REGIONALREPORT TriangleWakeMed seeks Rex merger for a kin graft
As hostile takeovers go, WakeMed Health & Hospital Inc.’s $750 million bid to buy Raleigh rival Rex Healthcare Inc. wouldn’t raise eyebrows on Wall Street, but it’s shocking in the once genteel realm of Tar Heel health care. “Hospitals usually merge out of weakness,” says Kevin Schulman, a physician and health-care economist at Duke University’s Fuqua School of Business. “You’d be hard-pressed to find another example of one strong not-for-profit trying to buy another strong not-for-profit.”
Buying Rex would allow his system to consolidate services that both offer, WakeMed CEO William Atkinson says. “We can make much wiser use of resources. That’s hard to do when we all feel like we have to be on the same street corner.” There’s more to it than that. WakeMed has been slow to grow through mergers and acquisitions, leaving it vulnerable to big health insurers and surrounded by competitors. Winston-Salem-based Novant Health Inc. wants to build a hospital in western Wake, Durham-based Duke University Health System Inc. is opening clinics and physician practices across the county, and state-owned Rex — UNC Health Care bought it in 2000 — has the upper hand in Raleigh, Atkinson says. But the biggest threat could be in Pitt County, where East Carolina Heart Institute Inc. opened two years ago. Sixty percent of WakeMed’s cardiac patients come from outside Wake County, most of them from eastern North Carolina.
Skeptics question if buying Rex is a smart first step into the consolidation game. WakeMed is banking that the state budget gap will force the university system to take its offer, but $750 million won’t fill that hole. WakeMed, Atkinson says, also would pay Rex’s outstanding debt, possibly pushing the tab to more than $950 million. As Schulman says, “You would be paying a whole lot to literally do nothing more than change management at Rex. They’re not offering to build a new facility or provide new services.” Ultimately, patients would get the bill. Would the buyout benefit them? Schulman’s answer: “No.”
Rex isn’t for sale, UNC Health Care spokeswoman Jennifer James says, though the system has a fiduciary responsibility to evaluate the offer. Referring to the health-care system’s flagship — 783-bed UNC Hospitals in Chapel Hill — she adds: “Without Rex, we’re just a big, huge hospital in a small town.” In a letter to Atkinson, Thomas Ross, president of the state university system, wrote that UNC Health Care’s board of directors determined that the bid didn’t specify important sale conditions, such as the source of WakeMed’s financing. He asked for answers by June 17 or would “assume the offer is not a serious one and will deem it withdrawn.”