Monday, August 8, 2022

Deep Dive: Did rural counties get left out of $1.25 billion New Hanover endowment deal?

The Hospital Sale, Part 1: This is part one of a three-part series checking in on the NHRMC-Novant Health sale. The second part, which focuses on the status of the foundation, will be released Jan. 17. The third, which focuses on the status of the transaction itself, will be released Jan. 24.

Novant Health employees hold up branded”better together” signs in support of the hospital sale in front of the historic county courthouse before the commissioners’ meeting when the transaction was approved. (Port City Daily photo/Johanna F. Still)

NEW HANOVER COUNTY — When $1.25 billion in public assets changes hands to a private group in New Hanover County as a result of the sale of the county-owned hospital, the intent of the transaction is that money will stay within county limits.

Outside of an anticipated regulatory review, the deal is done. Still, some regional leaders in surrounding, rural counties are asking: Did we get left out of the deal?

Related: Deep dive series: The multi-billion-dollar hospital vote

The possibility the county took an overly insular approach to setting up the private benefactor of the public assets, New Hanover County Community Endowment, Inc., means residents that live outside the county line may not directly benefit from this aspect of the sale. As a county-owned hospital, there’s no doubt New Hanover County deserves the overwhelming bulk of sale proceeds.

But there remains a legitimate question over whether outside residents have been boxed out.

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The surrounding county governments didn’t directly contribute financially to New Hanover Regional Medical Center’s total $1.9 billion valuation, but certainly, even if to a minimal degree, their residents’ patronage did.

“We have not prepared any numbers that would quantify the role individual counties within our seven-county service area would have had — if any — on the overall offer from Novant Health, which was a number they offered, not a sale price NHRMC set,” Julian March, NHRMC spokesperson, wrote in an email. “I’m not sure that you could accurately isolate those individual counties considering how large and complex the health system is.”

Having publicly stated it serves a seven-county region and with more than half of its patient base coming from outside New Hanover County, the hospital’s $1.25 billion sale proceeds can’t be spent in surrounding communities.

One rural political leader called it flat-out “wrong.” Another believes spending and representation will naturally migrate outwards over time, once the new board settles in. Others hope the regulatory review process results in forced regional representation. 

This recently happened in the Asheville Mission Health-HCA Healthcare deal that created the Dogwood Health Trust, which formally launched in February 2019. Managing $1.5 billion in sale proceeds, a majority of the Dogwood Health Trust’s original board members resided in Buncombe County. Under an agreement to avoid being sued by N.C. Attorney General Josh Stein, the trust agreed to install board members that represented all regions of the original hospital system’s 18-county service area in westernN.C.

At $1.25 billion, the private nonprofit New Hanover Community Endowment, Inc. has per capita assets of $5,331. With a quarter-billion more dollars and serving 17 additional counties, Dogwood Health Trust’s per capita assets is $1,641. Both are massive endowments, likely topping nationwide and regional lists when ranked against similar foundations.

The state stopped short of stipulating where geographically Dogwood’s money should get spent (Stein did negotiate at least $25 million of its expenditures dedicated to fight opioid abuse). Presumably, having more regional representation may increase rural western N.C. residents’ chances of benefiting financially from the foundation outside of Asheville.

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

As they stand, New Hanover Community Endowment’s bylaws include no rules that govern representation or composition of its 11-member board. 

“Most conversion foundations have composition requirements that inform the board nomination and selection process,” according to a 2017 Grantmakers In Health review of 242 foundations — all the foundations it identified across the nation. The review found nearly half of all foundations include specific demographic-based composition requirements, including: residency, gender and racial diversity, professional expertise, or religious representation. 

[Two days after this article published, Port City Daily obtained documents via a records request that shows in November, the attorney general’s office specifically asked “whether New Hanover County and other local governments in the region would be eligible to receive grants from the Endowment.”

Last month, the hospital responded: “All Endowment grants will be made solely in support of these purposes and for the benefit of the residents of New Hanover County.” The attorney general’s review remains ongoing.]

‘A lot of money for one county’

It’s not easy to keep up with a transaction of this size and scope; the attorney general has taken three months so far (he spent five on the Asheville deal), with no definitive timeline on when to expect an official review and/or approval of the sale, his spokesperson confirmed.

When the sale was being approved, the concept of regional representation wasn’t extensively fleshed out publicly.

On a national level, it is rare for so much healthcare conversion money to be infused into such a small geographic area. However, as a county-owned nonprofit, the county’s position selling its hospital is unique from other nonprofit conversions.

New Hanover Regional Medical Center has long publicly stated it serves a seven-county region in southeastern N.C. Generally, most conversion foundations serve the designated service area of the original non-profit.

The hospital’s primary service area falls in New Hanover, Pender, and Brunswick counties, where it typically claims between 75% to 80% of the market share, according to its most recent community needs assessment. Its secondary service area covers Columbus, Duplin, Bladen, and Onslow counties. Market share for hospital business between all seven counties has exceeded 55%.

NHRMC’s continued presence and investment in outlying, rural counties is vital; rural North Carolinians have a higher mortality rate, are less likely to have access to healthcare, and are more likely to engage in risky health behaviors, according to a rural health action plan developed by the North Carolina Institute of Medicine.

Under its current bylaws, the New Hanover Community Endowment, Inc. must support projects in New Hanover County.

“$1.25 billion is a lot of money for one county,” said Kate Treanor, senior program director for Grantmakers In Health, one of the few institutions nationwide which engages in a thorough review of conversion foundations.

“There are a very small number of conversion foundations with assets at that level,” she said.

Conversion foundations

Also known as “health legacy” or “health heritage foundations,” conversion foundations refer to a growing body of nonprofit groups formed following the sale of health-related assets.

They take on many forms but are primarily created when healthcare assets transfer from a nonprofit to a for-profit entity — or in New Hanover County’s case, from a publicly-owned nonprofit (NHRMC) to a nonprofit (Novant).

Continued consolidation in the healthcare industry is driving the formation of new conversion foundations, which first emerged in the ’80s. N.C. is ranked as [having] the fifth-most nationwide, with at least 15 (not including New Hanover County’s, as it’s still under review), according to a 2017 GIH review of 242 foundations it identified across the nation.

Up and down the East Coast, the New Hanover Community Endowment’s $1.25 billion purse falls in the top five or 10, according to Allen Smart, a national healthcare conversion consultant who specializes in rural philanthropy through his firm, PhilanthropywoRx.

Having recently served as interim director of The Foundation for a Healthy High Point, a $50 million conversion foundation, Smart frequently consults with boards on how to maximize their impact.

“The typical geographic landscape of these health conversion foundations often does consider where the patients came from, where the workforce lives, something broader than just where the institution is housed,” he said, reflecting on foundations in general, not specifically on New Hanover County’s.

In 2019, less than half (46.1%) of patients discharged by NHRMC’s main campus and orthopedic hospital in Wilmington resided in New Hanover County. More than half traveled from outside the county, with most residents from Brunswick County (18%), Pender County (12.2%), and Onslow County (8.3%), according to internal hospital data submitted to the state health department in September.

Conversion foundation’s footprints are often determined by the original entity’s publicly stated healthcare service area or patient base, according to Smart. They can also get drawn based on an organization’s patient base.

“The mechanisms of going down the demographics of the patient base of a particular healthcare institution — that’s a pretty standard methodology for the founding geography of many conversions,” he said.

A spending formula or dollar quota developed for outlying regions would be very unusual, he said. Foundations in the past have considered where, for example, 5% or more of their patient base lives when determining their geographic footprint. 

It’s important for foundations to draw the line somewhere; the wider the service area, the less impactful future spending may be. Plus, foundations risk serving outlying areas that turn to other nearby metropolitan hubs — not the urban community where it’s based.

“What’s the true footprint of the hospital versus these outlying patients that come in once a year?” Allen said, offering a question worth considering when determining foundation footprints.

“Sometimes I recommend to clients who are looking to rethink their footprint to consider the publicly embraced region they might work with or that people can identify and agree with as the region and just adopt that one,” he said. “In many places, people have a sense of the adjacent counties and which they relate to — either for personal or professional reasons.”

After several years in operation, some boards serving expansive regions have opted to cut down on their service area, fine-tuning their footprint to optimize results, Smart said.

Generally, research shows rural communities get overlooked in philanthropic grantmaking. These communities get passed over in the conversion foundation sphere for a number of reasons, including a lack of rural representation on boards and a fewer number of non-profits to engage with outside of an urban hub, Smart explained.

“You can get more density of work in urban areas so why would you fool with a county of 15,000 people when you can be in an urban neighborhood and get 15,000 people within a four-block radius?” Smart said. “It’s that return on investment mindset threaded through a lot of philanthropies these days.”

Foundations that best serve rural communities seek to meet them where they are — ‘It’s not the ‘come to us’ model. Although that model absolutely still exists,” he said.

Spence Broadhurst, then-PAG co-chair, addresses commissioners at the last public hearing ahead of the hospital sale. (Port City Daily photo/Johanna F. Still)

The provisions

On paper, the provisions stipulating exclusive, New Hanover County-specific spending are narrow. Funds must be spent in New Hanover. The parameters of this rule aren’t yet clear; for example, there’s no stated rule defining exactly which entities may be eligible for funding.

In the defining paperwork, there are two references to the service area. First, the 160-page Asset Purchase Agreement states the purpose of the foundation is to provide financial support to benefit residents of “New Hanover County and region.”

“Region” is not defined.

Second, the foundation’s bylaws state its exclusive purpose is to support projects in New Hanover County.

Pg. 3 of the bylaws.

Spence Broadhurst, elected as chair of the foundation last month, referenced the bylaws when citing his understanding of the stipulation.

“It’s New Hanover County’s money — not NHRMC’s,” he said, explaining the limitation. “I think there are a lot of opportunities to make a difference in New Hanover County which will have reaching impacts, perhaps, in surrounding areas. But our focus will be on our bylaws in New Hanover County.” 

Endowment vice-chair Hannah Gage cited the county’s inability to take out debt in outside counties as a reason the hospital opted to explore a sale in the first place. Being county-owned meant the hospital was hamstrung in serving the region, where growth is exploding outside county lines. “It was thwarting the hospital’s ability to serve in a way it felt it needed to serve,” she said.

Before the sale approval, Ruth Glaser, president of Pender Memorial Hospital, told county commissioners in September the deadlock on taking out debt meant rural residents got left behind. “Our citizens in Pender County are really more deserving than what we have,” she said.

Citing the hospital’s limitations on borrowing money outside the county, NHRMC spokesperson March said its regional perspective prompted leaders to seek a partnership

“The need to do more is imperative because many of the counties in our region have limited access to healthcare and are ranked low on many health indicators,” March wrote in an email.

Under the new deal, Novant as a nonprofit hospital is free to expand and borrow funds for projects in surrounding counties as it pleases.

“Our designated area is the smallest geographic county in North Carolina,” Gage said, later clarifying New Hanover County is actually the second-smallest (really, first-smallest if you don’t count the wetlands, she said). 

“There’s a lot of things that I imagine the endowment will find will impact the whole region and some of them more directly than others,” she said. “Specifically, our understanding is the money is for programs in this county.”

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

Asked whether the county had a choice or if it was required to include the exclusivity provision, county spokesperson Jessica Loeper said the decision was made by the county and commissioners “to ensure that the funding stayed primarily in New Hanover County, since the hospital is a New Hanover County asset.

“The intent of the endowment is to fund entities within New Hanover County (i.e., those that are primarily located in New Hanover County or founded in New Hanover County), and it isn’t meant to fund entities that operate solely in other counties outside of New Hanover County,” Loeper wrote in an email.

County-based organizations — like food banks, recovery programs, or boys and girls clubs — whose work benefits neighboring county residents but that primarily serve New Hanover County would be eligible to receive funding, Loeper explained. 

“So, while the organization primarily serves [New Hanover County] residents, its benefits may extend beyond our county borders and also benefit the region as well,” she wrote.

Longtime Pender County Commissioner David Williams has served on the hospital’s board of trustees for 11 years. He was tapped to serve on the 24-member Partnership Advisory Group formed by New Hanover County and NHRMC to explore the sale. 

Williams is thrilled about the opportunity Novant Health’s ownership presents for his county and the region as a whole. Under the sale, Novant agreed to honor NHRMC’s long-term strategic plan, which includes the eventual replacement of Pender Memorial Hospital — a facility Pender County owns (and will continue to own) that NHRMC has managed for more than 20 years, renting the property for $1 annually under current agreement terms. 

“We are not being left out. There is so much more to this deal than just the foundation,” Williams said. The amount of money that stands to be invested in Pender County with this deal and in areas that aren’t in Pender that Pender can still benefit from, facilities, are immense.”

“I just ask people to remember, who had the assets to sell in the first place?” he asked. 

About half of the hospital’s revenue derives from outside New Hanover County, Williams said. Though regional expenditures and representation on the foundation is not in writing, Williams said he believes the board will widen its scope of influence after it’s had the chance to adjust. “Ultimately, we’re in this as a region together,” he said.

The foundation deserves leeway while members get accustomed to each other and the momentous job they’ve been tasked with, Williams said. 

“The fact that, yeah, everybody initially appointed to this foundation — that doesn’t scare me,” he said, referencing the lack of immediate representation on the founding board. “Who’s to say that folks from all these counties won’t benefit from things the foundation does that are still in New Hanover?”

County Commissioner Rob Zapple walks past supporters after addressing the Save Our Hospital crowd ahead of the hospital vote. Zapple was the only commissioner to vote against the sale. (Port City Daily photo/Johanna F. Still)

A legitimate claim

New Hanover County Commissioner Rob Zapple, who opposed the bylaws but supported the hospital sale, said the exclusionary stipulation makes him uncomfortable.

“The fact that it was solely focused on New Hanover County is bothersome to me,” he said. “I think there’s a legitimate claim from the counties outside of us that the success of New Hanover Regional over the past [53] years was due in part to citizens from these six other counties coming here and paying their bills.”

[Commissioners approve historic vote, selling NHRMC to Novant Health in billion-dollar deal]

While the deal was still being negotiated, Zapple said he brought his concerns (regional representation being one of many) before the county manager, county attorneys, the sale consultant attorney, and hospital attorneys.

 “I put out there that we should have regional representation,” he said. Zapple suggested at least two members of the foundation represent outside counties. “It’s even in the name: New Hanover Regional Medical Center.”

There’s no mention of representation in the final version of the bylaws (nor did they create a publicly-accountable entity under N.C. Open Meetings Law — Zapple’s chief concern). The crux of most of Zapple’s qualms with the sale involves the strain between a “trust us” mentality vs. getting assurances in writing. “We shouldn’t be reliant on personalities for something this important,” he said. “The bylaws should be there.”

As for the foundation’s spending priorities, prioritizing regionalism doesn’t mean deprioritizing New Hanover County residents, he said.

“I am not suggesting that we take each annual disbursement of money and divide it up equally seven ways — absolutely not,” Zapple said. “The clear focus is to the benefit of New Hanover County citizens — but not to the exclusion of those other members of the southeast North Carolina region.”

Acknowledging the county’s clear prominence in the region, Zapple said it would be wise for its leaders to recognize its role from a multi-county perspective.

“There’s no doubt that New Hanover County is the economic engine in southeastern N.C. We’re kind of this little oasis down here, tucked away in the corner,” he said. “I believe that we will never fulfill our full potential as a county and as a regional leader until we start acting like a regional leader.” 

‘Where’s our piece of the pie?’

Brunswick County Commissioner Frank Williams said he spoke out about regional representation early on in the hospital sale process.

“Given the number of NHRMC patients and employees who live in Brunswick, Pender, and other nearby Counties, I believe limiting foundation expenditures to only New Hanover County would simply be wrong. The hospital serves the region, and the foundation should do the same,” he wrote in an email.

Brunswick County Chairman Randy Thompson remembers serving on the county’s search committee in the early 2000s. The county eventually tapped Novant to take over managing and ownership of its county-owned Brunswick Community Hospital, which Thompson said stood out as a clear leader at the time.

Though the county has Novant in its own territory, Thompson said residents still heavily rely on NHRMC across the river. NHRMC has its own base in Brunswick Forest, too (however, Brunswick County has no agreement in place with the hospital over management of that facility).

“I really think that we are part of the regional system. And that we should be part of the foundation,” Thompson said. “So many of our residents utilize the New Hanover County facility.”

Behind New Hanover County, Brunswick County residents utilized NHRMC’s main and orthopedic campus the most, making up 18% of those served, at 7,414 patients.

Citing Williams’ public sentiments on the topic, Thompson said the county did try to get its residents representation on the endowment board. Plus, Brunswick County had no representation on the PAG, which oversaw the sale process.

“We did stand up and voice our willingness and our desire to be a partner. And whether or not it was considered or not, I guess that was one of those negotiating things that happened in that process,” he said.

Thompson said the county’s focus on responding to Covid-19 has probably diverted its efforts to get its needs voiced in trying to get representation or access to grants from the endowment.

“It is something that needs to be addressed at some point in time,” he said. “Because we are a player, and we are a participant and the table in the regional approach.”

Pender County Chairman George Brown said he’s still learning about the specifics of the hospital sale and foundation and had not yet had the chance to formulate an opinion on the matter.

Brown did say he was in the middle of texting the county’s attorney on the topic, preparing for a board discussion to renew the county’s agreement with NHRMC regarding Pender Memorial Hospital. (The agreement has no financial ties.)

“We’re trying to figure out where our place is in all of this,” he said. “I guess New Hanover is looking at it like it’s our hospital. At the end of the day, it belongs to New Hanover.”

Though he’s hearing from concerned residents, Brown said he can see it from New Hanover County’s perspective: “One way to look at is, you’ve rented your house to someone. They pay you money to live in your house. You own it but you rent it to them. They’ve lived in it for five years, at the end of the five years they don’t have any buy-in whatsoever to the house,” he said.

Pender County has more of a leg to stand on compared to other counties, Brown said, considering the county’s partnership with the hospital with Pender Memorial Hospital and fellow commissioner David Williams’ role on the hospital board of trustees and the PAG.

Still, he’s hearing concerns from residents. “There are people that are questioning, ‘Where’s our piece of the pie?’” he said. “How is this affecting us? Where do we stand in the scheme of all of this?”

READ PART 2: Endowment formed from NHRMC sale isn’t — and shouldn’t be, experts say — in a rush to make grants

READ PART 3: NHRMC sale set to become final: Novant takes over Monday with gradual transition

Send tips and comments to Johanna Ferebee Still at

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