Medicaid & HHS Adjust./Other Critical Needs.

GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2025

SESSION LAW 2026-1
HOUSE BILL 696

*H696-v-5*
AN ACT MAKING VARIOU S CHANGES TO THE MED ICAID PROGRAM AND OT HER
CHANGES RELATED TO H EALTH AND HUMAN SERV ICES, IMPLEMENTING
VARIOUS BUDGETARY ADJUSTMENTS, AND MAKING OTHER CHANGES IN THE
BUDGET OPERATIONS OF THE STATE.

The General Assembly of North Carolina enacts:

PART I. GENERAL PROVISIONS

EXTENSION OF CERTAIN DIRECTED GRANT REVERSIONS
SECTION 1.1.(a) Section 5.3 of S.L. 2023 -134, as amended by Section 1.3(a) of
S.L. 2024-1, reads as rewritten:
"…
"SECTION 5.3.(b) Requirements. – Nonrecurring funds appropriated in this act as directed
grants are subject to all of the following requirements:
…
(4) Notwithstanding any provision of G.S. 143C-1-2(b) to the contrary,
nonrecurring funds appropriated in this act for the 2023 -2024 fiscal year and
the 20 24-2025 fiscal year as directed grants shall not revert until June 30,
2026.2027.
(5) Directed grants to nonprofit organizations are for nonsectarian, nonreligious
purposes only.
"SECTION 5.3.(c) This section expires on June 30, 2026.2027."
SECTION 1.1.(b) Section 1.1(b) of S.L. 2025-4 reads as rewritten:
"SECTION 1.1.(b) Any funds described in subsection (a) of this section that remain
unexpended as of December 31, 2024, shall revert to the appropriate fund at the end of the
2025-2026 2026-2027 fiscal year."
SECTION 1.1.(c) This section is effective June 30, 2026.

PART II. EDUCATION

NORTH CAROLINA BLUE RIBBON COMMISSION ON PUBLIC EDUCATION
SECTION 2.1.(a) There is established the North Carolina Blue Ribbon Commission
on Public Education (Commission).
SECTION 2.1.(b) Membership. – The Co mmission consists of the following 29
members:
(1) Nineteen voting members appointed jointly by the President Pro Tempore of
the Senate, the Speaker of the House of Representatives, and the Governor.
(2) Five nonvoting members of the Senate appointed jointly by the President Pro
Tempore of the Senate, the Speaker of the House of Representatives, and the
Governor.

Page 2 Session Law 2026-1 House Bill 696
(3) Five nonvoting members of the House of Representatives jointly appointed by
the President Pro Tempore of the Senate, the Speaker of the House of
Representatives, and the Governor.
SECTION 2.1.(c) Terms; Chairs; Vacancies; Quorum. – Members serve at the
pleasure of the appointing officers. The President Pro Tempore of the Senate, the Speaker of the
House of Representatives, and the Governor shall jointly designate cochairs. The Commission
shall meet upon the call of the cochairs at any date prior to the Commission's termination. The
appointing authorities shall fill any vacancy on the Commission. A quorum f or action by the
Commission is a majority of its voting members.
SECTION 2.1.(d) Duties. – The Commission shall study the structure and
implementation of public education in the State. The Commission may examine any of the
following:
(1) Teacher training and student advancement.
(2) Administrative operations.
(3) Educational leadership in the State.
(4) Accountability.
SECTION 2.1.(e) Administration. – The Friday Institute for Educational Innovation
at North Carolina State University (Friday Institute) sh all provide professional, clerical, and
consultant services to the Commission. The Legislative Services Officer shall assign professional
and clerical staff to provide technical assistance to the Commission and the Friday Institute upon
request of the Pres ident Pro Tempore of the Senate and the Speaker of the House of
Representatives.
SECTION 2.1.(f) Compensation. – Members of the Commission shall receive per
diem, subsistence, and travel allowance as provided in G.S. 120-3.1, 138 -5, and 138 -6, as
appropriate.
SECTION 2.1.(g) Report; Termination. – The Commission may submit interim
reports and a final report on the results of its work, including any proposed recommendations, to
the General Assembly and the Governor. The Commission shall submit reports to t he General
Assembly in accordance with G.S. 120-29.5. The Commission terminates March 1, 2027.
SECTION 2.1.(h) There is appropriated from the General Fund to the Board of
Governors of The University of North Carolina the sum of three hundred thousand doll ars
($300,000) in nonrecurring funds for the 2025 -2026 fiscal year to be allocated to the Friday
Institute for the administration of the Commission in accordance with this section. Funds
appropriated pursuant to this section shall not revert at the end of the 2025-2026 fiscal year but
shall remain available until June 30, 2027.

CONFORM ELIGIBLE EXPENSES FOR NORTH CAROLINA 529 PLANS TO
FEDERAL LAW
SECTION 2.2. G.S. 116-209.25(b) reads as rewritten:
"(b) Parental Savings Trust Fund. – There is established a parental savings trust fund to be
administered by the State Education Assistance Authority to enable qualified parents and other
interested parties to save funds to meet the costs of education expenses of eligible students in
accordance with section 529 o f the Code. For purposes of this section, the term "Code" has the
same meaning as defined in G.S. 105-228.90.Internal Revenue Code as enacted as of July 4,
2025, including any provisions enacted as of that date that become effective either before or after
that date."

FUNDS FOR RECIPIENTS OF THE CHILDREN OF WARTIME VETERANS
SCHOLARSHIP IN THE 2025-2026 ACADEMIC YEAR
SECTION 2.3. There is appropriated from the General Fund to the Board of
Governors of The University of North Carolina for the 2025 -2026 fiscal year the sum of one

House Bill 696 Session Law 2026-1 Page 3
million dollars ($1,000,000) in nonrecurring funds to be allocated to the State Education
Assistance Authority (Authority) to increase award amounts for recipients of scholarships for the
children of wartime veterans for the 2025 -2026 academic year up to the full amounts permitted
under Part 2 of Article 14 of Chapter 143B of the General Statutes to the extent those award
amounts were reduced by the Secretary of the Department of Military and Veterans Affairs
pursuant to the award flexibility provided in Part VI of S.L. 2025-72. If any of these funds remain
after increasing award amounts for scholarship recipients in accordance with this section, the
Authority may use the remaining funds to award additional scholarships for qualifying c hildren
of wartime veterans under Part 2 of Article 14 of Chapter 143B of the General Statutes, beginning
in the 2026-2027 academic year.

FUNDS FOR ADDITIONAL AWARDS FOR THE CHILDREN OF WARTIME
VETERANS SCHOLARSHIP IN THE 2026-2027 ACADEMIC YEAR
SECTION 2 .4.(a) Notwithstanding G.S. 143B-1226, for new applications for
scholarships for children of wartime veterans under Part 2 of Article 14 of Chapter 143B of the
General Statutes, the Secretary of the Department of Military and Veterans Affairs may increase
the number of Class II and Class III scholarships awarded in the 2026-2027 academic year from
100 to 200 children in each class.
SECTION 2.4.(b) There is appropriated from the Escheat Fund to the Board of
Governors of The University of North Carolina the sum of ten million dollars ($10,000,000) in
recurring funds beginning in the 2026 -2027 fiscal year to be allocated to the State Education
Assistance Authority to support additional scholarships for qualifying children of wartime
veterans under Part 2 of A rticle 14 of Chapter 143B of the General Statutes in accordance with
subsection (a) of this section.
SECTION 2.4.(c) This section becomes effective July 1, 2026.

EXPAND EXISTING FLEXIBILITY FOR THE CHILDREN OF WARTIME
VETERANS SCHOLARSHIP FUNDS PROGRAM T O INCLUDE THE 2026 -2027
ACADEMIC YEAR
SECTION 2.5. Section 6 of S.L. 2025-72 reads as rewritten:
"SECTION 6.(a) For purposes of subsection (b) of this section, the following definitions
shall apply:
(1) Authority. – The State Education Assistance Authority.
(2) Commission. – The Veterans' Affairs Commission of the Department.
(3) Department. – The Department of Military and Veterans Affairs.
(4) Program. – The program administered by the Department to award scholarship
funds that is referred to as Scholarships for Children of Wartime Veterans.
(5) Scholarship funds. – Scholarship funds awarded to the child of a North
Carolina veteran under Part 2 of Article 14 of Chapter 143B of the General
Statutes.
(6) Secretary. – The Secretary of the Department of Military and Veterans Affairs.
"SECTION 6.(b) Notwithstanding Part 2 of Article 14 of Chapter 143B of the General
Statutes and any rules adopted or determinations made by the Veterans Affairs Commission, for
the 2024-2025 academic year and the 2025 -2026 academic year, 2024-2025, 2025-2026, and
2026-2027 academic years, the following shall apply relating to the administration of scholarship
funds under the Program:
(1) Within funds available for the Program, the following shall be determined:
a. Due to the sacrifice of veterans for the State of North Carolina and the
unique needs and challenges of the children of wartime veterans to
ensure they have the greatest opportunities to reach their higher
education attainment goals, if there are additiona l eligible recipients,

Page 4 Session Law 2026-1 House Bill 696
other than those identified by the Department under this Program, who
are attending public colleges and universities of the State who may
qualify to have their scholarships funded with monies from the Escheat
Fund, the Authority, aft er consultation with the Secretary, may fund
those scholarships with monies from the Escheat Fund.
b. For the 2025-2026 and 2026-2027 academic years, the following shall
occur:
1. After consultation with the Authority, the Secretary shall
determine whether to prioritize the award of new applicants for
the 2025-2026 academic year in as follows:
I. In Class I -A, I -B, and IV scholarships, prior to
awarding Class II and III scholarships. Class II and
Class III awards may be determined following awards
for Class I-A, I-B, and IV depending on the availability
of funds for the Program.
II. For the 2026-2027 academic year only, in scholarships
for new applicants who meet the following
requirements:
A. Apply to receive scholarships as undergraduate
students.
B. Qualify as residents for tuition purposes under
the criteria set forth in G.S. 116-143.1 and in
accordance with the coordinated and
centralized residency determination process
administered by the Authority.
C. Are otherwise eligible to receive scholarships in
accordance with the Program requirements.
c.2. The Secretary, after consulting with the Authority, may
determine the following based on the number of eligible
students, including new and renewal students, that have
applied for the 2025-2026 academic year, students:
I. For the 2025 -2026 academic year, whether to reduce
the room and board allowance award for students
attending a public institution and the maximum
allowance award for students attending private
institutions, prior to August 15, 2025.
II. For the 2026-2027 academic year, whether to establish
a standardized payment schedule or formula within
available funds for the academic year to ensure the
efficient and effective administration of the
scholarships.
d.3. After the actions set forth in sub -subdivisions a., b., and c. of
this subdivision have been taken, for awards for the 2025-2026
academic year, After the preceding actions have been taken, if
funds available for the Program are still insufficient to provide
scholarships to all eligible student s, the Authority may adjust
and standardize award amounts as necessary, including
establishing a lottery and providing pro rata scholarship awards
for room and board, or both, for the applicable academic year,
to ensure the efficient administration of the scholarship funds.

House Bill 696 Session Law 2026-1 Page 5
(2) All scholarship notifications shall include language that the award of the
scholarship is contingent upon the availability of funds.
(3) The Authority shall disburse scholarship funds in accordance with
G.S. 116-204(11a).
(4) From the total amount of funding appropriated to the Board of Governors of
The University of North Carolina and allocated to the Authority in a fiscal
year to support the award of scholarship funds under the Program, the
Authority may use an amount of up to two a nd one-half percent (2.5%) for
administration costs related to the Program from the allocation from the
General Fund. The Authority shall place any unexpended and unencumbered
appropriated funds remaining at the end of the 2024-2025 and 2025 -2026
fiscal ye ars 2024-2025, 2025 -2026, and 2026 -2027 fiscal years into an
institutional trust fund established in accordance with the provisions of
G.S. 116-36.1. Those funds may be used for the purpose of awarding
scholarships under the Program and for administration costs of the Authority
related to the Program.
"SECTION 6.(c) This section becomes effective June 30, 2025, and applies to awards
granted for the 2024-2025 and 2025 -2026 academic years. 2024-2025, 2025 -2026, and
2026-2027 academic years."

PART III. HEALTH AND HUMAN SERVICES

PART III-A. DEFINITIONS
SECTION 3A.1. The following definitions apply in this Part:
(1) CMS. – The federal Centers for Medicare and Medicaid Services.
(2) NC RHTP. – The North Carolina Rural Health Transformation Plan approved
and funded by CMS as part of the Rural Health Transformation Program.
(3) Public Law 119 -21. – The Reconciliation Act of 2025, Public Law 119 -21,
139 Stat. 72 (2025), also known as the "One Big Beautiful Bill Act."
(4) RHTP or Rural Health Transformation Program. – The Rural Health
Transformation Program authorized by section 71401 of Public Law 119 -21
and administered by CMS.
(5) SNAP. – The federal Supplemental Nutrition Assistance Program, also known
as the State Food and Nutrition Services (FNS) program.
(6) Subrecipient. – A nonfederal entity that receives a subaward from the North
Carolina Department of Health and Human Services to carry out activities
related to the NC Rural Health Transformation Plan.

PART III-B. DIVISION OF CENTRAL MANAGEMENT AND SUPPORT

PERIODIC REPORTING ON THE NORTH CAROLINA RURAL HEALTH
TRANSFORMATION PLAN
SECTION 3B.1.(a) The Department of Health and Human Services (DHHS) shall
submit periodic progress reports to the Joint Legislative Commission on Governmental
Operations on the implementation status of the NC RHTP according to the following schedule:

Reporting Period Due Date
August 1, 2026-October 30, 2026 November 29, 2026
October 31, 2026-January 30, 2027 March 1, 2027
January 31, 2027-April 30, 2027 May 30, 2027
May 1, 2027-July 31, 2027 August 30, 2027

Page 6 Session Law 2026-1 House Bill 696
August 1, 2027-October 30, 2027 November 29, 2027
October 31, 2027-January 30, 2028 February 28, 2028
January 31, 2028-April 30, 2028 May 30, 2028
May 1, 2028-July 31, 2028 August 30, 2028
August 1, 2028-October 30, 2028 November 29, 2028
October 31, 2028-January 30, 2029 March 1, 2029
January 31, 2029-April 30, 2029 May 30, 2029
May 1, 2029-July 31, 2029 August 30, 2029
August 1, 2029-October 30, 2029 November 29, 2029
October 31, 2029-January 30, 2030 February 28, 2030
January 31, 2030-April 30, 2030 May 30, 2030
May 1, 2030-July 31, 2030 August 30, 2030
August 1, 2030-October 30, 2030 November 29, 2030
SECTION 3B.1.(b) Each report submitted to the Commission pursuant to subsection
(a) of this section shall include at least all of the following information for the relevant reporting
period:
(1) A copy of the quarterly or annual report submitted by the DHHS to CMS, as
required by the RHTP Cooperative Agreement in effect between the DHHS
and CMS.
(2) A summary or copies of all verbal and written updates provided by the DHHS
to the CMS Rural Health Transformation Program Official.
(3) The total amount of funds allocated to each initiative identified in the NC
RHTP.
(4) The total amount of funds awarded to subrecipients in eac h county, broken
down as follows:
a. A list identifying each subrecipient.
b. For each subrecipient, all of the following information:
1. The total amount of funds awarded to the subrecipient.
2. A brief description of the subrecipient's funded activities.
3. A list of counties where the subrecipient is located.
4. A list of counties served by the subrecipient's funded activities.

PART III-C. DIVISION OF HEALTH BENEFITS

DURATION OF MEDICAID PROGRAM MODIFICATIONS
SECTION 3C.1. Except for statutory changes or where otherwise specified, the
Department of Health and Human Services shall not be required to maintain, after June 30, 2027,
any modifications to the Medicaid program required by this Part.

MEDICAID REBASE FUNDING
SECTION 3C.2.(a) Notwithstanding the limitations under G.S. 143C-4-11 on the
use, allocation, and expenditure of funds reserved in the Medicaid Contingency Reserve, there is
appropriated from the Medicaid Contingency Reserve to the Department of Health and Human
Services, Division of Health Benefits, the sum of three hundred nineteen million dollars
($319,000,000) in nonrecurring funds and associated receipts for the 2025-2026 fiscal year to be
used to adjust Medicaid funding to account for projected changes in enrollment, enrollment mix,
service and capitation costs, and federal match rates, as well as the implementation of the
Children and Families Specialty Plan in December 2025.
SECTION 3C.2.(b) This section is retroactively effective July 1, 2025.

LME/MCO INTERGOVERNMENTAL TRANSFERS

House Bill 696 Session Law 2026-1 Page 7
SECTION 3C.3.(a) The local management entities/managed care organizations
(LME/MCOs) shall make intergovernmental transfers to the Department of Health and Human
Services, Division of Health Benefits (DHB), in an aggregate amount of eigh teen million
twenty-eight thousand two hundred seventeen dollars ($18,028,217) in the 2025-2026 fiscal year
and in an aggregate amount of eighteen million twenty -eight thousand two hundred seventeen
dollars ($18,028,217) for the 2026 -2027 fiscal year. The due date and frequency of the
intergovernmental transfer required by this section shall be determined by DHB. The amount of
the intergovernmental transfer that each individual LME/MCO is required to make in each fiscal
year shall be as follows:
2025-2026 2026-2027
Alliance Behavioral Healthcare $4,508,857 $4,508,857
Partners Health Management $3,544,348 $3,544,348
Trillium Health Resources $6,448,693 $6,448,693
Vaya Health $3,526,319 $3,526,319
SECTION 3C.3.(b) In the event that a county disengages from an LME/MCO and
realigns with another LME/MCO during the 2025 -2027 fiscal biennium, DHB shall have the
authority to reallocate the amount of the intergovernmental transfer that each affected
LME/MCO is required to make under subsection (a) of this section, taking into consideration the
change in catchment area and covered population, provided that the aggregate amount of the
transfers received from all LME/MCOs in each year of the fiscal biennium is achieved.
SECTION 3C.3.(c) This section is retroactively effective July 1, 2025.

TECHNICAL UPDATES TO COMPLY WITH H.R.1
SECTION 3C.4.(a) G.S. 108A-54.3A(a)(24) reads as rewritten:
"(24) Individuals described in section 1902(a)(10)(A)(i)(VIII) of the Social Security
Act who are in compliance with with, or are exem pt from, any federally
approved work requirements established in the State Plan and in rule.
applicable community engagement requirements. Coverage for individuals
under this subdivision is available through an Alternative Benefit Plan that is
established by the Department consistent with federal requirements, unless
that individual is exempt from mandatory enrollment in an Alternative Benefit
Plan under 42 C.F.R. § 440.315."
SECTION 3C.4.(b) G.S. 108A-54.3A, as amended by subsection (a) of this section,
reads as rewritten:
"§ 108A-54.3A. Eligibility categories and income thresholds.
(a) The Department shall provide Medicaid coverage for individuals in accordance with
federal statutes and regulations and specifically shall provide coverage coverage, subject to the
limitation in subsection (c) of this section, for the following populations:
…
(22) Refugees, in accordance with 8 U.S.C. § 1522.
(23) Qualified aliens subject to the five-year bar for means tested public assistance
under 8 U.S.C. § 1613 and undocumented aliens, only for emergency services
under 8 U.S.C. § 1611.
…
(c) Medicaid coverage for individuals who are not citizens of the United States shall be
limited to coverage that is federally required for the State 's participation in the Medicaid
program."
SECTION 3C.4.(c) G.S. 108D-40 reads as rewritten:
"§ 108D-40. Populations covered by PHPs.
(a) Capitated PHP contracts shall cover all Medicaid program aid categories except for
the following categories:

Page 8 Session Law 2026-1 House Bill 696
…
(2) Qualified aliens subject to the five-year bar for means-tested public assistance
under 8 U.S.C. § 1613 who qualify for emergency services under 8 U.S.C. §
1611.
(3) Undocumented aliens who qualify for Aliens whose Medicaid coverage is
limited to emergency services under 8 U.S.C. § 1611.
…."
SECTION 3C.4.(d) Subsections (b) and (c) of this section are effective October 1,
2026. The remainder of this section is effective when it becomes law.

COMMUNITY ENGAGEMENT REQUIREMENTS
SECTION 3C.5.(a) Part 6 of Article 2 of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-55.7. Community engagement requirements.
(a) As long as work requirements as a condition of participation in the Medicaid program
may be authorized by the Centers for Medicare and Medicaid Services, the Department shall take
all actions necessary to implement and maintain implementation of those work requirements to
the fullest extent allowable.
(b) At the time of initial application for medical assistance benefits, the applic ant shall
provide satisfactory proof that the applicant has complied with any applicable community
engagement requirements for the three consecutive months immediately preceding the month the
applicant submits the application for medical assistance benefits.
(c) At the time of redetermination of eligibility for medical assistance benefits, the
applicant shall provide satisfactory proof that the applicant has complied with any applicable
community engagement requirements for at least three of the last six months immediately
preceding the month of the redetermination."
SECTION 3C.5.(b) This section is effective January 1, 2027.

MONTHLY DATA CHECKS
SECTION 3C.6.(a) G.S. 108A-55.5 reads as rewritten:
"§ 108A-55.5. Eligibility monitoring for medical assistance.
(a) On at least a quarterly monthly basis, the Department shall review information
concerning changes in circumstances that may affect medical assistance beneficiaries' eligibility
to receive medical assistance benefits. The Department shall share the information directly with,
or make the information available to, the county department of social services that determined
the beneficiary's eligibility.
(b) The information reviewed by the Department shall include all of the following:
(1) Earned and unearned income.
(2) Employment status and changes in employment.
(3) Residency status.
(4) Enrollment status in other State-administered public assistance programs.
(5) Financial resources.
(6) Incarceration status.
(7) Death records.
(8) Lottery and gambling winnings.
(9) Enrollment status in public assistance programs outside of this State.
…."
SECTION 3C.6.(b) This section is effective October 1, 2026.

LIMIT USE OF SELF-ATTESTATION IN VERIFYING MEDICAID ELIGIBILITY

House Bill 696 Session Law 2026-1 Page 9
SECTION 3C.7.(a) Part 6 of Article 2 of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-55.6. Verification of Medicaid eligibility; limitations.
Except as required by federal law or regulation, or pursuant to a court order, the Department
or a county department of social services shall not accept self-attestation as the only evidence in
verification of eligibility requirements for the North Carolina Medicaid program."
SECTION 3C.7.(b) This section is effective October 1, 2026.

HOUSEHOLD MEMBER INCOME INFORMATION
SECTION 3C.8.(a) Part 6 of Article 2 of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-55.8. Household members.
Except as otherwise provided by federal law or regulation, the income of a household member
who is ineligible for medical assistance benefits due to the household member 's immigration
status shall be counted when calculating and determining an individual 's financial eligibility for
medical assistance benefits."
SECTION 3C.8.(b) This section is effective October 1, 2026.

CONFIDENTIALITY OF RECORDS EXCEPTION
SECTION 3C.9.(a) G.S. 108A-80 reads as rewritten:
"§ 108A-80. Confidentiality of records.
(a) Except as provided in subsections (b) and (b1) (b), (b1), and (b2) of this section, it
shall be unlawful for any person to obtain, disclose disclose, or use, or to authorize, permit, or
acquiesce in the use of of, any list of names or other information concerning persons applying
for or receiving public assistance or social services that may be directly or indirectly derived
from the records, files files, or communications of the Department or the county boards of social
services, or county departments of social services or acquired in the course of performing official
duties except for the purposes directly connected with the administration of the programs of
public assistance and social services in accordance with federal law, rules rules, and regulations,
and the rules of the Social Services Commission or the Department.
…
(b2) The Department shall promptly refer any applicant or recipient for which citizenship
or satisfactory immigration status could not be verified to the United States Department of
Homeland Security or any other appropriate federal authority for investigation and enforcement.
This referral shall be made if either of the following occurs:
(1) After a reasonable opportunity period to verify citizenship or satisfactory
immigration status, the status could not be verified.
(2) Upon receipt of verification , the verification indicates that the applicant or
recipient (i) is not a United States citize n or lacks satisfactory immigration
status and (ii) has entered the United States without inspection or admission,
or has remained beyond the expiration of an authorized period of stay.
…."
SECTION 3C.9.(b) This section is effective October 1, 2026.

MEDICAID PROGRAM AND NCWORKS CAREER CENTERS AUDIT
SECTION 3C.10.(a) The Office of the State Auditor shall conduct a performance
audit of the administration of the North Carolina Medicaid program and the NCWorks Career
Centers. The audit shall consider any information deemed necessary by the State Auditor to
evaluate the administration of these programs.
SECTION 3C.10.(b) Effective July 1, 2026, there is appropriated from the General
Fund to the Office of the State Auditor the sum of five hundred thousand dollars ($500,000) in

Page 10 Session Law 2026-1 House Bill 696
nonrecurring funds for the 2026 -2027 fiscal year to be used to conduct the performance audit
required by subsection (a) of this section.

ANNUAL FRAUD, WASTE, AND ABUSE REPORTING
SECTION 3C.11. Article 2 of Chapter 108A of the General Statutes is amended by
adding a new section to read:
"§ 108A-64.2. Annual fraud, waste, and abuse reporting.
No later than October 1 of each year, the Department shall submit a report to the Joint
Legislative Oversight Committee on Medicaid and the Fiscal Research Division. The report shall
contain all of the following for the most recently concluded State fiscal year:
(1) An accounting of all improper Medicaid payments and expenditures ,
including the individual claim dollar amounts and total dollar amounts that
were determined to be fraudulent, waste, or abuse.
(2) The total amou nt of federal and State recovered funds, including the dollar
amount per claim and the total dollar amount concerning Medicaid fraud,
waste, and abuse.
(3) Aggregate data concerning improper payments and ineligible Medicaid
recipients who received Medicaid services as a percentage of those
investigated or reviewed."

PREPAID HEALTH PLAN PROVIDER NETWORKS
SECTION 3C.12.(a) G.S. 108D-22 reads as rewritten:
"§ 108D-22. PHP provider networks.
(a) Provider Networks. – Except as provided in G.S. 108D-23 and G.S. 108D-24,
G.S. 108D-23(c) and G.S. 108D-24(b), each PHP shall develop and maintain a provider an open
network of providers that meets access to care requirements fo r its enrollees. A PHP may not
exclude providers from their networks except for failure to meet objective quality standards or
refusal to accept network rates. Notwithstanding the previous sentence, a PHP must include all
providers in its geographical coverage area that are designated essential providers by the
Department in accordance with subdivision (b) of this section, unless the Department approves
an alternative arrangement for securing the types of services offered by the essential providers.
(b) Essential Providers. – A PHP must include all providers in its geographical coverage
area that are designated essential providers by the Department, unless the Department approves
an alternative arrangement for securing the types of services offered by th e essential providers.
The Department shall designate Medicaid providers as essential providers if, within a region
defined by a reasonable access standard, the provider either (i) offers services that are not
available from any other provider in the regio n or (ii) provides a substantial share of the total
units of a particular service utilized by Medicaid beneficiaries within the region during the last
three years and the combined capacity of other service providers in the region is insufficient to
meet the total needs of the Medicaid enrollees. The Department shall not classify physicians and
other practitioners as essential providers. At a minimum, providers in the following categories
shall be designated essential providers:
(1) Federally qualified health centers.
(2) Rural health centers.
(3) Free clinics.
(4) Local health departments.
(5) State Veterans Homes.
(c) Exceptions for Individual Providers . – Individual providers, except for designated
essential providers, may be excluded from the PHP open network for any of the following
reasons:
(1) A provider fails to meet objective quality standards.

House Bill 696 Session Law 2026-1 Page 11
(2) A provider refuses to accept the network rates.
(3) In accordance with G.S. 108C-7(e3).
(d) Closed Networks for Designated Service Categories. – If an open network for a
designated service category would jeopardize quality of care, program integrity, or cost-effective
use of Medicaid funds, then, notwithstanding subsection (a) of this section, a PHP may develop
a closed network for that designated service category and exclude providers that are not
designated essential providers from that closed network. Prior to creating a closed network for a
designated service category, the PHP must receive approval from the Department of the PHP 's
written request to close its provider network for that service category. This written request must
include a demonstration of ongoing network adequacy. If the Department does not respond to a
written request from a PHP for approval to close its provider network for a designated service
category within 180 days after the request was submitted, the request is deemed approved."
SECTION 3C.12.(b) G.S. 108D-23 reads as rewritten:
"§ 108D-23. BH IDD tailored plan provider networks.
(a) Each LME/MCO shall operate provider networks with respect to its BH IDD tailored
plan contract in accordance with this section.section and G.S. 108D-22.
(b) With regard to services and supports that are covered benefits under both standard
benefit plans and BH IDD tailored plans, each LME/MCO shall be subject to the same provider
network requirements applicable to PHPs under G.S. 108D-22.
(c) With regard to services and supp orts that are excluded from PHP coverage except
under BH IDD tailored plans, each LME/MCO shall operate develop a closed network, which is
the network of providers that have contracted with the LME/MCO to provide those services to
enrollees, network and may exclude providers from that closed network in accordance with all
of the following:
(1) A closed network must include all essential providers designated in
accordance with G.S. 108D-22(b) that (i) are located or provide services
within the region for whi ch the LME/MCO holds a BH IDD tailored plan
contract and (ii) provide any covered behavioral health, intellectual and
developmental disability, or traumatic brain injury service in that region.
(2) With regard to services identified by the Department as necessary to improve
access for behavioral health, intellectual and developmental disability, and
traumatic brain injury services, an LME/MCO shall accept all providers of
those services that (i) meet objective quality standards and (ii) accept network
rates, notwithstanding the requirement to operate a closed network.network,
except that a provider may be excluded in accordance with G.S. 108C-7(e3)."
SECTION 3C.12.(c) G.S. 108D-24 reads as rewritten:
"§ 108D-24. Children and families specialty plan networks.
(a) The entity operating the children and families specialty plan shall develop and
maintain a closed network of providers only as provided in this section.operate provider networks
in accordance with this section and G.S. 108D-22.
(b) The requirement to operate a closed network is applicable only to The entity operating
the children and families specialty plan shall develop a closed network, and may exclude
providers from that closed network, for the provision of the following services:
(1) Intensive in-home services.
(2) Multisystemic therapy.
(3) Residential treatment services.
(4) Services provided in psychiatric residential treatment facilities.
(c) A closed network is the network of providers that have contracted with the entity
operating the CAF specialty plan to provide to enrollees the services described in subsection (b)
of this section.

Page 12 Session Law 2026-1 House Bill 696
(d) The In addition to the requirement to cover essential providers under G.S. 108D-22,
the entity operating the CAF specialty plan shall not exclude federally recognized tribal providers
or Indian Health Service providers from its closed any provider network."

PREPAYMENT CLAIMS REVIEW
SECTION 3C.13.(a) G.S. 108C-2 is amended by adding a new subdivision to read:
"(9a) Prepaid health plan or PHP. – As defined in G.S. 108D-1."
SECTION 3C.13.(b) G.S. 108C-7 reads as rewritten:
"§ 108C-7. Prepayment claims review.
(a) In order to ensure that claims presented by a provider for payment by the Department
meet the requirements of federal and State laws and regulations and medical necessity criteria, a
provider may be required to undergo prepayment claims review by the Department. Grounds for
being placed on prepayment claims review shall include, but shall not be limited to, re ceipt by
the Department of credible allegations of fraud, identification of aberrant billing practices as a
result of investigations, data analysis performed by the Department, the failure of the provider to
timely respond to a request for documentation ma de by the Department or one of its authorized
representatives, or other grounds as defined by the Department in rule.
(b) Providers shall not be entitled to payment prior to claims review by the Department.
The Department shall notify the provider in writing of the decision and the process for submitting
claims for prepayment claims review. The written notice shall be deposited, first -class postage
prepaid, in the United States mail and addressed to the most recent address given by the provider
to the Department. The prepayment claims review shall not be instituted no less than 20 calendar
days from prior to the date of the mailing of written notification. The notice shall contain all of
the following:
…
(e) The provider shall remain subject to the prepaymen t claims review process until the
provider achieves three consecutive months with a minimum seventy eighty percent (70%) (80%)
clean claims rate, provided that the number of claims submitted per month is no less than fifty
percent (50%) of the provider's average monthly submission of Medicaid claims for the
three-month period prior to the provider's placement on prepayment review. If a provider does
not submit any claims following placement on prepayment review in any given month, then the
claims accuracy rating shall be zero percent (0%) for each month in which no claims were
submitted. If the provider does not meet the seventy eighty percent (70%) (80%) clean claims
rate minimum requirement for three consecutive months within six months of being placed on
prepayment claims review, the Department may implement sanctions, including termination of
the applicable Medicaid Administrative Participation Agreement, or continuation of prepayment
review. The Department shall give adequate advance notice of any modif ication, suspension, or
termination of the Medicaid Administrative Participation Agreement.
Prepayment claims review shall not continue longer than 24 consecutive months unless the
Department has initiated the termination or other sanction of the provider and the provider has
appealed that termination or sanction. If the Department has initiated the termination or other
sanction of the provider and the provider has appealed that termination or sanction, then the
provider shall remain on prepayment review un til the final disposition of the Department's
termination or other sanction of the provider.
(e1) Failure of a provider to meet the seventy eighty percent (70%) (80%) clean claims
rate minimum requirement may result in a termination action. A termination a ction taken shall
reflect the failure of the provider to meet the seventy eighty percent (70%) (80%) clean claims
rate minimum requirement and shall result in exclusion of the provider from future participation
in the Medicaid program. If a provider fails to meet the seventy eighty percent (70%) (80%) clean
claims rate minimum requirement and subsequently requests a voluntary termination, the

House Bill 696 Session Law 2026-1 Page 13
termination shall reflect the provider's failure to successfully complete prepayment claims review
and shall result in exclusion of the provider from future participation in the Medicaid program.
(e2) A provider shall not withhold claims to avoid the claims review process. Any claims
for services provided during the period of prepayment review may still be subject to review prior
to payment regardless of the date the claims are submitted and regardless of whether the provider
has been taken off of prepayment review for any reason, including attaining a minimum of
seventy eighty percent (70%) (80%) clean claims rate for t hree consecutive months, the
expiration of the 24-month time limit, months or the termination of the provider.
(e3) In any contract with a PHP in which the Department authorizes a PHP to carry out
the Department's authority under this section to require a provider to undergo prepayment claims
review, all of the following shall apply:
(1) The Department shall not require the PHP to obtain approval from the
Department before the prepayment claims review is instituted for a particular
provider, unless the approval is required by federal law or regulation.
(2) When providing the notice required under subsection (b) of this section, a PHP
shall send a copy of the notice to the Department.
(3) A PHP may exclude a provider from the PHP's network of providers if (i) the
provider does not meet the eighty percent (80%) clean claims rate minimum
requirement for three consecutive months within six months of being placed
on prepayment claims review described in subsection (e) of this section and
(ii) the PHP has received approval from the Department of the PHP 's written
request to remove that provider from the PHP 's network of providers. If the
Department does not respond to a written request from a PHP for approval to
remove a provider from the PHP 's network of providers within 90 days after
the request was submitted, the request is deemed approved.
…."
SECTION 3C.13.(c) This section is effective when this act becomes law. Subsection
(b) of this section applies to (i) prepayment claims reviews instituted on or after the effective date
of this section and (ii) contracts entered into or amended on or after the effective da te of this
section.

PLAN FOR PROGRAM INTEGRITY AND EFFICIENCY
SECTION 3C.14.(a) The Department of Health and Human Services, Division of
Health Benefits (DHB), is directed to develop a plan for improved health outcomes, program
integrity, cost-savings, and efficiency measures in the Medicaid program. In developing this plan,
DHB shall consult with relevant stakeholders. The plan shall include at least all of the following:
(1) Reduction of DHB administrative expenses through streamlining or
standardization of DHB functions.
(2) Increased flexibilities for prepaid health plans (PHPs), as defined in
G.S. 108D-1, to manage service utilization and costs and align claims
operations with national standards and best practices.
(3) Alignment of rate schedule for i npatient hospital and hospital laboratory
services that can be provided in an outpatient setting where appropriate.
Where DHB determines the inpatient rate is higher than the outpatient rate,
the plan required under this subsection shall include adjustment of DHB's
schedule to the lower rate.
(4) Flexibilities for PHPs to manage utilization of glucagon -like peptide -1
(GLP-1) medications for weight loss, including mandatory participation in
nutrition, weight loss, and lifestyle management programs. The plan required
under this subsection shall not include any changes to the coverage of GLP-1

Page 14 Session Law 2026-1 House Bill 696
medications for diabetes, heart disease, or any indications other than weight
loss.
(5) Improved alignment of Advanced Medical Home (AMH) and PHP contract
incentives with PHP cost containment efforts through risk -sharing,
value-based arrangements, and creation and appropriate oversight of quality
standards for delegated care management entities. The plan required under
this subsection shall include the removal of any prohi bitions on PHPs from
entering contracts with AMHs in which AMH and care management fees are
at risk in value-based arrangements.
(6) Improved reporting on AMH care management activities including staffing,
populations receiving different levels of care management, any measurable
outcomes at each level of care management, and recommended legislative
changes.
(7) Improved network management provider credentialing and certification tools
for nonclinical providers to ensure qualified providers are delivering services
and to expedite removal of non-qualified providers.
(8) Implementation of the plan required under this subsection no earlier than July
1, 2027.
SECTION 3C.14.(b) No later than October 1, 2026, DHB shall submit a report on
the plan as required in subsection (a) of this section to the Joint Legislative Oversight Committee
on Medicaid and the Fiscal Research Division.

ALLOW CERTAIN PREPAID HEALTH PLAN PRACTICES
SECTION 3C.15.(a) G.S. 108D-65 reads as rewritten:
"§ 108D-65. Role of the Department.
(a) The role and responsibility of the Department during Medicaid transformation shall
include the following activities and functions:
…
(b) Except as required by federa l law or regulation, t he Department shall not prohibit
PHPs from requiring itemized bills for inpatient hospital outlier claims that are greater than two
hundred fifty thousand dollars ($250,000) or more than two standard deviations from the median
claim amount of the applicable billing code."
SECTION 3C.15.(b) This section is effective when it becomes law and applies to
contracts entered into or amended on or after that date.

COST-SHARING
SECTION 3C.16.(a) Part 6 of Article 2 of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-58.3. Cost-sharing.
The Department shall annually establish all Medicaid copayments at the maximum allowable
under federal law."
SECTION 3C.16.(b) This section is effective July 1, 2027.

EXTEND DURABLE MEDICAL EQUIPMENT RATES IN MEDICAID MANAGED
CARE
SECTION 3C.17.(a) Section 11 of S.L. 2020-88, as amended by Section 3.6 of S.L.
2021-62, reads as rewritten:
"SECTION 11. For the first five years seven years, ending June 30, 20 27, of the initial
standard benefit plan prepaid health plan capitated contracts required under Article 4 of Chapter
108D of the General Statutes, the reimbursement for durable medical equipment and supplies,
orthotics, and prosthetics under managed care shall be set at one hundred percent (100%) of the

House Bill 696 Session Law 2026-1 Page 15
lesser of the supplier's usual and customary rate or the maximum allowable Medicaid
fee-for-service rates for durable medical equipment and supplies, orthotics, and prosthetics."
SECTION 3C.17.(b) This section is retroactively effective July 1, 2025.

MEDICAID COVERAGE FOR ABA THERAPY
SECTION 3C.18.(a) The Department of Health and Human Services, Division of
Health Benefits (DHB), is directed to (i) amend and, if necessary, seek approval from the Centers
for Medicare and Medi caid Services (CMS) for the changes to the NC Medicaid Clinical
Coverage Policy 8F, Research -Based Behavioral Health Treatment (RB -BHT) For Autism
Spectrum Disorder (CCP-8F), and (ii) adopt or amend any relevant rules to incorporate all of the
following:
(1) Services under CCP -8F that are provided by a paraprofessional may not be
conducted via telehealth unless exceptions are developed in accordance with
subsection (b) of this section.
(2) Patient assessments by Licensed Qualified Autism Service Providers
(LQASPs) are required to be conducted in person. Patient assessments
conducted via telehealth shall not be reimbursed, unless exceptions are
developed in accordance with subsection (b) of this section.
(3) Services under CCP-8F that are provided by a LQASP and that involve that
LQASP's observation and direction of a paraprofessional may be conducted
via telehealth. These telehealth services may not comprise more than fifty
percent (50%) of the services provided by the LQASP under CCP-8F for any
individual Medicaid recipient, unless exceptions are developed in accordance
with subsection (b) of this section.
(4) At least ten percent (10%) of all services under CCP -8F that are provided by
a paraprofessional must involve the observation and direction of the
paraprofessional by a LQASP.
(5) LQASPs are required to develop, and ensure beneficiary compliance with, an
individualized service plan for each Medicaid beneficiary. All of the following
apply to the individualized service plan:
a. The plan is required to inc lude minimum requirements of parent,
guardian, or caretaker involvement and training services provided by
the LQASP, unless exceptions are developed in accordance with
subsection (b) of this section.
b. For any plan involving more than 16 hours of services per week, the
plan must be approved by a PHP or the Department. These plans shall
be updated and reapproved monthly.
(6) Parent, guardian, and caregiver training services provided by LQASPs under
CCP-8F may be provided via telehealth with no in-person requirement.
(7) Paraprofessionals, including Registered Behavior Technicians and
non-registered Technicians, providing services under CCP-8F shall be exempt
from Medicaid credentialing requirements.
(8) Paraprofessionals who provide services under CCP -8F and are outside the
120-day grace period must have obtained a Registered Behavior Technician
certification from the Behavior Analyst Certification Board (BACB) or an
Applied Behavior Analysis Technician (ABAT) certification from the
Qualified Applied Behavior Analysis Credentialing Board (QABA) in order
for services provided to Medicaid recipients to be reimbursed. The 120 -day
grace period applies to newly hired paraprofessionals who have not yet
obtained the necessary certification and is subject to all of the following:

Page 16 Session Law 2026-1 House Bill 696
a. The employee's 120-day grace period begins on the date of hire as a
paraprofessional with a provider of Medicaid RB-BHT services or the
date on which the employing provider of RB -BHT services first
enrolls as a Medicaid provider, whichever is later.
b. The paraprofessional may provide, and the employing provider may
bill, and be reimbursed for services provided by the paraprofessional
during the grace period so long as each service provided is supervised
by a LQASP.
(9) A provider providing services under CCP -8F shall ensure the percentage of
services provided by LQASPs to each individual Medicaid beneficiary
compared to services provided by paraprofessionals to that same beneficiary
is in compliance with the requirements of this subdivision. The requirements
only apply with respect to beneficiaries who received more than 200 hours of
RB-BHT services from paraprofessionals employed by the provider in a
six-month period. The provider shall provide DHB with documentation of
compliance with these requirements every six months, in a manner and format
to be determined by DHB. Services provided by LQASPs to each individual
beneficiary shall be at least ten percent (10%), but no more than twenty
percent (20%), of all services provided by paraprofessio nals to that
beneficiary, except that services that exceed twenty percent (20%) may be
reimbursed with documented medical necessity. In order to calculate the
percentage of services provided by LQASPs to each Medicaid beneficiary
under this subdivision, the following numbers shall be used:
a. The numerator is the number of hours billed by the provider for
services provided by LQASPs for all service dates occurring in the
applicable six-month period for the Medicaid beneficiary.
b. The denominator is the num ber of hours billed by the provider for
services provided by paraprofessionals for all service dates occurring
in the applicable six-month period for that same Medicaid beneficiary.
SECTION 3C.18.(b) DHB may develop exceptions to the limitations in subdivisions
(1) through (3) of subsection (a) of this section based upon documented medical necessity or
access to care requirements, including poor provider availability in rural and underserved areas.
Any exception developed in accordance with this subdivisio n shall be adopted in CCP -8F or
other medical coverage policy in compliance with the requirements of G.S. 108A-54.2. When
the notice required under G.S. 108A-54.2(b)(2) is given, DHB shall also submit a report to the
chairs of the House Committee on Health , the Senate Committee on Health, the chairs of the
Joint Legislative Oversight Committee on Medicaid, and the Joint Legislative Commission on
Governmental Operations identifying the proposed exception and providing details supporting
the need for the exception.
SECTION 3C.18.(c) G.S. 108C-9 is amended by adding a new subsection to read:
"(e) Board Certified Behavior Analysts and Qualified Autism Services Practitioner
Supervisors shall not be permitted to enroll in the North Carolina Medicaid program as
out-of-state providers."
SECTION 3C.18.(d) For noncompliance with any of the requirements set forth in
this section, or rule adopted by DHB under this section, DHB may adopt rules to take any of the
following actions against a provider:
(1) For a firs t or second occurrence of noncompliance, recoup payments for all
relevant noncompliant services.
(2) For a third occurrence of material and systematic noncompliance, suspend the
provider's eligibility to bill for Medicaid services for a minimum of one year
to a maximum of two years.

House Bill 696 Session Law 2026-1 Page 17
SECTION 3C.18.(e) Subsection (c) of this section is effective when it becomes law
and applies to all applications for enrollment submitted on or after that date. The remainder of
this section is effective when it becomes law.

PART III-D. HOSPITAL ASSESSMENT ADJUSTMENTS

LEGISLATIVE INTENT
SECTION 3D.1. It is the intent of the General Assembly to provide funding for the
increased administrative costs of compliance with frequency of eligibility redeterminations
requirements and community engagement requirements in the Medicaid program under sections
71107 and 71119 of Public Law 119 -21 from a source that meets the limitations on funding
sources in G.S. 108A-54.3B for NC Health Works.

SHIFT EXISTING PUBLIC HOSPITAL ASSESSMENTS TO
INTERGOVERNMENTAL TRANSFERS
SECTION 3D.2.(a) G.S. 108A-146.1 reads as rewritten:
"§ 108A-146.1. Public hospital modernized assessment.
(a) The public hospital modernized assessment imposed under this Part shall apply to all
public acute care hospitals.
(b) The public hospital modernized assessment shall be assessed as a percentage of each
public acute care hospital's hospital costs. The assessment percentage shall be calculated
quarterly by the Department of Health and Human Services in accordance with this Part. The
(c) Through June 30, 2026, the percentage for each quarter shall equal the aggregate acute
care hospital modernized assessment collection amount under G.S. 108A-146.5 multiplied by the
public hospital historical assessment share and divided by the total hospital costs for all public
acute care hospitals holding a license on the first day of the assessment quarter.
(d) Beginning July 1 , 2026, the public hospital modernized assessment quarterly
percentage shall equal the modernized IGT actual receipts adjustment component under
G.S. 108A-146.14 divided by the total hospital costs for all public acute care hospitals holding a
license on the first day of the assessment quarter."
SECTION 3D.2.(b) Part 2 of Article 7B of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-146.1A. Public hospital modernized presumptive IGT offset amount.
The public hospital modernized presumptive IGT offset amount is the aggregate acute care
hospital modernized assessment collection amount under G.S. 108A-146.5 multiplied by the
public hospital historical assessment share."
SECTION 3D.2.(c) G.S. 108A-146.5 reads as rewritten:
"§ 108A-146.5. Aggregate acute care hospital modernized assessment collection amount.
(a) The aggregate modernized assessment collection amount is an amount of money that
is calculated by subtracting the modernized intergovernmental transfer presumptive IGT
adjustment component under G.S. 108A-146.13 from the total modernized nonfederal receipt s
under subsection (b) of this section and then adding the positive or negative amount of the
modernized IGT actual receipts adjustment component under G.S. 108A-146.14.section.
…."
SECTION 3D.2.(d) G.S. 108A-146.14 reads as rewritten:
"§ 108A-146.14. Modernized IGT actual receipts adjustment component.
The modernized IGT actual receipts adjustment component is a positive or negative dollar
amount equal to the amount of the modernized presumptive IGT adjustment component under
G.S. 108A-146.13 G.S. 108A-146.13(c) for the previous quarter minus the amount of money
received during the previous quarter by the Department through intergovernmental transfer and
designated in the Department's accounting system as a receipt related to the modernized

Page 18 Session Law 2026-1 House Bill 696
assessments. If this calculation results in a negative number, the modernized IGT actual receipts
adjustment component is zero."
SECTION 3D.2.(e) G.S. 108A-146.14, as amended by subsection (d) of this section,
reads as rewritten:
"§ 108A-146.14. Modernized IGT actual receipts adjustment component.
The modernized IGT actual receipts adjustment component is a dollar amount equal to the
amount of the modernized presumptive IGT adjustment component under G.S. 108A-146.13(c)
for the previous quarter plus the public hospita l modernized presumptive IGT offset amount
under G.S. 108A-146.1A for the previous quarter minus the amount of money received during
the previous quarter by the Department through intergovernmental transfer and designated in the
Department's accounting system as a receipt related to the modernized assessments. If this
calculation results in a negative number, the modernized IGT actual receipts adjustment
component is zero."
SECTION 3D.2.(f) Subsection (e) of this section is effective October 1, 2026, an d
applies to assessments imposed on or after that date.
SECTION 3D.2.(g) G.S. 108A-147.1 reads as rewritten:
"§ 108A-147.1. Public hospital health advancement assessment.
(a) The public hospital health advancement assessment imposed under this Part shall
apply to all public acute care hospitals.
(b) The public hospital health advancement assessment shall be assessed as a percentage
of each public acute care hospital's hospital costs. The assessment percentage shall be calculated
quarterly by the Department in accordance with this Part. The
(c) Through June 30, 2026, the percentage for each quarter shall equal the aggregate acute
care hospital health advancement assessment collection amount calculated under
G.S. 108A-147.3 multiplied by the public hospital historical assessment share and divided by the
total hospital costs for all public acute care hospitals holding a license on the first day of the
assessment quarter.
(d) Beginning July 1, 2026, the public hospital health advancement assessment quarterly
percentage shall equal the health advancement IGT actual receipts adjustment component under
G.S. 108A-147.10 divided by the total hospital costs for all public acute care hospitals holding a
license on the first day of the assessment quarter."
SECTION 3D.2.(h) Part 3 of Article 7B of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-147.1A. Public hospital health advancement presumptive IGT offset amount.
The public hospital health advancement presumptive IGT offset amount is the aggregate
acute care hospital health advancement assessment collection amount under G.S. 108A-147.3
multiplied by the public hospital historical assessment share."
SECTION 3D.2.(i) G.S. 108A-147.3(a) reads as rewritten:
"(a) The a ggregate health advancement assessment collection amount is an amount of
money that is calculated quarterly by adjusting the total nonfederal receipts for health
advancement calculated under subsection (b) of this section by (i) subtracting the health
advancement presumptive IGT adjustment component calculated under G.S. 108A-147.9, (ii)
adding the positive or negative health advancement IGT actual receipts adjustment component
calculated under G.S. 108A-147.10, G.S. 108A-147.9 and (iii) then subtracting the positive or
negative total IGT share of the reconciliation adjustment component calculated under
G.S. 108A-147.11(b).G.S. 108A-147.11(e)."
SECTION 3D.2.(j) G.S. 108A-147.10 reads as rewritten:
"§ 108A-147.10. Health advancement IGT actual receipts adjustment component.
The health advancement IGT actual receipts adjustment component is a positive or negative
dollar amount equal to the health advancement presumptive IGT adjustment component
calculated under G.S. 108A-147.9 for the previous quarter, plus the positive or negative total IGT

House Bill 696 Session Law 2026-1 Page 19
share of the reconciliation adjustment component calculated under G.S. 108A-147.11(b)
G.S. 108A-147.11(e) for the previous quarter, and minus the amount of money received during
the previous quarter by the Department through intergovernmental transfer and designated in the
Department's accounting system as a receipt for health advancement. If this calculation results in
a negative number, the health advancement IGT actual receipts adjustment component is zero."
SECTION 3D.2.(k) G.S. 108A-147.10, as amended by subsection (j) of this section,
reads as rewritten:
"§ 108A-147.10. Health advancement IGT actual receipts adjustment component.
The health advancement IGT actual receipts adjustment component is a dollar amount equal
to the total of (i) the amount of the health advancement presumptive IGT adjustment component
calculated under G.S. 108A-147.9 for the previous quarter, plus (ii) the positive or negative total
IGT share of the reconciliation adjustment component calculated under G.S. 108A-147.11(e) for
the previous quarter, and and (iii) the public hospital health advancement presumptive IGT offset
amount for the previous quarter, minus the amount of money received during the previous quarter
by the Department thr ough intergovernmental transfer and designated in the Department's
accounting system as a receipt for health advancement. If this calculation results in a negative
number, the health advancement IGT actual receipts adjustment component is zero."
SECTION 3D.2.(l) G.S. 108A-147.11 reads as rewritten:
"§ 108A-147.11. Health advancement reconciliation adjustment component.
(a) The health advancement reconciliation adjustment component is a positive or
negative dollar amount equal to the actual nonfederal expe nditures for the quarter that is two
quarters prior to the current quarter minus the sum of the following specified amounts:
(1) The presumptive service cost component calculated under G.S. 108A-147.5
for the quarter that is two quarters prior to the current quarter.
(2) The amount transferred during the current quarter by the Department of
Revenue to the State Treasurer for the Health Advancement Receipts Special
Fund under G.S. 105-228.5C.
(3) The health advancement acute care hospital HASP component calc ulated
under G.S. 108A-147.6 for the quarter that is two quarters prior to the current
quarter.
(4) The health advancement freestanding psychiatric hospital HASP component
calculated under G.S. 108A-147.6A for the quarter that is two quarters prior
to the current quarter.
(b) The base IGT share of the reconciliation adjustment component is a positive or
negative dollar amount that is calculated by multiplying the health advancement reconciliation
adjustment component calculated under subsection (a) of this section by the share of public
hospital costs calculated under subsection (c) of this section.
(c) The share of public hospital costs is calculated by adding total hospital costs for the
UNC Health Care System, total hospital costs for the primary affiliated teaching hospital for the
East Carolina University Brody School of Medicine, and sixty percent (60%) of the total hospital
costs for all public acute care hospitals and dividing that sum by the total hospital costs for all
acute care hospitals except for critical access hospitals and rural emergency hospitals.
(d) The supplemental IGT share of the reconciliation adjustment component is a positive
or negative dollar amount that is calculated by subtracting the base IGT share of the reconciliation
adjustment component calculated under subsection (b) of this section from the health
advancement reconciliation component calculated under subsection (a) of this section and
multiplying that difference by the public hospital historical assessment share.
(e) The total IGT share of the reconciliation adjustment component is a positive or
negative dollar amount that is the sum of the base IGT share of the reconciliation adjustment
component calculated under subsection (b) of this section and the supplemental IGT share of the
reconciliation adjustment component calculated under subsection (d) of this section."

Page 20 Session Law 2026-1 House Bill 696
SECTION 3D.2.(m) Subsection (k) of this section is effective October 1, 2026, and
applies to assessments imposed on or after that date.
SECTION 3D.2.(n) Except as otherwise provided, this section is effective July 1,
2026, and applies to assessments imposed on or after that date.

THE 2026 ONE -TIME ASSESSMENTS FOR NEW HEALTH ADVANCEMENT
ADMINISTRATIVE COSTS
SECTION 3D.3.(a) For purposes of this section, the following definitions apply:
(1) Acute care hospital. – As defined in G.S. 108A-145.3.
(2) Aggregate collection amount. – Fourteen million three hundred thousand
dollars ($14,300,000) minus intergovernmental transfer receipts.
(3) DHHS. – The Department of Health and Human Services.
(4) Hospital costs. – As defined in G.S. 108A-145.3.
(5) Intergovernmental transfer receipts. – The amount of money received during
the quarter in which this section becomes effective by DHHS through
intergovernmental transfers and that is designated in DHHS's accounting
system as a receipt for the 2026 one-time assessments.
(6) Private acute care hospital. – As defined in G.S. 108A-145.3.
(7) Private hospital historical assessment share. – As defined in G.S. 108A-145.3.
(8) Public acute care hospital. – As defined in G.S. 108A-145.3.
(9) Public hospital historical assessment share. – As defined in G.S. 108A-145.3.
SECTION 3D.3.(b) Effective when this act becomes law, each private acute care
hospital is subject to a 2026 one -time assessment that is a percentage of its hospital costs. The
percentage shall equal the aggregate collection amount multiplied by the private hospital
historical assessment share and divided by the total hospital costs fo r all private acute care
hospitals.
SECTION 3D.3.(c) Effective when this act becomes law, each public acute care
hospital is subject to a 2026 one -time assessment that is a percentage of its hospital costs. The
percentage shall equal the aggregate collect ion amount multiplied by the public hospital
historical assessment share and divided by the total hospital costs for all public acute care
hospitals.
SECTION 3D.3.(d) The proceeds of the assessments under this section and
intergovernmental transfer receip ts shall be deposited in the Health Advancement Receipts
Special Fund under G.S. 143C-9-10 and shall be used for the increased administrative costs
described in Section 3D.1 of this act as allowed under G.S. 108A-147.13(a)(2). From the
proceeds of this assessment and intergovernmental transfer receipts, DHHS shall use the sum of
seven million eight hundred thousand dollars ($7,800,000) to provide funding to county
departments of social services to support the counties with the increased administrative costs
described in Section 3D.1 of this act.
SECTION 3D.3.(e) The hospital assessments under this section shall be imposed by
DHHS in accordance with the following procedures:
(1) The assessment shall be calculated, imposed, and due in the time and manner
prescribed by DHHS and shall be considered delinquent if not paid within
seven calendar days of this due date.
(2) With respect to any hospital owing a past due assessment amount, DHHS may
withhold the unpaid amount from Medicaid payments otherwise due or
impose a late payment penalty. DHHS may waive a penalty for good cause
shown.
(3) A hospital may appeal a determination of the assessment amount owed
through a reconsideration review. The pendency of an appeal does not relieve
a hospital from its obligation to pay an assessment amount when due.

House Bill 696 Session Law 2026-1 Page 21
(4) The assessment may be included as allowable costs of a hospital for purposes
of any applicable Medicaid reimbursement formula, except the assessment
shall be excluded from cost settlement.
(5) The assessment may not be added as a surtax or assessment on a patient's bill.
SECTION 3D.3.(f) For purposes of determining the aggregate amount of all
assessments due from hospitals under Article 7B of Chapter 108A of the General Statutes
pursuant to G.S. 108A-148.1(c)(2), the assessments under this section shall be considered an
assessment due from hospitals under that Article.
SECTION 3D.3.(g) No later than February 1, 2027, DHHS shall submit to the Joint
Legislative Oversight Committee on Medicaid and the Fiscal Research Di vision a report that
details the amount of the proceeds from the assessments imposed under this section that DHHS
provided to each county department of social services and the date that those proceeds were
provided to each county department of social services.

HOSPITAL HEALTH ADVANCEMENT ASSESSMENT FUNDING FOR NEW
ADMINISTRATIVE COSTS
SECTION 3D.4.(a) G.S. 108A-147.7 reads as rewritten:
"§ 108A-147.7. Administration Base administration component.
(a) The base administration component is an amount of money that is calculated by
adding the base State administration subcomponent calculated under subsection (b) of this
section and the base county administration subcomponent calculated under subsection (c) of this
section.
(b) For each quarter of the 2023 -2024 State fiscal year, the State administration
subcomponent is the product of one million three hundred fifty thousand dollars ($1,350,000)
multiplied by the number of months in that State fiscal quarter in which G.S. 108A-54.3A(24) is
effective during any part of the month. For each quarter of the 2024 -2025 State fiscal year, the
base State administration subcomponent is four million one hundred eighty-seven thousand seven
hundred dollars ($4,187,700). For each subsequent State fiscal year, the base State administration
subcomponent shall be increased over the prior year's quarterly amount by a percentage that is
the sum of each monthly percentage change in the Consumer Price Index: All Urban Consumers
for the most recent 12 months available on March 1 of the previous State fiscal year.
(c) For each quarter of the 2022 -2023 State fiscal year and the 2023 -2024 State fiscal
year, the county administration subcomponent is the product of one million six hundred
sixty-seven thousand dollars ($1,667,000) multiplied by the number of months in that State fiscal
quarter in which G.S. 108A-54.3A(24) is effective during any part of the month. The base county
administration subcomponent is seven million four hundred thousand dol lars ($7,400,000) for
each quarter of the 2024-2025 State fiscal year and seven million eight hundred thousand dollars
($7,800,000) for each quarter of the 2025-2026 State fiscal year. For each State fiscal year after
the 2025-2026 State fiscal year, the base county administration subcomponent shall be increased
over the prior year's quarterly amount by a percentage that is the sum of each monthly percentage
change in the Consumer Price Index: All Urban Consumers for the most recent 12 months
available on March 1 of the previous State fiscal year."
SECTION 3D.4.(b) Part 3 of Article 7B of Chapter 108A of the General Statutes is
amended by adding a new section to read:
"§ 108A-147.7A. Supplemental administration component.
(a) The supplemental administration component is an amount of money that is calculated
by adding the supplemental State administration subcomponent calculated under subsection (b)
of this section and the supplemental county administration subcomponent calculat ed under
subsection (c) of this section.
(b) For the quarter of the 2026 -2027 fiscal year beginning on July 1, 2026, the
supplemental State administration subcomponent is zero. For the quarter of the 2026-2027 fiscal

Page 22 Session Law 2026-1 House Bill 696
year beginning on October 1, 2026, the supplemental State administration subcomponent is three
million three hundred thousand dollars ($3,300,000). For the quarter of the 2026-2027 fiscal year
beginning on January 1, 2027, the supplemental State administra tion subcomponent is two
million three hundred fifty thousand dollars ($2,350,000). For the quarter of the 2026-2027 fiscal
year beginning on April 1, 2027, the supplemental State administration subcomponent is three
million three hundred thousand dollars ($3,300,000). For the 2027-2028 fiscal year, the quarterly
supplemental State administration subcomponent shall be three million three hundred thousand
dollars ($3,300,000) increased by a percentage that is the sum of each monthly percentage change
in the Consumer Price Index: All Urban Consumers for the most recent 12 months available on
March 1 of the previous State fiscal year. For each subsequent State fiscal year through the
2035-2036 State fiscal year, the supplemental State administration subcomponen t shall be
increased over the prior year's quarterly amount by a percentage that is the sum of each monthly
percentage change in the Consumer Price Index: All Urban Consumers for the most recent 12
months available on March 1 of the previous State fiscal y ear. For each State fiscal year
beginning on or after July 1, 2036, the supplemental State administration subcomponent quarterly
amount is zero.
(c) For each quarter of the 2026-2027 fiscal year, the supplemental county administration
component is seven million eight hundred thousand dollars ($7,800,000). For each subsequent
State fiscal year through the 2035-2036 State fiscal year, the supplemental county administration
subcomponent shall be increased over the prior year 's quarterly amount by a percentag e that is
the sum of each monthly percentage change in the Consumer Price Index: All Urban Consumers
for the most recent 12 months available on March 1 of the previous State fiscal year. For each
State fiscal year beginning on or after July 1, 2036, the su pplemental county administration
subcomponent quarterly amount is zero."
SECTION 3D.4.(c) G.S. 108A-147.3, as amended by Section 6.1(n) of S.L.
2025-64, reads as rewritten:
"§ 108A-147.3. Aggregate acute care hospital health advancement assessment collec tion
amount.
…
(b) The total nonfederal receipts for health advancement is an amount of money that is
calculated quarterly by adding all of the following:
(1) The presumptive service cost component calculated under G.S. 108A-147.5.
(2) The health advanceme nt acute care hospital HASP component calculated
under G.S. 108A-147.6.
(2a) The health advancement freestanding psychiatric hospital HASP component
calculated under G.S. 108A-147.6A.
(3) The base administration component calculated under G.S. 108A-147.7.
(3a) The supplemental administration component calculated under
G.S. 108A-147.7A.
(4) The State retention component under G.S. 108A-147.9.
(5) The positive or negative health advancement reconciliation adjustment
component calculated under G.S. 108A-147.11(a).
…."
SECTION 3D.4.(d) G.S. 108A-147.9 reads as rewritten:
"§ 108A-147.9. Health advancement presumptive IGT adjustment component.
…
(b) The public hospital health advancement IGT adjustment subcomponent is the total of
the following amounts:
(1) Sixty percent (60%) of the public hospital share of the sum of the presumptive
service cost component calculated under G.S. 108A-147.5 for the current
quarter, the base administration component calculated under G.S. 108A-147.7

House Bill 696 Session Law 2026-1 Page 23
for the current quarter, the supplemental administration component calculated
under G.S. 108A-147.7A, and the State retention component under
G.S. 108A-147.8 for the current quarter. The public hospital share is the total
hospital costs for all public acute care hospitals divided by t he total hospital
costs for all acute care hospitals except for critical access hospitals and rural
emergency hospitals for the current quarter.
…
(c) The UNC Health Care System health advancement IGT adjustment subcomponent is
the total of the following amounts:
(1) The UNC Health Care System share of the sum of the presumptive service
cost component calculated under G.S. 108A-147.5 for the current quarter and
quarter, the base administration component calculated under G.S. 108A-147.7
for the current quarter. quarter, and the supplemental administration
component calculated under G.S. 108A-147.7A for the current quarter. The
UNC Health Care System share is the total hospital costs for the UNC Health
Care System hospitals divided by the total hospital costs for all acute care
hospitals except for critical access hospitals and rural emergency hospitals for
the current quarter.
…
(d) The East Carolina University health advancement IGT adjustment subcomponent is
the total of the following amounts:
(1) The East Carolina University share of the sum of the presumptive service cost
component calculated under G.S. 108A-147.5 for the current quarter and
quarter, the base administration component calculated under G.S. 108A-147.7
for the current quarter. quarter, a nd the supplemental administration
component calculated under G.S. 108A-147.7A for the current quarter. The
East Carolina University share is the total hospital costs for the primary
affiliated teaching hospital for the East Carolina University Brody Schoo l of
Medicine divided by the total hospital costs for all acute care hospitals except
for critical access hospitals and rural emergency hospitals for the current
quarter.
…."
SECTION 3D.4.(e) G.S. 108A-147.13 reads as rewritten:
"§ 108A-147.13. Use of funds.
…
(b) The Department shall use an amount of the proceeds of the health advancement
assessments that is equal to the sum of the base county administration subcomponent of the base
administration component in G.S. 108A-147.7 and the supplemental count y administration
subcomponent of the supplemental administration component in G.S. 108A-147.7A to provide
funding to county departments of social services to support the counties in determining eligibility
for newly eligible individuals.
(c) The amount of the proceeds of the health advancement assessments that may be used
for administrative expenses attributable to providing Medicaid coverage to newly eligible
individuals and administrative expenditures associated with the HASP program shall not exceed,
for any State fiscal year, an amount equal to the sum of the base State administration
subcomponent of the base administration component in G.S. 108A-147.7 for each quarter of the
State fiscal year, the supplemental State administration subcomponent of the su pplemental
administration component in G.S. 108A-147.7A for each quarter of the State fiscal year, and all
corresponding matching federal funds.funds corresponding to those subcomponents.
…."

Page 24 Session Law 2026-1 House Bill 696
SECTION 3D.4.(f) This section is effective July 1, 2026, and applies to assessments
imposed on or after that date.

ADMINISTRATIVE COST REPORTING AND RECONCILIATION
SECTION 3D.5. No later than October 1, 2029, the Department of Health and
Human Services, Division of Hea lth Benefits (DHB), shall submit a report to the House of
Representatives Appropriations Committee on Health and Human Services, the Senate
Appropriations Committee on Health and Human Services, the Joint Legislative Oversight
Committee on Medicaid, and the Fiscal Research Division that includes all of the following:
(1) The estimated share of the actual administrative costs expended through June
30, 2029, by DHB that is attributable to compliance with the requirements
described in Section 3D.1 of this act.
(2) A description of any reduction to the administrative costs described in Section
3D.1 of this act resulting from (i) actions taken by DHB to achieve efficiencies
or (ii) decreases in enrollment in NC Health Works.
(3) The total amount of assessment rec eipts and intergovernmental transfer
receipts from April 1, 2026, through June 30, 2029, that are attributable to
G.S. 108A-147.7A or Section 3D.3 of this act.
(4) A proposal for crediting against future assessments owed under Article 7B of
Chapter 108A of the General Statutes any amounts under subdivision (3) of
this section that exceed the amount under subdivision (1) of this section.
(5) Any proposed legislative changes to ensure that hospital assessment and
intergovernmental transfer amounts attributable to G.S. 108A-147.7A do not
exceed the administrative costs expended to comply with the requirements
described in Section 3D.1 of this act, including any of the following:
a. Adjustments to the supplemental administration component in
G.S. 108A-147.7A.
b. Addition of a statutory annual reconciliation of any hospital
assessment and intergovernmental transfer amounts attributable to
G.S. 108A-147.7A in excess of actual administrative costs expended
to comply with the requirements described in Section 3D.1 of this act.

REPORTING ON CERTAIN CHANGES RESULTING IN REDUCTION IN
ADMINISTRATIVE COSTS
SECTION 3D.6.(a) If the Department of Health and Human Services, Division of
Health Benefits (DHB), determines that the requirements described in Section 3D.1 of this act as
applied to NC Health Works will be modified or eliminated due to a change in federal or State
law, rule, or regulation and the modification or elimination will reduce the administrative costs
described in Section 3D.1 of this act, then DHB shall submit a report on its determination to the
House of Representatives Appropriations Committee on Health and Human Services, the Senate
Appropriations Committee on Health and Human Services, the Joint Legislative Oversight
Committee on Medicaid, and the Fiscal Research Division. This report shall be due 60 days after
DHB identifies the anticipated modification or elimination and shall include all of the following:
(1) An explanation of the anticipated modification or elimination.
(2) The date the modification or elimination is expected to be effective.
(3) A fiscal analysis of the anticipated reduction in administrative costs
attributable to the modification or elimination.
(4) A proposal for a decrease or elimination of the amounts included in the
assessments to hospitals under G.S. 108A-147.7A that corresponds to the
anticipated reduction in administrative costs.
SECTION 3D.6.(b) This section expires June 30, 2036.

House Bill 696 Session Law 2026-1 Page 25

END NEW HOSPITAL ASSESSMENT AMOUNTS UNDER CERTAIN CONDITIONS
SECTION 3D.7.(a) In developing t he average commercial rate demonstration for
the Healthcare Access and Stabilization Program (HASP), the Department of Health and Human
Services, Division of Health Benefits (DHB), shall use the payment methodology or approach
that produces the maximum allowable level of HASP reimbursements to hospitals and receives
federal approval.
SECTION 3D.7.(b) DHB shall submit a report to the House of Representatives
Appropriations Committee on Health and Human Services, the Senate Appropriations
Committee on Health and Human Services, the Joint Legislative Oversight Committee on
Medicaid, and the Fiscal Research Division if DHB determines that any of the following
conditions have been met:
(1) Centers for Medicare and Medicaid Services (CMS) approved a HASP
preprint that is less than ninety-five percent (95%) of the maximum allowable
amount for HASP under federal law or regulation, calculated based on all of
the following:
a. Limits on state directed payments and provider taxes established under
Public Law 119-21.
b. Any federal laws or regulations related to state directed payments,
provider taxes, and intergovernmental transfers that are applicable to
the period for which the CMS approval is received.
(2) The gross HASP reimbursements to hospitals approved by CMS fo r a fiscal
year are less than one billion five hundred million dollars ($1,500,000,000).
(3) The gross HASP reimbursements paid to hospitals, calculated on an accrual
basis, for a fiscal year are less than one billion five hundred million dollars
($1,500,000,000).
(4) A change in federal law or regulation resulted in adjusted hospital
intergovernmental transfers, in any quarter, that were at least twenty percent
(20%) lower than the amount of base hospital intergovernmental transfers for
that quarter. For purposes of this subdivision, the following definitions apply:
a. Actual hospital intergovernmental transfers. – The sum of all
intergovernmental transfers designated in DHHS's accounting system
as either a receipt for health advancement or a receipt relate d to the
modernized assessments.
b. Adjusted hospital intergovernmental transfers. – The amount of the
base hospital intergovernmental transfers adjusted to account for any
new federal restrictions on intergovernmental transfers established
through federal law or regulation.
c. Base hospital intergovernmental transfers. – The sum of actual
hospital intergovernmental transfers collected during the quarter of
fiscal year 2025-2026 beginning on October 1, 2025, plus the amount
of hospital assessments under Art icle 7B of Chapter 108A of the
General Statutes collected in that quarter from public acute care
hospitals, adjusted for any changes in hospital status that occurred after
October 1, 2025.
d. Changes in hospital status. – As defined in G.S. 108A-146.17.
e. Public acute care hospital. – As defined in G.S. 108A-145.3.
SECTION 3D.7.(c) The report required by subsection (b) of this section is due 120
days after DHB's determination that one of the conditions has been met. Prior to submitting the
report, DHB shall allow at least 30 days for the North Carolina Healthcare Association to review
the determination and to provide written confirmation or disagreement with the determination.

Page 26 Session Law 2026-1 House Bill 696
Once a report required under subsection (b) of this section has been submitted, DHB shall not be
required to submit any further reports under subsection (b) of this section.
SECTION 3D.7.(d) On the date DHB submits the report required by subsection (b)
of this section, DHB shall notify, in writing, the Revisor of Statutes that the re port has been
submitted.
SECTION 3D.7.(e) G.S. 108A-147.7A, as enacted by Section 3D.4(b) of this act,
reads as rewritten:
"§ 108A-147.7A. Supplemental administration component.
(a) The supplemental administration component is an amount of money that is calculated
by adding the supplemental State administration subcomponent calculated under subsection (b)
of this section and the supplemental county administration subcomponent calculated under
subsection (c) of this section.
(b) For the quarter of the 2026 -2027 fiscal year beginning on July 1, 2026, the
supplemental State administration subcomponent is zero. For the quarter of the 2026-2027 fiscal
year beginning on October 1, 2026, the supplemental State administration subcomponent is three
million three hundred thousand dollars ($3,300,000). For the quarter of the 2026-2027 fiscal year
beginning on January 1, 2027, the supplemental State administration subcomponent is two
million three hundred fifty thousand dollars ($2,350,000). For the quarter of the 2026-2027 fiscal
year beginning on April 1, 2027, the supplemental State administration subcomponent is three
million three hundred thousand dollars ($3,300,000). For quarter of the 2027 -2028 fiscal year,
the supplemental State administration subcomponent shal l be three million three hundred
thousand dollars ($3,300,000) increased by a percentage that is the sum of each monthly
percentage change in the Consumer Price Index: All Urban Consumers for the most recent 12
months available on March 1 of the previous S tate fiscal year. For each subsequent State fiscal
year through the 2035 -2036 State fiscal year, the supplemental State administration
subcomponent shall be increased over the prior year's quarterly amount by a percentage that is
the sum of each monthly percentage change in the Consumer Price Index: All Urban Consumers
for the most recent 12 months available on March 1 of the previous State fiscal year. For each
State fiscal year beginning on or after July 1, 2036, the The supplemental State administration
subcomponent quarterly amount is zero.
(c) For each quarter of the 2026-2027 fiscal year, the supplemental county administration
component is seven million eight hundred thousand dollars ($7,800,000). For each subsequent
State fiscal year through the 2035-2036 State fiscal year, the supplemental county administration
subcomponent shall be increased over the prior year's quarterly amount by a percentage that is
the sum of each monthly percentage change in the Consumer Price Index: All Urban Consumers
for the most recent 12 months available on March 1 of the previous State fiscal year. For each
State fiscal year beginning on or after July 1, 2036, the The supplemental county administration
subcomponent quarterly amount is zero."
SECTION 3D.7.(f) Section 3D.6 of this act is repealed.
SECTION 3D.7.(g) Subsections (e) and (f) of this section are effective on the first
day of the next assessment quarter that is two years after the date the report required by subsection
(b) of this section is submitted. Subsection (e) of this section applies to assessments imposed on
or after the date subsection (e) of this section becomes effective.
SECTION 3D.7.(h) This section expires on July 1, 2034, if no report required by
subsection (b) of this section has been submitted by that date.

REPORT ON OPTIONS FOR CONTINUED FUNDING AFTER JUNE 30, 2036
SECTION 3D.8. No later than October 1, 2031, the Department of Health and
Human Services, Division of Health Benefits (DHB), shall submit a report, in consultation with
relevant stakeholders, to the House of Representatives Appropriations Committee on Health and
Human Services, the Senate Appropriations Committee on Health and Human Services, the Joint

House Bill 696 Session Law 2026-1 Page 27
Legislative Oversight Committee on Medicaid, and the Fiscal Research Division outlining
options for the continued funding of the increased administrative costs described in Section 3D.1
of this act after June 30, 2036.

PART III-E. DIVISION OF HEALTH SERVICE REGULATION

INCREASED BED CAPACITY FOR FACILITIES LICENSED TO PROVIDE A
PROGRAM OF OVERNIGHT RESPITE SERVICES
SECTION 3E.1.(a) G.S. 131D-6.1(c) reads as rewritten:
"(c) The Medical Care Commission shall adopt rules governing the licensure of adult day
care and adult day health facilities providing a program of overnight respite services in
accordance with this section. The Medical Care Commission shall seek input from stakeholders
before proposing rules for adoption as required by this subsection. The rules shall limit the
provision of overnight respite services for each adult to (i) not more than 14 consecutive calendar
days, and not more than 60 total calendar days, during a 365 -day period or (ii) the amount of
respite allowed under the North Carolina Innovations waiver or Community Alternatives
Program for Disabled Adults (CAP/DA) waiver, as applicable. The rules shall include minimum
requirements to ensure the health and safety of overnight respite participants. These requirements
shall address all of the following:
…
(2) Staffing.Minimum staffing requirements, which shall include at least all of the
following:
a. Each facility shall have staff on duty to meet the ne eds of each
participant.
b. In addition to the requirement established by sub-subdivision a. of this
subdivision, each facility with a census of one to six participants shall
have a minimum of one staff present and awake at the facility at all
times who is qualified to administer medications and is trained to
provide personal care and supervision to current participants.
c. In addition to the requirement established by sub-subdivision a. of this
subdivision, each facility with a census of seven to 12 partic ipants
shall have a minimum of two staff present and awake at the facility at
all times, at least one of whom is qualified to administer medications,
and both of whom are trained to provide personal care and supervision
to current participants.
d. Staff required by sub-subdivisions a. to c. of this subdivision shall not
perform housekeeping or food service duties during any shift in which
the staff has been assigned the responsibility of providing personal
care and supervision to participants. The facility is required to have
additional staff available at the facility to provide daily housekeeping
and food service duties.
…
(8) Bed capacity limitations, which shall not exceed six 12 beds in each adult day
care program. facility licensed to provide a program o f overnight respite
services.
…."
SECTION 3E.1.(b) The Medical Care Commission may adopt emergency and
temporary rules as necessary to implement the requirements and limitations of G.S. 131D-6.1(c),
as amended by subsection (a) of this section.
SECTION 3E.1.(c) Subsection (b) of this section is effective when this section
becomes law. The remainder of this section becomes effective July 1, 2026.

Page 28 Session Law 2026-1 House Bill 696

PART III-F. DIVISION OF SOCIAL SERVICES

LIMITATIONS ON SELF -ATTESTATION/COUNTING INCOME OF CERTAIN
INELIGIBLE INDIVIDUALS
SECTION 3F.1. Part 5 of Article 2 of Chapter 108A of the General Statutes is
amended by adding the following new section to read:
"§ 108A -52.1. Limitation s on self-attestation; counting income of certain ineligible
individuals.
(a) In no case shall self-attestation be used as the sole evidence that an applicant meets
eligibility requirements for the food and nutrition services program unless otherwise required by
federal law.
(b) The Department shall count all income and financial resources of an individual
determined to be ineligible to participate in the food and nutrition services program under 7
U.S.C. § 2015(f) when determining eligibility and benefit allotment of the household of which
the individual is a member. The Department shall not prorate or exclude the income or financial
resources of the ineligible individual."

STUDY TO CENTRALIZE ALL SERVICES ADMINISTERED BY THE DIVISION OF
SOCIAL SERVICES
SECTION 3F.2.(a) The Office of State Budget and Management (OSBM), in
consultation with the Department of Health and Human Services (DHHS), shall develop and
issue a request for proposal (RFP) by October 31, 2026, to contract with a third -party
organization to examine th e short - and long -term opportunities to improve the efficiency,
accuracy, and cost -effectiveness of having the State DHHS administer all federally and State
mandated social services. The contractor selected to conduct the study shall work with DHHS
and stakeholders, including county departments of social services and other partners. The study,
at a minimum, shall do each of the following:
(1) Examine the advantages and disadvantages regarding centralization of all
federally and State mandated social services.
(2) Analyze workforce capacity and performance for those services.
(3) Examine the logistics of transitioning to a centralized model, including
estimates of implementation and ongoing costs and financing mechanisms.
(4) Provide a recommendation for a phased implementation timeline.
(5) Identify best practices, including research on how other states have centralized
or otherwise improved the delivery of social services.
(6) Outline any known risks associated with centralizing these services.
(7) Examine o pportunities to improve data -sharing and coordination among
systems and programs.
SECTION 3F.2.(b) By June 30, 2027, OSBM and DHHS shall submit a report to
the Joint Legislative Oversight Committee on Health and Human Services, the Joint Legislative
Oversight Committee on Medicaid, Joint Legislative Commission on Governmental Operations,
and the Fiscal Research Division containing findings and recommendations regarding
centralizing the administration of all federally and State mandated social services within the State
DHHS based on (i) the information compiled from the study required by subsection (a) of this
section and (ii) any other information available to those agencies. The report shall also include
all of the following specific information:
(1) An overview of the State's current Medicaid and Food and Nutrition Services
(FNS) programs' eligibility determination and enrollment structures,
including a review of DHHS's current administrative and operational

House Bill 696 Session Law 2026-1 Page 29
practices, compliance reports submitted to feder al agency partners, relevant
audit findings, and other oversight materials.
(2) An assessment of how Medicaid and FNS applications and renewals are
processed.
(3) Identification of best practices, including research on how other states have
improved their Medicaid and FNS eligibility determination systems.
SECTION 3F.2.(c) There is appropriated from the General Fund to the Office of
State Budget and Management the sum of one million dollars ($1,000,000) in nonrecurring funds
for the 2026 -2027 fiscal year t o contract with a third -party to conduct the study required by
subsection (a) of this section.
SECTION 3F.2.(d) Subsection (c) of this section is effective July 1, 2026. The
remainder of this section is effective when it becomes law.

PART IV. AGRICULTURE AND NATURAL AND ECONOMIC RESOURCES

MODIFY CERTAIN ECONOMIC DEVELOPMENT PROJECT FUNDS
SECTION 4.1. Section 2C.2 of S.L. 2025-89 reads as rewritten:
"SECTION 2C.2.(a) Provided the Economic Investment Committee (EIC) awards a Job
Development Investment Grant for a qualifying transformative project for an airplane
manufacturer in Guilford County, there is appropriated from the Stabilization and Inflation
Reserve establi shed in Section 2.2(q) of S.L. 2022 -74 to the Department of Commerce
(Department) the sum of one hundred eighteen million one hundred thousand dollars
($118,100,000) in nonrecurring funds for the 2025 -2026 fiscal year to be allocated for
acquisitions and improvements at the project site as provided in this section. For a term of years
the Department, in its discretion, deems appropriate, a recipient to whom funds are allocated
under this section that uses the funds, in whole or in part, to acquire or improve land (other than
water and sewer improvements) may not (i) sell or otherwise encumber the land or improvement
(other than utility and access easements and road rights-of-way) or (ii), absent the consent of the
EIC, lease the land or improvement; any such lease must require the land or improvement to be
used by the business for the purposes set out in the agreement.agreement; provided, however,
that, with the approval of the EIC, the business benefitted by the funds allocated under this section
may encumber its interest, or grant security interests in its interest, in the land or improvements
acquired or improved with such funds as collateral for financing obtained by the business to
finance the project so long as such collateral does not include any intere st of the business in the
land or improvements for which funds are allocated under subdivision (5) or subdivision (6) of
this subsection.
For purposes of this section, the definitions of G.S. 143B-437.51 apply and a "qualifying
transformative project" is a transformative project for which the Department enters into a binding
contract with the business that requires, over a period of time not to exceed the base period, that
the business invests at least four billion five hundred million dollars ($4,500,000,000) in private
funds or funds provided by federal or foreign governments or their respective departments,
agencies, divisions, or units or both and creates at least 14,000 eligible positions with an average
annual wage of at least eighty-nine thousand three hundred forty dollars ($89,340). The contract
constitutes a continuing obligation of the State and the business benefitted by the funds allocated
for improving the project site. The contract must (i) include all of the performance criteria,
remedies, and other safeguards required by the Department to secure the State's benefit derived
from improvements to the airport funded by this section and (ii) require the business to repay an
appropriate, proportionate amount of costs incurred by the State, or reimbursement paid to the
business, for improvement of the airport for any failure by the business to meet and maintain the
applicable performance criteria on which the cost incurred or reimbursement pai d was based.
Provided the requirements of the contract continue to be met, it is the intent of the General

Page 30 Session Law 2026-1 House Bill 696
Assembly to appropriate the sum of one hundred thirty -three million nine hundred thousand
dollars ($133,900,000) in nonrecurring funds for the 2026-2027 fiscal year and additional funds
in future acts in the aggregate amount of one hundred ninety-eight million dollars ($198,000,000)
over the following four succeeding fiscal years to support the qualifying transformative project.
With respect to funds a llocated to the Piedmont Triad Airport Authority (Authority), the
Authority may contract for the design and construction using any delivery method it deems
appropriate, and the Department shall pay the costs of the design and construction to the
Authority or shall reimburse the Authority for the costs of the design and construction from the
funds allocated under this subsection. If it deems it appropriate, the Authority may authorize, in
writing, the business who operates the improvements to contract for the design and construction
of the improvements, and the Department or the Authority, if delegated by the Department, shall
pay the costs of the design and construction to the business or shall reimburse the business for
the costs of the design and construct ion from the funds allocated under this subsection. For
purposes of this subsection, neither the Authority nor the business shall be subject to the
provisions of Article 3D of Chapter 143 of the General Statutes or Article 8 of Chapter 143 of
the General Statutes.
The funds appropriated for the 2025-2026 fiscal year in this section shall be allocated to, and
used, as follows:
(1) Fifteen million dollars ($15,000,000) to the Piedmont Triad Airport Authority
(Authority) for the acquisition of up to 150 acres of land (i) needed at
Piedmont Triad International Airport (Airport) (ii) to be owned by the
Authority for the project. If funds allocated pursuant to this subdivision
exceed the anticipated amount necessary for the purpose of this subdivision,
the Departm ent may reallocate the surplus for purposes authorized in
subdivision (2) of this subsection.
(2) Forty-five million dollars ($45,000,000) to the Authority for site analysis,
engineering, grading, site preparation, site work, and access road and taxiway
construction not otherwise provided for in this section that is needed at the
Airport for the project. If funds allocated pursuant to this subdivision exceed
the anticipated amount necessary for the purposes of this subdivision, the
Department may reallocate the surplus for the purpose authorized in
subdivision (1) of this subsection.
(3) Seven million nine hundred thousand dollars ($7,900,000) to the Department
of Transportation for roadwork needed at the airport for the project.
Notwithstanding any other provision of law, the Department of Transportation
is authorized to utilize Progressive Design Build, Construction Management
General Contractor, or any other procurement methodology to contract for the
delivery of improvements for which funds are provided in this subdivision.
(4) Five million dollars ($5,000,000) to the City of Greensboro for water and
sewer infrastructure improvements needed to support the project.
(5) Ten million two hundred thousand dollars ($10,200,000) to the Authority
Department, to be allocated to and administered by the Authority on behalf of
the Department, for the following:
a. Renovation costs of, and capital improvements to, an existing airport
hub to (i) render it suitable for the project and (ii) be owned by the
Authority. If funds allocated pursuant to this sub -subdivision exceed
the amount necessary for the purpose of this subdivision, the
Department may reallocate the surplus for purposes authorized in
subdivision (6) of this subsection.
b. Offsets for costs required by the Federal Aviation Administration.

House Bill 696 Session Law 2026-1 Page 31
(6) Thirty-five million dollars ($35,000,000) to the Authority Department, to be
allocated to and administered by the Authority on behalf of the Department,
for the following costs related to construction of a facility for manufacturing,
research, and development to be owned by the Authority for the project: (i)
costs for general conditions, construction administration, demolition,
construction of the substruc ture and shell of the facility, infrastructure
enhancements and upgrades, building services, and mechanical systems, (ii)
contractor fees, and (iii) fees for permitting, inspections, insurance, and
related administrative costs.costs, and (iv) sidewalks and a pedestrian bridge
connecting the facility to the airport hub. If funds allocated pursuant to this
subdivision exceed the anticipated amount necessary for the purpose of this
subdivision, the Department may reallocate the surplus for purposes
authorized in sub-subdivision (5)a. of this subsection.
"SECTION 2C.2.(b) On September 1 of each year funds appropriated for the airport remain
unexpended until all funds have been expended, the Department shall report on the use of such
funds to the House of Repres entatives and the Senate committee or subcommittee responsible
for base budget and appropriations, to the Joint Legislative Economic Development and Global
Engagement Oversight Committee, to the Joint Legislative Commission on Governmental
Operations, and to the Fiscal Research Division. The report shall include, at a minimum, an
executive summary of the performance of the business; the performance criteria, remedies, and
safeguards required by the Department for the funds; a description of the current stat us of the
project; the amount that was paid in the prior fiscal year; the purpose for which the amount was
paid; the total amount that has been paid; and any encumbrance allowed on the land or an
improvement on the land, including any lease."

CLARIFY HERTFORD WATER INFRASTRUCTURE FUNDING
SECTION 4.2. Funds allocated to the Town of Hertford by Section 12.2(e)(82) of
S.L. 2023-134 for water capacity increase may, notwithstanding that section, be used by the
Town for any water or wastewater infrastructure project.

PART V. JUSTICE AND PUBLIC SAFETY

DEPARTMENT OF ADULT CORRECTION CRITICAL OPERATING NEEDS
SECTION 5.1. There is appropriated from the General Fund to the Department of
Adult Correction the sum of eighty million dollars ($80,000,000) in nonrecur ring funds for the
2025-2026 fiscal year to be used to address a shortfall in operating funds for the Department.

STATE BUREAU OF INVESTIGATION OPERATING NEEDS
SECTION 5.2. There is appropriated from the General Fund to the State Bureau of
Investigation the sum of (i) two million five hundred thousand dollars ($2,500,000) in recurring
funds beginning in the 2025-2026 fiscal year and (ii) one million two hundred thousand dollars
($1,200,000) in nonrecurring funds for the 2025-2026 fiscal year, to be used to address a shortfall
in operating funds for the Bureau.

FUNDS TO CONTINUE CASE MANAGEMENT SYSTEM USED BY THE BUSINESS
COURT
SECTION 5.3. There is appropriated from the General Fund to the Administrative
Office of the Courts, Budget Fund 100064, the sum of one hundred sixty-five thousand dollars
($165,000) in nonrecurring funds for the 2025 -2026 fiscal year to be used to extend the case
management software used by the North Carolina Business Court that is in addition to the eCourts
system.

Page 32 Session Law 2026-1 House Bill 696

PART VI. GENERAL GOVERNMENT

GENERAL ASSEMBLY OPERATING EXPENSES
SECTION 6.1. There is appropriated from the General Fund to the General
Assembly the sum of one million five hundred thousand dollars ($1,500,000) in nonrecurring
funds for the 2025-2026 fiscal year for operating expenses.

OFFICE OF STATE BUDGET AND MANAGEMENT DIRECTED GRANTS
MODIFICATION
SECTION 6.2. Notwithstanding any provision of S.L. 2023-134, as amended, or the
Committee Report referenced in Section 43.2 of that act to the contrary, the follow ing directed
grants allocated by the Office of State Budget and Management – Special Appropriations for the
2023-2024 fiscal year are amended as follows:
(1) Any remaining funds from the directed grant to the Mayland Community
College Foundation, Inc., a n onprofit corporation, for two million dollars
($2,000,000) for the 2023 -2024 fiscal year for the Avery -Mitchell animal
shelter shall instead be granted in equal amounts to Avery and Mitchell
Counties to be used for any public purpose that the counties are authorized by
law to engage in.
(2) The directed grant to the Town of Selma for eight hundred thousand dollars
($800,000) for the 2023 -2024 fiscal year for economic development project
recruitment shall instead be allocated to Johnston County Economic
Development Corporation, a nonprofit corporation, for the same purpose.
(3) The directed grant to Iredell County for five million dollars ($5,000,000) for
the 2023 -2024 fiscal year for capital improvements or equipment at the
fairgrounds shall instead be allocated as follows:
a. Three million dollars ($3,000,000) to the Iredell County Sheriff's
Office for a new safety building on Lake Norman.
b. Two million dollars ($2,000,000) to the City of Statesville for water
and wastewater projects pertaining to economic development
consistent with Section 12.2(e)(179) of S.L. 2023-134.
(4) The directed grant of one million six hundred thousand dollars ($1,600,000)
for the 2023-2024 fiscal year to Harnett County for land acquisition or capital
improvements related to Johns on Farm shall instead be used for renovations
of existing parks, improvements in park safety and accessibility, and
development of green spaces, trails, and greenways.
(5) Funds allocated to the Office of State Budget and Management by Section
12.2(f)(2) of S.L. 2023 -134 to provide a grant to the Burke Partnership for
Economic Development, Inc., a nonprofit corporation, to install water and
wastewater at the Western NC Megasite and remaining unspent and
unencumbered as of the effective date of this section, shall, notwithstanding
that subdivision or any provision of law to the contrary, be reallocated to
Burke County to be used for water and wastewater projects in Burke County.

PART VII. TRANSPORTATION

DIVISION OF MOTOR VEHICLES CRITICAL OPERATING NEEDS
SECTION 7.1.(a) There is appropriated from the Highway Fund to the Department
of Transportation, Division of Motor Vehicles (DMV) the sum of thirteen million one hundred
thousand dollars ($13,100,000) in recurring funds beginning with the 2025-2026 fiscal year and

House Bill 696 Session Law 2026-1 Page 33
the sum of eight million five hundred thousand dollars ($8,500,000) in nonrecurring funds in the
2025-2026 fiscal year to be used to address a shortfall in operating funds for the DMV caused by
unrealized anticipated fee receipts related to credit card transactions.
SECTION 7.1.(b) The Office of State Budget and Management, in consultation with
the DMV, shall align credit card receipt line items with actual collections. The DMV shall adjust
credit card fee receipt collection projections in accordance with G.S. 143C-3-5(b)(2)c. and shall
adjust Base Budget requirements to match those projected receipts.

PART VIII. MISCELLANEOUS

STATE BUDGET ACT APPLICABILITY
SECTION 8.1. If any provision of this act and G.S. 143C-5-4 are in conflict, the
provisions of this act shall prevail. The appropriations and the authorizations to allocate and
spend funds which are set out in this act shall remain in effect until the Current Operations
Appropriations Act for the applicable fiscal year becomes law, at which tim e that act shall
become effective and shall govern appropriations and expenditures. When the Current
Operations Appropriations Act for that fiscal year becomes law, the Director of the Budget shall
adjust allotments to give effect to that act from July 1 of the fiscal year.

PART IX. EFFECTIVE DATE
SECTION 9.1. Except as otherwise provided, this act is effective when it becomes
law.
In the General Assembly read three times and ratified this the 28th day of April, 2026.

s/ Phil Berger
President Pro Tempore of the Senate

s/ Destin Hall
Speaker of the House of Representatives

s/ Josh Stein
Governor

Approved 11:27 a.m. this 30th day of April, 2026