North Carolina’s Brewing Battle Over Health Care Value

“We’ve got 9 million taxpayers and 720,000 participants in this plan who understand that they aren’t consuming health care, it’s consuming them.” — Dale Folwell, N.C. Treasurer

Article Referred by Mike Dendy

December 19, 2018 Brian Klepper Opinion

State Treasurer Dale Folwell speaks at a Council of State meeting in Raleigh in 2017. Folwell says of his current push for transparency, “We’re doing what’s necessary at this point in our state’s history because others didn’t.”

“We’ve got 9 million taxpayers and 720,000 participants in this plan who understand that they aren’t consuming health care, it’s consuming them.” — Dale Folwell, N.C. Treasurer

In North Carolina, a storm is brewing that highlights the health care industry’s influence and stranglehold over public dollars. An experienced civic-minded reformer with clout has emerged. State Treasurer Dale Folwell is a former legislator and CPA, and he now 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 health care purchaser in the state.
Folwell has called the state health plan unsustainable. The plan has a $35 billion unfunded liability because the General Assembly promised retirees free future health benefits without establishing a funding mechanism. Folwell has made it his mission to bring reason and stability to this program.

Beginning Jan. 1, 2020, Folwell proposes to switch the health plan’s reimbursement method to reference-based pricing. The approach has been around a decade and is gaining momentum with employers. In our state’s case, the new method would pay about 177 percent of the current Medicare reimbursement. Folwell’s plan — 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. This disconnect can result in overbilling. Folwell says there are laws on the books that require the administrator to reveal pricing information.

Not surprisingly, the state’s health care lobby is gearing up to protect its turf. Rep. Josh Dobson (R-McDowell) is expected to file a bill that would block Folwell from instituting the plan. Steve Lawler, president of the N.C. 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 health care 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 health care. 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 rank-and-file state employees and taxpayers. When challenged, there is every reason to believe that most politicians and business leaders will openly support the public interest over the health care 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.

As health care 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 dramatically increase. The initiatives in North Carolina and Montana may be the leading edge of a drive by purchasers exercising their new-found market leverage. There’s every reason to believe they can be replicated throughout the country by governmental and nongovernmental purchasers, fundamentally moving our broken health care system in the right direction.

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 health care 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 he might achieve something meaningful. If government and business leaders follow his lead, it would be a key first step to dramatically changing our health care system for the better.

Brian Klepper is a Charlotte-based health care analyst and EVP of The Validation Institute.