The combination of Carolinas HealthCare System and UNC Health Care is a transformative transaction that doesn’t involve any money changing hands. As the organizations push to close a deal by the end of the year, it’s clear that financial troubles aren’t forcing this transaction. Both are money machines.
On Tuesday, CHS reported total profit of $542 million during the first half of this year. About 70% of the gain stemmed from increased investment values due to strong financial markets, according to a statement. Profit from operations declined 25% to $141 million in the period because of lower reimbursements and higher costs. The system’s revenue is running at nearly $10 billion a year.
UNC Health Care’s website provides more financial detail than CHS’, though the Chapel Hill-based group hasn’t released its 2017 fiscal year results. In 2016, however, it had record net income of $231 million on revenue of $3.6 billion. Over the last six years, the system has reported $830 million of net profit, and more than $600 million of operating profit. A key contributor is Raleigh-based UNC Rex Healthcare, acquired in 2000.
In discussions about the transaction, there’s been little detail about impact on the systems’ 92,000 employees. Efforts to improve affordability — which depends partly on cutting costs —likely hinge on staffing expenses, which make up more than 50% of both systems’ operating expensess. The two systems employ about 4,000 physicians; assuming average wages and benefits of $200,000 per physician, that cost alone is $800 million a year.
We asked Carolinas HealthCare System about the merger and received the following responses, edited for brevity and clarity:
Does CHS expect this “blending” to lead to an eventual financial transaction?
No assets are being conveyed or “sold,” and no money is changing hands. We will operate together but continue to own assets.
Does CHS expect this transaction to drive more consolidation in the hospital industry?
This announcement isn’t about the rest of the health care field, but about what we can do together for North Carolina. By integrating our organizations, we are combining the strengths of two great health systems and providing greater access to a full range of services and leading-edge treatments for patients. This new organization will offer an unparalleled array of services, expertise and experiences for our patients and communities, enable better coordination of care, and advance research – beyond what either of us could do independently.
If no money or assets are changing any hands, what is the financial upside for CHS?
The announcement is about elevating health for North Carolinians by blending the best of Carolinas HealthCare System’s high-performing comprehensive health care system with UNC Health Care’s renowned academically based enterprise. Every North Carolinian deserves access to the care they need, regardless of where they live. Carolinas HealthCare System and UNC Health Care plan to work together to address behavioral health and innovate new models of care – and bring them throughout the state.
Why doesn’t CHS focus on its existing operations, instead of entering a complex, nonfinancial transaction?
We are, in fact, focused on reducing costs and improving care in the communities we now serve. It is part of our system strategy and overall commitment. This includes: providing nationally recognized, world-class care to this region; partnering with like-minded organizations to increase the address social disparities and improve the overall health of our communities, in both urban and rural area; investing in innovative rural health care options that give patients alternatives to utilizing the emergency department; and, developing our virtual care services, which often makes care more convenient, effective and affordable for many patients.
If no assets or money are being exchanged, what is the impetus to reduce costs?
The impetus to address affordability is our commitment to our patients and communities. This new organization will always do one thing: put patient needs first. Our desire is to find innovative and multiple ways to provide the best care possible for specialty, primary and on-demand care.