Hearts and Minds, Part 4

WakeMed's bid to buy Rex spurs public relations battle

WakeMed's bid to buy Rex spurs a public relations battle

mlocke@newsobserver.comDecember 14, 2011 

  • Mandy Locke, 33, has reported for The News & Observer since 2004. She has written extensively about the legal system, child welfare and family issues. Last year, she and reporter Joseph Neff revealed problems at the State Bureau of Investigation, winning several state and national awards for their series "Agents' Secrets."
  • In the summer of 2010, health care reform threatened to change the entire medical landscape in the Triangle as hospitals raced to get bigger and doctors rushed to align with hospitals.

    WakeMed leaders started to suspect UNC Health Care, which owned Rex, meant to buy them. And WakeMed's fragile business model was upended when a premier cardiology practice decided to align with Rex and UNC. Wake, in response, tried to buy Rex.

    CEOs Bill Roper at UNC and Bill Atkinson at WakeMed are accustomed to getting their way. The two have struggled to find common ground.

  • To re-create the 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.

Last of four parts

WakeMed's board met well into the night of May 10, going over every detail of its $750 million proposal to buy Rex Hospital.

Since October 2010, board members had hammered through details with consultants and accountants. They planned to finance the deal using $150 million cash from reserves. They would borrow another $600 million and use Rex's cash flow to pay off the loan over 30 years.

WakeMed board members discussed the deal with precision and little emotion.

"We knew it was something financially we could accomplish," said Tom Oxholm, now chairman of WakeMed's board. "We felt sure UNC would not be interested. But we knew the legislature would be."

In the coming months, WakeMed would shift its focus from hearts to minds. Its leaders wanted equilibrium in the health care market. They wanted to stop worrying about doctors who practiced at their hospital joining forces with Rex. And they wanted UNC Health Care to stop competing, through Rex, in their market.

The months that followed brought everything but calm. The hospitals became consumed by a public relations and lobbying war. The race to align with physicians - and the patients they might bring - intensified. The idea of brokering peace for the good of all involved faded.

"It was an absolute breakdown in community leadership," said Jim Hyler, a member of Rex's board.

Though WakeMed suspected UNC Health Care wouldn't take seriously the proposal to buy Rex, its leaders knew it would force a discussion: Should UNC, a public institution, be competing with hospitals such as WakeMed, a private nonprofit?

WakeMed hired seasoned lobbyists and communications experts to make its case. So did UNC and Rex.

Both took their messages to the street. Particularly Jones Street, where the legislature meets.

Pitching the sale

This spring, Tom Fetzer navigated the halls of the legislature, just as he had many times before.

Fetzer, a Republican who had previously served on WakeMed's board, was in a strong position. He was former state Republican Party chairman, and his guys were now in power. WakeMed had hired him as a lobbyist to help make the case that Rex ought to be sold.

He started with a simple sales pitch: Wouldn't you like to help close this $3 billion budget shortfall by selling off a $750 million asset that the state shouldn't own?

The question the new legislators asked in response was a tougher one to answer, Fetzer said. How did UNC Health Care end up with this hospital, anyway?

"There doesn't seem to be any record of debate or conversation about the consequences of giving UNC permission to go out and compete with private enterprise," Fetzer said.

The more legislators heard from Fetzer and other WakeMed lobbyists, the more curious they became. They began hearing about an unaudited fund that UNC Health Care CEO Bill Roper could use for pet projects.

The timing was fortuitous for WakeMed. The Republicans who took control of the House and Senate in 2010 cherished private enterprise and despised clunky government. The Democrats who had offered assistance when UNC asked, senators Tony Rand and Marc Basnight, were no longer around.

Soon, Republican legislators were asking questions that UNC had rarely faced. As the House wrangled the budget, it omitted entirely the subsidy the state gives UNC Health Care to help offset the $103 million it spends on charity care. The Senate restored some of the money, and at the end of the budget process, UNC Health Care received $18 million for charity care, down from $36 million the prior year.

Roper, a conservative Republican himself, was taken aback by the chill in the legislature.

"It is really the legislature's role that has raised the stakes," he said.

In June, House Speaker Thom Tillis appointed a committee to study property the state owned and determine whether it ought to be sold. He put Rex on the list.

Calling all 'Rexateers'

Rex employees, alarmed by the prospect of being taken over by WakeMed, leaped into action. They wrote letters to legislators and talked to neighbors and friends.

A group of employees formed the Rexateers, a kind of pep squad for the hospital.

Through the summer, they designed T-shirts declaring their love for UNC. On the back, they drew a beach scene and declared "NO WAKE ZONE." They created a Facebook page and have 1,200 people on their mailing list.

Across town, WakeMed was tapping its own sort of cheering squad.

CEO Bill Atkinson met with small groups of black activists in Southeast Raleigh through the fall.

He told them about WakeMed's struggle for survival. He reminded them of WakeMed's history, how it treated black patients when St. Agnes Hospital closed in 1961. He talked about the charity care it offers. He told them Rex, by comparison, offered little care to the poor.

Octavia Raney, a community activist in Southeast Raleigh, considered Atkinson's remarks later.

Raney knew that most of her neighbors depended on WakeMed, for jobs and for care.WakeMed staff had nursed her mother back to health after a heart attack.

The next day, Raney called David Strong, CEO of Rex. She wanted answers. Strong invited her to Rex for a visit.

Cooling off

Dick Krasno, chairman of UNC Health Care's board, lives in Chapel Hill and couldn't grasp the fervor of the debate in Wake County.

In July, he met Oxholm, the WakeMed board chairman, for lunch. Oxholm tried to explain to Krasno the predicament the Wake Heart deal caused for WakeMed. By then, the situation had become even more dire thanWakeMed leaders originally thought.

WakeMed leaders believed that Wake Heart doctors planned to keep a substantial practice at WakeMed. But at a public hearing in June to talk about Rex's expanded heart center, the managing partner for Wake Heart testified that the practice had started moving patients to Rex and would continue moving the rest in the coming years. The doctor said the group was committed to Rex and its heart program.

Krasno asked Oxholm for a cooling-off period while the UNC Health Care board considered WakeMed's bid for Rex. No media attacks. No lobbying. No more public records requests.

The cease-fire lasted six weeks.

Krasno called Oxholm the morning of Aug. 26 to tell him the board would be meeting by phone that day to decide the Rex bid.

Hours later, UNC released a copy of a letter from Krasno to Oxholm, formally declining WakeMed's bid. In the letter, he criticizedWakeMed for its public campaign and urged it to quit seeking public disclosure of confidential business matters. Krasno also insistedWakeMed stop disparaging UNC in the media.

The letter irritated Oxholm. The olive branch they'd extended earlier that summer seemed for naught. He felt patronized.

Oxholm wrote Krasno back a week later and said he saw no point in their boards trying to meet and find common ground.

'Wasted effort'

WakeMed redoubled its efforts, talking to legislators and the media.

This time, UNC and Rex did not sit quietly. They created a blog to answer allegations made by WakeMed; they quoted anonymous WakeMed employees supporting Rex. They filed a records request with WakeMed, asking for minutes of its board meetings.

They hired a crisis communications team and a consultant group to guide them through these unfamiliar debates.

Roper said he regretted taking the new approach but realized the hospital couldn't stand to have its reputation sullied further.

"With all of that, we're not educating one medical student, or treating one cancer patient or doing research that will find the cure for some disease," he said. "It's total wasted effort."

In September, Roper spoke to the legislature's committee considering the sale of Rex. He told legislators that UNC had not contributed money to Rex's operation since its purchase. All the money, he insisted, headed west toward Chapel Hill. Roper said that without Rex, UNC would be just a big hospital in a small town with no leverage when it comes to negotiating insurance contracts or buying supplies.

In October, Krasno and Oxholm began exchanging emails again. They agreed to try to get their boards to meet.

Oxholm was still hopeful that maybe, just maybe, they could hit the rewind button and undo Wake Heart's move. To him, that's what it would take: an assurance that WakeMed didn't lose the piece of its business that made the most money. Or, at the very least, Rex agreeing to take on more charity care.

In November, a small group of board members from WakeMed, UNC and Rex started meeting behind closed doors. Each promised to keep mum about their conversations. They have met three more times since.

But Pandora's box has been opened. Rex's ownership will be a question for legislators regardless of the outcome of those talks.

The legislative committee examining state assets hopes to report on Rex and other properties to the full House in the spring, said Rep. Harold Brubaker, a Republican and chairman of the special committee.

"It's not up to them," he said. "This is a question about what's part of the core mission of this state and its university. It's our job to figure that out."

Locke: 919-829-8927

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