The General Assembly can’t come to an agreement on legislation to fund the state’s $319 million Medicaid rebase shortfall, which covers the gap between projected and actual expenses. This rebase includes costs incurred because of medical inflation, federal changes, or patients’ increased use of services.
With no deal in sight to cover the gap, the North Carolina Department of Health and Human Services said it planned to begin instituting reimbursement rate cuts on Wednesday.
Medicaid reimbursement rates determine how much the state pays doctors, hospitals, and other providers for health care services offered to qualifying low-income patients. These rates are typically lower than rates negotiated by private insurance companies, but providers agree to accept them for a mix of reasons, including federal charitable giving rules and guaranteed patient volume.
The department said without a deal, it expected to slash Medicaid reimbursement rates as steeply as 10 percent for hospitals, nursing homes, and other inpatient facilities. All health care providers will see a 3 percent minimum Medicaid reimbursement reduction. Rural providers, which serve a larger share of Medicaid patients, are expected to be hit especially hard by the cuts.
One in four North Carolinians is enrolled in Medicaid, which serves 3.1 million low-income residents between the ages of 19 and 64 and is funded by the state and federal governments. If some providers choose not to accept Medicaid patients, as some doctors fear will happen, it could lead to longer wait times between appointments or a reduction in available services.
Medicaid shortfalls have become routine over the past several years, patched over by pandemic funds. But that funding has since dried up. The program, which oversaw $34 billion in expenses last fiscal year, has grown accustomed to close calls and uncertainty: It wrapped up its fiscal year this summer with just $9,000 in its account. “That is too close of a call for this big of a program,” Jay Ludlam, deputy secretary for NC Medicaid, said at a press event last week.
As the program faced an $819 million deficit this summer, the General Assembly passed a mini-budget that appropriated $500 million to cover the Medicaid rebase. Ever since, state leaders have delayed rate cuts, hoping lawmakers could come up with the other $319 million the state says is needed. But lawmakers left town last month without passing a budget or any stopgap funds for Medicaid. Gov. Josh Stein said the state has no choice but to begin the painful cuts.
“The General Assembly has failed you,” he said at a press conference last week. “It’s hard for me to express the gravity of their failure.”
House Speaker Destin Hall described the cuts as a manufactured crisis in a release Wednesday. He said the October 1 deadline was “arbitrary” and Stein could have avoided the cuts.
The department has about $500 million in a contingency reserve account that it can pull from. Stein said it’s up to lawmakers to appropriate that funding, but Hall said that Stein could move money around from other sources to delay the cuts. The legislature approved $377 million for the Medicaid rebase in November last year, which Hall said shows October 1 isn’t a firm deadline. The health department didn’t respond to a request to comment.
In an Aug. 11 warning letter to lawmakers, Devdutta Sangvai, secretary for the North Carolina Department of Health and Human Services, said health officials devised a “reversible” plan that minimized impacts to vulnerable populations.
Still, Sangvai said the cuts would be painful. “These reductions carry serious and far-reaching consequences,” he wrote.
House-Senate Feud
Each chamber of the legislature passed Medicaid bills last month, but neither has taken up the other’s version. The Republican-led chambers at the moment are chiefly sparring over an anticipated children’s hospital. “They put their political disputes over our people,” Stein said. “What’s crazy is their disagreements have nothing to do with Medicaid.”
The Senate Medicaid bill proposes sending $103.5 million to the planned NC Children’s Hospital, a collaboration between UNC Health and Duke Health. That’s on top of the nearly $214 million both chambers agreed to set aside for the proposed Apex facility in 2023.
But last month, Hall suggested the medical giants had plenty of their own money and hinted lawmakers may want to reclaim the already approved funding. The House Medicaid funding bill didn’t include any money for the hospital.
Will Arey, spokesperson for NC Children’s, said UNC and Duke will provide billions in pediatric service value and philanthropic donations to finance the venture. Arey said that while the nonprofit is grateful for the state support it’s been given, it continues to advocate for more.
Senate leader Phil Berger has accused House leaders of going back on their promise to keep funding the hospital; Hall has said a lot has changed since 2023.
As both chambers quarreled, Stein said his office and the health department had warned lawmakers until they were “blue in the face” of the seriousness of the Medicaid shortfall.
The North Carolina Healthcare Association, which represents hospitals and other large medical institutions, said it’s calling on the Department of Health and Human Services to pause the reimbursement reductions. “When combined with a reduction in the federal match, the total cut is even more severe,” spokesperson Stephanie Strickland said. “Maintaining Medicaid funding at current levels is critical to protecting patient access to care and ensuring the long-term stability of North Carolina’s healthcare system.”
The state’s Medicaid cut deadline coincides with the federal government’s shutdown, and eligibility changes are on the way, a chaotic confluence that renders health care access and quality uncertain.
North Carolina expanded its Medicaid eligibility rules in December 2023 and has since welcomed nearly 680,000 new members under the latest requirements.
Set to take effect in 2027, President Donald Trump’s One Big Beautiful Bill Act will introduce new work requirements for Medicaid recipients and reduce certain health care-related taxes states charge providers. The state pays for its share of Medicaid costs under expansion through these taxes, so the impending changes under the law could threaten the stability of the program.
Wesley Wallace, a UNC School of Medicine emergency room physician, said hospitals could choose to dramatically reduce services or simply quit serving Medicaid patients under the combination of these shifting conditions. “Budgets, especially health care budgets, are moral doctrines,” Wallace said at a Sept. 22 press event. “My patients depend on Medicaid. It is a lifeline.”
