Monday, July 29, 2013 12:33 AM
Major changes loom in hospital deal
By Jon Jimison | Times Editor
Wilson Medical Center officials face an extensive public process and several months of work before they can finalize their joint venture with Duke LifePoint Healthcare, which is under the Duke University Health System Inc. and LifePoint Hospitals.
Wilson County ultimately has to convey its interest in the hospital and officials hope to complete the planned partnership effort by mid-November.
"Our board, our advisory committee and our physician advisory board was aligned on this across the board,” said Rick Hudson, president and CEO of Wilson Medical Center. "I would hope the response across the community is very positive. I think everybody likes the Duke brand.”
But what does all this really mean for the hospital long-term?
"We will find out what it means long-term,” Hudson said. "My crystal ball is pretty cloudy.”
Obscuring the future, Hudson said, is the national health care reform act, which has a lot of ramifications for hospitals. It also served as the springboard that sent hospital officials in search of a partner.
"I think the relationship with Duke LifePoint is going to be very positive for the organization because they have clinical strength and financial strength and I think those are two key elements that are going to be needed to be successful in the future,” Hudson said. "From that standpoint, I feel good long-term that it’s the right move and right decision in getting key elements for future success.”
Hospital officials pointed to potential benefits, including access to LifePoint’s capital and operational resources to allow WilMed to expand and enhance services, invest in its facilities and new technology and improve its efforts to recruit and retain physicians.
Will Wilson Medical Center retain its name?
"We haven’t even talked about the name,” Hudson said.
But he expects the hospital very well might keep its name and said it’s important to maintain local identity. Hudson pointed out that in another case involving Duke LifePoint, the hospital retained its name and attached the Duke branding.
The specific deal on the table calls for an 80/20 joint venture with Duke LifePoint Healthcare with Duke LifePoint securing majority ownership interest.
There would be a governance board composition of 50/50. There would be local administration as well.
"They are going to offer positions to our employees,” Hudson said.
Regardless of that reassuring turn, there are going to be significant changes coming to health care in the next year or two with trickle-down effects, Hudson said.
A trend of hospital mergers and acquisitions has picked up momentum in health care markets across the country.
The implementation of the Affordable Care Act was approved by Congress and signed by President Barack Obama on March 23, 2010,
National health care reform is spurring a trend toward consolidation, a marketplace where bigger isn’t simply considered better, but essential to survive, some industry experts believe.
There are around 85 hospitals in Virginia but only about six are left that are not affiliated in some manner. There are around 120 hospitals in North Carolina, but there are only 12 not affiliated or merged.
Larger affiliations also result in cost savings in purchasing products for the hospital, which reduces overhead. It’s known as economies of scale.
For instance, Johnston County selected UNC Health Care to partner with in the hopes of expanding offerings and lowering costs.
These affiliations have proponents and some critics who claim the ties could lead to higher patient bills and insurance costs as the organizations gain negotiating clout. On the other side, proponents said smaller hospitals simply can’t survive and operate for their communities under the reform climate.
"This reform act is a moving target,” Hudson said.
"When the Supreme Court ruled making states expand Medicaid was unconstitutional, that changed the reform act,” Hudson said. "You see, North Carolina is not expanding Medicaid. About 30 states decided not to do that. That has major implications on the implementation of the reform act. What’s the alternative? Medicaid can’t stay like it is. The state is in a shortfall for Medicaid this year. That’s what the legislature is dealing with, trying to figure out how they are going to close that gap.”
Even though a memorandum of understanding has been reached between Wilson and Duke, a lot of work remains, including the public process, 60 to 90 days of due diligence and a review by the N.C Attorney General’s Office.
"The public process is unique; not every hospital goes through that,” Hudson said.
It’s rooted in Section 131E-13 of North Carolina General Statutes combined with the hospital’s existing charter.
The choice of partners in this case might have made the process a little less complicated. Officials don’t expect a review process with the Federal Trade Commission, which some others have faced.
If they had gone with Vidant, for example, it might have faced FTC review because of market share considerations.
Wilson Medical Center doesn’t have a trauma center and those patients largely transfer to Greenville. In fact, other than heart work, which generally goes to WakeMed, Vidant has been the major referral center.
"Eighteen to 19 percent of the market share goes to Greenville,” Hudson said.
Teaming the two entities would have combined to create an organization with 85 percent of the Wilson market share and the FTC might have reviewed it from a competition standpoint.
Hudson wouldn’t say whether Vidant even sought a partnership due to confidentiality reasons or whether the hospital sought Vidant.
The hospital previously hired consulting firm Stroudwater Associates to guide hospital officials through the process of finding a partner. Requests were sent out to potential companies to find out how many intended to send in requests for proposals.
The response was earlier called significant.
Wilson Medical Center has facility needs that a partnership with Duke LifePoint can help meet.
"They made a commitment to ensure we will have capital dollars to grow our facility,” Hudson said. "We have a 50-year-old building. We are going to have to replace our chillers for our air-conditioning system. We have capital needs going forth.”
Hudson envisions improvements to Wilson Medical Center.
Wilson Medical Center has also filed an application to renovate the women’s and children’s unit. The proposed renovations include increasing the size of rooms and creating a better environment for women and children being cared for at the hospital. The project is expected to cost $12 million.
"We don’t want to start that big of a project with a new partner,” Hudson said. "We will put it on ice for four or five months and evaluate it.”
The hospital has already spent $6.2 million to upgrade its energy plant.
Hudson doesn’t foresee Wilson becoming a trauma center or the current trauma arrangement with Greenville changing going forward.
"I don’t think that’s in the cards,” Hudson said. "The way trauma rules work, you really want to get to your closest center for that. We’ve been sending trauma patients since they got their designation.”
One major change for the hospital and the county is it will become a significant taxpayer. Officials aren’t quite sure how much that will be since there isn’t a current appraisal on the books.
But based on past estimates, it could equal $2 million to $2.5 million a year in property taxes. The hospital would also become sales tax-eligible.
Right now, Wilson Medical Center has a sales tax exemption of $1.2 million a year.
"The county stands to benefit from this becoming a taxable entity,” Hudson said.
Wilson Medical Center most recently reported net assets of about $230 million. The hospital also reported net revenue of about $150 million.
Hospital officials have talked to commissioners and kept them apprised of the process, Hudson said.
After taking over as the commissioners’ representative on the hospital board, Hudson said, Chairman Thomas Lucas has been a great asset.
And this process has been consuming.
"It’s an undertaking I don’t want to ever have to go through again,” Hudson said. "This is the most important decision the hospital has ever made.”
Wilson Medical Center has stood as a largely independent hospital since its inception in 1964.
The outstanding issue with the county is a reversion clause in the deed. The county must convey any interest in the property to remove the clause. The process stems from the charter and bylaws established when the hospital transferred from county ownership to become a tax-exempt organization.
As part of that transfer, the county retained an interest in the hospital in the form of a reverter as required by N.C. General Statutes Section 131E-8.
Wilson County must approve any change in the hospital’s corporate structure even though the county doesn’t have any direct financial ties to the hospital.
The hospital’s board assumed full responsibility following a 1988 restated charter agreement. Before that time, the hospital was considered a public hospital. A county commissioner still serves on the board of trustees and the board appoints a majority of trustees.
According to the restated charter in 1988, upon dissolution of the corporation, exempt from federal income tax under section 501(c)(3), trustees shall — after paying or making provision for the payment of the liabilities of the corporation — dispose of the assets of the corporation under North Carolina law to Wilson County or at the option of the Wilson County Board of Commissioners to such organization organized and operated for substantially the same purposes as this corporation.
A public notice has been placed in The Wilson Times.
A tentative timeline would have commissioners consider adopting a resolution at their Aug. 5 meeting of the board’s intent to "sell, lease or convey” its interest in the hospital.
The county is required by statute to name known potential buyers or lessees. Known potential buyers or lessees, according to county information, include local and regional nonprofit and public health systems and for-profit national hospital chains such as Carolinas Healthcare System, Community Healthcare System, Duke/LifePoint, HCA, HMA, Iasis Healthcare, LHP Hospital Group, Novant Health, Pinnacle Health, RegionalCare, Sentara Healthcare, Tenet Healthcare, UNC Healthcare System, Vidant Health System, Wake Forest Baptist and WakeMed.
At the meeting, commissioners would request proposals from no fewer than five bidders. The process must reflect the current work already undertaken by Wilson Medical Center and states no proponent will be considered unless also approved by Wilson Medical Center.
On Aug. 6, commissioners will give 15 days notice of their intent to hold a public hearing on the resolution of intent.
As early as Aug. 21, commissioners could conduct a public hearing on the resolution.
On Nov. 4, the regular commissioners meeting is scheduled where the transaction could potentially be approved.
If all went close to the projected timeline, the deal to close the joint venture could be finalized by around Nov. 14.
"We look forward to the possibility of Wilson Medical Center joining the Duke LifePoint family of hospitals,” said William J. Fulkerson Jr., executive vice president of Duke University Health System.
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