Mission’s sale to HCA deserves clear explanation, Tennessee hospital CEO says

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Alan LevineBallad Health Systems

Alan Levine

Mission Health’s decision to sell to HCA Healthcare deserves close scrutiny by the public to insure significant benefits for western North Carolina that exceed the potential loss of huge future profits, says the CEO of a $2 billion health care system based in nearby Johnson City, Tenn.

Asheville-based Mission isn’t releasing details publicly for at least a few months, aside from plans for a billion-dollar-plus foundation to benefit the region. So no one outside the organization really understands the transaction, says Alan Levine, who heads Ballad Health. He emphasizes his respect for Mission, which is the only U.S. hospital to rank in the top 15 nationally for six of the last seven years, according to a quality survey by IBM Watson Health.

Given that success and Mission’s excellent financial condition, Levine says the combination is a head-scratcher. He says it is very hard for him to conceive how the transaction can truly benefit the region compared with local ownership that doesn’t share proceeds with shareholders. N.C. Attorney General Josh Stein, who has some authority over the transaction, will be studying the transaction as more information is available, a spokeswoman has said.

Asked about Levine’s comments, Mission responded with a detailed statement citing advantages of the transaction. “The Mission Health Board feels very strongly that when HCA Healthcare’s expertise is combined with Mission Health’s best in class clinical outcomes, the resulting combination will be
incredibly valuable to all of our communities,” according to Rowena Buffett Timms, senior vice president of government and community relations.

Mission wasn’t looking for a partner as a survival gambit: Rather the system thinks the combination of HCA’s scope with the benefits of an enormous charitable foundation — “likely the largest per-capita foundation in the United States” — is the driving factor, Timms says.

Mission has said tying up with the nation’s biggest hospital operator can create better health outcomes and efficiencies because of HCA’s scope and technology prowess. Having a large community foundation to provide support for various causes, plus millions of dollars of annual property tax revenue accruing from a for-profit institution, are also factors favoring a transaction.

But Levine, a former HCA executive and senior health care policy adviser to former governors in Florida and Louisiana, says HCA has the stronger hand. “This is a home run for HCA,” he says. “First, it is a high growth market where they have no competition and their margins are already strong. Then when you are HCA deploying your staffing models and eliminating corporate overhead, that leads to pure synergies. HCA shareholders will benefit tremendously.”

Mission was created in 1995 after the state-approved merger of Memorial Mission and St. Joseph’s hospitals, creating a monopoly that was deemed worthy because it kept local ownership of hospitals. Under an agreement with regulators, Mission agreed to limit profits and the number of physicians employed. The so-called Certificate of Public Advantage, or COPA, was in place for more than two decades before it was eliminated earlier this year, following action by state lawmakers in 2015.

Meanwhile, Ballad completed its COPA process earlier this year, merging two systems that dominate a 29-county area in Tennessee and Virginia. Ballad’s COPA was approved after four years of study, including 15 public hearings. As a result of the merger, Ballad is cutting 150 jobs, while rating agencies have boosted its credit rating.

“It seems to me that there is a lot that people don’t know about the Mission transaction,” Levine says. “Yes, Mission is technically a private organization but it has benefited from being tax-exempt. It has an even bigger obligation to the public to be transparent.” (Mission says due diligence is under way and it is “early in the negotiation process.”)

If a $1 billion charitable foundation is created from the transaction, that would likely produce $50 million of annual philanthropy in western North Carolina, given typical endowment policies. While significant, that pales compared with the benefits provided directly by Mission currently and probably includes some money that will be routed to the HCA-owned operation, Levine says.

HCA typically buys troubled hospitals in larger markets, then turns them around, says Levine, who worked for the company in Florida. In contrast, Mission is very strong financially, and CEO Ronald Paulus says it may spark other HCA expansions in North Carolina. None of the state’s big hospital systems — Atrium, Duke, UNC, Novant, Vidant and Wake Forest Baptist — are owned by a private company.

Levine says Mission did not approach Ballad about a potential combination. Mission says it had no reason to contact Ballad, noting that “unlike Ballad, Mission is not experiencing financial challenges.”

“HCA is parachuting into Asheville and getting the benefit of a COPA without any restrictions, whereas we have all of the restrictions,” Levine says. “It kinda makes me feel stupid.”

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Here are some of Mission’s responses to Levine’s comments:

Why did you sign a letter of intent with HCA?

“The primary criterion for ultimately selecting HCA Healthcare as our partner was: the ability to build
upon and extend our core mission: to improve the health of the people of western North Carolina and
the surrounding region. After a careful and thorough search, Mission Health’s Board is assured that HCA
Healthcare is right for our team, patients and communities. Importantly, HCA Healthcare does not
currently have any operations in North Carolina so there is absolutely no market concentration that
results; and by choosing to make Mission Health a separate division within HCA.

Why sell to a for-profit company?

“By focusing laser-like on our mission, rather than on continuing the status quo or preserving the roles of
management or Board members no matter the cost, it was very clear that the unique combination of a
HCA Healthcare run health system and an extraordinary charitable foundation — likely the largest per
capita foundation in the United States — that could address the fundamental, root causes of poor health
status such a social determinants was in the very best interests of the people of western North Carolina.”

Did you consider other partners?

“The Mission Health Board considered the choice of whether to even consider any
partnership very carefully before it even began considering potential partners. Once a decision to
consider a partner had been made subject to key terms and conditions, it then vetted a significant
number of potential partners, all of which were very successful non-profits with the exception of HCA
Healthcare.”

Why not provide more details?

“There was no requirement to even announce that a letter of intent had
been reached. Rather, we could have waited until such time, if ever, that definitive agreements were
signed. Further, announcing any discussions prior to the signing of a detailed Letter of Intent we believe
would be both inappropriate and speculative. But once we had achieved enough of a consensus on the
key items that were included in the non-binding Letter of Intent, we chose to make an announcement to
allow for significant input and consideration prior to signing of any definitive agreements. But as stated
several times, we are still early in the negotiation process and haven’t completed due diligence. It is too
soon to know the employment impact, but whatever the outcome, there would be far fewer job losses
than if Mission continued independently.”

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