The North Carolina treasurer's plan to tie hospital and physician payments for state employee health services to a percentage of Medicare stalled in the state House of Representatives, which could spell doom for the proposal.
The state's House passed a bill this week that would halt the treasurer's plan. If the Senate also passes the bill blocking the reference-pricing model from going into effect, the treasurer and the board of trustees that governs the North Carolina State Health Plan will be kicked back to the drawing board to grapple with a health plan set to run out of money in the next five years.
While hospitals in North Carolina praised the bill as a collaborative approach for solving the health plan's issues and blast the alternative as arbitrary cuts, Treasurer Dale Folwell says the change would save workers and taxpayers hundreds of millions of dollars while shining a light on providers' opaque pricing practices.
"What we're trying to do is increase transparency and push the power out to the consumers," Folwell said. "House Bill 184 does all the opposite things."
The bill would stop the state health plan, which covers more than 700,000 workers, from moving to a reference-based pricing model until at least 2021 and require it to reimburse hospitals and doctors as it does today. That would exacerbate the health plan's net loss to the tune of $429 million to $591 million over the next three years, and would likely lead to an increase in state appropriations in the long term, according to legislative actuaries.
The bill would also create a joint legislative study committee to look at alternative ways to redesign the health plan using new practices and payment methods. The treasurer, who is charged with running the state health plan, would be a non-voting member of that committee.
Hospitals like that idea. They are ready to "develop a modern plan model that focuses on supporting members in managing and improving their health, providing the state and members with cost transparency, and lowering overall costs to the state and taxpayers," Steve Lawler, president of the North Carolina Healthcare Association, said in a statement this week.
But Robert Broome, executive director of the State Employees Association of North Carolina, said the study committee is simply "window-dressing."
"The central goal … is to block the use of reference-based pricing and to lock the treasurer and the state health plan into the current system that is allowing state employees to be overcharged for their healthcare," he argued.
The association is calling on the North Carolina Senate to reject the bill, and the association might get its way. A spokesman for Senate leader Phil Berger, a Republican, said he would be "hesitant to involve the legislature in micromanaging a plan that we authorized the treasurer to manage just a few years ago."
The North Carolina General Assembly administered the state health plan until 2011, when it handed that authority over to the treasurer's office. Folwell took office in 2017 and saw a need to tame spending, as medical and pharmacy claims were rising at a rate that far outpaced the health plan's annual budget increase.
Reference-pricing would solve problems, he explained. It would save taxpayers $300 million and reduce employee out-of-pocket healthcare costs by another $60 million, as well as eliminate the variation in hospital and physician prices for the same services. And it would bring those prices out into the open so workers could make better choices when seeking healthcare services.
Initially, Folwell set the rate that he would reimburse providers at 177% on average for inpatient and outpatient services; that figure has since been increased to 182% to provide more funds to rural facilities, he said.
But hospitals oppose reference-based pricing. The North Carolina Healthcare Association estimated the treasurer's plan would cost hospitals $450 million per year on average, and several hospital CEOs said the plan could lead them to cut services or even close facilities, particularly in rural areas. They advocated instead for the state health plan to work with them on adopting value-based care programs to reduce spending.
The potential for rural hospital losses struck a chord with Republican Rep. Josh Dobson, the co-sponsor of H.B. 184.
"I come from a rural, underserved area of our state. When you come from where I come from, a $250 million to $300 million reduction across rural areas of our state is something that would be very tough to take," he said, referencing the projected savings to the State Health Plan under the reference-pricing strategy. "I'm all about transparency; I'm all about getting a better handle on what is being paid, but I want us to do it in a way that does not jeopardize healthcare in underserved areas in North Carolina."
Indeed, some hospitals would lose money under the treasurer's reference-based pricing plan. But others could profit from the changes, economists and researchers said. Short-term hospitals in North Carolina brought in average profit margins of 11.7% in 2017, according to a Modern Healthcare analysis that excluded critical-access hospitals.