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By Mark Tosczak

State Treasurer Dale Folwell plans to switch the health plan for state employees and teachers to a new payment system in 2020, something he estimates will save the plan $300 million per year and health plan members around $60 million.

But the state’s hospitals say Folwell’s proposal, which would peg fees the health plan pays for more than 720,000 state employees and their families to Medicare rates, will punish them, cutting what they earn from state employees and hurting communities across the state.

“This is, you know, an approach to just reduce rates, versus an approach to improve people’s health, improve the health of communities,” said Steve Lawler, president of the North Carolina Healthcare Association, which represents hospitals. “So it’s a simplistic approach to a complex problem that doesn’t really get at the heart of the issue.”

Folwell noted that while his proposal cuts payments to some providers, others — including mental health providers, independent primary care physicians and critical access hospitals — would see increases.

Unwritten agreement

The new proposal, endorsed last week by the State Health Plan’s board of trustees, pits Folwell against some of North Carolina’s most powerful health care interests, including hospitals and the N.C. Medical Society, which represents doctors.

Lawler says the plan would undermine a kind of unwritten compact between the government, health care providers and insurance companies. Hospitals have long held that they charge employer-based health care plans, including the State Health Plan and other commercial insurance plans, more to make up for losses incurred when serving Medicare and Medicaid patients and uninsured patients.

Folwell doesn’t see that as a good thing.

“[They] have been taking the profits from the state employees and the taxpayers of this state, and shifting those profits to pay for other things that they want to do with their money,” he said.

Hospitals worry that if the SHP shifts to reimbursements tied to Medicare rates, other employers might follow suit.

“Financial shortfalls are associated with our government payers and now our proposed state health plan,” Roxie Wells, president of Hoke Healthcare and Bladen Healthcare, told the State Health Plan board at last week’s meeting. “If this plan is enacted, we can expect private payers to follow suit.”

Medicare-reference reimbursements

Under Folwell’s plan, hospitals, doctors and other health care providers who sign on to a new SHP providers network would receive reimbursements based on Medicare rates. Though individual payments will vary based on numerous factors, overall, the state says reimbursements should work out as follows:

Source: State Health Plan letter to providers

Critical access hospitals are small, rural hospitals that the federal government approves for enhanced Medicare funding as a way of supporting emergency room and other critical medical services in isolated communities.

Folwell said he and his staff decided to use Medicare because its reimbursement rates are transparent and public. The federal government adjusts them annually, and reimbursements take into account the cost of labor, whether a hospital is in a rural area, the complexity of individual patients’ illnesses, and other factors.

How reimbursement cuts will affect individual hospitals and doctors varies widely, because the SHP now pays different amounts to different providers — even for the same services.

Unknown prices

Traditionally, the SHP has operated much like the insurance plan of any large company, with North Carolina hiring Blue Cross and Blue Shield of North Carolina to create a provider network and manage payments to those providers,while the SHP sets the terms of service.

Blue Cross pays providers based on reimbursement contracts it’s negotiated with them. But details of those contracts are secret so that even though the SHP pays the bills, officials like Folwell can’t know exactly how much, for example, a knee replacement surgery done at UNC Health Care in Chapel Hill should cost compared to the same operation performed at Duke Medical Center in Durham.

Folwell has complained vociferously about this lack of transparency. Earlier this year he filed a public records request with UNC Health Care, asking the state-owned hospital system to provide data on exactly how it spends the roughly $300 million per year it earns from the SHP.

The document he got back — the health system’s contract with Blue Cross NC — had many words, sentences and entire pages blacked out. In some places, even seemingly innocuous details, such as the date the contract was signed, were redacted.

At Monday’s meeting — and in other settings — Folwell has brandished those redacted pages to make his point: The state has no way of knowing for sure whether it’s actually getting charged the prices it should.

Data the SHP has collected suggest reimbursement rates can vary wildly.

Payments for hospital inpatient services, for example, range from 85 percent of Medicare rates to 318 percent. Reimbursements for professional services ranged from 65 percent of Medicare rates to as high as 994 percent — nearly 10 times what the federal government pays.

That means that while some providers, especially hospitals, will likely see rate cuts, others may see increases in what they’re paid.

Mental health providers and substance abuse counselors, for example, currently are reimbursed at a median rate of 120 percent of Medicare, health plan officials say. The new proposal would lift average fees to 143 percent of Medicare.

Likewise, in the current system, independent primary care physicians earn average rates that are 117 percent of Medicare, while primary care doctors affiliated with health systems earn 145 percent. Under the new rates, both groups would get increases in the fees they’re paid, but independent primary care physicians would get bigger bumps.

NC Healthcare Association head Steve Lawler and Roxie Wells, president of Hoke Healthcare and Bladen Healthcare made their objections to State Treasurer Dale Folwell’s plans clear outside last week’s meeting of the State Health Plan board of trustees. Photo credit: Rose Hoban

It’s unclear how the new reimbursement rates might affect specialists, such as surgeons and cancer doctors.

The N.C. Medical Society on Wednesday issued a statement opposing Folwell’s plan.

“Over the past 40 years unilateral rate cuts to physicians and health systems have not worked to achieve long-term savings,” Robert W. Seligson, CEO of the group, said in the statement. ”Rather, rate cuts often result in reduced access to care for patients, particularly in rural areas, and jeopardize the financial stability of smaller physician practices and health systems.”

Narrow networks ahead

Between now and July 1, 2019, the state, through Blue Cross, will work to enlist providers for its new provider network. Hospitals, doctors and other caregivers can either choose to join, accepting the new Medicare-based reimbursement rates, or decline. Those that don’t join will be out-of-network for state employees, and thus more expensive for those patients.

Lawler warned the state will end up creating a “narrow network” that could limit choice or, if patients do go to out-of-network facilities, result in higher costs.

“For patients and families that can’t leave their communities, and [who] go to their physician or hospital that are out of network, it’s going to cost that individual more,” Lawler said. “And if that patient and family chooses to leave their community to remain in network, that’s lost productivity.”

Folwell, however, pointed out that other health care plans in the state already limit their provider networks. When Blue Cross announced its 2019 Affordable Care Act plan premiums in August, it struck a deal with UNC to serve patients in the Triangle. Duke and WakeMed were left out of the arrangement.

The new network — and new rates — could face political obstacles before next summer, however.

Lawler said the NCHA will work with the legislature, “in regards to, you know, the overall implication of what it means.”

He added that the new plan was contrary to the Legislature’s efforts to rebuild rural communities in the wake of this fall’s hurricanes.

Folwell said he wasn’t concerned about legislative interference.

“Am I concerned about a member of the house or the senate filing a piece of legislation that raises the cost of health care on the citizens of the state and makes it less transparent?” he asked. “No.”

Lawler also said his group would work to develop an alternative plan.

“We think we’ve got the best ideas, we’ve got practical solutions,” he said. “We’ve not been given the opportunity to sit down and put forth a plan and a proposal that allows us to leverage those things.”

During the summer, Folwell invited groups representing state employees and health care providers — including the NCHA — to a meeting to discuss ways to control State Health Plan costs. Lawler said a member of his staff attended that meeting.

“We brought them in a room and we told them about the fact that we’re on an unsustainable course, that we think that having health care that is not only successful but it’s affordable, which is really one and the same thing, is important,” Folwell recounted.

Then he challenged the hospitals: “Would you please give us some examples of how we can cut 15 percent out of this spend?

“We didn’t receive any concrete examples of that.”

Mark Tosczak

Mark Tosczak has worked as a writer and communications professional for more than 20 years, including stints as a newspaper reporter and editor, think tank communications director, marketing agency vice...

2 replies on “No More Negotiations: State Health Plan Wants Clearer Process, Lower Prices”

  1. Hip Hip Hooray for the State Treasurer! Reference based pricing is the most fair Honest and absolutely transparent method of paying for healthcare services that exists. It ends the abuses of hospital pricing that has been based on non justified increases to their fee schedules/chargemaster for decades. Hospitals make Money on Medicare and Medicaid. The myth that paying them 160-225 % of Medicare represents a bigger lie than you can keep your health plan and Doctor when Obamacare was created.
    The NC Medical Society has lost its way but when we realize half their dues are being paid by Hospitals we understand why they issue a statement not supported by facts. Paying rural physicians in private practice 160% of Medicare will represent an increase for most of them and ensure their financial viability for many years. RBP is the best idea ever for honesty transparency and accountability in rates. The unseen benefit for taxpayers and State Employees is lower out of pocket costs and lower premium increases in the future. Premium increases will no longer be padded by increases in administrative costs used to create another BCBS Millionaire on the staff.
    Kudos to Mr Folwell

  2. It is ridiculous for him to say there will be no more negotiation because there hasn’t been any so far. He Brough a small group into the room to lecture them. As a matter of fact, Medicare, Aetna and Blue Cross, as well as other payers, are all involved with providers in transitions to value-based care that are focused on removing excess utilization rather than paying less per click to providers. That is the future of healthcare finance. I’m not sure why he isn’t part of that conversation.
    As for reference-based pricing, that isn’t problematic in and of itself. But the mark-up factor is wholly inadequate for most providers to continue to maintain access to 21st century care for state employees and their families.

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