Confronting the Bully: New North Carolina Medicaid Program Gets Hospitals to Forgive and Prevent Medical Debt 

Being bullied is miserable. For the person with the power, bullying often satisfies an urge for control or the pursuit of their own interests. The bully rarely appears to have empathy for their target. If the bullying is left unchecked, some in a group may join in while others are cowed into silence. 

The bullying dynamic can be broken when the victim ceases to be ignored or blamed for inviting the harm — and instead gains allies. Together they can confront the bully. They might discover their own power or show the bully a better way. And if the bully’s behavior changes, the group is better for it. It can better accomplish a task, master a subject, vanquish a foe, or help people live long and healthy lives.  

There is a lot of bullying going on in health care. Some of the biggest bullies are health systems that are using their thirst for revenues to help sink over 20 million people in the United States — one in 12 adults — into medical debt. As of the end of 2021, 3 million people each owed more than $10,000 to health care providers.  While those with medical debt are often blamed for irresponsibility and bad choices, in reality, they are people who have suffered from catastrophic injuries or chronic illnesses and poor or no insurance. After going into debt, they often avoid medical care and face cutbacks in basic living expenses as well as credit card debt. 

Although new rules limit the reporting of medical debt on credit reports, between 2010 and 2020 medical debt overtook non-medical debt as the  largest source of  personal debt in collections. A 2022 KFF Health News investigation of billing practices at 528 hospitals around the country found 19 that explicitly prohibit “extraordinary collection actions.”

Health systems point to high-deductible insurance plans and the employers who purchase them as the culprits. But the decision to put someone in collections — to haunt their lives and damage their health — is the provider’s. In North Carolina, that behavior has been confronted with a new Medicaid-based program. The victims are getting relief. And the health systems will be changing their harmful ways. 

As of 2022, North Carolina ranked as the third worst state in the country for the portion of people with significant (over $250) medical debt (Figure 1). The poor ranking was due both to the state legislature’s rejection of the Medicaid expansion option under the Affordable Care Act and aggressive billing practices by health care providers. The impact was a drag on the state’s psyche and its economy.  

Figure 1. More Than 13% of North Carolina Residents Have Medical Debt 

What a difference a couple of years makes. In 2023, the legislature and the governor came to a historic agreement to expand Medicaid eligibility. And now creative policymaking and a collaborative partnership with the federal government will free existing victims of medical debt and reduce the likelihood of future ones.  

The improved prospects for those with medical debt came about through opportunism and leadership. Although Medicaid pays low provider rates relative to commercial payers across the country, hospitals have used to their political power with state legislatures to negotiate supplemental lump-sum Medicaid payments to pay for uncompensated care and to make up some of the Medicaid reimbursement shortfall. The Centers for Medicare and Medicaid Services pays approximately half the tab.  

The periodic renewal of these supplemental payment arrangements created the opportunity for North Carolina’s Department of Health and Human Services (NCDHHS) Secretary Kody Kinsley and his colleagues to consider what the state should get in return for these payments in the wake of expansion, and to prioritize relieving the harms caused by hospital billing practices. Recognizing that one can attract more flies with honey than vinegar, NCDHHS developed a two-tiered payment plan for the federally funded Healthcare Access and Stabilization Program (HASP). Under a Medicaid proposal submitted to CMS, hospitals would receive relatively higher HASP payments if they agreed to: 

• Relieve all medical debt deemed uncollectible dating back to Jan. 1, 2014, for any individuals not enrolled in Medicaid with incomes at or below at least 350% of the federal poverty level (FPL) or for whom total debt exceeds 5% of annual income.  
• Relieve all unpaid medical debt dating back to Jan. 1, 2014, for individuals who are enrolled in Medicaid.  
• Provide discounts on medical bills of between 50-100% for patients with incomes at or below 300% FPL, with the amount of the discount varying based on the patient’s income. 
• Automatically enroll people into financial assistance, known as charity care, by implementing a policy for presumptively determining individuals eligible for financial assistance through a streamlined screening and income validation approach.  
• Not sell any medical debt for consumers with incomes at or below 300% FPL to debt collectors.  
• Not report a patient’s debt covered by these policies to a credit reporting agency. 

The systemic effects of these new conditions cannot be overstated. NCDHHS would be helping nearly 2 million low- and middle-income North Carolinians get out from under debt causing a lifetime of pain and limitations, making it possible for them to more fully participate in society and the state’s economy. Moreover, the state was proposing to change the norms of health system behavior for future patients as well — to stop the bullying.

Federal officials agreed and approved NCDHHS’s waiver request on July 1. 

Decision time for the health systems to accept these conditions came this August. And whether it was a cold-hearted financial calculation or a lightning bolt realization that the work of a health system is healing, not revenue maximization, all 99 of the state’s eligible hospitals ended up accepting the conditions for enhanced HASP payments.  

Now the hard work of implementation begins. North Carolina will adopt a “trust but verify” philosophy, working with a nonprofit debt reduction facilitator, Undue Medical Debt, to validate health systems’ accounts of who is eligible for relief, and requiring extensive reporting from health systems to justify the additional HASP payments. The state estimates Tar Heel state residents with medical debt should start seeing relief next year. 

Good ideas are contagious, and there is no reason why North Carolina’s program could not be replicated by other state Medicaid agencies with similar leadership priorities.   

This can’t happen soon enough. Visitors from other countries find it inconceivable that US hospitals are immiserating the very people they exist to heal. Impoverishing patients has become accepted behavior. Communities suffer as a result. North Carolina, however, is showing that when given a chance and a choice, the bullying can stop.