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Health Care

NHRMC Proposals Released, Including $2 Billion Offer

By Vicky Janowski, posted Apr 21, 2020
Six health systems submitted proposals to have a role in NHRMC’s ownership. Officials released those proposals Tuesday. (File photo)
Officials on Tuesday released the proposals from six health systems that submitted pitches about either buying New Hanover Regional Medical Center or partnering with the county-owned hospital.
 
From a $2 billion offer from Novant Health to acquire NHRMC to a range of long-term leasing, joint venture, the proposals reflected strong interest in the health system despite financial pressures brought on by the coronavirus pandemic.
 
The six organizations that submitted proposals were Atrium Health, HealthSpan/Bon Secours Mercy Health, Duke Health, HCA Healthcare, Novant Health and UNC Health.
 
Read below for more about each system’s response.

The request for proposals was issued in early January with a March 16 submission deadline. Those proposals, which are required to be made public under the state law governing the process, were slated to be released at the end of March. But that got pushed back because of attention on COVID-19, especially since some of the 21 members who make up the Partnership Advisory Group (PAG) evaluating the hospital’s future are health providers. (Click here for more about the coronavirus situation and the process.)
 
NHRMC, the third-largest health care system still owned by a county in the United States, is the region’s largest employer with more than 7,500 people on its payroll.
 
“Going into this, we talked about the fact that we believed that we had a very strong organization in a very attractive market and there would be tremendous interest in organizations wanting to partner with us,” NHRMC President and CEO John Gizdic said about the proposal responses. “And I think what we saw is the market confirm that.”
 
Several of the respondents, which include a mix of nonprofit, for-profit and university-based systems, offered to fully fund NHRMC’s 10-year strategic plan – a $3.1 billion projection of new projects and routine capital spending.
 
“What impressed me beyond the recognition of the strategic plan was the direction that New Hanover Regional is going in to serve its region and that they saw us as a key player in their system, not just a hospital that’s in distress that needed a new home and [that] we were going to play a vital part in what their future was, not just them playing a vital part in our future,” PAG co-chair Barb Biehner, referring to several organizations’ offers to allow NHRMC members to sit on their overall boards of directors.
 
Joseph Pino, SEAHEC’s executive director, vice president of graduate medical education at NHRMC and a PAG member, said that a group of about 20 to 25 physicians also will discuss the responses now that they are publicly released.
 
“There’s a physician advisory council that will soon be receiving an update on these proposals and a deeper dive into the information that’s contained within it,” he said. “So members of the NHRMC Physician Group, members of Wilmington Health, EmergeOrtho, small groups, employed groups, contracted groups in our community and private physicians. I think with that in mind, this will really be the first time that they will get to see some of the responses.
 
“It’s really going to cascade very quickly over this next week, so we will have a greater sense of the general medical staff and their response to this.”
 
Here is a closer look at the six proposals, which are now posted online at NHRMCfuture.org including additional answers to PAG questions and supporting documents.

Officials have said that information that meets legal requirements for protection has been redacted.
 
ATRIUM HEALTH
Click here for the executive summary. Click here for the full proposal.
System type: Charlotte-based, not-for-profit system with more than 40 hospitals and more than 900 care locations; one of the largest medical groups in the country with more than 2,900 physicians; operates one of the nation’s largest accountable care organizations (ACO)
Local presence: Has held a services agreement with NHRMC
Proposed structure: 30-year lease, then ownership
Proposed funds to New Hanover County: $50 million upfront cash to New Hanover County; $150 million to create a community foundation “to support key health initiatives and address disparities of care in the region”; about $791.8 million in lease payments and income sharing
Capital investment: $2.17 billion, including $1.15 billion for routine and strategic
investments in the first 10 years of the partnership and a behavioral health and addiction
treatment facility
Governance structure: Majority of the board of directors would be New Hanover County or surrounding area residents; an NHRMC board of nine people, with at least six of them being local residents
Outside representation: For at least the lease’s first 10 years, Atrium Health would nominate two NHRMC directors to serve on the Atrium Health Board of Commissioners
“We think this really hits what we heard the local community say about what they wanted because they wanted local control and they wanted local input,” Ken Haynes, president of the greater Charlotte region for Atrium Health, said about the system’s proposal during a media call Tuesday afternoon. “We totally believe in that; we’ll walk that talk.”
 
HEALTHSPAN (BON SECOURS MERCY HEALTH)
Click here for the executive summary. Click here for the full proposal.
System type: HealthSpan is the non-religious holding company for Bon Secours Mecy Health, a not-for-profit Catholic hospital system based in Cincinnati; It formed in 2018 as a merger between Bon Secours Health System and Mercy Health, becoming the fifth-largest Catholic health system in the country and among one of the nation’s 20 largest health care systems.
Proposed structure: Acquisition or “we are open to negotiate a wide variety of partnership and governance structures to further support NHRMC’s commitment to its community.”
Proposed funds to New Hanover County: $1.3 billion
Capital investment: Minimum of $400 million over the next five years “with an opportunity for more based on analysis of strategic plans”
 
DUKE HEALTH
Click here for the executive summary. Click here for the full proposal.
System type: Private, nonprofit; academic system that covers the Duke University School of Medicine, Duke-NUS Medical School, Duke University School of Nursing, Duke University Health System and a physician practice organization; its health system includes three hospitals, more than 200 clinics, clinical affiliate hospitals and community hospitals that are part of Duke Lifepoint
Proposed structure: Acquisition; open to other structures
Proposed funds to New Hanover County: New Hanover County/NHRMC would keep “NHRMC’s net cash (preliminarily estimated to be $451 million) which, when combined with additional proposed economic consideration to be paid by Duke at closing of $500 million, can be used to fund an independent, local healthcare foundation to benefit the community, or other purposes.”
Or $1.35-$1.4 billion if New Hanover County and NHRMC prefer an-all cash closing
Capital investment: Minimum of $1.9 billion funding for NHRMC’s 12-year capital plan
Governance structure: Majority of board members from NHRMC service area
Outside representation: NHRMC board would nominate two people to serve on the Duke University Health System board (subject to approval by Duke University)
 
HCA HEALTHCARE
Click here for the executive summary. Click here for the full proposal.
System type: For-profit system based in Tennessee that also is one of the largest health systems in the country with 184 hospitals and 2,000 sites of care; Last year it bought Asheville’s Mission Health for $1.5 billion.
Proposed structures: Acquisition, long-term lease, joint venture
Proposed funds to New Hanover County:
            • Acquisition ($1.25 billion, enterprise value) The purchase price would total the enterprise value adjusted for any assumed indebtedness and for the variance between the amount of working capital delivered at closing and a normalized level of working capital for NHRMC.
            • Joint venture ($1.1 billion, enterprise value) “HCA is flexible as to the amount of equity that the sellers would have in the joint venture, so long as such amount of equity is between 20% and 49%.” The purchase price would equal HCA’s percentage ownership of the joint venture multiplied by the equity value of the joint venture.
            • Lease arrangement ($1.25 billion, enterprise value) The upfront lease payment would total the enterprise value adjusted for any assumed indebtedness and for the variance between the amount of working capital delivered at closing and a normalized level of working capital for NHRMC.
-Because HCA is a for-profit system, NHRMC – under HCA ownership – would start paying an estimated $19 million annually in property and sales taxes that it doesn’t pay now as a not-for-profit entity.
Governance structure: Under a full acquisition or long-term lease, a Community Advocacy Board would be established to represent the Wilmington community. Under a joint venture structure, “through its participation on the joint venture board, New Hanover County would be included in key operational decisions involving NHRMC.”
 
NOVANT HEALTH
Click here for the executive summary. Click here for the full proposal.
System type: Winston-Salem-based, not-for-profit system with 15 medical centers and more than 1,600 physicians
Local presence: Has the 74-bed Novant Health Brunswick Medical Center in Bolivia and medical group in Brunswick County
Proposed structures: Open to various models, including acquisition, joint venture, joint operating company or management services agreement
Proposed funds to New Hanover County:
            • Acquisition - Up to $2 billion in upfront cash proceeds to New Hanover County
            • $50 million to the NHRMC Foundation, irrespective of structure
Capital investment:
            • Acquisition-Fully fund capital needs in NHRMC’s strategic plan: $3.1 billion that includes about $600 million of routine capital expenditures over 10 years and $2.5 billion of strategic capital projects
            • Or “a significant percentage in the case of a joint venture, joint operating company, or management services agreement”
Governance structure: “All partnership structures will preserve NHRMC’s separate corporate existence and provide the community with significant influence through a true fiduciary board responsible for, among other things, determining optimal deployment of resources for the region
Outside representation: Up to two seats on the Novant Health parent company board, depending on partnership structure type
 
UNC HEALTH
Click here for the executive summary. Click here for the full proposal.
System type: Not-for-profit system owned by the state of North Carolina that is the state’s largest academic health system with 11 hospitals, 350 clinics and 3,200 UNC Health physicians
Local presence: NHRMC currently is affiliated with UNC’s medical school for residency programs, and in 2016 NHRMC became a branch campus of UNC’s medical school.
Proposed structure: Academic and expanded clinical partnership
Capital investment: “UNC Health, with support from the state, expects an investment of approximately $375 million for academic operations over the next 20 years to develop the Academic Partnership … UNC Health is prepared to make an initial capital investment in an amount equal to 20% of the value of NHRMC at the time of the transaction to help NHRMC achieve its capital needs … capital investment beyond this initial investment and the investment in the Academic Partnership is something that UNC Health has the capability and desire to do, but would be subject to more detailed discussions with NHRMC leadership as our partnership progresses.”
UNC Health also had an outside consultant do an economic impact assessment on a proposed expansion of its UNC School of Medicine Wilmington branch campus, finding that the investment could generate $34 million in total regional output, $12 million in earnings and 269 new jobs.
Governance structure: “Our originally submitted RFP response did not include a specific capital investment commitment which is now being requested. A significant capital commitment by UNC Health to NHRMC will require additional provisions to be discussed and negotiated as we move forward. These may include, but are not limited to, UNC Health representation on the NHRMC Board, reserve powers, and a potential management agreement between UNC Health and NHRMC. A management agreement will ensure a more seamless integration with UNC Health to expedite improvement and returns articulated by the Partnership Advisory Group throughout this process.”
 
A public hearing will be required for the proposals.
 
The PAG, which is scheduled to meet remotely the first week in May, is looking to make recommendations in May or June to county commissioners and hospital trustees about which health systems to start negotiations with based on the proposals.
 
MORE DETAILS
Barb Biehner and Spence Broadhurst, chairs of the Partnership Advisory Group, discuss the proposals during Wednesday’s BizTalk, the Business Journal’s daily live-streaming interview on our Facebook page here. Add your questions to the live discussion by posting in the comments.
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