Case Study

Securing the Future of a County-Owned Hospital

When a county-owned hospital faced an uncertain future, local leaders asked Ascendient to find the best way forward. Here’s how we brought data and strategy to the bargaining table to secure major healthcare investments for a rural community.

 

By Dawn Carter

Pender County, NC, is a rural, coastal county with a population of 65,000. Unlike so many rural counties, Pender has a population that is somewhat healthier and wealthier than the state average, thanks in part to retiree enclaves that dot the coast.

In the county seat of Burgaw, Pender Memorial Hospital gets good marks from local residents, but it’s small – just 25 licensed acute care beds with an average acute inpatient daily census of less than one. Of the 25 beds, 10 are used mostly as swing beds. There are two operating rooms, one endoscopy room, and an ED that sees about 16,000 visits per year. In addition to acute care, there are 43 nursing beds with an ADC of 29.

Like so many other rural hospitals, Pender Memorial was county-owned but not county-managed. For more than 20 years, Pender had an operating agreement with New Hanover Regional Medical Center (NHRMC), an 800-bed teaching hospital in the nearby city of Wilmington. Despite overlapping market areas, the two hospitals enjoyed a relatively stable relationship, and county commissioners felt their voice was heard under a governance structure that was entirely rooted in the southeast corner of the state.

Then, in early 2021, NHRMC merged with Novant Health in a $1.5 billion deal. Suddenly, Pender Memorial was part of a multi-state, 16-hospital system with 36,000 employees and a board of directors based in Winston-Salem, more than 200 miles away.

Novant is generally well regarded in the healthcare industry, but the transition was a shock in some corners of Pender County. As the operating agreement neared its contractual end in July 2023, neither side was happy with the status quo. Novant signaled its desire to renegotiate the agreement it had inherited, while county commissioners wanted to look at other options. “We have a fiduciary responsibility to make the very best decision for our citizens,” Commission Chair Jackie Newton told local reporters.

Ascendient’s Proposal

The county’s first move was to seek out a specialized M&A firm, based on the assumption that an entirely new affiliation partner was needed. But the $850,000 consulting fee was too steep for a majority of commissioners, who ultimately decided to put out a new RFP with all options on the table.

Ascendient was one of four firms to submit a proposal. We stressed that we entered the engagement with no preconceived notions about the “right” path forward for this county-owned hospital. Though we have decades of experience in affiliation advisory engagements, we are first and foremost a healthcare strategy firm, and our goal is always to find the best solution for sustainable, community-based healthcare. That is an important contrast with dedicated M&A firms, which are often hired expressly to find the highest bidder on behalf of clients desperately in need of cash. (And it doesn’t hurt that the firms’ compensation is tied to the sale price.)

Because there was no pre-ordained outcome – and the process is never linear – we offered a menu of services that the county could utilize and pay for only as needed:

• Assess the hospital’s strategic position today and aspirations for tomorrow.
• Define performance “gaps” under the current partnership and rank criteria for a new partnership.
• Negotiate new terms if the county decided to stick with Novant.
• Evaluate options for a new partner if the county decided to move on from Novant.
• Manage the process for negotiating a new partnership (RFPs, due diligence, evaluation, etc.).

Recognizing the financial value of our flexible approach and the political value of data-driven decision making, Pender County selected Ascendient for the engagement, and we got to work immediately.

Ascendient’s Process

Our first task to better understand the changing healthcare landscape in Pender County – and how needs and expectations may have shifted since the start of the operating agreement in 1999.

We started with a number of one-on-one stakeholder interviews, including providers, patients, community leaders, and county officials. In these open-ended discussions, our interview subjects consistently raised themes such as hospital facilities, access to services, and utilization issues that varied based on geography. But the one theme that surfaced more than any other was the partnership with Novant. Opinions on this issue were deeply divided, indicating that the county would likely face a challenge in communicating its decision – whichever way it went.

Concurrently with our qualitative research, we dived into statistical research on Pender Memorial and its local market. We studied both primary and secondary service areas in search of demographic trends, utilization rates, commuting patterns, development plans, and more. We also analyzed competitive providers across a four-county area, focusing on inpatient admissions and outpatient utilization for 11 key specialties. Finally, we looked at Pender Memorial’s financial position and estimated its attractiveness to potential partners based on assets, income, and market potential.

After 20-plus years under the same operating agreement, county commissioners needed to know that Pender Memorial was positioned for the next 20. Ascendient’s job was to identify the healthcare services that county residents needed most and help find an operating partner that was committed to providing those services over the long term.

Ascendient’s Findings

Both our qualitative and quantitative research confirmed that Pender Memorial was losing many patients to its larger, sibling hospital just down the road. But we also knew that many residents liked and admired Novant, so simply affiliating with a different system would not automatically reverse the longstanding trend.

The data showed something else, too: Pender County’s population was growing, as was the need for healthcare services. In fact, across 17 other North Carolina counties with a similar population (50,000 to 90,000) local hospitals had an average daily of census of 41.3 – compared to just 0.9 for Pender Memorial.

With a utilization rate that lopsided, it was impossible to argue that Pender Memorial was serving its fair share of patients. While the county-owned hospital had just 25 licensed beds – occupied largely by swing patients – our modeling showed that health needs in the county could support serving more inpatients locally plus specialty services in adult primary care, cardiology, orthopedics, urology, and GI.

All of this seemed to support the county’s bias for a new partner, but we also had to be clear about the financial picture. Yes, Pender Memorial could sustain more inpatient and outpatient care, but only with significant investment in infrastructure, equipment, and personnel. Novant might be willing to make that investment because of its nearby tertiary facilities, but would the same calculus hold true for a more distant competitor looking to enter the market?

That was something only the county commissioners could decide. We presented our findings, held a frank discussion, and offered to move on to the next phase – if the county chose to do so.

The Outcome

On Sept. 18, 2023, the county commission voted unanimously to sell its county-owned hospital to Novant Health. North Carolina law (G.S. 131E-8) allows such a sale without public bid if the county retains control of the hospital board. Novant committed to a $50 million, 10-year investment that will upgrade the aging facility to a community general hospital with expanded services and specialties. In addition, the county avoided millions of dollars in pension liabilities and unamortized capital improvements as a result of the sale.

Armed with the data and analysis provided by Ascendient, the county felt that it finally could make its voice heard. Even before discussing any other terms, negotiators asked Novant for the thing they wanted most: a meaningful financial investment in future healthcare for the community.

“What we wanted was a health system partner who was in it for the long haul,” says County Manager David L. Andrews. “We wanted to know that our partner would value us, and listen to us, and invest in the kind of quality, accessible healthcare that Pender County deserves.

“I think it’s remarkable what Ascendient helped us accomplish in a relatively short engagement. They could have dragged this out and racked up the consulting fees, but instead they proved that they had our best interests at heart. They gave us the data, helped us understand it, and laid out the options in a way that was clear and unbiased. After years of political turmoil and rising emotions, it’s amazing how clear the answer was in the end.

“This agreement hadn’t been up for renewal in almost 25 years, so it really was a generational opportunity to do something good, to make a difference. I think we nailed it.”

Ascendient has a 30-year track record in helping elected officials  understand the complexities of healthcare strategy and the opportunities for better, more sustainable healthcare services. If your county is worried about the future of its public hospital, please contact us for a confidential consultation.

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