By Rose Hoban

This week, state treasurer Dale Folwell released the details of the contracts he wants North Carolina’s health care providers to sign if they want to participate in the health plan covering state employees, retirees and their families.

The contracts, part of what Folwell is calling the Clear Pricing Project, reworks the way that health care providers are reimbursed. Some providers, in particular hospitals, will feel the pinch under the plan, which pegs prices paid by the State Health Plan to those paid by the federal Medicare program for services.

Earlier this year, legislators in the House of Representatives pushed through a bill that would require Folwell to delay rollout of his pricing plan, slated to start at the beginning of 2020. The bill would also require him to sit down with other stakeholders to study the way health care providers get paid, but doing that would push off any changes to the pricing plan for at least another year.

The bill passed the House in early April, but the Senate has yet to take any action on the plan.

So, Folwell has pressed ahead.


Under Folwell’s “reference-based pricing” plan, large hospitals would receive 160 percent of the rate paid by Medicare for inpatient care and 230 percent of Medicare prices for outpatient treatment such as emergency department care, colonoscopies or X-rays. Smaller rural hospitals and so-called critical access hospitals with fewer than 25 beds would receive more: 200 percent of Medicare prices for inpatient care and 235 percent for outpatient care.

Selected changes in reimbursement for the State Health Plan under Folwell’s plan:

Electrocardiogram (EKG): 160% of current North Carolina Medicare reimbursement
Alcohol and Drug Rehabilitation/ Detox: 160% of Medicare rate
Rural hospitals – inpatient services: 200% Medicare rate
Other hospitals – inpatient services: 160% Medicare rate
Other hospitals – inpatient services: 155% Medicare reimbursement after Jan. 1, 2021
Rural hospitals – outpatient services: 235% Medicare rate
Other hospitals – outpatient services: 230% Medicare rate
Other hospitals – outpatient services: 200% Medicare rate
Kidney dialysis centers: 200% Medicare rate
Home health care:  125% Medicare rate
Medical rehabilitation hospitals: inpatient services – 155% of Medicare rate
Medical rehabilitation hospitals: outpatient services – 200% of Medicare rate
Psychiatric hospitals – inpatient services: 155% of Medicare rate
Psychiatric hospitals – outpatient services: 200% of Medicare rate
Skilled Nursing Facilities (nursing homes) – 155% Medicare rate

For urban hospitals, this could be a significant haircut. In a study of hospital claims data released this week by the RAND Corporation, researchers estimated that commercial health insurance plans paid hospitals in North Carolina, on average, 230 percent of the Medicare rate for inpatient and outpatient services combined. The RAND researchers estimated that North Carolina hospitals received as much as 350 percent of the Medicare rate for outpatient services, while only receiving about 175 percent of the federal program’s rate for inpatient care.

“We do not think it’s the appropriate path forward for the State Health Plan because it’s a short term solution,” said Julie Henry, a vice president at the North Carolina Healthcare Association, which represents hospital systems. She maintained that the better way forward was for hospitals to do more “value-based care” where they get paid for episodes of care and take on financial risk for the patient outcomes.

“We’ve been moving in that direction, Medicare is certainly moving in that direction,” she said. “I think a lot of other providers are and it just seems like the State Health Plan is not looking to modernize its approach, it’s just looking at paying less.”

Many of the state’s smaller hospitals have a more challenging mixture of payers, with greater numbers of patients being paid for by government payers such as Medicare and Medicaid, or by people who come in without the ability to pay, leaving them with slimmer profit margins. Traditionally, commercial insurers have reimbursed at higher rates that have been negotiated between hospitals and insurance companies. In smaller towns, though, hospitals have more uninsured patients and less negotiating leverage with insurers. That’s been a big factor driving many mid-sized hospitals in the state to affiliate with larger urban hospital systems.

Henry said that her organization can’t tell its members what to do or whether to sign the contracts, but she said, particularly in small towns, the contracts could make for some awkward conversations.

“In a small community, where the hospital and the school system are the largest employers, what kind of position does that put a hospital in to say, ‘I can’t take care of these people in my community, because I can’t afford this reimbursement,’” she asked.

Making the case

For his part, Folwell has maintained that the State Health Plan, which covers some 727,000 people, should act more like a government payer, that sets the prices, than like a commercial payer that can be forced in a negotiation to “take” a price set by a hospital system.

Folwell estimates his plan will save about $305 million over the two-year budget cycle, a savings of about $216 a year for each beneficiary.

Folwell has found an ally in the State Employees Association of North Carolina, which has long complained about, in particular, high premiums paid by state employees to cover family members. SEANC has been agitating for the SHP to adopt something like reference-based pricing for years in order to cut out-of-pocket costs for members.


Together with SEANC, Folwell has gone on a public relations blitz, appearing in the media, sending his liaisons to the legislature regularly and holding town halls with SEANC members.

Since he made the announcement he’d move toward pegging reimbursement to Medicare, Folwell has asserted that hospital leaders haven’t been willing to talk.

Hospital leaders say the same thing about Folwell.

Too opaque

One of Folwell’s biggest complaints has been the lack of transparency in contracts negotiated between hospitals and insurers. While his reference-based pricing would not lead to completely revealing prices, his scheme could undermine some of the secrecy that often surrounds negotiations around hospital reimbursement, because the Medicare fee schedule is publicly available.

The contracts that Folwell has put on a new website detailing his initiative stipulate that the hospital prices are not subject to the state’s trade secrets statutes, while some of Blue Cross NC’s data and information will remain confidential.

Blue Cross Blue Shield of North Carolina, which has administered the SHP and which has, at times, been criticized by Folwell for that lack of transparency has nonetheless been working with Folwell to create the new contracts for reference-based pricing.

“We provide the SHP with fully transparent information about what they pay for health services,” said Blue Cross NC spokesman Austin Vevurka. “We helped passed a law in 2016 that gives them full transparent information on the billed amounts, the allowed amounts and paid amounts for each claim.”

He noted that Folwell’s office has the right to request a third party audit of the claims data, “same as any customer with access to our Blue Options network.”

The last time the State Treasurer’s office asked for such an audit was before Folwell took office in 2016.

Correction: The article previously overstated what information would remain confidential under North Carolina’s trade secrets laws.

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Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...