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November 13, 2018

North Carolina wants to save $300M a year by pegging reimbursement to Medicare rates—but hospitals are pushing back

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    Hospitals in North Carolina are pushing back against a plan to tie what the state pays for workers' health care to Medicare's reimbursement rate—a move that hospitals say could jeopardize access to care, Anna Wilde Mathews reports for the Wall Street Journal.

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    About the proposal

    Last month, North Carolina Treasurer Dale Folwell (R) announced that the state in 2020 plans to shift the North Carolina State Health Plan, which covers about 727,000 North Carolina residents to a government pricing model that basis reimbursements on a percentage of Medicare's payment rates. According to Wilde-Mathews, the shift would eliminate the current commercial-based payment model and increase transparency by eliminating behind-closed-doors negotiations between health insurers, health care systems, and physician groups that are currently used to set reimbursement rates.

    Folwell's office estimates the new payment rates would average about 177% of Medicare's fees, compared with the current average of about 213% of Medicare's fees. State officials estimated those payment rates could represent an increase in reimbursements for some rural hospitals and independent primary care physicians.

    According to Folwell's office, the state would generate about $300 million in savings a year and state employees would generate about $66 million in savings a year.

    "We're trying to fix something that's unsustainable," Folwell said. He added that under the current system, "[t]he customer has no idea what the payer is paying."

    Hospitals oppose the proposal

    However, hospitals in the state strongly oppose the proposal.

    Julie Henry, a spokesperson for the North Carolina Healthcare Association, said some hospitals do not consider the proposed rates sustainable. Henry said the proposed rates would have a "devastating" financial effect on about 20 hospitals currently operating with negatives margins.

    Henry added hospitals are worried other insurers and employers will ask for similar payment rates. According to Henry, "This kind of change, and the ripple effects that might come from that, put hospitals and access to care at risk."

    Henry said hospital officials are engaged in talks with to state lawmakers "to determine what is a potential course of action they might look at to encourage a more workable solution."


    According to Wilde-Mathews, health policy experts across the country are closely following the discussions.

    Montana is the only other state that has implemented a similar plan, and the rates there are higher than North Carolina is seeking, averaging 230 to 240% of Medicare's rates. The state generated about $10 million in savings over a two-year period.

    Amy Jenks, the acting administrator overseeing the state employee health plan in Montana, said it "definitely was a game of chicken" getting hospitals to agree to the payment rates.

    According to Wilde-Mathews, hospitals' opposition could make it difficult for North Carolina to find a network of hospitals willing to accept the payment rates, Wilde-Mathews reports.

    Jeff Levin-Scherz, a leader of the health management practice at Willis Towers Watson, said, "The state of North Carolina, the treasurer, is sending a powerful signal, but it will be hard to implement. The danger is if [hospitals] don't sign on the dotted line." If hospitals refuse to agree to the new payment model, Folwell said the hospitals will simply not be included as in-network providers under the state employee health plan (Wilde Mathews, Wall Street Journal, 11/4).

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