Marilyn Bartlett
Problem Addressed Access to Healthcare
Solution Implemented a payment system for Montana’s state employee health insurance plan that flipped the script on who set the terms of negotiations with the insurance provider. Her approach led to lower premiums and turned around a system facing bankruptcy.
Location Montana
Impact State

What she did

Marilyn Bartlett used the Medicare model to introduce a payment system in which the state set the prices it would pay hospitals through its insurance plans, instead of the other way around. She also negotiated a better deal for the way that the plan paid for drugs. The new system saved the state so much money that the insurance plan quickly went from deficits to a surplus.

Her story

In 2015, Marilyn Bartlett was 64 years old and contemplating retirement from a career in the health insurance industry when the state of Montana came knocking. Its employee health insurance plan was in crisis. As with so many US health plans, including other states’ plans, premiums were rising and costs were out of control. If nothing was done, it was facing deficits that would lead to bankruptcy in two years.

“The plan had just lost $28 million in 2014,” Bartlett said. “The actuary presented his information in early 2015 and it showed that the reserves had dropped to minus $9 million. The plan would be bankrupt by 2017, so we had two years to turn that plan around. That was the impetus to do what I did.”

Health insurance is often a benefit of employment in the U.S., so employer health plans tend to be administered by human resources specialists who rely on health insurance companies to define their plans. Bartlett came to her role as administrator of Montana’s health system with unique work experience that enabled her to take a more informed approach.

Trained as a certified public accountant, she’d been a controller for a Blue Cross/Blue Shield plan and chief financial officer of a company that administered an employee health plan, so she knew the ins and outs of health insurance. She understood that the “discounts” offered by hospitals to insurers do not save money and the “rebates” from drug companies often don’t find their way to patients. “I knew how to follow the money,” Bartlett said.

Leveraging Well-Known Secrets

Among the infrequently acknowledged “secrets” she knew about health insurance companies is that they have little incentive to keep costs down. As long as they can raise the cost of premiums and remain competitive with each other, they can pay more to providers and remain profitable. That’s one reason that health costs rise so inexorably in the US.

Another “secret” is that hospitals bill according to a master charges list that is more arbitrary than based on real costs, Bartlett says. Health insurers generally negotiate a discount off this charges list without questioning whether the charge has any real relationship to the hospital’s costs. The insurers then use this discount to give consumers who buy their policies the impression that they are getting a good deal.

These charges and discounts are generally hidden in proprietary contracts between the insurance company and provider that neither will release. Patients generally can’t know how much they will owe a provider until they receive a bill that specifies the hospital’s charge in one column, and the insurance policy’s “allowable charges” in another column, with the discount presented as a “savings” that the patient received.

“The whole idea of a discount off charge masters is ridiculous to an accountant because it is an arbitrary number made up by the hospital. Then the insurance company has secret negotiations to come up with discounts off that arbitrary number. There is no rhyme or reason to it,” Bartlett said.

The Montana plan included huge variations in prices paid to hospitals for various procedures. For example, the plan paid one hospital more than four times what it paid another hospital for a knee replacement, despite the fact that the more expensive hospital said it was giving a larger percentage discount.

Using the Medicare Model

Medicare runs under a different model—it publishes a fixed amount that it offers to hospitals and other providers for an exhaustive list of services. Medicare adjusts its payments according to many factors, such as regional costs and whether the provider is rural or urban. Healthcare providers that accept Medicare patients must accept that amount as the entire payment, and not bill the patient for more.

Bartlett wondered why no state had implemented a similar approach. Medicare had already done all the work of developing the prices for the services. The prices were the most accurate benchmarks in healthcare, so why not use them at the state level?

The American Hospital Association has long said that Medicare does not pay enough to cover all of a hospital’s costs, but Medicare disputes that claim. “I started reading Medicare cost reports and learning more about hospital costs—not their profits,” Bartlett said.

What Bartlett wanted to know was how much specific procedures actually cost the hospital. She did a deep dive into Medicare costs reports and came away convinced that hospitals are doing well enough with their Medicare payments.

But to quell any doubts and lessen resistance to her ideas, Bartlett decided that the Montana plan could pay more than double what Medicare paid. Some hospitals would receive even more for certain procedures, though others would be receiving less. While still not necessarily based on actual costs, the prices set by Bartlett enabled her to move forward.

Still, she had to overcome several obstacles.

Montana’s insurance plan is self-funded, meaning it is funded by its employee premiums. Like most such plans, though, it contracts out and relies on the expertise of a third-party administrator (TPA) to negotiate deals with healthcare providers and manage the claims.

A few huge corporations, such as Blue Cross Blue Shield, dominate the TPA market, and in Montana’s case that company was Cigna. Bartlett soon found that Cigna was not interested in cooperating, and would not even reveal to her its pricing agreements with the hospitals—this kind of trade secrecy is standard practice.

Negotiating From Strength

Fortunately for Bartlett, she had the authority to give the contract to a local company, Allegiance Benefit Management Plan, whose president supported her approach. They would need to negotiate a new contract with each hospital, a high-stakes and tense process. More than 40% of the plan’s expenditures were paid to Montana hospitals, and close to 90% of that money went to just 11 hospitals. But the plan represented 31,000 employees, a large number for a state like Montana.

Many hospital administrators were shocked by the state’s “take it or leave it” proposition, but one by one, they decided to go along. According to Bartlett, the CEO of one of the last holdouts was quoted in the media saying his hospital couldn’t give the state a better deal than it was giving Blue Cross. But he eventually agreed when he faced the possibility that all the state employee business would go to a competing hospital in town.

In addition to lowering payments to hospitals, Bartlett also aimed to save on drug costs. Her prior work experience gave her insight into how these costs can get padded and how middlemen can make an extra buck without adding value.

Health insurers generally rely on an outside company called a pharmacy benefit manager (PBM) to handle the contracts with drug suppliers and patient claims.

PBMs can write their contracts to increase their profits through practices that people not familiar with the system may miss. One is to charge the consumer more for a prescription drug than the PBM pays the manufacturer, a practice known as “the spread” or “spread pricing”. Another is the rebates that drug manufacturers often offer—savings that consumers and health plans may assume should be theirs, but that many contracts allow the PBMs to keep.

Montana’s PBM was CVS, and Bartlett knew at once that the contract with CVS was a bad deal for her plan. But CVS refused to change their practices. “I kicked CVS out of the network because CVS requires a higher reimbursement on the pharmacy,” Bartlett said. “We changed the pharmacy and immediately saved 23% because we got rid of spread, we got our rebates, and we changed the formulary.”

The Medicare Model Wins

The result has been a dramatic turnaround in the plan’s costs. The contract changes caused a lot of disruption for the plan administrators, but not for state employees. Changes occurred behind the scenes and so were invisible to employees, except for their costs. “For employees, from 2017 through 2023, there will be no rate increases and none for the state, either,” Bartlett said. That compares with a 13% jump in premiums through 2020 for employer-based insurance, according to Kaiser Health News. In fact, state workers benefited from another aspect of the reform because the state put money into improving services at its on-site health centers.

An independent analysis of the results commissioned by the National Academy for State Health Policy found that “the shift to reimbursing hospitals as a multiple of Medicare rates generated as much as $47.8 million in inpatient and outpatient savings” in the state’s fiscal years from 2017 to 2019. The plan went from running deficits to having surpluses that restored its reserve fund.

Bartlett credits the plan’s success to “the right timing for everything.” The state was having a budget crisis, so the Democratic administration and Republican legislature were desperate to save money. The state employees’ union supported reform because the health insurance premium increases were eating into potential pay raises. The hospital industry in Montana had not undergone the consolidation that many states have seen. Having more independent hospitals may have given the state plan—with its relatively large number of enrollees—more  leverage than would have been the case in many other states. The state budget director and others in the administration in charge of its political side were fully in her corner, and the legislature passed a bill directing the administration to look at paths to reform that included the option of reference-based pricing based on Medicare.

Bartlett left her position as administrator of the employee state health plan in 2018 to work for the state insurance commissioner, and retired from the state in December 2019. She has since worked for the National Academy for State Health Policy as a consultant for various groups. An attempt to introduce a reference-based system in North Carolina failed in the face of opposition from some of the state’s huge health systems—consolidated systems that wielded more power than any in Montana. But in Colorado, a group of public employers formed a purchasing alliance and successfully negotiated with a hospital for a reference-based contract.

Bartlett said, “I am an accountant nerd. I am so nerdy, I even wear debit-credit earrings.” And true to these roots, the current project she is most excited about is a web-based hospital cost tool designed to “help purchasers and regulators better understand hospitals’ costs,” as a way to develop their own potential payment rates “using Medicare as a reference,” according to its website.

In what has become one of the adages of the American system of government, Supreme Court Justice Louis Brandeis described states as laboratories of democracy to “try novel social and economic experiments.”  But in this case, Bartlett sought to take a well-tested theory from the federal government and apply it to her state—and the hospital cost tool will help others apply it to their states as well.

Written by Eric Seaborg

Published on October 11, 2021

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Marilyn Bartlett, interview with Eric Seaborg, Jun 22, 2021
Follow up emails with Bartlett

Dan Gorenstein, Leslie Walker, “Montana’s Health Policy MVP Takes Her Playbook on the Road”, Kaiser Health News, Feb 18, 2021,, accessed Aug 1, 2021

JK Wall, “Think Again: Health Insurers Have No Reason To Reduce the Price of Health Care”, The Health Care Blog, Jan 1, 2016,, accessed May 19, 2021

Marshall Allen, “Why Your Health Insurer Doesn’t Care About Your Big Bills”, NPR, May 25, 2018,, accessed May 19, 2021

Marshall Allen, “In Montana, a Tough Negotiator Proved Employers Don’t Have to Pay So Much for Health Care”, ProPublica, Oct 2, 2018,, accessed Aug 1, 2021

Steve Schramm, Zachary Aters, “Estimating the Impact of Reference-Based Hospital Pricing in the Montana State Employee Plan”, National Academy for State Health Policy, Apr 6, 2021,, accessed Aug 1, 2021

National Academy for State Health Policy, “How to Complete NASHP’s Hospital Cost Tool”, Apr 20, 2021,, accessed Aug 1, 2021

National Academy for State Health Policy, “NASHP’s New Hospital Cost Tool Informs State Cost-Containment Strategies”, Sep 28, 2020,, accessed Aug 1, 2021

U.S.  Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, Mar 13, 2020,, accessed Aug 4, 2021

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