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Cape Fear Valley trustees may tackle Harnett Health deal tonight

Fayetteville Observer (NC) - 10/29/2014

Oct. 29--Cape Fear Valley Health System's board of trustees could vote today on whether to enter into a management agreement with Harnett Health System.

At tonight's board meeting, trustees are scheduled to go into closed session to discuss competitive health care information and could vote on an agreement after.

Two weeks ago, the board entered a closed session during a last-minute special meeting, during which trustees discussed the potential partnership with the financially distressed health system and whether it would be a good fit for Cape Fear Valley.

Details about what the management agreement might look like haven't been released by either party, but experts say such partnerships are common for smaller hospitals and provide economies of scale and expertise to help them succeed in a tough market.

Big losses, layoffs

Harnett Health System was created in 2005, when Betsy Johnson Regional Hospital in Dunn partnered with the Harnett County Commissioners and WakeMed Health, who managed the new system.

After a protracted legal battle to open a hospital in Lillington and difficulty financing the project, the $56millionCentral Harnett Hospital opened last year. But Harnett Health's finances suffered, losing $24million in net assets last year.

"The health care landscape has changed dramatically over the past five years, and Harnett Health has told WakeMed it is interested in going another direction with a new management partner," WakeMed public relations specialist Kristin Kelly Gruman said in an emailed statement.

"The systems are discussing whether they will continue to work together in the future."

Last week, Harnett Health CEO Ken Bryan resigned and a number of employees were laid off.

A spokeswoman for Harnett Health would provide no information about the layoffs, management agreement, size of the hospitals or meeting schedule of the board of trustees.

Cape Fear 'capable'

Tim McNeill is a former Harnett County commissioner and chairman of the board, who served during the formation of Harnett Health.

"There were a lot of hard feelings and emotions that went with all of that," he said of the period in which Betsy Johnson and Good Hope Hospital in Erwin were competing and litigating for the right to build the Lillington hospital. Some of these hard feelings, he believes, still linger in the county.

But the prospect of Cape Fear Valley managing Harnett Health is good news to McNeill.

"I think Cape Fear is very capable of providing the guidance to help them move forward in providing excellent care not only to Harnett County but also the surrounding area," he said.

He noted that the groundwork for such a partnership has been laid already, with Cape Fear Valley working with Harnett Health this summer to provide outpatient cancer treatment in Dunn.

In addition, he said, Cape Fear Valley has a proven track record of helping to turn around failing rural hospitals in its management and ultimate acquisition of Bladen County Hospital.

When Cape Fear Valley entered a management agreement with Bladen in 2008, they had been losing about $4 million a year, said Dan Weatherly, president of Cape Fear Valley Bladen Health. By 2011, the operating loss was cut to $2.5 million, and the following year, the hospital broke even. Since then, the hospital has shown a profit.

Rural hospitals hurting

Such partnerships are becoming more common, providing additional technology, greater purchasing power, and the ability to negotiate better reimbursement rates with insurers.

More than 40 small, rural hospitals have closed nationwide since 2010, particularly in the past 18 months, said Mark Holmes, a researcher who studies hospital finance at the Cecil G. Sheps Center for Health Services Research at the University of North Carolina-Chapel Hill.

Two North Carolina hospitals -- in Belhaven and Blowing Rock -- have closed in the past two years. Only about half of small, rural hospitals were profitable when the Sheps Center last gauged the issue in 2013.

The closures are heavily concentrated in the Southeast, where most states did not expand Medicaid and the market has traditionally been difficult due to higher uninsured rates, among other demographic disadvantages, he said.

Hugh Tilson, executive vice president of the North Carolina Hospital Association, said there is a move toward coordinated care that provides a good value to the people who are paying for it, whether that's individual consumers, insurance companies or the government.

And in rural areas with smaller hospitals and populations to draw from, there is less financial wiggle room for the providers to make these changes.

"What we're seeing is rural hospitals turning to large systems to help provide the resources that are necessary to navigate these transformational realignment waters," Tilson said.

Out of about 110 hospitals statewide, he said, only 19 are independent facilities with no affiliation with a larger system. These relationships across the state take many forms, from mergers to management agreements to purchasing collaboratives, added Julie Henry, the hospital association's vice president for communications.

"Hospitals are making friends a lot more than they used to," she said.

Staff writer Paige Rentz can be reached at rentzp@fayobserver.com or 486-2728.

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