PENDER COUNTY — Pender County’s hospital sale relieves the county of millions in liabilities, in turn receiving a $50-million investment in healthcare services for residents. But the county will not receive cash in hand, as disclosed at Monday’s commissioners’ meeting.
Based on research from consulting firm Ascendient and K&L Gates law firm, the value of Pender Medical Center was determined to be $50 million to $60 million. The county and Novant Health worked out a deal that the money would be invested in the community instead of deposited into the county’s bank account. The millions will pay for new equipment, physician recruitment, and expansion of services to avoid out-migration to Wilmington.
The reasoning behind it is twofold: a financially struggling hospital industry and a provision in Pender County’s original operating contract with New Hanover Regional Medical Center, passed onto Novant when it took over in 2021.
An amendment was made to the 2007 agreement with NHRMC that required Pender Medical Center to reimburse the operator for any capital infusions and annual operating deficit subsidies if the hospital was sold or transferred to a third party. NHRMC took over managing and maintaining the hospital and property in 1999, transferred to Novant upon its purchase.
Port City Daily asked Novant Health for a breakdown of funding it’s put toward Pender Medical Center and will update the article upon response.
According to county attorney Patrick Buffkin, a repayment of $17 million would come into play if the county retained ownership of the hospital but terminated its lease with Novant NHRMC.
“The county was on the hook for these expenses regardless of the reason,” Buffkin said.
The county was aware of the contract provision, Buffkin said, and the commissioners carefully weighed the “tradeoffs and risks” involved.
More than a year ago, Pender County began considering other healthcare providers to oversee the county-owned hospital before announcing its deal with Novant in June. Novant agreed to funnel in $50 million within the next 10 years to better serve rural areas of the growing county.
Novant is required within five years to operate Pender Medical Center as a community general hospital, which means it’s open to the public, free of discrimination, and provides diagnostic and therapeutic services, both surgical and nonsurgical, for use primarily by residents.
The arrangement is expected to close by the end of the year. Novant will own the facility and be responsible for its capital and financial operating needs.
The deal will relieve the county of paying $7 million in pension liabilities and $10 million in unamortized value of any capital improvements, taking into account depreciation.
Commissioner Chair Jackie Newton told Port City Daily the contractual agreement did not sway commissioners’ decision one way or another to sell to Novant.
“That’s just the cost of doing business if we had to pursue statutorily going to market,” she said. “Fortunately, we were able to come to terms favorable to the citizens.”
Newton confirmed in June the county never actually went to market to consider other providers, yet was willing to when it hired Ascendient last December. The company has been working since to analyze the county’s needs and feasibility of pursuing a different health provider for the hospital.
“Part of the deal was that Novant would assume the liability should we be able to partner together,” Newton said to PCD. “But that is an added benefit, a quid pro quo.”
Ascendient senior partner Dawn Carter explained to commissioners Monday the strategic planning and feasibility firm assessed what services would be sustainable in the rural county amid financial struggles in the hospital industry.
K&L Gates partner Mary Beth Johnston said the expense of operating a hospital is at an all-time high.
“It’s hard to go it alone and be a single hospital without being part of the system,” she said.
Built in 1951 as Pender Memorial, the county-owned hospital is located on 3.7-acres at 507 E. Fremont St. in Burgaw. Its 86 beds serve 21,000 patients annually (including Novant Health Imaging in Rocky Point).
Newton said in June the local government “had no business” being in the hospital business.
“It’s too sophisticated,” she said. “We have a fiduciary duty to ensure medical care available is the best we can bring to the table.”
Carter told commissioners that last year hospitals in the U.S. saw a spike in operating and net losses from the prior year. In 2022, 53% of hospitals reported operating losses and 88% reported net losses, up from 13% and 2%, respectively, from 2021.
Novant profited $812 million in 2020 amid an influx of $630 million in Covid-relief funds. According to its 2022 annual report, Novant reported $222.8 million of net losses and $7.6 billion in operating revenue as of December.
“Folks who might have been interested in acquiring more hospitals are concerned about the facilities impacted negatively and financially as a result of the pandemic,” Carter explained to commissioners. “Many hospitals are already in difficult financial shape themselves and are hesitant to look to acquire other organizations that might not have been in a strong financial position.”
In other words, Carter estimated it might be difficult for Pender to have found anyone willing to buy the hospital, since it continually lost money.
Carter took into account Pender hospital’s appraised value — listed as $7 million in 2021 — and its annual operating losses (Port City Daily has asked for the amount), being subsidized by Novant (and New Hanover Regional Medical Center prior).
“Let’s assume, for the sake of argument, a buyer would make an offer,” Carter said, “based just on the revenue Pender Memorial Hospital brings in, there are formulas out there for big for-profit hospital companies.”
Carter mentioned New Hanover County commissioners’ deal, selling its seven-county regional hospital to Novant for $1.5 billion in 2021, was “unusual.” She said in her 20 years of experience working with hospital mergers, most do not walk away with cash the way New Hanover did.
NHRMC is notably larger and located within a metropolitan area as opposed to Pender’s rural clientele. NHRMC is also one of only two acute care facilities in the region, serving more than 30,000 acute care patients in 2022, and more than 80,000 annually across a seven-county region.
“I think the transaction you all are getting is fair, reasonable and would be more typical than what happened in New Hanover,” Carter said.
Carter noted the county is only one of two among 18 counties in the state with comparable population sizes that offers a critical access hospital. The other 17 hospitals in equally sized counties have an average of 40 patients daily, information she used to analyze the services Pender County could handle.
“That was part of our assessment to say we think the growing nature of Pender County means you all will need more services going forward and not less,” Carter said.
Based on Pender County demographics, she calculated residents need more adult primary care, physicians, cardiologists, orthopedics, gastroenterologists and urologists — all of which Novant has committed to expanding.
According to Buffkin, commissioners “placed higher value on improved health care than a payment of money.”
“[T]here were assets and liabilities that flowed between parties far and above any liability owed for $50 million worth of enhancements to the quality of medical care provided to citizens,” she told Port City Daily.
At Monday’s commissioners meeting, the board unanimously passed a resolution to sign off on transferring Pender Medical Center’s assets to Novant.
Commissioner Jerry Groves and Newton agreed Ascendient and K&L’s work was integral to the move.
“I don’t think we would have gotten it done without them,” Newton said.
“If any citizen thinks a commissioner can do what these two ladies did, we can’t,” Groves said.
It was a change of heart from September 2022, as commissioners first voted against using a third-party consultant, mainly due to the expense. It received an estimate of $850,000 from Juniper Advisory. The board reversed course the following month and voted to hire Ascendient over three other firms; the county has paid more than $43,000 so far.
The county considered other options. One was to enter into a similar management agreement with a different health system. Though this was not realistic, according to Johnston, since Pender County would have to pay a new provider to manage the hospital.
“Novant did step up in the ninth hour and make a commitment,” Groves added. “Without that, we wouldn’t be where we are today.”
Pender County could have sold the hospital to a non-controlled for-profit or nonprofit operator, but it would have taken away local oversight. Under North Carolina general statute, when a public hospital is converted to private, nonprofit ownership, the majority of the hospital board is controlled by the county.
“I can’t underscore how important that local control and oversight is in ensuring people live up to obligations they give and make sure hospital care remains local and is expanded,” Johnston told commissioners.
A reversionary clause is also in the contract if Novant fails to operate as a general hospital in five years. It dissolves the ownership and reverts assets back to the county, to avoid the county being without hospital care entirely.
“We pushed for that,” Newton told PCD. “In anticipation of future investment, we wanted to ensure the terms of the letter of intent were enforced.”
The transaction should be finalized by December, after Pender County, Pender Medical Center and Novant sign the agreement. The only delay could come from the North Carolina attorney general’s office, which has general oversight to review the transaction. It could take 30 to 60 days, Johnston said.
She added other officials, such as State Treasurer Dale Folwell and the Local Government Commission, have inquired about reviewing the deal as well. The LGC is not required to approve the deal, but Buffkin said the county is cooperating and sharing whatever information is asked of the agencies.
Folwell has been vocal about his opposition to Novant.
“My experience in New Hanover County is when Novant buys a healthcare facility, the quality goes down, the access goes down and the price goes up,” he told PCD in June. “We’ve seen that over the last two years in New Hanover County and unfortunately, I don’t expect anything different out of Pender County.”
The approval this week allows staff to compile needed documents to be signed by all parties; due diligence will follow.
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