The state built UNC Hospitals in 1952 to provide care to all who need it and to train the next generation of doctors at the adjoining medical school.
Through the years, though, hospital leaders thought some of its burdens as a state entity hindered the hospital's ability to expand like its academic rivals. Legislators peeled back some of those obligations, and that has enabled UNC Health Care to compete with the most ambitious health care systems in the state.
Now, UNC Health Care, the larger system anchored by UNC Hospitals, operates differently from other state entities. In 1990, the legislature agreed to let the hospital keep its profits as long as it assumed its own debt. That put the hospital in a position to build its neurosciences center in 1995.
Still, these changes were not enough to keep UNC Hospitals competitive with Duke University Health and other larger hospital systems. In 1998, Duke University Health edged into the lucrative Wake County market by purchasing Raleigh Community Hospital. The county was attractive to hospital companies because of its growth potential and large number of insured residents.
UNC Hospitals wasn't set up to buy hospitals, so that same year, legislators created UNC Health Care, allowing the system to make deals without consulting the legislature or other state government entities.
UNC bought Rex for $100 million. With more beds and greater reach, UNC Health Care dramatically enhanced its bargaining power with third-party insurers and also secured cheaper prices for supplies.
Though UNC Health Care was a public entity, the state attorney general declared that Rex would remain a private nonprofit hospital. That meant many of its records, financial and operational, would not be subject to public inspection, as they are at UNC Hospitals.
Over the years, though, UNC occasionally positioned Rex as a public entity to gain more privacy and to harness better reimbursements for Medicaid.
In 2005, the hospitals' lawyers successfully argued to the Internal Revenue Service that Rex shouldn't have to file a 990 tax document as do other nonprofits, such as WakeMed; the reports provide detailed financial information about an organization, including salaries to top executives and details about revenues. In the exemption, the IRS cited Rex's public standing as a part of the UNC Health Care system.
And in 2009, UNC Health Care attorneys seized an opportunity to secure greater Medicaid reimbursement rates for doctors affiliated with their system. But for Rex and its doctors to get in on the rates, UNC would have to persuade the Attorney General's Office to reconsider its previous opinion.
After spending hundreds of thousands of dollars in legal fees for a health care lawyer in Boston, UNC lawyers presented a report to the state's Division of Medical Assistance and Deputy Attorney General Bob Blum. The memo argued that because Rex is controlled by UNC Health Care, it should be considered public. Blum agreed but noted that his opinion was advisory.
That was enough for officials at the Division of Medical Assistance.
Lawyers at UNC then negotiated a change to Medicaid reimbursements that enabled doctors affiliated with UNC and its entities, along with the Brody School of Medicine at East Carolina University, to be reimbursed at private-pay rates for treating Medicaid patients. It turned a money-losing prospect into a gain.
WakeMed lawyers learned of the deal last summer and negotiated a modification to prevent UNC and its Wake County competitor Rex from using the enhanced reimbursements to lure doctors to affiliate with them. Now, only doctors who joined before July 1, 2010, or who are university faculty can qualify.
The enhanced rate applies to about 1,600 physicians, mostly clinical faculty at UNC. Fewer than 80 of the qualifying physicians work at Rex.
Rex continues to contend that it is not subject to the state public records law.