The Centers for Medicare and Medicaid Services (CMS) gave billions of federal taxpayer dollars to North Carolina hospitals for medical debt relief. During her presidential campaign, Ms. Harris promised that, as president, she would use the same approach with other states to relieve medical debt nationwide. However, this approach is akin to pouring fuel on a fire.
CMS is providing the North Carolina state government with over $10 billion in federal taxpayer dollars packaged as Medicaid expansion funding. The state government passes the funds to hospitals if they forgive medical debt owed by low-income patients and make changes to their charity care policies (Rachel Cohrs Zhang reported more details in STAT).
However, the outstanding hospital medical debt of low-income North Carolinians totaled $4 billion. If the debt is sold to private debt relief programs or collectors, it will be heavily discounted and may result in as little as $20 million in cash for hospitals. Not surprisingly, all North Carolina hospitals opted into this windfall program.
Health policy expert Ann Kempski, who has analyzed the state’s Medicaid funding, said, “Instead of targeting federal support to hospitals that serve more low-income patients, North Carolina and CMS are padding the profit margins of tax-exempt hospital behemoths while other services, like community mental health, remain underfunded.”
Why did CMS allow such unaccountable spending of federal taxpayer dollars while providing scarce details? One reason is the urgency to build a successful pilot program for Vice President Harris’s presidential campaign and future agenda. Given that the $10 billion transfer is about ten times the annual charity care provided by North Carolina hospitals, a similar nationwide program would cost more than $150 billion.
Even if we can afford to pay hospitals $150 billion, patients are unlikely to benefit. A recent study found that medical debt relief did not improve patients’ financial well-being while reducing their likelihood of paying future medical bills. Even worse, some patients experienced declining mental health due to feelings of lowered self-esteem.
CMS’s Medicaid expansion funding also contains serious perverse incentives, inviting hospitals to raise commercial prices and worsening patients’ exposure to medical debt. Additionally, the playing field will tilt further in favor of hospitals and against competing physician practices, accelerating hospital-physician consolidation and resulting in fewer choices, higher prices, and more medical debt.
Federal windfalls will lead to higher executive pay and other bloated spending, diminishing hospitals’ financial agility. As fewer patients pay their bills, hospitals will also face long-term revenue risks, prompting them to seek further government handouts. This vicious cycle squanders taxpayer dollars and enables politicians to reap gains without actually benefiting constituents.
What’s the solution? Promoting competition to drive down prices. A lawsuit challenging North Carolina’s certificate-of-need law could potentially eliminate the law and instill much-needed competition in the state’s hospital market. At the federal level, addressing this and other anticompetitive laws—such as the Affordable Care Act’s ban on physician-owned hospitals, the Stark Law, and site-based payment policies—would lower prices and benefit patients without relying on taxpayer subsidies.
A recent report from Turquoise Health provided evidence that the hospital price transparency regulation was associated with lower commercial hospital prices. Codifying price transparency into law, enforcing compliance, and implementing other reforms that allow patients to directly benefit from lower prices would impose further downward pressure on pricing and reduce medical debt risks for patients.
In a few weeks, our new President and Congress will have the opportunity to fundamentally address healthcare spending and medical debt challenges for all Americans. CMS’s debt relief approach, devoid of accountability to taxpayers and riddled with harmful incentives, will worsen medical debt. It’s time for our elected leaders to focus on fixing root causes rather than on political pandering.
