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John Hood: Change must come for NC state health plan’s opaque pricing

By John Hood

RALEIGH — When State Treasurer Dale Folwell took office in early 2017, he found North Carolina’s state health plan to be in even worse shape than he originally thought.

Costs were soaring. The terms of the plan’s contracts with medical providers were unclear. And the unfunded liability for retiree health benefits is enormous, in the range of $35 billion.

One of the strategies Folwell and his team developed in response is the Clear Pricing Project (CPP). It requires providers wishing to serve teachers and state employees to accept fixed rates — the latest offer was about double the reimbursements that Medicare pays — as a means both of increasing transparency and reducing cost. Nearly 30,000 physician practices and other providers signed on to the CPP. But North Carolina’s largest hospital chains refused.

To avoid leaving public employees without in-network access to hospitals, Folwell has backed off for now. But he’ll keep working on the problem.

He has no choice.

The conflict isn’t really a partisan or ideological one. The State Employees Association of North Carolina backs the CPP. Although some Democrats and activist groups have been wishing Folwell the worst in his battle with hospitals, the better to weaken his reelection bid in 2020, plenty of others across the political spectrum recognize that without reform both taxpayers and public employees will pay much more to keep the health plan afloat in the coming years.

Hospitals argued that if the state health plan paid them no more than double the reimbursement rates for Medicare, they’d end up losing money on some lines of business — and that entire facilities, particularly in rural areas, would become unsustainable. They also argued, more persuasively, that Medicare’s rate structure is convoluted and inequitable, favoring some procedures and specialties over others.

If the dispute were only about reimbursements, however, the hospitals could have countered with a higher and more rational rate structure. They didn’t. That’s because hospitals fundamentally reject the model of selling their services based on published rates.

They want to keep their prices, discounts and contracts confidential. They don’t want some payers to see what others are paying. They don’t want their competitors to see, either.

This much is true: the way we pay for medical services, especially in hospital settings, is screwy and unsustainable.

Private, third-party payers — commercial insurance pools as well as self-insured employers for which insurers act as administrators — are charged more than Medicare and much more than Medicaid. Large bulk-buyers often get better deals than small ones or individuals. Critics of the CPP suggested that if North Carolina’s state health plan went to fixed published rates, that could start to unravel the whole financing system.

The truth is, however, that the system is already unraveling. What comes next? Whatever you think that answer is, it will require a higher level of transparency than we currently get from hospital providers, in particular.

As the American Enterprise Institute’s James Capretta put it recently in Health Affairs: “Given the strain high costs are placing on employers, workers, and taxpayers, some disruption is called for to facilitate new strategies and perhaps new policy initiatives to help bring costs under better control.”

Capretta and other advocates of transparency don’t have unrealistic expectations about how many individual patients will access, comprehend and employ the prices to shop around.

Rather, they think transparency will lead to large-scale entrepreneurial responses.

“The real aim is to enable more outside scrutiny of pricing across competing facilities and thus facilitate strategies in the private sector to lower overall costs of care,” he wrote.

Contrary to progressive mythology, other countries don’t deliver higher-quality care than we do at a lower cost.

Properly adjusted for factors such as homicide and accident rates that don’t speak to quality of care, America’s health outcomes are among the best in the world. But the cost of our system is exorbitant. As the old song goes, “you can bet just as sure as you live — something’s gotta give, something’s gotta give, something’s gotta give.”

John Hood is chairman of the John Locke Foundation and appears on “NC SPIN,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.

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