This is a modern day re-telling of the familiar Bible story of David and Goliath. In our version, David is played by State Treasurer Dale Folwell. The Philistine giant Goliath represents the large hospitals in our state.
Like David, Folwell is also a shepherd. His flock includes more than 700,000 current and retired state employees; he is the administrator of the State Health Plan. Because the state doesn’t adequately fund the 5-9 percent annual cost increases there is a threat to its short-term solvency, but a much more serious crisis is looming: approximately $35 billion in unfunded liabilities the plan has incurred.
Did we mention that Folwell is a forensic accountant? Larry Crumbly, in the “Journal of Forensic Accounting,” explains, “You have an external auditor – that’s like a guard dog. Maybe a bulldog. An internal auditor is a seeing-eye dog. A forensic accountant is a bloodhound.” The seeing-eye dog in Folwell examined the plan’s numbers, the bloodhound started sniffing for ways to save money, then the bulldog took charge.
Folwell asked the hospitals to reveal what they charged for various procedures, saying there needed to be more transparency so as to understand how health plan members were charged. Hospitals responded that pricing was a highly complicated issue, besides they wouldn’t reveal proprietary information. Bulldog Dale said that if hospitals couldn’t or wouldn’t tell him what they charged, he would tell them what the State Health Plan was going to pay, a formula based on a percentage above what they accepted from Medicare.
No self-respecting Philistine is going to stand for such a threat, and neither were the hospitals. Game on. Which side was going to prevail? Folwell issued a deadline for hospitals to sign on to what he called the Clear Pricing Plan if they were going to serve those in the State Health Plan next year. They refused, with the exception of five small hospitals. Folwell sweetened the pot by increasing the percentage paid over the Medicare rate and extending the deadline. Still the hospitals refused to sign.
Crowds gathered as the clock for a decision was running down. Folwell received a letter from the N.C. Association of Educators urging him to concede. Folwell blinked and agreed to a proposal from Blue Cross with the Blue Options Network, an agreement that would allow members to keep the same doctor and hospital networks they now have, but essentially moved them to value-based healthcare, where providers get paid for health outcomes, instead of the traditional fee-for-service model.
Folwell was correct in demanding transparency, and its time will surely come soon. But hospitals were also correct in saying this isn’t just a black or white matter and many factors are at play in procedure pricing. They cite a federal law that requires they treat anyone who comes to their doors, regardless of their ability to pay, however indigent care is not a huge percentage of their overall costs. Neither is the justification for their accumulating large surpluses on the grounds they are necessary for the purchase of new machines or to pay out malpractice lawsuits. Transparency is essential to reigning in healthcare costs.
Unlike the biblical narrative, Goliath won round one, however I’m betting Folwell is gathering small stones and this battle is far from over.
Tom Campbell is former assistant state treasurer. Contact him at www.ncspin.com.