A Prescription for Rural Hospitals

Adam O’Neal was mad.

On a warm July night in 2014, the mayor of Belhaven, a tiny town on the banks of the Pungo River in Eastern North Carolina, was about to update his county commissioners on the recent closing of his town’s hospital when he got a call. A 48-year-old woman who lived east of Belhaven had died of a heart attack after waiting an hour for a helicopter to take her to a hospital. 

A few days later, he began a 273-mile walk to Washington, D.C., on a mission to save rural hospitals like his. He called Belhaven’s struggle “a do-or-die challenge for rural America,” pleading with state lawmakers to expand Medicaid so that hospitals would get compensated for the care they provide to lower-income patients. 

He walked to Washington again the next year, and later to Raleigh for the same cause.

Almost a decade later, O’Neal sees little change.

“As far as North Carolina rural health care, it has gotten worse,” said O’Neal, 54, who is no longer in office. “Is rural healthcare in North Carolina a priority? Absolutely not.”

But one goal of O’Neal’s crusade may be closer to reality.

Many lawmakers, including Republican leaders in the General Assembly, now appear poised to expand Medicaid. That would make North Carolina the 40th state to expand, and would bring health coverage to over 600,000 North Carolinians.

Expansion has long been a priority for Democrats like Gov. Roy Cooper. Last year, Republican Senate Leader Phil Berger, a longtime opponent, became an enthusiastic convert, calling it “the right thing to do and it’s not even close.” The Senate overwhelmingly passed an expansion bill. And on Feb. 16, the House passed a separate expansion bill for the first time with broad bipartisan support. 

Both chambers in the North Carolina General Assembly have strong Republican majorities, and most of those Republicans represent rural areas. The support of Berger and House Speaker Tim Moore, combined with the new incentives for expansion, have prompted many GOP lawmakers to change their position to supporting Medicaid expansion. 

The Senate has yet to act this session. If the Senate tacks on other changes to the state’s healthcare policies, as it did last year, the two chambers would attempt to negotiate a deal. 

“I’d say [the odds] are decent, more likely than not,” Moore told The Assembly. Like Berger, Moore said he came around to the idea of expansion. 

Voters in South Dakota, a Republican-controlled state, easily passed a measure last fall that will make expansion part of the state’s constitution. “Definitely we’re seeing more movement toward expansion,” said Robin Rudowitz, director of the Program on Medicaid and the Uninsured at the Kaiser Family Foundation.

In North Carolina, the debate has gotten entangled with other thorny measures that could derail it again. The Senate bill, for example, included changes to the state’s Certificate of Need law, which bars providers from adding more beds or equipment without state approval. It also had changes to “scope of practice” rules that limit the role of providers such as nurse practitioners. Both issues are contentious and pit powerful interests against each other.

But there are new incentives to expand.

One is a sort of signing bonus. Currently, the federal government pays two-thirds of Medicaid costs while the state pays the rest. Under the 2010 Affordable Care Act, Washington would pay 90 percent of costs for states that expand the program. 

The 2021 American Rescue Plan Act added yet another sweetener: For two years, the federal government will cover 95 percent of costs for new expansion states. In North Carolina, hospitals and insurers would pay the state share, not taxpayers. 

And there’s another carrot. By changing the way it managed its Medicaid program in 2021, the state became eligible for direct federal payments to hospitals under a separate program. State officials say that would be worth $3.7 billion a year to hospitals. With the federal money from expansion, that’s more than $8 billion a year for N.C. healthcare.

Kody Kinsley, secretary of the N.C. Department of Health and Human Services, said the new money could be a lifeline for rural hospitals. “The General Assembly can save rural health care and essentially spend no money doing it by taking advantage of this opportunity,” he told The Assembly.

Mark Holmes, director of the North Carolina Rural Health Research and Policy Analysis Center at the University of North Carolina at Chapel Hill, said for rural hospitals, expansion “helps but it’s not enough.”

“Anytime you have customers paying, it’s going to improve the bottom line,” he said. “But the challenges facing rural hospitals are numerous. And expansion in and of itself isn’t sufficient to overcome those challenges.”

Like Holmes, Berger cautions that expansion is no “silver bullet.”

“The thing that worries me … is that expectations are being created,” he told The Assembly. “While I do think expansion can ameliorate some of the pressures [on rural hospitals] it is not a silver bullet.”

The Threat To Rural Hospitals

Since 2005, 11 rural hospitals have closed in North Carolina, according to UNC-Chapel Hill’s Sheps Center for Health Services Research. Six have shuttered since Belhaven’s Vidant Pungo Hospital closed in 2014. 

Nine more are at “immediate” risk of closing, according to the North Carolina Healthcare Association. They span the state from Plymouth and Elizabethtown in the east to Bryson City and Linville in the west.

Only Texas and Tennessee have seen more hospital closures over that time, according to the Center for Healthcare Quality and Payment Reform, a national policy center. Adam O’Neal said that’s one reason that there’s a 130-mile gap between emergency rooms in part of eastern North Carolina.

“From 7 in the evening to 7 in the morning, there is no rural health care in eastern North Carolina from Belhaven to Nags Head,” he said.

Almost 3.5 million North Carolinians live in rural areas—only Texas has more. And in those areas, hospitals mean more than healthcare. They’re often major employers and important parts of the local economy. “Losing a hospital can be devastating to the economy of rural communities,” said Dr. Roxie Wells, president of Cape Fear Valley Hoke Hospital.

The balance sheets of 16 of North Carolina’s 54 rural hospitals are in the red, with average annual losses as high as $11 million, according to the Center for Healthcare Quality and Payment Reform. By comparison, the state’s seven largest hospital systems recorded $5.2 billion in net profits in 2021, according to an analysis by the North Carolina State Health Plan and the National Academy for State Health Policy. 

The Center said rural hospitals have more cases of what they call “bad debt,” either from the uninsured or patients with private insurance who are unable to pay their share.

In January, ECU Health (formerly Vidant) announced it was closing five regional clinics in eastern North Carolina. They served small communities such as Williamston, Jacksonville, and Wilson.

With a strong correlation between people’s health and the availability of medical care, every closure makes a difference. The University of Wisconsin ranked N.C. counties by health outcomes—that is, the length and quality of life, as well as on health factors that include personal behaviors such as smoking and access to care.

Urban counties Wake and Orange topped both rankings. Rural counties like Anson, Vance, and Scotland were near the bottom. Robeson County was last in both categories.

Closing a Coverage Gap

To see how Medicaid expansion could improve rural healthcare, it helps to understand how it works.

Medicaid is a program for the poor. But in North Carolina, not every poor person qualifies. Some people make too much money to be enrolled but not enough to qualify for federal stipends under the Affordable Care Act, often called Obamacare. The Kaiser Family Foundation said that nationally more than 2 million adults fall into this so-called coverage gap.

State Sen. Kevin Corbin, a Republican from Macon County, knows one of them. The owner of two insurance companies, he met a single mother of two who earns around $22,000 a year as a waitress. She doesn’t qualify for Medicaid (though her children are enrolled) and can’t get a stipend under Obamacare.

In North Carolina, the gap for a single mother in her situation means if she makes between $9,672 and $31,781 a year she gets no help paying for health care. According to the state Department of Health and Human Services, 28 percent of restaurant workers are uninsured.

“Most of those folks we found are working people trying to earn a living, trying to raise their kids,” said Corbin, who has several hospitals in his rural district. He said Medicaid expansion not only would help patients but providers. “We’re leaving federal money on the table that’s just going to other states. So it just makes sense to go ahead and do it.”

While all hospitals provide free care to those who can’t pay, rural hospitals generally are less able to offset those costs through those who have private coverage. And people in rural areas are 40 percent more likely than urban residents to be uninsured, according to state health officials. Medicaid expansion would close the coverage gap.

What would that mean for rural hospitals?

A 2018 study from the National Library of Medicine found that expansion led to “improved hospital financial performance and substantially lower likelihoods of closure, especially in rural markets and counties with large numbers of uninsured adults.”

“Many studies have concluded that Medicaid expansion has helped the finances of rural hospitals, but the magnitude of that benefit varies across studies,” said UNC-Chapel Hill’s Holmes. “[T]he truth is that rural hospitals are facing many challenges, and expansion would not be enough by itself to avoid closures.”

Steve Lawler, president of the North Carolina Healthcare Association, calls expansion “a win-win,” for the state and for the uninsured.

“We’ve been funding everyone else’s programs ever since the ACA allowed Medicaid to expand,” he said. “This is a way to use our tax dollars to help North Carolinians.”

‘A Lot of Money’

To see more of those tax dollars, lawmakers face a deadline.

Expanding Medicaid and applying for the federal direct payment program (known as the Healthcare Access Stabilization Program, or HASP) by June 30 could mean nearly $2 billion for North Carolina hospitals, according to state health officials. That’s how much hospitals would get in retroactive direct federal payments.

“That’s a lot of money,” said state Rep. Timothy Reeder, a Republican from Pitt County. “And if we’re going to do that, I think there’s a little bit of time pressure to maximize the money we can get from the federal government.”

Reeder is an emergency physician at ECU Health and former president of the North Carolina Medical Society. He said while expansion isn’t “the complete solution,” it would improve health care access for many people.

Though the two programs, expansion and HASP, aren’t exactly linked, it makes sense to pass them together, said Kinsley. That’s because the amount of HASP money hospitals receive depends directly on the number of Medicaid patients they treat. Expanding Medicaid would mean more patients.

“If you don’t expand the population, then you pretty much cut the value of it in about half based [on] how the payments work,” Kinsley said.

In 2021, North Carolina switched Medicaid to a managed care system. By replacing a “fee-for-service” model, it made the state’s costs more predictable. It also opened the door to the federal direct payments program. The switch to managed care was one reason Berger cited to explain his about-face on expansion.

Another reason for both Berger and Moore is confidence that the federal government won’t change the 90-10 cost-splitting formula, which expansion critics have long cited as a concern. “That reassures us that we won’t get stuck with an unanticipated cost,” said Moore.

Some lawmakers agree.

“It’s time for us to expand it,” said Republican Sen. Bill Rabon, whose district spans three eastern North Carolina counties. “Twelve years ago, I would have been on a different side. I believe Medicaid expansion is absolutely necessary to help all of North Carolina.”

Meanwhile, Adam O’Neal, the former mayor of Belhaven, is waiting to see if the cause he marched hundreds of miles for can become reality.

“It would bring a lot of health care to North Carolina,” he said. “There needs to be some acknowledgement that rural health care is important.”