By Mark Tosczak
State Treasurer Dale Folwell’s plan to cut more than $300 million in annual spending from the State Health Plan, which covers more than 700,000 state employees, public school teachers, retirees and their families, will be under scrutiny this week at the Legislature.
The House Health Committee on Tuesday is scheduled to hear from Folwell as well as from the North Carolina Healthcare Association, which represents the state’s hospitals and opposes the treasurer’s plan.
Under the new system, the SHP would reimburse health care providers a fixed percentage more than what Medicare pays them. The SHP is already moving to implement the plan, working with Blue Cross and Blue Shield of North Carolina to recruit hospitals, doctors and other providers into a new network. Blue Cross is contracted with the state to administer the health plan.
Meanwhile, NCHA and its hospital members have criticized Folwell’s plan as potentially damaging for state employees and many communities — especially rural communities — across the state.
“What we’re saying is we believe there’s a better path forward for the State Health Plan,” said Julie Henry, a spokeswoman for the NCHA. “If that requires legislative intervention to make that happen, then that’s what we would like to see happen.”
Hospitals push ‘value-based’ care
Hospital executives say they understand Folwell’s concern about rising health care costs, but they argue there are better ways to control those costs.
“I understand the premise that we need to reduce costs and eliminate waste in health care,” said Terry Akin, CEO of Greensboro-based Cone Health. “We’re not going to achieve that through arbitrary cuts in reimbursement.”
Instead, Akin and others argue, the state should embrace methods that the federal Centers for Medicare and Medicaid Services have been pushing for several years, and which are now being adopted even by some private payors. Chiefly, that means shifting to “value-based care,” where providers are reimbursed in part on their ability to keep patients healthy.
This would eventually supplant the system now used by most health insurance plans, including the SHP. That current system is based on fee-for-service reimbursements, where providers are paid based on the service they provide, whether that’s knee surgery, an MRI scan or an annual check-up. Critics of fee-for-service argue that it provides little incentive for providers to keep people healthy, as most doctors and hospitals collect most of their fees when someone is treated for an illness or injury.
Some providers back Folwell
Though hospitals have attacked Folwell’s plan, not all health care providers are opposed to it. Under SHP’s new payment plan, independent physicians, mental health counselors and a few small, rural hospitals that are federally designated as “critical access hospitals” could see their payments go up.
Dr. Dale Owen, a Charlotte cardiologist and CEO of the 88-physician Tryon Medical Partners group, said he’s met with Folwell to discuss the SHP and that he and other Tryon doctors support the move.
“We believe that it is a major step in the right direction,” he said. “Quite frankly, I think that the taxpayers who are paying the state employee health care plan, you know, are paying, they’re paying too much.”
Tryon Medical Group was formed last year after Owen and 87 other doctors who worked for Atrium Health quit the health care system to form their own entity.
“Everywhere hospitals go, the charges and costs go up,” he said. “Wherever they merge, wherever they buy physician groups and so forth, the cost goes up. That is not sustainable.”
The state needs good hospitals, Owen said, but “I don’t think we need to spend as much in all the bureaucracy that goes on in hospital systems.” Some health policy research supports Owen’s contention.
Value-based care being tested
Cone has, for several years, operated an accountable care organization for Medicare patients. Under that system, the hospital has the potential to earn back from the federal government a share of the money saved by delivering higher quality, lower cost care to a group of Medicare patients.
In 2018, Cone’s ACO, the Triad HealthCare Network, earned an extra $13.2 million by meeting benchmarks for quality and cost. The year before, the ACO earned an extra $10.7 million.
Networks like Triad HealthCare are still the exception, rather than the rule. But value-based care is beginning to spread into privately funded health care.
Last month, for example, Blue Cross announced that it had agreed on long-term contracts with five of the state’s biggest hospital systems to move roughly half their payments from fee-for-service to value-based care by 2020.
Though health care that’s cheaper and higher quality is attractive, value-based care can’t deliver the cost cuts that Folwell’s would.
“[The SHP} would be reducing revenue to these hospitals by a very substantial amount,” said Stuart Altman, a Brandeis University health care economist who also teaches part-time at UNC’s Gillings School of Global Public Health. “There is no amount of value-based [care] that would get anywhere close to that, nothing even remotely close.”
Hospitals face tough choices
According to SHP figures, the new payment system would cut overall payments for hospital outpatient services by almost a third. Hospital inpatient services, overall, would see much smaller cuts — from an average of 158 percent of Medicare rates to 155 percent. For large health systems, like Cone, the cuts could total up to tens of millions of dollars a year.
For smaller hospitals, especially rural facilities that are often perilously close to losing money, the cuts could push them into the red, hospital executives say, unless they cut other areas of hospital spending to make up the difference.
“Based on his proposed plan, we would lose 50 percent of our current state employee health plan reimbursements,” said Kathy Bailey, president and CEO of Carolinas Healthcare System Blue Ridge, a 184-bed in Morganton.
That loss — more than $9 million per year — would force Bailey to make some tough decisions, she says.
“Nine million is a lot more than what our operating margin was last year, and more, a lot more, than what it’s expected today, this year,” she said. “If his plan goes into place, we’ll have to make some pretty tough decisions on what services we can continue to offer.”
Potentially on the chopping block, Bailey says, would be free services, such as sports medicine for local high schools and free health screenings. She would also have to evaluate whether Blue Ridge could continue to offer some specialty services that are unusual for a small hospital, such as staffing a special care nursery 24-7 with neonatologists and having an infectious disease physician and gerontologist on the medical staff.
Employers subsidizing Medicaid
Altman says part of the problem that hospitals face has been created by legislative inaction in another area: Medicaid.
After the Affordable Care Act was passed, many states expanded their Medicaid programs to cover a wider swath of low-income residents. But the North Carolina General Assembly didn’t. Plus, in North Carolina, Medicaid is relatively stingy — paying hospitals and other providers significantly less than what it costs to actually deliver care.
Cone Health, for example, earned about $209 million in revenues from Medicaid for the fiscal year ending September 30, 2018, but it still lost about $62 million on those services, according to spokesman Doug Allred.
Between low Medicaid payments and the lack of Medicaid expansion, Altman says, hospitals end up treating more uninsured patients, who frequently can’t pay for the cost of their care. So employer-based health plans make up the difference.
“They then turn around and charge the privately insured substantially — substantially — more than the cost,” he said.
And in North Carolina, the biggest employer-based health plan is the state’s.
Folwell, however, has maintained since announcing the plan last fall that the State Health Plan should be treated like a government payor — similar to Medicaid or Medicare or even the systems set up to pay for prisoner health care — rather than like a private-sector, employer-funded health plan.
North Carolina’s $6 billion Medicaid program, which covers 2.1 million people, is scheduled to shift to managed-care plans this year. But those changes won’t change who’s eligible and aren’t designed to increase overall payments to providers.