in day care somewhere."

The next client the team discusses also reflects the range of social and financial problems the medical teams confront. This client had been hospitalized four times during the course of the year for problems stemming from his many ailments. He has diabetes, hepatitis, a peptic ulcer, coronary heart disease, chronic pancreatitis, chronic anemia and is clinically depressed. Working with his primary-care physician, a case manager had straightened out the 18 medications he is taking. And now he has a new problem. Each prescription for his 18 medications has a $3 co-payment. The patient had been supported by a Social Security disability check. However, he'd been informed that because he owed the state of Florida $33,000, his SSI check would be sent to authorities in Florida until the debt was repaid. As a result, his income has dropped to zero.

Executive director Lydia Newman shakes her head. "He'll end up in a rest home" -- at a cost to the state of roughly $3,000 per month -- because he doesn't have money for the co-pays," she says, with some anger. But the case managers are not throwing in the towel. One has a contact at a drug store chain who could arrange free medication for a few months. Another is ready to take the client to the local Social Security office to see what can be done.

Reflecting on Community Care's future, Newman expresses amazement at the program's growth and the state's support. The number of case managers has grown from 10 to 18 in three years, and the case management fees to physicians can be as high as $5 per patient -- twice what they were. Even that fee does not approach the true cost that intensive management of chronically ill patients entails. "You can't manage someone who's really sick in 15 minutes," says Torlen Wade, of the North Carolina Foundation for Advanced Health Programs. "You can hardly even do an evaluation of the medicine they're on."

There are other significant challenges. Up to 60 percent of patients with chronic illnesses also suffer from depression. Yet case managers have few mental health resources to draw on.

That said, North Carolina knows that it has created something that is becoming a model for what a state can do to cure some of the ills of the health care system. "We are focused on key priorities," Newman says. "That's how we've thrived.