By Mark Tosczak
ASHEVILLE — When hospital CEOs meet, conversations about opportunities to partner with one another in different ways are common.
Mission Health CEO Ron Paulus said he’s had scores of such conversations since joining the system in 2010. But serious talks about selling Mission took off at the beginning of this year.
The system’s board, at a retreat in January, decided that Mission could choose to remain independent, but it wasn’t in the best interest of the communities it served to do so. They instructed Paulus to seek formal offers.
It wasn’t hard to identify a small number of potential buyers who would be interested in Mission and who would have “enough value to bring that they should be considered,” Paulus said in an interview with NC Health News.
Mission identified “a good handful” of potential suitors and wrote a formal letter to those potential acquirers to solicit their interest, Paulus said. Those letters were returned in January and Mission narrowed their candidates from the “handful” to three and then to two, each of which came and made formal presentations in February.
Paulus declined to say which other systems expressed interest, but he said HCA was the only for-profit entity involved and that some of the potential suitors were North Carolina systems.
Financial clout
In the end, though, the board decided that HCA was the best choice.
Paulus says HCA’s massive purchasing power and efficiencies of scale will allow the Asheville health system to better contain costs as government payors, insurance companies and employers pressure all health care providers to operate more cheaply.
“If the issue is actual operating cost structure, which I believe in the long run is the only thing that provides survivability, you have to have the expected or better quality at the lowest possible cost,” Paulus said. “And they clearly have the lowest possible cost.”
Price: $1-2 billion, with proceeds put into a foundation that would address social determinants of health in western North Carolina. The foundation would also be charged with enforcing other terms of the sale.
Terms: HCA agrees not to close any current Mission facilities for at least five years, with any closing being preceded by at least two years of financial losses. In addition, HCA would have to offer the facility it planned to close for sale.
Timing: Mission leaders believe a transaction could be completed by the end of 2018.
HCA is the nation’s largest private operator of hospitals. The $43.6 billion corporation, based in Nashville, owns and operates 179 hospitals and 120 freestanding surgery centers in 20 states and London, England. Mission Health would be the company’s first North Carolina acquisition.
“The average not-for-profit health system loses 11 cents on the dollar on Medicare,” Paulus said. “We lose four and a half cents. [HCA] loses between half a cent and makes half a cent.”
In fact, he said, the fact that Mission is already more cost efficient than most nonprofit health systems “was one of our challenges in looking at other nonprofit partners.
Once Mission and HCA agreed they were both interested, the next step was for each to do due diligence — think of it as the business equivalent of a home inspection when you sell a house — and negotiate the terms of the sale.
Due diligence
Mission has provided tens of thousands of pages of documents to HCA and the Tennessee company has sent “many tens of people” to visit all of Mission’s facilities, Paulus said. Mission leaders and staff in turn have visited HCA hospitals to learn more about the company and how it operates.
“We want to talk to the people that work for them and understand how their experience has been and what they’ve seen as the pros and cons,” he said. “We want to talk to people who’ve gone through similar decisions. So board members that were involved in the decision process to be acquired by HCA and lessons learned and what they would have done differently, if anything.”
Even though HCA is a for-profit and Mission is a nonprofit, Paulus said he believes a Mission operating as part of HCA will provide as good as — or better — care than Mission by itself.
“All people have biases, right? So they walk into it saying, ‘Oh, it’s for-profit, it’s going to somehow be bad,’ although they don’t carry over that same perspective to their automobiles, or, you know, their consumer purchases,” Paulus said. “It’s just this unique thing that we assign to health care that somehow ‘for-profit’ is bad by definition, which to me is nonsensical.”
Paulus cites a study by Harvard researchers that found that hospitals that switched from nonprofit to for-profit status show similar levels of quality of care, but improved financials.
Impact of HCA acquisition
Mission officials have said they can’t say exactly what all of the implications of an HCA takeover will be for the health system, but they have said that any job losses would be similar to what Mission itself would have done anyway to control costs.
“While some positions will likely change or be eliminated over time due to changes in market demand as they have been for years, we do not anticipate significant changes beyond what we typically experience or that otherwise would be required as we evolved and expanded our organization alone, without an HCA Healthcare relationship,” Mission says on a website devoted to the transaction. “Additionally, HCA Healthcare plans to invest and grow here so, importantly, we do expect new jobs and new opportunities to be created – particularly for clinical staff.”
[sponsor]And although HCA is the buyer, Mission brings more than just some more hospitals to HCA, Paulus said, including expertise in delivering high-quality care efficiently that could be shared with the scores of other hospitals HCA owns.
“My personal view is that they’re going to get the majority of the return from this transaction by what we bring to them, as much as what they bring to us,” Paulus said.
Entering North Carolina
One thing the Mission acquisition brings to HCA is a foothold in North Carolina.
James Emery, a management professor at Duke University’s Fuqua School of Business who has worked in and studies health care management, said that “HCA appears to use a locally managed model among its facilities, so while there will certainly be changes, they may not be as significant as one might expect in this type of acquisition.”
In fact, one significant impact of an HCA acquisition might be outside the Mission system, among other health systems in the state.
“We might expect to see HCA step up efforts to make additional acquisitions within the state,” Emery said. “With a major system like Mission Health agreeing to be acquired by HCA, we may see other independent N.C. hospital boards more actively consider HCA as a viable suitor.”
Mission leaders, too, have said that they believe HCA wants to grow in North Carolina. The company owns hospitals in Virginia, Kentucky, Tennessee, South Carolina, Georgia and Florida, so Mission and any future N.C. acquisitions would fill a gap in its southeastern U.S. presence.
But before any of that happens, N.C. Attorney General Josh Stein must approve the sale.
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