Renamed Atrium Health plans to combine with another Southern hospital system

CEOs describe health care partnership as a 'marriage'

UNC Health Care CEO Bill Roper and Carolinas HealthCare CEO Gene Woods call the new partnership between the two health care systems a "marriage" of health care in N.C..
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UNC Health Care CEO Bill Roper and Carolinas HealthCare CEO Gene Woods call the new partnership between the two health care systems a "marriage" of health care in N.C..

One day after Charlotte-based Carolinas HealthCare System changed its name to Atrium Health, the rebranded hospital system on Thursday announced a plan to combine with a health care organization in Georgia.

The name change had been seen by experts as a sign of the health system’s ambitions to grow beyond the Carolinas, and the Observer and (Raleigh) News & Observer had reported Wednesday that Atrium was expected to announce a major partnership in the state Thursday.

Macon-based Navicent Health will become a part of Atrium, the nonprofit systems said in announcing the signing of a letter of intent. They said the deal will enhance access, affordability and equity of care in central and south Georgia.

“We’re focused on creating a personalized care experience for each and every patient and community we serve,” Atrium CEO Gene Woods said in a statement, adding that “the privilege to care for existing and new communities throughout central and south Georgia is another way to breathe life into our mission to care for all.”

Thursday’s announcement comes as Atrium also is seeking to combine with another nonprofit, Chapel Hill-based UNC Health Care, in a plan announced last summer. The new public, nonprofit corporation is expected to be one of the largest hospital systems in the U.S., employing 90,000 people and operating 60 hospitals.

In a statement to the (Raleigh) News & Observer, UNC Health said Thursday its discussions about combining with Atrium Health are ongoing, and that Atrium had informed UNC about the Navicent deal.

“We understand they have been in discussions for some time,” said UNC Health, which is owned by the state. “We believe this combination is further evidence of the consolidation that is occurring in health care around the country.”

In a frequently-asked-questions memo to employees obtained by the Observer, Atrium said Navicent Health, which had $750 million in revenue in 2016, is financially strong but “facing stiff challenges in today’s marketplace.”

Many health systems like Navicent depend on the municipal bond market for financing, and bond-ratings agencies are requiring systems to have revenues in the $3 billion to $4 billion range to secure the best ratings, the memo says.

“Navicent Health is not at that revenue level and needs to combine with a larger organization to assure its long-term sustainability and to continue growing to serve the needs of central and south Georgia residents,” the memo says.

The move positions Atrium, already North Carolina’s largest hospital network, to become an even bigger regional competitor, giving the system its first hospitals outside North and South Carolina. Navicent will become a regional hub for Atrium outside of the Carolinas, Atrium said.

According to its latest annual report, Carolinas HealthCare System owns, manages or has affiliations with 47 hospitals, from Western North Carolina to Charleston, S.C. It also has about 65,000 employees. Navicent operates a network of five hospitals and more than 4,500 employees, according to the Atrium employee memo.

Asked by the Observer whether Navicent’s hospitals would switch to the Atrium name, Atrium said branding was among items being discussed during ongoing negotiations and that it was still early in the process. Atrium said the two organizations will spend the next few months conducting due diligence and expect to have a definitive agreement signed later this year.

The combinations with UNC Health and Navicent will tie Atrium with Michigan’s Trinity Health as the second-largest nonprofit hospital system in the U.S., according to Texas-based Compass Professional Health Services. That’s based on the 45 acute care hospitals Atrium would control.

Experts expressed concerns Thursday that the Navicent deal could boost costs for patients. Critics of hospital consolidations say they can lead to higher prices charged to insurance companies, which in turn charge higher premiums to customers.

Barak Richman, a Duke Law School professor who has researched nonprofit hospital mergers, described Thursday’s announcement as part of a broader trend in which hospital systems are consolidating across traditional geographic lines.

“There’s very little evidence that these consolidations create efficiencies or help consumers,” he said. “There is growing evidence that they increase prices. And, in my view, it is taking the health care delivery system in the wrong direction.”

Gerard Anderson, professor of health policy at Johns Hopkins University, said hospital combinations are being driven by a desire to get more money from insurers.

“If you are a very large system, every insurer needs you in their network, and therefore you can charge more,” he said. “This is all about higher reimbursement rates. There are virtually no economies of scale in these endeavors.”

N.C. Treasurer Dale Folwell, who has expressed concerns about the UNC Health partnership with Atrium, said Thursday’s announcement introduces more confusion and complexity about the UNC transaction, “putting answers to our questions further away.”

Folwell said the State Health Plan, which his office oversees, has a $35 billion unfunded liability, and he is looking for ways to cut $300 million a year from the plan’s expenses. He said the plan, which has 750,000 members, is the single largest customer of UNC Health, giving rise to his concerns about business decisions that could increase health care prices.

“It just doesn’t feel good,” Folwell said. “I have never seen evidence that this is going to drive down costs for our members and our taxpayers.”

For their part, Atrium and Navicent said they will become a leading model for managing health in Georgia, providing patients access to enhanced levels of world-class care in areas such as cancer, cardiology, pediatrics, surgery, transplant and behavioral health.

The systems also said that by coming together they can address health disparities that face central and south Georgia residents by deploying innovative care.

In its transaction with UNC Health, Atrium said it was forming a joint operating company that would allow the two systems to work together in myriad ways, from building new hospitals to negotiating with insurance companies. Under that deal, both parties are expected to retain their own boards and ownership of their assets.

In contrast, Atrium described the Navicent deal as a strategic combination, which Atrium called very common in the nonprofit hospital industry. In such transactions, systems combine through what are often noncash deals in which a larger health system takes on the liabilities of the smaller system, Atrium said.

Deon Roberts: 704-358-5248, @DeonERoberts

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