Opinion

Folwell’s hospital cost cuts could go too deep

North Carolina Treasurer Dale Folwell’s office kicked 600 people off the State Health Plan, he announced on Wednesday, April 11, 2018, after an audit found people were wrongfully listed as dependents for health insurance coverage.
North Carolina Treasurer Dale Folwell’s office kicked 600 people off the State Health Plan, he announced on Wednesday, April 11, 2018, after an audit found people were wrongfully listed as dependents for health insurance coverage. TNS

North Carolina Treasurer Dale Folwell is a certified public accountant, a careful calculator of numbers. But he’s also a bit of a daredevil who still races motorcycles at age 60.

Those divergent qualities have come together in Folwell’s bold and fast-moving plan for changing the State Health Plan. As of Jan. 1, 2020, the plan will stop paying hospitals their often widely varying prices. Instead, the plan will pay what Medicare pays for a service, plus 77 percent, on average. The plan spends $3.3 billion annually on health care for 727,000 state employees and their dependents and retirees. The changes will cost North Carolina hospitals $450 million annually, according to the N.C. Healthcare Association.

The idea has popular appeal, an aspect not lost on Folwell, a former state legislator and candidate for lieutenant governor who will face a statewide re-election in 2020. He says tying the plans’ payments to a Medicare price list plus a margin for profit will allow the plan to reduce family policy premiums and increase payments to independent primary and behavioral care physicians. It will also pressure hospitals to control costs that he thinks are inflated by waste.

Without the changes, Folwell says the current plan will run out of money by 2023. “The path we are on is unsustainable,” he wrote in a recent op-ed.

The treasurer isn’t alone. Montana took the same approach a few years ago, although it’s paying about 150 percent, on average, above the Medicare rate. And Gary Claxton, director of the Health Care Marketplace Project at the Kaiser Family Foundation, said payment limits are being discussed in other states as well.

“Hospital prices have been going up pretty rapidly,” he said. “Has what they’ve been doing and what they’ve been charging been appropriate?”

But that question also raises one about Folwell’s proposed changes. If the health care payers don’t know whether a price is appropriate, how can they know whether refusing to pay that price is appropriate?

This is a point the N.C. Healthcare Association raises with justification: Hospital prices are about to be restricted without sufficient review of how the prices are set. Hospital costs reflect the need to shift costs from those who can’t pay — or government plans that underpay — to private insurers. If the State Health Plan cuts back on what it will pay, costs will be shifted to a narrower base of privately insured patients, services will be cut and some rural hospitals may close, according to the N.C. Healthcare Association. Meanwhile, Folwell, a Republican, has not advocated for the one measure that would reduce pressure to shift costs, Medicaid expansion.

Dr. Michael Waldrum, the CEO of Vidant Health and board chairman of the N.C. Healthcare Association representing the state’s 130 hospitals and health systems, said the proposed changes in the State Health Plan would cost his company $40 million a year. He said that loss would “essentially wipe out our bottom line” for Vidant’s eight hospitals serving mostly Eastern North Carolina.

Waldrum said Folwell should have fashioned a savings plan in consultation with providers. Instead, he said, “The treasurer woke up, pulled out a spreadsheet and made cuts — arbitrary, capricious and draconian cuts.”

Folwell and Waldrum will testify about the State Health Plan changes at 10 a.m. Tuesday before the House Health Committee. That will be a welcome airing of different views. For this is a health care case in which the state would do well to get a second opinion.

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