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Carolinas HealthCare System's evolution: Public hospital with private attitude

By Karen Garloch and Ames Alexander,

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Carolinas HealthCare System wasn’t always the sprawling, profitable giant it is today.

Only 30 years ago, it was a charity hospital called Charlotte Memorial – a crowded, dreary place that lost money every year because most of its patients couldn’t pay their bills.

Today, the nonprofit system owns or manages about 30 hospitals, has nearly $7 billion in revenue and pays top executives millions of dollars. It’s the largest employer in Mecklenburg County and the nation’s second-largest public hospital system.

The transformation amazes even hospital leaders who decided that, to survive, they needed to attract paying patients as well as the uninsured.

“We have so far overachieved our vision of 30 years ago, it’s hard for me to comprehend,” said board chairman Jim Hynes.

Mecklenburg County officials watched in amazement, too. They wondered why they should continue to subsidize indigent care for a hospital system that was making plenty of money on its own.

Finally, last June, county commissioners voted to stop paying Carolinas HealthCare $16 million a year to care for the uninsured. With a profit of $428 million in 2010 and nearly $2 billion in reserves, the system no longer needed taxpayers’ help, commissioners concluded.

County Manager Harry Jones said the subsidy was important at one time, “but circumstances have changed.” He cited a 1994 county committee report that raised this question:

“Given the current profitability of the hospitals, is it not reasonable to suggest that the hospitals become marginally less profitable by absorbing greater indigent care costs?”

Lack of transparency

With the growth of Carolinas HealthCare has come swagger.

It’s a public organization with a private attitude – open to “all God’s children,” as hospital officials like to say, but not as open and transparent as other government agencies.

It is not county-owned, as many people think. It is a public, tax-exempt entity called a hospital authority, created by state law in 1943. It has the power of eminent domain, which means it can force property owners to sell at a fair market value to make room for hospital projects. But officials say they’ve never used it.

As a hospital authority, Carolinas HealthCare is unlike any other public institution. State law gives its employees more privacy protection than those of other public agencies.

For example, salaries of all state, county and city government employees are public. That’s not true for public hospital employees.

Until a 2009 change in state law, Carolinas HealthCare had for years refused to make public the total compensation for top executives. They said state law precluded them from disclosing more than basic salary.

As a result, the public hospital system wasn’t disclosing as much detail as its private counterpart, Novant Health, does in publicly available reports to the IRS.

At the urging of the Observer and other state newspapers, legislators broadened the law in 2009 to require disclosure of total compensation for top executives at public hospitals. In a compromise, the new law permitted public hospitals to keep private the salaries of all other employees.

Basic facts about the hospital system can be hard to get.

For this series, Observer reporters asked Carolinas HealthCare to disclose total administrative expenses for 2010. A corresponding figure was publicly available from Novant through audited financial statements.

Several months after the question was posed, Carolinas HealthCare spokeswoman Gail Rosenberg responded: “We do not have the information … on a system-wide basis.”

Mecklenburg officials have criticized the system for lack of transparency.

Last year, Jones declared the system in breach of contract because it failed to share data about the county-owned psychiatric hospital that is managed by Carolinas HealthCare.

“As a governmental entity, (the hospital system) should be more than willing to account to the taxpayers on how they spend … its money,” Jones wrote to Michael Tarwater, the hospital system’s CEO.

Hospital officials say they have satisfied the request. But Commissioner Jennifer Roberts said the hospital wasn’t as open “as we’d hope for with a public health system.”

About that same time, Carolinas HealthCare officials had asked the county to support its plan to build a new psychiatric hospital in Huntersville. County officials delayed, waiting for the requested data.

Hospital officials did an end-run, appealing to state legislators, who quickly passed a law circumventing the need for county approval.

Jones accused the hospital of “sneaking” through the legislation.

“This willful disregard for open and transparent communication appears to have been a furtive action to capitalize on our trust and the 70-plus-year relationship,” Jones wrote to Tarwater.

County Commissioner Bill James called it an example of the system’s “raw political power.” “From a political standpoint, they’re the most powerful entity in Mecklenburg County,” James said.

Unanimous board votes

Last year’s dispute between Jones and Tarwater was uncharacteristically public.

Most hospital business gets done quietly – until there is a well-planned announcement.

The system’s self-perpetuating board includes top community and business leaders whose nominations get approval from the Mecklenburg commissioners’ chairman.

Quarterly hospital system board meetings, at 7 a.m., are polite and scripted. Votes are unanimous on everything from building new hospitals to borrowing millions of dollars. Questions are worked out in private discussions, closed-door committee meetings or executive sessions.

Meetings aren’t widely publicized. Except for a couple of newspaper reporters, only board members and hospital officials attend. Future meeting dates are provided to those who attend board meetings or call the system’s main office.

State law requires public organizations with websites to post meeting times. Carolinas HealthCare had not been doing that until last week, after an Observer reporter asked about it.

The board’s agenda sets no time for public comment.

“It’s much more run like a company or a corporation than a public enterprise where you give every member of the public three minutes to talk,” said Ed Brown, a member of the executive committee.

Bishop George Battle, a board member for two decades, said he doesn’t recall any split votes or any speakers other than hospital officials and board members. “I don’t think there’s any intent to be secretive,” he said.

The 1943 hospital authority law intentionally kept elected officials and politics out of operations. The link is that the commissioners’ chairman must sign off on hospital board nominees.

It has been a rubber stamp.

County officials remember once in 30 years that a proposed board member was rejected. That was in 2008 when nominees included Gloria Pace King, who had been ousted as CEO of the United Way of the Central Carolinas because of public outcry over her $2 million pension package.

In December 2008, the board renominated King for a new term. But hospital officials say Roberts, then commissioners’ chairwoman, objected, and King wasn’t reappointed.

Over the years, the board has included city leaders, such as bank CEOs Hugh McColl and Ed Crutchfield, and Stuart Dickson, the retired head of the company that owns Harris Teeter. His father, Rush S. Dickson, was an original board member whose name is on the entrance to what is now Carolinas Medical Center.

Today’s board – which includes Rush S. Dickson III and several former bank executives – supports Tarwater’s aggressive growth strategy.

Revamping the image

As CEO, Tarwater is following in the footsteps of his mentor, the late Harry Nurkin.

The board hired Nurkin in 1981 to revamp Charlotte Memorial’s image, attract paying patients and avoid the fate of struggling public hospitals in Atlanta and Chicago.

Until then, patients with insurance mostly chose Presbyterian Hospital or Mercy Hospital, with stately buildings at the edge of Myers Park.

With a vision of building one of the Southeast’s finest medical centers, Nurkin paid attention to details, such as wallpaper, plants and furniture. And he put the hospital in the black by improving collections from patients and insurers.

In 1983, when Nurkin unveiled the hospital’s first long-range plan, some board members sat in wonder at a slide show that accompanied his bold outline, according to “A Great Public Compassion,” a book by writer Jerry Shinn.

The plan called for a heart institute, a doctors’ building and an 11-story, $40 million tower that would replace a 1940s wing. All of that came true – and more.

Expanding in two states

In 2002, Tarwater assumed the top job.

By then, the Charlotte-Mecklenburg Hospital Authority had taken the name Carolinas HealthCare System to more accurately reflect its footprint. It had become a two-state system, with hospitals, doctors’ offices and outpatient centers from the North Carolina mountains to the South Carolina coast.

Hospital leaders say they will absorb the loss of the county’s subsidy. But they say it’s only possible because they’re financially secure.

“We are delivering on our mission to take care of all citizens with outstanding health care,” said chairman Hynes.

“We have worked to improve the quality and to improve the margins so we can do all the things we’re doing. And it is frustrating that we are criticized because we do it well.”

Garloch: 704-358-5078
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