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Health Care

Where Will The Money Flow?

By Vicky Janowski, posted Sep 4, 2020
Illustration by Mark Weber
As details are being finalized on the expected contract to sell New Hanover Regional Medical Center to Novant Health, another major issue could be decid­ed next month.
 
Where will the money from the sale go? How will it be spent? Who will be in charge of it?
 
Those are the nearly $2 billion questions.
 
Unless things drastically change in the coming weeks, a majority of New Hanover County com­missioners and hospital trustees are expected to approve selling the county-owned hospital to the Winston-Salem-based, not-for-profit health system when it’s time to vote on the deal’s definitive agreement.
 
In July, county commissioners and hospital trustees voted to allow negotiations on a legally binding agreement with Novant, which also owns the hospital in Brunswick County as well as physician prac­tices there. The move came after a year of discussion about potentially selling NHRMC and the zeroing in on Novant from six partnership proposals submitted from health systems interested in New Hanover Regional.
 
The July vote approved a non­binding letter of intent, the latest public document that outlines details on the proposed deal, including con­ditions for the purchase, Novant’s pledge to maintain and expand the presence of UNC Health and UNC School of Medicine at NHRMC and a long list of measures that would impact hospital employees and patients.

Click here to read the letter of intent.
 
Before a final vote, people will be able to see a copy of the definitive agreement -- as required by state law -- and the county will hold a public hearing so commissioners can hear additional input.
 
Because New Hanover Coun­ty owns NHRMC – a rarity, with the local health system being the third-largest in the U.S. still owned by a county – the proceeds form what several officials have called a “once-in-a-generation opportunity.”
 
As described in the letter of in­tent, Novant is offering to pay $1.5 billion to the county for NHRMC. It also offered to let the county keep any NHRMC cash the hospital still has on hand after debts and other liabilities are paid off, which in Sep­tember was estimated to be about $400 million – a figure that would be updated after a closing.
 
(Aside from the money to the county, Novant also offered to give $50 million to the existing NHRMC Foundation and spend $3.1 billion in routine capital expenses and strategic master plan projects on NHRMC over the next decade.)
 
But while the issues surrounding the potential sale of the hospital and Novant’s proposals as its next owner have been combed through during months of talks, presenta­tions and community meetings – both in-person and online because of COVID-19 – the county’s plan to spend potentially $1.9 billion in proceeds has received less public discussion.
 
A spending plan first appeared publicly in early July when hospital trustees voted for negotiating with only Novant. The trustees’ resolu­tion became part of the approved letter of intent, and county commis­sioners have said the recommenda­tions – which set aside money for the hospital, county reserves, a mental health and substance abuse fund and a new $1.25 billion community foundation – came from individual talks with county staff and briefings. Several said that’s why the plan was never sussed out in county commis­sioners meetings or work sessions, which would have been public.

Click here to read the draft spending proposal.
 
Next month when the deal with Novant is voted on, the spending plan for the proceeds and how the new foundation will be set up also will be on the table for approval.
 
“There’s four different escrows, for lack of a better word, where the money will end up being placed if in fact the [hospital] trustees and the county commission approved the definitive agreements,” New Hanover County Manager Chris Coudriet said.
 
Here are more details about what’s been released so far on that spending plan – the caveat being that discussions might have changed some things since mid-July when the letter of intent was approved; some details still appear not to be worked out as of Tuesday; and the wild card remains politics as tensions have risen recently among the five county commissioners who are expected to vote Oct. 19 on the future of the hospital ownership as well as the proceeds.
 

Community Foundation: $1.25 Billion

 
The lion’s share of sale proceeds would go to an independent, tax-ex­empt foundation with the intent of funding community efforts.
 
“The design is for the principal of that money to not be touched, just the investment income off of it,” Spence Broadhurst, one of the co-chairs of the Partnership Advisory Group, said in an online talk with the public Tuesday.
 
The letter of intent identified four areas the fund, or interest earnings on the endowment, would be spent on. Those are education (from K-12 schools through higher education); health and social equity (addressing food deserts, for example); commu­nity development (such as a work­force housing trust fund and open space preservation); and community safety (including next-generation 911 services and updating law enforce­ment training).
 
“That’s what the foundation will focus on, and so there will be an 11-person board ultimately that is the governance structure for that and will also make the final choices on what actually … to invest those dollars [on],” Coudriet said.
 
Despite the debate over how the foundation will be set up, that group would not likely be appointed until next year after the sale’s closing takes place – assuming the deal is approved – under the county staff’s plans now for the foundation’s framework, said Jessica Loeper, the county’s chief communications officer.
 
In the interim, five people would be picked initially by the county as the new foundation is established, Coudriet said. Among that group’s responsibilities likely would be choosing what investment management firm will handle the fund “because there is work that would need to be done prior to the assets coming to the foundation,” Loeper said.
 
The makeup of the 11-person foundation board has caused some sticking points so far for the county commissioners.
 
In the letter of intent, it is pro­posed that the board be made up of six people picked by the hospital board and five people picked by the county commissioners. Under the proposal county staffers are working on, the board would not be self-perpetuating, meaning that any future vacancies would go back to the county commissioners or hospi­tal board to decide new members, Coudriet said.
 
Commissioner Pat Kusek, in a recent OpEd for the StarNews, said there was a push to make all of the foundation appointments come from the county commissioners, citing three of the five votes necessary to make the change.
 
She argued that having more appointments from the county commissioners would hamstring the foundation’s ability to invest in sources outside the fiscally conservative ones outlined in state law and could limit the endowment’s earning potential.
 
“The whole way that foundation was structured to begin with was to be able to only take off the amount that it earned every year to be used for purposes that the foundation board members would approve,” she said in an interview this week, point­ing to the difference that a 1% and 4% return would mean on a billion-dol­lar endowment.
 
But enough commissioners – including Woody White and Jon­athan Barfield – said they share Kusek’s logic and would not vote for a change in the proposed board makeup, so there does not appear to be support for that change.
 
“I’ve had individual discussions with commissioners about all types of options on the board,” said com­missioners chair Julia Olson-Bose­man. “One of [the options] was 11 members from the commissioners, but ultimately the majority of com­missioners didn’t believe that was the right way to go. So the majority of commissioners to the best of my knowledge believe that five should be appointed by commissioners and six by the trustees because we want to be able to maximize the benefit that we get from the foundation because that’s going to be there forever.”
 
Commissioner Rob Zapple, how­ever, disagrees with the investment interpretation. He said even with a foundation board made up solely of commis­sioners’ picks, the state statute allows for the state Local Government Commission to approve a more aggressive investment plan.
 
Zapple also said he was concerned with a future hospital board, which will replace the existing NHRMC Board of Trustees, as part of the deal having control of the majority of the foundation’s appointments and say over the endowment money.
 
As part of the proposed sale, local governance was stressed as a key area, and the new 15-member hos­pital board is supposed to include mostly (at least 12) residents of the region.
 
“However, it does say there, that the entire board will be ratified by Novant Health,” Zapple said about the new hospital trustees, which will hold six of the appointments for the community foundation. “If we don’t work out a better system of appointing, I’m not only going to oppose this, I’m going to be extreme­ly vocal.”
 
The only change on the founda­tion that has come up so far is a two-year cooling-off period before elected officials and hospital trustees would be eligible to sit on it.
 
Commissioners voted 4-1 on Aug. 10 on that additional rule – the letter of intent already stated that sitting officials could not serve on the foun­dation. But the vote angered Kusek, who had expressed interest in being considered for the foundation since she is not running for re-election and her professional background is in finance, in part because she said she didn’t know the vote was coming up.
 
“This is not the way that we’re supposed to govern. We’re supposed to have discussions,” said Kusek, who voted against the change. “We’re not supposed to have things tossed out that aren’t on the agenda and we’re expected to vote on them inside of three minutes.”
 
The foundation appointments and cooling-off issues bring up a larger point of what other details commis­sioners might disagree about leading to the final vote on the entire deal.
 

Hospital Transition: $300 Million

 
The letter of intent calls for $300 million from the sale proceeds to be set aside for an “NHRMC Transi­tion Stabilization Escrow” account.
 
Of that, $100 million would be used to cover any trailing costs not addressed in other parts of the con­tract. An example Coudriet gave of that would be damages from poten­tially pending lawsuits that might have started before Novant became the new owner but the amount won’t be known until later. Any money not spent from the $100 million two years after the closing would be split between the NHRMC Foundation and the new community foundation, according to the letter of intent.
 
The other $200 million would help employees from being impacted by moving to new benefits, cover some wind-down and transfer costs for moving the ownership over and “ad­dress the staff and provider resilien­cy funding needs,” according to the letter of intent.
 
Because NHRMC currently has a pension plan for its employees, and Novant Health does not, part of the money is intended to help fund their transition.
 
Of the nearly 7,500 NHRMC employees, there are more than 5,300 active employees in the hospital’s de­fined benefit pension plan, which as of April was almost $263.8 million, according to NHRMC officials.
 
How much of the $200 million escrow fund would be used to address the pension was still being determined, said Carolyn Fisher, NHRMC’s director of marketing and public relations
 
“There are many variables and assumptions to project over the plan life, the liability and the related funding,” she said.
 
In the area of “resiliency fund­ing,” Fisher said, “We are looking for ways to invest in programs and services for staff and providers that will support their broader needs. Preventing burnout has been a prior­ity for us.”
 
Fisher also said that no details around potential hospital employee bonuses have been finalized.
 
County commissioners’ responses about potential bonuses ranged from not having heard about the propos­al to a one-time bonus of $3,000- $5,000 for each employee to a $1,500 bonus only for those on the lower end of the pay scale.
 
“I wanted just to make sure that no employee was left behind,” said Olson-Boseman, who also sits on the hospital trustees board. “We put them through a lot over this past year, and I certainly believe – and I think all of the trustees believe that – this has been a rocky time for them … We felt that we should protect their pension, the people who were there, and give the lower-paid [em­ployees] a one-time bonus.”
 
Zapple has questioned why No­vant shouldn’t absorb those em­ployee costs when they transfer over to their payroll instead of taking it from county proceeds. Coudriet said they could have reduced the sale price by $200 million and asked No­vant to cover those areas but it still stems from the same money.
 

County Reserves: $300 Million

 
In the same amount as the hos­pital escrow, the county also came up with a proposed $300 million set aside for a “County Revenue Stabili­zation Fund.”
 
The idea is to use interest pro­ceeds off that fund to cover county costs. A supermajority of the sitting commissioners, or four of the five votes, would be needed to dip into the escrow.
 
While it would be up to commis­sioners on how to spend it, Coudriet said examples of spending could range from helping shore up sales tax dips as what’s happening now because of the COVID-19 pandemic or covering costs from hurricanes.
 
“We would imagine using it to pay as you go to satisfy limited obligation bond debts early or at the point that they’re called rather than refinancing and paying them off; COVID-19, where we are going to be several million dollars short on sales taxes,” he said. “There would be money in escrow available to stabilize the budget. Hurricane Flor­ence, we ended up spending about $26 million largely out of the fund balance. Rather than dip into fund balance, [we could] use the escrow as the bridge until reimbursement comes in.”
 

Mental and Behavioral Health Fund: $50 Million

 
Finally, under the letter of intent, $50 million is earmarked for mental and behavioral health initiatives.
 
The money, as proposed, would be used to fund long-term, resi­dential substance abuse treatment programs; commit to sustained grant funding to evidence-based programs; and expand access to mental health services.
 
“We all believe in doing something about the opioid crisis,” Olson-Bose­man said, “so we want to make sure that was identified up-front.”
 

FOUNDATION ENDOWMENT

Here are areas that have been identified for areas that the pro­posed $1.25 community foundation endowment money could be used for, including examples of potential initiatives, according to the letter of intent approved in July. The final agreement documents might show the same areas or could have been updated since then.
 
Public Primary, Secondary and Post-Secondary Education (possible initiatives)
  • High quality universal pre-kin­dergarten with wrap-around services
  • Comprehensive, no-cost broad­band connectively countywide
  • Comprehensive access to mod­ern technology for all learners
  • NHC Teacher Fellows program for traditional and charter school graduates committed to returning to local public schools
  • Access to scholarships for post-secondary education attain­ment
  • School facilities designed for mid-21st century education delivery

Health and Social Equity (possible initiatives)
  • Eradicate food deserts across the county
  • Expand access to high quality, fair cost physical and mental health clinics for county residents
  • Funding support to eliminate disparities in health outcomes focused initially on diabetes and obesity
  • On-demand, cost-effective tran­sit system for dependent and choice riders
  • Funding for new senior resource centers and other support for senior citizens based on the county’s strate­gic master plan for aging adults

Community Development (possible initiatives)
  • Workforce housing trust fund
  • Small business micro-loan pro­gram
  • Minority- and women-owned business support programs
  • Open space and public water access preservation

Community Safety (possible initiatives)
  • Next generation 911 services developed and deployed
  • Rapid response fire rescue and emergency medical services
  • Support and resources for community-led restorative justice programs
  • Modern development and train­ing of law enforcement, to include cultural competency and implicit bias
  • Comprehensive flood, storm surge and wind mitigation invest­ments
Correction: This version updates the fact that the final agreement has to be made public before a final vote under state law, but the county is not required to hold a public hearing as part of that statute.
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