News: CJ Exclusives

WakeMed Forced to Compete With Government-Owned Rex Heart Center

Officials complain that UNC-owned Rex will crowd out profitable services

WakeMed Health and Hospitals CEO Bill Atkinson said he doesn’t mind competition, except when he’s competing against the government. And he feels like that’s exactly what he’s doing with Rex Healthcare.

“We don’t mind competition as long as it’s a level playing field,” he said. “When you’re competing against the government it’s not a level playing field.”

Rex was a private hospital until the UNC Health Care System purchased it in 2000. And it recently acquired a “certificate of need” to build a state-of-the-art heart center in Wake County. Rex is recruiting heart doctors from WakeMed Raleigh, WakeMed Cary, and the Duke University Health System to work at the new cardiac facility.

WakeMed was Wake County’s public hospital from its founding in 1961 until 1997, when it shifted to ownership by a private, nonprofit foundation. It has been the primary provider of cardiovascular services in Wake County. Atkinson worries that Rex’s new heart center could change that. Competition from Rex could erode the most profitable aspects of WakeMed’s operations, and the loss of those profits could force WakeMed to cut back on health services it provides to the indigent.

Lisa Schiller, Rex’s vice president of marketing and public relations, denies the heart center’s goal is to increase Rex’s market share in cardiac services. She says the new facility is meant only to accommodate anticipated population growth.

The battle over the certificate of need for the cardiac center is but a small part of what is becoming a nasty public fight over the provision of medical services in North Carolina’s largest county.

Certificate of need

North Carolina is one of 36 states with a certificate-of-need law, which forces hospitals to obtain a “determination of need” from state health officials (in this case, from the N.C. Department of Health and Human Services) before building new facilities, expanding existing facilities, buying new major medical equipment, or offering new services.

The idea behind the law is to prevent the “unnecessary duplication of services.” That’s exactly what Atkinson thinks Rex’s heart center would do. WakeMed is more than equipped to handle Wake County’s cardiovascular needs, he said.

Schiller argues that the need for heart services will increase as the population grows. Rex is preparing only to meet that need, she said, not to take business from WakeMed.

‘Luring’ doctors with tax dollars

WakeMed’s Chief Financial Officer Mike DeVaughn says if Rex weren’t preparing to take a significant portion of WakeMed’s heart patients, it would not be working so hard to take WakeMed’s heart doctors.

DeVaughn charges that Rex, a hospital that receives millions in taxpayer subsidies through its relationship with UNC, has spent millions luring physicians away from WakeMed and other private hospitals.

In a public records request, WakeMed acquired canceled checks amounting to more than $6 million written from UNC Health Care to the Triangle Physician Network, a joint venture between Rex and UNC that provides operational support to a group of 76 regional physicians. DeVaughan believes the money has helped put Rex in a position to lock up a group of private-practice cardiologists — who previously performed heart procedures at multiple hospitals — to work exclusively at Rex.

In the certificate-of-need application, Rex officials stated that they intended to shift 100 percent of patients treated by the group of physicians — Wake Heart and Vascular — from WakeMed Raleigh, WakeMed Cary, and Duke to Rex.

Schiller said the physicians didn’t sign on with Rex for bigger paychecks. “They chose to affiliate with Rex and UNC on their own accord.”

“These physicians are working with us because they liked our vision for what the future of vascular care would look like in our area,” she said. “We did not purchase their assets. They made the decision on their own accord.”

“It has nothing to do with vision,” DeVaughn said. “It has to do with cash. Those physicians aren’t joining out of the goodness of their hearts; they’re joining this network because there’s financial opportunity there. These practices are being purchased. They are becoming employees of Rex.”

More Medicaid money

In addition to job security, help with regulatory compliance, and possibly higher paychecks, working for Rex has another bonus.

The government typically reimburses private practice doctors only about 60 to 70 percent of their cost of treating Medicaid patients. But a recent amendment to the state Medicaid plan allows doctors affiliated with the UNC Health Care System (including Rex) to get reimbursed at a higher, managed-care level.

“There’s not a physician in this state who would not clamor to get compensated at managed-care rates for treating Medicaid patients,” DeVaughn said.

Rex doesn’t yet get full reimbursement for Medicaid costs, but it could if the federal government approves a second amendment to the state Medicaid plan. The amendment would give Rex full reimbursement for treating the uninsured. Currently, the UNC Health Care System (which owns Rex) gets an annual state appropriation — ranging in recent years from $18 million to $40 million — to help cover the cost of indigent care. [See Editor’s Note at end of story.]

WakeMed and other nongovernment hospitals are reimbursed for about 80 percent of their Medicaid costs and nothing for the uninsured. Even without the government’s help, WakeMed says it provides more charity care than Rex, delivering more than 80 percent of the uncompensated care in Wake County.

Proper role of government

WakeMed recently offered to buy Rex Healthcare. Atkinson said one of the reasons for owning Rex was so that WakeMed could stop competing with it.

UNC Health Care’s board in August rejected WakeMed’s $750 million offer, but a legislative committee looking at state-owned assets that might be eligible for sale continues to consider the prospects of putting Rex up for bid.

Atkinson said it’s time to ask what is the proper role of government. While government has a legitimate role in delivering health care, he said, it shouldn’t be in the business of competing with private hospitals.

Any government involvement should be limited to satisfying needs that have not been met by the private marketplace, such as charity care, rather than siphoning the most profitable services from private hospitals, Atkinson said.

Eighty percent of WakeMed’s services are supported by cardiac revenue. If the hospital loses its cardiac patients, it will lose some of the funding it uses to subsidize indigent care. Should that happen, Atkinson said, emergency rooms in Wake County may become even more crowded.

Sara Burrows is an associate editor of Carolina Journal.

Editor’s note: This story was corrected after initial publication to clarify that the General Assembly’s annual subsidy for indigent care goes to the UNC Health Care System.