It may be too soon to celebrate after Gov. Josh Stein reversed Medicaid reimbursement provider cuts implemented in October, restoring access to cut services across North Carolina.
The Dec. 10 reversal is only the latest development in a high-stakes political battle between Stein, the state House and state Senate; according to the Department of Health and Human Services, a $319 million Medicaid funding shortfall remains.
Like their national counterparts, North Carolina’s lawmakers and governor can’t get on the same page on health care. Despite the reversal, they’re not planning to solve the problem next week, during a scheduled December legislative session.
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“If and when there’s a need, then the General Assembly will react to that,” said NC Rep. Timothy Reeder, R-Pitt.
In the meantime, it could take between 30 and 60 days for insurance companies and managed care organizations to restore rates to levels prior to the cuts, according to North Carolina Healthcare Association spokesperson Stephanie Strickland. Providers must also submit claims paid at reduced rates.
Strickland said the reversal was “an encouraging step toward stability for providers and the patients who depend on them.”
“As Medicaid continues to face financial pressures, we stand ready to work with the Governor and General Assembly on immediate and long-term solutions to strengthen health care delivery across North Carolina,” the statement continued.
In an update, the Department of Health and Human Services was clear that the reversal will not help in the long run. Without the ability to manage the funding gap with rate reductions, the only hope for relief is the legislature, the update stated.
“As a result, the Medicaid program is projected to run out of money early next year. If this happens, the consequences will be far more severe than the rate change. The stability of the entire Medicaid program — and the care provided to more than three million North Carolinians — is at risk.”
Cuts driven by Medicaid costs
In light of federal policy changes, inflation, higher demand and new, expensive drugs, the North Carolina Department of Health and Human Services says it needs $819 million annually from the state to maintain coverage for North Carolinians currently on Medicaid.
The legislature offered $600 million toward the cause in July as part of a mini-budget. DHHS used $100 million for administrative expenses, leaving a $319 million gap behind. But efforts to fill that hole have run into political headwinds.
For one, Republican lawmakers disagree on the sticker price. Reeder, who is involved in health budget discussions, said the legislature’s nonpartisan fiscal research division estimates a much smaller additional need, at $170 million.
“We’re going to use the nonpartisan fiscal research number and not what I believe to be an inflated number from the department and from the governor that is just supporting a bureaucracy instead of money for providers to take care of the patients who are the most vulnerable in North Carolina,” Reeder said.
Furthermore, he’s not satisfied with DHHS’ use of $100 million of the initial funding for administrative expenses. The department hasn’t justified why that was necessary, he said.
Reeder said the governor and DHHS need to look into cost savings before asking for money. He’s concerned about potential waste in the ABA therapy program, backlogged Medicaid redeterminations that may allow some income-ineligible Medicaid recipients to stay insured and funding of vacant department positions.
“We know from the auditor’s report that hundreds of those positions were never even posted,” Reeder said. “But yet, the department is using that money in those lapsed salary dollars for all sorts of things that are not related at all to salaries — using it for transportation and for rent and for computers and phones.”
DHHS has stated that they cannot use lapsed salary dollars for Medicaid funding.
Nonetheless, Reeder worries that DHHS hasn’t had to “look critically” at their spending in recent years, since federal money has made up for any shortfalls. That needs to change before he and other lawmakers will be convinced that the need is urgent, he said.
Interparty budget dispute impacts Medicaid talks
While the state House and state Senate agree on how much money they should give DHHS, they disagree over what should and shouldn’t be in the broader budget, and that fight has trickled into Medicaid talks.
North Carolina remains the only state in the nation that has not passed a budget this year. The state Senate, led by President Pro Tempore Phil Berger, R-Rockingham, wants to finish funding the North Carolina Children’s Hospital, which would be the first freestanding children’s hospital, to the tune of about $100 million.
Previous House leadership had agreed to fund the project, but Berger’s new House counterpart, Speaker Destin Hall, R-Caldwell, doesn’t particularly care. In September, while talking to reporters, he wondered aloud why the legislature would give hundreds of millions of dollars to a new hospital in Wake County when other, more rural hospitals could also use funding.
“Supporters of the children’s hospital have said it’s going to be the first standalone children’s hospital,” Hall said. “I don’t know what that means …. What is a standalone hospital? Why is that a good thing? We have at least five children’s hospitals in this state.”
While both chambers presented different versions of Medicaid funding bills — the House’s primarily focused on Medicaid, while the Senate’s included various other provisions, like funding for the children’s hospital — Berger and Hall were unable to reach a deal.
Despite the legislature’s differences, Reeder was confident that if there was a real need, they would be able to come together to resolve it.
In September, Stein turned up the heat. He called on the Department of Health and Human Services to cut Medicaid provider reimbursement rates starting Oct. 1, if lawmakers couldn’t come to an agreement.
As a result, health care providers across the state faced 3% to 10% cuts. For some, the cuts required shedding certain services. For others, like rural hospitals, the cuts posed an existential threat.
Immediately, the blame game began. Since the cuts were implemented, Stein has pointed fingers for the state’s health care woes at Republican lawmakers’ inaction, while lawmakers have pointed right back at him — and at each other.
Republican lawmakers called Stein’s move political. He didn’t have to cut rates in October, they said. Medicaid funding wouldn’t run out until at least April.
DHHS Secretary Dev Sangvai warned against waiting to cut rates at a November press conference.
“If we did not implement these changes, the financial strain on the Medicaid program would be even greater, potentially jeopardizing stability of the entire system and putting the state at significant fiscal risk,” he said. “North Carolina would have run out of North Carolina Medicaid funds as early as next year.”
To the courts, and back to the legislature?
North Carolina’s courts had a different idea.
In November, a judge temporarily paused Medicaid cuts related to treatment of children with autism. A common treatment for people diagnosed with autism, applied behavior analysis therapy, was subject to the highest, 10% cut. Parents of patients diagnosed with autism sued, alleging that the cuts were discriminatory.
Later that month, a judge temporarily paused 8% cuts to another service — personal care services delivered in adult care homes. Other lawsuits were likely on the way, and risked undermining DHHS’s attempt to cut costs. Together, this forced Stein’s hand, leading to Wednesday’s reversal.
“Court rulings have limited NCDHHS’ ability to manage the shortfall responsibly within the current fiscal year,” Stein said in a statement. “Without legislative action to fill the gap, Medicaid is projected to exhaust its funding before the end of the fiscal year, jeopardizing care for more than three million North Carolinians.”
After the reversal announcement, Republican lawmakers stood their ground. In a statement, state House leaders said Medicaid is fully funded through at least April 2026, per DHHS’s own information.
“Looking ahead, the House will continue to monitor Medicaid spending to ensure taxpayer dollars are spent wisely and, if a verified shortfall emerges, act quickly to protect North Carolinians’ access to care,” their statement said.
Over in the state Senate, Berger seems just as skeptical about the need to fund Medicaid immediately. Instead, he shifted attention to “administrative bloat” within DHHS he says Stein needs to address.
“While we attempted to work with the governor and the House by passing funding measures, there hasn’t been a serious effort from the Stein administration to cut unessential expenses in the Department to ensure our state’s Medicaid program operates efficiently,” Berger said in a statement.
That hasn’t stopped Stein and other Democratic lawmakers from placing the ball squarely in the legislature’s court.
“With session scheduled for next week, (Republicans) now have one last chance to clean up the mess they created,” Senate Minority Leader Sydney Batch, D-Wake, wrote in a statement. “Senate Democrats are calling on our Republican colleagues to return to Raleigh, pass a budget, and fund Medicaid fully. People’s lives and livelihoods depend on it.”
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