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.

Building on Medicaid Expansion

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, Â鶹ŮÓÅ polling and credit bureau data suggest.

Debt is highest in nonwhite communities and in eastern North Carolina, analyzed by the nonprofit Urban Institute shows. And while some debts may be small, the Â鶹ŮÓÅ 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 .

The largest system, Atrium Health — part of Advocate Health, a multistate tax-exempt conglomerate that reported in revenue and $2.2 billion in profit last year — sued almost 2,500 patients from 2017 to 2022, found.

On Thursday, Advocate Health announced that on more than 11,000 homes.

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 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 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 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.

In 2023, Novant posted and more than $460 million in profit.

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 .

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.”

Â鶹ŮÓÅ Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at Â鶹ŮÓÅ—an independent source of health policy research, polling, and journalism. Learn more about .

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Severely injured after the crash, Burke was airlifted from the Fort Liberty U.S. Army base in North Carolina to UNC Medical Center, in Chapel Hill, where doctors performed surgeries to rebuild his leg.

Medicaid covered most of the cost, but Burke was still left with more than $10,000 in bills. He was confined to a wheelchair for two years after the accident, unable to work his car sales job. As a result, he said, he couldn’t pay the outstanding hospital bill and his account was turned over to a collection agency.

Since then, he and his wife repeatedly tried to buy a house. But because of damage to his credit score, mortgage companies repeatedly turned them down.

“We were forced into homelessness for a time,” said Burke, whose family moved from North Carolina to Missouri in 2020. “For everything we need credit for, we’re screwed.”

Burke is among millions of people burdened by medical debt, a nationwide problem that surveys and data suggest is particularly acute in North Carolina.

Using credit bureau data, the nonprofit Urban Institute calculated that of North Carolina consumers had an unpaid medical bill on their credit report in 2023, compared with 5% nationally.

In fact, only Oklahoma, Wyoming, South Carolina, and Texas had higher levels of medical debt on credit reports than North Carolina, researchers found.

Nationally, 41% of adults — or about 100 million people — have some kind of health care debt, according to a 2022 survey by Â鶹ŮÓÅ, a health information nonprofit that includes Â鶹ŮÓÅ Health News.

The Â鶹ŮÓÅ survey was designed to capture not just bills patients couldn’t afford and that end up on credit reports, but also other debt patients incur to pay for health care, including from credit cards, payment plans, and loans from friends and family.

The Â鶹ŮÓÅ survey didn’t include state-specific findings, but if North Carolina’s debt burden precisely matched the national rate — meaning 41% of adults in the state had health care debt — then approximately 3.4 million North Carolinians would be in debt.

This is probably a low estimate, however, since the credit bureau data and suggest that medical debt is higher in North Carolina than nationally.

The credit bureau data also indicates that medical debt is highest in Anson and Cleveland counties, along with a band of counties in the eastern part of the state.

Mecklenburg County’s rate is slightly higher than the state rate. And as is the case nearly everywhere, there are large racial disparities in medical debt, with debt burdens in the county more than twice as high in nonwhite communities as in white ones, the Urban Institute data shows.

Burke, who earns less than $1,000 a month from Social Security Disability Insurance, said his family is now forced to rent, which has dramatically increased their living expenses.

His family of five shares tight quarters — a 980-square-foot rental home with just two full-sized bedrooms. They moved to Missouri because the cost of living is lower there.

Hospitals, he said, need to change their priorities.

“They’re not for patient care,” he said. “They’re for patient profit.”

Â鶹ŮÓÅ Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at Â鶹ŮÓÅ—an independent source of health policy research, polling, and journalism. Learn more about .

USE OUR CONTENT

This story can be republished for free (details).