Angst mounts over lack of details about UNC-Carolinas health merger

Jan. 27--Frustration is beginning to show about a proposal to make North Carolina home to one of the nation's largest hospital systems. At issue is the lack of public details about a deal-in-progress that some are calling the biggest health care development in the state's history.

UNC Health Care in Chapel Hill and Carolinas HealthCare System in Charlotte have been in discussions for at least five months on combining their operations into a joint company with more than 50 hospitals and 90,000 employees. They had expected to strike a deal this month, but may not be able to work out business terms until March.

The information blackout makes it impossible for anyone to assess whether such a business deal would be good for North Carolina's residents or whether it would create a multi-tentacled monopoly capable of swallowing competitors and dictating prices for half the state.

Earlier this week, Blue Cross and Blue Shield, the state's largest health insurer, announced it would not support the deal. Durham-based Blue Cross cited independent studies that conclude hospital consolidation leads to higher medical costs for patients and for health insurers.

On Thursday, UNC system Board of Governors member Leo Daughtry said the board is also getting impatient. The board, which oversees the 17-campus UNC system, created a 6-member special committee to review the proposal, but Daughtry said the committee lacks the basic information it needs to conduct its due diligence to protect state-owned assets.

Their concern: The UNC system includes UNC-Chapel Hill's medical school, which could be subsumed into the UNC-Carolinas partnership.

"We don't know who's going to be in control," Daughtry said. "We really are somewhat frustrated that we are at this position."

Daughtry spoke after a two-hour closed-door meeting of the special committee. At that meeting, committee members heard about the nation's hospital consolidation trend from outside specialists, including health care lawyer Jerry Bell and financial advisers Carsten Beith and Dave Morlock of the Cain Brothers investment banking firm.

On Friday. N.C. Treasurer Dale Folwell, whose office includes the health insurance plan for 700,000 state employees, teachers and retirees, told UNC's Board of Governors that he also has an asset to look after. Amid years of steeply rising health care costs, the State Health Plan has a $35 billion unfunded liability and Folwell is looking for ways to cut $300 million from the plan's expenses.

"We have this ever-increasing buildup of concentration of power in the hands of fewer people, which, at the end of the day, impacts the affordability of the product I have the responsibility to try to deliver," Folwell said at the BOG meeting. "I'm trying to sustain these plans, and anything that impacts the accessibility or the affordability of health care for the people that I have the constitutional and fiduciary responsibility to serve, then I get concerned about it."

Asked if he is officially opposing the UNC-Carolinas partnership, Folwell demurred: "I'm not in the business of N-O, but I have to be in the business of K-N-O-W."

Asked about the complaints, a Carolinas spokeswoman referred questions to its negotiating partner in Chapel Hill. UNC Health Care spokesman Phil Bridges said in an email that UNC's medical school would remain under the control of the university and that the partnership's joint operating committee would have no control over it.

In the broad outline of the partnership, the joint operating committee would be controlled by an independent board. The company would have a new name and its own headquarters, none of which has been decided.

Responding to Folwell's concerns Friday, UNC Health Care CEO Bill Roper said the UNC-Carolinas partnership is all about making North Carolinians healthier. Under the proposal, Roper would chair the new board that would oversee the combined system.

"The thing that we are trying to do daily -- including trying to do this partnership that we're working on -- is improve the health of North Carolinians," Roper said. "That's the answer, ultimately, to the cost of health care in America."

Later, in an interview, Folwell said there are more than 100 hospitals in North Carolina now, and that number is expected to be controlled by fewer than a dozen companies.

The UNC Board of Governors held a lengthy closed session Friday in which it got an update on the proposed health care partnership. Six members recused themselves because of potential ethical conflicts and were not in the room -- Rob Bryan, Pearl Burris-Floyd, Thom Goolsby, Anna Nelson, David Powers and Bill Webb. Others who had recused themselves previously were not present Friday, including Tom Fetzer, a lobbyist who represents Blue Cross and WakeMed Health & Hospitals in Raleigh.

Afterward, UNC President Margaret Spellings said the negotiations involve thorny issues.

"We're moving along, but as you know these are complicated things and they take some time," Spellings said. "They are asking all the right things, they understand what this is about, they get the full implications."

John Murawski: 919-829-8932, @johnmurawski

Jane Stancill: 919-829-4559, @janestancill

Charlotte Observer reporter Deon Roberts contributed.

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