NEW HANOVER COUNTY — This week, New Hanover County released the proposals to buy, lease, or partner with New Hanover Regional Medical Center. Naturally, there are questions.
Related: First look — Six proposals to buy, lease, or partner with New Hanover Regional Medical Center
The proposals include a range of options from bottom-line cash offers to complex partnerships. They’re also something of a work in progress, as the Partnership Advisory Group (PAG) has only just started a process of back-and-forth questions and answer cycles that may take weeks or months before all the details are hammered out.
That said, based on the executive summaries of the six proposals (released to the media late last week in preparation for a broader distribution on Tuesday), there were clearly questions about some of the key issues that have been debated going into the sale or partnership exploration process. These include what level of ‘local control’ will be retained (and what ‘local control’ even means). Questions also include how much weight the PAG is putting on some of the considerably large cash figures (as in, multiple billions of dollars) and whether the economic devastation of Covid-19 will shift those figures.
On Friday, PAG Co-Chairs Barb Biehner and Spence Broadhurst, Vice Co-Chairs Dr. Joseph Pino and Bill Cameron, County Manager Chris Coudriet, and NHRMC CEO John Gizdic met with Port City Daily to answer some of these questions.
Local control, local representation
While ‘local control’ has been a rallying cry of those who oppose the sale of NHRMC, it’s not entirely clear what the phrase means — or, at least, it’s clear it means different things to different people.
For some, it means political control: legal ownership of the hospital by the county, the ability for county commissioners to appoint NHRMC board members, and the ability of county government to influence the hospital’s mission. For others, local control is less about political control and about community representation — meaning, in short, that the people making decisions about NHRMC’s operation and long-term strategy are local residents.
Broadhurst said he was hesitant to debate semantics, pointing out that there were hundreds of different opinions on what local control actually meant.
That said, for Broadhurst local control “isn’t about local political control. It’s about management — management leadership of the medical center…that’s what I’m looking at: what will be the local input and control and direction of the leadership and operation of the church.” Gizdic agreed, adding it was his sense that the PAG didn’t consider county commissioner appointment of hospital board members to be necessary for ‘local control’ to be maintained.
Cameron added that, for him, the important factor would be evaluating how each health system had (or hadn’t) provided local control. “You look at what they’ve done in other situations, and either you do or you do not get comfortable with how they handle that matter.”
Another kind of representation being offered in the proposals — one that came as a surprise to some PAG members — is a voice within larger healthcare systems. Duke, Novant, and Atrium all included varying offers of appointing NHRMC Board members to their respective corporate boards.
Gizdic said this was uncommon and important because “that doesn’t usually happen in this kind of deal” and because these corporate boards usually have 12 to 20 seats, so having two members from the New Hanover County area would, in his opinion, provide the community with a significant voice in a much larger healthcare company.
Biehner called these offers “a tremendous compliment.” Asked if it would help allay concerns of ‘bait in switch’ — that is, a deal that through legal wrangling ended up being less beneficial than it initially appeared — Gizdic and Coudriet said that had not thought of it that way, but it would certainly provide assurances to local stakeholders.
Big numbers
There are some seriously eye-catching financial figures in the six proposals, and it’s hard not to focus on them. The proposals include billion-dollar investment commitments — including $5 billion from Novant and $3 billion from Atrium — and several purchase or lease offers topping a billion dollars (including a $2 billion offer from Novant).
But according to Coudriet, those high-dollar figures didn’t come up last Thursday, when the PAG worked through the six proposals. Broadhurst said it’s certainly true that the PAG has to work not to be dazzled by billion-dollar offers, for him the bottom-line financials aren’t the most important part.
“I mean — the numbers are really big. So it’s easy for us as the community to get lost in that. Whereas that’s what I would call a smaller part — that’s one piece of a formula, you know that we have so many other things that we’re really spending our time on,” Broadhurst said.
Covid-19 impact on NHRMC and possible partners
The financial devastation caused by government-ordered shutdowns has rippled through the economy. Hospitals face their particular own particular struggles, as well. In large part that comes down to cancelling non-essential medical treatment (like elective surgeries) that tend to be money-makers for hospitals like NHRMC. For Gizdic, it’s an example of the financial vulnerability of NHRMC that the PAG hopes to sure up by finding a new partner (or partners).
Gizdic said March’s financials, which will be released on Thursday, will show just how hard NHRMC has been hit — a $62 million loss in one month.
According to Gizdic, NHRMC was counting on generating around $6 million in operating revenue during the month of March. Instead, the hospital lost $6 million — effectively putting NHRMC $12 million in the hole.
Combine that with $50 million lost through investments and the hospital went from 247 days cash-on-hand to exactly 200 days of cash, according to Gizdic.
Further, although this financial loss was over the month of March, in reality, it stems from 11 days worth of Covid-19 impact, according to Gizidc. In other words, a full month of pandemic conditions could cost two to three times as much, or between $100 million and $150 million, or higher — considerably more than the hospital’s annual profit margin.
Gizdic said that, naturally, larger healthcare systems also weathered similar financial blows but, at the same time, also increased resources to sustain that kind of loss.
This prompts several questions: with NHRMC taking such a serious hit, did any of the interested companies have second thoughts? And, with even the most financially robust healthcare company losing money, were any of these companies shying away from their billion-dollar offers?
“So that was a question that came up in the PAG early on was about COVID,” Gizdic said. “And its impact on us its impact on these organizations and their ability or desire to continue moving forward with this process and their ability to actually execute on these proposals.”
Gizdic said all of the interested parties were still, in short. still interested and capable. According to him, “every one of them said they remain interested in doing a partnership with us … and then went further to say in addition to that, they illustrated their capability to execute on what was in the RFP through their strong balance sheets through their Double-A credit rating.”
Send comments and tips to Benjamin Schachtman at ben@localvoicemedia.com, @pcdben on Twitter, and (910) 538-2001
