Mission sale: Good for WNC, or just HCA?
Smaller, less-profitable hospital nets twice the price
By Peter H. Lewis
Years from now, the decision in 2018 by the directors of Mission Health to sell to HCA Healthcare might be seen as a brilliant strategic maneuver, one that guaranteed affordable, high-quality healthcare for future generations of western North Carolinians. This was, and still is, the position of the directors and executives who pushed the deal.
In return for giving up its independence, local control, and century-long legacy as a nonprofit providing quality care for the benefit of local residents, Mission accepted a $1.5 billion offer from HCA, the biggest hospital chain in the country. As a public company, HCA is required by law to prioritize profit-making for its shareholders.
The money from the sale was designated to fund a new nonprofit, the Asheville-based Dogwood Health Trust. Based on the relatively small population of the 18-county mountain region it serves, Dogwood overnight became not just the richest per capita health-related endowment in North Carolina, but in all of America.
Part 1: Mission’s leadership gave HCA an early advantage in search for a buyer.
But did the Mission directors — so eager to strike a deal with HCA that they gave it a head start, conferred with HCA executives before setting terms for other potential bidders, and invited only one still unnamed company besides HCA to make a formal proposal to the board — get the best possible deal for the communities Mission was formed to serve?
$5.1 Billion for Smaller Hospital System
Much is still unknown about the Mission-HCA deal because the negotiations were conducted in secret, and Mission's directors agreed to confidentiality restrictions that they say prevent them from discussing the sale even now, more than two years later.
In stark contrast, the recent courtship of not-for-profit New Hanover Regional Medical Center in Wilmington, N.C., was conducted in public with full transparency.
After a rigorous, nine-month process that included public meetings, escalating bids from six wealthy suitors, and all documents posted online for the public to examine, the New Hanover County Commissioners voted this summer to pursue a $2 billion cash offer from Novant Health of Winston-Salem, a nonprofit. The Novant deal also includes an additional $3.1 billion in spending commitments, for a total package of $5.1 billion.
That’s more than $3 billion higher than the total $1.923 billion package the Mission board accepted from HCA, which included $1.468 billion cash, $430 million in capital spending, and a $25 million donation to a healthcare innovation fund.
New Hanover received at least three bids that exceeded the price paid by HCA for Mission. Charlotte-based Atrium Health bid $2 billion cash up front for New Hanover Regional, with an additional $1.1 billion in spending commitments. Durham-based Duke Health offered at least $1.35 billion cash plus $1.9 billion in capital commitments, for a total package of $3.25 billion.
HCA Healthcare also submitted an offer that valued New Hanover Regional at $1.25 billion, but it was not selected as a finalist.
Novant, Atrium, and Duke Health did not respond to AVL Watchdog questions about whether they had been invited to make offers for Mission.
Mission ‘An Attractive Target’
By conventional metrics often used to evaluate healthcare deals, Mission appeared to be a more valuable prize than New Hanover.
At the time of the sale, Mission had six hospitals, 1,057 beds, 12,000 employees, $1.8 billion in total revenue in its latest fiscal year, and $180 million in earnings before interest, taxes, depreciation and amortization (EBITDA, a measure of a company’s overall financial profitability and performance). Mission commanded a near monopoly market share in Buncombe and the 17 other counties of Western North Carolina it serves.
New Hanover Regional, in comparison, has three hospitals, 855 beds, 7,400 employees, $1.2 billion in revenue for the latest fiscal year, and $111 million earnings, in a highly competitive market.
Experts in healthcare merger valuations contacted by AVL Watchdog stressed that it is difficult to compare the relative values of two different hospital groups in different markets and different years. Also, they noted, New Hanover Regional is in a faster-growing market and has a higher percentage of patients covered by private insurance, the most lucrative source of revenue for hospitals.
The so-called payer mix for Mission was, and still is, less favorable. People in Western North Carolina are older, poorer, and sicker than state and national averages. A majority of Mission’s patients are either uninsured or covered by Medicare and Medicaid, neither of which reimburse the hospital the full cost of care.
Even so, Mission was a very attractive target, Alan Levine, chief executive of Ballad Health, a $2 billion healthcare system based in Johnson, Tenn., told Business North Carolina at the time of the deal.
“This is a home run for HCA,” said Levine, a former HCA executive. “First, it is a high-growth market where they have no competition and their margins are already strong. Then when you are HCA deploying your staffing models and eliminating corporate overhead, that leads to pure synergies. HCA shareholders will benefit tremendously.”
Levine told AVL Watchdog through a spokesperson that his views of the Mission-HCA sale have not changed.
He said Mission never approached Ballad about a potential partnership.
Profits and quality of care
HCA shareholders have benefited since the Mission acquisition. Despite the pandemic, HCA reported record earnings for the second quarter of 2020 and is expected to report its third-quarter earnings next week. In a preview, the company said quarterly revenue would be approximately $13.3 billion, up sharply from a year ago. HCA also reported that it will return, or repay early, approximately $6 billion of government assistance funds received as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
"When Mission Hospital was being proposed for sale to HCA, the community was told that it would be more financially successful due to better economies of scale and a more efficient business structure,” Brownie Newman, chairman of the Buncombe County Board of Commissioners, told AVL Watchdog. “Unfortunately, the community's experience has been that HCA has increased their profits at the expense of patient care through inadequate staffing of the hospital."
Invited to respond to Newman’s comment, Nancy Lindell, spokesperson for HCA Healthcare/North Carolina Division, wrote that Mission Health “continues to raise the bar for excellent patient care exemplified by our 5 Star rating from CMS,” the Centers for Medicare & Medicaid Services, “something only achieved by about 10% of hospitals in North Carolina and we have been nationally recognized as a Top 50 hospital for our cardiac care.”
“Year to date,” Lindell continued, “Mission Health has hired almost 400 full-time RNs and nearly 300 CNA and PCT positions,” referring to registered nurses, certified nursing assistants, and patient care technicians. “We continue to actively recruit nurses,” she said. Additionally, we have hired more than 100 new providers and advanced practitioners.”
“Mission Hospital has almost 80 more RN positions today than in February of 2019,” she wrote. Comparisons for doctors and other positions were not immediately available, she said.
‘Good Common Sense’
The public accessibility to the negotiations for New Hanover Regional system arose partly because the hospital system is owned by New Hanover County. It received government funds, which come with more stringent reporting and open meetings requirements.
But the county commissioners and the citizen advisory group the commission established to oversee the process also told AVL Watchdog that, as stewards of a nonprofit community resource established to serve the community, they felt they had an obligation to involve the public in all aspects of the deliberations.
“The more input [from the public] we could get, the better off we’d be,” said Spence Broadhurst, a co-chair of the 21-member Partnership Advisory Group, adding that going “above and beyond” the legal requirements for transparency “just made good common sense.”
Barbara Biehner, also a co-chair of the New Hanover group, said another priority was “trying to communicate with anyone who wanted to listen.” The group held weekly forums with hospital staff to discuss the process, made regular public updates on Facebook and other social media, and established a website where all bids were posted in detail for public scrutiny.
The result, they said, was greater public trust in the process.
Local Control, No Staff Cuts, Board Seats
Members of the citizen council evaluating the bids for New Hanover Regional wrote on the public website that they were initially opposed to an outright sale. They changed their minds, they said, after learning that a deal would not require giving up significant local control.
If the proposed deal with Novant gets regulatory approval, as seems likely, New Hanover Regional will remain a nonprofit hospital system with local governance and local decision-making; Novant will not be able to change staffing levels without local New Hanover hospital board approval; and Novant will offer no-cost charity care to anyone who earns less than 300 percent of the federal poverty level, up from the current 200 percent. New Hanover Regional also gets up to two seats on the Novant Health parent company board.
In its deal with HCA, the Mission board considered but rejected an offer by HCA for a 50/50 joint venture, AVL Watchdog learned. Instead, the board struck a deal that ceded control to an out-of-state company, surrendered its not-for-profit status, lost control of local staffing levels, and got no HCA board seats.
HCA promised to continue Mission’s existing charity and uninsured care policies, but soon after the sale drew complaints from elected officials and healthcare advocates, along with rebukes from the Attorney General, for its lack of transparency in implementing those promises.
Mission’s board chairman at the time, Dr. John Ball, and Vice Chairman Dr. John Garrett explained their rationale in an opinion piece published in the Asheville Citizen Times: “Ultimately, the Board decided that it could no longer remain both independent and true to its mission: to improve the health of the people of western North Carolina.”
“And,” they wrote, “it is the Board’s ultimate responsibility to decide how best to meet that mission.”
AVL Watchdog reached out to Ball, now a board member at Dogwood Health Trust, and Janice Brumit, chair of Dogwood. Through a Dogwood spokeswoman, both declined to comment.
Mission: ‘No requirement’ to inform public
In a letter to Mission’s employees and volunteers on the day the sale to HCA was announced, Paulus, Mission’s CEO, pledged transparency in the transaction. Shortly thereafter, Rowena Buffett Timms, Mission’s senior vice president, clarified, “We pledge to be as transparent as possible.”
Two months after that, Timms said the public had no right to be involved in the decision process.
“There was no requirement to even announce that a letter of intent had been reached,” Timms told the Citizen Times in June that year.
“While it’s easy to understand why those who don’t appreciate the challenges and complexity of operating a rural hospital in today’s environment may reflexively and emotionally want ‘their’ hospital back, it is unlikely that any knowledgeable observer would believe that is a realistic possibility,” Timms told the Citizen Times the following month.
By November 2018, as public concerns and criticism of the deal continued to increase, Timms said: “No outcome would or could ever fully satisfy everyone, particularly those with only a limited understanding of the transaction.”
In seeking a fuller understanding of the transaction, AVL Watchdog was told that all such information was confidential.