North Carolina would like to pay hospitals across the state more than $800 million in increased Medicaid payments next year, but only if they agree “to do the right thing and forgive medical debt” under a new state plan, says Gov. Roy Cooper.
More than a dozen states or local governments are working to tackle the issue of medical debt across the nation. North Carolina’s plan is unique because it ties increased Medicaid payments to hospitals in exchange for them forgiving about $4 billion in medical debt and taking steps to ensure poor people don’t build up more medical debt in the future.
Thirty-seven of the state’s 99 hospitals – Western Carolina Hospital in Murphy, Hugh Chatham Health in Elkin, and all the hospitals affiliated with Cone Health, UNC Health, ECU Health and Novant Health – have already signed up to participate, says Health and Human Services Secretary Kody Kinsley. Other hospitals – including the state’s largest system, Charlotte-based Atrium Health – have until Friday to tell the state yes or no.
Cooper and Kinsley talked up the state’s plan Wednesday in Charlotte.
“Statistics show that hospitals only collect about 5% of this medical debt. The old, ‘You can’t get blood out of a turnip’ analogy is at work,” Cooper says. “They’ll earn more by forgiving medical debt than they would by otherwise not going in this direction.”
“This makes sense for hospitals, their patients and their communities,” the governor added.
Medical debt is not small potatoes in North Carolina. Approximately 2 million people owe about $4 billion in medical debt, mostly to hospitals, says Cooper.
All North Carolina hospitals already provide what’s generally called “charity care” to poor people. The North Carolina Healthcare Association estimates North Carolina hospitals and health care systems provided $6.3 billion in community benefits last year, including about $1.2 billion in charity care. This free care is one reason hospitals are exempt from paying property taxes.
State Treasurer Dale Folwell has criticized the proposed deal favored by Cooper and Kinsley, saying it is too favorable to the state’s hospitals. He says his department’s studies show N.C. hospitals already receive excessive charitable-care benefits that don’t lead to reduced prices. He believes the hospitals should be writing off much more debt, taking vigorous action to reduce prices and show more transparency in their charges.
In 2020, hospitals reaped more than $1.8 billion in tax breaks, yet charity care spending did not surpass 60% of the tax exemption’s estimated value across the majority of the state’s largest systems, according to a 2021 report published by the North Carolina State Health Plan and Johns Hopkins Bloomberg School of Public Health.
Cooper addressed that criticism by saying there has always existed a “gap between what’s available and what’s taken advantage of.” The state’s plan would require hospitals to do more to automatically enroll low-income patients in their existing charitable care programs, which would lessen future medical debt.
Participating hospitals would relieve all outstanding debt owed by current Medicaid enrollees, dating back to Jan. 1, 2014. Other individuals who are not enrolled in Medicaid but have incomes less than or equal to 350% of the federal poverty level, currently $90,370 for a family of three, may also qualify for medical debt relief.
Patients of participating hospitals would not need to take any actions to benefit from medical debt relief. The goal of the program is for eligible North Carolinians to begin to see relief for existing medical debt over the next two years.
Payments to hospitals – which could grow in future years – would be determined by the size of the hospital and their number of Medicaid patients, Kinsley says.
“Medical debt is a disease in our health system,” says Kinsley. “The financial burden and fear of medical debt – a debt no one ever chooses to have – makes people avoid getting the essential and preventive care they need. Meanwhile, hospitals spend too much chasing pennies on the dollars they’ll likely never collect.”
North Carolina expanded Medicaid coverage for low-income residents in December last year, and since that time about 523,000 people have been added to the program. North Carolina hospitals will receive about $3.2 billion next year in Medicaid reimbursements through a program meant to help health systems stabilize their finances.
That $3.2 billion in federal money will still be paid out even if zero hospitals would choose to participate in the debt relief program. However, if all hospitals participate, that amount would increase to $4 billion next year, and more than $6 billion the following year, with the extra money paid out to participating hospitals.
The state will determine payments in part on how many Medicaid patients a health system sees, Kinsley says. The amount of federal money will be determined by the number of healthcare systems that participate in the debt relief program.
The U.S. Centers for Medicare and Medicaid programs has approved North Carolina’s plan.