Aug 31, 2017

UNC, Carolinas HealthCare propose mega-merger

Carolinas HealthCare System's flagship hospital in Charlotte, N.C. (Carolinas HealthCare)

Carolinas HealthCare System and UNC Health Care are planning to merge by the middle of next year, the two hospital systems said Thursday. The combined not-for-profit giant would own a medical school as well as numerous hospitals, clinics, outpatient centers and other facilities throughout North Carolina and South Carolina.

Why it matters: This is the biggest proposed not-for-profit hospital system merger so far this year, creating a regional behemoth with $14 billion of revenue that could exert large pricing power over health insurers. The UNC-Carolinas system would be one of the 15 largest health systems in the country by revenue — another step in the hospital industry's movement toward building up massive scale within a cluster of states.

Yes, but: There's no guarantee it will pass antitrust review.

More details: Gene Woods, CEO of Carolinas and the current chair of the American Hospital Association, would become CEO of the combined system. William Roper, UNC's CEO and the former head of Medicare and Medicaid during the Reagan administration, would be the executive chair.

This is not a merger of necessity. Both health systems have had strong bottom lines and already had dominant negotiating positions. Carolinas posted a 4.3% operating margin in 2016, and UNC had a 5.5% margin, according to audited financial statements.

Our thought bubble: There are a lot of moving parts here, and it may not be easy to merge the cultures of the UNC academic system with the public Carolinas system known for high executive pay. The Federal Trade Commission almost certainly will take an extremely close look at this deal as well, considering the Department of Justice is probing Carolinas for creating insurance contracts that steer patients toward its own system and away from lower-cost providers.

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