NC Hospitals Propose to Fund Medicaid Expansion, Reform CON Laws

September 22, 2022 - The North Carolina Healthcare Association (NCHA) has submitted a proposal to lawmakers that aims to overcome the stall in negotiations and pass Medicaid expansion.

The proposal was delivered to Senate President Pro Tempore Phil Berger, House Speaker Tim Moore, and North Carolina Governor Roy Cooper.

NCHA represents over 130 hospitals, health systems, physician groups, and other healthcare organizations across the state. The association proposed that health systems and hospitals would fund most of the state’s share of expenses to expand Medicaid.

Medicaid expansion would extend coverage to 600,000 North Carolinians, but it would cost the state more than $550 million per year. In addition, the state would absorb a minimum projected loss in revenue of more than $700 million due to certificate of need (CON) law modifications.

NCHA’s proposal suggests that North Carolina repeal CON laws for psychiatric inpatient beds and chemical dependency beds.

The proposal comes in response to Senator Berger’s and Governor Cooper’s requirement that Medicaid expansion be accompanied by CON reform.

CON laws are state regulatory mechanisms for approving capital expenditures and projects for certain healthcare facilities. The laws aim to control healthcare costs by avoiding unnecessary expansion or duplicative services within an area.

In order for health systems and hospitals to cover the cost of the state’s share of expansion, as NCHA proposed, the General Assembly must pass legislation that includes the Healthcare Access and Stabilization Program (HASP).

HASP is a federally funded program through CMS that helps boost Medicaid reimbursement for hospitals. Hospitals typically receive only 72 centers for every dollar spent on providing care to Medicaid beneficiaries and uninsured individuals. This leads to an annual reimbursement gap of $2.3 billion.

Under NCHA’s proposal, CON law reforms would start after the state implemented Medicaid expansion and received HASP funds.

The proposal’s success is dependent on HASP, as North Carolina hospitals are currently facing financial challenges, including rising labor expenses, inflation, and negative margins. According to NCHA, the average operating margin for its hospital members during the first half of 2022 was -3.0 percent.

Success also hinges on lawmakers’ ability to properly oversee CON law reform.

“CON law changes could threaten the survival of community hospitals if they are not implemented carefully,” Roxie Wells, MD, NCHA Board Chair and president of Cape Fear Valley Health Hoke Hospital, said in the press release.

“We are putting a lot of trust in legislative leaders to do this correctly. If this policy damages access to local healthcare services, we hope that government leaders will find the resources to preserve crucial healthcare services and facilities, including safety-net services that North Carolinians rely on.” 

Despite the risks of the proposal, NCHA believes that CON law modifications and financial contributions from hospitals will help expedite the process of expanding Medicaid in North Carolina.

“It’s time for elected leaders to get a compromise bill done to expand Medicaid and pass HASP. Each day the General Assembly waits is a day that harms 600,000 North Carolinians,” said Steve Lawler, president and chief executive officer of NCHA. “We hope that any legislation crafted will be done in a thoughtful way that protects healthcare facilities that take care of people and improve community health.”

The state put off Medicaid expansion in 2020 and instead passed a Medicaid transformation bill aiming to further the transition from fee-for-service to privatized managed care organizations.

Data from 2022 found that the state’s Medicaid managed care program has helped address social determinants of health and facilitate care coordination.