Dr. Ronald Paulus
By Scott Robertson
Mission Health, which operates six hospitals and health facilities in Western North Carolina and competes for medical professionals and patients with Northeast Tennessee-based Ballad Health, has signed a Letter of Intent (LOI) to merge with Nashville-based HCA.
Ballad Chairman and CEO Alan Levine said the day after the announcement he does not anticipate significant changes in the competition between Mission and Ballad. “Mission is a good system and I don’t expect that our posture toward Mission would change any with HCA there. I have always said our competition wasn’t just (Mountain States vs) Wellmont. It was Asheville and Knoxville and Nashville. That doesn’t change.”
In a letter to Asheville citizens on the newly created missionhealthforward.org website, the Mission Board wrote, “If regulatory requirements are met and we discover that joining HCA Healthcare holds the promise and potential we believe it does, Mission Health will become a member of the HCA Healthcare family later this year.”
“HCA Healthcare appreciates that Mission Health has the capacity to continue its work alone, and yet we both recognize that meeting our core missions could be achieved more effectively together,” Mission Health President and CEO Dr. Ronald Paulus said in a press release. “It is a tribute to the Mission Health board and team that we are in such a position of strength that we can make the best choice for our people, our patients and our communities.”
Despite operating without direct competition in western North Carolina under a COPA, Mission has faced increasing cost and reimbursement pressures. In 2015, the North Carolina General Assembly sunset the COPA limitations placed on Mission effective January 2018, making the Asheville-based system a much more attractive merger partner.
The deal is the latest in a cascade of hospital system mergers in recent months. It follows the February merger of Carolinas Healthcare and Georgia-based Navicent Health, which created Atrium Health, the largest hospital group in the Carolinas. To the south, Palmetto Health and Greenville Health System merged in November 2017. Wellmont Health System and Mountain States Health Alliance merged to become Ballad Health in January, leaving Mission surrounded by larger, multi-state systems.
Those mergers were not the motivating factor in Mission’s decision to move ahead with the HCA merger, though, Paulus said. “It isn’t that other consolidation ‘motivated Mission’ but rather that the same external factors driving broader market consolidation – relentless pressure from payors, government and businesses to do more with less along with ever-increasing expectations for health systems to serve as a social safety net – also impact Mission Health. Until payors and the government are willing to accept their responsibility for demographic and other challenges unrelated to health system performance, consolidation will not only continue, but accelerate.”
Levine was empathetic, having discussed those very challenges at length in the past, but did express surprise that Mission chose a for-profit partner. “It doesn’t take me by surprise from the perspective that there is so much consolidation. I am somewhat surprised because I had not heard anything from Mission. They had not reached out to us at all, and I’m not aware of any other systems that they reached out to.
“In looking at their balance sheet, they’ve got almost $1 billion in cash and only about $500 million in long-term debt,” Levine said. “It looks like they have a cash flow margin of roughly 15 percent, which is more than us. They have a market share somewhere north of 80 percent, compliments of the state, and they’re in a growth market. Their population growth last year was around 1.1 percent, which is in excess of the U.S. average of 0.75 percent. So they have growth, they have cash flow, they have cash, and they have very little debt relative to their cash. It just surprises me that their board would want to give up control of their community-based not-for-profit assets to a for-profit system that will now take that cash flow and send it to Nashville.”
The strength of Mission’s position, Paulus said, is why the timing of the deal makes sense. “This really was exactly the right time to pursue such a transaction. We have worked tirelessly over many years to create a highly attractive, high performing organization – from the perspective of quality, efficiency and financial performance. The Board was very deliberate in its desire to make decisions about Mission’s future from a position of strength, because they are the fiduciaries responsible for ensuring that our community is well served for many, many decades to come. It is only from a position of strength, that the strongest relationships can be created.”
In appraising the deal from HCA’s perspective, Levine, a former HCA executive himself, said the move creates good value. “They (HCA) know how to draw a profit out of a hospital better than anybody. They’ll be very good at reducing the cost structure in Asheville. I would presume they will do what they normally do, which is eliminate the overhead that has been based in Asheville and will consolidate. They have their own revenue cycle company, Parallon, so I suspect there’s no need for them to have a business office (in Asheville). I can’t speculate as to what they’ll do, but there are some obvious synergies for HCA in that market. A lot of that would cost local jobs there, but they’ll be able to turn that into profit. I read one of the Wall Street analysts estimating it would be, I think, about 2 to 3 percent accretive to HCA.”
During the Ballad merger, Levine had warned that if Mountain States and Wellmont did not merge, it was likely that at least one system would end up merging into a larger for-profit system. He reiterated that point in reacting to the HCA-Mission deal. “It’s almost 100 percent certain that if Mountain States didn’t merge with Wellmont, this conversation would be about who we sold Mountain States to. This gives people a clear contrast in terms of a way forward. Mission and Mountain States were very similar. Mission has chosen to sell its assets to a for-profit system. Mountain States chose to keep governance local and merge with its local partner.”
Paulus declined to discuss the differences between the mergers, saying only, “The process undertaken by the Mission Board of Directors was informed, thoughtful, painstaking and strategic, leading to the unanimous decision to sign the Letter of Intent with HCA Healthcare. Moreover, it was guided by a long-range view of the best interests of the people of western North Carolina and the surrounding region. The Mission Board was and is committed to preserving and expanding high quality, cost-effective care for everyone in western North Carolina for generations to come, not just with a world-class health system, but now with the potential of an extraordinary foundation to help fill in the gaps left by inadequate social services. We have entered the due diligence process and will continue our effort to make sure this is the right, best course for Mission Health and our team members, patients and communities.”
Assuming a successful closing, the Mission deal will give HCA, which employs around 240,000 people at 177 hospitals and 119 surgery centers in the U.S., its first presence in North Carolina.
