Cone Health to merge with big Virginia system, didn’t seek highest bid
Cone Health, Greensboro’s dominant health care system and largest private employer, agreed to merge with Norfolk, Virginia-based Sentara Healthcare. State and federal regulators must approve the transaction, which is likely to take effect in mid-2021 at the earliest.
The combined systems would have about $11.5 billion in revenue, according to the Norfolk Virginian-Pilot, more than Charlotte-based Atrium Health, now the biggest N.C.-based system. Both Cone and Sentara are not-for-profit authorities.
Cone CEO Terry Akin said the two organizations have “a strong shared philosophy that we have to partner with people and not just treat them when they are sick. That is far and away the most cost-effective approach. It’s in the DNA of both organizations.”
Cone is North Carolina’s sixth-biggest health care system with $2.2 billion in 2019 revenue and 13,000 employees. Sentara has annual patient revenue of more than $6.5 billion, employs 30,000 and owns health plans with 858,000 members in North Carolina, Ohio and Virginia. Sentara operates one N.C. hospital, the Albemarle Medical Center in Elizabeth City.
The transaction marks a different approach than the sale of Asheville’s large hospital system in 2019 and the year-long effort by New Hanover County to maximize the value of Wilmington’s regional medical center.
In Asheville, HCA Healthcare paid $1.5 billion for not-for-profit Mission Health, marking the publicly traded company’s biggest incursion into North Carolina. More than $1 billion has gone to Dogwood Health Trust, a new community foundation that invests in health care improvement programs in western North Carolina.
Over the last year, New Hanover County undertook an auction process that invited bids from the biggest U.S. and N.C. hospital systems. County and hospital officials last month favored Winston-Salem-based Novant Health, which is expected to take control of New Hanover Regional Medical Center next year, pending final approvals from local officials and state and federal regulators.
Novant has pledged about $2 billion that will go to New Hanover County, while agreeing to invest $2.5 billion in capital projects and other investments over the next several years.
Cone is larger than both Mission and New Hanover Regional, but operates as a not-for-profit authority that isn’t required to make decisions in public. Instead, system leaders spent the last 18 months privately considering potential changes with limited public input beyond the institution’s 12-person board. None are elected officials.
Akin said Cone’s board was unanimous in supporting the transaction, declining to say if there were any advocates of selling the system outright. Cost efficiencies weren’t a driving force in the deal and he expects growth opportunities to benefit the Greensboro area.
Its large insurance operating was attractive to Cone with expectations that it will expand significantly in North Carolina, Akin said. Cone Health and Sentara do not operate in each other’s markets, so the combined organization will provide more choices for health care and insurance plans, not fewer, the companies said.
Cone picked Sentara as the best option because of its strong commitment to high quality, affordable health care; similar culture; and expanding insurance subsidiary, Akin says. He noted that he and Sentara CEO Howard Kern have been longtime friends and Kern met with Cone’s board at a retreat three years ago.
“We didn’t take the `sell to the highest bidder’ approach,” Akin says. “We took the `let’s serve our community the best’ approach.” He noted that Cone Health serves a five-county area, though it is best known for its Greensboro operation.
No financial details were disclosed about the transaction, but it is unlikely that Greensboro and Guilford County will receive a billion-dollar-plus infusion. More details will be forthcoming soon, Akin says.
Kern told the Norfolk newspaper that “ If either one of us could have bought out the other, that would have just depleted resources … that could have just resulted in debt or in financing,”
Under the planned merger, he added, “neither organization has spent that money, and that money stays in the value of health care going in the community.”
“Cone Health is among the highest-quality health care organizations in the nation, and we are financially strong. With the right partner, we can build on what we’ve created and do even more for those we are privileged to serve,” says Akin, who will continue as CEO. “We have long said that Cone Health doesn’t intend to grow simply for the sake of growth. Instead, we are partnering for inspiring possibilities.”
Kern will lead the combined organization from Norfolk. No decision has been made if the Cone Health name will remain.
Many N.C. hospital industry observers had expected Charlotte-based Atrium Health to eventually acquire Cone, which had a management services agreement with the Queen City institution for many years. Akin was an Atrium employee under that arrangement. But the agreement ended earlier this year for undisclosed reasons.
Atrium is forming close ties with Winston-Salem-based Wake Forest Baptist Health, which competes in parts of the Triad metro area with Cone. Wake Forest University, which is affiliated with Wake Forest Baptist, is expanding its medical school in Charlotte in a pending arrangement with Atrium.