Saturday, April 13, 2024

After the NHRMC sale, what about employees, the hospital, $1.25 billion, and those ‘corruption’ allegations?

The sale of NHRMC, slated for a vote on Monday, will have far-reaching implications. (Port City Daily photo/Johanna F. Still)

NEW HANOVER COUNTY — Monday’s vote to sell NHRMC to Novant Health is a safe bet — but then what?

The sale of New Hanover Regional Medical Center is a monumental decision, which will have far-reaching impacts on the region, and it’s complicated. The sale has a lot of moving parts and not everything is set in stone.

County and hospital staff have worked over the last year to preempt some concerns and have negotiated some assurances for current employees. The Asset Purchase Agreement (APA) that officially transfers NHRMC to Novant also includes some control over a possible future resale of the hospital — but those restrictions are neither complete nor permanent.

There’s also the community foundation, which will manage $1.25 billion in public money. While there are still questions about key details of the foundation’s structure, it’s important to recognize that the endowment has the power to provide tens of millions of dollars in community funding every year for the foreseeable future.

Finally, there are lingering criticisms — and outright allegations — from State Senator Harper Peterson, who has said that the sale process was “already corrupted” by the time it was announced to the public last summer. Despite push-back from some commissioners, Peterson hasn’t backed down and says he awaits the findings of the state Attorney General’s office, which will have to review and approve the sale after Monday’s vote before it can officially close.

Employees, pensions

A persistent concern from the day the sale exploration was announced has been NHRMC’s 7,500 employees. The hospital is the region’s largest employer, with twice as many people on staff as the number two employer, the county’s school district. So it’s understandable that the economic impact of potential layoffs, along with the need to protect thousands of residents from a decreased quality of employment, was a steady refrain.

The APA includes a moratorium of sorts on lay-offs for two years after the sale closes, covering most — but not all — employees. That does not include what the APA refers to as “non-offered employees.”

According to the county, this would include very few employees, limited to those that, “at that time, [were] not qualifying for employment with NHRMC.” Asked for a ballpark number, the county said it would be “very few, if any – basically whatever NHRMC’s standard daily turnover rate is.”

The APA also directs $200 million to be dedicated towards stabilizing employees’ benefits. While some have objected to this, saying Novant should shoulder the burden of supporting its new employees instead of eating up a portion of the sale profits, a majority of county commissioners felt that since NHRMC employees’ pensions were a county-backed benefit, the county needed to continue to fulfill that obligation.

While the NHRMC Board of Trustees recently laid out the details and assurances that its pension fund is sufficient to continue delivering benefits, gaps in communication have caused concern for some current and former employees.

Michael Smith, a 30-year retired nurse enjoying his fourth year of retirement from NHRMC, said he can’t get anyone at the hospital’s HR department to return his calls after inquiring with questions about the security of his pension. He checked in with another colleague who was having the same issue who told him “good luck getting anyone to call you back,” he said.

“I’ve been thinking someone perhaps has said, ‘Don’t field these calls,'” he said.

Smith and his colleagues’ experiences don’t jive with the hospital’s stated efforts. NHRMC spokesperson Julian March said each call to the HR benefits line is accounted for and that “staff makes it a priority to return calls within 24 hours.” The hospital sent out letters to both current and former employees in late July, March said, addressing questions and concerns about pension and retirement plans. The notes promise that pensions would remain safe.

Still, Smith had questions about how and where it would be secure, and without answers, felt anxious about his future. The timing of the vote before the election and the hospital’s ubiquitous public relations blitz made him less — not more — comfortable with the transition. “Better together” picket signs even appear next to candidates’ campaign material along town right-of-ways, muddying the idea of who or what is being sold.

“The amount of money poured into selling this to the public, it’s got to be staggering. Radio ads, TV ads, yard signs. If it’s such a good thing, it seems it would withstand a new county commission. If it is such a good thing and it has to happen for the hospital to survive, just answer all the questions,” Smith said.

Perhaps Smith, thousands of retirees, and current employees can rest assured; though Novant Health’s benefits package is less competitive than NHRMC’s, NHRMC is publicly pledging that earned pensions will remain untouched. The entire pension plan — $263,789,694 as of April 30 — is completely funded, according to hospital spokesperson Carolyn Fisher.

Currently maintained by the hospital, the plan (which has inevitably grown since the last count) will be managed by the county upon closing, with the county accepting responsibility for ensuring all pensions are honored. This particular shift in responsibility raised alarms for many, nervous that the county could one day have to dip into its reserves to follow through with its promises.

The $200 million transition stabilization fund will cover any amount accrued to the pension account in excess of what is already fully funded to date. This should be more than enough, Fisher said.

Though Novant will not continue on with pensions upon closing, the hospital has promised to vest all employees, regardless of their tenure. Normally employees aren’t vested until five years in — a policy to incentivize longevity. But the hospital wants to make sure employees are honored for their tenure on the job, considering the employment change isn’t their choice, Fisher explained.

Reselling or collateralizing NHRMC

By definition, selling an asset means a loss of control over what happens to it. Still, the county negotiated guidelines on Novant’s ability to resell NHRMC, in particular to a for-profit system. Those guidelines don’t, however, protect NHRMC from exposure to risk as part of Novant’s future dealings.

Almost immediately after the county announced it would explore the idea of selling or finding new partners for NRHMC, public outcry began to focus on the possibility of a sale to a for-profit system. The concern was motivated in part by the acquisition of the Asheville-based Mission Health system by HCA, a for-profit company, which was ongoing at the time. (It’s worth noting that several academic experts on healthcare finances weighed in on the issue, saying concerns over increased premiums and reduced access to care were valid for both non-profit and for-profit mergers and acquisitions.)

There was also a more general distaste for the idea of for-profit healthcare, evidenced in a November 2019 poll conducted on behalf of the county’s Democratic party. While the results were widely reported as being overwhelmingly against a sale, drilling down into the numbers showed that was only true for a for-profit buyer, with 82% against. When it came to a sale to a non-profit, the population was split, with roughly half against it, a quarter in favor, and a quarter uncertain. Around the same time, several commissioners, including Patricia Kusek, publicly said they wouldn’t support a sale to a for-profit.

A year later, those concerns were represented in the APA, which puts stricter guidelines on a sale to a for-profit. While the local hospital board can only check the sale of NHRMC’s assets to a non-profit for a ten-year period after the closing, the board can check any sale to a for-profit (no time limit to this power was indicated by the county).

That restriction requires some faith in the local hospital board; however, since the board is self-perpetuating, and includes a majority of current NHRMC trustees, it’s the county’s belief that it would not approve any sale that would reduce the quality of NHRMC’s services, even if Novant had a financial desire to sell it.

The APA also grants the county the ‘right of first refusal’ for 25 years; that is, the county would have the right to match any offer and buy the hospital back from Novant instead of allowing it to be resold. Barring a precipitous drop in the hospital’s value, however, the county could struggle to match a multi-billion dollar cash offer.

Per the APA, Novant isn’t prevented from using NHRMC or its assets as collateral in future financial transactions, a concern raised by Commissioner Rob Zapple. According to the county, Novant would not have to notify it of collateralization unless it were to lead to a sale.

How will the $1.25 billion foundation work?

Just days before the sale, county staff was still tweaking the structure of the community foundation. Some of the key details include aspects that will affect whether the board is open to the public and subject to government oversight when it comes to its investment strategy. The county aims to structure the foundation board as a private fiduciary board that avoids both.

Related – Deep Dive: With 72 hours to go, last minute changes to, and questions about, the $1.25-billion foundation

There are other models for investing public funds, which come with their own issues. Both the Golden LEAF Foundation, which manages over a billion dollars in settlement payments from tobacco companies, and the state employees’ pension fund, worth over $100 billion, are public funds with government oversight.

The county’s goal is to make sure that the community foundation can operate in perpetuity without touching the principal endowment, but officials also want to keep the foundation free from politics and ensure that the board is diverse and representative of the community.

A decade after Golden LEAF was created in the late 1990s it was accused of operating on a pay-to-play system that rewarded campaign donors and party operatives with appointments to the foundation’s board by top elected officials. A 2009 performance audit, conducted by the Office of the State Auditor, found the foundation had exercised insufficient oversight over $326 million in grants. The audit also found that the foundation had violated state law by awarding a $15 million grant in closed session and failing to provide accurate meeting minutes. Auditors stated that the foundation’s management also “repeatedly restricted and delayed” access to information. Officials disputed some of the findings; other issues, especially oversight, appeared to have been addressed according to later audits.

Golden LEAF’s foundation board is also overwhelmingly white and male — with 13 white men, one Black woman, and one Black man — at odds with New Hanover County Chair Julia Olson-Boseman’s statement that “the last thing we need is for that foundation to be all white, male, and pale. We’re putting a stop to that.”

That said, in recent years, Golden LEAF’s investments have been largely successful, although not without losses. The foundation has aimed for a hefty 11.6% return on investments, frequently exceeding that rate, but also occasionally losing out in the market (as it did in 2016, when the foundation lost roughly $4 million). For comparison, that’s five to six times the ROI the county has estimated the community foundation could earn as a public board.

When it comes to the stalwart North Carolina pension fund, the investments have been more measured but also more stable (the 20-year average return on investment is just over 6%). When Covid-19 ransacked the market in March of this year, the pension fund lost 10% of its value — roughly $10 billion — compared to the 25% losses across the market in general; the fund maintained $10 billion in cash on hand and, by September, had made up losses and then some.

The pension fund is far from apolitical, though. North Carolina Treasurer Dale Folwell, who is responsible for overseeing the fund, has been an outspoken critic of the hospital sale process in New Hanover County. Those critiques have even become a part of his campaign. (While outspoken, Folwell has said politics plays no role in the investment strategies of the pension fund.)

Several commissioners, including Kusek and Woody White, have expressed frustration that questions about the details of the foundation have overshadowed the immense good that even cautious investments of the $1.25 billion could provide. At 4%, more modest than the state pension, the fund could generate $50 million a year — an eighth of the county’s current budget, and 25 times the amount it currently sends to local non-profits.

Peterson’s allegations

In September 2019, State Senator Harper Peterson wrote a letter to the Attorney General’s office, claiming that “the government process in this matter has been corrupted, the public confidence has been violated, and a vote of ‘NO CONFIDENCE’ in this matter going forward is in order.”

Then and now, Peterson pointed to market research done by NHRMC’s consulting firm prior to the public announcement of the sale exploration, along with so-called ‘serial meetings’ between commissioners and top hospital administrators that skirted public meetings requirements. Officials for both NHRMC and the county have insisted these are standard practices that in no way violate the law.

Related: Attorney General’s Office will get final say, paying close attention to NHRMC sale

While the AG’s office has included Peterson’s comments in its oversight of the sale process, there has been no separate formal criminal investigation. Peterson said he believes the AG’s office would be looking into the period of time before the sale was announced, to see if there was any wrongdoing.

The AG’s office said it is closely watching the process. While county and hospital legal staff initially rejected the AG’s assertion that the sale process came under his jurisdiction to review, they have since conceded. After the vote on Monday, the AG’s office will have a chance to review — and approve or reject — the sale before it can close.

Asked if he would accept the AG office’s findings if it found no wrongdoing, Peterson said he would — if “the right questions” were asked.

“I want to know what the origin of this thing was. This thing began in the dark. It should have come from public officials,” Peterson said. “And what are plausible reasons for the urgency to sell.”

Peterson, who has been accused of making unfounded — even slanderous — accusations, said he stands by his complaint.

“I used some pretty strong words in my letter but I’m not backing off of that,” Peterson said. “I was very specific about my concerns with respect to the handling of a public asset — our most valuable asset. That’s nothing you apologize for — it’s the behavior, and the lack of transparency, and openness in the process.”

Commissioner White vehemently disagrees. If Peterson had evidence of the corruption he accused the county of, he should have already presented it, White said. And if he has no evidence, White said it’s irresponsible and wrong to falsely accuse someone of criminal wrongdoing without the proof to back it up.

While reiterating his strong concerns about “the mysterious process” that led to the sale, Peterson said that if the AG reviews how and why the sale process began and finds no wrongdoing, he would be satisfied.

Send tips and comments to

Related Articles