What is the Clear Pricing Project?

There has been no shortage of debate on health care issues in the North Carolina General Assembly this session. One of those receiving quite a bit of attention is State Treasurer Dale Folwell’s Clear Pricing Project.

The Clear Pricing Project pertains to the State Health Plan (SHP), the taxpayer-funded health plan that covers over 700,000 public sector employees and retirees. Currently, the SHP uses a commercial-based plan administered by Blue Cross Blue Shield of North Carolina (BCBSNC) and United Healthcare. Under the current plan, claims are processed by BCBSNC and paid for by the SHP. (For more information, check out my primer on the topic I wrote late last year and some other pieces here and here.)

The Clear Pricing Project would change the SHP from a commercial-based plan to a reference-based plan. In a reference-based plan, there is a maximum rate set for how much the SHP will pay a provider for a given procedure. In this case, the Clear Pricing Project would use Medicare as the reference and pay providers an average of 182 percent of Medicare’s payment. After hearing concerns about the plan’s impact on rural hospitals, Folwell raised reimbursement rates for these facilities to 200 percent of what Medicare pays for the same service. While some hospitals would see a reduction in reimbursement, many providers, such as independent physicians and mental health providers, would receive an increased reimbursement rate under the new plan.

This is a significant change in how the SHP pays for its enrollees’ claims. However, something needs to be done to deal with the looming financial shortfalls the plan may face in the coming years. As of last year, the SHP holds roughly $1.1 billion in reserves while spending almost $3.5 billion on claims. The long-term unfunded liability of the plan is more than $30 billion.

The SHP is a taxpayer-funded employer plan. As the costs of healthcare continue to rise for these types of large employer plans, plan sponsors are taking action. Other states are considering similar steps. Montana and Tennessee are two examples. In another recent research update, I wrote about how California’s Public Employees’ Retirement System successfully switched to a reference-based plan.

House Bill 184

Shortly after the announcement of the Clear Pricing Project, lawmakers introduced House Bill 184 with the support of the North Carolina Healthcare Association, the lobbying organization that represents hospitals. If signed into law, House Bill 184 would freeze the State Treasurer’s plan and form a study committee to look at the long-term spending problems of the SHP. There was plenty of debate over House Bill 184, but it passed the House. The fiscal note for House Bill 184 states that the bill would cost taxpayers a large sum over the next couple years:

The Segal Company, the actuary for the Plan, and Hartman & Associates, the actuary for the General Assembly, estimate that the bill will increase the Plan’s claims expenses by the following amounts by preventing the reference-based pricing approach until at least 2021:

At the heart of this dispute is the secret contracted rates between BCBSNC and the provider networks. Treasurer Folwell requested the disclosure of the rates between BCBSNC and UNC Health Care last year. What was returned to him was over 100 pages of redacted information. Hospitals have chargemasters, which lists the prices they charge for specific procedures, and these are required to be public by law. However, the chargemaster price and the actual price paid by the insurer to the provider is often very different from those based on negotiated discounts. Treasurer Folwell wants to know the contracted price because often it is significantly higher than what Medicare pays for the same rate.

The hospitals claim they have to charge much higher prices to make up for the lower reimbursement they receive from treating patients who are covered by Medicaid and Medicare. By changing the rates from a commercial-based arrangement (BCBSNC and the providers are the only ones that know the contracted rate) to a reference-based arrangement (the SHP tells providers what it will pay for a service), some hospitals may lose money over time.

The future of House Bill 184 is unclear. After passing the House, the bill currently is sitting in the Senate Rules Committee.

Future of the Clear Pricing Project

Treasurer Folwell sent out contracts to all of the current network members of the commercial-based plan. They can either chose to sign contracts and be considered in-network for the SHP or chose not to sign the contracts and be considered out of network for the SHP. Out-of-network prices would be much high for state employees. The new insurance product has been approved by the N.C. Department of Insurance and has the support of all SHP Board of Trustees.

Richard Carver of the Winston Salem Journal reported that as House Bill 184 seems to have lost momentum at the General Assembly. The Health Care Association has expressed willingness to work with Treasurer Folwell and provide him and his staff some of the contracted rates to avoid the change in payment method that Folwell has initiated.

This may be too little too late, as Folwell has already sent out the contracts and received many of them back from physicians signing on to the Clear Pricing Project. The June 30th deadline is approaching. Several providers have signed on to the Clear Pricing Project rates. Some of them are

None of the hospitals that have been publicly fighting the treasurer has signed on. WRAL reports “The State Health Plan, as it works now, has some 15,000 contracts in place covering roughly 65,000 providers. The new plan, set to take effect Jan. 1, has 640 finished contracts on hand, representing 10,000 providers, though the actual number may be higher due to a backlog in processing.”

Reference-based pricing has the potential to save the state millions and improve affordability for the members of the SHP. However, there have to be enough providers “in-network” to keep costs down for the state employees and provide sufficient access. As the deadline approaches for contracts to be signed, the size of Treasurer Folwell’s SHP network for the Clear Pricing Project remains unknown.