What do you do if you really want to buy a house but know that another bidder is close friends with the owner? You make an overwhelming offer that no one else will match.
That appears to have happened when New Hanover Regional Medical Center opened bids from six big hospital companies that want to buy or partner with Wilmington’s hospital. As Business North Carolina reported in March, many Port City business and political leaders want the independent system to tie up with a bigger organization rather than remain an independent, county-owned facility.
Charlotte-based Atrium Health is chummy with New Hanover because of a decade-old management services agreement with the county-owned hospital. “This has been a 10 year journey for us,” Ken Haynes, president of Atrium’s greater Charlotte region, told reporters Tuesday. “We’ve had a great track record.”
Atrium’s bid emphasized a partnership approach in which it pledged $2.17 billion in capital spending over the next 40 years, $50 million in upfront cash for the county, $150 million for a community foundation and about $790 million in profit sharing and lease payments. The county wouldn’t be responsible for the hospital’s debt, though it would retain ownership. And New Hanover CEO John Gizdic is a former Atrium executive.
But Winston-Salem-based Novant Health made a richer, splashier offer: as much as $2 billion in “upfront cash proceeds” and $3.1 billion in capital spending commitments over the next decade or so. The $2 billion includes about $500 million in cash and investments now held on New Hanover’s balance sheet, which would the county would retain.
To put that in context, three other bidders offered cash offers of about $1.3 billion — 35% less than Novant — and less capital commitments than Novant. Those bidders include Durham-based Duke Health, which runs the state’s most prestigious medical center, and Nashville, Tenn.-based HCA Healthcare, the nation’s biggest hospital operator.
Asked about the bid, Novant sent a statement noting “we see immense potential in a partnership between our organizations, and believe that our combined systems will have the unique ability to invest significant resources in Southeastern North Carolina.” Novant issued a 151-page proposal that noted the organization’s solid finances: It had net assets of $4.6 billion and cash and investments of $3.1 billion as of Dec. 31. The not-for-profit authority has major market share in Charlotte and Winston-Salem and operates a small hospital in Brunswick County near Wilmington.
A fourth bidder, UNC Health Care, didn’t commit to a specific capital investment, which New Hanover had sought. Despite detailed answers in a 290-page response, it’s hard to see how the Chapel Hill-based system would wind up in charge in Wilmington.
To be sure, each of the six bidders emphasized their desire to be great partners with Wilmington and offered different approaches to slicing up ownership and governance. Novant’s proposal also included a joint venture involving less money up front and more local control.
A community advisory board led by former Mayor Spence Broadhurst and health care executive Barb Biehner will discuss the bids in May and make a recommendation to the county commission this summer. The public nature of the sale is no doubt painful for the bidders, which are sharing more information than is their custom.
Mostly, it will be fascinating to watch as Wilmington leaders debate whether to prioritize getting the biggest check or seeking more of a partnership.
There’s local opposition to handing off control, including several county commission candidates who pledged to oppose a sale if elected to office. New Hanover has been consistently profitable. But the huge amount of money being offered may make it hard for real estate developer Gene Merritt, N.C. State Treasurer Dale Folwell and other opponents to mount opposition.
In an interview yesterday with the Greater Wilmington Business Journal, Broadhurst, who is a banker, said, “Let’s not get distracted by the shiny little object in the room, and that’ s the money.”
Something tells me many will be “distracted” by $2 billion.
New Hanover spokesman Julian March says the system had a $6 million operating loss in March, compared with a budgeted margin of $6 million. Its investment income also took a $44 million hit during the month as the stock and bond markets declined. A bigger negative impact is projected in April, he says.
New Hanover had operating income of $106 million on revenue of $1.45 billion last year. It has reported consistent profits in recent years.