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Nathan Baker

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Who could be Wellmont's future partner?

August 16th, 2014 10:02 pm by Nathan Baker

Who could be Wellmont's future partner?

Outside the private merger talks conducted by Wellmont Health System’s board of directors, much speculation surrounding the identities of the health care systems bidding for partnership in or control of the hospital system abounds.

Wellmont, as one of the largest employers locally and a major driver in the economy, could drastically change the nature of health care in Northeast Tennessee and Southwest Virginia with its choice, expected in the fall.

Public statements issued on behalf of Wellmont’s 17-member board announced last month that the search was down to three finalists — a regional system and two others from outside the area — but company leadership and spokesmen cite nondisclosure contracts in their refusals to reveal the bidders’ identities.

Area banker and businessman Bill Greene believes Mountain States Health Alliance, Wellmont’s direct competitor since 1998, is the regional system looking to scoop up the six hospitals on the table, and he’s campaigning to sway public opinion in his favor.

Greene and more than a dozen other prominent residents from the two hospital systems’ service territories have planned a Monday evening forum in Kingsport where they hope to make the case for a Wellmont-Mountain States merger.

The resulting system in Northeast Tennessee and Southwest Virginia would control 20 hospitals with $1.8 billion in annual revenue and $1 billion of cash on-hand, making it larger than many of the suitors rumored to have interest in Wellmont during its partnership search and giving it the benefit of local control, Greene said.

“It’s the only scenario that makes any sense at all,” he said Thursday in an interview with the Johnson City Press. “If Wellmont is given away to one of these big systems from North Carolina or Virginia, we’re going to lose whatever say we had in our own health care, all of our money is going to be sucked right out of here and we’re going to still have two systems that are irrationally spending as much as they can to have the bigger and better gadgets.”

For years, the two systems have waged a war for regional supremacy, he said, each buying, building and upgrading hospitals with the latest, greatest and most expensive technology and leaving it to patients to cover the costs.

If the two were to merge, or if Mountain States were to outright buy Wellmont, armistice could be declared and peace could reign over the land — in theory.

View Wellmont's Suitors? in a full screen map

“But wouldn’t that create a monopoly?” Greene rhetorically asked, anticipating an upcoming question during the interview. “It does. And that scares people to death, it would scare me to death, too, but you don’t think we don’t have a plan for that, do you?”

To mitigate the negative effects of having only one health care provider in the area, Greene plans to advocate the systems applying for a certificate of public advantage to help control competition-free pricing.

A certificate of public advantage, or COPA, is part of a cooperative agreement granted by the state attorney general. With it, the systems could tie future cost of care increases to the performance of the cost of living or other economic markers.

“In an environment like Northeast Tennessee and Southwest Virginia, there is not a critical mass of people substantial enough to support the capacity of two systems,” Greene said. “The COPA is an alternative to market competition. Utility companies use the same thing all the time.”

A similar arrangement was struck in 1995 in Asheville, North Carolina, when Mission Hospital merged with St. Joseph’s Hospital to create Mission Health Systems. To offset the effects of the created monopoly, North Carolina limited the amount of revenue the system could earn annually, limited the number of doctors Mission could directly employ and set controls on how far the hospital authority could expand geographically.

The COPA is still in place, but two years ago, Mission’s leaders asked the state’s Legislature to terminate the arrangement, complaining that the restrictions hobbled the system in a drastically changing health care environment. The request was ultimately denied.

Without the need to outspend the competition, Greene said resources would be freed up by a local merger to allow other endeavors, namely medical research partnerships with East Tennessee State University.

If the newly merged system turned toward academic research, it would become one of the nation’s largest, with more patient opportunities each year than the University of Tennessee’s and Vanderbilt’s systems, the latter of which received almost $200 million in research grants last year from the National Institutes of Health.

Although it’s a difficult and lengthy process to create a medical research hub, Greene admitted, the successfully forged partnership could help to improve the local university’s enrollment slide, help the new system recruit doctors and help contribute to the overall understanding and health of the entire region.

At the public forum Monday, Greene said ETSU President Brian Noland is scheduled to be a panelist and will sit in on a session during which he will outline the university’s desire for the Wellmont-MSHA merger.

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As the private merger talks have progressed, rumors of the
potential bidders have leaked into the public realm. The following information
should not be perceived as the confirmed identities of the companies, but an
analysis of Wellmont’s potential future partners.

Wellmont

First, the belle of the ball.

Wellmont was created in 1996 when Kingsport’s Holston Valley
Medical Center and Bristol Regional Medical Center merged.

The 1,200-bed system grew alongside Mountain States,
expanding from Rogersville, Tennessee to Norton, Virginia.

Last October, the company closed Lee Regional Medical Center
in Pennington Gap, Virginia, citing declining federal reimbursements and
patient volumes and an inability to staff the facility with physicians.

Wellmont currently
employs 6,448, produced $798 million in revenue last year and holds about $630
million in debt. That debt load and its current cash on hand, $395 million,
earned the system a BBB+ rating from Fitch last year.

Mountain States
Health Alliance

Mountain States controls 14 hospital facilities with 1,623
certified beds from Dickenson Community Hospital in Clinchwood, Virginia, to
Unicoi County Memorial Hospital in Erwin, which it acquired last summer.

It employs 8,433 people and produces $1 billion in annual
revenue, but holds $1.1 billion in liabilities, which also brought a BBB+
rating last year from Fitch.

In a meeting last month to discuss the system’s future, CEO
Alan Levine professed an aggressive debt retirement plan, which he said should
increase the system’s bond rating to “A” levels within five years.

At last report, MSHA held $606 million in cash.

It should be noted that Levine and other system leaders have
refused to publicly discuss the prospects of a Wellmont-MSHA merger, but have
said an outside system moving in could draw drastic reactions to compensate.

Covenant Health

Covenant’s reach stretches to Wellmont’s back door, with two
facilities in Northeast Tennessee within 30 miles of Wellmont hospitals.

The nine-hospital, 1,500-bed system is anchored by
Knoxville’s Parkwest Medical Center.

More than 10,000 are employed by Covenant, which produces
revenue of approximately $1 billion.

Carilion Clinic

Carilion is another near-to-home system.

Headquartered in Roanoke, Virginia, with Roanoke Memorial
Hospital as its flagship, it’s farthest west facility, Tazwell Community
Hospital, is within 80 miles of Bristol Regional Medical Center.

In 2006, wary of upcoming health care changes, the system
underwent a reorganization that brought it away from hospital expenditures and
toward hiring doctors in member clinics.

The efforts appeared fruitful, because last year, the
company reported a profit of $20.3 million from $1.4 billion in revenues.

With eight hospitals and hundreds of affiliated clinics,
Carilion employs 11,300 people.

In 2010, Carilion and Virginia Tech University jointly
opened a school of medicine with plans to promote medical education and
research. Carilion also established a biomedical institute in Roanoke to serve
as an incubator to introduce advanced medical devices.

Novant Health

Novant Health was formed in 1997 through the merger of two
North Carolina-based systems.

It currently owns and manages 15 hospital facilities with
2,795 total certified beds stretching from coastal Bolivia, North Carolina, to
Manassas, Virginia.

The system is headquartered in Winston-Salem, North
Carolina, and employs 24,400.

Last year’s revenue was reported at $3.5 billion with cash
at $2.2 billion and debt at $2.7 billion. The system garnered a AA- bond rating
from Fitch.

Just this year, Novant opened its latest hospital, Haymarket
Medical Center in Virginia.

Sentara Healthcare

Most of Sentara’s 12 hospitals are located in eastern
Virginia, although it shares some D.C. Beltway territory with Novant.

Based in Norfolk, the system, with 2,839 beds, brought in
$4.2 billion in revenue last year and reported $221.8 million in operating
income, a decline from the previous year’s $263.8 million on $4.1 billion in
revenue. Sentara’s debt load stands at about $2.2 billion.

In March, the system signed a lease agreement to run
Albemarle Health in Elizabeth City, North Carolina.

Carolinas Healthcare
System

The largest system on this list by far, Carolinas Healthcare
oversees 38 facilities with 7,400 beds.

In 2012, the most recent year available, the system’s
revenue was $6.9 billion.

The bulk of Carolinas’ operations are carried out in owned
hospitals in the Charlotte area, but it controls facilities from Charleston,
South Carolina, to Reidsville, North Carolina.

In Charlotte, CHS, which employs more than 60,000 people
systemwide, competes with Novant.

In March, CHS brought Stanly Health Services into the fold,
almost immediately increasing the smaller hospital’s Fitch rating from BBB+ to
A.

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