News: CJ Exclusives

WakeMed Continues to Pursue Purchase of Rex Healthcare

General Assembly, UNC system officials next to consider takeover

The unanimous decision Friday by UNC Health Care’s Board of Directors to reject WakeMed Health and Hospitals’ offer to purchase Rex Healthcare has not ended WakeMed’s pursuit of Rex. It may put the battle between the two health care providers more in the public eye, as each side woos the officials who ultimately will decide if Rex can remain in the UNC fold.

In early May, WakeMed made headlines by offering to buy Rex from the University of North Carolina Health Care System for $750 million and to retire Rex’s $125 million in debt. WakeMed is Wake County’s largest hospital network, and Rex is its second-largest.

UNC officials initially said that Rex was not for sale, but formed a committee to study the issue. Among other reasons, WakeMed is seeking Rex in order to stop what it views as unfair competition from a government-owned entity in Wake County.

On Aug. 26, the UNC Health Care board rejected WakeMed’s proposal, saying the sale would harm UNC Health Care’s ability to serve the public. WakeMed CEO Bill Atkinson expressed surprise over the rejection, saying UNC officials never met with WakeMed during the process.

And while UNC Health Care officials called for a “truce” between the two medical providers, Atkinson suggested nothing of the sort was forthcoming. “We trust that the UNC system, the Board of Governors and the General Assembly will give it more serious consideration than the committee may have done,” Atkinson said.

The controversy over the bid sheds light on something that largely has been ignored — the rapid growth of the university’s health care system. What started in the 1940s as a state-run medical school that added on a teaching hospital has morphed into a semi-autonomous medical/hospital/research apparatus that stretches throughout a significant part of the state.

UNC claims it is just fulfilling its three-part mission of research, teaching, and service. But the rapid growth and other controversial activities, like the health care system’s recent transfer of $20 million to UNC-Chapel Hill and its more than $700 million in unrestricted reserves — raise an important question. What are the limits to that mission?

The UNC Health Care System came into being in 1998 when, by an act of the General Assembly, UNC Hospitals (the various hospitals affiliated with the UNC-CH campus) and the clinical programs of the UNC School of Medicine merged. Since then, UNC Health Care has been expanding rapidly, building and purchasing an array of hospitals and clinics.

Prior to the 2000 purchase of a controlling interest in Rex Healthcare, however, UNC Health Care had been limited to the main campus in Chapel Hill and a number of research centers. The acquisition of Rex meant that the University of North Carolina system was no longer merely a university system.

And that expansion has not been limited to Rex (which now encompasses the main hospital in Raleigh, five branch campuses, four “wellness centers,” two “rehab & nursing centers,” two cancer centers, and many small practices). Other expansions of the UNC system include the purchase of a third hospital system in Chatham County in 2008, the construction of the women’s and children’s hospitals in 2002, the construction of a new hospital in Hillsborough, and the management takeover of Pardee Hospital in Hendersonville.

And there are no plans to stop.

“I don’t have a specific demarcation line,” UNCHCS vice president of public affairs Karen McCall told the Pope Center. “As the state of North Carolina continues to grow, so too will the UNC Health Care System, so that we will be able to continue to fulfill each of the three parts of our mission.”

WakeMed officials complain that UNC Health Care is growing rapidly because of government handouts. For example, UNCHCS is receiving $18 million this year (fiscal 2011-12) from the state for indigent care, the medical treatment of those who can’t pay. Private hospitals do not receive similar subsidies.

Another complaint is that UNC Health Care is not very transparent. Rex, for example, is a private hospital controlled by a state agency. That gives it public status when it is opportune: It does not have to file 990 forms, disclosure documents the IRS normally requires of private nonprofit entities. But it is private when convenient, as when it avoids the Umstead Act, a state law prohibiting state agencies from competing with private groups.

Further, the state auditor does not audit UNCHCS as a unit. Individual hospitals are audited, but this still leaves significant gaps in transparency. For instance, it is unclear how $62.4 million has been spent. That amount was listed as “Health Care System Assessments” in last year’s audit of UNC Hospitals (the part of UNCHCS located in Chapel Hill). Dennis Patterson of the state auditor’s office told the Pope Center that the funds went to the Health Care System Enterprise Fund, but “we do not audit the Enterprise Fund, so we cannot say specifically where those funds are expended.”

When asked about the funds, McCall responded that the money would go “to build the clinical and academic programs we develop throughout the system to serve the people of North Carolina.” In other words, funding more expansion. But how much money was distributed to which locations is unclear, and without an audit of the entire system, it may never be clear.

Duke Cheston is a writer and reporter for the John W. Pope Center for Higher Education Policy (popecenter.org).