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Hospitals in North Carolina’s largest counties could be shut down if they fail to meet a savings target set by state lawmakers for cutting costs to the State Health Plan, under the budget proposal Senate Republicans unveiled Monday.

The provision, which Senate GOP leaders said in a press conference was necessary to bring about savings to the health plan that serves teachers and state employees, would require “urban hospitals to reduce healthcare costs to the citizens of this State as a requirement for hospital licensure,” the budget proposal states.

Hospitals that would be on the hook to make necessary cuts include any in counties with a population of more than 210,000 people as of the 2020 Census. There are 12 of those: Wake, Mecklenburg, Guilford, Forsyth, Cumberland, Durham, Buncombe, Union, Gaston, Cabarrus, New Hanover, and Johnston. It would also include hospitals that are categorized as academic medical center teaching hospitals, such as the UNC Medical Center in Chapel Hill.

Under the provision, called the “state health plan hospital savings initiative,” lawmakers would have until July 1 of each year to set an annual target for hospital health care savings for the following year. The budget proposal would give the State Health Plan’s Board of Trustees the power to apportion individual targets for each hospital based on the portion of claims it was paid by the plan in the previous five years. Hospitals would need to reach agreements with the board, or the plan’s claims processor, on the cost reductions it would make to achieve its specific target.

The provision says the Department of Health and Human Services “shall not issue or renew” licenses for urban hospitals if they don’t provide proof that they’ve entered into a health care savings agreement with the State Health Plan’s board or claims processor.

The proposal by Senate Republicans wouldn’t kick in until 2026. The annual statewide savings target for that year is $125 million, according to the budget.

Sen. Ralph Hise, answering questions about the initiative Monday, said it was necessary to tie cost-cutting to hospital licensure to make sure savings to the State Health Plan — independent of negotiations with the plan’s new provider — actually materialize.

“I don’t think anybody’s going to look at it as a serious problem and say that we’re intending to unlicense every urban hospital in the state…” Hise, a Republican from Spruce Pine and one of the Senate’s top budget writers, told reporters. “We’re intending to reach $125 million in savings through the state health plan, and we have a guarantee that will make sure that occurs.”

Asked if lawmakers considered less severe repercussions for not meeting the savings target than a hospital losing its ability to operate, Hise said that other approaches haven’t worked.

“I think that the treasurer went out and tried to do some contract negotiations and several others and I would say that was not ultimately a successful operation on his behalf…” Hise said. “This is a system that would guarantee that amount of savings for the state.”

North Carolina’s treasurer, Dale Folwell, has been vocal about trying to lower health care costs for state employees, and has been critical of the state’s largest hospitals. Hise said Folwell was “the genesis of the idea” to make licensure contingent on urban hospitals meeting the savings targets set by lawmakers and the State Health Plan.

Folwell, a Republican who is running for governor, couldn’t be reached Monday evening to comment on the GOP proposal.

Cynthia Charles, a spokesperson for the North Carolina Healthcare Association, said Tuesday morning that the association opposes the proposal, which it said would put health care at risk for more than 10 million North Carolinians. Charles also said the proposal looks like “government intrusion into private business, which we believe is bad for North Carolina and a dangerous precedent.”

“Hospitals across the state are ready and willing to work with the State Health Plan and its beneficiaries to improve the health of members and reduce costs through care management of chronic conditions and enabling healthier lifestyles,” Charles said in a statement. “This requires empowering and supporting those who are responsible for delivering care, rather than creating additional bureaucracy and administrative burden that would empower insurance companies versus care givers.”

“We know that a healthier workforce is more productive, happier, and costs less. It is time we look to support those care givers who care for all North Carolinians,” she added.

This story was originally published May 15, 2023, 6:19 PM.