McCrory’s first budget shows a reluctance to make many changes. Instead, many of the adjustments tweak the numbers for programs, holding down large new expenditures, and trimming some critical small programs.

By Rose Hoban

Bolstered by a stronger economy and increasing state revenues, Gov. Pat McCrory announced a budget Wednesday morning that maintains most health care programs, funds compensation for eugenics victims and promises to fund mental health and drug-treatment courts.

McCrory presenting 2013 budget
Gov. Pat McCrory flanked by his cabinet as he presented his budget in the House of Representatives chamber at the Old Statehouse building Wednesday.

The governor’s budget lacks the harsh cuts seen in his predecessor’s budgets, fully funding Medicaid for the next two years while also creating a reserve fund to cover any overages incurred by the program. But the pain for some programs will be revealed in the coming weeks as advocates, legislators and accountants slog through the numbers.

In particular, there is some pain for hospitals, poor patients with HIV/AIDS and tobacco-prevention initiatives.

You can read the Health and Human Services section of the governor’s budget at the bottom of the page

McCrory’s budget allocates an additional $575 million to pay for increases in the Medicaid program resulting from changes mandated by the federal health reform law. In addition, the budget creates a reserve fund of $180 million over the next two years.

“This is very important for us to do so there are no surprises,” McCrory said.

In the past two fiscal years, Medicaid had budget overruns of several hundred million each year, requiring the General Assembly to act to shore up the program.

Currently, Medicaid is at least $70 million over budget for this fiscal year (ending June 30) out of a total budget of $12 billion in state and federal expenditures on the program.

The reserve funds are part of the governor’s attempts to replenish the state’s rainy day funds, depleted in the years since the economic downturn of 2008.

“People are going to try to take from these funds,” McCrory said. “But this is important to protect the integrity of our budget.”

Drug-treatment courts

McCrory also said he wanted to fight for funding to restore the state’s drug-treatment courts, which were eliminated from the state budget last year.

“We are marking in our budget $7.2 million to put into the drug-treatment courts to help break the cycle of addiction that gives rise to violence and the breakdowns of families in our communities and adds to the cost of our very costly mental health system in North Carolina,” McCrory told reporters as he presented his budget. He also said he hoped to expand the special courts more over the coming years.

But McCrory also cut an equal amount of funding from the judicial branch, asking for a reduction of more positions than would be created to staff the mental health courts.

“We hope that if our drug-treatment programs are restored, it can be done with new funds as our economy recovers rather than by further reductions in positions that have survived four rounds of budget cuts and are sorely needed,” Judge John W. Smith, director of the Administrative Office of the Courts, wrote to members of the judicial branch in a memo Wednesday afternoon.

Eugenics compensation

The governor said he was ready to champion the payment of $10 million in compensation to victims of the state’s eugenics program that sterilized about 7,600 men and women who were deemed mentally, emotionally or physically unfit to reproduce over a 45-year period ending in 1974.

“I’ve talked about things we didn’t do in the past which we’re paying for, and the longer you hold off on paying for these types of things the more damage we do,” McCrory said. “I feel strongly that should be included in the budget for both the House and Senate.”

Last year, the state House of Representatives passed a budget that set aside $10 million for the compensation program, but the initiative died in the state Senate.


Hospitals in the state are still trying to digest changes made to Medicaid compensation proposed by the governor. Hospital Association spokesman Don Dalton said his organization would not comment until they got more details on the changes.

Gov. Pat McCrory flanked by his cabinet as he presented his budget Wednesday.
Gov. Pat McCrory with his cabinet as he presented his budget Wednesday.

On previous occasions, however, Dalton has pointed out that hospitals in the state stand to lose upwards of $7.8 billion over the coming decade due to federal health reform. Under the Affordable Care Act, cuts to hospital payments would have been offset by a higher number of patients with insurance, or Medicaid. But with North Carolina declining to expand Medicaid, Dalton has expressed concern, in particular, for rural hospitals with high rates of uncompensated care.

“In general, we have probably more than a third of the hospitals in the state that operate in the red,” Dalton said in February. “Another less than a third operate marginally positive, with margins from zero to 5 percent.”

The adjustments proposed in the governor’s budget could be profound for hospitals.

One of the largest parts of the state’s Medicaid budget consists of fees paid to hospitals for delivering care to Medicaid-eligible patients. Doctors in hospitals provide the care and 64 percent of the bills are paid by the federal government and 36 percent by the state program.

One way hospitals help the state with cash flow to cover Medicaid is by paying an up-front assessment to the state to provide general revenue funds. In a complicated accounting measure, the state then turns around and uses those funds to help pull down the federal dollars to pay for care.

In his budget, McCrory proposed changing the calculation for these assessments, charging hospitals about $37.5 million more.

Office of State Budget and Management advisor Pam Kilpatrick said the state would like to get more from the assessment. “The state is sort of getting a fixed amount, you know, and … hospital profits are continuing to go up, so we’d like to share in some of that.”

Kilpatrick admitted this means hospitals would end up paying more to the state in order to participate in Medicaid.

When asked about the third of the state’s hospitals that run in the red, Kilpatrick played down the effects of the change.
“We know there will be winners and losers,” she said.

“Most of those hospitals are associated with a big hospital whose profits are going up,” she added.

The Hospital Association’s Dalton said most of the state’s small rural hospitals are unaffiliated with larger hospital systems.

Mental health, prevention

After years of cuts to the mental health budget, including $20 million last year and $45 million the year before, the governor’s budget keeps mental health funding the same as last year.

However, the budget assumes savings from the conversion of mental health local management entities into managed care organizations that will have more limited funds to provide mental health services.

In the past three years, funds for teen tobacco prevention have gone from $17 million in fiscal year 2011-12 to $8 million in fiscal year 2012-13 to only $1 million this year.

Low-income patients with HIV/AIDS will also see funds for the AIDS Drug Assistance Program cut by $8 million each year of the biennium.

“Governor McCrory’s choice to propose $8 million in cuts to this critical public health program is shortsighted and dangerous,” wrote Lisa Hazirjian, executive director of the North Carolina AIDS Action Network in a statement.

North Carolina was one of only seven states in the country with a waiting list for the ADAP program until last year when President Obama released funds to retire waiting lists in all those states.

About 35,000 North Carolinians are living with HIV. Almost 6,500 receive medications through the state’s HIV medication programs.

Governor’s Budget HHS Section (Text)

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Rose Hoban

Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...