By Michelle Crouch
In an initiative that appears to be the first of its kind nationwide, N.C. Gov. Roy Cooper and state health officials unveiled a plan today to boost federal payouts to hospitals that take specific steps to ease the burden of medical debt for low-income patients.
To participate, hospitals would have to agree to wipe out medical debt dating back to 2014 for large numbers of low- and middle-income patients. They would also have to abide by other conditions, such as offering discounts ranging from 50 percent to 100 percent to those patients, capping interest rates on hospital-held medical debt at 3 percent and agreeing not to report medical debt to credit agencies.
With the program, the governor and the Department of Health and Human Services aim to address a burgeoning crisis of medical debt in North Carolina, where one out of five residents has medical debt in collections, according to 2022 credit bureau data analyzed by the policy think tank Urban Institute. Only three other states have higher numbers, the data shows.
Medical debt disproportionately affects Black and Hispanic patients, as well as people living in rural areas.
“Large medical bills from sickness or injury can cripple the finances of North Carolinians, particularly those who are already struggling,” Cooper said in a news release. “Freeing people from medical debt can be life-changing for families, as well as boost the overall economic health of North Carolina.”
The DHHS program, which needs approval from the U.S. Centers for Medicare and Medicaid Services (CMS), would be paid for by new federal dollars coming to North Carolina because the state shifted to Medicaid managed care. (The money would come from an initiative called the Healthcare Access and Stabilization Program, or HASP.)
Those dollars, originally expected to add about $3.2 billion to hospital coffers, would grow to as much as $4 billion this year and $6.5 billion in fiscal year 2025, depending upon how many hospitals participate, said DHHS Secretary Kody Kinsley.
Hospitals still reviewing policy
The North Carolina Healthcare Association, which advocates on behalf of hospitals, said it “needs more time” to review the proposal, noting that it still requires approval by the CMS.
“We believe that the best solutions are always inclusive and transparent, with involvement by all stakeholders, including employers, payors and providers,” the association said in a statement. “For over a decade, North Carolina hospitals advocated for Medicaid expansion. We agreed to pay the non-federal share of the cost of expansion, which is only possible through the Healthcare Access and Stabilization Program (HASP).”
Several large hospital systems told N.C. Health News that they haven’t decided yet if they will participate in the initiative.
“At this point, we’re interested in learning more and plan to review the proposal carefully,” said UNC Health spokesman Alan Wolf.
Greensboro-based Cone Health emailed a statement that said, “We understand the importance of alleviating the burden of medical debt for those whom we serve. Doing so aligns with Cone Health’s mission and values. Therefore, we are carefully reviewing the policy and implementation details and are committed to working with all involved for the good of our fellow North Carolinians.”
Kinsley said he crafted the program with feedback from hospitals, which are on the hook for picking up the 10 percent state share of the cost of Medicaid enrollees newly eligible for the program because the state also expanded Medicaid last year to more low-income people.
Kinsley said he hopes that every hospital in the state will opt into this new initiative. Those that don’t participate will receive a standard amount of federal funds, he said.
“This is less about how can hospitals afford to do this, and — when you really understand the implications of debt — the real question is, how can hospitals not afford to do it?” Kinsley said. “It is the right thing for the people they serve, and it will lead to a healthier community. And with these increased (federal) payments, it will allow them to continue to invest in all the things that they know will make a huge difference for their population systems.”
If every N.C. hospital participated, approximately 2 million low- and middle-income North Carolinians could potentially have as much as $4 billion in existing medical debt forgiven, Kinsley said.
Hemi Tewarson, executive director for the National Academy of State Health Policy, said she is not aware of other efforts to use Medicaid-directed payments to compel hospitals to forgive medical debt or make changes to their financial assistance policies.
“We think this is a very interesting and innovative way to approach payments to hospitals,” she said. “It’s a way to ensure hospitals remain whole with respect to whatever resources they need but have some accountability to think about how to support consumers who are struggling with medical debt.”
She added, “We are going to watch it with great interest.”
Not just a financial problem
Patient advocates and health policy experts also praised the initiative, saying they hoped it would serve as a model for other states.
Dave Almeida, regional director of government affairs for the Leukemia & Lymphoma Society, said many blood cancer patients struggle with medical debt, and it can significantly affect their treatment.
In one national survey prepared for the organization, more than four in 10 patients with medical debt said they made the decision to delay medical care because they didn’t want to go further into debt, Almeida said.
He said he hoped the new program would help “give patients the peace of mind to focus on what’s most important, which is their health, without any distractions.”
Barak Richman, a George Washington University Law professor who co-authored a study that examined medical debt collection by North Carolina hospitals, said he’s grateful “DHHS is prioritizing this and is recognizing it’s a severe matter of health policy, let alone a source of injustice.”
He added, “I do wish the hospitals would recognize that this is their legal and moral responsibility and wouldn’t have to be financially incentivized to address this.”
What do hospitals have to do to get the money?
In order to receive the enhanced Medicaid payments, the new program would require hospitals to agree to forgive medical debt for certain patients and implement specific financial policies to minimize medical debt. Here are the specific conditions hospitals would need to follow:
Forgive all unpaid medical debt dating back to 2014 for any patients enrolled in Medicaid. (In 2014, the Affordable Care Act gave states the option to extend Medicaid coverage to low-income adults, but North Carolina didn’t make the change until 2023.)
Forgive all medical debt deemed uncollectible (known as “bad debt”) dating back to 2014 for patients with incomes at or below 350% of the federal poverty level ($52,710 for an individual or $109,200 for a family of four), as well as for patients for whom the debt exceeds 5% of their annual income.
Give patients with incomes at or below 300% of the federal poverty level ($45,180 for an individual/$85,800 for a family of four) discounts on their medical bills. The discounts would range from 50% to 100%, depending on income.
Screen all patients for financial assistance eligibility and automatically apply discounts to medical bills for patients who qualify, rather than requiring patients to apply for assistance.
Refrain from selling the medical debt of patients with incomes at or below 300% of the federal poverty level to debt collectors.
Cap interest rates on medical debt held by participating hospitals at 3%.
Commit to not reporting medical debt to credit agencies.
Partnership with Undue Medical Debt (formerly RIP Medical Debt)
Kinsley said he developed the idea for the program after attending events across the state celebrating Medicaid expansion.
New Medicaid enrollees repeatedly spoke of their relief at finally having insurance, he said, but “then they would pivot back to, ‘But I still have to figure out what to do about the $3,000 or the $10,000 or the $20,000 in debt that I now have because of the cancer or the heart attack.’”
“It just struck me that … the debt remains a problem.”
Kinsley said he started talking to Undue Medical Debt (formerly RIP Medical Debt), a national nonprofit that buys old medical debt for pennies on the dollar and then forgives it for people living below the poverty line.
The organization has erased more than $12 billion in medical debt across the country, but some hospitals — including Atrium Health and Novant Health in North Carolina — have been unwilling to work with the organization.
(See “Charlotte Hospitals say ‘no thanks’ to charity that forgives medical debt.”)
The DHHS initiative calls for Undue Medical Debt to work directly with hospitals that decide to participate. The nonprofit will “get in the weeds” with the hospitals to help them identify debt that meets the eligibility criteria, and then send letters to patients forgiving the debt, Undue CEO Allison Cesso said.
It can be a time-consuming process, she said, so it may be 2025 or 2026 before the program is fully implemented.
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Financial assistance policies to minimize debt
North Carolina hospitals currently offer a wide range of charity care and financial assistance policies, some more generous than others. For example, Atrium Health already offers discounts to patients at or below 400% of the federal poverty level — a higher level than is required under the state plan.
Kinsley said the state tried to find a middle ground when crafting the new standards.
“We just built a bouquet of some of the best ideas that already exist throughout the state and tried to strike a balance … on where the right midpoint would be to make this achievable across so many diverse marketplaces,” he said.
Almeida of the Leukemia & Lymphoma Society said an important aspect of the DHHS plan is the required screening of all patients for financial assistance, including those with insurance, and automatically enrolling those who are eligible.
Patients who have just been diagnosed with a serious illness “have a lot on their plate,” Almeida said, and applying for financial assistance is often a burdensome, bureaucratic process.
Hospitals can determine whether patients are eligible using indicators such as homelessness, unemployment, Medicaid coverage or participation in the state’s SNAP food stamp program, Kinsley said. Hospitals can also pay credit reporting companies to prequalify patients based on their loan, credit card and mortgage information, he said.
While the DHHS program is an important step, Almeida and Richman said more needs to happen to help protect people with medical debt, such as taking steps to rein in escalating hospital prices, to protect people from their spouse’s debt and to restrict hospitals from suing individuals for unpaid debt.
Almeida and Richman said they hope those issues will be addressed by the General Assembly with future legislation.
“What I see is the governor and secretary doing everything they can to address this issue outside the legislative process,” Almeida said. “From our perspective, medical debt is no-fault debt. No one chooses to become sick. So no one should have to choose between putting food on the table, paying rent, putting their kids in college … and paying their medical bills. It just shouldn’t be part of the calculus.”
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