In a blockbuster announcement, Atrium Health said Friday it has ended discussions with UNC Health Care to form a joint operating company, citing an inability to reach an agreement to form a mega-system.
Charlotte-based Atrium, formerly known as Carolinas HealthCare System, told Chapel Hill-based UNC of the decision in a letter Friday. The announcement comes after months of negotiations became snagged on who would control the combined company that would have had some 60 hospitals and 90,000 employees.
Atrium still is in growth mode, with another deal pending to combine with Georgia hospital system Navicent Health. But Atrium would have been a much bigger system and had a much larger footprint in North Carolina if the UNC move had worked out.
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“We have remained steadfast in our belief that together we would be uniquely positioned to transform health care – by significantly enhancing the academic mission, creating an organization that will serve more people in better ways, and enhancing our ability to address our state’s most pressing issues including rural care, behavioral health and affordability,” Atrium CEO Gene Woods and Atrium Board of Commissioners Chair Edward Brown said in the letter.
“It is clear, however, that we have not been able to reach agreement as to the best structure and approach to support our mutual ambitions,” they wrote.
In a statement, UNC Health said that the two hospital systems “have determined that we cannot satisfy our mutual organizational goals through a proposed partnership and joint operating company.”
Though the systems won’t be forming a joint operating company, the two will continue to partner on issues such as improving rural health care and expanding medical education, the statement added.
Questions of control
In announcing the deal in August, the two nonprofits touted benefits from their combination, such as improved access to care in rural areas and a boost for the state’s economy.
Plans were for Woods to become chief executive of the new entity, while UNC Health CEO William Roper would chair a new board overseeing the combined system.
The systems initially expected to finalize a deal in late December, but as talks dragged into March it became increasingly clear the situation was rocky. Last month, Roper said that after his term as chair on the new company’s board was up, Atrium’s board chairman would then take a turn, with terms rotating between Atrium and UNC. But the length of the terms hadn’t been decided, Roper said, among other issues that were still unresolved.
In the middle of the talks, Atrium announced last month plans to combine with Navicent. Atrium said Friday’s announcement has not changed its plans with Navicent.
A UNC Board of Governors committee formed to review the proposal had expressed frustration in recent weeks over the lack of information from Roper on the negotiations. The Board of Governors, via state law, has oversight of UNC Health Care, which is governed as an affiliate of the UNC system.
In January, UNC Board of Governors member Tom Fetzer, a health care lobbyist, questioned the legality of the proposed corporation, and said UNC Health conducted clandestine discussions about the deal with Atrium for months without notifying the Board of Governors.
Leo Daughtry, a member of the special committee, said Friday that Roper didn’t offer any indication that anything was amiss Thursday afternoon when he presented an update to the committee. Daughtry said the issue always came down to “who would control the checkbook.”
Atrium, being the larger organization, was reluctant to cede control, he said. Meanwhile, UNC wanted to maintain its statutory commitment to initiatives that don’t necessarily turn a profit, such as teaching and research.
“If the people of North Carolina wanted to spend money on rural health care, that may not be very profitable, but it may be our duty,” Daughtry said. “It’s a difficult issue to get over.”
Roper said Atrium wanted to maintain control because it’s the bigger organization and would have constituted two-thirds of the joint operating company in terms of revenue. Atrium acknowledged UNC’s contributions to the partnership, but the two sides could not get over the economic disparity, Roper said.
“We wanted to make sure that we protected the things that are fundamental to our mission, our service to the state and our relationship to the university and our ability to do what we do so well,” Roper said. “They respected those things but wanted to have a majority control of the operation.”
Roper said he and Woods talked almost daily and spoke again Friday morning. But on Friday afternoon, Woods called to say Atrium had decided the deal wasn’t going to work – “and honestly we had, too,” Roper said.
As for UNC’s future, Roper said it will continue expanding and looking for opportunities to form partnerships: “A partnership is an especially attractive way to enhance what we do.”
‘Dodged the bullet’
The complex deal was expected to create a public, nonprofit corporation that would have been one of the largest hospital systems in the U.S.
But critics, citing previous hospital consolidations across the U.S., expressed concerns that the deal could boost costs for patients. Critics of such consolidations say they can lead to higher prices charged to insurance companies, which in turn charge higher premiums to customers.
Blue Cross and Blue Shield, the state’s largest health insurer, announced opposition to the deal in January, pointing to research it says shows health care consolidation drives up prices for consumers.
N.C. Treasurer Dale Folwell, whose office oversees the State Health Plan, had also expressed concerns about the deal and what he called a lack of details. Folwell has said the health plan is the single largest customer of UNC Health, giving rise to his worries about possibly higher health care prices.
“This just didn’t seem like a marriage that the taxpayers of North Carolina should get involved in,” Folwell said. “No one that I know, A, has ever been able to get their questions answered and, B, there’s no one who’s even attempting to prove that this was going to lower health care costs for the people of North Carolina.”
Duke University law professor Barak Richman, another critic of hospital mergers, suggested North Carolina residents should express relief at Friday’s news.
“My keen intuition is that we dodged the bullet,” Richman said. “By all accounts this would reinforce a very costly hospital-based delivery system. It could only enhance hospital market power.”