The health insurance plan for more than 727,000 North Carolina employees is making a big change. Starting in 2020, the state will use Medicare rates as a starting point to decide how much to pay doctors and hospitals for care. Montana made a very similar change a few years ago and saved a lot of money.
Under the current system, North Carolina contracts with Blue Cross Blue Shield of North Carolina and the company negotiates how much it pays hospitals and doctors for procedures. But those rates are considered confidential.
Therefore, Treasurer Dale Folwell doesn’t know how much the state health plan is paying for individual surgeries or doctors’ visits. So he’s trying the same approach his counterpart in Montana took a few years ago. The plan sets the rates, and tells doctors and hospitals what it will pay them. Marilyn Bartlett led the change starting in 2014.
“I think it’s a disruption because this is the method that the hospitals have always used, to be able to come up with their own charge master and negotiate with insurance companies for their discounts," she said. "So you are shaking the market.”
At the time, Montana lawmakers said the state health plan needed to get its spending under control for its 31,000 state employees or it would run out of money. Bartlett looked at the data and found the hospitals represented a large part of the spending. She knew she needed to get those costs under control, so she decided to use Medicare rates as a reference point. Bartlett said she offered to reimburse hospitals more than double that amount, which was still less than what some providers were getting paid before.
“So we would say I’m not even going to get into the argument that you can’t make a profit or you can at Medicare. There are articles out there that say some hospitals do make a profit and most of them are not-for-profit hospitals,” Bartlett said. “I just said we're offering more than double that and if that’s not going to work, tell us why. What’s the reasoning?”
Bartlett met a lot of resistance from hospitals, doctors, lobbyists and even some lawmakers. And there were a few holdout hospitals that hadn’t yet signed onto the plan by the time it launched in 2016. But she said all eventually agreed and signed on. That’s because state health plans are so large, they have significant market power.
Bartlett doesn’t know the current cost savings because she now works in a different part of state government. She projected within the first 18 months of the change, she’d save the state about $16 million. She also said for three years, state employees didn’t have any rate increases.
She’s been getting calls from governors and health plan administrators in other states, including those in North Carolina, wanting to learn about how she did it. She warns be prepared for pushback.
“I mean you are just going to get hit from all angles from people who think they have better solutions," she said. "You’ll get hit by lawyers that say you can’t legally do this. It’s just going to come from everywhere."
"I would say just keep your goal in mind," Bartlett continued. "Stay focused. Have each other’s back and be open to hearing what might come forth. Be open to hearing from the hospitals.”
That pushback has already started in North Carolina. The North Carolina Medical Society and the North Carolina Healthcare Association both oppose the plan and say they have other ideas about how to save money. The medical society said in a statement that “radical cost-cutting measures” could negatively impact access to care for state employees.
Treasurer Dale Folwell said providers started receiving information about new reimbursement rates, which on average are 177 percent higher than Medicare rates. If providers don’t agree to the rates, Folwell said, they’ll no longer be considered in-network.
The state health plan spends over $3.3 billion a year and Folwell estimates these changes will save the plan about $300 million. He acknowledges that some providers will get less, but others — like primary care doctors and mental health practitioners — could see higher reimbursement rates.