Money and Medicine The proposedchange would save the state an estimated $300 million a year, whilesaving employees and their families $66 million a year. (Photo:Shutterstock)

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

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State Treasurer Dale Folwell, who manages the 727,000-memberstate employee health plan, has announced that the state no longerwants to engage in secret negotiations with individual hospitalsover reimbursement rates.

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Instead, the state wants to peg reimbursement rates toMedicare's rates. Folwell has proposed paying 177 percent of whatMedicare pays for hospital services. Currently, the state pays anaverage of 213 percent.

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Related: California rolls out proposal to set health carereimbursement rates

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

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

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Hospitals are predictably furious, claiming that the rate cutscould devastate providers that are already operating on razor-thinmargins.

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

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The problem is, there's nothing to force the hospitals to acceptthe rates offered by the state. So far, the Folwell has said thatif they refuse, they'll simply be cut out of the health plannetwork.

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Even if only a small number of hospitals refuse the state'sdeal, their exclusion from the state's network could cause majorproblems if there aren't other in-network hospitals in a certainarea, notably in rural parts of the state where there are not a lotof providers to choose from.

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