The odds are stacked against Mission Health, says President and CEO Ron Paulus. Prices for essential equipment and labor keep going up, reimbursement rates from insurers and the government are flat or going down, and money-saving improvements to care end up reducing hospital income. In the resulting endless scramble to cut costs, he argues, the nonprofit health system risks losing sight of its actual mission: improving the health of the people of Western North Carolina.
“Using up all of your energy and creativity and innovation on lowering your costs just to keep doing the same thing is not really what you want to be doing,” Paulus told those attending a May 4 breakfast meeting organized by the Council of Independent Business Owners. “You do want to change people’s health status. So the question is, what are the options?”
Apparently, Mission’s leadership has decided that the best option is selling the system to the Nashville, Tenn.-based HCA Healthcare, the biggest for-profit hospital operator in the country. On March 21, Mission Health’s board of directors announced that it had signed a letter of intent to be acquired by HCA, reaffirming the board’s “commitment to preserve and expand Mission Health’s world-class quality of care within a rapidly consolidating health care industry.”
In the process, the health system hopes to radically re-define the way it serves the area.
HCA’s purchase price for the system, plus Mission’s remaining net cash and investments, would fund a nonprofit foundation specifically devoted to boosting public health in the region. At the CIBO meeting, Paulus claimed that the new organization’s assets, which could range from $1 billion to $2 billion depending on the final sale price, would make it one of the three largest foundations in North Carolina and the richest foundation per capita anywhere on the planet.
Paulus concedes that the deal wouldn’t remedy the fundamental structural problems in America’s health care system, but selling to HCA, he maintains, would give Mission’s facilities access to the corporation’s massive buying power, thereby cutting costs and improving margins. And by cashing out now, while the health system is still relatively strong financially, Mission would get more money to fund the new foundation.
Federal regulations, however, would bar the foundation from directly supporting any of the hospitals in the Mission Health system. Meanwhile, questions have been raised about HCA’s history of lawsuits and settlements, as well as the sale’s impact on WNC’s smaller regional hospitals.
At this point, many aspects of the proposed transaction have yet to be determined. Mission staff are still working on the requisite due diligence, and once that hurdle is cleared, state Attorney General Josh Stein would have to sign off on it. In the meantime, however, Xpress spoke with Mission officials and independent experts to learn more about what the region can expect if this historic deal goes through.
For the people
Amid the uncertainties, one thing seems clear: IRS regulations would require the proceeds of any sale to be transferred to a charitable foundation. Because the nonprofit health system is tax-exempt, the community has indirectly supported it through reduced tax revenue. And since a for-profit company would now benefit from Mission’s history as a 501(c)(3) charity, HCA would have to adequately compensate the public for the system’s assets — and that compensation would have to go to a charitable cause that was aligned with Mission’s current purpose.
Legal strictures would also limit the the new foundation’s activities, however. According to Jim DeLauro, a San Diego-based consultant who specializes in health system fundraising, the foundation could fund equipment and programs at other nonprofit hospitals in the region but could no longer support Mission’s facilities.
“The new foundation, because it’s a charitable entity, is restricted from making grants directly to the new hospital,” DeLauro explains. “It would be like a foundation making a gift to the local 7-Eleven. You can’t use charitable money to enrich someone who’s in a profit-making business.”
Instead, the foundation would focus on broader community issues that affect public health. In his remarks at the CIBO meeting, Paulus said the new entity would try to address the “social determinants” of health status — such as homelessness, unemployment, lack of access to healthy food and transportation — that underlie many chronic illnesses.
Mission officials say it’s too soon to know exactly what form that support might take, but a similar deal in Virginia in 2013 involving the nonprofit Fauquier Health and the for-profit LifePoint Hospitals (now LifePoint Health) may provide some insight. As a result of that merger, more than $100 million flowed into the newly established PATH Foundation, charged with strengthening the health and wellness of residents in three counties.
Since then, PATH has tackled such core concerns as access to health care, child wellness, mental health and senior services. To that end, the organization has awarded grants to groups including the Boys and Girls Club, Habitat for Humanity and the nonprofit Fauquier Free Clinic. The PATH Foundation also operates a resource center that helps other nonprofits deal with matters of governance, philanthropy, marketing and volunteer recruitment.
In Mission’s case, a newly established governing board would determine the foundation’s approach to improving community health. The health system’s current board of directors would have the final say on the new board’s makeup, explains Rowena Buffett Timms, Mission Health’s senior vice president of government and community relations.
“The new foundation board,” says Timms, would consist “primarily of local community members, with the initial composition being established as part of the transaction process. It will not be controlled or influenced by HCA Healthcare.”
Although Mission staff declined requests for comment on potential board members, saying it’s too early in the process, Timms says the health system is committed to transparency. She encourages interested community members to submit questions through the merger-specific Mission Health Forward website and to participate in two upcoming Facebook Live discussions (see box, “Looking Ahead”).
DeLauro, meanwhile, urges whoever ends up appointing the new board members to keep the foundation’s broad community mission in mind as they make their choices. People in charge of creating such boards, he says, often “go about it as if they were a foundation raising money for a single entity and look for influential people in the community. But those may not be the people … who have the skills and backgrounds to judge what are the greatest health needs in the community, and what’s the best way to try and meet those needs.”
Although DeLauro notes that there are many different approaches to creating a board, he cites one “darkly humorous” similarity across the many such deals that he’s seen. “Often, it’s the attorneys who negotiate the sales who become heads of the new foundations,” he says. “You’ve got permanent employment, and you don’t have to do very much except give away money — it’s a nice job.”
Laying down the law
Still, having a lawyer or two on the board might be advisable, given the nature of the new foundation’s responsibilities. In addition to improving community health, the new entity would be responsible for enforcing HCA’s contractual obligations concerning how the hospitals it’s acquiring are operated, according to the Mission Health Forward site.
At the CIBO meeting, Paulus said those obligations would provide “unbelievable protections” for Mission’s facilities, including its seven other member hospitals: Angel Medical Center in Franklin, Blue Ridge Regional Hospital in Spruce Pine, CarePartners and Children’s Hospital in Asheville, Highlands-Cashiers Hospital in Highlands, McDowell Hospital in Marion and Transylvania Regional Hospital in Brevard. HCA, he explained, has agreed not to change any service at Mission Health-affiliated hospitals for at least five years; after that, the company would have to lose money for at least two years before making changes. And if HCA wanted to close a hospital, it would first have to put the facility up for public sale and then offer it to the successor foundation if no willing buyers were available.
A recent situation in Kansas City, Mo., however, suggests that the new foundation should be prepared to hold HCA’s feet to the fire if necessary. In 2017, the Health Care Foundation of Greater Kansas City, which was created by HCA’s 2003 purchase of the nonprofit Health Midwest system, settled a seven-year legal battle over allegations that the for-profit operator had failed to fulfill multiple terms to which it had agreed in the acquisition.
According to the Kansas City Business Journal, the Jackson County Circuit Court awarded nearly $434 million to the foundation in 2015 after finding that HCA hadn’t met its contractual obligations to upgrade existing hospitals, although the Missouri Court of Appeals later reduced that judgment to $188 million, and the two parties settled for $160 million in 2017. HCA also paid the foundation $15 million in 2015 to settle a lawsuit over its financial commitments to charitable care. In 2017, the company reported revenues of $43.6 billion, up from $41.5 billion the previous year.
Asked about the lawsuits, HCA spokesperson Ed Fishbough responded as follows: “Fourteen years ago, HCA agreed to make $450 million in capital expenditures following the purchase of hospitals in Kansas City, and the Missouri Court of Appeals held that we had done so. The only issue was the timing of those expenditures over the five-year period. While we believe we met that obligation as well, we agreed to resolve the issue and focus on serving the Kansas City community, where we have invested more than $1 billion to meet the area’s health care needs. We also believe that we satisfied our charity and uncompensated care obligations. The resolution we reached with the Health Care Foundation of Greater Kansas City provided additional funds for the benefit of the health care needs of Kansas City’s uninsured and underserved population. We have great relationships with communities across the country. Last year, HCA provided charity care and other uncompensated care at a cost of more than $3 billion. We also expect to invest about $10.5 billion in our facilities during the next three years.”
Dr. Ed Weisbart, chair of the Missouri chapter of Physicians for a National Health Program, was not involved in the Kansas City settlement. But HCA’s track record, he maintains, should encourage the new Mission foundation to keep a close watch on the corporation’s behavior. Referencing cases such as a 2015 settlement over unnecessary ambulance rides, he says, “They’ve had multiple settlements or judgments of fraud against the government … patients and even their own investors. [It’s a] pretty dreadful history.”
And while Weisbart adds that the new foundation could do a lot of good through its community health grants, he encourages its board to take the watchdog function equally seriously. “They should be vigilant. They should pay attention to what [HCA is] doing,” he asserts. “They should maybe form some sort of organization that can perform this vigilance in an organized way.”
Two of the Mission Health Forward FAQs address the corporation’s past legal troubles. One references “the history of HCA Healthcare overcharging” and the other noting “what was, up until a few years ago … the largest Medicare fraud case in history.” In both cases, Mission’s response states that “The Columbia challenges are from more than 20 years ago. … HCA Healthcare is a different company now and celebrates nine consecutive years as one of the ‘World’s Most Ethical Companies’ as designated by Ethisphere, the global leader in advancing the standards of ethical business practices.”
The 20-year figure apparently refers to the Medicare fraud case; the other lawsuits mentioned above are much more recent, however.
Blood, sweat and tears
If the HCA deal goes through, it will also spell the end of the existing Mission Health System Foundation, which provides general support to member hospitals. The most recent publicly available tax document, dating from fiscal year 2015, listed the foundation’s net assets at just under $26 million.
“Our donors are overwhelmingly supportive of this incredible opportunity for Western North Carolina, and we are committed to ensuring that their gifts have been or will be used for the purpose they intended when making their gift,” says Timms. At the time of the sale, she continues, any unspent money would either be rolled over to the new foundation or returned to the donors, according to their preference.
Not included in the deal are any plans for the separate foundations connected to each of Mission Health’s regional hospitals. Because those facilities would also become for-profit entities, their associated foundations would need to decide on new destinations for their respective resources. As of fiscal year 2015, the assets of those nonprofits ranged in value from roughly $54,000 for the Angel Medical Center Auxiliary to nearly $20 million for the Highlands-Cashiers Hospital Foundation.
Although Mission officials say it’s too early to make general comments about the fate of those entities, Dr. Walter Clark, the head of the Highlands-Cashiers Hospital Foundation, aims to maintain his organization’s independence. Citing the community “blood, sweat and tears” that have gone into keeping the rural hospital going through difficult financial times, Clark says he plans to support local public health initiatives, including opioid addiction counseling, free dental clinics and childhood immunizations.
All of these changes, however, are contingent on the terms being finalized and all parties signing off on the sale. Due diligence, which began after the proposed transaction was announced in March, could take from three to six months, and once that’s done, the deal will still need to get past the attorney general’s review. Paulus, however, is optimistic about the transformation of the region’s approach to health care, saying, “It’s an extraordinarily exciting time. It’s a true win-win-win.”