Written by Peter Lewis, AVL Watchdog.
The news stunned Asheville and Western North Carolina, where Mission Health System Inc. was the area’s largest employer, its main healthcare provider, and a long-time source of civic pride.
Seemingly out of the blue, Mission’s directors publicly announced on March 21, 2018, that they had voted to sell the 133-year-old nonprofit to HCA Healthcare, the nation’s largest for-profit hospital chain, for an estimated $1.5 billion.
“To say that [Mission’s] announcement … was a surprise would be an understatement,” the Asheville Citizen Times observed in an editorial. “There has not been the slightest hint anything was afoot until Mission announced that its board had approved the deal unanimously.”
“The first I learned about the Mission sale was when it was publicly announced that it was under contract with HCA,” Esther Manheimer, Asheville’s mayor, told AVL Watchdog. “It was explained to me later that the negotiations were confidential.”
Confidential indeed. Nearly everyone, including doctors, nurses, and local and regional officials, had been shut out of the secret discussions that would lead to one of the biggest business deals in Western North Carolina history, one that Mission’s directors said would transform healthcare in the region for generations to come.
Two and a half years later, the story of how and why Mission’s leaders chose HCA remains opaque, cloaked in claims of confidentiality and bound by non-disclosure agreements that, they say, still restrict anyone involved in the sale from publicly discussing or criticizing the deal.
A head start for HCA
But four things are becoming clear, based on documents obtained by AVL Watchdog under public records requests:
One, a core group of Mission directors and executives, including board Chairman John Ball, President and CEO Ronald Paulus, and long-time external strategic advisor Philip D. Green received offers from HCA at least three months before the board formally authorized Paulus to start looking for potential partners. They gave HCA a head start, conferred with HCA executives before setting terms and conditions for other potential bidders, and planned all along to use HCA’s early offers as leverage against other candidates.
Two, although Mission’s board considered other partners — at one point even speculating about alliances with Google or Amazon — it invited only a select few companies to make proposals, quickly dismissed other suitors besides HCA, and invited only one other bidder to make a formal presentation, according to an investment advisor’s report to the Attorney General. The other bid was rejected quickly.
Three, based on “issues and concerns” that surfaced during pre-approval investigations by Attorney General Josh Stein, the Mission board held a special meeting Jan. 8, 2019, to discuss issues involving Green, Mission’s chief negotiator and a long-time friend and advisor to Paulus. Stein approved the sale just days after receiving legally binding assurances from Mission’s general counsel, the board, and Ball that they found no evidence Green “profited or benefitted directly or indirectly” in the negotiations or sale.
And four: Even today, former Mission directors and executives, HCA officials, and board members of the Dogwood Health Trust that was created with proceeds from the deal cite confidentiality and non-disclosure restrictions in refusing to discuss the negotiations except in broadly general terms. AVL Watchdog reached out to Paulus, Green, Ball, and others involved in the negotiations, all of whom either declined to answer questions or did not respond.
By continuing to prevent even superficial scrutiny of the documents and reports related to the agreement, or even answer basic questions, they make it hard for the public to trust that Mission, and the community it was created to serve, got the best possible deal.
Board explores partnering options
Leading up to the sale, board members later acknowledged, the Mission system was as strong financially as it had ever been, consistently profitable, dominant in the region, deeply respected, and recognized as one of the highest-quality healthcare systems in America.
Even so, the national trend to hospital consolidations was accelerating. Competition was growing. Reimbursements from Medicare and Medicaid were falling, and the North Carolina legislature was steadfast in refusing to expand Medicaid, leading to a rising number of uninsured patients.
Without a financially and operationally strong partner or buyer, board members and consultants said, Mission was doomed to a future of relentless cost-cutting that ultimately would degrade the quality, access, and affordability of care, and possibly even lead to the closure of hospitals.
According to a confidential analysis provided to the Attorney General’s office by Stout Risius Ross, an investment bank hired by the state — a redacted copy was provided to AVL Watchdog under a public records request — Mission’s active search for a partner or buyer intensified in July 2017. Ball created a seven-person working group to consider Mission’s partnering options that included himself, Paulus, Green, Mission’s General Counsel Ann Yaeger Young, and three board members: Dr. John Garrett, attorney Wyatt Stevens, and banker Robert Roberts.
HCA, the biggest for-profit hospital operator in America, with annual revenues of $50 billion, was at the top of their list. HCA had unmatched scale and a reputation for cost-cutting and back-office efficiency, strengths that Mission needed. HCA also had no existing presence in North Carolina, and thus could acquire Mission, effectively a regional monopoly, without being subject to antitrust concerns, an attractive option for the company.
Three months before the full board authorized Paulus to contact potential partners, “The working group directed Mr. Green to negotiate proposed term sheets with HCA for both a 50/50 joint venture model and a full asset acquisition model,” the Stout report said.
Visit to HCA headquarters
On Aug. 12, 2017, Green delivered HCA’s offers to buy or partner with Mission to Paulus, who passed them to Ball. Members of the working group later confirmed to Stout’s interviewers that their strategy all along was to use HCA’s offers as negotiating leverage against other possible bidders, the report said.
The following month, Sept. 17 and 18, “most of” the working group traveled to HCA’s headquarters in Nashville for meetings, the report said.
HCA Healthcare, formerly known as Hospital Corporation of America, had a history that included settling lawsuits ranging from Medicare and Medicaid fraud to breaking contractual promises. But Mission directors said after their Nashville visit that they were convinced HCA’s new management was scrupulously ethical.
Just six months earlier, in 2017, HCA paid more than $200 million to settle lawsuits related to its purchase of a nonprofit hospital system in Kansas City, a deal very similar to the one HCA was proposing with Mission.
And in 2003, in what was the largest health care fraud investigation in history, HCA paid the government more than $1.7 billion in restitution, fines and penalties to settle cases. In all cases, HCA denied wrongdoing.
There is no indication that HCA did anything wrong in pursuing or negotiating the deal with Mission.
Nancy Lindell, a spokesperson for Mission Health/North Carolina Division of HCA, did not respond to AVL Watchdog’s questions about HCA providing term sheets to Green in August 2017 or the meetings at HCA headquarters the next month.
Ball, Mission’s chairman, did not include the early offers from HCA or the meetings in Nashville in a timeline of the deal he provided to the Attorney General, according to records obtained by AVL Watchdog.
No RFPs: Board restricts bidders
Not until a board meeting on Oct. 26, 2017, more than five weeks after the meetings at HCA, did the full 20-member Mission board create a Strategic Planning Committee to officially begin exploring potential partnerships and authorize Paulus to begin sending formal letters of inquiry to potential bidders, records show. Green, a lawyer, was also tasked with being Mission’s lead negotiator.
Paulus told NC Health News after the deal with HCA was announced that he focused the bidding invitations on potential buyers who would have “enough value to bring that they should be considered.” Paulus said he identified “a good handful” of potential bidders and wrote formal letters to them to solicit their interest. Based on those responses, he said, the field was narrowed to two candidates besides HCA, then one.
The board’s decision to limit competitive bids also makes it difficult to determine if Mission got the best possible deal.
Other Potential Partners Dismissed Quickly
In the end, only one potential suitor besides HCA was invited to make a formal presentation to the board. Even today, neither HCA nor Mission will say who the other bidder was, except that it was a nonprofit, or how that company’s offer compared to the one from HCA that Mission already had.
Both HCA and the other company made their presentations on Feb. 12, 2018, and the Mission board — in the same meeting — voted unanimously to pursue a deal with HCA. The only question was whether to partner with HCA, thereby retaining some local control, or sell to HCA completely.
HCA has entered into joint partnerships with other not-for-profit hospital systems, including Austin and San Antonio.
At the next board meeting, March 8, 2018 — 19 weeks after the board formally authorized Paulus to initiate a search for potential partners — the board voted unanimously to sell Western North Carolina’s legacy healthcare system to HCA.
On March 21, 2018, Mission publicly announced that it had signed a letter of intent to be acquired by HCA. The letter allowed formal negotiations and due diligence to begin.
‘Issues and concerns’
By state law, the sale of a nonprofit company to a for-profit company must be reviewed by the Attorney General. The investigation led to a number of stipulations added to the proposed Asset Purchase Agreement, but also raised questions about how Mission’s leadership and outside advisors conducted the negotiations.
Green and Paulus were long-time friends from Pennsylvania. After Paulus joined Mission as CEO in 2010, Green and his consulting company, PDG Consulting of Arlington, Va., became a long-standing strategic advisor to Mission.
According to his biography on the business database Crunchbase, “Since 1976, Mr. Green has represented clients in a variety of fields, including health industry mergers and acquisitions, corporate planning and transactions, and litigation.”
Green did not respond to questions about whether he had other business dealings with HCA either before or during the Mission negotiations.
Records obtained by AVL Watchdog from the Attorney General indicate that the Mission board held a special meeting on Jan. 8, 2019 for “extensive deliberations regarding specific factual circumstances of interest to both the Board and the OAG (Office of the Attorney General).” Both Paulus and Green were excluded for at least a portion of the meeting.
The board heard a report from “outside legal counsel” about “various issues involving or related to officers of and/or advisors to Mission and the negotiation of the transaction.”
After the Jan. 8 meeting, Donald Esposito Jr., then Mission’s General Counsel, wrote to the Attorney General’s office to confirm that “neither Mission’s strategic advisor (PDG Consulting), its principals, nor any company with which they are affiliated will benefit directly or indirectly as a result of the transaction between HCA and Mission.”
The letter was requested by the Attorney General’s office, and Mission’s assurances were considered “legally binding,” Laura Brewer, communications director for Stein, told AVL Watchdog.
Ball also wrote to Stein, saying that the board had discussed “historical communications between Mission representatives and HCA,” communications with other potential partners, and “various issues involving or related to officers of and/or advisors to Mission and the negotiation of the transaction.”
“The Board has concluded,” Ball wrote to the Attorney General, “… that no member of Mission’s management or its outside advisors took any action, or failed to take any action, that was detrimental to Mission’s interest.”
“The Mission Health Board of Directors held the legal authority to govern that nonprofit corporation,” Brewer said. It had heard and discussed the Attorney General’s “issues and concerns” and decided, unanimously, to go ahead with the sale to HCA.
“The Attorney General’s Office determined that the Mission Board of Directors was fully informed as required by North Carolina law,” Brewer said. Stein traveled to Asheville January 16 to announce that he would not oppose the sale.
‘A fair deal’
Multiple experts in healthcare finance and mergers, including Mission’s investment banker, Cain Brothers, agreed that from a strictly financial perspective, HCA’s $1.468 billion offer to buy Mission was a fair deal.
They also noted that a fair deal is not necessarily the same as the best deal.
Today, after 20 months of HCA’s contentious management of the Mission system, and after a recent, eye-popping deal for a smaller, less profitable nonprofit hospital system on the other side of the state, it’s unclear if Mission even got the best possible deal.
Paulus joins HCA
The sale of Mission Health Care to HCA became official on Feb. 1, 2019. Just two weeks later, Paulus, who along with Green had championed the sale of Mission to HCA from the start, announced that he was resigning to take a new job, as strategic advisor to HCA.
Paulus is still on HCA’s payroll, the company confirmed.
Green declined to answer specific questions from AVL Watchdog, but wrote: “I hope you will take the opportunity in your article to give Mission’s Board of Trustees, as well as the Mission executive team, credit for the unbelievably successful transaction consummated with HCA; a transaction which was of enormous benefit to Mission and its employees, its patients and to the larger Western North Carolina community. While Mission’s outside advisors provided guidance, the Mission Board of Trustees made a fully informed and independent decision.”
Today, Green and Paulus remain close. PDG Consulting LLC and RAPMD Strategic Advisors LLC, their respective consulting firms, share the same executive assistant.
AVL Watchdog is a nonprofit news team producing stories that matter to Asheville and Buncombe County. Peter H. Lewis is a former senior writer and editor at The New York Times. Contact us at [email protected].