Atrium Health, Wake Forest Baptist in merger talks to create $13 billion institution

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Atrium Health, North Carolina’s largest health care system, has signed an agreement to discuss combining with Winston-Salem-based Wake Forest Baptist Health, the companies said today.

The plan is to start “exclusive negotiations with the goal of entering into a final agreement later this year,” according to a press release. Financial and operational details were not disclosed, including management structure and the impact on employees. In the meantime, CEOs Gene Woods of Atrium and Julie Ann Freischlag of Wake Forest Baptist will remain in their posts, an Atrium spokeswoman says.

The move would combine a financial powerhouse in Charlotte-based Atrium, which posts annual revenues of about $10 billion, with a unit of Wake Forest University that operates one of the nation’s top academic medical centers. The Wake Forest School of Medicine attracts more than $210 million in annual research funding from the National Institutes of Health and other external sources.

But unlike Atrium and its Winston-Salem-based rival Novant Health,  Wake Forest Baptist has reported scant profitability in recent years and sparked concerns of possible downgrades of its credit ratings. Reduced gains makes it harder for the hospital system, which is the largest employer in the Triad with nearly 17,000 workers, to invest in new initiatives and compete against more robust rivals.

Atrium reported operating income of $264 million in its 2017 fiscal year, while Novant said it earned $174 million. Meanwhile, Wake Forest Baptist posted a $2.9 million gain last year, according to the system. The Winston-Salem-based system, which also owns High Point’s main hospital, has annual revenue of about $2.9 billion.

S&P Global revised Wake Forest Baptist’s rating view from positive to stable because of Wake Forest Baptist’s “unexpectedly weak operating performance and pro forma maximum annual debt service coverage in 2018,” S&P analyst Patrick Zagar told the Winston-Salem Journal in February.

Moreover, HCA Healthcare Inc.’s $1.5 billion acquisition of Asheville-based Mission Health earlier this year sparked speculation of more mergers among North Carolina’s big hospital systems. HCA, the largest U.S. hospital company, now dominates health care in western North Carolina. It is likely to make further acquisitions in the state in coming years, according to many hospital industry observers.

The Atrium-Wake Forest plan calls for a “second state-of-the-art” medical school campus in Charlotte, which is often called the largest U.S. city without a med school. Wake Forest’s school receives more than 10,000 applications annually for 145 slots.

Atrium operates 42 hospitals and more than 900 medical locations in the Carolinas and Georgia. Its effort to reach a partnership with Chapel Hill-based UNC Healthcare were dashed last year after protests by state lawmakers and officials who said state-controlled UNC was not likely to benefit from the transaction.

State Treasurer Dale Folwell, who was among the most vehement critics of the Atrium-UNC collaboration, also has reservations about the Wake Forest plan. “It’s a huge negative to the community that I grew up in, it’s a huge negative for taxpayers and and it’s a huge negative for state employees,” says Folwell, a Forsyth County native. “No one has ever been able to produce a report that this kind of merger is better for consumers, increases transparency or lowers costs for patients.”

In the press release, Wake Forest President Nathan Hatch called the agreement “an exciting prospect that will have positive state and national impacts in addition to benefiting the Charlotte and Winston-Salem communities. By strengthening medical education in Winston-Salem and bringing a medical school to Charlotte, we will open many doors for future health care leaders and also play a nationally leading role in research.”

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