North Carolina government aims to incentivize hospitals to relieve patients of medical debt

RALEIGH, N.C. (AP) — North Carolina state government is seeking to rid potentially billions in medical debt from low- and middle-income residents by offering a financial carrot for hospitals to take unpaid bills off the books and to implement policies supporting future patients.

Democratic Gov. Roy Cooper and his health chief unveiled a plan Monday that they want federal Medicaid regulators to approve soon. It would allow roughly 100 hospitals that recently began receiving enhanced federal Medicaid reimbursement funds to get even more money.

But to qualify an acute-care, rural or university-connected hospital would have to voluntarily do away with patients' medical debt going back to early 2014 on current Medicaid enrollees — and on non-enrollees who make below certain incomes or whose debt exceeds 5% of their annual income.

Going forward, these hospitals also would have to help low- and middle-income patients — for example, those in a family of four making no more than $93,600 — by providing deep discounts on medical bills incurred. The hospitals would have to enroll people automatically in charity care programs, agree not to sell their debt to collectors or tell credit reporting agencies about unpaid bills. Interest rates on medical debt also would be capped.

The plan has the potential to help 2 million people in the state get rid of $4 billion in debt, Cooper said, much of which hospitals are never going to recoup anyway.

"It's clear that by providing relief for medical debt, we give North Carolinians not just peace of mind, but truly a fresh start," state Health and Human Services Secretary Kody Kinsley said at a governor's mansion news conference.

Other state and local governments have tapped into federal American Rescue Plan funds to help purchase and cancel residents' debt for pennies on the dollar. Kinsley said North Carolina's proposed initiative would be different by creating a long-term solution to debt.

North Carolina legislators last year created enhanced Medicaid reimbursement payments for hospitals — called the Healthcare Access and Stabilization Program —alongside provisions that expanded Medicaid coverage in the state to working adults who couldn't otherwise qualify for conventional Medicaid. Almost 500,000 people already have enrolled for the expanded Medicaid offered since last December. But that hasn't done away with past debt, Cooper said.

"Large judgments remain on the books that prevent people from buying a house or getting a credit card," Cooper said. "The weight of medical debt still casts a long shadow. So first we expanded Medicaid, and now we must reduce medical debt to help North Carolinians and our economy thrive."

The proposal, which Kinsley said is a first-of-its-kind effort, doesn't require a new state law and won't cost the state any additional funds, but the U.S. Centers for Medicare and Medicaid Services must approve the Healthcare Access and Stabilization Program changes sought last week. Kinsley said in an earlier interview that he believes regulators will be "aggressive in their approval." Cooper's administration wraps up at year's end, since he's barred by term limits from reelection.

To sweeten the deal, the financial possibilities for hospitals in the debt program that agree to debt alterations appear rich. The state Department of Health and Human Services said hospitals that choose to participate would be eligible to share funds from a pot of up to $6.5 billion for next year. Those who don't can share from $3.2 billion.

The debt relief wouldn't begin right away, with consumers benefitting in 2025 and 2026, according to state DHHS.

The effort also will depend on the willingness of the state's hospitals to participate. The North Carolina Healthcare Association — which lobbies for nonprofit and for-profit hospitals — didn't participate in the mansion news conference. The association said early Monday that it was preparing a written response to the proposal. Cooper said hospitals will come out better financially by participating instead of trying to recoup so little debt.

A group called Undue Medical Debt that's assisted other governments with buying medical debt and erasing it also would work on North Carolina's effort, DHHS said.

Republican State Treasurer Dale Folwell has questioned the commitment of the state's largest nonprofit hospital systems to treat patients who are poor at free or reduced rates. He's proposed legislation for hospitals to provide more charity care.

Representatives of patient advocacy groups at the news conference praised Cooper's effort, saying that the sick are going into debt through no fault of their own and delaying medical care to avoid additional bills.

The proposal gives "patients the ability to focus on what's most important, which is their health, instead of worrying about when the debt collector is going to call again and demand payment," Dave Almeida with the Leukemia & Lymphoma Society said.