Hearts and Minds, Part 1

Changes in health care spark a feud between Rex, WakeMed

UNC Health Care System CEO: Bill Roper Determined that UNC Hospitals will never fall behind

mlocke@newsobserver.comDecember 11, 2011 

WakeMed and Rex Hospitals, Wake County's largest health care providers, have been quarreling for over a year, with implications for nearly everyone in the region. In May, WakeMed issued an unsolicited bid to buy Rex from UNC Health Care. University leaders formally declined in August. But the fight is not over. The fate of Rex now rests with legislators, who could force the sale of Rex

  • WakeMed and Rex Hospitals, Wake County's largest health care providers, have been quarreling for over a year, with implications for nearly everyone in the region. In May, WakeMed issued an unsolicited bid to buy Rex from UNC Health Care. University leaders formally declined in August. But the fight is not over. The fate of Rex now rests with legislators, who could force the sale of Rex.

  • To re-create the critical meetings and moments that led to WakeMed's efforts to buy Rex Healthcare, reporter Mandy Locke spent nearly two months interviewing dozens of physicians, hospital administrators, hospital board members, state officials and community members.

    Locke reviewed notes taken during and after many critical meetings, letters between key players, financial documents and personal calendars to try to re-create events. Locke occasionally constructed quotes offered during key meetings. In those instances, she quotes the people as they remember speaking and confirmed the meaning of the comments with others who attended.

First of four parts

Decades of friendship couldn't dull the tension that bubbled between them. On Aug. 17, 2010, Wake County's two largest hospitals were on the verge of a very public war.

Dale Jenkins, chairman of Rex Hospital's board, had called his golf buddy Tom Oxholm, vice-chairman of WakeMed's board, to his office for a lunch meeting. Jim Hyler, another of their friends from North Ridge County Club and a Rex board member, joined; so did WakeMed Chairwoman Billie Redmond, a real estate developer and business associate of Hyler's.

Jenkins wanted to discuss the chill that Rex leaders were feeling from their crosstown counterparts at WakeMed.

For years, Rex and WakeMed managed a delicate dance. They competed heartily for every bit of hospital growth the state allowed in Wake County, quarreling over every 20-bed expansion or suburban satellite.

Still, they operated in relative harmony. Doctors could practice at both hospitals; patients had choices. Each developed a niche. WakeMed claimed a speciality in heart care; Rex, bought by UNC Health Care in 2000, developed cancer treatment and a robust surgery business.

In 2010, their civility eroded as health care reform brought dizzying changes to the market. Hospitals were driven to get bigger in order to harness better reimbursement rates from insurance companies. Doctors' practices, long independent, sought shelter in hospital systems as they faced declining reimbursements and rising costs.

Even in vibrant markets such as the Triangle, hospitals were forced to decide whether they'd be predator or prey. Hospitals that sat still could struggle to survive, leaving doctors and their patients with fewer choices.

In the Triangle, this would turn Rex and WakeMed's steady game of one-upmanship into a fight for domination. In June 2010, Rex signaled its intentions to get serious about cardiology, WakeMed's bread and butter. In the year and a half that followed, the longtime, civil competition would become a potent rivalry, threatening the vitality of Wake County's strongest hospitals and forcing patients to watch an unseemly feud.

Jenkins, head of a medical malpractice insurance company, figured the county was too small and the networks too tight to let hard feelings build between the two hospitals.

After some friendly chat over lunch at his office about golf and vacations, Jenkins asked a potent question: "What if, one day, WakeMed were a part of the UNC system?"

Oxholm was startled. He told Jenkins that they should put the question aside unless "you want to talk about WakeMed buying Rex."

That exchange hung in the air for a moment. It has lingered since, and it set the stage for the battles to come between Rex and WakeMed. Over the last year and a half, the fight has featured ambitious heart doctors and CEOs with major aspirations, well-connected lobbyists and public relations specialists trying to shape the public's perception, and legislators questioning government ownership of a hospital.

On the sidelines: patients and residents suddenly forced to consider how their health care options might change with two warring hospitals.

Help for the poor

WakeMed, with 870 beds and 7,940 employees, has grown far beyond its roots as a county-run hospital. It is now a private nonprofit with $895 million in operating expenses in 2010. Though largely focused on Wake County residents, it had become a top-level trauma center and a destination for heart care.

It was also a safe haven for the county's poor and uninsured patients. In 2010, WakeMed said it spent more than $67 million caring for those who couldn't pay their bills.

WakeMed's funding model delicately balanced that charity with services that made money. For WakeMed, hearts footed the bill.

Still, WakeMed leaders hadn't considered themselves prey in the health-care consolidation frenzy.

They ran the largest hospital in Wake County, with smaller appendages in Cary, North Raleigh and Apex. They had physician offices and rehab centers all over Wake County. They were growing and competing aggressively, though their strategy was hyper-local.

Oxholm, an accountant and vice-president of a rock quarry business in Knightdale, wasn't naive. He had heard Bill Atkinson, CEO of WakeMed, talk about the race to align with doctors. He knew that the UNC Health Care system also had smart people deciding how to weather health care reform. He just didn't imagine it might involve swallowing WakeMed.

'Best and brightest'

Bill Roper, CEO of UNC Health Care, is growing an enterprise.

A physician who spent most of his career in Washington working on health care policy, Roper took over the state's public hospital and medical school in 2004. He resolved to compete in an aggressive and growing industry. UNC Health Care ranks fourth in the number of patients treated in the state, behind Carolinas HealthCare in Charlotte, Duke University Health System and Novant Health, a private Winston-Salem based hospital chain.

Roper's growth plan is simple: UNC won't be left behind. If UNC sits still while other hospital systems compete for the best doctors and the best locations and in the specialties that reimburse the most, it will undercut UNC Health Care's ability to do anything well. Roper is convinced that without making money, UNC Health Care cannot honor its mission of serving any patient for any need.

He refuses to be the antiquated hospital in a small town that the state is forced to save from bankruptcy year to year. Instead, he has built a cash reserve of $750 million.

"I've never had someone call me up and say, 'Do you have a pretty good neurosurgeon who can operate on my wife or an average breast surgeon who can operate on my daughter?' " Roper said. "They want to know we have the best and brightest."

Roper wants to do away with the impression that UNC Hospitals is only a training ground for future doctors and a refuge for patients without options. He doesn't want it to be just the place where citizens travel for hours for a procedure that the school is teaching each year.

Roper says that people want to get that care in their hometowns and that UNC Health Care and its allies should provide it. The benefit to the system is clear: The more it does in more places, the greater its leverage with private insurers.

Where UNC chooses to operate has ruffled feathers. When it's Pardee Hospital in Hendersonville, a small hospital far from a metropolitan hub, most welcome UNC. When it's in Wake County, a sophisticated community with a medical office on practically every corner, Roper's expansion looks a bit different - particularly to competitors such as WakeMed.

The UNC advantage

In recent years, Roper pushed UNC and Rex to capture private physician groups seeking partnership at hospitals. He knew these doctors would go somewhere, and if they didn't go to UNC, they'd end up with a competitor.

Roper helped establish the Triangle Physician Network, a nonprofit that works with private practice groups. It sells services such as IT, billing and employee benefits. In some instances, it buys new equipment for doctors.

The money to set up and run the network came from a fund that Roper administers. It draws money from UNC Hospitals, Rex and other entities in the UNC Health Care system. Since 2009, that fund pumped more than $21 million into the network.

Some of the physicians who enrolled with the network before July 2010, get another key benefit: enhanced Medicaid reimbursements. Because of the physicians' ties to a public university, the state Division of Medical Assistance allowed those doctors to be reimbursed for treating Medicaid patients at the higher rates paid by private insurers.

"I am trying every single thing I can do every day to get us more money," Roper said. "I'm not going to apologize to anyone for that. ... It's my job. ... It's important we take in more money than we pay out."

A race for doctors

Tom Oxholm knew that WakeMed, too, was in this race for doctors. Atkinson had appointed a two-person team that was talking with several specialty groups.

So Jenkins' question about WakeMed joining UNC Health Care perplexed him.

The board members ate and casually debated what each hospital was doing for the county. Oxholm and Redmond told Rex leaders they could be picking up a greater load of charity care. Jenkins asked them to come up with an idea on how to do that.

After lunch, the longtime acquaintances shook hands and agreed to meet again.

None of them knew that this same week, a premier group of heart doctors would make a decision that would start a very different discussion.

Tomorrow: A better deal from UNC?

Locke: 919-829-8927

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