Here Are Three Ways We’re Working to Address Inflation in Health Care in North Carolina

For many of us, the word “inflation” brings back memories – or at least images – of the 1970s, when consumer prices and interest rates spiked after the OPEC oil embargo.

But the truth is, all of us have been feeling the impacts of inflation on a steep incline for decades – in health care. Rising prices in health care aren’t new at all; health insurers have long been inventing new ways to address medical inflation on several fronts, and our strategies are being tested yet again.

And now, the across-the-board global rise in prices is bringing even greater urgency to our efforts to lower costs. Inflation is hitting health care particularly hard , with consumers, providers and insurers feeling the pinch. Any rises in hospital, physician or facility fees directly raises costs to Blue Cross and Blue Shield of North Carolina’s (Blue Cross NC) members and North Carolina employers, many of whom are also struggling with their own workforce issues.?

Fortunately, Blue Cross NC has substantial experience dealing with medical inflation and that experience forms a solid foundation to address the problem. Through diverse investments, innovation in new payment models and strong collaboration with our provider colleagues, we are well positioned to blunt some of the impacts of moderate inflation.

But as the world emerges from the most urgent phase of the COVID-19 pandemic, we’re seeing a great deal of economic volatility. When added to uncertainty in health care policy at the federal level, these larger factors are impacting overall medical costs, our company’s operating costs and returns from our investment portfolio. As a result, innovation and collaboration are more important than ever in health care.

Paying for Outcomes, Not Volume

While the health care system is incredibly complex – far too complex – the mathematics of health insurance are actually pretty simple. We must work to lower insurance costs on several fronts simultaneously: Blue Cross NC needs to continue to find ways to operate efficiently and reduce our own business expenses; we have to provide incentives to lower the price tags on procedures, tests and medicines; and we have to expand access to preventive and wellness care that can prevent costly chronic health problems. We’re making progress on all these fronts.

Perhaps the most important way to lower costs and ensure the quality and appropriateness of care is to take a hard look at the fee-for-service payment system. Fee-for-service pays for the volume of care delivered, and this is one case where we’re getting exactly what we’re paying for; the system rewards volume, so we get more volume. We need to pay for health outcomes instead. But what does that mean and how do you do it?

Blue Cross NC’s signature cost and quality initiative is Blue Premier . Launched at the start of 2019, Blue Premier provides incentives for health care providers to keep patients healthy instead of simply treating them when they’re sick. The model focuses on prevention and wellness care, addressing health issues before they become chronic and costly; it offers patients a more coordinated health care experience, integrating mental health care into primary care; and it rewards providers for meeting cost efficiency and quality metrics. After all, our goal isn’t merely to arrive at the cheapest possible health care; instead, the aim is for the best possible care that’s affordable.

So far, 11 health systems in North Carolina have signed onto Blue Premier payment arrangements, with 65% of our members under the care of Blue Premier providers. The first two years of Blue Premier generated $350 million in savings, with better numbers in the second year as the model gains momentum.

Blue Premier represents the kind of collaboration that is crucial in bringing down health care costs. Insurers and providers are focusing on the shared goal of making health care more affordable and accessible for all. ?

Blue Cross NC is also finding innovative ways to reduce costs by partnering with providers to launch and expand new products with lower costs, creating a network with lower unit costs for high-cost specialty drugs, helping members gain access to the most effective and lowest cost drug options, and reducing wasteful spending.?Alo ?is an example of an important collaboration to help support independent physicians. Blue Cross NC is also working with companies like Avalon Healthcare Solutions, a leading lab benefits manager, which has generated well over $100 million in cost savings and quality improvements for Blue Cross NC members.

These collaborations help physicians focus on patient-centered health that treats the whole person, preventing chronic and costly health problems in the future. When doctors are rewarded for delivering better care and health outcomes, this inherently reduces costs and everybody wins.

Addressing the Workforce Shortage

Nurses are the backbone of our health care system, and demand for their services has rarely been stronger than in the COVID-19 era. ?

North Carolina was already facing a nursing shortage before the more recent exodus. And a study by the University of North Carolina’s Cecil G. Sheps Center for Health Services Research notes that the problem in our state is only getting worse. Over the next decade, North Carolina will face an estimated shortage of more than 12,000 registered nurses. The shortage of licensed practical nurses will be even more pronounced. ??

Since 2018, Blue Cross NC has made significant investments in nursing programs at our state’s historically black colleges and universities, offering more than $5.3 million in nine schools across the state. The investment aims to remove financial barriers for students in need, creating equitable opportunities and a more diverse workforce. ?

Our company’s investment in the UNC School of Medicine’s Physician Assistant Studies program is helping former military medical personnel and non-traditional students receive training for civilian care, strengthening health care infrastructure in North Carolina.

Managing Our Own Costs in a Strategic Way

Of course, Blue Cross NC’s fight against health care inflation starts with our own operating expenses. I’m proud of the discipline our employees have shown in watching every dollar spent and every dollar saved. We’ve managed our costs effectively, from efficient personnel management to lowering operating costs and driving premiums down in three of the past four years.

In 2021, we reduced our operating costs by more than $100 million – that’s over $8 million each month – through process improvements, optimizing vendor contracts, and streamlining work through new digital technologies.

We’ve also managed our company’s investments and capital assets, building a diverse portfolio designed to withstand volatility. Our financial stability allows us to invest in new technologies and capabilities that are helping us to serve our members effectively and cost efficiently.?

While Blue Cross NC is a not-for-profit company, we are fully taxed. We’re committed to paying every dime that we owe in taxes while managing our tax liability to allow cost relief for our members wherever possible. We have designed a strategy to use any tax benefits to offset premium increases and make investments in new capabilities to better serve our members more effectively and efficiently.

Our tax credit programs serve dual purposes: generating savings for our customers and fueling our support for North Carolina’s communities. Investments in renewable energy technologies and through the Mill Rehabilitation Credit to generate income-producing properties in disused facilities in our state’s communities strengthen our company’s financial footing. We use that financial strength to support lower costs for our customers, while helping to elevate our state as a national leader in the shift toward a more innovative, balanced, and greener economy.

As uncertainty around the global economy continues, there will be further volatility in health care. Cost pressures aren’t new to health care, but recent economic events have created new obstacles to bringing down the cost of care.

Inflation is in the headlines today, but we’re employing strategies to solve the cost problem for the long term. Consumers have felt the sting of health care inflation for too many years. Blue Cross NC will not rest until health care is better for all – and that means making care accessible, equitable and affordable.?