Dave Lantz is no stranger to emergency department or doctor bills. With three kids in their teens and early 20s, "when someone gets sick or breaks an arm, all of a sudden you have thousand-dollar medical bills," Lantz said.
The family's health plan that he used to get as the assistant director of physical plant at Lycoming College, a small liberal arts school in central Pennsylvania, didn't start to cover their costs until they had paid $5,600 in medical bills. The Lantzes were on the hook up to that annual threshold. The high-deductible plan wasn't ideal for the family of five, but it was the only coverage option available to them.
Things are very different now. In mid-2022, the college ditched its group health plan and replaced it with a new type of plan — an individual coverage health reimbursement arrangement, or ICHRA.
Now Lantz gets a set amount from his employer every month that he puts toward a family plan on the individual insurance market. He opted for a zero-deductible plan with a richer level of coverage than the group plan. Though its $790 monthly premium is higher than the $411 he used to pay, he ends up saving money overall by not having to pay down that big deductible. Plus, he now has more control over his health spending.
"It's nice to have the choice to balance the high deductible versus the higher premium," Lantz said. Before, "it was tough to budget for that deductible."
As health insurance costs continue to rise, employers are eyeing this type of health reimbursement arrangement to control their health care spending while still providing a benefit that workers value. Some consumer advocates are concerned the plans could result in skimpier, pricier coverage for certain consumers, especially sicker, older ones.
The plans allow employers to make tax-preferred contributions to employees to use to buy coverage on the individual market. Employers thus limit their financial exposure to rising health care costs. Everybody wins, say backers of the plans, which were established in 2019 as part of a group of proposals the Trump administration said would increase health insurance choice and competition.
"It's a way to offer coverage to more diverse employee groups than ever before and set a budget that controls costs for the companies," said Robin Paoli, executive director of the HRA Council, an advocacy group.
Some health insurance specialists say the plans aren't necessarily a good option for consumers or the individual insurance market. Even though the rules prevent employers from offering this type of coverage to specific workers who may be sicker and more expensive to cover than others, employers with relatively unhealthy workforces may find the arrangements appealing. This, in turn, may drive up premiums in the individual market, according to an analysis by the University of Southern California-Brookings Schaeffer Initiative for Health Policy.
Plans sold on the individual market often have smaller provider networks and higher deductibles than employer-sponsored coverage. Premiums are often higher than for comparable group coverage. Workers, especially lower-wage ones, might be better off financially with premium tax credits and cost-sharing reductions to buy an Affordable Care Act marketplace plan, but using the work-based ICHRA benefit would disqualify them.
"From a worker perspective, the largest impact is that being offered affordable coverage by your employer makes you ineligible for marketplace subsidies," said Matthew Fiedler, a senior fellow at the Brookings Institution who co-authored the analysis of the rule establishing the plans.
The plans are currently offered to only a tiny slice of workers: an estimated 500,000 of the roughly 165 million people with employer-sponsored coverage, according to the HRA Council. But interest is growing. The number of employers offering ICHRAs and an earlier type of plan, called qualified small-employer HRAs, increased 29% from 2023 to 2024, according to the council. And, although small employers have made up the bulk of adopters to date, larger employers with at least 50 workers are the fastest-growing cohort.
"The [traditional group] health insurance cornerstone from 60 years ago has outlived its usefulness," said Matt Miller, whose Headwater Ventures has invested in the ICHRA administrator Venteur. "The goal is to ensure people have coverage, detaching it from the employment construct and making it portable."
Employers can offer this type of health reimbursement arrangement to some classes of employees and group plans to others based on characteristics such as geography, full-time vs. part-time status, or salaried vs. hourly pay.
Lycoming College wasn't aiming to be on the cutting edge when it made this coverage switch. Faced with a 60% premium increase after some members had high claims, the school, which covers roughly 400 faculty and staff and their family members, needed to look at alternatives, said Kacy Hagan, its associate vice president for human resources and compliance.
In the end, they opted to offer ICHRA coverage to any employee who worked at least 30 hours a week.
In the first year of offering the new benefit, the college saved $1.4 million in health care costs over what they would have spent if they'd stayed with its group plan. Employees saved an average of $1,200 each in premiums.
"The finance folks really like it," Hagan said. As for employees, "from a cost standpoint, people tend to be pretty happy with it, and people really like having a choice of plans," she said. However, there have been issues with the plan's administration. Some employees' coverage was dropped and had to be reinstated, she said. Those problems have been largely resolved since they switched plan administrators this year.
This coverage arrangement can be complicated to manage. Instead of a company paying one group health plan premium, dozens of individual health insurers may need to be paid. And employees who've never shopped for a plan before need help figuring out what coverage works for them and signing up.
The complexity can be off-putting. This year, a number of companies that have tried this type of health reimbursement arrangement decided they'd rather go back to a group plan, said Tim Hebert, managing partner of Sage Benefit Advisors, based in Fort Collins, Colorado.
"They say, 'Employees are all over the place in different plans, and they don't feel like they're being taken care of,'" Hebert said.
Vendors continue to crop up to help employers like Lycoming College and their workers manage their plans.
"If you just say, 'Here's $1,000,' it's extremely discombobulating and confusing," said Jack Hooper, CEO of Take Command Health, which now administers the Lycoming ICHRA.
It's unclear whether the plans will take off or remain a niche product.
"It's a big disrupter, like 401(k)s," said Mark Mixer, board chair of the HRA Council and CEO of HealthOne Alliance in Dalton, Georgia. Still, it's not for everyone. "It's simply another tool that employers should consider. When it fits, do it."
Federal officials resolved more than a decade ago to crack down on whopping government overpayments to private Medicare Advantage health insurance plans, which were siphoning off billions of tax dollars every year.
But Centers for Medicare & Medicaid Services officials have yet to demand any refunds — and over the years the private insurance plans have morphed into a politically potent juggernaut that has signed up more than 33 million seniors and is aggressively lobbying to stave off cuts.
Critics have watched with alarm as the industry has managed to deflate or deflect financial penalties and steadily gain clout in Washington through political contributions; television advertising, including a 2023 Super Bowl feature; and other activities, including mobilizing seniors. There's also a revolving door, in which senior CMS personnel have cycled out of government to take jobs tied to the Medicare Advantage industry and then returned to the agency.
Sen. Chuck Grassley (R-Iowa) said Medicare Advantage fraud "is wasting taxpayer dollars to the tune of billions."
"The question is, what's CMS doing about it? The agency must tighten up its controls and work with the Justice Department to prosecute and recover improper payments," Grassley said in a statement to KFF Health News. "Clearly that's not happening, at least to the extent it should be."
David Lipschutz, an attorney with the Center for Medicare Advocacy, a nonprofit public interest law firm, said policymakers have an unsettling history of yielding to industry pressure. "The health plans throw a temper tantrum and then CMS will back off," he said.
Government spending on Medicare Advantage, which is dominated by big health insurance companies, is expected to hit $462 billion this year.
New details of the government's failure to rein in Medicare Advantage overcharges are emerging from a Department of Justice civil fraud case filed in 2017 against UnitedHealth Group, the insurer with the most Medicare Advantage enrollees. The case is pending in Los Angeles. The DOJ has accused the giant insurer of cheating Medicare out of more than $2 billion by mining patient records to find additional diagnoses that added revenue while ignoring overcharges that might have reduced bills. The company denies the allegations and has filed a motion for summary judgment.
Records from the court case are surfacing as the Medicare Advantage industry ramps up spending on lobbying and public relations campaigns to counter mounting criticism.
"We recognize this is a critical moment for Medicare Advantage," said Rebecca Buck, senior vice president of communications for the Better Medicare Alliance, which styles itself as "the leading voice for Medicare Advantage."
Buck said initiatives aimed at slashing government payments may prompt health plans to cut vital services. "Seniors are saying loud and clear: They can't afford policies that will make their health care more expensive," she said. "We want to make sure Washington gets the message."
AHIP, a trade group for health insurers, also has launched a "seven-figure" campaign to promote its view that Medicare Advantage provides "better care at a lower cost," spokesperson Chris Bond said.
Revolving Door
CMS, the Baltimore-based agency that oversees Medicare, has long felt the sting of industry pressure to slow or otherwise stymie audits and other steps to reduce and recover overpayments. These issues often attract little public notice, even though they can put billions of tax dollars at risk.
In August, KFF Health News reported how CMS officials backed off a 2014 plan to discourage the health plans from overcharging amid an industry "uproar." The rule would have required that insurers, when combing patients' medical records to identify underpayments, also look for overcharges. Health plans have been paid billions of dollars through the data mining, known as "chart reviews," according to the government.
The CMS press office declined to respond to written questions posed by KFF Health News. But in a statement, it called the agency a "good steward of taxpayer dollars" and said in part: "CMS will continue to ensure that the MA program offers robust and stable options for people with Medicare while strengthening payment accuracy so that taxpayer dollars are appropriately spent."
Court records from the UnitedHealth case show that CMS efforts to tighten oversight stalled amid years of technical protests from the industry — such as arguing that audits to uncover overpayments were flawed and unfair.
In one case, Jeffrey Grant, a CMS official who had decamped for a job supporting Medicare Advantage plans, protested the audit formula to several of his former colleagues, according to a deposition he gave in 2018.
Grant has since returned to CMS and now is deputy director for operations at the agency's Center for Consumer Information and Insurance Oversight. He declined to comment.
At least a dozen witnesses in the UnitedHealth case and a similar DOJ civil fraud case pending against Anthem are former ranking CMS officials who departed for jobs tied to the Medicare Advantage industry.
Marilyn Tavenner is one. She led the agency in 2014 when it backed off the overpayment regulation. She left in 2015 to head industry trade group AHIP, where she made more than $4.5 million during three years at the helm, according to Internal Revenue Service filings. Tavenner, who is a witness in the UnitedHealth case, had no comment.
And in October 2015, as CMS department chiefs were batting around ideas to crack down on billing abuses, including reinstating the 2014 regulation on data mining, the agency was led by Andy Slavitt, a former executive vice president of the Optum division of UnitedHealth Group. The DOJ fraud suit focuses on Optum's data mining program.
In the legal proceedings, Slavitt is identified as a "key custodian regarding final decision making by CMS" on Medicare Advantage.
"I don't have any awareness of that conversation," Slavitt told KFF Health News in an email. Slavitt, who now helps run a health care venture capital firm, said that during his CMS tenure he "was recused from all matters related to UHG."
'Improper' Payments
CMS officials first laid plans to curb escalating overpayments to the insurers more than a decade ago, according to documents filed in August in the UnitedHealth case.
In a January 2012 presentation, CMS officials estimated they had made $12.4 billion worth of "improper payments" to Medicare Advantage groups in 2009, mostly because the plans failed to document that patients had the conditions the government paid them to treat, according to the court documents.
As a remedy, CMS came up with an audit program that selected 30 plans annually, taking a sample of 201 patients from each. Medical coders checked to make sure patient files properly documented health conditions for which the plans had billed.
The 2011 audits found that five major Medicare Advantage chains failed to document from 12.3% to 25.8% of diagnoses, most commonly strokes, lung conditions, and heart disease.
UnitedHealth Group, which had the lowest rate of unconfirmed diagnoses, is the only company named in the CMS documents in the case file. The identities of the four other chains are blacked out in the audit records, which are marked as "privileged and confidential."
In a May 2016 private briefing, CMS indicated that the health plans owed from $98 million to $163 million for 2011 depending on how the overpayment estimate was extrapolated, court records show.
But CMS still hasn't collected any money. In a surprise action in late January 2023, CMS announced that it would settle for a fraction of the estimated overpayments and not impose major financial penalties until 2018 audits, which have yet to get underway. Exactly how much plans will end up paying back is unclear.
Richard Kronick, a former federal health policy researcher and a professor at the University of California-San Diego, said CMS has largely failed to rein in billions of dollars in Medicare Advantage overpayments.
"It is reasonable to think that pressure from the industry is part of the reason that CMS has not acted more aggressively," Kronick said.
CMS records show that officials considered strengthening the audits in 2015, including by limiting health plans from conducting "home visits" to patients to capture new diagnosis codes. That didn't happen, for reasons that aren't clear from the filings.
In any case, audits for 2011 through 2015 "are not yet final and are subject to change," CMS official Steven Ferraina stated in a July court affidavit.
"It's galling to me that they haven't recovered more than they have," said Edward Baker, a whistleblower attorney who has studied the issue.
"The government needs to be more aggressive in oversight and enforcement of the industry," he said.
Senior CMS official Cheri Rice recommended in the October 2015 email thread with key staff that CMS could devote more resources to supporting whistleblowers who report overbilling and fraud.
"We think the whistleblower activity could be as effective – or even more effective – than CMS audits in getting plans to do more to prevent and identify risk adjustment overpayments," Rice wrote.
But the handful of cases that DOJ could realistically bring against insurers cannot substitute for CMS fiscal oversight, Baker said.
"Unfortunately, that makes it appear that fraud pays," he said.
Spending Surge
In December, a bipartisan group of four U.S. senators, including Bill Cassidy (R-La.), wrote to CMS to voice their alarm about the overpayments and other problems. "It's unclear why CMS hasn't taken stronger action against overpayments, despite this being a longstanding issue," Cassidy told KFF Health News by email.
In January, Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) called for CMS to crack down, including by restricting use of chart reviews and home visits, known as health risk assessments, to increase plan revenues.
Cassidy, a physician, said that "upcoding and abuses of chart review and health risk assessments are well-known problems CMS could address immediately."
Advocates for Medicare Advantage plans, whose more than 33 million members comprise over half of people eligible for Medicare, worry that too much focus on payment issues could harm seniors. Their research shows most seniors are happy with the care they receive and that the plans typically cost them less out-of-pocket than traditional Medicare.
Buck, the spokesperson for the Better Medicare Alliance, said that as the annual open enrollment period starts in mid-October, seniors may see "fewer benefits and fewer plan choices."
The group has ramped up total spending in recent years to keep that from happening, IRS filings show.
In 2022, the most recent year available, the Better Medicare Alliance reported expenses of $23.1 million, including more than $14 million on advertising and promotion, while in 2023, it paid for a Super Bowl ad featuring seniors in a bowling alley and left viewers with the message: Cutting Medicare Advantage was "nuts."
Bruce Vladeck, who ran CMS' predecessor agency from 1993 through 1997, said that when government officials first turned to Medicare managed care groups in the 1990s, they quickly saw health plans enlist members to help press their agenda.
"That is different from most other health care provider groups that lobby," Vladeck said. "It's a political weapon that Medicare Advantage plans have not been at all reluctant to use."
The Better Medicare Alliance reported lobbying on 18 bills this year and last, according to OpenSecrets. Some are specific to Medicare Advantage, such as one requiring insurers to report more detailed data about treatments and services and another to expand the benefits they can offer, while others more broadly concern health care costs and services.
Proposed reforms aside, CMS appears to believe that getting rid of health plans that allegedly rip off Medicare could leave vulnerable seniors in the lurch.
Testifying on behalf of CMS in a May 2023 deposition in the UnitedHealth Group suit, former agency official Anne Hornsby said some seniors might not "find new providers easily." Noting UnitedHealth Group is the single biggest Medicare Advantage contractor, she said CMS "is interested in protecting the continuity of care."
There's a new morning ritual in Pinedale, Wyoming, a town of about 2,000 nestled against the Wind River Mountains.
Friends and neighbors in the oil- and gas-rich community "take their morning coffee and pull up" to watch workers building the county's first hospital, said Kari DeWitt, the project's public relations director.
"I think it's just gratitude," DeWitt said.
Sublette County is the only one in Wyoming — where counties span thousands of square miles — without a hospital. The 10-bed, 40,000-square-foot hospital, with a similarly sized attached long-term care facility, is slated to open by the summer of 2025.
DeWitt, who also is executive director of the Sublette County Health Foundation, has an office at the town's health clinic with a window view of the construction.
Pinedale's residents have good reason to be excited. New full-service hospitals with inpatient beds are rare in rural America, where declining population has spurred decades of downsizing and closures. Yet, a few communities in Wyoming and others in Kansas and Georgia are defying the trend.
"To be honest with you, it even seems strange to me," said Wyoming Hospital Association President Eric Boley. Small rural "hospitals are really struggling all across the country," he said.
There is no official tally of new hospitals being built in rural America, but industry experts such as Boley said they're rare. Typically, health-related construction projects in rural areas are for smaller urgent care centers or stand-alone emergency facilities or are replacements for old hospitals.
About half of rural hospitals lost money in the prior year, according to Chartis, a health analytics and consulting firm. And nearly 150 rural hospitals have closed or converted to smaller operations since 2010, according to data collected by the University of North Carolina's Cecil G. Sheps Center for Health Services Research.
To stem the tide of closures, Congress created a new rural emergency hospital designation that allowed struggling hospitals to close their inpatient units and provide only outpatient and emergency services. Since January 2023, when the program took effect, 32 of the more than 1,700 eligible rural hospitals — from Georgia to New Mexico — have joined the program, according to data from the Centers for Medicare & Medicaid Services.
Tony Breitlow is healthcare studio director for EUA, which has extensive experience working for rural healthcare systems. Breitlow said his national architecture and engineering firm's work expands, replaces, or revamps older buildings, many of which were constructed during the middle of the last century.
The work, Breitlow said, is part of healthcare "systems figuring out how to remain robust and viable."
Freeman Health System, based in Joplin, Missouri, announced plans last year to build a new 50-bed hospital across the state line in Kansas. Paula Baker, Freeman's president and chief executive, said the system is building for patients in the southeastern corner of the state who travel 45 minutes or more to its bigger Joplin facilities for care.
Freeman's new hospital, with construction on the building expected to begin in the spring, will be less than 10 miles away from an older, 64-bed hospital that has existed for decades. Kansas is one of more than a dozen states with no "certificate of need" law that would require health providers to obtain approval from the state before offering new services or building or expanding facilities.
Baker also said Freeman plans to operate emergency services and a small 10-bed outpost in Fort Scott, Kansas, opening early next year in a corner of a hospital that closed in late 2018. Residents there "cried, they cheered, they hugged me," Baker said, adding that the "level of appreciation and gratitude that they felt and they displayed was overwhelming to me."
Michael Topchik, executive director of the Chartis Center for Rural Health, said regional healthcare systems in the Upper Midwest have been particularly active in competing for patients by, among other things, building new hospitals.
And while private corporate money can drive construction, many rural hospital projects tap government programs, especially those supported by the U.S. Department of Agriculture, Topchik said. That, he said, "surprises a lot of people."
Since 2021, the USDA's rural Community Facilities Programs have awarded $2.24 billion in loans and grants to 68 rural hospitals for work that was not related to an emergency or disaster, according to data analyzed by KFF Health News and confirmed by the agency. The federal program is funded through what is often known as the farm bill, which faces a September congressional renewal deadline.
Nearly all the projects are replacements or expansions and updates of older facilities.
The USDA confirmed that three new or planned Wyoming hospitals received federal funding. Hospital projects in Riverton and Saratoga received loans of $37.2 million and $18.3 million, respectively. Pinedale's hospital received a $29.2 million loan from the agency.
Wyoming's new construction is rare in a state where more than 80% of rural hospitals reported losses in the third quarter of 2023, according to Chartis. The state association's Boley said he worries about several hospitals that have less than 10 days' cash on hand "day and night."
Pinedale's project loan was approved after the community submitted a feasibility study to the USDA that included local clinics and a long-term care facility. "It's pretty remote and right up in the mountains," Boley said.
Pinedale's DeWitt said the community was missing key services, such as blood transfusions, which are often necessary when there is a trauma like a car crash or if a pregnant woman faces severe complications. Local ambulances drove 94,000 miles last year, she said.
DeWitt began working to raise support for the new hospital after her own pregnancy-related trauma in 2014. She was bleeding heavily and arrived at the local health clinic believing it operated like a hospital.
"It was shocking to hear, ‘No, we're not a hospital. We can't do blood transfusions. We're just going to have to pray you live for the next 45 minutes,'" DeWitt said.
DeWitt had to be airlifted to Idaho, where she delivered a few minutes after landing. When the hospital financing went on the ballot in 2020, DeWitt — fully recovered, with healthy grade-schoolers at home — began making five calls a night to rally support for a county tax increase to help fund the hospital.
"By improving healthcare, I think we improve everybody's chances of survival. You know, it's pretty basic," DeWitt said.
Californians with medical debt will no longer have to worry about unpaid medical bills showing up on their credit reports under legislation signed Tuesday by Gov. Gavin Newsom, adding the nation's most populous state to a growing effort to protect consumers squeezed by unaffordable medical bills.
The bill, by Sen. Monique Limón (D-Santa Barbara) and backed by Democratic Attorney General Rob Bonta, will block healthcare providers, as well as any contracted collection agency, from sharing a patient's medical debt with credit reporting agencies. At least eight states have banned medical bills from consumer credit reports in the past two years. In June, the Biden administration proposed similar federal protections, but it's unclear when the rules will be enacted — or, if former President Donald Trump is elected again, if they will be at all.
"Nobody chooses to get sick, and then your credit gets ruined," said Chi Chi Wu, a senior attorney with the National Consumer Law Center. "That's why we encourage states to keep adopting laws. In case something goes wrong at the federal level, the states could protect their own consumers."
When California's new law goes into effect in January, it will extend these protections to credit reports used for employment and tenant screening, Wu said. This is in addition to the proposed federal ban on reporting to credit agencies that inform credit card companies and mortgage lenders.
California lawmakers noted that medical debt — unlike other kinds of debt — isn't an accurate reflection of credit risk, and its inclusion can depress credit scores and make it hard for people to get a job, rent an apartment, or secure a car loan.
But California lawmakers have left a glaring loophole. Patients who pay hospital bills using medical credit cards or medical specialty loans — which can come with interest rates as high as 36% — won't get that debt taken off their credit report, as residents of Colorado, Minnesota, and New York do. It's a concession the financial industry won through late-in-the-game "hostile" amendments, which "influential entities opposed to the measure prevailed" in including, Limón said. In a 2022 KFF poll on medical debt, 15% of adults said they had used a medical credit card.
Kelly Parsons-O'Brien, legislative chair of the California Association of Collectors, which represents collection agencies, said the exemptions were essential because medical credit card holders can buy nonmedical items and medical loans can be refinanced with nonmedical debt, making it "impossible" for creditors to know what's actually a medical charge.
"More consumers will get into situations where they cannot afford to pay, and lenders will be operating in the dark," Parsons-O'Brien said.
The three largest U.S. credit agencies — Equifax, Experian, and TransUnion — said they would stop listing some medical debt, including paid-off debts and those less than $500, but millions of patients were left with bigger medical bills on their credit reports. The Consumer Financial Protection Bureau reported in April that 15 million Americans still had medical bills on their credit reports.
About 4 in 10 Californians report carrying some type of medical debt, which disproportionately affects low-income, Black, and Latino patients, according to the California healthcare Foundation.
Dozens of states have enacted legislation to protect consumers from surprise billing and medical debt, according to the National Conference of State Legislatures. Newsom, a Democrat, also signed legislation on Tuesday banning hospitals from using liens on all real property owned by Californians who typically earn less than 400% of the federal poverty level. It expands current state law that protects a patient's home from debt collectors.
A KFF Health News analysis found that credit reporting is the most common collection tactic used by hospitals to get patients to pay their bills. A credit score ban might make it more difficult for hospitals to collect.
When Sacramento resident Sonia Hayden and her boyfriend applied for a home loan last year, she discovered her credit score had dropped about a hundred points. It had been downgraded because of an approximately $200 emergency room charge after a car accident years ago.
The 44-year-old said her insurance covered tens of thousands of dollars in medical bills but that the hospital miscoded the $200 charge and she never received a bill for it. That, she said, should also have been charged to insurance.
Hayden tried unsuccessfully for over a year to resolve the issue with her health insurer. It's still on her credit report. She was eventually able to get a home loan, but her interest rates were higher because of her credit score.
"Medical bills, they're not on purpose, you know?" said Hayden, who testified in support of the legislation. "It was already a super traumatic accident. I almost died. And then to have this super stressful medical bill — nobody's asking for that. It shouldn't affect your credit."
In exchange for federal Medicaid expansion money, hospitals wiped out billions of dollars of patient debt and adopt new standards to shield patients from crippling bills.
This article was published on Monday, September 23, 2024 in KFF Health News.
North Carolina officials had been quietly laboring for months on an ambitious plan to tackle the state's 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 "freeing people from medical debt," 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's Medicaid expansion. The federal government hadn't signed off on North Carolina's 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's 99 hospitals agreed to the state's 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.
"It's a model that the rest of the country could adopt," said Jared Walker, founder of Dollar For, a national nonprofit that helps patients get financial aid from hospitals. "This is what we've been fighting for."
But it was no sure thing. The behind-the-scenes story of North Carolina's effort — based on hundreds of pages of public records and interviews with state officials and others involved — reveals a months-long struggle as the state went toe-to-toe with its hospitals.
Multibillion-dollar health systems and the industry's 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 — and Vice President Kamala Harris specifically — had made reducing medical debt a priority. And in the end, the state held the highest card: money.
North Carolina's 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, credit bureau data 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 garnishing tax refunds.
The largest system, Atrium Health — part of Advocate Health, a multistate tax-exempt conglomerate that reported more than $31 billion in revenue and $2.2 billion in profit last year — sued almost 2,500 patients from 2017 to 2022, a report found.
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 ambitious bill to expand patient protections attracted bipartisan support in the general assembly, it stalled last year in the face of industry opposition.
"Hospitals are good lobbyists," the governor said in a recent interview. "They're able to often stop legislation they don't like."
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't help people who'd already racked up big bills. "They were still carrying the burden of that debt," 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.
"It's just a metastasized disease in the health system," Kinsley said. "And going after it is just a tangle of thorns."
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 — which many states access to compensate hospitals for treating low-income patients — is criticized by some experts 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't, the state would dock their money.
"It was a clear tool that we now had on the table," 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't 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's 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's public university system. "We were essentially road-testing what the actual policies could be and how they would work," 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's aides provided drafts to hospital officials, they asked that the proposals be shared "with only a few select colleagues."
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' debts. Others had financial assistance policies that paralleled the standards the state was contemplating.
"We had sought out hospitals of different shapes and sizes," Kinsley said. "We had gleaned from other states what the best practices were and what was really workable."
‘A Total Explosion'
Then in late April, word of the negotiations between the state and the select group of hospitals leaked.
Kinsley said his cellphone lit up. "Everybody freaked out," he recalled. "Every lobbyist was coming after me. It was just a total explosion."
Among them was the North Carolina Healthcare Association and its veteran chief executive, Steve Lawler, who began peppering Kinsley's 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.
"Such a trade-off is not permissible," 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 "harming our neighbors."
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's 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. "This was a big enough issue that it just required a bigger-tent conversation," he said.
To state officials, it looked like an industry play to derail the medical debt plan. "I didn't know if it was going to fall apart," 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't 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 3½ 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's approach wouldn't 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.
"The 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," Kinsley said in an interview later.
Email records indicate that some systems, such as Cone Health, considered joining Kinsley and the governor when they announced the plan 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 "a dangerous precedent" 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. "Policies should avoid broad debt relief approaches that divert scarce hospital resources," wrote Alice Pope, the system's chief financial officer.
New Bern-based CarolinaEast Health System, insisted the plan would "cripple rural healthcare organizations." Granville Health System, which runs a community hospital in the center of the state, contended that "hospitals are being used as pawns to achieve preferred political and policy objectives on questionable legal authority."
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's plan. Lawler said the plan "set a dangerous precedent" 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'd 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's 99 hospitals had signed on.
Then the tide shifted. By Friday evening, state officials had locked in all 99.
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's gambit offers a potential road map for leveraging public funds to confront a crisis that burdens some 100 million people in the U.S.
"North Carolina has been really strategic in using the lever of its Medicaid payments," 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."
WILLIAMSTON, N.C. — On a mid-August morning, Christopher Harrison stood in front of the shuttered Martin General Hospital recalling the day a year earlier when he snapped pictures as workers covered the facility's sign.
"Yes, sir. It was a sad day," Harrison said of the financial collapse of the small rural hospital, where all four of his children were born.
Quorum Health operated the 49-bed facility in this rural eastern North Carolina town of about 5,000 residents until it closed. The hospital had been losing money for some time. The county's population has slightly declined and is aging; it has experienced incremental economic downturns. Like many rural hospitals, those headwinds drove managers to discontinue labor and delivery services and halt intensive care during the past five years.
Prospects for reopening seemed dim.
But a new hospital designation by the Centers for Medicare & Medicaid Services that took effect last year offered hope. As of August, hospitals in 32 communities around the country have converted to the rural emergency hospital designation to prevent closure. The new program provides a federal financial boost for struggling hospitals that keep offering emergency and outpatient services but halt inpatient care.
The REH model "is not designed to replace existing, well-functioning rural hospitals," said George Pink, a senior research fellow at the University of North Carolina's Cecil G. Sheps Center for Health Services Research, which has documented 149 rural hospitals that have either closed or no longer provide inpatient care since 2010. "It really is targeted at small rural communities that are at imminent risk of a hospital closing."
The program hasn't yet been used to reopen a closed hospital.
With guidance from health consultants, Martin County officials asked federal regulators to explore the possibility of adopting the REH model and were ultimately given the go-ahead.
If successful, Martin County could become one of the first in the nation to convert a shuttered hospital to this new model.
Ask members of a community that has lost its hospital what they miss most, Pink said, and it's almost invariably emergency services. Count Harrison among them, especially after a medical crisis nearly killed him.
Harrison, who lives in a smaller crossroads community a few miles south of Williamston, began experiencing leg pain in February. Under normal circumstances, Harrison said, he would have gone to his primary care doctor if his leg began to hurt. This time he couldn't, because the practice closed when the hospital folded months earlier.
Then, one morning he awoke to find his foot turning black. It took him 45 minutes to drive to the closest hospital, in the town of Washington. There, doctors found blood clots and he was flown by helicopter to East Carolina University Health Medical Center. A doctor there told him that he'd probably had the blood clots for close to a year and that he was lucky to be alive. The medical team was able to save his foot from amputation.
Harrison, like many other community members, now had firsthand experience with the consequences of a shuttered hospital.
The state legislature's decision last year to expand Medicaid has meant fewer North Carolinians are uninsured, which means fewer hospital bills go unpaid. But health care is evolving: Many procedures that once required inpatient care are now performed as outpatient services. Dawn Carter, the founder and a senior partner of Ascendient, a health care consulting firm working with the county, said the inpatient census at Martin General in its last few years ranged from five or six a day to a dozen.
"So you're talking about a lot of cost, a lot of infrastructure to support that," she said.
With no emergency care within a half-hour radius, Martin County administrators believe a rural emergency hospital would be a good fit and a viable option. REH status allows a hospital to collect enhanced Medicare payments, an annual facility payment, and technical assistance.
Carter said the team will present to the state Department of Health and Human Services a set of drawings of the portion of the building they intend to use to see if it meets REH regulations.
"I'm hoping that process is happening in the next several weeks," she said, "and that will give us a better idea of whether we have a handful of really quick and easy things to do or if it's going to take a little more effort to reopen."
Officials then will take proposals from companies interested in running the hospital.
Carter said the expectation is that, initially, the facility will be strictly the emergency room and imaging department, "and then I think the question is, over time, where do you build beyond that?"
And the rebuilding could prove a challenge from the start. Many former staff members have taken positions at nearby health care facilities or left the area. The effects of that exodus will be compounded by the widespread difficulty in recruiting health workers to rural areas.
It's early yet, Pink said, to assess the success of the rural emergency hospital model. "All we have are armchair anecdotes." It seems to be working well in some communities, while others "are struggling a little to make it work."
Pink has a list of questions to assess how an emergency hospital is faring in the long run:
Is it at least breaking even? And if not, do administrators foresee a solution?
How is the community responding? If someone believes they have an issue that might require inpatient care, Pink suggested, perhaps they'll bypass the REH for a hospital that can admit them. And to what extent does bypassing their doors carry over to all services?
Are patients happy with the care they're receiving? Are the clinical outcomes good?
The rate of rural hospital closures rose through 2020, then dropped considerably in 2021. Congress had passed the CARES Act, and the Provider Relief Fund offered a financial lifeline, Pink said. That money has now been distributed, and the concern is that "many rural hospitals are returning to pre-covid financial stresses and unprofitability."
If the trend continues, he said, more rural hospitals may turn to the REH model.
Ben Eisner serves as Martin County's attorney and interim manager. He acknowledges that the health and well-being of this community require a lot more than a hospital. He cites, for example, a new nonprofit with a mission to address the social determinants of health.
Advancing Community Health Together was created in response to the hospital closure. Composed of community members, its focus is addressing inadequate health care access and poor health outcomes as a consequence of generational poverty, said Vickey Manning, director of Martin-Tyrrell-Washington District Health.
"We can't address rural health care in a vacuum," Carter said. Her organization, Ascendient, is part of the Rural Healthcare Initiative, a nonprofit commissioned by the North Carolina General Assembly to study sustainable models of health care for rural communities.
Like most of rural eastern North Carolina, Martin County is in transition, Eisner said. Diminishing family farms, less industry. "And so the question becomes," he said, "‘What happens for all these communities? What happens next?' And it's an answer that is not yet fully written."
Harrison, still relying on crutches to get around, recently drove 45 minutes north on U.S. 13 to the town of Ahoskie to have a doctor examine his foot. He said a hospital that offers basic emergency care isn't a perfect solution, but he'll have some peace of mind once the cover is peeled from that sign and his local hospital reopens.
SACRAMENTO, Calif. — California Gov. Gavin Newsom will soon decide whether the most populous U.S. state will join 25 others in regulating the middlemen known as pharmacy benefit managers, or PBMs, whom many policymakers blame for the soaring cost of prescription drugs.
PBMs have been under fire for years for alleged profiteering and anticompetitive conduct, but efforts to regulate the industry at the federal level have stalled in Congress.
The three largest PBMs are owned by insurers and retail pharmacy chains, and about 80% of prescription drug sales in the United States are controlled by them: OptumRx, owned by UnitedHealth Group; CVS Caremark, owned by CVS Health, which also owns the insurer Aetna; and Express Scripts, owned by The Cigna Group.
The proposed law, spearheaded by state Sen. Scott Wiener of San Francisco, a Democrat, would require PBMs to apply for a license by 2027 and would mandate that licensed PBMs pass along 100% of pharmaceutical manufacturers' rebates to health plans or insurers. Drug companies often offer substantial discounts on medications to boost demand, and one of the major criticisms of PBMs is that they pocket rebates rather than pass savings along to customers.
The law would also mostly bar PBMs from steering patients to pharmacies they own, which includes the major mail-order pharmacies. And it would prohibit them from giving independent pharmacies lower insurance reimbursements than they offer the big chains — a major issue for the dwindling number of independents around the country.
Wiener said the law aimed to rein in what he called "the worst abuses by PBMs." Proponents of the legislation say the experiences in the 25 states that require PBM licensing and the 16 that ban steering of patients to preferred vendors show that regulations reduce costs for consumers.
"When they're licensed like we're looking at, the cost goes down. States without licensing saw costs go up," said Assembly member Devon Mathis, one of two Republicans to co-author the bill, citing the National Community Pharmacists Association.
Health insurance premiums increased an average of 16.7% nationwide from 2015 to 2019, the association calculated, with premiums in states that license PBMs increasing 0.3 of a percentage point below the national average and those without, 0.4 above. The association claimed similar benefits from several other reforms affecting pharmacies.
The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, said Wiener's bill "blatantly" favors independent retail pharmacies over chains.
"This legislation does nothing to lower costs for patients; it simply seeks to financially promote one industry over another with no consumer benefit," the group said.
Insurance companies argue that the California bill would reduce the PBMs' ability to negotiate lower drug prices, resulting in higher coverage premiums for everyone. But drugmakers argue that reforms don't raise premiums.
Supreme Court Decision Looms
States have stepped in to regulate PBMs in the absence of any federal action; Congress has been holding oversight hearings on PBMs, and the Federal Trade Commission in July said PBMs "may be profiting by inflating drug costs and squeezing Main Street pharmacies," but there has been no new legislation or efforts to crack down based on existing laws barring anticompetitive conduct.
The U.S. Supreme Court could soon weigh in on whether states have the authority to regulate PBMs. A federal appellate court blocked Oklahoma regulations on PBMs on the grounds that federal law held sway, and a group of 35 state attorneys general, including California's Rob Bonta, have asked the Supreme Court to overturn the ruling.
A central complaint about PBMs is that they take money from pharmaceutical companies, in the form of "rebates," to give their drugs preferential treatment on health plans' lists of medications that are covered by insurance, known as formularies. Those rebates may play a role in raising drug prices, found a 2020 paper by the University of Southern California's Schaeffer Center for Health Policy & Economics.
Under the California bill, those rebates are to be used "for the sole purpose of lowering deductibles and out-of-pocket cost for consumers," said Assembly member Jim Wood, a Democrat. "There is a perverse incentive by PBMs to choose for their formulary the drugs that will give them the biggest rebate, the largest rebate, even if there are other drugs just as effective and lower-cost. That alone should send shivers down your spine."
Crackdown in California
California collected more than $215 million last year from the nation's largest Medicaid insurer, Centene, after it failed to disclose or pass along drug discounts negotiated by its PBM to the state Medicaid agency.
Independent pharmacies say provisions in the proposed California law requiring PBMs to offer them the same pricing as the chains could be a lifeline.
Clint Hopkins, who has co-owned Pucci's Pharmacy in Sacramento for eight years, said he's forced to regularly turn away customers rather than lose hundreds of dollars each time he fills their high-cost prescriptions.
For instance, he said his cost for a monthly dose of Biktarvy, used to treat HIV, is $3,881.68. But he said pharmacy benefit managers short him up to $360 on the reimbursement.
"They dictate the rates to us, and they will not negotiate," said Hopkins, who testified for the bill on behalf of the California Pharmacists Association. "Sometimes I have to say, 'I'm sorry, I want to help you, but I can't lose this much money on your prescription.'"
While the bill passed with unusual legislative support, it faces an uncertain future with the Democratic governor, who has until Sept. 30 to sign or veto it.
Newsom vetoed a 2021 bill that would have barred PBMs from steering patients to their own pharmacies, citing potential unintended consequences.
And his Department of Finance said administering the licensing and collecting the data required by the law would cost several million dollars. In vetoing other legislation, Newsom has repeatedly cited costs, as the state struggles with a massive budget deficit.
Ballad Health, an Appalachian company with the nation's largest state-sanctioned hospital monopoly, may soon be required to improve its quality of care or face the possibility of being broken up.
Government documents obtained by KFF Health News reveal that Tennessee officials, in closed-door negotiations, are attempting to hold the monopoly more accountable after years of complaints and protests from patients and their families.
Ballad, a 20-hospital system in northeastern Tennessee and southwestern Virginia, was created six years ago through monopoly agreements negotiated with both states. Since then, Ballad has consistently fallen short of the quality-of-care goals, according to annual reports released by the Tennessee Department of Health.
Despite these failures, Tennessee has given "A" grades and annual stamps of approval to Ballad that allow the monopoly to continue. This has occurred, at least in part, because Ballad is graded against a scoring rubric that largely ignores how its hospitals actually perform.
Now that may change. In an ongoing renegotiation of Tennessee's monopoly agreement, the state health department has pushed for an eightfold increase in the importance of hospital performance, making it "the most heavily weighted" issue on which Ballad would be judged, according to state documents obtained through a public records request. The negotiations appear to be the state's most substantial response to residents who sound alarms about Ballad hospitals.
Dani Cook, a community organizer who has led efforts against Ballad for years, including an eight-month protest outside a Ballad hospital in 2019, said a renegotiated monopoly agreement could be a first step toward progress that locals have long sought, but only if it is enforced by the state.
Cook also questioned why Tennessee took years to prioritize something as fundamental as good care.
"That's what baffles me about this entire relationship: Ballad seems to never be held to account," Cook said. "And that's why, when I look at this, I say, ‘Oh that sounds great.' But let's see what happens."
Ballad Health was created in 2018 after Tennessee and Virginia officials waived federal anti-monopoly laws and approved the nation's biggest hospital merger based on what's called a Certificate of Public Advantage, or COPA, agreement. Despite the warnings of the Federal Trade Commission, the region's rival hospital systems became a single system without competition. Ballad is now the only option for hospital care for most of about 1.1 million people in a 29-county region at the nexus of Tennessee, Virginia, Kentucky, and North Carolina.
In an effort to offset the perils of the monopoly, Ballad was required to enter agreements with the states that set expectations for the company and limited its ability to raise prices or close hospitals. Each year, Tennessee grades Ballad against this agreement on a 100-point scale. If the company performs poorly, Tennessee could in theory revoke the COPA, and then enforce a plan to split Ballad into separate companies, according to the monopoly agreement.
The new negotiation documents offer a snapshot of how Tennessee hopes to reshape this agreement, detailing more than a dozen changes the health department proposed in February and a counterproposal from Ballad in May. It is unclear if or how these proposals may have changed in the subsequent months.
Tennessee Department of Health spokesperson Dean Flener said the agency would not comment on Ballad or the ongoing negotiations.
In a written statement, Ballad did not comment directly on the negotiations but said the company "enthusiastically agrees that the most important thing to our patients is the quality of care they receive." The company said in 2023 that its hospital quality slipped due to the pressure of the coronavirus pandemic and that it was in the process of rebounding.
"We strongly support a shared focus on quality of care as it relates to the COPA," Molly Luton, a Ballad spokesperson, said in the statement.
Historically, quality of care has been just a small part of how Ballad is held accountable. Twenty percent of Ballad's annual COPA score comes from measurements of hospital quality, but the company gets full credit on three-fourths of those measurements if it reports any value — even a terrible one. Only 5% of the annual score is determined by real-world hospital performance.
If quality was weighted more, Ballad would have scored much worse in past years. Annual reports released by the Tennessee Department of Health over the last two years show that Ballad failed to meet more than 74% of the state's quality-of-care benchmarks, including some about mortality rates, readmission rates, emergency room speed, surgery-related infections, and patient satisfaction.
Under Tennessee's proposed changes, all these metrics would matter much more. But Tennessee would also lower the overall standards for Ballad's monopoly and ease a charity care obligation that Ballad has repeatedly not met, according to the negotiation documents. Ballad has said it hasn't met the charity care obligation because changes to Medicaid programs have left fewer patients uninsured and in need of charity.
The documents show that:
Tennessee has proposed increasing the share of Ballad's annual score that is attributable to real-world quality of care from 5% to 40% and no longer giving Ballad any points for merely reporting quality statistics. In a counteroffer, Ballad proposed raising this percentage to 34%, with some points still awarded to the company just for reporting.
Tennessee proposed lowering the minimum overall score that Ballad needs to obtain each year for its monopoly to be considered a "clear and convincing public advantage." If Ballad falls below this threshold, the COPA agreement could be modified or "terminated." Tennessee wants to lower the threshold from 85 out of 100 to 75. In its counteroffer, Ballad proposed 70.
Tennessee would reduce or weaken a requirement for Ballad charity care spending that is largely moot. Ballad has been required to provide more than $100 million in free or discounted charity care to low-income patients each year under the current monopoly agreement, but it has failed to do so five years in a row, falling short by about $194 million in total. Tennessee has waived the requirement each year.
Cook, who described the new documents as a rare glimpse into closed-door dealings that Ballad patients never get to see, said it was striking to witness the company push for lower standards.
"Why would they be pushing back on improving the quality of care that people receive?" Cook said. "If they are really among the nation's best — because that's what they tell the entire region — why do you need the standards lowered?"
ATLANTA — On a recent summer evening, Raymia Taylor wandered into a recreation center in a historical downtown neighborhood, the only enrollee to attend a nearly two-hour event for people who have signed up for Georgia's experimental Medicaid expansion.
The state launched the program in July 2023, requiring participants to document that they're working, studying, or doing other qualifying activities for 80 hours a month in exchange for health coverage. At the event, booths were set up to help people join the Marines or pursue a GED diploma.
Taylor, 20, already met the program's requirements — she studies nursing and works at a fast-food restaurant. But she said it wasn't clear what paperwork to submit or how to upload her documents. "I was struggling," she said.
Georgia is the only state that requires certain Medicaid beneficiaries to work to get coverage. Republicans have long touted such programs, arguing they encourage participants to maintain employment. About 20 states have applied to enact Medicaid work requirements; 13 won approval under the Trump administration. The Biden administration has worked to block such initiatives.
The Georgia Pathways to Coverage program shows the hurdles ahead for states looking to follow its lead. Georgia's GOP leaders have spent millions of dollars to launch Pathways. By July 29, nearly 4,500 people had enrolled, the state's Medicaid agency told KFF Health News.
That's well short of the state's own goal of more than 25,000 in its first year, according to its application to the federal government, and a fraction of the 359,000 who might have been eligible had Georgia simply expanded Medicaid under the Affordable Care Act, as 40 other states did.
So far, the pricey endeavor has forced participants to navigate bureaucratic hurdles rather than support employment. The state would not confirm whether it could even verify if people in the program are working.
Research shows such red tape disproportionately affects Black and Hispanic people.
"The people that need access to healthcare coverage the most are going to struggle with that administrative burden because the process is so complicated," said Leah Chan, director of health justice at the Georgia Budget and Policy Institute.
At an August press event, Georgia Republican Gov. Brian Kemp announced a $10.7 million ad campaign to boost enrollment in Pathways, one of his administration's major health policy initiatives. The plan has cost more than $40 million in state and federal tax dollars through June, with nearly 80% going toward administration and consulting fees rather than paying for medical care, according to data the state Medicaid agency shared with KFF Health News.
Enrollment advisers, consumer advocates, and policy researchers largely blame a cumbersome enrollment process, complicated program design, and back-end technology flaws for Pathways' flagging enrollment. They say that the online application is challenging to navigate and understand and lacks a way for people to receive immediate support, and that state staffers don't respond to applicants in a timely manner.
"It's just an administrative nightmare," said Cynthia Gibson, director of the Georgia Legal Services Program's Health Law Unit, who helps Pathways applicants appeal denials.
Administrative challenges have also undermined a key part of the program's philosophy: that people maintain employment to keep coverage. As of July, the state was not removing enrollees for not meeting Pathways' work requirement, according to Fiona Roberts, a spokesperson for Georgia's Medicaid agency.
"We understand that people need to be held accountable to those 80 hours for the spirit of the program, and we intend to do that," said Russel Carlson, the agency's commissioner.
Pathways is set to expire Sept. 30, 2025, unless the state asks the Centers for Medicare & Medicaid Services for an extension. Georgia officials say they won't have to make that request until next spring, well after November's election. So the state could be asking for an extension from the Trump administration, which approved the program in the first place.
Georgia officials sued the Biden administration this year to keep Pathways running without going through the official extension process, which requires the state to conduct public comment sessions, gather extensive financial data, and prove that Pathways has met its goals. A federal judge ruled against Georgia.
A CMS spokesperson said the agency wouldn't comment on the program.
During the August press event, Kemp said the Biden administration's attempt to stop the program in 2021 delayed its rollout and stymied enrollment. A federal court blocked the administration and allowed Georgia to proceed.
People familiar with the enrollment process said Pathways has been mired in design flaws and system failures. As of the end of May, 13,702 applications were waiting to be processed, according to state documents.
The program's lengthy questionnaires and technical language are confusing, guidance is opaque, and tools to upload documents are tricky to navigate, according to interviews with health insurance enrollment specialists conducted for the Georgia Budget and Policy Institute.
"It's not an easy, ‘Oh, I want to apply for Pathways,'" said Deanna Williams, who helps people enroll in insurance plans at Georgians for a Healthy Future, a consumer advocacy group. People generally learn about the program after being denied other Medicaid coverage, she said.
In the online application, people click through pages of questions before they're shown a screen with information about Pathways, Williams said. Then they must check a box and sign a form saying they understand the program's requirements.
Sometimes the Pathways application doesn't pop up, and she must start over. The process to apply is "not smooth," she said.
Data shows that people who don't earn enough to qualify for free ACA plans but also make too much for Medicaid are disproportionately people of color. Pathways offers Medicaid coverage to adults earning up to the federal poverty level: $15,060 for an individual or $31,200 for a family of four.
Some people eligible for Pathways who work in retail or restaurants with fluctuating hours are nervous they can't meet requirements every month, Williams said.
Many current enrollees don't know how to upload documents, and the website sometimes stops working, said Jahan Becham, an employment specialist for Pathways at Amerigroup Community Care. Or people just forget.
Every month Becham gets a list of 200 to 300 enrollees who haven't submitted their hours. "It is something new, and not many people are used to this," Becham said.
"I would get reminders," said Taylor, who attended the event for enrollees in August. "I just didn't know how."
In a June 2023 meeting with Georgia Medicaid staffers weeks before the program launched, federal officials questioned why the state wasn't automatically verifying eligibility with existing data sources, according to meeting minutes KFF Health News obtained through a state open-records request. Georgia officials said they were unsure when they'd be able to simplify the verification process.
Many potential participants face improper denials, advocates said. Gibson, at the Georgia Legal Services Program, said not enough workers are trained to properly evaluate applications.
Fewer than 1 in 5 people who have their Pathways applications processed had been accepted into the program as of May, according to a KFF Health News analysis of state data. Roberts, with the state, said people were denied because they earned too much, didn't meet requirements, or didn't complete the paperwork.
A full-time graduate student was wrongly blocked from the program, and in February a state administrative judge ordered her case be reconsidered. In another case, a different judge ruled a 64-year-old woman who couldn't work because she was her disabled husband's full-time caregiver would not qualify for Pathways.
Despite the challenges, state records from May show no individuals were removed from the program since it launched for failing to meet work requirements.
Georgia's experiment comes after a 2018 effort in Arkansas to implement work requirements on an existing Medicaid expansion population led to 18,000 people losing coverage, many of whom either met requirements or would have been exempted.
Taylor found out about Pathways when she applied for food stamps last year. It wasn't until August that she learned she could submit her school schedule to meet the qualifying hours requirement. With a full Medicaid expansion, Taylor would have been eligible for health coverage without the extra effort. But, for her, it's still worth it.
"It's important to have health insurance," said Taylor, who has been to the dentist several times and plans to visit a doctor. "I'm glad I have it."
Several large nonprofit Catholic health systems spend far less on community benefits such as free or discounted care than the estimated value of the millions they secure in tax breaks.
This article was published on Thursday, September 12, 2024 in KFF Health News.
When Jessica Staten's kidney stones wouldn't pass, she said, her doctor suggested a procedure to "blow 'em up." She went to have it done last November at St. Joseph Medical Center in Bellingham, Washington, one of nine hospitals that the Catholic health system PeaceHealth operates in the Pacific Northwest and Alaska.
"I was probably there a total of 3½ hours, and everything went well," said Staten, who works as an accountant and has health insurance. What came next shocked her: PeaceHealth sent a bill for $5,313.63 and, she said, told her she didn't qualify for help to lower the cost. Staten said she asked about financial assistance but was told she earned slightly too much.
PeaceHealth aims to "carry on the healing mission of Jesus Christ by promoting personal and community health, relieving pain and suffering, and treating each person in a loving and caring way," according to a 2022 tax filing.
For Staten, suffering lingered long after receiving care from the health system with the only hospital in town.
To pay off her medical bill, Staten ultimately took on more debt, using her condo as collateral to secure a line of credit of more than $5,000, according to records reviewed by KFF Health News. She said the line of credit had an 11.2% interest rate. That was cheaper than a payment plan the hospital offered through a third party, which Staten said she was told would have charged about 12.5% interest.
"It's all about the money," said Staten, who has lived in Bellingham for more than 30 years. "That's the way they think now at the hospital."
PeaceHealth spokesperson Victoria Wilson said the hospital offers patients interest-free 12-month payment plans. For some patients, the monthly obligation is unaffordable. PeaceHealth also now offers longer-term plans with a 9% interest rate "in alignment with current regulations," she said, declining to elaborate further.
"Each patient who comes to us seeking care is experiencing a vulnerable moment in their life and needs healing," Wilson said in an emailed statement. "We hold each healing opportunity sacred, so financial healing is closely aligned with our Mission."
The "Ethical and Religious Directives for Catholic Health Care Services," issued by the U.S. Conference of Catholic Bishops, outlines social responsibility principles for Catholic health facilities. One states that "a just health care system will be concerned both with promoting equity of care — to assure that the right of each person to basic health care is respected — and with promoting the good health of all in the community."
As of 2023, there were just over 600 Catholic general hospitals nationally and roughly 100 more managed by Catholic chains that place some religious limits on care, a KFF Health News investigation revealed.
Catholic nuns established many hospitals in the name of service. But modern-day practices at such facilities demonstrate how they adhere to the directives and church teaching in one way — prohibiting or limiting procedures that the church deems immoral, such as abortion and what it calls "assisted suicide" — while neglecting social responsibility standards, patients and clinicians said.
"It does show the lack of control or influence that the faith organization has over the actual company," said Shane Alderson, chair of the Baker County Board of Commissioners in Oregon. The local Catholic hospital owned by Trinity Health — Saint Alphonsus Medical Center-Baker City — last year shut down its obstetrics department. Its intensive care unit is also closed, Alderson said. "You get the feeling when you go to a Catholic hospital that the care and the vision is a lot more defined by the faith," he said, adding: "It's not really. It's corporate."
Sister Mary Haddad, president of the Catholic Health Association, said in a written statement that Catholic health systems "remain true to our origins and the missions on which we were founded through our ongoing commitment to serving those most in need." In addition to patient care, she said, this includes investing in programs to address societal problems such as homelessness and food insecurity.
Health systems like CommonSpirit Health, Ascension, PeaceHealth, Trinity Health, and Providence St. Joseph pay their chief executives millions of dollars a year — payouts that kept pace during the covid-19 pandemic emergency, according to each company's tax filings.
CommonSpirit Health's then-CEO Lloyd Dean earned roughly $28 million in 2022; he was among nearly three dozen executives who pulled down more than $1 million that fiscal year, according to the health system's tax filings.
Elsewhere, Rod Hochman, CEO of Providence St. Joseph Health, earned $12.1 million. Ascension CEO Joseph Impicciche was paid $9.1 million, according to corporate tax filings.
Spokespeople for Providence and Ascension said CEO compensation levels are market-competitive; CommonSpirit spokesperson Felicity Simmons said that Dean, who retired in July 2022, like other retiring executives "received standard deferred compensation benefits consistent with their many years of service." (CommonSpirit's 2021 tax filing showed Dean earned $35.5 million that year.)
To maintain their tax-exempt status, all nonprofit hospitals are required to spend on community benefits, but federal law doesn't specify how much or which services qualify.
Several large nonprofit Catholic health systems spend far less on community benefits such as free or discounted care to eligible patients and community health improvement services than the estimated value of the millions they secure in tax breaks, according to research by the nonpartisan Lown Institute.
Based on 2021 data, the think tank found that five of the 10 health systems with the greatest "fair share deficits" are Catholic: Providence, CommonSpirit Health, Trinity Health, Ascension, and Bon Secours Mercy Health's deficits were between $488 million and $1 billion.
Research by Community Catalyst, a consumer advocacy group, found that Catholic hospitals treat fewer Medicaid patients than other nonprofit hospitals, something at odds with their mission of prioritizing health care needs of the poor and underprivileged. And like other hospitals nationwide, many large Catholic health systems allow aggressive tactics against patients for unpaid medical bills such as using third-party collections, filing lawsuits, placing liens, garnishing wages, reporting bad debt to credit bureaus, or restricting care to people who owe, a KFF Health News investigation found.
Catholic bishops are "quite zealous for making sure that the reproductive and end-of-life care components of the ERDs are followed," said Patricia Gabow, a physician who led a Denver safety net health system for two decades and has written about the evolution of Catholic healthcare in the U.S. She said "they should be as zealous" on enforcing the directives outlining Catholic healthcare's social responsibilities.
Among those directives is this: "Catholic health care should distinguish itself by service to and advocacy for those people whose social condition puts them at the margins of our society and makes them particularly vulnerable to discrimination" including "the poor; the uninsured and the underinsured"; and "children and the unborn." The U.S. Conference of Catholic Bishops declined to comment for this article, referring questions to the Catholic Health Association.
PeaceHealth's first hospital was founded in the 1890s by nuns from New Jersey who ventured to the West to care for loggers, millworkers, fishers, and their families in the country's remote frontier. Seven nuns and a cook staffed St. Joseph Hospital in Whatcom County, Washington, where Bellingham is located. St. Joseph is the Catholic patron saint of families, workers, and the dying.
Now no nuns serve on St. Joseph Medical Center's or PeaceHealth's leadership teams; two are on the health system's 11-person board of directors. PeaceHealth CEO Liz Dunne earned $3.6 million in the fiscal year that ended June 30, 2023, tax filings show, and the Lown Institute estimates the health system spent $108.7 million less on community investments than the value of its tax exemptions. PeaceHealth declined to comment on executive compensation or the Lown Institute's findings.
In 2023, the health system was forced to refund up to $13.4 million to more than 15,000 low-income patients after the Washington attorney general's office found it billed patients who should have received financial help.
Catholic health systems "set a standard for themselves which is higher" than other U.S. hospitals, Gabow said. "Do they reach what they set for themselves? And there's a fair amount of data to say probably not."
Shutting Down Maternity Care
For more than a century, a Catholic hospital now named Saint Alphonsus Medical Center has provided care in Baker City, Oregon, a 10,000-person town less than 100 miles from the Idaho border.
The hospital was founded in 1897 by nuns from Philadelphia. They treated 115 patients in the first year, "many of whom were loggers, ranchers, and gold miners," according to a document detailing its history. Patients "received complete health coverage" for $1 a month.
Like many of its peers across the nation, the small rural hospital would become part of larger Catholic health systems. In 2010 it settled in as part of Trinity Health, the nation's fourth-largest hospital system by number of beds, according to federal data. Trinity Health operates 101 hospitals, plus other care sites, in 27 states. CEO Michael Slubowski's most recently reported salary was $5.3 million in the company's 2023 fiscal year, when Trinity had an operating margin of -2%, according to financial statements and tax filings. Operating margins are a measure of a hospital's financial health.
Trinity Health spokesperson Melissa Lander said Slubowski's compensation is based on factors including experience and performance, and pay "must be market competitive to attract and sustain talented people."
Baker City was given a jolt in 2023. Blaming staffing shortages and a decline in births, hospital executives announced that Saint Alphonsus would close its obstetrics unit, the only one in the county. The move caused an uproar locally and pushback by Oregon's two Democratic senators.
"What they were doing is essentially getting rid of the unit that made no money and cost a lot," said Cathie Roach, a nurse who worked in Saint Alphonsus Medical Center's obstetrics unit for roughly a decade before retiring last year.
Roach said the staffing shortages were "pretty much of their making." Hospital management rotated nurses among departments in ways that made some feel "really uncomfortable," and the hospital didn't consider alternative ways of staffing the OB unit, she said.
For months, she said, nurses were getting hints that executives might close the birth center and began looking for jobs elsewhere. "Out here if you want to be an OB nurse and this is the only hospital, and they start talking about closing," she said, "then, time to get out."
Hospital leaders said its obstetric deliveries had "declined at a record rate." However, birth data from the Oregon Health Authority tells a different story.
Births at the Baker City hospital declined to 103 in 2015, a nearly 30% drop from 2013, before rebounding. Annual births were in the 120s or 130s until the covid-19 pandemic took hold, when they fell 25% from 2019 to 2020. Still, from 2020 to 2022, between 100 and 112 babies were delivered each year.
Saint Alphonsus Health System and Trinity Health declined to comment.
Now the closest hospital where a person can give birth is over 40 miles away. In the winter in eastern Oregon, roads to get there are often closed.
In 2023, 54% of Baker County resident births were paid for by Medicaid, the health coverage program for people with low incomes, according to Oregon Health Authority statistics. That's a higher share than Medicaid-covered births statewide.
"They really lost their charity," Roach said, "when the old nuns disappeared."
The Reach of Market Power
The actions of Catholic health systems can have an outsize impact because of their reach, fueled by mergers in recent years: Four of the 10 largest U.S. hospital chains by number of beds are Catholic, according to federal data from the Agency for Healthcare Research and Quality.
Haddad noted that that power has worked for the good of vulnerable populations.
The association and most of the Catholic health systems criticized the Lown Institute report on community benefit spending as flawed for excluding several categories reported to the IRS, including uncompensated care costs and spending on health professional education. Haddad called the research an effort "to disparage the work of Catholic health care by publishing misleading and biased reports that cherry-pick data."
The Lown Institute considers five categories of community investments, including financial assistance for patients, community health services, and health services such as free clinics and addiction treatment.
Ascension spokesperson Sean Fitzpatrick called the report an "exercise in misinformation"; Trinity Health's Lander said it "gives inaccurate and, unfortunately, misleading conclusions." Bon Secours Mercy Health spokesperson Maureen Richmond said that the report "utilizes flawed high-level assumptions and incomplete data" and that the health system's community benefit spending in 2021 exceeded the value of its tax exemptions by more than $274 million — while Lown calculated that its benefit fell short of tax exemptions by $488 million. Providence spokesperson Melissa Tizon said Lown's methodology "falls short."
The CHA and multiple health systems declined to answer questions about whether certain business practices raised by this story were consistent with the mission of Catholic health care.
Years ago, Catholic hospital mergers were motivated primarily by ministry, said Lawrence Singer, a retired associate professor who was affiliated with Loyola University Chicago School of Law. But things have changed.
"It really isn't ‘save the ministry' any longer," he said. "It's really business that's driving a lot of this now."
Consolidation raises market power, and several studies have found that it leads to higher prices for patients while the quality of care remains steady or declines.
The Federal Trade Commission has blocked certain deals it predicts could reduce competition. Historically the agency has targeted transactions in which hospitals operate in the same market, according to antitrust law experts. State regulators have broader authority than the federal government, but most states can't reject proposed mergers without going to court, according to researchers at the University of California Law-San Francisco.
Some of the largest Catholic health systems, including CommonSpirit Health, Providence St. Joseph Health, and Trinity Health, achieved their size due to a different strategy: combining companies with little to no geographic overlap. Such "cross-market mergers" are traditionally harder for the FTC to block, according to health care antitrust experts.
When hospitals in the same market try to merge, "in some ways it's a lot easier to quantify what's going on" and the potential harm to competition, said Kevin Hahm, an antitrust attorney at Hunton Andrews Kurth and a former FTC official who investigated health care transactions.
But deals involving hospitals in different regions are increasingly drawing scrutiny. Researchers at the University of California-Berkeley, UC Law-San Francisco, and the University of Auckland found that health systems that acquired hospitals more than 50 miles away increased prices by 12.9% after six years compared with hospitals not involved in mergers or acquisitions.
"The new frontier," said Thomas Greaney, one of that merger study's authors, "is whether we'll go after what we've called system power."
'We're a Captive Audience'
Bellingham is one of the nation's least competitive hospital markets: In 2021, it was the fifth most concentrated in the U.S. and had the highest health care prices of metro areas in Washington, according to the nonprofit Health Care Cost Institute.
The nuns who established PeaceHealth's first hospital would open or operate others throughout the 20th century. PeaceHealth also acquired hospitals through mergers, including Southwest Medical Center in Vancouver and United General Hospital in Sedro-Woolley.
"PeaceHealth is the leader in all three of its markets, with decided market share leads in its Northwest and Oregon markets," credit ratings firm Fitch Ratings reported in March. PeaceHealth declined to answer questions about whether a desire to charge higher prices drives market decisions.
Its hospitals stand out for what they're paid. Rand Corp. researchers told KFF Health News that commercial health plans in 2022 paid PeaceHealth's Washington hospitals 314% of what Medicare would have paid for the same services. Those are the highest-priced rates among health systems in the state, according to Rand's analysis. PeaceHealth declined to comment.
Staten's medical bill from PeaceHealth is gone: She used the home equity line of credit to pay it off. Now she's paying more on her mortgage every month.
She said she can't afford to have another experience like her kidney stone surgery, which she was told involved a laser to break the stones into smaller pieces.
"It's not like you've got three hospitals to choose from," Staten said. "We're a captive audience."