The state of North Carolina is telling hospitals to get ready for a pay cut.

State Treasurer Dale Folwell, who manages the 727,000-member state employee health plan, has announced that the state no longer wants to engage in secret negotiations with individual hospitals over reimbursement rates.

Instead, the state wants to peg reimbursement rates to Medicare's rates. Folwell has proposed paying 177 percent of what Medicare pays for hospital services. Currently, the state pays an average of 213 percent.

The proposed change would save the state an estimated $300 million a year, while saving employees and their families $66 million a year.

“We're trying to fix something that's unsustainable,” Folwell tells the Wall Street Journal. In addition to saving the state big bucks, Folwell says the proposal as promoting greater price transparency. Under the current system, he says, “The customer has no idea what the payer is paying.”

Hospitals are predictably furious, claiming that the rate cuts could devastate providers that are already operating on razor-thin margins.

“This is, you know, an approach to just reduce rates, versus an approach to improve people's health, improve the health of communities,” Steve Lawler, president of the North Carolina Healthcare Association, tells North Carolina Health News. “So it's a simplistic approach to a complex problem that doesn't really get at the heart of the issue.”

The problem is, there's nothing to force the hospitals to accept the rates offered by the state. So far, the Folwell has said that if they refuse, they'll simply be cut out of the health plan network.

Even if only a small number of hospitals refuse the state's deal, their exclusion from the state's network could cause major problems if there aren't other in-network hospitals in a certain area, notably in rural parts of the state where there are not a lot of providers to choose from.

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North Carolina wants to ditch health care price negotiations

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