Amid talks of combination, a look at Wake Forest Baptist/Atrium finances

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Until Friday, the two biggest health care operations in North Carolina were engaged in big expansion negotiations. But No. 2 Blue Cross Blue Shield of North Carolina ended its talks with Oregon-based Cambia Health Solutions in the wake of CEO Patrick Conway’s abrupt departure from the Durham-based institution. It would have created a not-for-profit with annual revenue of $16 billion.

Now, No. 1 Atrium Health of Charlotte and Wake Forest Baptist Health of Winston-Salem remain the big pending deal, possibly creating a $13 billion partnership.

At Atrium’s recent quarterly board meeting, CEO Gene Woods deferred public comment on the negotiations. He did the same at a recent Hood Hargett Breakfast Club meeting in Charlotte.

Publicity about the pending combination has focused on expansion of Wake Forest’s medical school into Charlotte. Woods promises it will be an innovative operation that may become a national leader in the delivery of medical education.

High Point Medical Center President James Hoekstra told The High Point Enterprise in August the transaction involves “back office functions, supply chains, billing offices. We will be working together, but we are not going to be bought by Atrium or merged with Atrium. We are going to be partnering with them in a unique way that does not require any change of assets.” Wake Forest Baptist owns the High Point hospital.

But what about the systems’ finances? A look at recent financial statements may hint at why Wake is showing a willingness to tie up with Atrium. Warning: Lots of numbers coming at you:

First, Atrium is a much bigger, financially powerful institution. Its balance sheet includes current assets of nearly $2 billion, including $730 million in cash and short-term investments. Wake has current assets of about $825 million, including about $236 million in cash.

Atrium has investment holdings that are tied to capital projects totaling $4.8 billion, plus another $420 million in unrestricted investments, or more than $5.2 billion. In comparison, Wake holds about $2 billion.

Then there’s debt: Atrium has total liabilities — including current and long-term debt, pensions and interest rate swaps — of nearly $4.6 billion. That’s about half its annual revenue.

Wake has total debt of $1.9 billion, or more than 55% of annual revenue. Its “days cash on hand” declined to 169 days as of June 30, versus 223 days a year earlier.

All told, Atrium has a “net position” — which means total assets minus total liabilities — of $7.1 billion on June 30, up 3% from a year earlier. Wake’s similar number on June 30: $2 billion, little changed from last year.

As for profitability, I didn’t compare the two systems over the same period. But Atrium is minting a lot more money: It reported operating income of $137 million in the first half of this year, while Wake lost $1.8 million during the year ended June 30. In the previous half-year, Atrium earned $137 million, while Wake had a $3 million operating profit in its 2018 fiscal year and $85 million in 2017.

Operating income is just part of the picture for giant hospital systems because they have such large investment portfolios. Atrium reported a $573 million gain in the first half, reflecting the hot stock market. Wake had net investment gains of $38 million in its 2019 fiscal year.

Some other context here: Atrium’s robust finances include spending nearly $400 million in capital projects in the first half of the year. As a not-for-profit, it doesn’t pay dividends or worry about a stock price. It can reinvest its gains in new buildings and equipment.

Likewise, Wake Forest’s results include the addition of High Point Medical Center, which helped boost annual revenue by 18% in the last year and expanded its Triad market share.

Wake Forest has an outstanding national reputation, partly due to its highly regarded school of medicine that educates nearly 1,900 students and fellows. (Its med school receives more than 10,000 applications annually for 145 slots.) Putting a monetary value on that asset is hard, but it looks very likely to add shine to Atrium’s crown within a few months.

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