North Carolina officials had been quietly laboring for months on an ambitious plan to tackle the state鈥檚 mammoth medical debt problem when Gov. Roy Cooper stepped before cameras in July to announce the initiative.
But as Cooper stood by the stairs of the executive mansion and called for 鈥渇reeing people from medical debt,鈥 the future of his administration’s work hung in the balance.
Negotiations were fraying between the state and the powerful hospital industry over the plan to make hospitals relieve patient debt or lose billions of dollars of public funding tied to the state鈥檚 Medicaid expansion. The federal government hadn鈥檛 signed off on North Carolina鈥檚 plan, putting funding at risk. And not a single hospital official stood with the governor that day.
Less than six weeks later, the gamble paid off. The state received a federal blessing. And every one of North Carolina鈥檚 99 hospitals agreed to the state鈥檚 demands.
In exchange for federal money, hospitals would wipe out billions of dollars of patient debt and adopt new standards to shield patients from crippling bills.
鈥淚t鈥檚 a model that the rest of the country could adopt,鈥 said Jared Walker, founder of Dollar For, a national nonprofit that helps patients get financial aid from hospitals. 鈥淭his is what we鈥檝e been fighting for.鈥
But it was no sure thing. The behind-the-scenes story of North Carolina鈥檚 effort 鈥 based on hundreds of pages of public records and interviews with state officials and others involved 鈥 reveals a months-long struggle as the state went toe-to-toe with its hospitals.
Multibillion-dollar health systems and the industry鈥檚 powerful trade group vigorously fought the medical debt plan, records show. They sowed fears of collapsing rural health care. They warned of legal fights and a showdown with the legislature. And they maneuvered to get the federal government to kill the plan.
The Cooper administration had powerful allies in Washington, though. The Biden administration 鈥 and Vice President Kamala Harris specifically 鈥 had made reducing medical debt a priority. And in the end, the state held the highest card: money.
Building on Medicaid Expansion
North Carolina鈥檚 new path was paved by years of frustration.
The state has long had among the highest rates of medical debt in the nation. As many as 3 million adults likely carry such debt, KFF polling and credit bureau data suggest.
Debt is highest in nonwhite communities and in eastern North Carolina, analyzed by the nonprofit Urban Institute shows. And while some debts may be small, the KFF poll found that at least a quarter of people nationally with debt owe more than $5,000.
North Carolina hospitals also have been aggressive debt collectors, taking thousands of patients to court, placing liens on homes, and .
The largest system, Atrium Health 鈥 part of Advocate Health, a multistate tax-exempt conglomerate that reported in revenue and $2.2 billion in profit last year 鈥 sued almost 2,500 patients from 2017 to 2022, found.
On Thursday, Advocate Health announced that on more than 11,000 homes.
Officials from Atrium and 14 other hospital systems declined to be interviewed about the debt plan.
Hospitals have beaten back efforts to restrict their aggressive billing. While an to expand patient protections attracted bipartisan support in the general assembly, it stalled last year in the face of industry opposition.
鈥淗ospitals are good lobbyists,鈥 the governor said in a recent interview. 鈥淭hey鈥檙e able to often stop legislation they don鈥檛 like.鈥
In 2023 the health care landscape in the state shifted. After years of resistance, GOP leadership in the legislature agreed to expand eligibility for Medicaid, the safety net insurance program.
The expansion promised to make coverage available to hundreds of thousands of previously uninsured low-income residents and to protect them from going into debt.
But as Cooper, a Democrat, and his top health official, Kody Kinsley, traveled the state to celebrate coverage gains, they saw a gap. The expansion didn鈥檛 help people who鈥檇 already racked up big bills. 鈥淭hey were still carrying the burden of that debt,鈥 Kinsley said.
With one more year in office, Cooper and Kinsley, whose interest in medical debt was colored by being the child of working-class parents, resolved to take a final shot at the debt problem.
鈥淚t鈥檚 just a metastasized disease in the health system,鈥 Kinsley said. 鈥淎nd going after it is just a tangle of thorns.鈥
Medicaid expansion offered a means, albeit untested, to do that, they believed.
The expansion would come with billions of dollars of new federal funding for hospitals through an arcane process known as a state-directed payment. This funding 鈥 which many states access to compensate hospitals for treating low-income patients 鈥 is as excessive.
Rather than reject the money, however, Noth Carolina officials believed they could leverage it. Instead of giving it away with no strings attached, they asked, what if they made hospitals protect patients from medical debt in exchange for the funds? If hospitals wouldn鈥檛, the state would dock their money.
鈥淚t was a clear tool that we now had on the table,鈥 said Kinsley, who oversaw development of the debt plan and negotiations with hospitals and the federal government.
Many hospital systems in North Carolina stood to get nearly twice as much money by agreeing to participate in the debt relief plan, state figures show. Charlotte-based Atrium, for instance, would get about $1.7 billion next year, compared with roughly $900 million if it didn鈥檛 sign on.
But the added money would come with a catch.
Seeking Trusted Partners
Kinsley and his aides quickly settled on two things to demand from health systems.
Hospitals would have to eliminate outstanding debts of their low-income patients. This approach had been pioneered by New York-based nonprofit Undue Medical Debt, which buys old debt for pennies on the dollar and retires it.
Hospitals would also have to change their financial aid policies so more patients could get help with big bills and fewer would go into debt.
Most hospitals already offer discounts to low-income patients. But standards vary, and many hospitals make it difficult to apply for assistance. To address this, some states have imposed uniform standards on hospitals.
North Carolina state officials wanted the same. They knew, however, that threatening hospital money would stir opposition from the industry鈥檚 lobbying arm, the influential North Carolina Healthcare Association.
So Kinsley and his aides reached out directly to a handful of hospital systems, including UNC Health, the nonprofit system affiliated with the state鈥檚 public university system. 鈥淲e were essentially road-testing what the actual policies could be and how they would work,鈥 Kinsley said.
Through the first months of 2024, state officials took pains to keep the conversations confidential, emails obtained through a public records request show. When Kinsley鈥檚 aides provided drafts to hospital officials, they asked that the proposals be shared 鈥渨ith only a few select colleagues.鈥
State and hospital officials went back and forth over which patients should qualify for free or discounted care, how to relieve old patient debts, and how to better screen patients for aid.
The process convinced state officials that their plan would work. Some hospitals had already retired patients鈥 debts. Others had financial assistance policies that paralleled the standards the state was contemplating.
鈥淲e had sought out hospitals of different shapes and sizes,鈥 Kinsley said. 鈥淲e had gleaned from other states what the best practices were and what was really workable.鈥
鈥楢 Total Explosion鈥
Then in late April, word of the negotiations between the state and the select group of hospitals leaked.
Kinsley said his cellphone lit up. 鈥淓verybody freaked out,鈥 he recalled. 鈥淓very lobbyist was coming after me. It was just a total explosion.鈥
Among them was the North Carolina Healthcare Association and its veteran chief executive, Steve Lawler, who began peppering Kinsley鈥檚 office with sharply worded letters attacking the medical debt plan and predicting dire consequences.
Lawler warned that patients would face higher insurance costs. Moreover, he alleged it was illegal to use federal Medicaid dollars to force hospitals to provide widespread debt relief.
鈥淪uch a trade-off is not permissible,鈥 Lawler wrote on May 2.
Days later, Kinsley fired back a long letter to Lawler, saying that the plan was a legally sound effort to address a crisis that was 鈥渉arming our neighbors.鈥
But the damage had been done. The hospitals working with the state changed their tone, and the industry closed ranks.
Meanwhile the hospital association made plans to convene a meeting with health insurers and business leaders to discuss medical debt, an approach that threatened to slow the state effort to hold hospitals singularly accountable. The group met at Ruth鈥檚 Chris Steak House in Raleigh, a restaurant where a steak costs $60 and up.
In a recent interview, Lawler said the hospital group was just trying to build consensus for a different strategy for tackling medical debt. 鈥淭his was a big enough issue that it just required a bigger-tent conversation,鈥 he said.
To state officials, it looked like an industry play to derail the medical debt plan. 鈥淚 didn鈥檛 know if it was going to fall apart,鈥 Kinsley said.
Pressing Ahead
For lower-income residents, the stakes were high.
The state’s program was designed to erase around $4 billion in hospital debt for nearly 2 million people dating to 2014, according to state estimates.
If approved, the plan would also require hospitals to automatically qualify more patients for charity care, provide discounts to low- and middle-income patients, and stop reporting these patients to credit agencies if they couldn鈥檛 pay.
So despite the pushback, state officials kept up their dialogue with hospitals and made revisions to address some concerns, records show.
Among the concessions, the state proposed that hospitals offer debt relief to patients with incomes below 3陆 times the federal poverty level, or $109,200 for a family of four. The state had initially sought to mandate aid for people making less than four times the poverty level.
State officials also secured a legal opinion from a Medicaid expert in Washington, D.C., who confirmed that the state鈥檚 approach wouldn鈥檛 run afoul of federal rules.
But time was running out. The state needed to submit its plan by the end of June or risk losing the federal money. And Cooper and Kinsley still wanted at least a few hospitals on board to build momentum.
鈥淭he win here would be hospitals and the department solving a problem that was real and meaningful for people, and we could walk out together and say this is what we got done,鈥 Kinsley said in an interview later.
Email records indicate that some systems, such as Cone Health, considered joining Kinsley and the governor when they July 1.
None did. And by the following week, the state was barraged by letters from hospitals across the state lambasting the medical debt plan.
Ken Haynes, a senior Atrium official, wrote that the proposal would set 鈥渁 dangerous precedent鈥 and warned that insurance companies would raise deductibles, knowing that hospitals would have to forgive bills for many patients.
Novant Health, a large nonprofit system with seven hospitals in and around Charlotte, argued that financial assistance should be limited to uninsured patients and those with Medicaid. 鈥淧olicies should avoid broad debt relief approaches that divert scarce hospital resources,鈥 wrote Alice Pope, the system鈥檚 chief financial officer.
In 2023, Novant posted and more than $460 million in profit.
New Bern-based CarolinaEast Health System, insisted the plan would 鈥渃ripple rural healthcare organizations.鈥 Granville Health System, which runs a community hospital in the center of the state, contended that 鈥渉ospitals are being used as pawns to achieve preferred political and policy objectives on questionable legal authority.鈥
In mid-July, Lawler at the North Carolina Healthcare Association wrote directly to the head of the federal Centers for Medicare & Medicaid Services, urging it to reject the state鈥檚 plan. Lawler said the plan 鈥渟et a dangerous precedent鈥 by linking Medicaid funding to medical debt policy.
Dominoes Fall
But North Carolina officials maintained close contact with the federal agency, giving them confidence they鈥檇 get the green light, despite hospital opposition.
On July 26, approval came through, a month and a day after North Carolina submitted the plan. Federal review of state plans can often take three or four times as long.
The state gave hospitals until 5 p.m. on Friday, Aug. 9, to accept the new medical debt standards or forfeit billions of dollars.
By Aug. 7, only 37 of the state鈥檚 99 hospitals had signed on.
Then the tide shifted. By Friday evening, state officials had .
Implementing the plan promises to be complicated, with logistical challenges, wary Republicans in the legislature, and hospitals smarting over the showdown. And, as state leaders acknowledge, more action is needed to constrain high prices hospitals still command.
But with taxpayers pumping billions of dollars into health systems nationwide, North Carolina鈥檚 gambit offers a potential road map for leveraging public funds to confront a crisis that burdens some 100 million people in the U.S.
鈥淣orth Carolina has been really strategic in using the lever of its Medicaid payments,鈥 said Christopher Koller, president of the Milbank Memorial Fund, a health policy nonprofit. “The focus of health systems should be caring for patients, not bullying them for every last penny to run their business.鈥
