Why Would WakeMed Say No to $3 Billion?

Most organizations would have a hard time turning down $3 billion. 

But Raleigh’s largest hospital system, WakeMed, appeared to do just that when it pledged to pair up with Charlotte-based Atrium, the state’s largest health care provider, this spring. Atrium offered $2 billion to build new facilities in Wake County as part of a board-approved combination of the two hospital groups, while cross-Triangle rival UNC Health made its own pitch that more than doubled Atrium’s bid. But WakeMed’s board of directors quickly declined UNC’s offer.

While Wake County commissioners were initially ready to greenlight the Atrium arrangement without discussion, they voted to pause after public blowback over transparency. At a June meeting, Commissioner Vickie Adamson questioned WakeMed leaders about why they hadn’t sought out other bids or at least tried negotiating with UNC: “We can’t get office supplies without bidding the contract.”

State policymakers are bewildered, too. “Here they are making an offer that, on its face, seems to be significantly better, and yet the board at WakeMed doesn’t even seem to give it the time of day,” State Rep. Benton Sawrey, a Johnston County Republican who co-chairs the Senate Health Committee, told The Assembly.

“I look forward to seeing how much UNC was willing to pay and why it was then dismissed so quickly,” State Treasurer Brad Briner wrote on X after The  Assembly reported on UNC’s counteroffer. Briner’s office, which oversees the State Health Plan, estimates the merger will cause monthly premiums to rise by about $9 for all 748,000 state employees, retirees, and their dependents.

WakeMed leaders insist they considered their options exhaustively and emphasize what they have in common with Charlotte-based Atrium. Each prioritizes care for those who can’t afford it, and they have similar origins, as both were founded as county-owned facilities. Atrium is now a national juggernaut with 67 hospitals throughout the Carolinas, Illinois, Wisconsin, Alabama, and Georgia, generating $32 billion in revenue last year. 

“I look forward to seeing how much UNC was willing to pay and why it was then dismissed so quickly.”

State Treasurer Brad Briner

Still, state health care insiders are left to wonder: With costs rising and reimbursements for hospitals hardly budging, why would a small health system like WakeMed leave so much money on the table?

One possible explanation: WakeMed officials say the proposed deal with Atrium is a merger, not a sale. WakeMed can unwind the deal if Atrium doesn’t follow through on key promises, such as continuing WakeMed’s commitment to spend at least 4% of revenue on charity care. That flexibility allows WakeMed leadership more of a say in the transition, even if Atrium will ultimately gain control of the Raleigh hospital system.

Several stakeholders who spoke to The Assembly on background floated the idea that there’s something more personal going on. WakeMed and UNC Health have a somewhat complicated history. For at least two decades, both systems have repeatedly tried to block each other from expanding in the Triangle, and they’ve actively competed for permission from the state to add new beds, services, and facilities. For WakeMed, linking up with Atrium would be a fresh start. 

WakeMed CEO Don Gintzig is adamant that past friction played no role in recent negotiations. “It’s not bad blood. It’s good blood,” Gintzig told The Assembly. “They’re not us, and I think quietly, they would admit they’re not us. That’s why they admire us, and try to work with us, and want to maybe take us over.” 

Gintzig told commissioners that WakeMed has already signed a letter of intent with Atrium, and its terms preclude Wake from considering other offers. 

Besides, Gintzig told the commissioners in the June meeting, UNC wasn’t really doubling Atrium’s bid; rather, he asserts it had already planned to spend the money expanding its own facilities in Wake County. “They’re going to invest $5 billion anyway,” he said. So why not let the county reap the benefits of having both systems expand their footprint?

“The UNC offer isn’t really serious,” said Ann Kempski, a health care consultant who has advised the state treasurer’s office. To her, it seemed more like a way for UNC to force a conversation around the deal or possibly help Wake get more out of Atrium. Higher investment in Wake County’s health systems could benefit everyone. 

Sawrey said he believes the counteroffer was earnest. If WakeMed accepted and UNC wasn’t willing to follow through, “then UNC has two black eyes.”

A Long History

Even though North Carolina’s health care market is among the nation’s least competitive, all hospitals have to worry about making money—even not-for-profit systems like WakeMed. 

In North Carolina, a lot of money can be made in Wake County. It’s home to the highest share of people in the state covered by private insurance plans, a patient base that hospital systems yearn for because those insurers reimburse at higher rates than government plans. That makes a hospital system like WakeMed attractive bait for bigger fish. 

For many years, WakeMed had little competition apart from Raleigh’s two oldest independent health care facilities: Raleigh Community Hospital and Rex Hospital. But by the early 2000s, the Triangle’s other major hospital systems, Durham-based Duke Health and Chapel Hill-based UNC Health, wanted a stronger presence in the third point of the Triangle. 

As major academic teaching hospitals and research centers, Duke and UNC both had significant funds to make that happen. In 1998, Duke purchased Raleigh Community Hospital, now Duke Raleigh Hospital, for an undisclosed sum. Two years later, UNC bought Rex Hospital for $100 million, edging out a competing bid from WakeMed. 

The three systems battled, then and now, for hospital beds, doctors, and patients. Competition was mostly civil until 2010, when Wake Heart and Vascular, an independent practice group of nearly two dozen cardiologists that brought in the majority of WakeMed’s profits, left WakeMed for UNC-Rex.

In a state filing, Rex’s former president attributed the exodus to a “toxic environment” created by WakeMed’s administration. WakeMed officials, in turn, blamed UNC for using perks gained through its status as a public academic institution, like higher pay for doctors, to lure them away. 

“It has to do with cash,” WakeMed’s former chief financial officer, Mike DeVaughn, told The Carolina Journal in 2011. “Those physicians aren’t joining out of the goodness of their hearts.”

“I’m very aware of why they left, but that’s all privileged information,” Tom Oxholm, who served on WakeMed’s board from 2003 through 2013, told The Assembly. “They made their choice.” 

“It’s not bad blood. It’s good blood.”

Don Gintzig, WakeMed president and CEO

Whatever the reason, many WakeMed leaders felt betrayed, since the heart business was a main revenue driver—more than $24 million in profits in 2010, according to The News & Observer––and Wake Heart brought the hospital most of these patients. Oxholm acknowledged that Wake Heart was a “profit-center” but said the hospital recovered financially. 

UNC tried to merge with WakeMed the following year, an apparently informal offer that WakeMed rejected. (Oxholm, who was chair of the board at the time, remembers his board unanimously voted against it.) Oxholm then made UNC leaders his own offer: They should sell UNC-Rex to WakeMed for $750 million instead. 

Rex, which kept its independent spirit even after merging with UNC, wanted no part of that. Its employees even made T-shirts declaring a “NO WAKE ZONE,” The News & Observer reported. 

At the time, the state was facing a revenue crisis from the economic slowdown, and an offer worth three-quarters of $1 billion intrigued lawmakers enough to consider selling it. 

But because UNC Health is part of a public institution, WakeMed leaders questioned why they were competing with a state-funded system in the first place. 

By May 2012, the health systems agreed to a truce. Lawmakers passed a bill the next month, giving the UNC Board of Governors more oversight over the UNC health system, which WakeMed officials complained had gone rogue. 

“We didn’t think of UNC as the government, not a bit. They were just another health care system trying to survive.” 

Tom Oxholm, former WakeMed board member

Brian Balfour, senior vice president of research for the conservative John Locke Foundation, told The Assembly that being boosted by the state affords UNC Health unfair advantages. When it competes with the private sector to expand services or build new facilities, “It’s the government kind of pressing the thumb on the scale,” he said. 

Though the 2012 debate was widely discussed at the time, Oxholm didn’t recall concerns about overreach. “We didn’t think of UNC as the government, not a bit,” he said. “They were just another health care system trying to survive.” 

Scaling Up

There are other reasons Atrium’s offer might be more attractive to WakeMed. For one, size matters. Most of a hospital’s revenue comes from government insurers: Medicare and Medicaid. Because those reimbursement rates have barely budged in recent years, hospitals have tried to demand as much as they can from private insurance companies to make up for it. 

The larger a hospital system and its partners, the more leverage it has in negotiations with insurance companies as they renew contracts every few years. Joining Atrium would give WakeMed more leverage. 

Studies have repeatedly shown that hospital mergers and partnerships can raise costs for patients, and they don’t necessarily result in better care. Researchers at Brown University predict that an Atrium-WakeMed merger would follow the same pattern.  

That’s why a number of groups, including the Raleigh chapter of the NAACP, have expressed concern. Lawmakers, academics, and patient advocates are also worried that WakeMed and Atrium haven’t yet shared the specifics of their deal, and they are urging both hospital and county leaders to reconsider letting it move forward. 

Community groups have pressured Atrium to put its promises in writing. “When systems consolidate, there are a lot of promises and goodwill, but then the realities tend not to match up,” said Brianna Miller, a state advocacy manager with the nonpartisan think tank United States of Care. 

To keep costs in check and prevent monopolies from forming, regulators must approve most large hospital mergers, and UNC’s pitch to WakeMed suggested its government-affiliated status would allow their deal to sail more smoothly through regulatory review. State and federal regulators will inspect the deal with Atrium before it’s finalized. 

Another concern for the deal’s critics: WakeMed doesn’t have its own academic feeder system, and UNC has a surplus of students, so WakeMed and UNC Health have a longstanding partnership to train new doctors. Almost all 50 medical residents currently working at WakeMed are from UNC.

Some sources for this story worried privately about whether Atrium will maintain this arrangement. It already has its own training pipeline, thanks to its 2020 merger with Wake Forest University’s School of Medicine. 

So far, Atrium has acknowledged the value of WakeMed’s teaching agreement with UNC but has been noncommittal about its fate. Alan Wolf, a spokesperson for UNC Health, said WakeMed has assured them the relationship is important. 

Welcome the Stranger? 

Others in the Triangle are wary of inviting a Charlotte-based system into an already competitive market. 

Physician Robert Resnik, who owns Cary Adult Medicine, is among a shrinking pool of independent practice owners. For 15 years, he worked weekends at a Concord facility that Atrium later acquired, and he watched several colleagues cave under pressure to sell their practices and join the larger system. He’s worried that if Atrium plants a flag in the Triangle, he’ll feel cornered into doing the same. “You give them a big footprint here in Raleigh, they’re going to be able to ratchet down these insurance companies,” he said.

“You give [Atrium] a big footprint here in Raleigh, they’re going to be able to ratchet down these insurance companies.”

Dr. Robert Resnik, owner of Cary Adult Medicine

Whether it’s a small practice like Resnik’s or a midsized hospital system like WakeMed, independent operators are becoming a rarity. As of last year, there were only 19 independent hospital systems left in the state, down from 53 in 2000. 

For some of them, teaming up with a bigger system has been a lifeline. “We had a lot of the concerns that I bet you have today,” Kevin High, the former president of Wake Forest Baptist, which was absorbed by Atrium in 2020, told commissioners in June. “Would we lose our identity? Would we become a cog in the machine?” Those fears were unfounded, he said. “They have delivered in every way. It’s been a true partnership, not a takeover.”

That could be the simplest explanation of all: For all its strengths, UNC can’t compete with Atrium’s size. 

The Wake County board will hold a hearing to review the transaction on August 17.