Senate leader Phil Berger, R-Rockingham, wants to throw a lifeline to as many as 20 rural hospitals that are headed toward insolvency.

Berger and Sen. Jerry Tillman, R-Randolph, whose districts have a history of struggling hospitals, are primary sponsors of Senate Bill 681. Legislative staff gave a background briefing on the bill Monday, June 24.

The Rural Health Care Stabilization Act, the first state program of its kind in the country, would create a revolving loan fund at below-market interest rates with flexible repayment terms. 

The program would use state General Fund money to keep small hospitals afloat in Tier 1 and Tier 2 counties, which are the most economically distressed. How much money would be available hasn’t been set and won’t be known until House and Senate budget negotiators release their compromise spending plan. 

 Although money would become available in July, hospitals would need more time to prepare necessary loan documentation. Between 15 and 20 rural hospitals are facing insolvency in the next five to seven years, legislative staff say.

 Loan recipients would have seven years to pay off the loans or refinance them on the private market.

 Senate members and staff worked with the N.C. Healthcare Association to find long-term solutions to the perennial problem of rural hospitals with flagging finances. The association represents hospitals and large health systems. 

Rural hospitals’ fragile conditions are often a wedge issue in General Assembly policy making. 

Hospital lobbying groups have invoked rural hospitals’ plight in arguing against certificate of need reform or repeal, and N.C. Treasurer Dale Folwell’s Clear Pricing Project reforms for the State Health Plan. They claim ailing rural hospitals would close if those changes occurred. Lawmakers representing rural hospitals generally don’t want to risk reforms due to such backlash.

The N.C. Healthcare Association did not respond to a request for comment. Legislative staff said S.B. 681 is separate from CON and the State Health Plan issues, and is not related to the political policy battles over rural hospitals.

 But Senate Minority Leader Dan Blue, D-Wake, came out swinging against the proposal the day the bill was introduced.

 “This bill is a weak fix to a growing problem; and it is little more than an 18 million dollar government bailout for one rural hospital,” Blue said in a news release. 

 That was a likely reference to Randolph Hospital in Asheboro, which is in Tillman’s district. It has been losing money, and overtures to many larger hospitals to acquire or partner with it have failed. It already has been putting together a package and would be ahead of the curve in applying for a loan under the new program.

Blue said rural hospitals are in trouble, a health care crisis is growing in the state, and S.B. 681 will not fix systemic problems without Medicaid expansion.

The legislative staffer put the blame elsewhere, saying most hospitals in rural counties have many more beds than needed. Rural populations have declined, and excess bed space creates the need for some additional staff, and more maintenance and operation costs.

Health-care consumers in those areas often go to larger hospitals for expensive procedures and use the local hospital for less-costly treatment. Many rural residents lack health insurance, or rely on Medicaid or Medicare, which don’t cover full costs.

To qualify for a loan, a hospital must show it’s within three years of closure based on revenue and existing sources of funding. Requirements include a detailed plan outlining the types of services to be provided, and sustainability measures to ensure survival. The money could be used to build a smaller hospital, or in some cases upgrade an existing facility.

Interest rates would be decided on a case-by-case basis, as would payment terms. In the most dire circumstances, a hospital might make no initial payments, or pay no interest for several years. Loans would be structured with creditworthy guarantors in case the hospital eventually fails. Guarantors could be a larger hospital partner, cities, or counties.

UNC Healthcare would vet applications . 

“There is a need for high-quality health care in all parts of North Carolina, especially in rural areas,” UNC Health Care spokesman Phil Bridges told Carolina Journal

Bill sponsors are confident there would be no antitrust issues that would need federal regulatory approval or review by the state Attorney General’s Office. 

UNC Health Care would not be eligible for loans under the program, nor would it be in the position of kingmaker because there is no competitive bidding. A failing hospital would have entered into an agreement with a larger hospital or health-care system as part of its survival plan before submitting an application, so UNC Health Care couldn’t steer it away from UNC competitors.

If UNC Health Care signs off on an application, it would go before the Local Government Commission for final approval. That state agency OKs funding for state entities. A hospital could seek Local Government Commission consent, even if UNC Health Care turns it down.