Huge wealth transfer.' NC state treasurer, at war with hospitals, blasts pandemic profits

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The state’s largest hospital systems reaped a windfall from the pandemic, taking emergency taxpayer funding that helped boost record profits and facilitate acquisitions instead of dipping into multibillion-dollar reserves, according to a report released Wednesday by the Department of the State Treasurer.

The state’s seven largest systems, combined, grew by $7.1 billion from 2019 to 2021 in cash and financial investments, partly due to a surging stock market, according to the report. The treasurer’s office said these hospitals netted $5.3 billion in profits last year, and that six of the seven systems saw higher profits than before the pandemic.

State Treasurer Dale Folwell, a Republican, said Wednesday that pandemic-era federal spending on hospitals amounted to a “huge wealth transfer to wealthy hospital systems.”

Hospital executives accused Folwell of over-simplifying their finances, saying they need healthy reserves to cushion downturns and to keep interest rates low when they borrow money. They said federal funding that flowed their way for COVID-19 was used to keep front-line workers in place without layoffs, particularly when the pandemic forced a temporary shutdown in profit-driving elective procedures.

Folwell’s office singled out Atrium Health, saying the Charlotte-based hospital group took the most taxpayer money—more than $700 million—and then expanded its footprint through a merger last year with Wake Forest Baptist health.

“It’s troubling that health systems like Atrium Health are being attacked while we are still caring for communities that are recovering from the pandemic,” Atrium Health spokesman Dan Fogleman said in an email.

“The reality is the $719 million in provider relief funds we have received covers less than half of the adverse $1.55 billion financial impact we have incurred as a result of the pandemic,” Fogleman said.

Folwell’s feud

Folwell has battled for years with North Carolina’s largest hospitals, labeling them a cartel and calling for new laws to require more consistent, transparent pricing for medical services, as well as to rein in medical debt collections. His office has now released three reports in nine months on hospital finances, and he blasted health executives Wednesday, saying they’re failing to earn the significant tax breaks nonprofit hospitals enjoy.

“These entities who disguise themselves as non-profits have lost their mission,” Folwell said. “They have turned into stock market, private equity and real estate development firms versus health care firms.”

As treasurer, Folwell oversees the State Health Plan, which insures teachers and state employees and is the state’s largest purchaser of healthcare services.

Folwell said the average state employee has to work one week out of each month to pay for family health insurance, “and the health care cartel is driving up the cost of health care in this state.”

State hospitals have pushed back repeatedly against Folwell. The North Carolina Healthcare Association said Wednesday that “cherry-picking financial data, and then spinning it, is not reflective of the many immense struggles” that hospitals face, including workforce shortages and “skyrocketing costs for supplies.”

“The report conveniently forgets the reality on the ground of what hospitals were facing [at the beginning of the pandemic],” the association said. “In early 2020, our hospitals were dealing with an unknown virus. Normal clinical operations screeched to a halt. … The truth is that N.C. hospitals drastically changed their operations and way of doing business based on the request of the Governor and other state officials.”

Folwell’s report was based on audited financial statements from Atrium, Novant, UNC Health, Duke Health, Vidant, Cone Health and WakeMed. Researchers from the State Health Plan worked on the report with the National Academy for State Health Policy, and their work was reviewed by Ge Bai, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.

“These rich and powerful hospitals used the windfall money to engage in mergers and acquisitions,” Bai said Wednesday. “To consolidate their market, to strengthen their power so that they can squeeze a higher price from private payers.”

Rural hospitals

Bai and others involved with the report said more of the country’s COVID relief should have gone to rural hospitals, and Folwell’s press conference Wednesday included a handful of rural lawmakers, both Republicans and Democrats.

UNC Health said in a statement that many rural hospitals in the state, including several in its network “would have struggled to remain financially viable and open” without federal pandemic funding.

The hospital group called Folwell’s report “charged and misleading” and said that it “paints a baseless picture of excess relief funds as ‘profit.’”

A spokesman included statements from two rural hospital CEO’s: Laura Easton from Caldwell UNC and Steve Elbin at UNC Rockingham.

“UNC Health helped us to survive the pandemic financially and to provide the highest level of expert care and treatment for this rural community,” Easton said.

Elbin added: “Our rural hospital was literally saved due to UNC Health’s commitment to subsidizing year-over-year losses and capital needs.”

The treasurer’s report said Duke Health’s 41% net profit margin last year—compared to 11% in 2019—exceeded that of tobacco and investment banking companies. Duke Health officials acknowledged that the system’s total revenue, including stock market holdings, increased, but they said the system’s operating income has declined significantly since COVID-19, even with federal relief funds.

“Duke Health did not lay off or furlough any staff members despite the significant disruptions in normal business operations and the extraordinary demands presented by the pandemic,” the system said in a statement. “While the COVID relief funds have been helpful in easing the negative financial impacts of the pandemic, they have not offset the lost revenues and additional expenses attributed to the measures taken to care for the communities we serve.”

Folwell called on the hospital systems to return some of the $1.5 billion they took in federal coronavirus relief. Barring that, he called for legislative action, though he was not specific.

“Sunshine,” he said, when asked what he’d like to see. “And that answer was not based on my disposition.”

A spokesman for Senate President Pro Tem Phil Berger said the chamber’s leadership “appreciates the state treasurer’s thorough investigation and are reviewing the report.”

“Any potential legislative action would come after an extensive review of the report’s findings and suggestions,” spokesman Randy Brechbiel said in an email.

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