Novant, New Hanover hospital CEOs describe benefits of sale
The way John Gizdic sees it, New Hanover Regional Medical Center was strangled in a sea of need. The $5 billion sale to Winston-Salem-based Novant Health approved Monday by New Hanover county commissioners, the largest hospital transaction in Tar Heel history, will ease the chokehold.
“Southeastern North Carolina and unfortunately, many of the counties we serve, rank at the bottom as the most unhealthy counties in the state, and 36th among 50 in the country,” says Gizdic, president and CEO of New Hanover Regional. “As the leading provider of health care in the region, that was unacceptable, but the structure and restrictions we have being a county-owned organization put limitations on our access to capital and investing outside that county.”
Gizdic, who’ll take the title of president, Novant Health Greater Eastern Market, is right. But the deal, more than a year in the marking, will do more than open the door to its needy neighbors.
He and Novant CEO Carl Armato describe what amounts to creation of a regional health hub that could see a flurry of new clinics and small hospitals throughout the medically underserved counties surrounding New Hanover.
The Wilmington flagship hospital, which has 769 beds, has a strong balance sheet, with relatively few Medicaid patients, and a high number of Medicare users flowing in from affluent beach retirement developments. It had patient revenue of about $1 billion in the fiscal year ended in September. Operating income of $110 million was nearly a third higher than the previous year.
The Novant deal also sways the balance of power on the rapidly consolidating North Carolina healthcare front.
Novant Health, with 15 hospitals, is the state’s second-largest system, behind Charlotte-based Atrium, and a financial powerhouse with more than $5.4 billion in operating revenue and $155 million in operating income in 2019. But its only operations east of Interstate 95 is in the small Novant Brunswick Medical Center in Bolivia, in adjoining Brunswick County.
The new deal will go far in remedying that. Novant will pay New Hanover County about $1.5 billion, hand over to the county the medical center’s roughly $400 million in cash reserves and pump $3.1 billion into capital projects in the next decade or so. The Winston-Salem system’s financial muscle shows through in the deal.
Here’s how a spokeswoman explains the financing: “We currently have $3.1 billion in cash and investments, and have generated over $550 million in average annual operating cash flow over the past five years.”
Novant outbid 32 potential suitors for New Hanover, including N.C.-based blue chips Atrium Health, UNC Health and Duke Health.
“Obviously this is a long term investment for Novant,” Armato says. “We’re looking at a market growing tremendously, not only now but in the future. Once the regulatory process is over, we want to prioritize those capital needs and investment in the community.”
Those investments likely could include new, small hospitals of 100 or so beds and clinics that would push out care into underserved counties, including some of the state’s poorest.
“It’s bad enough to have a child with a medical issue, without having to drive 200 miles round trip to get care,” Gizdic says. “That just puts an additional burden on the family.”
Adds Armato, “Novant has increasingly invested in the ambulatory model, usually with 50 to 150 beds, with more than 700 clinics, with surface parking. Eighty percent of what people need can be obtained right in their local communities.”
Other aspects of the deal send ripples through eastern North Carolina. The region’s other major health care systems are Cape Fear Valley Health in Fayetteville, the state’s eighth largest, with 916 beds, eight hospitals and 7,000 employees, and Vidant Health, based in Greenville. It covers 29 counties, has nine hospitals with more than 1,400 beds, and 12,000 employees.
The newly emerging Novant system could cut into service areas of both. Gizdic notes that many eastern North Carolinians are accustomed to driving hours to reach hospital care. Vidant recently laid off employees and made other cuts, and another aspect of the New Hanover deal steps squarely on Vidant turf.
The new deal calls for a Novant partnership with UNC Health and its UNC School of Medicine to expand a medical residency program at New Hanover Regional from 18 to 30 at a time, starting in 2026.
In Greenville, East Carolina University’s Brody School of Medicine, closely affiliated with Vidant, has more than 400 students. They are being coaxed to specialize in primary care and practice in rural North Carolina when they graduate. So would New Hanover’s.
Why cut the Novant-New Hanover deal now, when New Hanover is financially solid and several local groups organized to unsuccessfully oppose the buyout? Opponents insist that consolidation drives up costs and cuts jobs. Armato predicts the opposite, insisting that the greater size that parent Novant brings will promote so-called predictive medicine and best practices that can cut costs.
“We could have waited until we were in trouble and had somebody bail us out,” Gizdic says, “but we’d rather do it while we are at the top of our game.”
Both executives say the N.C. attorney general and other regulators will have to approve the deal, which could take several months.