By Liora Engel-Smith and Rose Hoban
On the heels of a flurry of mergers, acquisitions and shifts in North Carolina’s health care environment in recent months, two large systems have announced Friday their intent to more closely affiliate.
The Charlotte-based Atrium Health has agreed to form a new “enterprise,” Atrium Health Inc. with the Winston-Salem based Wake Forest Baptist Medical Center and its medical school.
Atrium gains a foothold in the Winston-Salem market and access to a medical school, something that Charlotte has lacked to date. The agreement earns Wake Forest School of Medicine a second medical school location in Charlotte.
Atrium is in an unusual position; it is a county authority, called the Charlotte Mecklenburg Hospital Authority, and does business under the name Atrium. This legal structure brings some benefits but it has also served, at times, as a check on Atrium’s desire to expand.
In the past Atrium has sought to merge or partner with other health care systems in the state, but was foiled, in part, by an existing state statute that limits the geographic expansion of a hospital authority to within a 10-mile boundary of its home county.
When Atrium saw an opportunity to expand by establishing a foothold in South Carolina, North Carolina lawmakers amended state law in 2015 to explicitly allow such an expansion to another state. Since then, Atrium has made moves to acquire the Floyd Health System, based in Rome, Georgia.
This new move is accomplished by what seems to be a legal sleight of hand that creates a new “enterprise” which will be a nonprofit corporation, Atrium Health Inc. with a board comprised of people representing both the Charlotte Mecklenburg Hospital Authority and Wake Forest Health. Separate boards of directors for CMHA, WFUBMC and Wake Forest University will remain in place.
No legal review anticipated
Executives from both systems said the agreement, which goes into effect immediately, was approved by the Federal Trade Commission earlier this week. In an email Friday, Atrium has said that the health system received “all the required regulatory approvals.”\
In recent years, there’s been increasing scholarship on how health system consolidations affect prices for consumers. Research has shown that mergers have pushed up costs for procedures and hospital stays, especially when they take place in the same market.
“There’s empirical evidence that suggests that once mergers take place, quality does not improve at all,” said Barak Richman, a Duke Law professor who’s an expert in health care policy and antitrust law. “There’s lots and lots of evidence that prices do go up.”
The FTC reviews large health care transactions that could result in regional monopolies. Richman surmised that since Atrium and Wake Forest Baptist function in different markets, the agency was less inclined to push back.
“FTC approval does not mean it’s a good thing, it just means the FTC is busy and thinks that, you know, its priorities are elsewhere,” Richman argued. “The fact that this required FTC approval means that there’s some real financial consequences to this and that really is the story that belongs in the headlines.”
The federal agency can, but isn’t required to, coordinate investigations with states’ attorneys general. Representatives from N.C. Attorney General Josh Stein’s office referred questions on the consolidation of Atrium and Wake Forest to the FTC and the federal agency declined to comment Friday on the grounds that the FTC comments only if the vetting process yields complaints.
Combined, the two health systems have “direct and indirect economic and employment impact from the combined enterprise [exceeding] $32 billion,” according to the press release.
Atrium Health finished 2019 with $6.5 billion in revenue and an operating margin of 5.6 percent. Wake Forest Baptist finished its 2019-20 fiscal year at the end of June with $3.6 billion in revenue and an operating margin of 1.5 percent.
Together, the two systems have 42 hospitals, more than 1,500 clinics and over 70,000 employees across the Carolinas and Georgia. In North Carolina, that territory will now include two major population centers: Charlotte and Winston-Salem.
Richman, who has studied hospital mergers for several decades, was sanguine about what the deal would do for patients.
“It’s very, very hard to integrate delivery systems in a way that’s beneficial. It’s hard to achieve any kind of promised efficiencies, there’s always a good game that’s described about how something transformational will happen,” he said. “On the operational level, it’s very, very hard to change how separate hospitals operate.”
If the two entities join forces in order to negotiate with insurers, that could mean higher prices for patients, he said.
“That would be a really big deal,” Richman said.
“This is consistent with what Atrium has been doing over the last 10 years. I mean, after establishing local market power in Charlotte, it started to branch out not just across North Carolina, but even other states,” he said. “It’s doing that, I think, very deliberately, like a lot of other hospital systems have across the country, to gain leverage over pairs.”
Long desired school
Charlotte is the fourth largest city in the United States that lacks a medical school. In recent years, UNC Chapel Hill has created clinical rotations for third- and fourth-year students in Charlotte, but the city yet lacks the prestige that comes with having a major academic and research institution.
Although the press release announcing the moves says that “Wake Forest Baptist Health and Wake Forest School of Medicine will become the academic core of Atrium Health,” it’s unclear what this actually means in terms of corporate structure. What’s clear, though, is that the ties between the medical school which has been closely associated with Winston-Salem since the late 1930s will have a significant presence in Charlotte.
Creating closer ties with Wake Forest School of Medicine creates educational opportunities for more than 3,500 students in various roles across the health care field, Atrium officials said.
They admit, though, they have yet to determine the exact location of the new Charlotte campus, and a timeline for constructing and opening the second branch is also undetermined as of yet they said on Friday.
“It is our privilege to educate and train the next generation of physicians, medical educators, mentors, researchers and health care innovators so that they will chart the course to new clinical discoveries,” said Julie Ann Freischlag, CEO of Wake Forest Baptist Health and dean of Wake Forest School of Medicine.
This isn’t the first time Atrium Health, a quasi-governmental organization, tried to combine with other systems. A proposed merger between Atrium and UNC Health fell apart in 2018, in part because of questions surrounding health care price increases and under pressure from Stein.
When reached for a comment Friday, the North Carolina Healthcare Association, a membership organization for hospital systems, did not comment on the agreement directly.
“We trust our members to make the right decision for their communities,” said spokeswoman Cynthia Charles.
Rep. Donny Lambeth, a Winston-Salem Republican and a former executive at Wake Forest Baptist, said on Friday that while the union strengthens both organizations, it is also a sign of the challenging health care environment in North Carolina.
“Small [health care providers] are struggling because they can’t recruit quality people into their community and keep the technology,” he said. “The big ones, for some reason, feel like they need to keep up with outside consolidations and efficiencies, to be able to keep their costs down to keep up with a lower reimbursement rates that they’re getting.”
While Lambeth said the expansion of the medical school is a welcome development for North Carolina’s health care workforce, he said the merger with Atrium could result in a loss of jobs in the Winston-Salem area as some positions move to Charlotte.
Another regional provider, Novant, however, is in the process of acquiring New Hanover Regional Medical Center, a move that will perhaps offset job losses in the region, he added. The new combination of Wake Forest Baptist Health and Atrium Health will overlap with Novant’s current footprint and likely increase competition between the two entities.
“I think you’re going to see some significant changes,” Lambeth said. “These consolidations cost a lot of money … and obviously medical schools are very expensive to get started.”
This story has been updated to clarify that Atrium is in the process of acquired the Floyd Health System, but has not yet bought the system.