What's next for UNC health after failure to cut a mega-deal?

UNC Health Care willing to work with others

UNC Health Care CEO Dr. William Roper said that his organization would be willing to work with Atrium Health or other groups to help meet the needs of North Carolina patients in the future. UNC Health and Atrium tried and failed to merge recently.
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UNC Health Care CEO Dr. William Roper said that his organization would be willing to work with Atrium Health or other groups to help meet the needs of North Carolina patients in the future. UNC Health and Atrium tried and failed to merge recently.

UNC Health Care's ambition to create one of the nation's largest hospital systems by partnering with Charlotte's Atrium Health set off fears that the state-owned UNC system and its vaunted medical school would be swallowed up by its much larger Queen City counterpart. Now that the deal has been called off over those very concerns, another question arises: Where does UNC go from here?

The partnership was promoted as an attempt to fix the chronic doctor shortage and poor health of people living in rural North Carolina, according to its salesmen, UNC CEO Bill Roper and Atrium's Gene Woods. Roper also said the consolidation would ensure UNC Health Care's financial strength for years to come.

Now the Chapel Hill health care system will have to seek out smaller collaboration opportunities to prepare for a future when hospitals are no longer the financial center of the health care universe, Roper said. The time is coming where fewer medical procedures will be performed in hospitals, he said, and hospitals will have to adjust to lower payments for the work that they do.

"Everybody who pays us wants to pay us less," Roper said Wednesday in an interview in his Chapel Hill office. "We need to be restless and pushing the edge of the envelope and saying, How do we make sure that we are able to do the things that are so important to the people of North Carolina?"

One small example of how the Chapel Hill system could control costs: a round-the-clock online urgent care portal that will allow patients to talk to doctors by smartphone computer screen for non-emergency treatment. The portal is already available to UNC Health Care employees and will be launched for the public soon, with a cost of $49 per video consultation. At this time, however, not every health insurer has agreed to cover the service.

If they had combined operations, the UNC partnership with Atrium would have formed a giant hospital network with 60 hospitals and 90,000 employees in three states. The massive organization would have given UNC Health Care access to 6.3 million potential patients in North Carolina, nearly twice the number of patients it now reaches.

Many hospitals are grappling with these issues.

"Health care is getting to be a lot like real estate — location, location, location," said William Pully, a former director of the N.C. Hospital Association and a healthcare consultant in Raleigh. "It's all geared toward one thing — how do we take cost out. Nobody thinks the current reimbursement rate is going to do anything but bend downward."

In presentations to State Treasurer Dale Folwell in February and to State Auditor Beth Wood in October, Roper's team depicted UNC Health Care as a "long term financial risk," and Atrium as the "substantial buffer" needed to absorb lower payments from Medicare, Medicaid and health insurers, according to confidential briefing documents obtained by The Charlotte Observer.

The documents warned of "declining clinical revenue" unless the UNC system attained a patient threshold of 6 million required "for a stable future."

Roper said this week that the patient shortage is real and will need to be addressed.

"Ultimately, yes, we need a larger population base," he said. "How we get there is something we're going to spend the next couple of years talking about and working on."

Where to grow

UNC Health Care has grown to 13 hospitals across the state, and doubled its revenue to nearly $4 billion in just six years. Roper says that success is not guaranteed to last.

"What has gotten us to this point in success I don't think is enough for the future," Roper said. "If we had come together with Carolinas — now Atrium — we could have shared resources and could have benefited more people for less on a per-person basis than if we do it on our own."

As hospital systems combine into multi-state giants and health insurers join forces with pharmacies, Roper says UNC Health Care will have to find new ways to thrive. Many experts share his prediction that the largest hospital systems will be in the strongest position to absorb pay cuts expected from Medicare, Medicaid and health insurers in response to mounting social pressure to rein in runaway health care costs.

In preparation for this future, health insurance companies are venturing into pharmacy benefits, and private employers are diving into health care. In some of the biggest moves, drugstore chain CVS is acquiring Aetna, a major health insurer. And online retailing giant Amazon is joining forces with financial powerhouses JPMorgan Chase and Berkshire Hathaway on a health care venture for their employees.

UNC Health Care is willing to allow more local control to other hospitals it has under its umbrella, says CEO Dr. William Roper.

Before the attempted deal with Atrium, UNC Health Care's approach had been aggressive territorial expansion through the acquisition of community hospitals, including Rex Hospital in Raleigh, purchased in 2000. UNC Health Care owns or manages six hospitals in rural areas, including Wayne, Henderson and Lenoir counties, along with its most recent expansion, UNC Rockingham Health Care in Eden.

Not every expansion has delivered on its promises for UNC Health Care. The system is the in the process of selling High Point Regional Health, a facility it acquired in 2012, to Wake Forest Baptist Medical Center. Roper said Wake Forest Baptist is a better fit to run that hospital because it employs and controls most of the doctors in that area.

UNC's continuing forays into new regions will likely put the Chapel Hill organization in competition with well-established players not eager to lose market share to an interloper from Chapel Hill. The eastern part of the state belongs to Vidant Health, which operates eight hospitals in eastern North Carolina, including a trauma center in Greenville that serves as the teaching hospital for East Carolina University's Brody School of Medicine. Mission Health, based in Asheville, dominates western North Carolina, operating six hospitals in a market with a substantial population of retirees that some compare to South Florida. Charlotte is dominated by two multi-state systems: Atrium and Novant Health.

Challenges ahead

A partnership with another hospital system wouldn't be out of the question, but any future attempts would likely face the same challenges that ultimately killed the Atrium deal.

UNC Health Care CEO Dr. William Roper discusses some of the things he learned during a recent failed attempt to merge with Atrium Health as he speaks during an interview in Chapel Hill, NC, on March 14, 2018.

After more than six months of negotiations between the two hospitals, members of UNC Health Care's Board of Directors and UNC's Board of Governors, which oversees the 17-campus university system, could not accept a business arrangement that required the state to cede control of its health system to Atrium, a much larger business. And with UNC Health Care's sterling financial credentials, ranking the organization as one of the best-performing in the nation, key decision makers saw no need to make concessions.

"It didn't add up to hand over control of an asset of that size and magnitude that was built by the taxpayers of the state," said Board of Governors' vice-chairman Harry Smith. "The deal on the table was just not representative of the value of the asset."

The deal was also undermined by the lack of details about how the partnership would benefit the state; skeptics filled the vacuum with dire warnings of a monopoly that would raise prices for patients without improving the quality of medical treatment.

"They did a very poor job conveying the rationale in the first place and its potential benefit to the people of the state," said Kevin Schulman, a Duke University professor of medicine. "To some extent, I think that's why they ran into trouble."

Blue Cross and Blue Shield, the state's largest health insurer, publicly came out against the deal, as did Folwell, who challenged Roper to put up a $1 billion guarantee the partnership would save money for the State Health Plan, which the Treasurer oversees.

Roper rejected arguments that UNC and Atrium would have strong-armed health insurers to pay more for medical services. He said the trend is going in the other direction: lowering costs. Roper also dismissed suggestions that UNC is empire-building.

"We're not just buying and selling on the spot market because it's fun," Roper said. "We're not day traders in hospitals."

When asked if the failure to push the deal through signals a time for him to step aside, Roper, 69, brushed off the suggestion. "It would send the wrong message that somehow Roper, in a fit of pique, took his ball and went home."

William Atkinson II, the former CEO of WakeMed Health & Hospitals and a healthcare consultant in Raleigh, said access to a giant pool of patients not only keeps hospital revenue flowing, but also gives university medical schools access to illnesses and conditions required to tap into multimillion-dollar federal grant programs for medical research.

At WakeMed, Atkinson was Roper's chief adversary, accusing UNC and Rex Healthcare of unfair competition in Wake County, to the point that Atkinson launched an unsuccessful hostile takeover bid of Rex.

"This is what's going on all over the country," Atkinson said of the consolidation wave. "The question is, is the day of the stand-alone small hospital over in America?

"If I was Bill Roper, I'd be doing exactly what he's doing."

UNC Health Care CEO Dr. William Roper tells why he sought to merge with Atrium Health.