N.C. debt overseer sends Atrium Health packing

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Atrium Health

Atrium Health, the state’s largest health care system, wants to get a lot bigger. But state officials aren’t necessarily keen on supporting those plans with any potential public backing.

The Local Government Commission, which oversees public debt issuances in North Carolina, on June 4 unanimously denied Atrium’s request for a guaranty involving $300 million of outstanding debt of a newly affiliated Georgia-based hospital system.

It’s the first time that the 9-member LGC turned down a request by the Charlotte Mecklenburg Hospital Authority, which first issued bonds in 1983 to finance a hospital near the UNC Charlotte campus, says Allen Robertson, a managing partner at the Robinson Bradshaw law firm who represents Atrium. State Treasurer Dale Folwell, a Republican, chairs the committee that includes Secretary of State Elaine Marshall, State Auditor Beth Wood and Secretary of Revenue Ronald Penney, who are Democrats.

The dispute centered on the commission’s reluctance to set a precedent that would allow Atrium to benefit from the state’s Triple A bond rating as it acquires hospitals in other states, Wood says.

“The debt we approve at the LGC is supposed to benefit the citizens of North Carolina,” she says. “We never received an adequate answer as to how our citizens would benefit.”

Despite the LGC’s role in public debt issuance, the $2.1 billion outstanding for Atrium’s parent, the Charlotte-Mecklenburg Hospital Authority, is not a liability of state, county or city government. It is a stand-alone entity.

The matter stems from Atrium’s agreement with Macon, Ga.-based Navicent, which has  annual revenue of nearly $900 million and a net worth of $1 billion that includes $639 million of cash or other liquid assets. Though Navicent’s results are now consolidated with Atrium, the Charlotte institution didn’t pay any money in the deal but pledged to invest $1 billion in capital projects over the decade.

Atrium expects the transaction to boost its pretax earnings by $1 billion over those 10 years.

In a statement, Atrium said the proposal to refinance Navicent debt would have allowed the Georgia system “to reinvest the savings as a non-profit in the community it serves, as well as further strengthen the Atrium Health Group.” Those expected savings totaled $29 million, but Wood says she isn’t satisfied that Atrium would use the money to reduce health care costs. Treasurer Folwell says he questioned Atrium officials why they didn’t use Navicent’s reserves to pay off the $300 million debt rather than seek a guaranty.

The bigger picture involves Atrium CEO Gene Woods’ ambition to make Atrium a larger company better able to compete as the hospital industry consolidates. Atrium’s strategy involves mergers within and outside North Carolina while ensuring that the state has a strong not-for-profit hospital company that can compete with HCA Healthcare and other giant rivals. Atrium’s plan to merge with Chapel Hill-based UNC Health Care were thwarted in 2018 after opposition from state officials, but Atrium is now negotiating a combination with Winston-Salem-based Wake Forest Baptist Medical Center.

It’s likely that Atrium doesn’t want to have another failed negotiation, so the odds of a merger seem strong, several N.C. hospital industry officials say.

“I couldn’t get comfortable voting yes for setting a precedent that would involve taking responsibility for the debt services of hospitals in another state,” State Auditor Wood says. “I also have questions about the benefits of hospital consolidations and mergers because the research suggests that more mergers and more monopolies lead to higher cost of health care.”

Atrium has an option to appeal the LGC decision.

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