Dale Folwell Battles the Health Care ‘Cartel’

On the last lap of his last race in his 40-plus years of motocross, Dale Folwell went airborne, as he puts it, “without the motorcycle.”

As he lay on a track in Beckley, West Virginia, awaiting an ambulance, he says he had two overriding thoughts: First, “I’m going to be sore tomorrow,” and second, he needed to persuade his wife to leave his health insurance card in their truck.

“If you produce an insurance card, we’re going to be here five days,” Folwell recalls telling his wife, Synthia, after arriving at the hospital that Sunday afternoon in October 2019. “We were out in five hours.”

Folwell is not just a (retired) racer. He’s North Carolina’s state treasurer, keeper of the public purse, and chair of the Board of Trustees for the state’s health insurance plan for 750,000 employees and retirees. He’s a Republican who proudly identifies as conservative but says partisan labels have become warped, a CPA who’s steeped in nerdy details but relishes a good fight.

For the past five years, he has bluntly battled the state’s hospitals for lower prices and greater transparency. It has left him frustrated with what he calls a health care “cartel” and made him worry that carrying a “gold standard” insurance card could have made a hospital want to keep him longer than necessary with his broken right arm.

“The cartel controls the supply and controls the pricing on a product you’d rather not consume because that would mean you are healthy, and when you ask what it costs, you’re told that it’s none of your damned business,” Folwell told The Assembly. “Then when you don’t pay for something you’d rather not have consumed, and they wouldn’t tell you what it would cost, then they destroy your credit.”

Folwell has doggedly pursued a “fair pricing” initiative for the state health plan that would have limited hospital charges to a bit less than two times what is allowed by Medicare, the federal government health care plan for those 65 and above. North Carolina hospitals generally charge nearly three times as much, and sometimes four times the Medicare rate, according to data collected from 2016 to 2018 by Rand Health Care.

The push has gained little cooperation from the state’s hospitals, almost all of them saying what the treasurer was offering was too meager.

Leaders of Greensboro’s Cone Health said that the plan would cost the hospital $26 million. Reflecting the passion Folwell can trigger, the organization’s assistant director of finance, Frank Kauder, sent Folwell and leaders of the state health plan a blunt email:

“Burn in hell you sorry sons of bitches.”

Last week, Folwell grabbed headlines with a report that said some nonprofit hospitals in the state are billing poor patients who are eligible for charity care.

It followed a similar recent report from Folwell’s staff and researchers at Johns Hopkins University that assessed hospitals’ profit margins and their devotion to providing care for those who can’t afford it. It’s a key measure of whether the nonprofit hospitals in the state are earning the massive tax breaks that such legal status affords.

The report found that the state’s hospitals are three times more profitable than the national average, and that the free care they provide doesn’t come close to justifying the tax breaks, which the study estimates are worth about $1.8 billion a year.

Folwell could hardly have picked a more formidable opponent. The North Carolina Healthcare Association has long wielded significant clout in state politics and government through the reach of its members, primarily the state’s hospitals and health care systems.

A joint investigative report in 2012 from The News & Observer and The Charlotte Observer, “Prognosis: Profits,” examined that power and revealed that many urban nonprofit hospitals were making a financial killing while paying key administrators millions and providing less charity care than they could afford. (I was the lead editor on the project while working as senior editor for investigations for The N&O.)

But that power manifests in other ways as well. The hospitals are prime engines in their communities for employment and philanthropy, and have operated under difficult conditions the past two years, swamped by COVID cases and battling to keep staff healthy and happy.

Cody Hand, senior vice president for advocacy and policy at the N.C. Healthcare Association, said Folwell’s report sold the hospitals short on what they do for their communities.

The association endorsed Folwell’s opponent in 2020 and spent an undisclosed amount of money on digital ads that it hoped would help defeat him. Folwell won anyway. But Hand says the group remains willing to sit down and talk with Folwell about ways to keep costs down.

“I don’t care what Dale Folwell calls us in public,” Hand told The Assembly. “He can do what he needs to do there. The offer is still on the table that we would like to work together to achieve a common goal. And I mean work together. I don’t mean tell us what you’re doing and we say yes. We’re willing to work together, regardless of what you want to call us when you’re at the pulpit.”

Hand said many hospitals, particularly in rural areas, have struggled during the pandemic.

But certainly not all. UNC Hospitals, a public hospital in Chapel Hill, reported a record total profit of $516 million (including investment income) in the fiscal year that ended in June, a recent state audit shows. The organization received nearly $12 million in federal COVID aid and $3 million in COVID relief from the state Legislature during the same period.

Folwell said he wasn’t surprised.

“As I have said repeatedly over the past four years, these are corporations who disguise themselves as nonprofits, who don’t sell widgets or software. They make their money on the backs of sick people.”

The audit covered UNC Hospitals, not the larger UNC Health Care System, which includes Rex Hospital in Raleigh and several less-profitable hospitals in rural areas. UNC Health Care System officials say they need to make significant profits in Chapel Hill to help support their lifesaving work in other areas.

State Auditor Beth Wood, who admires Folwell’s push against hospital prices, says state leaders didn’t know that UNC was piling up that sort of profit.

“I applaud him for what he is doing,” said Wood, a Democrat. “I have never seen anyone stand up to the powers that be, like the hospitals, like Dale Folwell.”

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Folwell, 63, prepped for such fights during a hardscrabble upbringing. His father, he says, cleaned toilets for a living, then left the family, leaving his mom to rear three children while working the switchboard at Baptist Hospital in Winston-Salem.

In 1981, Folwell was working as a garbage collector when the owner of the company, Larry Tuttle, fired him—not for screwing up, but because he said Folwell needed to better himself. Until then, Folwell said, he had suffered from low expectations of others.

“I know what it’s like to ask a guidance counselor about an AP course and then be told maybe you should think about applying for a job at the A&P [supermarket] instead,” he said.

So he left his garbage routes and soon graduated with two accounting degrees from UNC-Greensboro. Five years after being dismissed by his friendly employer, he says, he worked on the investment banking deal in which Tuttle sold his company to Waste Management.

As his career grew, he ventured into politics, joining the Winston-Salem/Forsyth County school board in 1993. Nearly seven years later, he quit.

His son, Dalton, 7, was hit by a car and killed while attempting to board a school bus. The driver, a Costa Rican woman in the country for an executive training program, said she didn’t know of the law to stop for school buses, the Winston-Salem Journal reported at the time.

Folwell felt as if he had failed.

“For nearly seven years, I had told anyone who would listen that a school board member’s responsibility was to get children to and from school safely, [and] put them in front of world-class teachers in great settings,” Folwell told The Assembly. “In May of 1999, I failed at that with our own son.”

He retreated from public life to take care of his family. (He and Synthia have two other children.) He re-emerged by winning a seat in the General Assembly in 2004 and took on the work of a low-seniority lawmaker in the minority party.

Folwell said he was determined to work on three types of legislation: “saving minds, saving money or saving lives.” In four terms, he sponsored 29 bills that became law, 21 of them under Democratic leadership, an unusual record of bipartisan accomplishment.

He won votes to advance the cutoff date for kindergarten eligibility, because he says children too young were getting in classes with others significantly older. He sponsored an organ donation bill, and one that makes drivers licenses for North Carolinians under 21 vertical, not horizontal, to allow bar bouncers and convenience-store clerks to spot them more easily.

And his bill to combine drivers’ payments for vehicle taxes and tags, he said, now saves local governments $230 million a year.

Folwell was consistently ranked as among the most conservative members of the House. He was elected Speaker pro tem, the chamber’s second-ranking position, after Republicans took control of the chamber in 2011. He left the General Assembly to run for lieutenant governor in 2012, but lost in the primary.

Four years later, he was elected state treasurer, putting him in charge not only of the state health plan, but also the mammoth state pension plan and the state banking commission.

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Even as a legislator, Folwell was willing to take on the hospitals. In 2011, he proposed scaling back the nonprofits’ refund on sales taxes, which at the time was worth about $200 million a year.

The hospitals “came after me with cleats high,” he told The N&O and Charlotte Observer at the time. The bill never received a committee hearing.

As treasurer, he viewed the hospital landscape as having gotten better for hospitals but worse for patients. He started looking for ways to pare costs for state employees and retirees.

In the decade since The N&O’s “Prognosis: Profits” investigation, urban hospitals in particular have continued to prosper. Duke University Health System, for example, had total profits of $450 million in the year ending in June 2018, and $430 million a year later, according to its Form 990s filed with the Internal Revenue Service; in both years, the total profit margin exceeded 10 percent. In 2020, those profits dropped to $241 million, primarily because of lower investment income and higher salary expenses after hiring additional staff.

In 2020, Duke paid seven people more than $1 million, topped by CEO Eugene Washington at $2.7 million.

At Atrium Health, a nonprofit health system that owns and operates Carolinas Medical Center and Wake Forest Baptist Hospital among its 40 hospitals, total profits topped $1 billion in 2020, according to Atrium’s annual report. The company’s operating margin was below 1 percent, but it had more than $900 million in non-operating income—mostly from investments—to boost its total profit. As of September 2020, Atrium had unrestricted reserves of $8.4 billion, according to S&P Global.

Those reserves have now grown to roughly $10 billion, Atrium spokesman Dan Fogleman said in an email. He said the money is necessary to service debt, maintain operations without layoffs during downturns such as the pandemic, and to continue providing charity care that last year cost more than $400 million.

In Asheville, Mission Health System was profitable as a nonprofit hospital before being bought by HCA Healthcare, which operates nearly 200 hospitals. Mission paid CEO Ron Paulus $2.4 million in 2018, the year before the HCA deal, and $4 million in 2019, including a payout related to the sale, according to its federal tax filings, details previously reported by The Asheville Watchdog.

Folwell started by talking with hospital officials, trying to win their help to lower costs for his huge constituency of state employees and retirees. He wanted to limit their charges to 177% of what Medicare allows, which would have lowered the state’s costs by about 10% and reduced the upward pressure on premiums for employees.

He says hospital officials told him they would negotiate with Blue Cross Blue Shield of North Carolina, the administrator of the state health plan, but not with Folwell and state officials.

“Our hearts, minds and doors have always been open to the cartel,” Folwell said. But the talks went badly “when somebody puts a finger in your face and says, ‘You’re not our customer, we don’t have to talk to you.’

“We [the state health plan] pay $3 billion worth of bills to them, but we are not their customer.”

The hospitals said Folwell was the person who insisted on getting his way during the discussions. He can be direct and bullheaded, according to those who know him.

“That is a little bit like Dale Folwell,” said Tom Campbell, a longtime political observer who hosted the long-running roundtable TV show NC SPIN. “He goes at everything 90 miles an hour and hits it head on. He’s going to tell you what’s on his mind and he’ll tell you straight up.”

Campbell, who worked as assistant state treasurer under longtime treasurer Harlan Boyles, admires Folwell’s willingness to take on difficult fights. But he said Folwell could use a good public relations consultant to round off some of his sharp edges.

Sometimes, Campbell said, “He’s like the bull that gets a red flag waved in front of his face and he just says, ‘The hell with you, I’m going to do it anyway.’ ”

Jim Blaine, a leading Republican political consultant, said in an email: “Folwell is one of the more obstinate, cantankerous curmudgeons I’ve run into in politics, and I mean that as a compliment. He loves to fight for the underdog and settle scores for the little guy. He’s principled, he has a sense of duty, but he never forgets.”

Folwell acknowledges that he hasn’t gotten far with his pricing initiative. He said he has drawn attention to hospitals’ practices, and he reports that 27,000 providers of healthcare, mostly physicians’ practices, have signed up. But that includes only three hospitals.

One of Folwell’s biggest frustrations is that state law prohibits his office from using data from its own claim payments to negotiate better rates. He tried to get that changed in the most recent legislative session, but the final bill kept that prohibition intact after lobbying from the healthcare association.

“I would say we didn’t crush him,” said Hand, the association’s vice president. “I would say the General Assembly didn’t pass the bill” in the form Folwell wanted.

The setbacks appear not to have altered the affection that the State Employees Association of North Carolina has for Folwell. The group, typically tied more closely to Democrats, has endorsed him twice and still supports him.

“He really does do what he says,” says Ardis Watkins, SEANC’s executive director. “He’s committed to state employees, and he’s committed to taxpayers at the same time. He has an incredibly keen sense of justice, and right and wrong. He’s one of these people who can’t look the other way when something’s not right.”

The hospitals, meanwhile, tried to defeat Folwell in 2020, when he won his second term with 52.6% of the vote. It raised an undisclosed amount of money from its members to run digital ads based on issues, not advocating for a particular candidate. Some hospitals, alerted that some money was going to political activities, asked for their money back.

UNC Health Care, for example, was assessed roughly $58,000 for the effort, but demanded a refund after questions from WBTV in Charlotte.

“When we found out what they were spending those dues on, we requested a refund of our money,” says Andy Willis, chief external affairs officer for UNC Health Care. “It was a little distasteful, and we thought about leaving the association after that.”

Hand said the healthcare association hasn’t filed any disclosures about its spending during that campaign because it was not advocating for a particular candidate. But he acknowledges that NCHA was working to defeat Folwell.

“Correct. Absolutely,” Hand said. “100 percent, yes.”

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The report produced by Folwell’s office and Johns Hopkins asserted that North Carolina’s nonprofit hospitals were not providing enough free help for those who can’t afford health care. It noted that those hospitals do not pay sales taxes, property taxes, or income taxes, and therefore are expected to take care of all who can’t afford to pay.

The state’s hospitals were significantly more profitable than the national average, the report found, and provided only slightly more than the national average in charity care. In short, it said they were falling far short of justifying their tax exemptions.

The report also showed a vast difference in the total profit margins of hospitals: some exceeding 30 percent profit while others, including more than 25 hospitals mostly in rural areas, losing money in 2019. Rural hospitals tend to suffer financially because they treat higher numbers of uninsured patients.

And it highlighted a key difference between hospitals and their critics: whether to focus on levels of charity care or the broader category of “community benefit.”

The hospitals see charity care as only one item on a broader menu of community benefits, which includes uncollectable debt, getting paid too little by the federal government for care of the poor and elderly, and clinics and other community programs they support.

“The goal here is not to have a large charity care number,” Hand says. “The goal is that that’s a small subset of community benefit, and if we’re meeting the community’s needs on the other side, we won’t need to worry as much about the charity care number.”

Take Duke Health as an example. In its report to the IRS for the year that ended in June 2020, the hospital system said its charity care for that year was $133 million, or nearly 3.7 percent of its total expenses. That’s lower than Folwell’s report would suggest would be proper; that report said that the tax breaks are worth roughly 5.9 percent of a hospital’s total expenses.

But Duke reports other expenses that add to its community benefit: the unreimbursed cost of treating patients under Medicaid, the federal health care program for the poor; money to educate health professionals at the teaching hospital; and other community contributions. That totaled $344 million, or 9.5 percent of expenses.

You can spark a lengthy argument about whether hospitals’ claim of losing significant amounts of money treating Medicaid patients is legitimate. Some studies have suggested that efficient hospitals should lose only a small amount on Medicaid, and Folwell’s report includes a section highlighting just that. But Hand isn’t buying it.

“Those efficient hospitals … I haven’t found one yet,” he said. “I’m not saying they aren’t efficient. I’m saying that [a] perfect scenario depends on the community, a community without all the other health disparities.”

UNC Health Care said it has spent $400 million during the past three years on charity care, which would put it somewhere around 3 percent of its expenses. Again, that’s lower than the level Folwell says is necessary, but UNC, too, takes credit for broader spending on community benefit.

It says its mission—different from most other state hospitals because of its public status—requires it to extend care into rural areas around the state, which requires significant profits in Chapel Hill. Officials also note that a big chunk of its $516 million profit at UNC hospitals in fiscal 2021 came from non-operating revenues, which include investment income. With that investment income, its total profit margin was above 15 percent.

“Our charge from the state is not (just) to care for the people at Chapel Hill, or those who have a complicated enough problem that they come to Chapel Hill,” said Dr. Matt Ewend, chief clinical officer and a neurosurgeon. “The UNC Hospital has a better financial outlook than many of our other entities, but at the end of the day, we’re charged with running the whole system, and so you’re looking at one part of it, but it’s really out of context not to look at what happens in the rest of the state.”

The broader UNC Health Care System, for example, made a total profit of $95 million in 2020, a margin of about 2 percent. UNC Health Care’s numbers for fiscal 2021 are not yet available.

With more than $4 billion in revenues a year, UNC Health Care is also paying substantial salaries to its key employees. In the past year, it paid five members of its leadership team more than $1 million, topped by CEO Wesley Burks at almost $2.4 million.

“We have a market-based approach to compensation,” says chief financial officer Mark Miller. “It’s a pretty tight and controlled process. There’s always going to be somebody who thinks that that’s a lot.”

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In late March 2020, near the start of the coronavirus pandemic, Folwell said he was hospitalized for five days with COVID and came close to death.

His blood oxygen level was at 83, and his clotting levels were at the top of the range. He wants to make it clear that he respects the health care professionals on the front lines, and when he rails against the big players in the health care system, “I’m talking about the multi-million-dollar executives from these multi-billion-dollar corporations who represent themselves as nonprofits.”

Folwell is concerned, as are many experts, that hospital systems continue to grow larger through consolidation.

In the past decade in North Carolina, Atrium Health acquired Carolinas Medical Center and Wake Forest Baptist. Novant purchased New Hanover Regional Medical Center. And HCA bought Mission Hospital in Asheville. Studies have shown that as systems get bigger, their pricing power increases, and costs tend to rise.

“We have what’s been called a confiscatory health system that really does eat up every last dollar,” said Barak Richman, a Duke law professor who has studied hospital consolidation. “We don’t have a system that thinks about value.”

Folwell points out that there’s no state official designated to watch over health care costs, but he said the attorney general is in charge of consumer protection. In October 2020, he wrote to N.C. Attorney General Josh Stein, a Democrat, imploring him to get more active in fighting consolidation.

“There are many factors contributing to this (cost) problem,” Folwell wrote in the letter, obtained by The Assembly, “but one of the most significant, and one that you have the authority and responsibility to address, is the intensifying lack of competition in the healthcare industry, especially among hospitals, as healthcare organizations continue to consolidate, growing increasingly monopolistic.”

Both Stein and Folwell were vocal in 2018 when UNC Health and Atrium floated a possible merger; the organizations later decided against the move. Stein was also involved in assessing the potential impact when HCA and Novant took over the hospitals in Asheville and Wilmington, and he said he was successful in adjusting the terms of the deals to help consumers.

But he said under current state law, he does not have the authority to stop hospital mergers. His office is now conducting a review of state law to make recommendations to the General Assembly for changes so that his lawyers can conduct more thorough reviews before mergers, and to have greater power of enforcement afterward.

“We need clearer authority to engage in the transactions before they occur and to have the authority to get resources from the parties so that we can do the economic analysis necessary to determine if it’s in the public interest to go forward,” Stein told The Assembly.

In the past decade, state and federal officials have started to act to make hospital pricing more transparent. Patients rarely have been able to know in advance what they’ll be charged, or what they’ll owe, for a given procedure, regardless of whether they are insured.

Starting in January of 2021, the federal government required hospitals to make public—and easily accessible—a list of their charges for procedures and services. The goal is for patients to be able to shop around for costs of different procedures because such costs can vary widely.

Stein wrote to hospitals in June, putting them on notice that his office would work with federal regulators to make sure that they were complying with the new regulations. In mid-January, his office reported that 122 of 147 North Carolina hospitals were in compliance.

“It’s in everyone’s interest to get these tools out into the marketplace to serve as a check on the ability of these health systems to sort of mysteriously charge whatever they want,” Stein said.

Stein said he and Folwell haven’t talked about health care since Folwell’s letter 15 months ago.

“He could have called me if he wanted, but he didn’t,” Stein said. “He has my phone number.”

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Stein is likely a top Democratic candidate for governor in 2024, and Folwell could decide to make a run at the GOP nomination. Both are noncommittal, saying it’s too early to discuss a potential campaign.

“I continue to be focused on being the best state treasurer in North Carolina history, and I have big shoes to fill,” Folwell says. “I’m going to do that by attacking problems, not attacking people.”

Folwell refers to himself as “a verb,” and disdains people who rest on labels. “Being called the treasurer as a noun doesn’t really mean anything to me. Doing the work of the treasury means everything to me. Being called the governor doesn’t mean anything to me. Having an opportunity to govern, in the position I’m in now, means everything to me.”

Folwell’s bout with COVID came months before vaccines were available. But he’s vaccinated, and said he encourages people to wear masks and get the shots. That’s a different stand from many leaders in his party.

“It bothers me that the issue of masks and vaccinations has become so politicized,” he said. “When you look at the stimuli that’s going out … it’s no wonder that people are confused.”

Folwell wants more ‘verbs’ in office, and there’s some evidence that action could be coming in the health care area. Stein is conducting his review, and State Auditor Wood said she’s considering an audit of charity care provided by public hospitals. Folwell says he will continue to push on health care pricing and transparency.

He recently was asked by a newspaper for 25 words of hope for 2022, and The Assembly asked him the same question. He responded in Folwell style, albeit with a few extra words:

“My hope for 2022 is that for elected officials in North Carolina, if they’re going to show up and stand up, they will use their time attacking problems and not attacking people. And if they can’t do that, they should shut up.”