Analysis: N.C. House of Representatives stalls reference-based pricing plan

Modern Healthcare is reporting, “the North Carolina treasurer’s plan to tie hospital and physician payments for state employee health services to a percentage of Medicare stalled in the state House of Representatives, which could spell doom for the proposal. The state’s House passed a bill this week that would halt the treasurer’s plan. If the Senate also passes the bill blocking the reference-pricing model from going into effect, the treasurer and the board of trustees that governs the North Carolina State Health Plan will be kicked back to the drawing board to grapple with a health plan set to run out of money in the next five years. The bill would stop the state health plan, which covers more than 700,000 workers, from moving to a reference-based pricing model until at least 2021 and require it to reimburse hospitals and doctors as it does today. That would exacerbate the health plan’s net loss to the tune of $429 million to $591 million over the next three years, and would likely lead to an increase in state appropriations in the long term, according to legislative actuaries. However, the prospects for the bill in the state senate are less clear. The North Carolina State Employees’ association is calling on the North Carolina Senate to reject the bill, and the association might get its way. A spokesman for Senate leader Phil Berger, a Republican, said he would be ‘hesitant to involve the legislature in micromanaging a plan that we authorized the treasurer to manage just a few years ago.’ Reference-pricing would solve problems, he explained. It would save taxpayers $300 million and reduce employee out-of-pocket healthcare costs by another $60 million, as well as eliminate the variation in hospital and physician prices for the same services. And it would bring those prices out into the open so workers could make better choices when seeking healthcare services.”

Takeaway

Montana was the first state to base payment rates on a percentage of Medicare for its employees. And my bet is it won’t be the last given the pressure healthcare cost growth is putting on the finances of states and their employees. In addition to North Carolina and Montana, I’m aware of at least three other states – Colorado, Indiana, and Nevada – that are at some stage of exploring the concept. 

Although the model in Montana is billed as creating transparency and standardizing rates across providers, that’s a bit of a misnomer. From what I can gather, there’s still a degree of payment variation between different providers for the same service. This means providers will need to more aggressively focus on internal cost-reduction efforts. If you’re interested in the details of the Montana state employees’ contract and the steps providers are taking to reduce cost, I recently wrote a pieceon it, which was published by HFMA.