Senate’s $29.8B budget reworks NC hospital landscape

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By Rose Hoban

The North Carolina Senate’s proposed budget for the next two fiscal years includes significant health policy initiatives that are certain to rankle hospital leaders across the state. 

The spending plan, which calls for allocating $29.8 billion in the coming fiscal year and $30.9 billion the following year, could greatly alter the health care landscape across the state with more private medical centers for dialysis, MRI scanning, cancer radiation and ambulatory surgical care cropping up in new locations and gives larger health care systems more power to expand. 

In addition, those large systems might find themselves answering more to the state treasurer.

The Senate’s proposed budget would put the state’s hospitals in the position of having to cut costs in the health plan for state employees by $125 million beginning in 2024.

If the state’s largest hospitals fail to find that savings, the budget plan comes with a potent threat: urban hospitals not bearing some of the burden of those savings would find their licenses to operate revoked, effectively putting them out of business. 

“The Senate Budget gives the state treasurer more cost control levers to achieve savings for the state health plan, such as reimbursing lower priced premiums for state employees and their dependents who opt to purchase health coverage outside of the state health plan,” Sen. Ralph Hise, (R-Spruce Pine), said during a briefing with reporters Monday afternoon. 

State Treasurer Dale Folwell has been in a long-running, very public tussle with the state’s hospitals, pressuring them for more price transparency and more cost savings for the approximately 750,000 members of the State Health Plan.

The idea in the Senate’s budget proposal is to put the hospitals on the hook for finding savings that account for nearly 8 percent of the $1.558 billion projected to be how much the plan will spend on hospital expenditures in 2025. The recommendation comes from Folwell’s office.

“The cost savings for the state health plan is not specifically tied to urban hospitals,” Hise clarified after the meeting with reporters. He said the total $125 million in savings is the trigger for the state to move against facilities in urban counties. “When you look at health care spending across state employees, or Medicaid, or whatever you want to do, the large hospitals in the state, make up a majority of the spend on all of those.”

A spokeswoman for the NC Healthcare Association, a trade group for the state’s hospitals, said her organization was still assessing the impact of the policies embedded in the Senate proposal since they had not received it until 4 p.m. Monday. 

The Senate fiscal plan, more than 1,000 pages long, not only includes spending goals for the state. It also includes significant pieces of policy scattered throughout the document, including policies that eventually could result in a health care provider system that would look very different from what’s in place today. 

Loosening regulations

In addition to the commanding message to hospitals to trim costs to the state, Hise also said the Senate plan “unequivocally takes a sledgehammer” to North Carolina’s certificate of need regimen. 

The state’s certificate of need laws regulate how much spending and building hospitals can undertake in a given geographic area. Some lawmakers — Hise among them — have long complained that the certificate of need laws constrain competition. Hospitals, on the other hand, say the restrictions on health care spending help keep costs down by eliminating duplication of expensive services and machinery.

shows men in suits and ties standing behind a podium looking serious. One of them holds a budget folder.
Senate leader Phil Berger (R-Eden) presents his chamber’s budget proposal for the upcoming biennium on Monday afternoon flanked by members of his caucus. Credit: Rose Hoban

The Senate spending plan would no longer require state review for freestanding kidney dialysis centers in smaller counties. The bill also would allow for placement of MRI scanning facilities, cancer radiation facilities and new ambulatory surgical facilities in counties that do not have a hospital. Additionally, single-specialty ambulatory surgical centers could convert into multi-specialty centers without having to go through the certificate of need process. 

“These common sense changes will build on the [certificate of need] reforms we included in the Medicaid expansion package,” Hise said. “In that package, [certificate of need] was repealed for ambulatory surgical centers, MRI machines in counties with a population of more than 125,000 to protect rural hospitals and smaller counties. 

“We take this a step further in the budget.”

Beyond borders

Another significant policy included in the Senate plan would eliminate a state law that restricts county hospital authorities from expanding much beyond their county borders. This would allow for hospital organizations such as Charlotte-based Atrium Health, chartered as the Charlotte-Mecklenburg Hospital Authority, to grow significantly beyond the county line. 

In 2020, Atrium inked a deal with Forsyth County’s Wake Forest Baptist Health to combine, but existing state law restricted the two hospital systems from merging completely. 

Instead, Atrium has grown outside North Carolina, expanding into Georgia, South Carolina and Alabama. In 2022, Atrium merged with the Midwest-based Advocate Health system, making the combined organization the eighth largest health care system in the country with 67 hospitals and annual revenues of more than $27 billion. Since the Advocate merger, the system’s footprint stretches to Wisconsin and Illinois.

A single line on page 180 of the Senate bill would allow Atrium to expand inside North Carolina’s borders as well, and would permit the system to buy Wake Forest Baptist Health outright. Existing state statute restricts Atrium from exercising its hospital authority powers outside the Mecklenburg County area.

If the policies in the Senate budget plan are approved by the state House and signed into law by the governor, Atrium would have eminent domain power to condemn and seize land it deems “for the public good” even outside Mecklenburg County, a power all of the state’s hospital authorities hold now. That means if Atrium were to identify a property it needed for providing health care services, it could go to court to take the property after compensating the current owners. 

Another hospital policy change contained in the Senate plan is the inclusion of Senate Bill 743, which would give UNC Health leeway to expand, freed from antitrust considerations and with less oversight. That also would apply to East Carolina University Health system (which goes by the name of Vidant Health), under the Senate proposal. 

The bill also would allow the two entities to form a clinically integrated practice network called NC Care. 

Such moves would set the stage for health system consolidation across North Carolina, something that research has found tends to increase hospital prices and depress wages for employees. 

The Federal Trade Commission, which regulates potentially monopolistic mergers and acquisitions, noted in a recent publication: “Most studies show that competition among health systems — not consolidation — results in the lowest prices and optimal quality benefits for patients, as well as optimal wages and benefits for employees.”

Health care spending in the budget

The Senate takes a different tack on spending in its budget from the one put forth by the House. The biggest difference is how the Senate spends the “sign-on bonus” received from the federal government for expanding Medicaid. 

Under the American Rescue Plan Act, North Carolina receives an extra 5 percent in Medicaid matching dollars for agreeing to expand the program in the state over the next two years. By the Senate’s reckoning, that translates into an additional $833 million in the fiscal year that begins July 1 and $834.7 million in the following fiscal year. (The House calculated that the revenue would be about $32 million less). 

House health care leaders proposed a plan earmarking close to a billion dollars to bolster mental health programs in the state.

In contrast, the Senate targets about $60 million of that money in the first year for building projects across the state’s universities and community colleges and construction of health sciences teaching facilities. Another $370 million over two years would go to investments in the new NC Care initiative, such as rural clinics and capital improvements in hospitals. A total of $550 million over two years would go to constructing two behavioral health hospitals for children — one in the Triangle and one in Greenville. 

Some other spending initiatives in the Senate budget include:

  • $96 million for rural loan repayment incentive programs for primary care and behavioral health providers,
  • $20 million for UNC-Pembroke’s new healthcare-oriented programs,
  • Increases in Medicaid reimbursements for private duty nursing services from $45 per-hour to $52 per-hour,
  • Allocating $60 million each year for direct-care worker wage increases,
  • Providing $50 million in recurring funds to permanently retain half of the increase in rates granted to skilled nursing facilities during the COVID-19 pandemic,
  • Providing $15 million in each year of the biennium for free and charitable clinics to provide care to low-income families and individuals across the state. 

Because there are differences between the Senate spending plan and the one put forward by the House a little more than a month ago, budget negotiators from each chamber will meet to try to develop a proposal that can win a majority support in both chambers.

Once the General Assembly adopts a budget it goes to Gov. Roy Cooper, who can either sign it, veto it or let it become law without his signature. This year, though, the governor has an incentive to allow the legislature’s budget to become law; until a budget passes, Medicaid expansion will not go into effect.

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