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State Treasurer has unanswered Vidant-ECU merger questions

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By Michael Abramowitz
The Daily Reflector

Tuesday, March 20, 2018

As potential health care partners in Greenville work to resolve complicated legal challenges to their proposed merger, North Carolina’s treasurer said this week that he has questions and concerns related to the deal and its potential effect on several hundred state employees and their pension and health benefits.

State Treasurer Dale Folwell has been working on the ECU-Vidant merger since before a proposed UNC Health Care-Atrium Health partnership, which collapsed on March 2.  

Folwell said there are some similarities between the two merger situations, but they are different in several other aspects.

“Having so many competitors providing health care in Raleigh and the urban areas is different from providing accessible and affordable health care to eastern North Carolina,” he said.

ECU Physicians is the faculty practice of the Brody School of Medicine at East Carolina University and an entity of North Carolina government under the direction of the UNC Board of Governors.

It is negotiating with Vidant Health — a tax-exempt nonprofit corporation — to combine the Brody faculty practice with the physician practice operated by Vidant. The resulting entity, itself a new tax-exempt nonprofit organization, would be a fully-integrated clinical practice governed by Vidant and ECU. 

Under current proposed terms — not yet finalized by Vidant and ECU administrators since being given permission last year by the Board of Governors to negotiate a deal — Vidant will make an upfront payment of $35 million to ECU, and annual payments of $14.25 million to support the university’s Brody School of Medicine.

Vidant also would bear financial responsibility for the new entity, being called VECU Medical Group during the negotiating period.

ECU Physicians employs more than 350 doctors and 80 advanced-practice professionals at 25 medical clinics in Greenville and eastern North Carolina. Vidant Health operates eight hospitals and its medical group has more than 420 medical providers at more than 80 eastern sites. It also employs hundreds more nurses, technicians and other support staff, all state employees.

Folwell outlined areas of concern related to the merger.

“We need to make sure the combination of ECU and Vidant does not affect the taxability of the state pension plan,” he said. “We need to know how it impacts the previously-issued bonds and the money that taxpayers already have spent on those facilities in the past, and how it affects those employees who depend on the state of North Carolina for their health care and pension benefits, and what it does for health care costs in eastern North Carolina.

“The state, through the Local Government Commission, through the treasurer’s office, has issued, stood behind and given a ‘thumbs-up’ to debt associated with these facilities,” Folwell said. 

“For 10 months, we’ve been asking for an opinion from bond counsel regarding these things (that) we’ve said have the full faith and credit of the state of North Carolina but now are not going to be,” he said. “We’ve heard nothing but crickets in response. If somebody else is going to assume responsibility for those bonds, there has to be some document of security that tells the owners of these bonds that they’re not the full faith and credit of North Carolina anymore, but (something else).”

Folwell said he has had at least one meeting with the Vidant and ECU principals and people from the Local Government Commission to review those and other “mathematical” issues. He said he brought the issues up at a N.C. Council of State meeting, which concerns itself with the sale and purchase of state-owned assets.

“We’re not trying to get in the way of statutes, but honor them,” he said. 

Folwell said he has not eliminated the possibility of requiring a performance bond for the ECU-Vidant merger similar to the $1 billion bond he proposed for the UNC-Atrium deal.

“I wouldn’t take that off the table, but it is a very different transaction because they’re acquiring the medical practices,” he said. “But now that (the UNC-Atrium) merger has been dissolved, we’ll turn our attention to it.”

Folwell said his responsibility as treasurer requires him to ask questions, but he said he has not had them answered.

“I don’t know what they’re expecting, because I don’t have a vote on this. I’m not in the business of ‘no,’ but the business of ‘know,’” he said.

Rick Niswander, ECU vice chancellor for administration and finance, on Wednesday said that ECU wishes to address the treasurer’s concerns and adequately answer all his questions.

“He is an important constituent of this process and we want to make sure we are as responsive as we can be and share all the information that we know,” Niswander said.

ECU is not transferring its physical assets to the new entity and does not intend to do that, he said.

“We are transferring the equipment used in the buildings — desks, exam tables, etc. — because those were purchased with practice plan assets and not state appropriations and are part of what it takes to run a medical clinic,” Niswander said. “The new entity will need to use those spaces, so there needs to be a use agreement, but the state of North Carolina still will  own it.”

Niswander reiterated that the deal in no way will affect ownership of the Brody School of Medicine, the state’s education entity.

Regarding the tax-free bonds backed by the state, Niswander said ECU’s counsel is working with the treasurer’s counsel and the IRS to assure that the government bonds on the buildings can be converted to tax-exempt 501 (c) 3 bonds. 

Niswander said he agreed that the tax-exempt status  of state employees’ pension plans should be protected.

“I don’t believe we’re doing anything to jeopardize the tax-exempt status, but I want him to feel reassured that we agree on that and would not do anything intentionally that would cause that problem to occur,” he said.

From the Vidant perspective, health system CEO Michael Waldrum said his institution has a deep respect for the treasurer’s concerns and questions and his fiduciary responsibility to state employees. He also reiterated Vidant’s position that it is doing the right thing for the right reasons with this merger.

“ECU and the Brody School of Medicine have engaged with Vidant to evaluate the best way to drive value for the school and the people of eastern North Carolina,” Waldrum said. “This process has not taken place without government oversight and involvement.

“We’ve come to a proposal that has been vetted by hundreds of people and endorsed by the Vidant Health board, the UNC trustees and the UNC Board of Governors,” he said. “In a rapidly changing health care landscape, I don’t believe that the status quo is in the Brody School of Medicine’s best interests.”

Contact Michael Abramowitz at mabramowitz@reflector.com or 252-329-9507.

 

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