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Thursday, May 30, 2024

NC treasurer supports FTC’s Novant antitrust suit, argues merger would increase costs for taxpayers

Last week, Treasurer Dale Folwell filed a brief in support of a federal antitrust action to block Novant Health’s purchase of two North Carolina hospitals. He argued the merger would worsen care and increase tax demands on the state health plan. (Port City Daily/Amy Passaretti Willis)

NORTH CAROLINA — Last week, Treasurer Dale Folwell filed a brief in support of a federal antitrust action to block Novant Health’s purchase of two North Carolina hospitals. He argued the merger would worsen care and increase tax demands on the state health plan.

READ MORE: Treasurer calls state hospitals ‘cartels’ profiting during pandemic, including Novant’s $812M

In January, the Federal Trade Commission filed an antitrust lawsuit to block Novant’s $320 million acquisition of Lake Norman Regional Center and Davis Regional Medical Center in Iredell County, both owned by Community Health Systems. The FTC argued Novant’s rapid market consolidation in North Carolina would lower competition and raise costs for residents.

In support of the FTC’s action, Folwell filed an amicus brief — a document submitted by an individual or organization that is not a party in a legal case, but has sufficient authority to provide evidence in court. He argued the acquisition would entrench Novant’s market power and raise costs for taxpayers who contribute to the state health plan.

“I don’t know how long North Carolina can remain number one in business outlook and be the worst in terms of health care access and cost,” Folwell said. “Years from now, someone will look back at the consolidation of health care in North Carolina and say, ‘Why didn’t somebody do something to protect consumers?’”

In October, Forbes ranked North Carolina as the worst among 50 states for healthcare costs and third to worst in terms of overall healthcare. A 2021 state health plan report found hospitals in the Tar Heel State were over three times more profitable than the national average in 2019, despite more than 85% of them being nonprofits. 

Folwell’s brief cites research from health economists Zack Cooper and Martin Gaynor finding approximately 80% of hospital networks in the United States are highly concentrated, with mergers contributing to increased costs.

It notes the treasurer’s fiduciary responsibility for the North Carolina State Health Plan, which has 750,000 active and retired state employees and pays over $4 billion in annual expenditures, most of which is associated with healthcare. 

According to its most recent report in 2022, the plan covers 12,128 members in New Hanover County, 5,883 members in Brunswick County, and 3,391 members in Pender County. New Hanover Regional Medical Center, bought by Novant in 2021, received $37.8 million from the plan in 2022, the tenth largest amount among state hospitals.

The treasurer argues hospitals with a high market share demand greater reimbursement from insurers and third-party administrators, leading the Novant proposed merger to cause taxpayers to “subsidize the resulting monopolist’s profits.”

A state health plan report similarly raised concerns about the pressure of nonprofit hospitals’ growing costs and high executive pay on the plan’s coverage. While state appropriations cover most of the costs for active and retired members, those enrolled must cover dependents separately.

In 2021, state health plan researchers found family premium costs for low-paid positions such as starting teachers, troopers, and maintenance workers would equal five days of income per month. 

The treasurer also argues Novant’s status as a nonprofit cannot justify the merger because nonprofit hospitals in North Carolina often do not provide enough charity care to justify their tax exempt status. 

Novant-run facilities in the tri-county region include New Hanover Regional Medical Center, Brunswick Medical Center and Pender Medical Center. The hospital network’s most recent audited financial report showed $8.3 billion in total operating revenue in 2023, with $460.8 million in net income after expenses. It also reports providing over $1.6 billion in community benefit, such as financial assistance to low income patients.

Multiple reports from the treasurer’s office and North Carolina State Health Plan have raised concerns about inadequate oversight and accountability to ensure sufficient charity care. A 2021 report cites Johns Hopkins University researchers who cast doubt on the method nonprofit hospitals use to calculate total community benefit, arguing some aspects “might provide additional benefits to the hospital itself as marketing efforts and, therefore, be self-serving for the hospital.”

For example, nonprofit hospitals include unreimbursed costs from Medicaid, which are also incurred by tax paying for-profit hospitals, as a form of community benefit. By the state health plan’s calculations, Novant’s 2019 charity care spending was about 52% of its tax exemptions.

The treasurer’s brief also cited a Wilmington Biz article on his concerns about Novant’s expansion, including its 2021 purchase of New Hanover Regional Medical Center, as well as Port City Daily’s reporting on Novant’s offshore investments. 

A Novant Health spokesperson disputed the treasurer’s argument in a statement to PCD:

“The FTC’s ‘one-size-fits-all’ attack on hospital mergers, echoed by the amicus brief, misses the real-world facts about this transaction: Novant Health’s purchase of these hospitals will ultimately benefit quality of care, long-term outcomes and competition. Our commitment to purchase is, fundamentally, a commitment to restore services lost over time and to provide new, leading-edge technology that will enhance the clinical capabilities available to the greater Charlotte community.”

In Novant’s February response to the FTC, the hospital network argued the two Iredell hospitals it intends to purchase are struggling and will falter in the absence of Novant’s ownership. The hospital network said it would revitalize the facilities with new investments, and argued the benefits of merger-specific efficiencies would outweigh any potential anti-competitive downsides to the transaction.

The treasurer’s office told Port City Daily it was the only state entity to weigh in on the side of the FTC so far, as the attorney general’s office declined to assist in filing the motion.

“Our office appreciates the FTC’s continued commitment to preserving competition in healthcare in North Carolina,” a spokesperson for Attorney General Stein wrote in an email. “Our office has been in frequent conversations with Novant and the FTC and continues to closely watch the matter.”


Tips or comments? Email journalist Peter Castagno at peter@localdailymedia.com.

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