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UNC, Carolinas health care deal raises questions of legality and ethics among BOG members

CEO's say partnership will enhance healthcare in NC

UNC Healthcare CEO Bill Roper and Carolinas HealthCare CEO Gene Woods discuss the possible enhancements in health care for North Carolinians with the partnership between the two companies.
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UNC Healthcare CEO Bill Roper and Carolinas HealthCare CEO Gene Woods discuss the possible enhancements in health care for North Carolinians with the partnership between the two companies.

A proposal to create one of the nation’s largest health care systems in North Carolina is causing tensions on the UNC Board of Governors to spill out into public view.

UNC board member Tom Fetzer, a health care lobbyist, set off the spark Thursday when he questioned the legality of the proposed partnership between UNC Health Care and Charlotte-based Carolinas HealthCare System. Fetzer’s challenge prompted the board’s leaders to advise their colleague to stay out of the matter because he has a conflict of interest.

In a thinly-veiled admonition that Fetzer may have crossed the line, he was asked by email to “refrain from engaging in further action related to the UNC Health Care matter” even as the note acknowledged he had rightly recused himself from the board’s activities on the partnership.

The board will next ask the State Ethics Commission for advice on Fetzer’s ethics conflict.

Fetzer’s questions and the board’s rebuke mark the first public signs of conflict on UNC’s Board of Governors over the planned partnership between UNC Health Care and Carolinas. The UNC Board of Governors oversees the statewide university system, including UNC-Chapel Hill’s medical school, which would become part of the sprawling business partnership.

fetzer
Tom Fetzer N&O file photo

Proposed in August, the UNC-Carolinas partnership would employ 90,000 people and include more than 50 hospitals, with a new name and a headquarters location yet to be determined, to be overseen by an independent board. A number of experts have pointed out that large-scale hospital consolidations often lead to higher health care costs because the larger systems can wrest higher fees from health insurer and patients.

Fetzer, a former Raleigh mayor and former chairman of the North Carolina Republican Party, sent an email late Thursday to Board of Governors chairman Louis Bissette and to UNC system president Margaret Spellings, asking whether the proposed partnership between UNC Health Care and Carolinas HealthCare is being conducted legally. Fetzer noted that state law requires the UNC Health Care System to keep the UNC Board of Governors apprised of any important policy changes.

But, Fetzer said, UNC Health Care conducted clandestine discussions about the partnership with Carolinas for “the better part of a year” without notifying the Board of Governors. UNC Health Care didn’t inform UNC’s Board of Governors until several days before announcing the partnership plans to the public.

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UNC System President Margaret Spellings and Board of Governors member Lou Bissette. Julia Wall jwall@newsobserver.com

In his email, Fetzer said that the board’s only employee, Spellings, sits on UNC Health Care’s board, yet never mentioned UNC Health Care’s discussions with Carolinas in the months leading up to the public announcement.

“This is, in my opinion, perhaps the most important health care development in the history of the state of North Carolina,” Fetzer said in a phone interview. “If you kept this deal secret for a year, does that fall within the definition of ‘fully informed?’

“The Manhattan Project wasn’t as well-kept a secret as this was,” he said.

UNC, which includes 13 hospitals, and Carolinas HealthCare have been negotiating the terms of their partnership for the past five months, and expect to finalize a deal early this year. Both sides say their partnership would not be a legal merger. Beyond the general outline presented in August – which induces promises of increased health care for the state’s rural areas – the details are sketchy.

UNC board member Leo Daughtry, a Smithfield lawyer and a former Republican state lawmaker, expressed dismay at Fetzer’s email on Friday and its implication that Spellings was keeping secrets. He said UNC Health Care met its legal obligations when it briefed the UNC board about the proposed partnership in August.

“I don’t know why he would single her out,” Daughtry said. “I don’t know whether Tom doesn’t like her or has a personal problem with her.”

Board chairman Lou Bissette and vice chairman Harry Smith notified Fetzer on Friday that they were concerned about his conflict of interest.

“Given the potential seriousness and consequences to you of the ethics issue here,” they wrote, “we request that you refrain from engaging in further action related to the UNC Health Care matter until we are able to receive advice from the State Ethics Commission staff or the Commission concerning the nature, scope, and consequences of the conflict that has led you to recuse yourself from official action until now.”

UNC Health Care, the Triangle’s largest health care provider, is partnering with Charlotte-based Carolinas HealthCare to create one of the largest nonprofit healthcare networks in the nation, employing some 90,000 people and running more than 50 h

Fetzer has recused himself from the Board of Governors’ activities concerning the UNC-Carolinas partnership because he’s a lobbyist for Blue Cross and Blue Shield. The state’s largest health insurer could potentially have to pay higher fees for medical services to the giant hospital network and has expressed concerns over the deal, saying it could raise health care costs for consumers. Fetzer also lobbies for WakeMed Health & Hospitals, which competes with UNC and Duke University Health System for patients and for doctors.

Fetzer could not be reached on Friday to comment on the board’s concerns. Earlier he said: “My only interest is simply to determine whether the statute was complied with.”

Underlying tensions

The conflict between Fetzer and fellow members is just the latest rift on the 28-member governing board that oversees the 17-campus UNC system.

In August, Fetzer sent a sharply-worded letter to Spellings and Bissette, chastising them for their handling of issues around the Silent Sam Confederate monument on the Chapel Hill campus. The letter was signed by 15 members, a majority of the Republican-dominated board. It took Spellings and Bissette to task for communicating with Gov. Roy Cooper, a Democrat, about campus security concerns and their request that Cooper convene the state historical commission to decide the future of the statue.

The letter was followed in September by a flurry of surprise resolutions by members in the majority faction, calling for significant changes to the university system. They wanted to lower tuition and fees, review Spellings’ staff and consider moving the system headquarters out of Chapel Hill. The proposals prompted concerns that the UNC board was undermining Spellings’ authority as president.

Underlying the current tension between the members are the huge stakes of the deal and the uncomfortable reality that there is no consensus on whether UNC’s Board of Governors has the legal authority to block UNC Health Care’s partnership with Carolinas, in the event that members of the Board of Governors were to conclude that the mega-deal would risk the future of UNC’s medical school or would not benefit the citizens of North Carolina.

UNC Healthcare CEO Bill Roper and Carolinas HealthCare CEO Gene Woods say the location of a headquarters for the new partnership between UNC Health Care and Carolinas HealthCare has not been decided.

When asked on Jan. 8 about the Board of Governors’ legal authority over UNC Health Care, Spellings was noncommittal.

“It’s too early for us to opine about that right now,” she said. “I don’t expect we’re going to get an agreement from UNC Health that doesn’t make sense.”

To address the legal gray area, the Board of Governors has created a six-member special committee to review the deal, toward which end the special committee has hired an outside lawyer and financial advisers. The special committee members are on the Board of Governors, not outsiders.

“We want to make sure university assets are well cared for,” Spellings said.

John Murawski: 919-829-8932, @johnmurawski

Tom Fetzer’s email, sent Thursday:

To: Chairman Bissette

President Spellings

As both of you are aware, I have consciously and intentionally abstained from participating or even attending any BOG meetings, discussions or briefings on the proposed merger between UNC Health Care and Carolinas Health Systems. As has been previously disclosed, I represent entities that may be impacted by the proposed merger.

However, I do have questions and concerns about the process by which the BOG was informed of the proposed merger and the timeliness thereof.

I refer to NCGS 116-37 (b) (4):

"The board of directors (of UNC Health Care) shall keep the Board of Governors fully informed about health care policy and recommend changes necessary to maintain adequate health care delivery, education, and research for improvement of the health of the citizens of North Carolina."

To my knowledge, no members of the BOG that I'm aware of were informed of this proposed merger until a few days before it was made public.

In my opinion, this begs the reasonable question: were relevant North Carolina statutes followed during the period, which many have described as being the better part of a year, in which this proposed merger was being planned?

The BOG makes several appointments to the UNC Health Care Board and our only employee, the President of the UNC system, serves by statute--ostensibly to represent and reflect the interests of the BOG and, as the aforementioned statute requires, to keep the BOG "fully informed about health care policy".

Do you believe the UNC Health Care Board has complied with state statute in this regard?

Thank you for your attention to my question and I await your thoughtful response.

BOG’s response, sent Friday:

Tom,

We are responding to your email because we are concerned about your potential conflicts under the North Carolina State Ethics Act. As you know, the Ethics Act requires you, as a member of the Board, to identify potential conflicts, disclose them, and then refrain from participating in any official action relating to a conflict, which includes any verbal or written action in furtherance of official action. As you acknowledge in your email to Margaret, you have recused yourself from participating in Board of Governors discussion and action regarding the proposed joint venture between UNC Health Care and Carolinas HealthCare System. Given your status as a registered lobbyist for WakeMed Health and Hospitals and for Blue Cross and Blue Shield of North Carolina, both of which are lobbyist principals, we believe it is appropriate for you to have recused yourself from participating as a member of the Board of Governors in any official action regarding the UNC Health Care proposal.

Given the potential seriousness and consequences to you of the ethics issue here, we request that you refrain from engaging in further action related to the UNC Health Care matter until we are able to receive advice from the State Ethics Commission staff or the Commission concerning the nature, scope, and consequences of the conflict that has led you to recuse yourself from official action until now.

Regarding your specific question to Margaret, a response will be provided to members of the Board of Governors who have not recused themselves from consideration of the UNC Health Care matter. Please call either of us if you would like to discuss this issue.

Lou Bissette, Chairman; and Harry Smith, Vice Chairman

UNC Board of Governors

BOG’s communication with BOG members, sent Friday:

Members of the Board of Governors:

We write to address the question that Tom Fetzer posed to Margaret regarding the process by which the Board of Governors (BOG) has been informed of the proposed joint venture involving the UNC Health Care System and Carolinas HealthCare System. Because Mr. Fetzer and several other members of the Board of Governors have previously recused themselves from any official action concerning the UNC Health Care matter due to conflicts or potential conflicts under the State Ethics Act, this email is being sent only to those Board members who have not recused themselves from consideration and discussion of the issue.

Dr. Roper and his team, along with the leadership of the UNC Health Care Board of Directors, informed the Board of Governors by August 2017, that they were considering a transaction with Carolinas HealthCare System to form a joint operating company. Dr. Roper provided briefings to the Board of Governors in meetings on August 28 and September 8. In addition, Dr. Roper and members of his leadership team addressed questions from individual Board members prior to and after those briefings, and continues to do so.

The proposed joint venture was described in brief terms in a non-binding letter of intent, which was signed on August 30, and has been released to the public. The letter of intent states that the parties expect to, “continue in good faith to negotiate the terms of any definitive agreements required to accomplish the Proposed Transaction,” but that, “[a]ll terms described [in the letter of intent] are terms of tentative agreement, subject to final confirmation and agreement in the definitive agreements to be developed over the next several months.” In addition, the letter of intent makes clear that it is non-binding.

After conferring with Board members, Chairman Bissette formed a special committee to review the proposed UNC Health Care/Carolinas HealthCare partnership in November 2017. Since that time, outside legal counsel and financial advisors with expertise in health care system and academic medical centers were engaged to evaluate the proposed venture and advise the committee and the Board. The committee has met four times, and will be arranging further briefings for the Board about the proposed joint venture at the January and March Board of Governors meetings.

In view of this background, it is clear that UNC Health Care has been providing information about the proposed joint venture, which is still under negotiation, for at least five (5) months. The proposed transaction remains under negotiation, and cannot and will not move forward unless and until such time as the parties (UNC Health Care and Carolinas) reach full agreement on all terms to be reflected in a definitive agreement. The UNC Health Care Board of Directors has therefore met the requirements of the North Carolina statute that requires the board of directors to keep the Board of Governors fully informed about health care policy. You can review N.C.G.S. 116-37(b)(4) and the rest of the health care statute by following this link: https://www.ncleg.net/EnactedLegislation/Statutes/PDF/BySection/Chapter_116/GS_116-37.pdf.

The president of the University of North Carolina serves, by statute, as a voting member of the UNC Health Care System Board of Directors. The board of directors has 24 members in total, 12 of which are appointed by the Board of Governors. Nothing in the statute distinguishes the president’s responsibilities as a director from any of the other directors’ responsibilities. Mr. Fetzer’s statement that the president serves as a member of the board of directors, “ostensibly to represent and reflect the interests of the BOG,” and to keep the BOG informed is not supported by the language of the statute. In fact, the statute makes clear that the obligation to inform the Board of Governors belongs to the UNC Health Care Board of Directors, which the Board of Directors has done.

Please contact us with any questions.

Lou Bissette

Harry Smith

Doyle Parrish

Temple Sloan

Margaret Spellings

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