South Carolina

Cluster 4: Non-Expansion High-Burden States

South Carolina stabilized its rural hospitals through state-directed payments. The mechanism allowed the state to use hospital provider taxes to boost Medicaid reimbursement rates to near-private-insurance levels, generating approximately $150 million annually in revenue that kept vulnerable facilities viable. This was not a permanent solution. It was a workaround within a fundamentally broken coverage architecture that the state has refused to fix through Medicaid expansion. The workaround worked. For two years.

Federal legislation now phases out state-directed payments starting January 2028, cutting 10% annually for ten years until the mechanism that stabilized South Carolina’s hospitals disappears entirely. RHTP funds begin flowing in FY2026. SDP cuts begin in 2028, less than two years into the transformation program. By 2030, the final year of RHTP funding, SDP reductions will have accumulated to approximately 30% below current reimbursement levels. The state built stability on a foundation that federal policy is now systematically removing. The trap is complete: South Carolina’s hospitals became dependent on a mechanism that made non-expansion survivable, and now that mechanism’s elimination will make the consequences of non-expansion acute. RHTP cannot replace $150 million annually in perpetuity. It provides one-time investment while the reimbursement base erodes beneath it.

State Context

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South Carolina has approximately 1.6 million rural residents across 46 counties, a third of the state’s total population living with limited access to healthcare in communities stretching from the Upstate foothills to the Pee Dee interior to the Lowcountry coastal plain. The geography creates a distinctive pattern unlike any other non-expansion high-burden state: an I-95 corridor divide that separates a growing, affluent coastal economy from depopulating interior counties where healthcare infrastructure has been collapsing for over a decade.

The divide is not metaphorical. Beaufort and Hilton Head are building new hospitals to serve growing retirement populations. Allendale and Bamberg have been losing theirs. The closure record is specific and cumulative.

Six rural hospitals have closed since 2010. Bamberg County Memorial Hospital shut down in 2012. Marlboro Park Hospital in Bennettsville closed in 2015. Southern Palmetto Hospital in Barnwell closed in 2016 after losing $2.5 million in a single year. Fairfield Memorial Hospital closed in 2018. Williamsburg Regional Hospital in Kingstree suspended operations after severe flooding damaged more than half its facility. The closures cluster in the I-95 corridor and Pee Dee region, the same communities with the highest poverty rates, the highest concentrations of Black residents, and the worst health outcomes in the state.

Eight counties now have no hospital or licensed ambulatory surgical facility at all: Bamberg, Barnwell, Lee, Fairfield, Marlboro, McCormick, Saluda, and Calhoun. Only three small independent hospitals remain in the state. Allendale County Hospital is one of them, operating on margins near zero in a county where three-quarters of patients are either self-pay or covered by Medicaid. Its CEO, Lari Gooding, has warned publicly that rising costs combined with shrinking reimbursements create a trajectory that “there’s just no way to sustain.”

The physician distribution gap is among the most extreme in the Southeast. In 2021, rural counties had 9 physicians per 10,000 residents compared to 28 per 10,000 in urban areas. More than two-thirds of all doctors in the state practice in just six counties: Charleston, Greenville, Richland, Horry, Spartanburg, and York. Eight rural counties have no pediatrician. Fifteen lack an OB-GYN. Seventeen have no psychiatrist. Ninety-five percent of the state’s population lives in a primary care Health Professional Shortage Area. The shortage is not a gap waiting to be filled. It is a structural condition that has been deepening for decades.

South Carolina has not expanded Medicaid. Working parents qualify at 67% of the federal poverty level, roughly $17,300 for a family of three. Jobless parents qualify at 50% FPL. Adults without dependent children have no Medicaid eligibility at any income. An estimated 65,000 to 105,000 adults fall into the coverage gap, too poor for marketplace subsidies, too wealthy or categorically ineligible for the state’s Medicaid program. CoverSC estimates over 340,000 South Carolinians would become eligible if the state closed the gap. The state ranked 38th nationally with 9.1% of residents uninsured in 2023, roughly 468,000 people, and placed in the bottom ten for physical health, mortality, and access to care.

Governor Henry McMaster (R) has governed since 2017 and remains opposed to full Medicaid expansion. In June 2025 he pursued a limited 1115 waiver to extend Medicaid eligibility to parents between 67% and 100% FPL who work at least 80 hours monthly, potentially covering an additional 11,400 people. Even if approved, this covers a fraction of the coverage gap population. McMaster does not face election in 2026, providing political continuity that Alabama, Florida, and Georgia lack, but continuity in this context means continuity of the non-expansion decision.

RHTP Application and Award

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South Carolina received a $200,030,252 FY2026 RHTP award with a five-year total of approximately $1.0 billion. At $125 per rural resident annually, the per-capita allocation falls below the national average of $164, a consequence of the state’s substantial rural population diluting formula-driven funding across a large denominator. Compared to peer non-expansion states, South Carolina’s per-capita sits between Alabama ($97) and Kansas ($256).

The South Carolina Department of Health and Human Services (SCDHHS) serves as lead agency, designated by Governor McMaster. SCDHHS Director Eunice Medina, who has been visiting agency offices statewide since becoming director in 2024, managed the application process that solicited more than 350 proposals from providers, community organizations, and advocates before submission on November 5, 2025. The agency conducted public webinars in September and November 2025 to explain the application structure.

The lead agency choice is structurally sound. SCDHHS operates the state’s $12.4 billion Medicaid program serving 1.1 million enrollees and has established relationships with the provider networks that will deliver transformation services. This is the correct institutional match. However, there is inherent tension: SCDHHS must simultaneously administer RHTP investment while managing the Medicaid contraction that the same federal legislation imposes on its core program. Director Medina has emphasized that RHTP “is not Medicaid,” but the agency’s bandwidth to manage both transformation and retrenchment simultaneously has not been tested.

South Carolina organized its application around five initiatives:

Connections to Care (estimated $250 million, 25% of total): Expanding digital infrastructure including electronic health records, remote patient monitoring, telehealth services, and a statewide resource database platform for care coordination. The emphasis on EHR implementation reflects significant digital infrastructure deficits in rural facilities still operating on paper records.

Wellness Within Reach (estimated $200 million, 20%): Mobile health units and direct community outreach. Director Medina described the model: “If you’re trying to expand mobile health units that go out to schools, and you just need the cost of the van and equipment, done. Let’s do that, as long as they have a sustainability plan.” The initiative leverages existing programs including MUSC’s Community Health Van and Fetter Health Care Network’s five mobile units serving the Lowcountry.

Leveling Up (estimated $150 million, 15%): Scaling successful pilot programs from local proof of concept to statewide implementation. This is strategically defensible because it prioritizes interventions with existing evidence over speculative models.

Shoring Up to Sustainability (estimated $200 million, 20%): Infrastructure and facility improvements, including workforce development and refurbishment of abandoned spaces for clinical use. RHTP funds cannot construct new buildings but can renovate existing structures, relevant in a state with numerous shuttered hospital facilities.

Tech Catalyst Fund (estimated $200 million, 20%): Seed funding for innovative health startup companies in rural markets. This is the application’s highest-risk allocation. Venture-style startup funding in communities with declining populations, thin broadband infrastructure, and underdeveloped entrepreneurial ecosystems has a high failure rate.

Clemson Rural Health is identified as a subawardee partner, though specific allocation amounts have not been disclosed. SCDHHS will retain a maximum of 10% for administration and distribute the remainder as competitive grants. Medina has emphasized federal clawback provisions: “Whatever you put in that application, that is your commitment. And if you don’t do it, they’ll give you the money upfront and take it right back.”

The Medicaid Math

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South Carolina faces an estimated $4.4 billion in Medicaid cuts over ten years, representing approximately 6% of baseline spending. The 4.4:1 ratio of ten-year cuts to RHTP investment means for every dollar the state receives in transformation funding, it faces $4.40 in Medicaid erosion.

The state-directed payment phaseout is the most consequential mechanism for South Carolina’s hospitals. Starting January 2028, the program that boosted Medicaid reimbursement to near-private-insurance levels will be cut 10% annually for ten years. For the state’s 60 general care hospitals collectively, this represents approximately $150 million in annual losses, according to the South Carolina Hospital Association. CEO Thornton Kirby has warned that the cuts will push hospitals “into the survival mindset.”

The timing is structurally destructive. RHTP funds begin flowing in FY2026. SDP cuts begin in January 2028, less than two years into transformation. By 2030, the final year of RHTP funding, SDP cuts will have accumulated to 30% below current reimbursement levels. RHTP investment builds infrastructure while SDP cuts erode the reimbursement base that makes infrastructure financially viable. The two federal timelines work at cross-purposes.

Additional provisions compound the damage. Six-month redetermination cycles begin in December 2026. Retroactive coverage reduces to 60 days in January 2027. Out-of-pocket costs for working-age adults take effect in October 2028. KFF projects South Carolina could lose as many as 60,000 Medicaid enrollees and $5 billion in total Medicaid spending reductions over the phase-out period.

South Carolina hospitals already carry $3.2 billion in uncompensated and charity care annually, a burden concentrated in safety-net and rural facilities serving the coverage gap population. The Hospital Association projects an additional $284 million in annual uncompensated care costs from ACA subsidy changes. The mathematical context for transformation: the state’s hospitals are already absorbing billions in unreimbursed care, and federal legislation that funds RHTP simultaneously enlarges the uncompensated care burden through coverage reductions and reimbursement cuts.

Comparison with Alabama illuminates different configurations among non-expansion high-burden states. Alabama faces a 2.8:1 ratio, nominally more favorable than South Carolina’s 4.4:1. But Alabama designated an economic development agency (ADECA) rather than a health agency as lead, creating implementation friction South Carolina avoids. South Carolina’s SCDHHS has Medicaid operational experience and provider relationships that ADECA lacks. Alabama has worse implementation architecture but less severe cuts. South Carolina has better implementation architecture but more severe cuts. Neither configuration produces success. Both produce different failure modes.

Comparison with North Carolina illuminates the expansion counterfactual. North Carolina expanded Medicaid in December 2023, closing its coverage gap and gaining federal matching funds that non-expansion states forfeit. North Carolina’s rural hospitals receive reimbursement for the newly covered population. South Carolina’s rural hospitals continue absorbing uncompensated care from the 65,000 to 105,000 residents in the coverage gap. The border between the states marks an eligibility cliff: South Carolinians who would qualify for Medicaid in North Carolina have no pathway to coverage in their own state. RHTP transformation cannot substitute for the coverage their neighbor’s hospitals receive.

Authority Gap Assessment

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South Carolina exhibits significant institutional separation, the most concerning implementation risk category among non-expansion high-burden states. The separation operates through procurement and distribution mechanics rather than lead agency capacity.

SCDHHS has institutional expertise to administer the program. The issue is structural: the state’s procurement timeline and competitive grant distribution process create lag between award receipt and service delivery that consumes a significant portion of the five-year window. SCDHHS must develop grant solicitation criteria across five initiative categories, evaluate 350+ proposals, negotiate subaward terms, establish reporting requirements, and build compliance infrastructure before a single dollar reaches a provider. Director Medina has signaled urgency, but the agency has never managed a program of this scale outside core Medicaid operations.

The 350-proposal volume is both strength and risk. It demonstrates broad stakeholder engagement and genuine demand. It also creates selection pressure producing winners and losers, and the losers will include communities whose proposals did not align with initiative categories, regardless of local need. The competitive grant model inherently advantages organizations with grant-writing capacity, disproportionately located in urban centers and academic medical systems.

The MUSC system’s expanding footprint adds a consolidation dimension. The Medical University of South Carolina has been absorbing struggling rural hospitals through affiliation agreements. Hampton Regional Medical Center, 13 miles from Allendale County Hospital, was recently revamped as part of the MUSC system. Three of the five hospitals identified as highest closure risk already have MUSC backing. This creates a scenario where RHTP funds flow disproportionately to system-affiliated facilities with institutional capacity to submit competitive proposals, while remaining independents receive proportionally less despite facing proportionally greater risk.

Architecture Trajectory

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South Carolina’s application intersects with alternative architecture at several points, though the trajectory reinforces conventional models with one significant exception.

Mobile health units represent infrastructure investment that could evolve toward service center models or could remain conventional outreach. Director Medina’s description (“if you just need the cost of the van and equipment, done”) suggests equipment-focused investment rather than the comprehensive service center model envisioning permanent local presence with telehealth, visiting specialists, and community workforce. Mobile units visiting communities provide episodic access. Service centers providing permanent local presence create different capacity. The application does not distinguish between these models.

The Tech Catalyst Fund represents the most ambitious innovation allocation in any non-expansion high-burden state but lacks focus on AI as infrastructure that could provide independent capacity functioning when providers are absent. Venture-style startup funding could produce AI companion systems, coordination platforms, or professional services extending legal and financial access. Or it could produce conventional health tech applications that fail in markets with thin populations and inadequate broadband. The application does not specify innovation direction. Without targeting toward infrastructure AI rather than conventional digital health, the $200 million allocation may produce neither alternative architecture nor sustainable conventional improvement.

Connections to Care emphasizes EHR implementation and care coordination platforms. Community Information Exchanges connecting health and social services represent a different infrastructure category. South Carolina’s digital infrastructure investment could build toward integrated social care coordination or could remain within clinical data siloes. The application language suggests the latter. EHR interoperability differs from health-social service integration.

Workforce development within Shoring Up to Sustainability does not emphasize alternative workforce categories: CHW social care navigators, AI companion specialists, digital infrastructure technicians, robot operations roles. The physician distribution gap (two-thirds of doctors in six counties, 17 counties without psychiatrists) cannot be solved through conventional pipeline investments within five years. Alternative workforce creating local health employment independent of physician recruitment could address access gaps differently. The application pursues conventional workforce strategy.

The honest architecture assessment: South Carolina is building conventional infrastructure with one high-risk innovation bet. Mobile units, EHR systems, facility renovations, and workforce pipelines represent thoughtful improvement within existing models. The Tech Catalyst Fund represents speculative investment that could produce alternative architecture or could produce nothing. The application does not position RHTP as demonstration opportunity for alternative models that would reduce dependence on conventional provider infrastructure. This is rational given the state’s immediate crisis: hospitals facing closure need stabilization, not transformation experiments. But it means RHTP investment reinforces models that SDP phaseout is simultaneously undermining.

Risk Assessment

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Overall risk tier: Critical.

State-directed payment timeline collision is the highest-probability implementation risk. The SDP phaseout beginning 2028 will undermine institutional viability at the exact moment RHTP is supposed to be strengthening it. No state action can fully offset federal reimbursement reduction. The state’s prior reliance on SDP to stabilize hospital finances means the correction will be proportionally more damaging than in states that never developed the same SDP dependence.

Coverage gap structural contradiction is the highest-consequence risk. South Carolina’s hospitals provide $3.2 billion annually in uncompensated care. The coverage gap population uses emergency departments for conditions primary care could manage if insurance were available. RHTP can build clinics, purchase mobile units, and install EHR systems, but it cannot substitute for insurance coverage that makes utilization of those investments financially sustainable. McMaster’s limited waiver would cover 11,400 of an estimated 65,000 to 105,000 gap population. Movement, but not solution.

Physician distribution concentration is the highest-structural risk. Two-thirds of doctors practice in six counties. Fifteen counties have no OB-GYN. Seventeen have no psychiatrist. Workforce pipeline investments cannot produce the specialists needed to reverse concentration patterns reflecting decades of market forces, training pipelines, and lifestyle preferences. Telehealth can partially bridge access gaps, but for conditions requiring physical examination, imaging, procedures, or labor and delivery, there is no substitute for a clinician who is present.

Tech Catalyst Fund failure is the highest-waste risk. Allocating $200 million (20% of total funding) to startup health companies in rural markets represents a significant bet on innovation ecosystems that do not currently exist in target communities. If portfolio failure rate aligns with typical early-stage venture outcomes, substantial fraction of this allocation may produce no lasting improvement.

Coastal-inland equity creates geographic risk unique among non-expansion high-burden states. South Carolina’s rural population is not uniformly disadvantaged. Growing Lowcountry and Upstate metro fringes contain rural-classified areas with expanding healthcare infrastructure, while I-95 corridor and Pee Dee communities face decline curves comparable to Mississippi’s Delta or Alabama’s Black Belt. Uniform per-capita distribution across all rural areas would send transformation dollars to communities that are growing while underinvesting in communities that are dying. The application does not specify geographic targeting mechanisms.

Honest Assessment

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South Carolina demonstrates what competent administration looks like when structural conditions are wrong.

What South Carolina does well. SCDHHS is the correct lead agency with Medicaid operational experience and provider relationships that economic development agencies lack. The 350-proposal stakeholder engagement demonstrated genuine community input within compressed timelines. The five-initiative structure is more strategically coherent than Alabama’s 11-initiative fragmentation. The “Leveling Up” initiative prioritizing proven pilots over speculation represents disciplined resource allocation. Director Medina’s emphasis on accountability and federal clawback provisions signals seriousness about implementation rather than aspiration.

Where the plan meets reality. The 4.4:1 ratio ensures Medicaid cuts exceed transformation investment. The SDP phaseout beginning 2028 removes $150 million annually from the reimbursement base while RHTP invests one-time dollars that cannot replace ongoing revenue. The coverage gap persists, generating $3.2 billion in uncompensated care annually that RHTP cannot address. The physician distribution concentrates in six counties while 17 counties lack psychiatrists and 15 lack OB-GYNs. The per-capita allocation of $125 per rural resident cannot simultaneously build digital infrastructure, deploy mobile units, scale pilot programs, renovate facilities, and fund health startups at levels sufficient to produce measurable improvement across 1.6 million people.

The most revealing statement from South Carolina’s engagement process came from Maya Pack, executive director of the South Carolina Institute of Medicine and Public Health: “Most folks looking at it think that those funds in the rural fund are not going to be adequate enough to offset the cuts.” This is not pessimism. It is arithmetic.

What would change the assessment. Three developments would elevate South Carolina from structural constraint to genuine improvement.

First, Medicaid expansion closing the coverage gap. The 65,000 to 105,000 residents currently without coverage pathway would gain access. Hospitals would receive reimbursement for care currently provided uncompensated. The $3.2 billion annual burden would shift substantially to federal matching. This requires political change the McMaster administration has rejected, but it remains the single intervention that would transform South Carolina’s rural health trajectory.

Second, accelerated geographic targeting directing disproportionate resources to I-95 corridor and Pee Dee communities rather than uniform per-capita distribution. The eight counties without hospitals and the five with highest closure risk should receive concentrated investment while growing coastal communities receive less. This requires explicit equity framework the application does not specify.

Third, Tech Catalyst Fund direction toward infrastructure AI rather than conventional health tech startups. $200 million invested in AI companion systems for isolated elders, coordination platforms connecting fragmented services, and professional services extending legal and financial access could build capacity that survives startup failure. Without targeting, the allocation represents venture-style speculation in markets that defeat conventional entrepreneurship.

South Carolina’s profile reveals the non-expansion state paradox stated precisely: the states with the greatest need receive investment structured to address symptoms while the legislation that funds it deepens the disease. The state is not mismanaging the opportunity. It is receiving the opportunity in a context where the same federal legislation that created the funding simultaneously created the conditions that make the funding insufficient.