Vidant - Medical Care That Keeps on Giving
The Vidant Hospital System dominates northeastern North Carolina. It is the largest employer and takes in about 1.3 billion dollars each year. Vidant is not without controversy in Beaufort County. Vidant acquired the Beaufort Hospital almost for free, thanks to the Washington Beaufort County Chamber of Commerce, with assistance from the Noon Rotary Club.
After promising to keep it open, Vidant's solution to health care in eastern Beaufort, and part of Hyde County was another bad business decision. They purchased doctors practices and built new doctors offices that are open 24 hours per day seven days per week for a town with 1,500 residents. Of course they serve the country-side, so maybe there are 8,000 residents. This is estimated to be a million dollar per year money loser.
There is evidence of management problems. Traveling nurses are contract employees who do not necessarily live in the area served by the hospital. Each traveling or contract nurse costs more than $100,000 per year. Hospitals use them only when there is no other choice. Rumors have been around for years about working conditions inside Vidant hospitals not being good. They have trouble keeping help. Managements, whether hospitals or industry, that have problems, usually try to keep help by paying more.
Vidant began as the Pitt County Hospital. That hospital building now houses the Pitt County government offices. Vidant called its self University Health Systems before hiring someone to pick the name, "Vidant," about eight years ago.
Vidant made an agreement with Pitt County, the owner of the hospital system, to allow them to become independent if Pitt County Government's rule in exchange for a payment in lieu of taxes of approximately 2 million dollars each year. Vidant has created a lot of interlocking corporations and boards since then. In my opinion, the owner of the hospital system is Pitt County Government, and historically has appointed over half of the hospital board members. Until recently, the University of North Carolina Board of Governors appointed ten members.
Vidant unilaterally removed the University of North Carolina Board of Governors appointments. The University is threatening to sue. One report says Vidant claimed they ask the permission of two of the UNC board members before removing all of them. The issue of removal of board members, the crude methods used, and the, as yet, unexplained, reasons why is enough to raise a high level of suspicion about what is going on. The public should ask questions about board members compensation and rewards. Board fights are usually about money.
Vidant's lobbyists have for years worked to expand Medicaid. They have fought hard to keep certificates of need. They came out against Treasury Secretary Folwell using any accountability practices to pay for medical services out of the state employees medical plan.
In each of these issues Vidant claims any changes will severely impact their ability to remain in business. After considering their business practices, management decisions, rapid growth, debt and available cash, Vidant may be right. They may be sitting on the edge of a very big financial problem.
The Trump administration has began taking the first very small steps to reduce health costs in the United states. One of those steps is to eliminate the secret contracts that exist among non profit hospital and non profit insurance companies. These contracts allow insurance companies to pay.
Two hospitals sitting side by side different rates for the same procedures. These contracts sound illegal and I believe they are illegal. There are anti racketeering laws against these kinds of practices in for profit business. The paper industry is a good example.
Vidant is at risk should truly competitive practices be mandated in the health care industry. The elimination of certificates of need, the posting of "not price lists", but actual prices, the audit of the State Employees Health Fund payments and not expanding MEDICAID would severely dig into Vidant's profits. I know they are a non profit, but even the nonprofits have to make a profit or go broke.
If true competition were to come to medicine all of the non profits and a few of the for profits are at financial risk of survival. We do know all medical care is less expensive everywhere in the world than it is in the United States.
Considering all of the contorted boards with interlocking directors, business entities set up by Vidant and debt, if a competitive medical market were to be forced on Vidant, how much risk does the Pitt County Government have? Why the Pitt County Government? Because they are the only entity that has owned anything at Vidant and they appoint the Board of Directors. So, they must own Vidant.
It is quite possible that should Vidant default on its bonds the buildings and medical business are the collateral and there would be no debt liability to fall on Pitt County Government. However, default even without liability on the County could affect Pitt County's bond rating.
Pitt County could escape any liability by simply selling Vidant. This could be done through negotiations with for profit hospitals or it could be done by a public offering, the sale of stock.
How would Pitt County Benefit? The ways are more numerous than can be mentioned here. They would be rid of all liability. They would have a pocket full of money. They would collect taxes on Vidant properties. There is a good chance rates for medical services would be lower.
I do not claim to be an expert at valuing hospital or medical practices. However, we can guess at the value of Vidant. Say Vidant can make 50 million dollars per year after paying all expense and taxes, and we want ten percent on our money. Vidant's value based on earnings would be $500 million. Pitt County could collect 500 million dollars, buy US Government bonds paying 4 percent, and have 20 million dollars per year in income. Pitt County could tax Vidant properties and probably get another 4 million dollars. Twenty four million for doing nothing sure beats 2 million for what they now have. Please note these numbers are not based on any expertise on my part and may not be close to what he real values would be.
Get ready for the naysayers to tell you why this cannot be done. All of these people will be protecting political turf. The present situation is high financial risk. Management only has its high paying jobs to protect.