Why NC State Health Plan Made Surgery Free to Save Millions 

Facing a daunting $1.4 billion deficit, the North Carolina State Health Plan (SHP) knew that standard incremental changes wouldn’t be enough to stabilize its financial future. Instead of simply shifting costs to its 550,000 eligible members through higher premiums, the State Health Plan took a bold approach to tackle one of its largest cost drivers: surgical spending.

By partnering with Lantern to launch an independent surgical COE, they aimed to save millions while simultaneously improving the quality of care and waiving costs for members.

In this webinar, learn how the SHP moved quickly to implement a solution that prioritizes quality surgical care, how they navigated the complex landscape of provider contracting, and why they believe “free” surgery is the ultimate incentive for driving member engagement.

In this webinar, you’ll hear from:

Tom Friedman, Executive Administrator, North Carolina State Health Plan

Dickon Waterfield, President, Lantern

Key Takeaways

• Lessons on making bold decisions quickly to launch an independent Surgical COE for real change.
• How to drive the highest-quality care and create a more equitable and affordable healthcare ecosystem for your team.
• Why proactively communicating your new “free” benefit is the success of any major overhaul.

Reducing Surgical Spend to Solve Health Plan Deficits

For the North Carolina State Health Plan, the status quo was no longer an option. After years of freezing premiums while healthcare costs rose, Tom Friedman, Executive Administrator, said the plan was effectively “living off a credit card,” resulting in a $1.4 billion projected deficit.

Passing these costs to teachers and state employees—many of whom are lower-paid—was not a sustainable solution.

Previous attempts to control costs, such as a reference pricing model, had backfired, costing the plan an estimated $150 million instead of saving money. The lesson, Friedman said, was clear: providers won’t offer discounts just to be nice; they need a business reason to do so. This realization helped them build a new strategy. “Crisis creates opportunity and crisis creates action,” Friedman said.

The goal was to target services—like surgery—and use that volume as leverage to negotiate better rates and higher quality.

Driving COE Utilization by Waiving Member Cost Share

To drive members toward high-value care, the State Health Plan flipped the traditional insurance script. Instead of high deductibles, they offered a radical incentive: free surgery through Lantern’s specialty care platform. By waiving member cost-share for procedures done within Lantern Network of Excellence, the plan turned financial incentives into a powerful engagement tool.

“We help members get into care much quicker… And then we’re trying to help the plan sponsor save north of 50% versus typically what it is through a carrier network,” said Dickon Waterfield, President of Lantern.

Friedman highlighted that small copay reductions of $30 or $40 aren’t enough to change behavior, but saving a family thousands of dollars is.

“I can pick everyone up in a limousine an hour and a half away, drive them to the procedure, take them to the nicest hotel in the area for three days and then drive them back home , and I’m still going to save thousands of dollars,” Friedman said, to illustrate the cost savings driven by Lantern’s negotiated rates, which are 55%+ lower on average compared with carrier rates.

The challenge, however, is changing the mindset that “free” implies cheap or low-quality care. The messaging had to be clear. “Free is good, free is better… free is high quality,” he said.

Vetting Surgeons to Build a High-Quality Provider Network

A common pitfall in building provider networks is the pressure to include everyone to ensure access. The State Health Plan took the opposite approach, leveraging Lantern which uses quality as a strict barrier to entry into their Network of Excellence.

Lantern rejects providers who don’t meet rigorous safety and outcome standards. “It’s going to raise the game,” Friedman said.

Waterfield reinforced this, noting that Lantern has now vetted and added north of 100 qualified surgeons and 15 hospitals to the North Carolina network and it continues to grow, but not without friction.

“Every provider initially will talk about how great their quality is,” Waterfield said. “It takes time and that is always one of the challenges when you’re trying to build a network quickly, but we’re doing the diligence to make sure providers stand up to our quality measures.”

Best Practices for Rapidly Implementing a COE Solution

In the public sector, procurement and strategy shifts can often take years. However, facing a financial cliff, the North Carolina team moved with aggressive speed. They launched the Lantern program before the network was fully built, driven by a philosophy of immediate action.

Friedman’s advice to other leaders was blunt: “You can’t really do half measures here. You have to commit to being all in.” He argued that waiting for perfection—like waiting for a fully built-out network in 2027—would lose the leverage needed to force providers to the table today.

Waterfield supported the soft-launch approach, advising the state to go live with what they had to demonstrate commitment. “Do you want to be part of the network because I’ve got referrals… Do you want in or out?” became the driving question for providers. This agility allowed the SHP to start generating savings and serving members while continuing to refine the operational details.

Direct Contracting Strategies that Lower Unit Costs

The strategy relies on a frank, business-to-business conversation with health systems. The State Health Plan made it clear: they are picking winners and losers based on quality first and cost second.

This wasn’t about squeezing providers for discounts they couldn’t afford; it was about fair, profitable rates in exchange for volume.

“We help members get into care much quicker,” Waterfield noted, adding that for providers, this means working with a partner who steers a massive population specifically to them, rather than spreading that volume thinly across a broad market.

Future Cost Control: Managing Specialty Care Like Pharmacy and Infusions

While surgery was the immediate target due to its high cost and volume, the State Health Plan sees this as just the beginning. The next frontier is managing the skyrocketing costs of medical pharmacy and infusions.

“Our medical pharmacy cost continues to go up astronomically every year… so really attacking that system and really continuing to focus and double down on Lantern’s Centers of Excellence model,” Friedman stated.

Waterfield added that shifting sites of care for infusions—from hospital outpatient settings to home infusion or ambulatory centers—represents a massive opportunity to improve member experience and save hundreds of thousands of dollars.

Ultimately, this initiative is an investment in the long-term health of the state’s workforce. By saving money on plannable procedures today, the plan can afford to invest in population health and chronic disease management tomorrow.

“I need to save money through Lantern to invest in getting folks healthier,” Friedman said. “Win the short game to play the long game.”