UNC Health pledges $5 billion commitment to WakeMed, whose leaders still prefer Atriums offer

UNC Health has submitted a $5 billion acquisition proposal to acquire WakeMed that's worth 2½ times the offer made by Atrium Health.

Yet, WakeMed's board of directors and executive management remain adamant they prefer Atrium's offer and have little, if any, interest in talking with any other system.

The UNC Health board of directors' offer of May 5, and the May 11 response from WakeMed chairman Dr. Thad McDonald, were obtained by the Winston-Salem Journal.

UNC Health chairman Greg Wessling and vice chairwoman Tracy Leinbach wrote that "we believe a WakeMed-UNC Health partnership could build on WakeMed's strengths, preserve its role as Wake County's anchor health system and support long-term growth, access and care coordination across the fast-growing region."

Although Atrium and WakeMed had been in talks for at least two years, the announcement of the proposed deal on May 1 surprised WakeMed's workforce, Raleigh Mayor Janet Cowell, much of the state's healthcare sector, Gov. Josh Stein, state Treasurer Brad Briner and state Auditor Dave Boliek.

Atrium would own and operate WakeMed, providing a $2 billion capital investment commitment as the primary incentive for the takeover of WakeMed's three acute-care hospitals, a rehabilitation facility and a mental health hospital.

Steve Smoot, president of the Atrium's North Carolina and Georgia divisions, said Atrium's $2 billion capital investment pledge to WakeMed "would bring the resources and track record to accelerate progress and expand what's possible in this region."

WakeMed would continue as the same legal entity without dissolving or reincorporating.

However, Atrium would gain six representatives on WakeMed's 14-member board with Atrium having the right to remove any member for cause.

The UNC Health letter likely was written with more than WakeMed's board in mind.

It was submitted formally a day after the Wake County Board of Commissioners voted on May 4 to delay considering the Atrium offer for at least 90 days. Because WakeMed originated as a county hospital, commissioner approval is necessary for any takeover.

Wake County chairman Don Mial said the board delayed consideration to give the two healthcare systems "time to engage with the community so they, along with the county commissioners, can hear residents' comments and concerns about this combination. Community involvement is an important part of the work that we do."

Half of the $5 billion UNC Health offer over a 10-year period would be "tied directly to WakeMed priorities and codified through a jointly developed Wake County-focused strategic and capital plan."

Those priorities would include adding bed capacity, ambulatory surgical center expansion, physician practice development growth and technology.

Another incentive is WakeMed would be a full partner in the proposed North Carolina Children's Hospital along with UNC Health and Duke Health.

UNC Health said WakeMed would remain governed by a public entity, rather than be governed by a private entity in Atrium and its parent company, Advocate Health, the nation's third-largest not-for-profit healthcare system.

By WakeMed agreeing to allow Atrium to be its sole corporate member, UNC Health said it would "place WakeMed governance and major decisions within Atrium's multi-state governance structure."

Wessling and Leinbach emphasized Atrium's recent challenges with previous acquisition, such as Wake Forest Baptist Medical Center in October 2020, as well as tightening federal regulatory scrutiny.

"WakeMed should expect significant regulatory review and potential deal risk from any agreement with Atrium," the UNC Health officials wrote.

Meanwhile, UNC Health is exempt from many regulatory reviews by being a state agency and political subdivision under state law.

"As you know, prolonged uncertainty can affect workforce retention, physician alignment, vendor negotiations, capital planning, patient satisfaction, operating performance and market behavior well before any promised investments can be realized," the officials wrote.

"We believe UNC Health and WakeMed can pursue a publicly accountable pathway that may reduce transaction friction and timing risk, while proactively addressing community needs and regulatory questions."

In WakeMed's response to the UNC offer, McDonald said the board "will review the proposal and give it thoughtful consideration."

Yet, McDonald said the WakeMed board remains convinced "that a strategic combination with Atrium Health is in the best interest of WakeMed and the communities we serve."

"While we recognize there may be aspects of your proposal that are attractive," McDonald said the board determined Atrium would meet the stated goal of Briner in "preserving strong competition in a rapidly growing region."

In terms of the UNC Health proposal, WakeMed said "a combination of WakeMed and UNC Health would reduce the number of health systems serving Wake County from three to two. Combined, WakeMed and UNC Health would control 80% of the healthcare market in Wake County.

McDonald added: "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."

Meanwhile, WakeMed chief executive Donald Gintzig has made it clear in several recent media comments of the preference in joining Atrium.

Gintzig has been critical of UNC Health's presence in Wake County that's led by UNC Rex Hospital.

Gintzig also said UNC Health "is a good organization, but their culture is different. They're in this community, and they don't care for all."

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