Certificate of Need Pits Government Against Private Sector in North Carolina

Published December 6, 2011

A new taxpayer-funded cardiac care center has sparked a public vs. private sector fight over the provision of medical services in North Carolina’s largest county.

Rex Healthcare was a private hospital until the UNC Health Care System purchased it in 2000. It recently acquired a “certificate of need” to build a state-of-the-art heart center in Wake County. Rex is recruiting heart doctors from private hospitals WakeMed Raleigh and WakeMed Cary to work exclusively at the new cardiac facility.

North Carolina is one of 36 states with a certificate-of-need law, which forces hospitals to obtain a “determination of need” from state health officials before building new facilities, expanding existing facilities, buying new major medical equipment, or offering new services.

WakeMed Health and Hospitals CEO Bill Atkinson said he doesn’t mind competition, except when he’s competing against the government. And he feels like that’s exactly what he’s doing with Rex Healthcare.

“We don’t mind competition as long as it’s a level playing field,” he said. “When you’re competing against the government it’s not a level playing field.”

New Patients—or Poaching?

The idea behind the law is to prevent “unnecessary duplication of services.” That’s exactly what Atkinson says Rex’s heart center would do. WakeMed is more than equipped to handle Wake County’s cardiovascular needs, he said.

WakeMed was Wake County’s public hospital from its founding in 1961 until 1997, when it shifted to ownership by a private, nonprofit foundation. It has since become the primary provider of cardiovascular services in Wake County. But now Atkinson worries Rex’s new heart center could change that, eroding the most profitable aspects of WakeMed’s operations.

Lisa Schiller, Rex’s vice president of marketing and public relations, denies the heart center’s goal is to increase Rex’s market share in cardiac services. She says the new facility is meant only to accommodate anticipated population growth.

“Rex is preparing only to meet that need,” Schiller said, “not to take business from WakeMed.”

‘Luring’ Doctors with Tax Dollars

WakeMed Chief Financial Officer Mike DeVaughn says if Rex weren’t preparing to take a significant portion of WakeMed’s heart patients, it would not be working so hard to take WakeMed’s heart doctors. He charges Rex, which receives millions in taxpayer subsidies through its relationship with UNC, has spent millions luring physicians away from WakeMed and other private hospitals.

In a public records request, WakeMed acquired canceled checks amounting to more than $6 million written from UNC Health Care to the Triangle Physician Network, a joint venture between Rex and UNC that provides operational support to a group of 76 physicians. DeVaughn says the money put Rex in a position to lock up a group of private-practice cardiologists—who previously performed heart procedures at multiple hospitals—to work exclusively at Rex.

Schiller denies the physicians signed on with Rex for bigger paychecks.

“These physicians are working with us because they liked our vision for what the future of vascular care would look like in our area,” Schiller said. “We did not purchase their assets. They made the decision on their own accord.”

But DeVaughn points out that in the certificate-of-need application, Rex officials stated they intended to shift 100 percent of patients treated by the group of physicians—Wake Heart and Vascular—from WakeMed Raleigh, WakeMed Cary, and Duke to Rex.

“It has nothing to do with vision,” DeVaughn said. “It has to do with cash. Those physicians aren’t joining out of the goodness of their hearts. These practices are being purchased. They are becoming employees of Rex.”

More Medicaid Money

In addition to job security, help with regulatory compliance, and possibly higher paychecks, working for Rex has another bonus. The government typically reimburses private practice doctors only about 60 to 70 percent of their cost of treating Medicaid patients. But a recent amendment to the state Medicaid plan allows doctors affiliated with the UNC Health Care System—including Rex—to get reimbursed at a higher, managed-care level.

“There’s not a physician in this state who would not clamor to get compensated at managed-care rates for treating Medicaid patients,” DeVaughn said.

Rex doesn’t yet get full reimbursement for Medicaid costs, but it could if the federal government approves a second amendment to the state Medicaid plan. The amendment would give Rex full reimbursement for treating the uninsured. WakeMed and other nongovernment hospitals are reimbursed for about 80 percent of their Medicaid costs and nothing for the uninsured.

Even without the government’s help, WakeMed says it provides more charity care than Rex, delivering more than 80 percent of the uncompensated care in Wake County.

Emergency Room Crowding Predicted

Although government has a legitimate role in delivering health care, Atkinson says, it shouldn’t be in the business of competing with private hospitals.

“It’s time to ask what is the proper role of government,” Atkinson said. “Any government involvement should be limited to satisfying needs that have not been met by the private marketplace, such as charity care, rather than siphoning the most profitable services from private hospitals.”

Eighty percent of WakeMed’s services are supported by cardiac revenue. If the hospital loses its cardiac patients, it will lose some of the funding it uses to subsidize indigent care. Should that happen, Atkinson said, emergency rooms in Wake County may become even more crowded.