CHARLOTTE, NC (Ames Alexander, Deon Roberts and Ann Doss Helms/Charlotte Observer) - Carolinas HealthCare System, the Charlotte region's dominant hospital chain, will partner with UNC Health Care of Chapel Hill to form a medical giant – one that leaders of the two systems predict will expand access to care, improve quality and boost the state's economy.
The two hospital systems announced Thursday that they plan to create a joint operating company that would allow them to work together in myriad ways, from building new hospitals to negotiating with insurance companies.
"The new organization will deliver world-class care to people in North Carolina by creating the most comprehensive network of primary, specialty and on-demand care in the Southeast," the two systems said in a news release.
Gene Woods, currently CEO of Carolinas HealthCare, is expected to become chief executive of the new entity. William Roper, the CEO of UNC Health Care, will chair the board that will oversee the combined system.
It marks a major deal for Carolinas HealthCare, Charlotte's largest employer. The new system would run more than 50 hospitals and employ more than 90,000 people, making it one of the nation's largest hospital chains.
The two systems on Wednesday signed a letter of intent to join their clinical, medical education and research resources.
Many details – such as what their new organization would be called and where it would be headquartered – have not yet been hammered out. The two systems hope to finalize their plan within 180 days, and to secure regulatory approval from the Federal Trade Commission next year.
The outcome will be anxiously awaited by the 65,000 people employed by Carolinas HealthCare, and by the thousands of people who rely on the system for their health care.
"This is like a marriage," Roper told reporters from The Charlotte Observer and (Raleigh) News & Observer. "What I'm describing to you today is we just got engaged. The wedding is still several months away."
Leaders of the two systems said they will collaborate to improve cancer treatment, mental health care and substance abuse treatment. They also said they would push to improve access to care in rural areas, which suffer from a shortage of doctors and services.
"Since our organizations already serve almost 50 percent of all patients who visit rural hospitals in our state, we are perfectly positioned to participate in the reinvention of rural healthcare in partnership with others," Woods stated in the news release.
Roper said some people in rural parts of the state have to drive "quite a distance" to access special types of care, like radiation therapy. By combining forces, Roper said, the systems want to put services "close to people in convenient locations, using not only physical facilities but technology to reach people close to home in a convenient fashion."
Said Dr. Jessica Schorr Saxe, a health care advocate and family physician who retired from Carolinas HealthCare System: "If it's truly going to bring health care to rural areas and if it's going to bring mental health care to those areas, that would be important."
The joint operating company – a public, nonprofit corporation – will also allow the two systems to become more efficient with functions like billing and purchasing, hospital officials said.
Roper and Woods said hospital consolidation is a must in order to remain economically viable in a climate of rising health care costs.
Is bigger better?
But critics point to evidence that hospital mergers tend to drive up prices.
Carolinas HealthCare – a public nonprofit hospital system – has roughly 40 hospitals and 900 health care locations in the Carolinas. Last year, the system pulled in nearly $10 billion in revenue.
It is already the state's largest hospital chain. And it is the leading hospital system in the Charlotte area, controlling about 50 percent of the market.
The megadeal comes at a time when CHS' dominance of the local healthcare market is under close federal scrutiny.
A federal antitrust lawsuit filed last year contends that patients in the Charlotte region face higher health care costs and fewer choices because of CHS' efforts to prevent competition.
The lawsuit, filed by the U.S. Justice Department and the N.C. Attorney General's office, alleges that the system illegally reduces competition in the local health care market, using its dominance to get its way with insurers.
In a 2012 investigation, the Observer and News & Observer found that consolidation has given CHS and other large hospital chains leverage to demand higher payments from insurance companies. Carolinas HealthCare has said that it follows the law and that it is dedicated to making health care more affordable.
Leaders of the two systems said they did not believe their partnership would reduce competition. They noted that the two systems operate in different geographical areas.
"There will continue to be strong health care competition in the Charlotte area, and there will continue to be strong competition in the Triangle area," Roper said. " … We're not doing this to extract monopoly rents from Blue Cross and Blue Shield."
In the Charlotte region, CHS' largest competitor is Novant, which owns 14 hospitals in North Carolina and Virginia.
N.C. Attorney General Josh Stein's office was non-committal about the deal. "The Attorney General's office looks forward to receiving further information about this transaction and will be reviewing it closely to ensure that it benefits consumers," officials wrote in an emailed statement.
Officials for CHS and UNC say their partnership will not technically be a merger because they do not intend to pool their assets.
Joint operating companies, sometimes known as "virtual mergers," are nothing new to the healthcare industry. Experts say such arrangements help hospitals achieve efficiencies and improve their financial health. But such transactions have also sparked antitrust concerns.
The partnership represents the biggest project taken on by Woods, who began leading Carolinas HealthCare less than two years ago, when he replaced retiring CEO Michael Tarwater. Woods described the deal as an opportunity for the combined system to be a "national model."
UNC Health Care, a not-for-profit health care system owned by the state, operates the only state-owned teaching hospital in North Carolina. By teaming up with the renowned medical research system, Carolinas HealthCare hopes to expand medical education in the Charlotte area.
In 2010, the UNC School of Medicine launched a Charlotte campus at Carolinas Medical Center, the flagship hospital of Carolinas HealthCare System.
"We look forward to growing that with them," Roper said this week.