A different kind of offer
WakeMed bids for rival, cites state budget woes
Rethinking the role of government is a common theme in the heated debates in state capitals across the country as governors and legislators wrangle with budget deficits. In North Carolina’s capital city of Raleigh, however, that became a rationale for an acquisition offer last week.
Officials with WakeMed Health & Hospitals, Raleigh, cited the state’s desperate budget situation as one reason why state-owned UNC Health Care should accept WakeMed’s bid for its intracity rival, 431-bed Rex Healthcare. WakeMed is offering to pay $750 million and to take on any debt attributed to Rex. In its financial report for the quarter ended March 31, Rex listed long-term debt, including the portion due within 12 months, of $127.4 million.
“I think our entire nation is asking: What is the role of government and where does it fit?” Bill Atkinson, president and CEO of WakeMed, said during a news conference. “What is the purpose of government? Is it to run things or is it to facilitate things?”
State elected officials are working on budget proposals to deal with a projected deficit of $4.4 billion for fiscal 2012 and 2013, according to projections made by the governor’s office. A tentative plan approved by the state House of Representatives last month includes nearly $216 million in Medicaid cuts or savings, according to the Associated Press.
While Dale Jenkins, chairman of the Rex Healthcare board, was quick to express surprise at his own news conference—“We’re a bit per- plexed by the offer,” Jenkins said—his counterpart at WakeMed, Billie Redmond, noted that Rex and WakeMed have a long history of discussions about collaboration that predate Rex’s acquisition by the UNC system 11 years ago. Talks about how the two providers could collaborate were reopened in August, Redmond said.
WakeMed made its offer in a letter of intent, dated May 12, to the president of the University of North Carolina, Thomas Ross. In it, Atkinson and Redmond contend the deal would provide a much-needed cash infusion for UNC Health Care at a time when the state’s budget is in crisis. Combining Rex and WakeMed also would eliminate duplication of services and lower costs for patients, according to the letter.
Ross argued in a statement later on May 12 that divesting Rex “in order to generate onetime revenue for the state” is not in the long- term interest of North Carolina and would hurt UNC Health Care’s ability to carry out its three-part mission of treating indigent patients, advancing medical research and training physicians.
Ross also reported that the executive committee of the Chapel Hill-based UNC Health Care board met May 12 in closed session and the board would consider the offer in light of its fiduciary responsibilities. Jenkins, who is also a member of UNC Health Care’s board, said simply: “Rex is not for sale. It hasn’t been for sale.” WakeMed can finance the transaction with a combination of cash on hand and external financing, Atkinson said during the news conference. Moody’s Investors Service rated WakeMed A1 in January; Fitch Ratings gave the system AA-, equivalent to one notch higher than Moody’s, in February. Atkinson also said he doesn’t envision layoffs because healthcare services need to keep pace with the fast-growing population. He does see savings from Rex and WakeMed not building competing clinics across the street from each other in well-served areas, he said. Instead, services would be spread out better to include underserved areas, he added.
WakeMed’s bid comes a little more than six months after the system filed a public records request with UNC Health Care seeking documents related to Rex’s communications with physicians who are on staff at WakeMed’s hospitals. WakeMed contended that state funding of the UNC system was allowing Rex to compete unfairly for employing and partnering with physicians (Dec. 6, 2010, p. 14).
WakeMed and Rex also are competing with Novant Health, Winston-Salem, N.C., to supply new inpatient beds in Wake County. Booming population growth in the county has triggered an additional 101 inpatient beds in the State Medical Facilities Plan (March 28, p. 17).