After more than a year of tense negotiations, the North Carolina state treasurer has partially walked back a plan to reimburse healthcare providers for services delivered to teachers and other state employees at a percentage tied to Medicare rates.
The decision comes after many of the state's hospitals refused to sign contracts to join the new North Carolina State Health Plan Network, which would have paid them an average 196% of the Medicare rate for the same service. That rate had been revised upward several times during negotiations.
State Treasurer Dale Folwell said Thursday that he will allow the hospitals that refused to sign contracts to remain in network for the plan's more than 727,000 members and keep their old commercial rates under the current Blue Options Network administered by Blue Cross and Blue Shield of North Carolina.
In an interview, Folwell said he chose not to shut those hospitals out of the network because "our surprise billing and balance billing laws in North Carolina are not strong enough for that right now."
He said the network will still consist of the more than 28,000 providers, including five hospitals, that already signed contracts under the reference-based pricing model.
It's unclear, though, if those providers will ditch the new plan and seek to keep their old rates now that others are allowed to opt out. Gastonia, N.C.-based CaroMont Health, a health system that Folwell praised in late July for being one of the few hospitals to sign a contract, confirmed it will not be continuing with the treasurer's reference-pricing plan. A spokeswoman for Asheboro, N.C.-based Randolph Health said in an email, "We are evaluating our options and will make a decision before the deadline."
A spokesman for Tryon Medical Partners, a Charlotte, N.C.-based independent medical practice, said the practice is disappointed that most hospitals refused to sign contracts and would continue to work constructively with the treasurer to find long-term solutions for the state health plan. But the spokesman declined to say if Tryon, which was one of the first providers to sign a contract back in May, would now opt out of the reference-based pricing plan.
In total, teachers and state employees will have access to more than 68,000 providers under the revised plan starting Jan. 1.
In the announcement, Folwell applauded the providers that signed contracts but criticized those that refused.
"By spending millions of dollars to oppose us and by using cartel-like tactics, these organizations were able to convince most hospitals to boycott the state health plan," Folwell said. "If big hospitals could do this to their largest customer, just think what they can do to the individual average citizen or business. We're in a medical arms race in North Carolina. Every dollar unnecessarily or inefficiently spent on healthcare is a dollar that can never be spent on education and other core functions of government."
Folwell's Clear Pricing Project, first announced in October 2018, was meant to save costs for taxpayers and state employees while allowing for a more transparent reference pricing model that he hoped would prompt plan members to make smarter decisions when accessing healthcare. The treasurer's office said the plan would save $300 million for taxpayers and reduce state employees' out-of-pocket costs by another $60 million.
Folwell said the change to the reimbursement model was needed to keep the state health plan from running out of money by 2023.
But hospitals in the state warned the reference-pricing plan would cost them millions of dollars and lead to reductions in services or even closures. The North Carolina Healthcare Association, which represents the hospitals, said it would cost hospitals $450 million per year. It argued that the treasurer should collaborate with hospitals on value-based strategies to reduce healthcare spending, rather than slash rates.
North Carolina's acute-care hospitals—excluding critical-access hospitals—reported total profit margins in 2017 of 11.7%, up from 10.5% the year before, according to an analysis using Modern Healthcare Metrics. Some policy experts and economists doubted that moving to a reference-based pricing model would have endangered many of North Carolina's hospitals. Still, some may have lost revenue under the model, which would require them to make changes to their business models.
The North Carolina Hospital Association on Wednesday sent an open letter to the state's senators asking them to pass a bill that would prevent the treasurer from implementing the new network. The state's House of Representatives passed the legislation, known as H.B. 184, in April, but the Senate has not addressed it.
In the letter, the association warned that "an overwhelming majority of beneficiaries would be out of network for acute inpatient and outpatient care" under the state health plan and that the lack of those services would place "a crippling burden on patients and families through significant increases to their out-of-pocket expenses." The association also warned of economic hardship should hospitals and other providers be forced to lay off workers and cut services.
The association said Friday in a statement that it is pleased with the treasurer's decision and said it looked forward to working with the treasurer and General Assembly "to develop a stronger, sustainable, transparent future for the state health plan."
"Perhaps a takeaway lesson from this difficult situation is that 'process matters,' " a NCHA spokeswoman added in an email. "Process may not always matter as much as the outcome, but a well-crafted decision-making process that brings all the main stakeholders to the table upfront will usually lead to the best outcome that most will support. An issue as important and complex as securing the stability of the state health plan likely deserves to have significant thought and attention given to designing the best process to get there."