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By Taft Wireback
UPDATE: On Wednesday June 2, Cone Health and Sentara made a joint announcement that the merger of the two systems was being called off, with few available details. NC Health News is reporting a follow-up story.
As North Carolina Attorney General Josh Stein considers whether to intervene in the proposed merger between homegrown Cone Health of Greensboro and Virginia-based Sentara Healthcare, he has gotten plenty of input on both sides of the issue.
The state Department of Justice’s month-long public comment period drew more than 40 responses between late March and April 28, including one from a Cone Health physician telling Stein the proposed marriage of the two major health systems is a bad idea.
Stein and his DOJ staff are mulling whether to file a lawsuit that could torpedo the merger if they determine it would not be a good deal for North Carolina residents.
Stein’s formal approval of the proposed Cone merger is not required by North Carolina health care law. But state law does empower his department to review mergers involving charitable corporations such as Cone Health when they seek to sell or otherwise bargain away a majority of their assets.
If he objects, Stein can file a suit against the merger in civil court.
Two years ago, Stein allowed HCA Healthcare to purchase Asheville-based Mission Health without a legal challenge, but only after negotiating changes to the proposed transaction aimed at further protecting public health. Among other things, his changes to the $1.5 billion deal doubled the length of time new owners were required to continue providing an array of medical services at five rural hospitals in western North Carolina.
Community activists expressed disappointment that Stein didn’t take a more aggressive stance against the Mission takeover, while others noted that the attorney general had only limited ability to do more.
Critics of the Sentara-Cone proposal told the attorney general in a variety of ways that bigger does not necessarily mean better, especially when it comes to delivering medical services in an effective and caring way.
“I oppose this merger and respectfully argue that the merger is not in the best interest of our community nor North Carolina,” Cone Health physician Kurt Lauenstein wrote in an April 23 email to the DOJ. “I would add that ‘nonprofit’ organizations that pay 6-figure salaries do not deserve the designation of ‘nonprofit.’”
Lauenstein said he was offering his perspective “from the trenches of primary care,” making the case that as health systems get ever larger and more complex the quality of care they deliver suffers at the hands of administrative complexities and what he described as a “one-size fits all approach.”
“As Cone has grown, so has the administrative burden,” Lauenstein said. “Just check out the number of ‘management’ and ‘IT’ staff ratio to health care delivery staff . . . Where I work we have 3-4 providers working with 3 managers. This overhead diminishes flexibility, profitability and staff morale.”
Cautionary comments also included a protest from hospital officials in Randolph County who claim that Cone has neglected to “seek or obtain” their required approval of the merger’s impact on a jointly owned cancer center.
Another broadside came from a Virginia resident who also submitted copies of his separate complaints to two federal agencies against the proposed merger because of its alleged potential to drive up patient costs by stifling competition.
The public input also featured somewhat contrasting viewpoints from two elected Greensboro officials who are facing off in the community’s upcoming mayoral race.
Commenters who supported the Sentara-Cone plan made similarly impassioned pleas that smaller, Greensboro-centered Cone Health would benefit greatly from its combination with the Sentara network that they depict as having a like-minded approach to “value-based” health services.
“Sentara has committed to investing strongly in our communities – providing much needed capital to the system to assist it in meeting community needs that it simply could not do itself,” former Cone Health CEO Tim Rice said in a comment he sent April 14.
Rice, who retired at Cone Health six years ago, asserted that in addition to improving Cone’s financial outlook Sentara had promised to invest in “existing health-focused foundations that serve Guilford, Rockingham and Alamance counties” where Cone dominates.
Proponents also included Greensboro Mayor Nancy Vaughan who said the two health systems’ “combined resources and knowledge will only lead to providing high quality, affordable and accessible health care in more ways and more places.”
Differences in scale
At issue is a proposed merger between two systems that together own about $11.5 billion in assets and generate roughly $8.5 billion per year in revenue, according to the corporate pair’s most recently available Form #990 financial reports for 2019.
In terms of sheer size, Cone ranks No. 6 among North Carolina health systems with about $2.2 billion in annual revenue and 13,000 employees. Sentara’s yearly income is roughly three times greater and it employs 30,000 people.
Sentara is known for its political clout in Virginia, where it has headquarters in Norfolk and also oversees the in-house Optima Health and Virginia Premier insurance plans — products that insure nearly 1 million Virginians.
In contrast, Cone’s health insurance plan, Health Team Advantage, is a Medicare Advantage program that insures only about 15,000 people.
The Sentara network already serves a sizable population in North Carolina’s northeastern sector, a Tar Heel presence that includes one of the Virginia-based system’s 11 hospitals. That hospital is in Elizabeth City where the health care giant plans to build a replacement for the current, 60-year-old Sentara Albemarle Medical Center.
Other OKs required
In addition to getting the green light from Stein, the merger also must pass muster with the Federal Trade Commission, which reviews such transactions and generally takes a dim view of the nationwide trend toward consolidating health care systems into larger conglomerates.
The federal agency believes that by reducing competition, health-system mergers ultimately result in higher consumer costs. But because Cone and Sentara’s existing service areas do not overlap, that could be a difficult case to make in this instance.
The merger plan calls for Cone Health to essentially become a satellite division of the Sentara network with the Greensboro-based leadership having a proportional number of seats on the combined system’s governing board.
The merger plan initially called for current Cone Health CEO Terry Akin to remain in charge of the Greensboro division. Akin later announced he would be leaving after the merger for personal reasons that he said did not stem from any dissatisfaction or disagreement with the impending Sentara-Cone marriage.
Sentara also plans to bring its Optima Health insurance plan to Triad consumers, something the Greensboro mayor and several other supporters mentioned as a plus.
“This new insurance option will be tailored to the needs of local consumers and businesses – something Cone Health could not do on its own without a partner experienced in those markets,” Vaughan said.
The North Carolina Department of Insurance recently approved the part of the merger that would give Sentara oversight of Cone’s Health Team Advantage plan. Insurance Commissioner Mike Causey signed off on that part of the deal May 6, a spokesman for Causey said recently.
“Sentara currently has no plans to make material changes in Health Team Advantage’s business operations or corporate structure or management, other than as may arise in the ordinary course of business,” Sentara vice president Louis Patalano IV said in the health system’s application submitted to the Department of Insurance in February.
Stein’s more broad-based examination is continuing without a timetable for completion, DOJ spokeswoman Laura Brewer said last week.
“Our office is still conducting the review,” Brewer said. “It’s always challenging to set a timeline; the review will take as long as it takes to be thorough.”
The state Department of Justice responded to North Carolina Health News’ request for the public submissions Stein had received during the recent comment period, providing letters and email messages submitted by a total of 42 people.
All but six of the commenters expressed opinions for or against the proposed merger, with 19 in favor and 17 expressing doubts or opposition.
The great majority of comments supporting the merger – 13 or 68 percent – came from people with such ties to Cone Health as current or prior employment in executive positions, service on the Greensboro health system’s board of trustees, or membership on related supervisory panels such as the Cone Health Foundation or the health system’s Cancer Center Advisory Board. (Disclosure: Cone Health Foundation has provided support for mental health reporting at NC Health News)
“Cone Health’s mission will not change, and the expertise and resources brought by our partnership with Sentara will prove to impact the community that we all serve,” said Lenora Campbell, a Cone Health trustee and dean of NC A&T State University’s College of Health and Human Sciences in Greensboro.
“The significant capital investment brought by this new partnership with Sentara will expand access to traditional and digital health programs and build new health-care facilities, and enhance access to health care for some of our most underserved populations,” added the health-school dean at the nation’s largest HBCU.
Including Campbell’s remarks to Stein, six of the 19 supportive comments came from members of the Cone Health Board of Trustees that voted unanimously in favor of the Sentara deal announced in August with an unspecified “mid-2021” target date for completing the transaction.
And warning signals
One of the cautionary comments came from a Black member of the Greensboro City Council who is challenging Vaughan for the mayoral seat in the upcoming citywide elections.
Council member Justin Outling, a Greensboro lawyer, urged Stein to make sure that “vulnerable and marginalized community members receive the medical care they need and are not harmed by the requested merger or acquisition.”
Outling noted that Novant Health pledged $50 million toward such ends in January when it acquired New Hanover Regional Medical Center in Wilmington and that HCA Healthcare similarly had committed about $90 million “to the Asheville area” in its earlier Mission Health purchase in western North Carolina.
“To date, there is no publicly available information on the financial contributions Sentara Healthcare-Cone Health will commit to Greensboro area endowments/foundations to benefit the Greensboro community,” Outling wrote, suggesting that Stein should look into that aspect of the merger and tell the public what he learns.
Another red flag came from a lawyer representing Randolph Health in Randolph County on the southern border of Cone Health’s current domain. The two systems jointly own and operate a cancer treatment center on Randolph Health’s hospital campus in Asheboro.
The center’s operating agreement requires either party to get the other’s consent for any transaction that would change the facility’s ownership ratio by more than 25 percent. As it stands now, Randolph Health is the 60-40 majority owner of the Asheboro treatment center.
But Sentara’s senior-partner status in the proposed merger would introduce new ownership and trigger the cancer center’s required approval clause, Randolph Health attorney Robert L. Wilson, Jr. said in an April 14 letter to Stein.
“Cone Health has not sought or obtained such written approval from Randolph,” wrote Wilson, who is based in Raleigh. “Cone Health has not provided Randolph any information regarding Cone Health’s merger with Sentara.”
He added that his client “only learned of this merger through published reports and is unable to make an informed decision regarding approving the transfer of membership interest” in the joint cancer center.
Contacted recently, Wilson said he could not comment on an “ongoing matter.”
Cone and Randolph Health have a complicated relationship. Cone had been considering a merger with the Asheboro-based system last year, but the talks fell apart in March 2020 about five months before the Cone-Sentara deal was announced.
Financially troubled Randolph Health later unveiled plans to sell its assets including a 145-bed hospital to the Dava Foundation, a nonprofit health care provider based in Manchester, Tenn.
Voices of business, government
In addition to comments that Stein received from those professionally linked to Cone Health, other support for the proposed merger came from what might be called “the usual voices” who participate in such proceedings – elected local officials, leaders of business groups and current or former foundation officials that look to health care systems for support.
“Their mission of providing high quality health care resonates with employers looking to invest in our community,” Brent Christensen, president and CEO of the Greensboro Chamber of Commerce, said of Cone Health’s local track record. “We believe this partnership will surely continue the strong tradition of great health care for the citizens of Greensboro.”
Critics of the proposed merger included Triad physicians and nurses, former Cone patients and several residents of Virginia who either loved or hated Sentara. Seven of the 18 commenters who disagreed with the proposed merger identified themselves as medical professionals, including Lauenstein and three other doctors.
“My concern is that Sentara will be responsible for allocating resources to address the medical needs of the Greensboro community,” said Dr. Jeffrey Medoff, a Greensboro gastroenterologist who has practiced in North Carolina for 44 years. “These will have to compete with other demands on Sentara, a Virginia-based organization with far greater investment and commitment in their home state.”
Medoff is currently affiliated with Wake Forest Baptist Health, but said he also has been on the medical staff at Moses Cone, Duke and Wesley Long hospitals.
Two Triad-area physicians – Drs. James Maxwell of Greensboro and Yun Boylston of Burlington – said the merger would be good for residents of the region. Both also are members of Cone Health’s board of trustees.
“By building on Sentara’s Optima health plan experience, we will (be) able to provide an affordable option for health insurance that will be tailored to our community, improve wellness and keep healthcare costs manageable,” wrote Boylston, an Alamance County pediatrician.
Commenters from Virginia included James Sherlock, a retired U.S. Navy captain and architect who included in his submission complaints against the merger that he also had filed with the FTC Bureau of Competition and the U.S. Department of Justice’s antitrust division.
Sherlock, of Virginia Beach in the heart of Sentara country, alleged that the health care giant relies on an aggressive business style that uses its lucrative insurance arm to reward Sentara-linked providers with high payments while starving medical practices that are not part of the system.
Meanwhile, other insurers cannot compete with Sentara health plans because of Optima’s cozy relationship with the health care branch of the Norfolk nonprofit’s business model, he said.
“N.C. has to my knowledge never seen the combination of integrated market power in both healthcare services and health insurance that Sentara brings,” Sherlock said in an email to NC Health News. “They wield that combination as both sword and shield against competitors in both industries in ways you may not be able to imagine.”
But proponents say the economic realities of the healthcare industry make mid-size systems such as Cone Health particularly vulnerable: They can remain independent for only so long in the face of rising costs, increased patient expectations, tight-fisted insurers and wealthier competitors.
Cone Health has responded by choosing its best available option to create “a great outcome for our region and communities we serve,” said Ed Cone, a longtime board member from the family whose textile-industry wealth and largesse gave birth to the hospital system that now bears its name.
“Consolidation in healthcare is a reality, and Cone is one of the last independent systems in a state full of hungry giants,” Ed Cone said in a March 26 email to Stein and his staff. “We chose to partner with a like-minded system – nonprofit, community focused – that will allow us to continue to offer lower prices than our big competitors while focusing on wellness and value-based care for all people.”