By Mark Tosczak
Asheville-based Mission Health announced late Wednesday it was entering negotiations to sell itself to Nashville, Tenn.-based HCA Healthcare Inc., the country’s largest for-profit hospital operator.
Mission leaders touted the deal as a way to continue to improve the care and efficiency of the $1.8 billion Asheville-based system, as well as a way to bring tens of millions of dollars in new tax revenue and charitable spending to the mountain communities Mission serves.
And, they said, Mission’s financial strength allows it exert more control in choosing a buyer and negotiating the deal.
“The board has been wrestling with this for some time,” Mission board member Tom Oreck said Thursday morning. “Mission has never been stronger and [now is the] perfect time to look for a partner.”
The Mission board voted unanimously to sign an exclusive letter of intent to negotiate its sale to HCA, a publicly traded company. Mission laid out a timeline for the deal, which would include 90 days of due diligence, the negotiation of an agreement, approval by the N.C. attorney general, and, after that, a sale later this year.
Proceeds from the sale of Mission would be used to create a foundation that could tackle social factors that affect health, such as behavior, transportation, housing, food and early childhood education, said Mission CEO Dr. Ronald Paulus.
He said such a foundation would be the second biggest in North Carolina, behind the Duke Endowment, which has $3.5 billion in assets. That suggests a final sales price for Mission might be in the billions of dollars.
Several such foundations have been created across North Carolina in recent years as smaller hospitals have been sold to larger health systems in a wave of consolidation that’s reshaped the hospital landscape in North Carolina and across the country.
More mergers
The Mission-HCA announcement comes just three weeks after Charlotte-based Atrium Health, the state’s largest health system, and UNC Health Care suspended talks to create a joint operating company to run both systems’ hospitals across North Carolina and other states. That deal reportedly foundered over questions of control between Atrium and the smaller, state-owned UNC system.
- Six hospitals
- 2017 revenue: $1.8 billion
- Revenues in excess of expenses: $160.3 million
- 10,700 employees
But it also attracted considerable skepticism from some of the state’s biggest health care payors, such as Blue Cross and Blue Shield of North Carolina and the state employees’ health plan, about what such a merger might mean for the cost of care. Critics of the Atrium-UNC proposal cited academic studies of hospital system mergers that showed they tend to increase prices, as larger systems generally have more negotiating power with private insurers.
“We look forward to reviewing the details,” about the potential Mission deal, Blue Cross and Blue Shield of North Carolina spokesman Austin Vevurka said in an email. “Our position on any major health care decision will be based on whether or not it lowers our customers’ cost and improves their quality of care.”
[sponsor]The proposed Mission-HCA deal is different, Paulus said, because there’s no overlap in the two companies’ market areas.
“All of those studies have looked at market consolidation,” Paulus said. “In this particular deal, there’s zero market consolidation because HCA doesn’t currently have a presence in North Carolina.”
But an HCA purchase of Mission would change that — and could change it beyond the mountains of North Carolina. Inquiries to HCA weren’t immediately returned, but Paulus said he thought that HCA sees growth opportunities in North Carolina beyond acquiring Mission. “That’s why they’re setting Mission up as a separate division.”
Bob Berenson, a health care policy expert at the Urban Institute who’s studied the Certificate of Public Advantage agreement that Mission signed with the state in 1995, when the system was created by the merger of two hospitals in Asheville, wondered how attractive North Carolina might be to HCA, since it’s already dominated by a handful of large hospital systems.
“Is HCA really going to want to challenge that?” he said. But, if HCA does want to expand in the state, it could help keep a lid on health care prices.
- 179 hospitals and 120 freestanding surgical centers in 20 states and the United Kingdom
- 2017 revenue: $47.6 billion
- 2017 profit: $2.2 billion
- 240,000 employees
“Competition would be good,” he said. “Most of the country doesn’t have any and North Carolina doesn’t have much.”
Potential tax windfall
HCA buying Mission Health could provide a boon to local governments where Mission operates. As a nonprofit, the health system doesn’t pay property taxes or sales tax. But HCA would.
“As a for profit, it means it will pump a great deal of tax dollars into the community, which is obviously good,” said Oreck, the board member.
Paulus said he doesn’t know exactly how much annual tax revenue local governments might get, but it would be “more than $10 million,” he said.
Oreck and Paulus said the deal would also allow Mission patients access to some of the significant medical expertise that HCA has developed. For example, HCA’s Sarah Cannon, a Nashville cancer center that also houses a robust research arm, is on the leading edge of tumor DNA analysis and the interactions between tumor DNA and normal DNA.
“The most important issue is who can help us continue to drive and enhance our mission in terms of health care, the quality of health care, for western North Carolina residents,” Oreck said.
Once Mission and HCA work out the terms of the sale, N.C. Attorney General Josh Stein will review it “to ensure the public’s charitable investment in Mission is preserved for the people,” spokeswoman Laura Brewer said in an email. “He will be reviewing this deal closely and will have more to say as it moves forward.”
In some states, attorneys general, “When they look at acquisitions they often engage in consent decrees with the purchasing entity to constrain their behavior for some period of time,” Berenson noted.
Paulus and Oreck said that Mission had talked to a number of potential acquirers before agreeing to work with HCA. The talks to get to the formal letter of intent the Mission board approved Wednesday took “a good number of months.”
It will likely be a good number of months before Mission and HCA finalize a deal.
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HCA would write the revenue checks, but patients at Mission would pay the bill. Ten million dollars in revenues paid exclusively by sick people! Have we really come to that?
Part of the purpose of the Affordable Care Act of 2010 is to establish “comprehensive health care insurance reforms that aim to increase access to health care, improve quality and LOWER HEALTHCARE COSTS, and provide new consumer protections” (The Office of the National Coordinator for Health Information Technology, 2017). In what manner does converting to a for-profit healthcare network ensure compliance with this regulation when the organization will pass down the added costs to patients?
Citation:
The office of the National Coordinator for Health Information Technology. (2017). Health it legislation. HealthIT.gov. Retrieved from: https://www.healthit.gov/topic/regulations-policy/health-it-legislation