How North Carolina cut surgical costs and improved outcomes with a Network of Excellence

Variation in surgical outcomes and costs is a major source of waste in health care. Surgical care alone can represent about one-fifth of total employer health care spend, despite only a small portion of employees needing these procedures. For state employee health plans, the problem is even more complex, given provider quality and availability vary widely across states, particularly outside major metropolitan areas. At the same time, the plan must balance cost and quality with member access and expectations around provider choice.

Lantern addresses these challenges through its Network of Excellence (NOE) model, which aims to deliver better outcomes while keeping patients closer to home. This approach concentrates certain high-cost, high-variation procedures, like bariatric, spine and orthopedic care, within a select set of surgeons and facilities that have demonstrated high-quality outcomes and agreed to episode-based pricing. Lantern then helps members navigate to those providers, with the goal of reducing complications, readmissions and unnecessary follow-on care. This can make the path to surgery simpler and more cost-effective.

The State of North Carolina’s experience

The North Carolina State Health Plan (NC SHP), which covers about 540,000 members, offers a practical example of implementing an NOE model at scale. With a projected $500 million health care deficit in 2026 (before plan changes) and a projected $1.3 billion deficit in 2027, the state needed a more effective way to manage rising health care costs.

A review of health care spend revealed that surgical categories – especially spine, joint replacement and bariatric care – were driving a disproportionate share of costs with varying outcomes. Rather than reduce benefits, NC SHP partnered with Lantern to launch an NOE aimed at lowering costs while maintaining access and quality.

In the first five months of the program, the State of North Carolina achieved:

• Cost savings: About $12 million in savings, with spine surgeries costing 61% less than average carrier costs.
• Member interest: More than 1,020 completed procedures at Lantern’s NOE facilities and over 125 unnecessary procedures avoided.
• Higher quality care: More than 125 qualified surgeons across 15 facilities added to the NC SHP network.

Network of Excellence: design and implementation considerations

For North Carolina and other states, implementation is less about building a network from scratch and more about leveraging an established NOE model. With core provider evaluation, contracting and care navigation infrastructure already in place, health plans can focus on member education, engagement and program utilization.

Key implementation considerations include:

1. Determine the appropriate procedure scope: Consider making the NOE available across all eligible categories from the start, rather than limiting the program to a smaller “core” set so members can access high-quality providers across a broader range of plannable procedures. State health plans that opt for a staged rollout often prioritize high-cost, high-variable procedures (such as bariatric, spine, joint and other orthopedic care) and then expand to lower acuity, higher volume procedures (including gynecology, ENT and general surgery).
2. Support market introductions: Plans may leverage existing relationships and market knowledge to facilitate introductions to provider systems that can help accelerate network development in priority areas. Note, the NOE partner still remains responsible for provider qualification, contracting and ongoing network expansion.
3. Consider an off-cycle launch: Plans don’t need to wait until the next plan year to introduce an NOE model. In some cases, mid-year launches can be effective because the program is not competing with open enrollment, helping the NOE stand out, capture member attention and drive engagement sooner. That said, off-cycle introductions can carry higher legal and operational risk, particularly if elements are mandatory or require additional member communications, making it important to evaluate this option with legal and compliance teams.
4. Evaluate the network growth strategy: An NOE does not need to be fully built at launch. Consider how the partner plans to expand provider participation over time in priority geographies and procedure categories while maintaining quality standards.
    

An NOE is only effective if members actually use the selected providers and facilities. To support that shift, consider approaches like:

• Financial incentives: Members may face higher deductibles or coinsurance when they don’t use the NOE for planned procedures. Health plans may also consider waived cost shares, cash incentives and HRA contributions.

• Voluntary vs. mandatory design: While NOE pathways are typically voluntary, certain high-cost categories (such as bariatric, spine and joint procedures) can be made mandatory. This means plan coverage requires using an NOE provider for those procedures, often driving high compliance (e.g., ~95% engagement) and additional savings.

• Education and communications: Plans can increase member awareness with updated ID cards, regular mailers and emails, train-the-trainer programs, webinars or town halls, and visible support from senior leadership. Press releases and media coverage can drive further awareness.

If interested in implementing an NOE model, start by asking:

• Where do we see the biggest variation in our surgical spend, and what is driving it?

• Should we make an NOE program voluntary or mandatory, and for which procedure categories?

• What incentives would encourage employees to use this pathway?

• What outcomes and savings metrics should be reported to demonstrate the network is working?

• How should we educate employees on what to do and when to engage?

For other cost-containment strategies and SEHP resources, click here.

Morgan Health is a business unit of JPMorganChase Bank, N.A., focused on improving the quality, affordability and equity of employer-sponsored health care in the United States. Morgan Health holds a minority interest in Lantern Health. This document is for informational purposes only and does not constitute investment, legal, tax, or financial advice.