Another State Adopts Reference Based Pricing Strategies

First it was Montana, a smallish state somewhere up north of us, who adopted Reference Based Pricing for their state health plan (Montana Adopts Reference Based Pricing Strategies). The little lady up north has big brass cojones! (Tough Negotiator Saves State Millions In Health Care).

Next there is California which is currently considering similar efforts. (California Assembly Bill 3087 Would Control Prices in the Commercial Market).

Now there is yet another state adopting Reference Based Pricing for their state employee plan. They must have heard about the little lady in Montana.

I thought Texas would lead the country on this. After all, several of us have been making noises in Austin over the past two years. Has Texas Lost It’s Cojones?.

– Bill Rusteberg

State Health Plan Launches New Provider Reimbursement Effort 

Oct 4, 2018


State Treasurer Dale R. Folwell announced the State Health Plan will launch a new medical reimbursement strategy for North Carolina providers that care for plan members. This effort is part of a longer term strategy to take advantage of the plan’s “largeness” to keep rising health care costs under control while promoting quality care, transparency and affordability.

For decades, the state plan has used Blue Cross and Blue Shield of North Carolina’s commercial network of providers. Blue Cross NC and medical providers consider fee schedules, what they charge, associated with this network to be “confidential.” Subsequently, the fees charged for medical services are not provided to the plan or its members despite the fact that there are state and federal guidelines that demand transparency.

“We’re going to be asking a little from a lot of people, and a lot from a few. I’m asking health care providers in the state to help us sustain this benefit for teachers, public safety officers and other public servants,” Folwell said. “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. This new pricing model will help us ensure the delivery of quality care to our members and better control health care costs, preserve the sustainability of the Plan, and promote transparency for Plan members and state taxpayers like them.”

Starting on January 1, 2020, the plan will move away from a commercial-based payment model to a reference-based government pricing model based on a percentage of Medicare rates to reimburse health care providers for their services.

The state plan is a government payer like Medicare. Medicare is the largest health care payer in the country and the plan is one of the largest in the state. Medicare also provides a standard reimbursement measurement that is transparent and adjusts for provider differences. Reference-based pricing is intended to provide transparency in provider rates by indexing fees to a published schedule. The movement to a referenced-based pricing model aligns the Plan appropriately as a government instead of a commercial payer.

The overall goal of the plan is to offer quality health care to its members and to generate savings of $300 million, making it possible for the plan to reduce premiums and make the plan more affordable for state employees and their dependents. This will result in savings for plan members of over $60 million.

The state plan, with an annual budget of $3.3 billion, looks forward to working with health care providers on this strategy that creates a system that is more transparent and predictable than how providers are paid today. The plan also expects that some providers will see fee increases under the new rate structure, such as Primary Care Providers, Mental Health Providers and Critical Access Providers. 

“We have enough money, needs and providers to lead the nation in improving the quality of care, increasing transparency and reducing costs,” Folwell said. “Many have been talking about this for years and calling for ‘someone’ to do ‘something’ about this problem. The time to act is now.”

Specifically, Folwell noted that it’s been:

  • More than seven years since, the State Employees Association of North Carolina asked the state for a transparent billing system by linking provider reimbursement rates to Medicare (pg.12). 
  • Six years since the Pulitzer-nominated Raleigh News and Observer and Charlotte Observer published a series on how non-profit hospitals are making a fortune off the state’s citizens during a recession. 
  • Seven years since the Office of State Auditor issued a performance audit of the Plan noting that “… the Plan is at risk for overpaying medical claims because the Plan’s auditors do not have access to BCBSNC contracts and cannot independently verify that the Plan receives the proper contractual discounts from BCBSNC’s provider network.” 
  • Forty years since State Treasurer Harlon Boyles said “… runaway medical costs, and the absence of actuarial findings of retiree medical benefits, will soon result in public-sector obligations that could easily dwarf the unfunded liabilities of the public-provided pension and retirement plans.” 
  • Decades that state employees, retirees and taxpayers have been subsidizing hospital profits through “cost shifting” despite the fact that the state plan is a government payer.

Letters announcing this strategy were sent to providers this week, outlining their new reimbursement rate. Providers were asked to express their interest in partnering with the plan on this new rate strategy. Once the new transparent rates are in effect, providers choosing not to partner with the plan will no longer be considered in-network providers for the plan and its members, which will result in higher out-of-pocket costs for members who seek care with out-of-network providers.

“It’s not enough to just talk about it, someone has to fix it,” Folwell said. “If they are not willing to provide health care to teachers, public safety officers and others who provide the core functions of government at a reasonable profit, then shame on them.”

The State Health Plan, a division of the N.C. Department of State Treasurer, provides health care coverage to more than 727,000 teachers, current and former lawmakers, state university and community college personnel, retirees and their dependents.