The Chapel Hill-based health care giant is one of two academic research hospital systems in North Carolina that exist under the umbrella of state government. Vidant Health based at East Carolina University in Greenville is the other.
The bill would revamp the system’s governance and, along with that, give UNC Health free rein to merge or partner with and acquire “any other health care facilities or health care provider, without regard to their effect on market competition.”
Senate Bill 743 also notes that because UNC Health’s actions would constitute “state action,” the system would be shielded from both state and federal antitrust scrutiny. And, the bill would exempt any deals made by UNC Health from scrutiny by the state attorney general.
“UNC Health, which was formed by a state law in 1998, operates under a mission of improving the health and well-being of all North Carolinians. That statute has not been updated in 25 years, amid massive changes to the health care industry,” UNC Health spokesman Alan Wolf said in an email to NC Health News. “In order for UNC Health to continue fulfilling its mission as the state’s health system, that statute needs to be modernized to ensure that UNC Health has the ability to adapt to today’s rapidly evolving health care world.”
Even as UNC Health would be an agent of the state, the system’s nearly 40,000 workers would no longer be subject to state personnel rules. It’s not clear what that will mean going forward for workers who have been a part of the state employment system. But advocates for them already are skeptical.
After November, new hires would not receive the health insurance or retirement plans created for state employees. Instead, the system would be allowed to create its own benefits package.
The bill could open the door to hospital consolidation that previously has been constrained because of antitrust law.
Limiting competitors
Sen. Ralph Hise, the Spruce Pine Republican who sponsored the bill, said the proposed legislation would facilitate something that’s been happening for a while, namely that when struggling rural hospitals have faced failure, UNC Health has stepped in and saved them, either by merging outright or by signing a management agreement that allows a restructuring that keeps the doors open.
That happened in Siler City when Chatham Hospital was struggling and in Rockingham County when Eden’s Morehead Memorial Hospital was going under. UNC Health took over in both instances.
There are other facilities, such as Appalachian Regional Healthcare System, where UNC has a management agreement.
Instead of having to navigate complicated contracts, the bill would allow UNC Health to merge “as it deems appropriate.”
“It makes it much simpler if they are an agent of the state,” Hise said.
Being an agent of the state means that UNC Health would “not have to deal with the antitrust issues that exist around that because they’re also a provider elsewhere in the state,” Hise added. “It’s identifying them as acting on behalf of the state, because they are our health system within the state.”
Duke University Law professor Barak Richman explained that once the state declares UNC Health as a state agent, exempting the system from state antitrust laws, even if another hospital system objected, their avenues for suing would be shut off.
He said he is confounded by the proposal, given that for years leaders in the state Senate — Hise among them — have said they want to see more hospital competition.
Richman, who has studied hospital economics and antitrust law for decades, explained that there’s a large body of research showing that hospital consolidation increases prices and reduces competition over time.
“(The Senate has) been complaining about consumer protections,” Richman said. “They have said certificate of need is something we want to get rid of, because we think competition is a good thing. This bill just doesn’t make any sense at all.”
Hise retorted that the places where UNC Health has intervened in recent years have been places where there were no other health care systems jumping in to buy the facilities, so in his mind that argument doesn’t hold water.
Can they do that?
For years, the Federal Trade Commission, which regulates antitrust activity in the U.S., was pretty lax in allowing hospitals to merge without a challenge. But the agency has taken a harder look during the Biden administration at hospital mergers and how they consolidate market power in a given area. The agency has been less willing to greenlight mergers.
Richman said he believes the FTC is a decade behind the curve and is only now starting to really pay attention to hospital consolidation. Studies done for at least two decades have shown that creating more concentrated markets results in hospital prices rising.
“Hospital monopolies are the costliest kind of monopolies in today’s economy,” Richman said. “They lead to the highest prices, they lead to the most significant loss of consumer protection and quality, they lead to the greatest loss of innovation.”
Richman said that’s in part because it’s hard for new players to enter the market and create competition.
“The power of a monopoly is proportional to the ability to build a whole new competitor,” Richman added. “You can’t build a whole new hospital, especially one that’s locked in physician practices and insurance contracts. And that actually makes the big hospitals more unsupplantable than smaller hospitals.”
Richman noted that there is legal precedent for a state to allow a state actor to be immune from antitrust scrutiny. A Georgia court case about a hospital there resulted in the U.S. Supreme Court telling state legislatures that if they want to deem an entity a state actor, they have to explicitly write it into statute. That’s what the General Assembly has done in this instance.
Difficult to unwind
Once that happens, Richman said, there’s little recourse – other than legislative action – to unwind such a move. This means that if other hospital systems in North Carolina are unhappy with UNC Health’s new status, there’s almost no way for them to challenge it in court.
Richman said the ability for a state to deem an entity like UNC Health as a state agent creates a potent loophole to get around market principles.
“It is the greatest gateway through which economic power translates into political power and therefore reinforces economic power,” Richman added.
Republican state Treasurer Dale Folwell is skeptical, too.
“Here we have a monopoly that does not want to be subject to antitrust laws that multiple other businesses have to be subjected to and in certain circumstances, would not be under the purview of the attorney general, who has the responsibility to protect consumers,” Folwell said.
In the past few years, Folwell has strongly criticized hospitals in the state for their monopolistic practices. UNC Health has been one of the systems to come under Folwell’s most strident criticism.
“We’re talking about a multibillion-dollar corporation who has billions of dollars in reserves, disguising themselves as a nonprofit,” Folwell said.
Changes ahead for workers
In a recent publication, the FTC noted: “Most studies show that competition among health systems — not consolidation — results in the lowest prices and optimal quality benefits for patients, as well as optimal wages and benefits for employees.”
There’s evidence that when hospitals consolidate wages for specialized health care workers fall. A study published in 2021 found that as hospitals consolidate, they lay off workers and the remaining workers have fewer options for taking their skills elsewhere. The researchers found that four years after a merger, wages for nurses dropped by 6.8% and wages for other, lesser-skilled medical workers dropped by about 4% from what they would have been without a merger.
“This type of wage depression could dissuade qualified hospital employees (already in short supply in many parts of the country) from seeking employment, which could undermine the quality of patient care and access to services,” the FTC noted.
UNC Health employees are state employees who receive state benefits and health insurance, but under Senate Bill 743, the health system would be able to move employees out of the state health insurance and retirement systems as early as this fall. It’s not clear whether these workers would still be state employees, though.
Hise said it could allow UNC Health to make employment packages more competitive.
But the idea doesn’t sit well with the State Employees Association of North Carolina, or SEANC as it’s more commonly known.
“We can’t see how the General Assembly could move it without a lot more information and study on what it would do to the State Health Plan and how it would affect employees,” Ardis Watkins, SEANC executive director, said in a text to NC Health News.
The bill passed the Senate with almost no debate. After an initial vote of 48-0, Senate Minority Leader Dan Blue, D-Raleigh, got up to express his concerns about the antitrust provisions of the bill.
“I just have some concerns because the antitrust laws of the last 20 years have basically kept some systems from getting together and basically monopolizing the healthcare industry in given areas,” Blue said. “Not that UNC would do that. But I just want us to be cautious when we exclude them, basically eliminate them from the requirements of the antitrust laws.”
The bill now goes to the House of Representatives for consideration.
