NC healthcare system acquistions, CEO pay focus of state Senate bill
The ongoing surge in major not-for-profit healthcare systems consolidations within North Carolina has led a state Republican senator to submit legislation that would serve as a governor on such transactions.
Sen. Jim Burgin, R-Harnett, filed Senate Bill 978, titled "Healthcare competition reforms."
One of SB978's goal is requiring the approval of not-for-profit healthcare system acquisitions by at least two of the following Council of State members of attorney general, auditor and treasurer.
Another component of SB978 would restrict the healthcare systems' annual compensation for their chief executives if those systems receive state taxpayer funds.
That slice of the legislation likely is focused on Advocate Health chief executive Eugene Woods, but also affects Novant Health Inc. chief executive Carl Armato, recently hired Cone Health chief executive Dr. Paul Krakovitz and leaders at Duke Health, UNC Health and WakeMed.
One determination from a July 2024 health care executive compensation report by Rice University's Baker Institute for Public Policy was that higher executive compensation "may be a factor driving the ongoing consolidation of health care systems, particularly among larger organizations."
"Our findings suggest that CEOs may be incentivized to consolidate health care systems in order to reap the financial rewards of leading a larger, more profitable health care system," said Derek Jenkins, lead author of the Rice study.
Tying into the May 1 announcement of Atrium Health trying to acquire WakeMed, Burgin said "there's a lot of conversations going on about hospital consolidation right now."
Since 2017, there has been nine hospital acquisitions involving all three major Triad healthcare systems, foremost:
• Novant Health Inc. spending $5.3 billion in 2021 to acquire New Hanover Regional Medical Center in Wilmington;
• Atrium acquiring Wake Forest Baptist Medical Center in 2020 that included a $3.4 billion capital investment pledge; and
• Risant Health taking over Cone in 2024 that includes a $1.7 billion capital investment pledge.
That acquisition count could have been larger if the Federal Trade Commission had not opposed Novant's $320 million offer to buy Lake Norman Regional Medical Center and Davis Regional Psychiatric Hospital of Statesville. Novant ended its bid in June 2024.
Atrium and WakeMed combination
Atrium would own and operate WakeMed as part of the acquisition, but WakeMed would continue as the same legal entity without dissolving or reincorporating.
WakeMed has three acute-care hospitals, a rehabilitation facility and a mental health hospital.
Atrium gained the unanimous support of the WakeMed Board of Directors in large part because of pledging $2 billion in capital investment into the system, along with adding 3,300 new jobs.
However, the Wake County Board of Commissioners voted unanimously on May 4 to remove from its agenda the proposed transfer agreement necessary for at least 90 days until early August.
The systems held a joint news conference on May 5 to expound on their support for the transaction.
Dr. Thad McDonald, chairman of WakeMed's board of directors, said that "I am acutely aware of the angst this announcement has caused with staff, with community leaders and with patients. When first presented with the possibility, our executive committee felt the same."
"But after two years of due diligence, we came to see the pure beauty of it."
Donald Gintzig, WakeMed's president and chief executive, said WakeMed would gain the resources from Atrium needed to better compete with Duke Health and UNC Health in its key markets, as well as extend its wellness services into southeast Raleigh in particular.
When asked about the fast-track attempt at getting the commissioners' approval, Gintzig said that "it would have been nice to get everyone engaged in it, but big strategic decisions don't happen in the public realm and in the community realm."
"You don't want to get your employees scared and you don't want to get your community scared."
Consolidation considerations
SB978 includes several consolidation considerations for the Council of State members. They include:
• Whether the fair market value of any asset to be transferred from the hospital entity to the acquiring entity has been manipulated by the actions of the parties in a manner that causes the fair market value of the asset to decrease.
• Whether healthcare providers will be offered the opportunity to invest or own an interest in the acquiring entity or a related party, and whether procedures or safeguards are in place to avoid healthcare providers' conflicts of interest with respect to patient referrals.
• Whether the terms of any management or services contract negotiated in conjunction with the proposed transaction are reasonable.
• Whether the proposed transaction may have a significant effect on the cost, availability, accessibility or quality of healthcare services for any affected community.
"If we don't do something about healthcare costs in North Carolina, it will break the bank," Burgin said.
Atrium and WakeMed said part of the $2 billion capital investment commitment will go toward paying for redevelopment and expansion of WakeMed's main Raleigh campus that includes inpatient beds.
State Treasurer Brad Briner requested May 3 that Wake commissioners delay its vote, writing in a letter that he has serious concerns about the deal on behalf of the State Health Plan and its 750,000 members.
"As you know, the state of North Carolina and the Wake County Public School System are among the county's largest employers, and our constituents will feel the gravity of the decision you make," Briner said.
"If history is any guide, this merger will not benefit the public," Briner said.
Hospital CEO compensation element
Healthcare system critics say hospital systems use their nonprofit status for tax advantages and public-relations purposes, while compensation committees have sought to justify corporate-level wages and benefits to top executives.
SB978 contains language that affects healthcare systems or hospitals "that accepts funds from the state and is exempt from taxation under state and federal tax codes.
The bill would affect healthcare chief executives' compensation that is more than 400 times greater than the minimum compensation to employees.
Healthcare systems that exceed that compensation level "shall be assessed a civil penalty equal to the amount of the chief executive's annual compensation."
Woods is the likely focus of the executive compensation language given Advocate disclosed in November that he received a 39% boost to nearly $26 million in fiscal 2024 after becoming the system's lone chief executive that year.
Atrium released its 2024 Internal Revenue Service 990 form in response to a public records request from the Winston-Salem Journal.
The report also listed the 2024 compensation for Dr. Julie Ann Freischlag, who retired at the end of 2025 as chief executive of Baptist after more than eight years. She received a 45% jump in total 2024 compensation to $7.63 million.
Woods' overall compensation has skyrocketed from the $6 million he made in 2018. He received a significant compensation increase following Atrium's acquisition of Wake Forest Baptist Medical Center in October 2020.
Woods received $18.58 million in total compensation in 2023, along with just under $14 million in 2022, $9.8 million in fiscal 2021, $7.9 million in 2020, and $7.2 million in 2019.
By comparison, Novant provided Armato with a 16.1% raise in total compensation to $6.94 million for fiscal 2024. His base salary rose by 1.7% to $2.36 million, while his incentive pay increased by 39.5% to $2.86 million. He also received $1.72 million in retirement contributions.
Where does Woods' pay rank?
To put Woods' 2024 total compensation into perspective, he ranked fourth in total compensation in the Journal's analysis of 37 corporate and 12 not-for-profit and nonprofit chief executives based in the Triad or with a major presence in the region.
In total compensation, Woods trailed Wells Fargo & Co.'s Charlie Scharf ($30.3 million), Gildan Activewear Inc.'s Glenn Chamandy ($26.91 million) and Primo Water Corp.'s Robbert Rietbroek (just under $26 million). The compensation of those chief executives was heavily based on stock and stock option awards.
All 21 Atrium executives listed in the 2024 report received at least $1.49 million in total compensation.
Advocate provided the Journal with two statements regarding its 2024 executive compensation.
The first represents a reiteration of previous statements in which Advocate said, "In today's complex health care landscape, strong, impact-oriented leaders are essential to navigate our industry's challenges and continue to redefine care for all."
"To attract and retain the best talent to fulfill our purpose, we offer a competitive compensation package determined by our governing board and consistent with governance best practices, which is guided by independent expert advice and national data from similar-sized organizations."
The second statement focused on Advocate's protocols stating that "the majority of (executive) compensation is based on performance, tied to measurable outcomes in patient safety, quality and community impact."
Before Atrium merged with Advocate Aurora, Atrium said in its 2022 executive compensation statement that its leaders "have positioned Atrium Health in such a way that, today, we are part of an organization that is larger than both McDonald's and Kraft Heinz, as well as leading local Fortune 500 firms like Duke Energy and Truist, in terms of total annual revenue."
Advocate Health stressed providing $6.2 billion in community benefits, as well as spending an additional $387 million on base and market increases during 2024, including minimum starting rate increases.
John Challenger, chief executive of outplacement consultant Challenger, Gray & Christmas Inc., said it is appropriate for some health care systems to compensate top executives similar to corporate levels.
"Communities who want the best health care system they can get should support paying the compensation levels required to attract top talent," Challenger said.
"The balancing act is that while we want the quality of executive talent at the top of health care systems, we don't want it to contribute to higher overall health care costs."
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