A dif­fer­ent kind of of­fer

WakeMed bids for ri­val, cites state bud­get woes

Modern Healthcare - - The Week In Healthcare - Vince Gal­loro

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).

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