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Battle brewing over state health plan

Vidant estimates cuts will total $40 million; state treasurer says fix is needed

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The front entrance of the new Vidant Cancer Center Thursday, March 8, 2018.

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By Bobby Burns
The Daily Reflector

Monday, December 3, 2018

An escalating conflict between North Carolina’s treasurer and the state’s health care networks is pitting the thin financial margin on which many providers operate against a floundering state health plan, officials said, and exposing a bitter disagreement over the path forward.

A proposal by state Treasurer Dale Folwell aims to restructure how the N.C. State Health Plan for Teachers and State Employees, one of the state’s largest purchasers of health care services, pays providers in an effort to produce an estimated savings of $300 million for taxpayers and $65 million for plan members annually.

To do that, the new payment structure will greatly reduce reimbursements to health care networks and hit those serving rural areas like eastern North Carolina particularly hard, health care administrators said.

Officials with Greenville-based nonprofit Vidant Health, the largest provider in northeast North Carolina, estimate the plan would reduce the $52.5 million operating margin it had last year by about $40 million, dealing a devastating blow to its ability to reinvest in communities and serve 29 counties from Duplin and Edgecombe east to the Outer Banks.

The cuts could force Vidant to shutter facilities and curtail services, in turn limiting access to crucial care for tens of thousands in the region, including state employees who are supposed to benefit from the cuts, Vidant Chief Executive Officer Michael Waldrum said Thursday.

Waldrum said Folwell is trying to solve complex issues with a hatchet.

“I have a federal law that says that we have to consider everybody that shows up at our door and take care of them regardless of their ability to pay,” Waldrum said, “and apparently, the treasurer … doesn't want to consider other people besides people in the state health plan.”

Public and nonprofit providers argue that the treasurer should work with them to produce savings in ways that won’t cripple their ability to fulfill their federal mandate — up to and including expanding Medicaid — while Folwell has gone on the offensive, arguing his plan is needed to fix a broken system and accusing providers of overcharging for services and even engaging in collusion and fraudulent and illegal activity.

His supporters, including leaders with the State Employees Association of North Carolina, have argued that the state health plan should not be used to subsidize rural health care. Folwell said Friday his plan nevertheless places a premium on services crucial in rural areas, actually increasing rates for primary care, behavioral health and critical care.

“There is no one who has more constitutional or statutory interest in the access and affordability of health care in the state of North Carolina than the state treasurer of North Carolina because, in addition to all the other duties and responsibilities, I’m the chair of the Local Government Commission, which has to approve the debt of all these entities,” Folwell said.

OVERDUE CORRECTION

He said his plan is designed to sustain health systems, though it may force them to manage their funds differently. “Because my responsibility as the treasurer is to make sure the state is paying what it is supposed to pay for health care on behalf of employees and taxpayers like them.”

Folwell’s proposal moves the state health plan away from a fee-for-service payment system to a “reference” model that bases prices on what Medicare pays for procedures. The plan would pay on average 77 percent more than the Medicare referenced rates. On average, that would cut current payments to providers by 14 percent, Folwell said, because providers typically charge the plan much more than Medicare pays, up to 800 percent more in some cases.

The restructuring is necessary because maintaining affordable premiums and member payments requires the state to pay $3.4 billion a year in tax dollars to pay the health care costs of its 727,000 employees and their dependents and retirees. Even with the tax subsidy, the plan owes $30 billion for long-term health care costs, the treasurer says.

Folwell has requested that providers who treat patients in the state health plan going forward to provide transparent pricing for all their medical procedures, a request hospital officials say is unrealistic. The denial has frustrated Folwell, who sarcastically reacted to a redacted response from UNC Hospitals with a redacted news release complaining that the state hospital would not tell him prices to be paid by the state health plan for services provided to state employees.

On Monday he issued another news release publicizing a settlement of an antitrust lawsuit against Charlotte-based Carolinas Healthcare System, now Atrium Health, that he said demonstrated how the hospital steered consumers away from cost-effective coverage to more expensive services.

He accused state hospitals of illegal activity and called on the U.S. and North Carolina Departments of Justice to force them to release more comprehensive billing records. He said fraud, waste and inaccuracies account for up to 30 percent of hospital charges.

He said he’s heard varying reports on the impact his cuts will have on hospitals and used some quick math to question Vidant’s predictions that it will cost $40 million. Vidant brings in about $2 billion in revenues, he said, and the state health plan accounts for no more than 10 percent of that, or $200 million. A 14 percent cut of that is $28 million, he said.

That’s why its important to get on the same page with the numbers and provide transparency, he said. “We have to close that gap and bring transparency to the … state health plan because the amount of money we get appropriated is less than the expenses run.”

Hospital officials say that there is much more to the story, and that Folwell is grandstanding when he accuses hospitals of bilking patients and insurers and engaging in fraud and illegal activity.

“The idea that the treasurer of North Carolina is saying that Vidant and the leadership at Vidant, that UNC and the leadership at UNC, that Atrium and the leadership at Atrium, and Mission and go down the line, there's a hundred of those, that they're all doing … illegal activity and doing what he is claiming, is the most bombastic, ludicrous, inflammatory statement, and it should not stand on its own,” said Waldrum, who also is the incoming president of the N.C. Hospital Association.

“The fact is I have a board of North Carolina residents that are primarily from eastern North Carolina, I've got legal staff and I've got compliance staff and we spend millions of dollars trying to make sure that we follow every regulation and every law to have a company with integrity.”

Vidant Health has total revenues of about $1.8 billion, according to system officials, and it’s expenses are a little under that. It cleared about $52.5 million last year.

Financial officers reviewed all services provided to state employees last year and applied proposed reimbursement rates to assess losses under the new health plan. The numbers totaled about $40 million less than what Vidant was paid under the current rates, Waldrum said.

That would reduce Vidant’s income margin to about $12 million systemwide and plunge several individual hospitals in the system that already operate at a loss even deeper into the red — the system’s seven community hospitals in Beaufort, Bertie, Chowan, Dare, Duplin, Edgecombe and Hertford counties are supported by more financially stable operations including Vidant Medical Center in Greenville.

Maintaining the network would force Vidant to find other revenue streams and make cuts like delaying capital projects, officials said. Vidant has two unfinished floors in the Eddie and Jo Allison Smith cancer center in Greenville, for example. Those could potentially sit unfinished for a period of time.

OTHER OPTIONS

Care providers across the state want to work with Folwell to develop other avenues of savings for the state health plan. One place to start is the plan’s structure and a tough review of fees charged by its administrator, Blue Cross and Blue Shield of North Carolina, Waldrum said.

In an interview at Vidant’s administrative offices Thursday, Waldrum plopped on a conference table an inch-thick stack of documents he received from Blue Cross after requesting a schedule of fees and other details involving the state plan. Much like the information provided to Folwell by UNC Hospitals, the document was heavily redacted.

Waldrum complained that Folwell should not accuse hospitals of collusion and monopolistic practices without questioning the state’s relationship with an organization that dominates the insurance market in North Carolina. He offered an American Medical Association report that shows North Carolina is the 10th least competitive insurance marketplace in the country and that Blue Cross holds an 80 percent market share in Pitt County.

Hospitals also have cut inefficiencies significantly since the Institute of Medicine in 2009 estimated that waste consumed 30 percent of U.S. health dollars, and Vidant has stayed on the leading edge of delivering medical bang for the buck, Waldrum said.

Vidant created the Coastal Plains Network in 2015 as an entity to allow for a wide range of physicians to work together as an Accountable Care Organization to reduce costs and improve quality of care. Its population-based approach, also called value pricing, saved Medicare more than $20 million in three years.

The state health plan could save significantly by adopting a population-based approach, Waldrum said.

The treasurer also could grant an overdue request to convert a package of state bonds used to build the East Carolina Heart Institute and the ECU Physicians Family Practice Center to facilitate the completion of a merger between Vidant’s physician practices and those of East Carolina University, Waldrum said.

The merger has been in the works for several years and is expected to save millions for both Vidant and ECU while improving care and access, but Vidant staff cannot utilize the buildings until Folwell signs off on revisions to the bond structure. Falwell said Friday a decision is forthcoming but declined to say whether he would convert the bonds.

Folwell also could help push a serious discussion on Medicaid expansion, which could provide health insurance to more than a half million North Carolinians, Waldrum said. Providing insurance to the state’s uninsured would greatly reduce the need to shift costs onto the state health plan and other health care consumers, Waldrum said.

State Rep. Greg Murphy, R-Pitt, said he would welcome a conversation about advancing the Carolina Cares Act that he and others proposed last year to extend coverage to the state’s uninsured, but he considers that a separate issue.

Murphy, a practicing surgeon and former Vidant chief of staff who chairs state House committees on health issues and appropriations, said he met with the treasurer Thursday and is scheduled to meet with him again today because he and others are concerned Folwell’s proposal will devastate hospitals in the region.

“The state health plan has an unfunded liability of, depending upon which number that you look at, that goes into the billions of dollars, and the treasurer is very correct in looking at ways to try to trim that unfunded future liability and also to at least stabilize premiums if not cut premiums. We both agree on the goal; we differ greatly on how to get there.”

Folwell’s proposed cut affects systems differently depending on services provided, Murphy said. Vidant is looking at a 30 percent cut rather than the 14 percent cut Folwell says is the average.

“Where would that money normally go? It would go to fund the hospitals out in the region … It’s just not the way in my opinion. He’s coming in and doing a blanket cut rather than a surgical incision,” Murphy said.

Actions are afoot in the legislature to block Folwell’s plan. Murphy said he hopes it doesn’t come to that. He said Folwell has a great deal of support in the legislature.

Waldrum said he hopes Folwell will tone back his rhetoric and discuss options.

“Hospitals in rural America are going out of business at an alarming rate because of the federal mandate and because of the uninsured population in distressed communities. And we are struggling every day to meet all of the needs of all the citizens in our 29 counties,” he said.

“I’ve got 13,000 employees that are nurses and doctors and technicians, that stay up or go to work at 3 a.m. to deliver that baby or to do the heart surgery or take care of the stroke person or to fly helicopters down to Beulaville when it was an island in the middle of the flood — and the treasurer talks about health care with disdain and animus, and that's not the people that I see, that I talk to and that have dedicated their lives in a really tough field, doing hard work.

“And so solving this very complex issues as we described, taking a hatchet and slashing, is not a responsible way to solve these problems.”

Contact Bobby Burns at baburns@reflector.com and 329-9572.

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