Some Are Skeptical of North Carolina's Reference-Pricing Move

by Leslie Small

Fed up with rising medical costs and the opacity of payer-provider rate negotiations, North Carolina is shifting its health plan for state employees and teachers to a reference-pricing model that ties payments for health care services to Medicare rates.

The new rates for various categories of services will average out to 177% of Medicare's fees, down from a current average of 213%, North Carolina Treasurer Dale Folwell (R) told The Wall Street Journal. Folwell expects the move to generate savings of $300 million, according to a press release.

Between now and July 1, 2019, the state, through Blue Cross and Blue Shield of North Carolina, will try to enlist providers for its new network, according to North Carolina Health News.

"North Carolina is unique in that they're trying to use reference pricing, which is not something that we have seen most payers — almost any payers in the country, really — embrace, other than Medicare," explains Caroline Pearson, a senior fellow at NORC at the University of Chicago.

Jeff Dobro, M.D., U.S. clinical services and innovation strategy leader for the consulting firm Mercer, says North Carolina's strategy for its State Health Plan is both "unusual and pretty aggressive."

"The first challenge is not every hospital has to accept this," he says. Going from an average of 213% of Medicare rates to 177% represents a significant cut, he points out.

Another major concern is the risk to patients, who may still need to use hospitals and other facilities that end up being out-of-network — and thus significantly more expensive — once the State Health Plan revamps its provider network, Dobro says.

Pearson says she's skeptical that North Carolina's move will spark a larger trend among private insurers.

"Payers are always trying to figure out ways to bring down prices, and payers always want to exert as much leverage as they can on providers to bring down prices," Pearson says. "The flip side is providers say that they're already taking very low rates from Medicare and Medicaid and they need to sort of make up those rates with commercial payers."

From Health Plan Weekly