January 4, 2019
North Carolina’s Battle for Healthcare Value
North Carolina is close to adopting a "reference-based pricing" plan for state employees that could change healthcare nationally.
In North Carolina, a storm is brewing that highlights the healthcare industry’s influence and stranglehold over public dollars. An experienced civic-minded reformer with clout has emerged. Dale Folwell is a certified public accountant who served four terms as a Republican in the NC House of Representatives and was elected speaker pro tempore. Now state treasurer, he has responsibility for the State Employees’ Health Plan and its 727,000 employees, dependents and retirees (including my wife, a sign language interpreter in the Charlotte-Mecklenburg school system). The plan spends $3.3 billion annually, making it the largest healthcare purchaser in the state. “Right now, the state health plan and members spend more on healthcare to employees and retirees than is appropriated for the entire university system or for public safety,” Folwell says. He has made it his mission to bring reason and stability to that program.
Beginning Jan. 1, 2020, Folwell proposes to switch the health plan’s reimbursement method to reference-based pricing. The approach, around a decade and now gaining momentum with employers around the country, would in this case pay 177% of (or nearly double) Medicare reimbursement. The health plan’s program, called the Provider Reimbursement Initiative, would allow providers a reasonable margin but would cut an estimated $300 million annually from the plan costs and another $60 million from enrollees’ costs in the program’s first year. The health plan’s board of trustees unanimously supported the proposal.
In promoting his plan, Folwell has described some of the issues he’s faced. The most important is that, under longstanding arrangements with the state’s providers and the plan’s administrator, Blue Cross of North Carolina, the health plan can’t access pricing information on the services it’s purchasing. “I know what I’m being charged, but I don’t know what I’m paying,” Folwell explained. “For years, the plan has paid medical claims after the fact without knowing the contracted fee. It is unacceptable, unsustainable and indefensible. We aim to change that.”
“I said [to Blue Cross], I know what you are charging, but what am I supposed to pay? There is no transparency,” Folwell said. “Blue Cross would not tell me, and there are laws on the books that say they need to tell us. The healthcare system has worked long and hard to develop this broken system, and they’ve been completely successful.”
Not surprisingly, the state’s healthcare lobby is gearing up to protect its turf. State Rep. Josh Dobson, a McDowell county Republican, is expected to file a bill that would block Folwell from instituting the plan. Steve Lawler, president of the North Carolina Healthcare Association, one of a half dozen health industry associations with powerful lobbies, has claimed that Folwell has resisted discussion. But Lawler does not appear to have publicly addressed the transparency or excessive cost issues that are central to Folwell’s complaint.
While the battle is shaping up to be a high-stakes, all-out fight, the healthcare lobby may not simply get its way this time. Robert Broome, executive director of the formidable State Employees Association of North Carolina, favors Folwell’s plan and said, “The state health plan board made a very sound financial and public policy decision that will save money for taxpayers and will save money for plan members, while bringing some common sense to how we pay for healthcare. It boggles my mind that folks could actually line up and be opposed to this.”
The beauty of Folwell’s strategy is that it is grounded in doing the right thing, and he has made it very visible to the Carolina rank-and-file. When challenged, politicians and business leaders will likely have to openly support the public interest over the healthcare industry’s interest, especially an industry that has become wealthy by taking advantage whenever possible for decades.
Folwell’s bold initiative takes its cue from a groundbreaking reference-based pricing initiative by the Montana State Employees Health Plan, with about 30,000 enrollees. That program’s success has since led the Montana Association of Counties to implement a similar program. Here’s an introductory video on how that program works, and another one here explaining how the payment is calculated.
As healthcare costs have relentlessly risen, much of it due to opaquely excessive care and unjustifiable unit pricing, federal, state and local government workers around the country have seen their benefits slashed and their contributions drastically increase. The initiatives in North Carolina and Montana may be the leading edge of a drive by purchasers exercising their newfound market leverage. There’s every reason to believe they can be replicated throughout the country by governmental and non-governmental purchasers, fundamentally moving our broken healthcare system in the right direction.
See also: Avoiding Data Breaches in Healthcare
It’s also important to remember that reference-based pricing is just one of several dozen powerful quality- and cost-management arrows in a larger healthcare performance management quiver. Smart employers and unions around the country are finally beginning to go around their health plans and deploy high-performance solutions in drug management, musculoskeletal care, cardiometabolic care, imaging, allergies, claims review and many other opportunity areas for quality improvement and cost containment.
Folwell may well be the champion we need at the moment, and it’s possible he could achieve something meaningful. If governmental and business leaders follow his lead in North Carolina and around the country, it would be a key first step to drastically changing our health system for the better.