By Jaymie Baxley and Ashley Fredde

Gov. Josh Stein put an end to North Carolina’s Medicaid brinkmanship Wednesday, restoring funding and abandoning efforts to reduce payments to health care providers brought about by the legislature’s falling hundreds of millions of dollars short of the state health and human services department’s request for the annual Medicaid budget. 

The situation had become something of a showdown between the governor, who has limited power under the North Carolina constitution, and the legislature, which has aggressively wielded the power of the purse. The governor’s retreat on the cuts implemented by his administration underscored the limits of executive leverage in the state’s budget stalemate.

The restoration comes after several legal challenges were filed challenging the Department of Health and Human Service’s decision to cut rates, with recent court decisions making it “untenable to continue with rate reductions,” according to a news release by Stein. 

The decision restores Medicaid reimbursement rates to their Sept. 30 level, providing access to care for vulnerable patients. Now it’s up to lawmakers to resolve the budget impasse to keep that care available.

“North Carolinians who rely on Medicaid are suffering because the General Assembly has failed to fully fund the program,” Stein said in a news conference. “NC DHHS is restoring rates because the courts have required doing so, but the $319 million funding gap remains. The General Assembly must act to fully fund Medicaid and protect health care for more than 3 million North Carolinians.”

The Republican-controlled chambers of the state legislature are also at an impasse and have failed to agree on a two-year spending plan, instead passing a mini-budget stopgap measure in July. The bare-bones “mini-budget” only allocated agencies the same level of funding they had the previous year, and it doesn’t include any nonrecurring funding. 

The mini-budget appropriated $600 million for Medicaid, while NC DHHS requested an additional $319 million to adjust the Medicaid budget for the current fiscal year, which began on July 1. The shortfall prompted department Sec. Devdutta Sangvai to warn legislative leaders in August that without additional funding, reimbursement cuts would begin Oct. 1. 

Legislative members failed to reach a budget agreement despite advancing proposals from each the Senate and the House of Representatives to add $174 million to the Medicaid base funding, an amount everyone agreed would stretch the program until the end of the fiscal year on June 30. DHHS said the failure to reach an agreement forced reimbursement reductions of between 3 percent and 10 percent to go into effect for providers. 

That move resulted in significant backlash from all sides. 

Public outcry

The first show of public pushback began on Oct. 22 in the gallery of the General Assembly’s House chamber, which was in the process of discussing the newly drawn congressional maps. Two attendees began chanting “we need health care, not racist maps” and were ejected from the gallery shortly before the entire area was cleared by security. 

Another plea was made again shortly after to the General Assembly through several protests attended by medically fragile Medicaid beneficiaries and health care advocates. One of the largest demonstrations occurred on Oct. 28, when more than 200 people with disabilities crowded into the state legislature in an effort to persuade lawmakers to undo the reductions.

During the event, advocates circulated findings from a survey conducted earlier that month by the North Carolina Council on Developmental Disabilities. Nearly all of the survey’s 345 respondents said Medicaid was “essential to their survival and quality of life.”

“The Medicaid cuts in North Carolina are already having a profound impact on individuals with disabilities, their families and the professionals who support them,” the council wrote in a summary of the survey. “While some respondents have not yet experienced direct effects, the overwhelming majority report reduced wages, disrupted services and emotional distress.”

Soon after this “Medicaid Day of Action,” a vigil was held by Progress NC, a local grassroots group, on Oct. 30. The event was attended by half a dozen community members recognizing those who have lost family members due to lack of health care coverage or access. 

‘The writing on the wall’

Where attempts at persuasion seemed to fail, litigation took over. With the door seemingly shut on both the General Assembly’s and NC DHHS’ end, providers and patients resorted to the courts with a string of lawsuits.  

Last month, a Superior Court judge in Wake County sided with a group of more than 20 parents of children with autism in a case that alleged NC DHHS had discriminated against people with disabilities by slashing reimbursement for providers of applied behavior analysis therapy. 

Rates for the service, designed to help children with autism build communication and daily living skills through intensive one-on-one behavioral interventions, had been reduced by 10 percent.

Michael Easley Jr., attorney for the parents, said that children receiving ABA were at “risk of institutionalization and segregation” if the reduced rates remained in place. NC DHHS, he argued, had “committed facial discrimination” by including the treatment of a protected class of patients on the short list of services that received the steepest cuts — an allegation that an attorney for the state denied.

“If everybody across the board was treated the same in Medicaid, we wouldn’t be here right now,” Easley said in his closing argument. “If there were a mathematical equation that applied equally to everybody, we wouldn’t be here right now.”

Another lawsuit, filed Nov. 6 on behalf of adult care home operators, alleged that the 8 percent cut applied to the Medicaid reimbursement for personal care services was untenable. Those services, known as activities of daily living (ADLs), include bathing, dressing, mobility, toileting and eating. 

The lawsuit argued that the adult care homes were under significant financial strain, prompting furloughing or reduction of staff, cross-training other staff members whose roles fall outside of facilitating ADLs, reduction of amenities and elective activities for residents, increased burnout among staff members and delaying necessary maintenance for the facilities, as well as the “imminent risk of closing their doors.”

“My fear is that if we are forced to close, our residents may not find a comparable residential arrangement and will be forced to be relocated from the home they have come to know,” wrote Heritage Care and Carolina Rest Home owner Guy Pierce in an affidavit. “Because the state requires certain staffing ratios, I am seriously considering discharging residents so the facility can lower its staffing requirements.” 

Other operators noted that due to the cuts, they had suspended taking admissions of residents who arrived as emergency placements from prior living arrangements where they allegedly were abused or neglected.

Administrative Law Judge John C. Evans issued a temporary restraining order on Nov. 14, restoring the operator’s previous rates. The order expired on Nov. 23, with both parties returning to court on Dec. 2 to determine whether an injunction would be issued while the case proceeded. 

“An insolvent NC Medicaid … would imperil the health and welfare of millions of North Carolinians who rely on NC Medicaid,” the department wrote in its response to the suit.  “Additionally, an insolvent NC Medicaid would be unable to pay providers for the services they rendered, leading to increased financial challenges for Petitioners and other providers. Such an insolvency would impact access to care for the more than 3.1 million North Carolinians that receive coverage under NC Medicaid. This is an unacceptable risk for the Department in the interest of the public.”

During Wednesday’s news conference, Stein noted that three other lawsuits have been filed in connection with the rate cuts, with “even more waiting in the wings.”

“DHHS can see the writing on the wall,” he said.

Ball’s in the NCGA’s court

Lisa Poteat, CEO of The Arc of North Carolina, said her organization, which provides housing and other services for people with intellectual and developmental disabilities, was “feeling celebratory” in light of Wednesday’s announcement.

“It’s something that we’ve been pushing for for months to get these rates corrected, and it’s a sigh of relief for now,” she said in an interview with NC Health News. “Of course, we know we’ve got a lot of work to do with the legislature. I’m confident they will come back and fund Medicaid, and I hope it’s enough dollars and that they do it soon enough, but this is a big step in the right direction today that we’ve been really pushing for for quite a long time.”

The cuts, she said, stirred “a lot of fear” among direct support professionals who work with disabled patients. While The Arc was able to avoid layoffs, Poteat said some smaller providers were forced to let staff members go.

“We already have a direct support staff workforce crisis in this state and in this country, and these rate reductions were just going to make that worse and have already for some people,” she said. “If we’d gone too much longer with this, without a correction today by the governor, I think we would have lost a lot more staff. We would have lost a lot more ground everywhere — not just direct support professionals, but all across the Medicaid world.”

Providers received notice of the reversal Wednesday morning in an email from NC Tracks, the state’s claims processing system for Medicaid. The email, a copy of which was shared with NC Health News, noted that the “restoration of rates does not mean the problem has been resolved.” 

It went on to warn providers that the “financial risk to Medicaid is greater now than before,” and that any “decisions about future funding are solely in the hands of the General Assembly.”

Looking ahead

The legislature is set to reconvene on Monday, but it remains to be seen if the chambers will overcome their impasse on the state budget. 

Stein previously called on lawmakers to return for a special session on Nov. 17 to break the impasse, but his directive was rejected by House Speaker Destin Hall (R-Granite Falls) and Senate leader Phil Berger (R-Eden). In a joint letter sent on Nov. 13, they described the situation as a “trumped-up ‘crisis’” and claimed Stein’s proclamation ordering the extra session was “unconstitutional.”

North Carolina is the only state in the U.S. without a full budget as a deadlock driven by disputes between the leaders of the chambers drags on over funds earmarked for a new state children’s hospital and over the size and timing of tax cuts. 

During a Nov. 10 hearing for the lawsuit brought by the parents of children receiving ABA therapy, Adam Dellinger, attorney for DHHS, estimated that the agency has enough money to operate until May if the stalemate drags on.

State Sen. Sydney Batch, the chamber’s top Democrat, issued a statement Wednesday applauding Stein for reversing the cuts.

“For more than 160 days, Republicans have refused to do their job, leaving our health care system in chaos,” Batch said. “The recent court rulings made it clear these cuts couldn’t move forward, but Republicans were warned long before that. They knew this would happen and still, they chose not to act.”

But even amid the partisan recriminations, Wednesday’s decision brought a measure of relief across the aisle. 

“I am glad we have a final resolution after months of pointing fingers and providers caught in the middle. I am pleased with the outcome so families and providers can enjoy this time of year a little better and not worry,” Rep. Donny Lambeth (R-Winston-Salem), a senior House member who co-chairs the Joint Legislative Oversight Committee on Medicaid, said in a text message to NC Health News. 

Lawmakers will return sometime in early 2026 for their biennial “short session” usually reserved for adjustments to the state’s two-year budget. But given how the chambers have been unable to agree on a budget to date, it’s not clear how or when the state’s funding issues will get resolved. 

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