NC hospitals face bills restricting facility fees, tying property tax exemptions to charity care spending

Legislation that would put restrictions on hospital facility fees for Medicaid patients advanced through its first N.C. Senate committee last week.

The Senate's revamping of House Bill 727 cleared the Healthcare committee Thursday and advanced to the Senate floor for a vote.

Meanwhile, Senate Bill 895 was filed last week that represents the first of two potential bipartisan tax bills affecting the state's not-for-profit hospitals.

SB895 would limit hospitals' property tax exemption to the amount equal to "the total actual cost of qualified charity care" they provide if it is "actually and exclusively used for charitable hospital purposes.

SB895, sponsored by Sens. Jim Burgin, R-Harnett, and Julie Mayfield, D-Buncombe, appears to represent a shift in focus from a proposal bill titled "Nonprofit hospital property tax modifications" that cut from 100% to 50% the property tax exemption for not-for-profit hospitals on real and personal property they own and are used for charitable purposes.

Facility fees have become an increasingly important revenue stream for the state's large not-for-profit healthcare systems, in particular as they face federal and state Medicaid funding uncertainties.

The divisive nature of the facility fee comes from when it is charged in an outpatient or primary care setting off the hospital campus.

HB727 would require the N.C. Department of Health and Human Services not reimburse hospitals for Medicaid patient expenses related to facility fees if they are not performed on a hospital's main campus, or in hospital emergency department or ambulatory surgical center.

The bill defines a facility fee as one charged "that is intended to compensate the health care provider for the operational expenses of the health care provider, is separate and distinct from a professional fee, and is charged regardless of the modality through which the health care services were provided."

The changes would be effective when the bill is signed into law.

"This is a step toward trying to address fees, and especially facility fees, that are charged at facilities that either have been purchased or that are away from campus," Burgin said during the Senate Healthcare committee meeting.

HB727 represents the latest Senate tactic in addressing hospital facility fees.

In June, the state House rejected by a 113-1 vote the Senate's version of House Bill 434 that also would increase pricing transparency from hospitals and providers, such as patients receive written notice of any additional surprise bill that they may incur.

Senate bill sponsors claim that curtailing, if not eliminating, hospital facility fees could result in more than $200 million in annual patient savings.

Josh Dobson, president and chief executive of N.C. Healthcare Association, said facility fees are warranted and necessary to pay for non-doctor services, such as nurses, administrative staff, equipment and supplies, updating electronic patient records and leasing expenses.

Dobson took over as the NCHA's top official in November 2024, shortly after resigning at state Labor commissioner. Dobson also is a former Republican state House member.

Meanwhile, consumers and health insurers increasingly question why patients are facing charges for the use of a medical office or procedural room that often rivals the cost of the medical procedure.

Dobson said that federal health regulatory requirements "dictate how hospitals must bill separately from provider fees," and that "many hospital clinics stand to shut their doors if facility fees are prohibited."

Peter Daniel, executive director of N.C. Association of Health Plans Inc., told the committee that charging hospital facility fees in non-hospital settings goes beyond the original intent of facility fees, that of "to help support these around-the-clock hospital operations that serve the community."

"Patients are being charged facility fees for routine care delivered in hospital-owned outpatient offices ... that operate during normal business hours and look no different than the independent practices next door."

A state House committee focused on property tax reform postponed in April taking action on two proposed tax bills affecting not-for-profit healthcare systems.

The House Select Committee on Property Tax Reduction and Reform had prepared two draft bills for presentation, one of which has become SB895.

The bill would measure the actual charity care expenditure by the cost-to-charge ratio used by the federal Centers for Medicare and Medicaid Services. If signed into law, it would go into effect July 1.

Charity care is defined in the bill as services provided without expectation of payment to uninsured or underinsured patients who:

• Have a family income at or below 300% of the federal poverty level;

• Have been screened and approved under a uniform application process;

• Have provided documented proof of income or for whom the hospital has performed a third-party, credit-based presumptive eligibility screening.

The bill states that charity care totals can't include: bad patient debt; contractual allowances; or any portion of a bill for which payment was received from a third-party payer, including payments from government-sponsored healthcare programs.

Hospitals can continue to apply for property tax relief and for a semiannual refund of sales and use taxes paid for the direct purchases of items for use in its core duties.

The other draft bill is tentatively titled "Hospital sales tax refund modifications." It would reduce hospitals' maximum annual state sales tax refund from $31.7 million to $10 million, as well as the maximum annual local sales tax refund from $13.1 million to $4.2 million.

Atrium Health Wake Forest Baptist, Cone Health and Novant Health Inc., and their affiliated hospitals, enjoy wide tax benefits.

In exchange for providing community benefits, they qualify for exemptions on most state and federal income taxes, city and county property taxes, and a significant amount of state and local sales taxes.

Community benefits typically involve uncompensated care, free and discounted care for low-income patients, charity care, plugging Medicaid and Medicare funding gaps, education, research and community-outreach efforts.

According to a February state legislative staff presentation based on N.C. Revenue Department data, not-for-profit hospital properties account for $130 million in annual "foregone local (tax) revenue" that's spread over 75 counties.

The presentation also listed $13.7 billion in statewide hospital property values excluded from property taxes. That's up from $8 billion in 2016.

Of that amount, $3 billion is listed in Mecklenburg County, while $1.8 billion in Forsyth County and $1.2 billion each in Guilford, Pitt and Wake counties.

"When we eliminate or exclude, do an exemption, that is a definite cutout for local government," Rep. Julia Howard, R-Davie, said during the April House committee hearing.

"You're absolutely just reaching in and taking part of their tax base. And then they are still responsible to do the things that they are required to do."

Copyright 2026 Tribune Content Agency. All Rights Reserved.