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By Taft Wireback
When they made the surprise announcement last week abandoning a merger that had been in the works for almost a year, Cone Health of Greensboro and Norfolk, Va.-based Sentara Healthcare said they had reached an amicable agreement that it was better for each hospital system to remain “independent.”
Experts suggest that could be a posture that’s easier for the much larger Sentara to retain than for mid-sized Cone.
The health care environment these days is not friendly to hospital systems of modest size that face rising costs, increased competition in their own backyards, stingier payouts from insurers, and heightened pressure from their customer base for the latest and best technology.
Consolidation is the prevailing response nationwide to this challenging operating environment, said Mark Holmes, professor of health economics at UNC-Chapel Hill’s Gillings School of Public Health.
“I think we’re going to continue to see this consolidation,” Holmes said. “It’s all related to market volume, but also to the ability to manage a certain population. Sometimes, it may not be a formal merger but a partnership.”
But consolidation is often controversial. Cone’s planned realignment with Sentara caused some of the Greensboro health system’s medical staff to publicly express reservations and it has ignited a political controversy that could become an issue in Greensboro’s upcoming mayoral election.
Holmes said consolidation occurs “horizontally” when hospital systems merge or otherwise affiliate with other hospital groups, and “vertically” when they acquire medical practices.
If Cone were to be gobbled up in a future marriage of convenience, some might see it as a dose of the health system’s own medicine. As recently as the 1980s, Greensboro had three competing hospitals, the nonprofit Cone and Wesley Long facilities and the for-profit Humana Hospital.
Over the years, Cone absorbed both of their local competitors as it also moved vertically to acquire numerous medical practices and fold them into its burgeoning network. The Greensboro-based system also added Annie Penn Hospital in neighboring Rockingham County to its roster, along with Alamance Regional Medical Center to the east in Burlington.
To be sure, Cone’s expansion efforts faltered at times. Its leaders stumbled in earlier efforts both to bring Randolph Health of Asheboro into the fold, and when they attempted to form another potential alliance with the much larger Atrium Health based in Charlotte.
Still, it caught many off guard last summer when Cone leaders announced their plan to merge with Sentara, a significantly larger, out-of-state entity that a lot of area residents had never heard of.
About three times the size of Cone Health with assets of roughly $8.5 billion and almost 30,000 employees, Sentara would have been the dominant partner and the Cone Health network would have morphed into a regional division if the larger system with proportional representation on the combined enterprise’s governing board.
Then, after months of review, something equally unexpected took place last week when Cone and Sentara announced they were calling off the engagement.
Initially when the merger was announced in August, Cone Health’s lead administrative architect of the merger — CEO Terry Akin — was to remain as the divisional leader of the new Greensboro region. Later, he said that for purely personal reasons unrelated to the merger, he instead would be leaving once the deal was finalized.
After the merger was scuttled last week, Cone Health said that Akin’s plans haven’t changed. He’ll still be departing and his previously announced successor, Mary Jo Cagle, will take the helm later this month. She will become the first woman and the first physician to serve as Cone’s chief executive.
Cone and Sentara leaders have agreed not to speak critically or negatively about each other, so details of what led to their break-up have been hard to come by. But several insiders told N.C. Health News that the separation was mutually agreed-upon and not confrontational.
“Collegial” is how one described relations between the two groups of leaders even as they parted ways.
One person with knowledge of the proceedings said the decision “was not driven by anything external,” such as pending reviews of the proposed merger that were underway by the Federal Trade Commission and North Carolina Department of Justice.
That person, who asked to remain anonymous because they were not authorized to speak for Cone Health, said the merger appeared to be proceeding smoothly until recent weeks.
In announcing the merger’s abandonment on June 2, Cone and Sentara leaders spoke vaguely of realizing late in their discussions that the two health systems had different cultures that manifested themselves in different ways of serving their respective communities that would have been challenging to blend.
That seemed a sharp contrast to the rationale the two health systems gave just 10 months earlier in announcing their proposed merger. At that time, they said the merger made sense because the two systems had such similar commitments to “value-based” health care and community service.
Honoring their non-disparagement agreement, insiders interviewed by N.C. Health News last week declined to provide concrete examples of how their newly described cultural differences might have resulted in a program or service that did well in Norfolk being a failure in Greensboro, or vice versa.
One person with knowledge of the negotiations said that COVID-19 might have delayed the realization by either side that the merger was unworkable because until recently, the pandemic prevented groups from “rubbing shoulders” in the face-to-face meetings necessary for such planning.
That person also said the impasse between Cone and Sentara’s differing approach to medical services stemmed at least partly from the fact that Sentara is the only major player in its domain, while Cone has competitors.
Indeed, Cone faces nearby hospital competition from Wake Forest Baptist Health that owns High Point Regional Medical Center also in Guilford County, and from UNC-Rockingham Health that owns Morehead Memorial Hospital in Eden.
In addition, the Wake Forest, Novant and Atrium health systems also are making inroads with medical offices in the Greensboro area.
Despite the crowded field and the trend toward health care consolidation, Cone trustee Lenora Campbell said the health system is well positioned to preserve its independence for the foreseeable future.
“Cone has always been strong financially,” said Campbell, dean of N.C. A&T University’s school of health and human sciences in Greensboro.
“We were that way before we started doing the merger and that has not changed,” she said.
Prominent local cardiologist Thomas D. Stuckey expressed similar sentiments in a letter to the editor published Sunday in the Greensboro News & Record newspaper. Stuckey noted the great strides in cardiovascular services that Cone Health made independently in recent years and predicted that “bright minds, grit and big thinking could lead to unlimited possibilities” with a goal of making it North Carolina’s best health care system.
“I am not losing any sleep over the failed merger,” Stuckey wrote.
Indeed, several hours after Cone and Sentara called off their proposed merger last week, state Attorney General Josh Stein released a statement criticizing the trend toward consolidation in health care across North Carolina, noting that bigger is not always better and can result in lower-quality health care.
The Stein factor?
Stein’s staff in the state Department of Justice was in the midst of reviewing the Cone-Sentara proposal when the two health systems pulled the plug, leading to speculation that Stein’s pending review might have played a role in the merger’s abrupt termination.
Cone Health trustee Ed Cone – of the hospital system’s namesake family – said that was not true, posting a denial on Twitter sharply criticizing news coverage of the merger’s termination “that incorrectly implies that the AG’s review was a factor in the decision not to go forward.”
Contacted by N.C. Health News, he declined further comment.
Late last week, a spokesperson for Stein said the office could not disclose details of the unfinished review and what its conclusions or recommendations might have been had the merger gone through.
Stein said in his Cone-Sentara news release last week that he was sending a letter to hospital administrators throughout the state encouraging them “to be certain that consolidation is actually in the interest of the patients and communities they serve before pursuing it.”
Caution in the face of health care consolidation is justified by the impact many mergers have on the average patient, said Barak Richman, Duke University professor of law and business administration.
“Mergers of hospitals and hospital systems generally have only adverse effects on patients,” Richman said. “They regularly fail to achieve any quality improvements or integration efficiencies, and they almost always lead to higher prices.”
Survival of the fattest
But that’s a difficult case to make to a hospital system caught in the competitive crosshairs, watching larger and better financed systems offer what’s at least perceived as “more, bigger, better” to their clientele.
Greensboro Mayor Nancy Vaughan remains a supporter of the scrapped merger that she said bore no resemblance to a hostile takeover, noting that she’s “not sure everyone understood what the long-term benefits were for our community.”
The plus side of merging Cone with Sentara would have included “significant foundation money coming into the community,” she said.
But Vaughan said COVID-19 brought home to her most clearly the drawbacks of being a mid-sized health system competing with giants. As the pandemic tightened its grip in mid-2020, crucial medical supplies went first to the larger health systems and Cone had to wait in line for adequate shipments of such crucial supplies as personal protective gear and ventilators, she said.
Cone was able to use its vacated, former Humana Hospital building as headquarters of a COVID response that ultimately won national recognition, but it was by happenstance this building was available, she said. Cone Health had been using the former Humana site as its specialized women’s hospital, but just before the pandemic struck, system leaders had emptied the building and moved its services to the main campus elsewhere in Greensboro.
A fellow member of the Greensboro City Council who is running against Vaughan in this year’s mayoral contest contends that the mayor and other community leaders who wholeheartedly endorsed the merger failed their constituents.
Greensboro City Council member and mayoral candidate Justin Outling said Cone officials assured him that he had access to all of the same information other elected officials had received, but his response was to seek more data and keep asking skeptical questions.
Outling, an attorney, said he applauds Cone Health officials for “continuing to do their due diligence” and determining the merger would not work. But the very fact they eventually reached that conclusion proves that his skepticism was the right response for public officials trying to act in the best interest of those they represent, Outling said.
Outling said that when health care officials explore new options that promise great benefits, “we should support them in their work.”
“But that doesn’t relieve us of our obligation to ask questions,” he said.
As Holmes of UNC asserted, health care consolidation is a trend not likely to vanish anytime soon, driven by motivations that are important to understand.
Future hospital consolidations may be pursued because it’s likely to result in real gains for patients and for those who treat them on the front lines of health care.
Or are they, as Holmes asked, “because my main competitor just connected with somebody else so now I’m the little guy in town?”