As in basketball, Duke University and the University of North Carolina have lined up on opposite sides of the healthcare court.
The medical centers of the two academic rivals are drafting competing not-for-profit players to form separate healthcare systems and keep for-profit hospitals on the bench.
In recent months, the medical centers have set not-for-profit screens around the Research Triangle cities of North Carolina. Raleigh, Durham and Chapel Hill form a triangle and have a high concentration of academic, medical, engineering and computing centers.
The medical centers are changing the dynamic of the area from one where independent hospitals competed for business to one where two systems of loosely affiliated hospitals will now go one-on-one.
In Durham, 264-bed Durham Regional Hospital and 948-bed Duke University Medical Center agreed to pursue a lease arrangement under which day-to-day management of the county hospital would shift to Duke while the county would continue to own its assets.
The arrangement also calls for separate medical staffs, continued use of the Durham Regional name, a focus on community care and a consolidation of certain administrative functions, such as computing and billing services.
"We now have a general framework and focus for the continued discussions," said Richard Myers, president and chief executive officer of Durham County Hospital Corp., which controls Durham Regional. "Our challenge is to develop and evaluate this structure to ensure a better healthcare delivery system for the people in this community."
Negotiations between the two hospitals have been on-again, off-again since late 1993. Last fall discussions escalated when Nashville-based Columbia/HCA Healthcare Corp. and Santa Barbara, Calif.-based Tenet Healthcare Corp. came calling on Durham Regional.
Under the direction of Ernst & Young consultants, a task force of representatives from both hospitals plans to spend the next few weeks soliciting opinions on the lease proposal from residents and organizations in the community.
The task force plans to present a final plan to the boards of both hospitals and the Durham County Commissioners in July.
Paul Rosenberg, director of corporate development for Duke, said the two hospitals decided they needed each other to pursue new programs, such as subacute care, and to serve the community's healthcare needs more efficiently.
"We have a robust but unconnected healthcare system in this community," Rosenberg said. "A collaboration between a community hospital and an academic center would be attractive to payers and citizens."
Rosenberg said the two hospitals chose a lease arrangement over an outright sale or merger because the lease model allowed for more community oversight and advice. He said the county would no longer have had the authority to appoint Durham Regional's board or be able to enforce community healthcare commitments if Duke became the parent company of the two.
"None of us are comfortable with that dilution of the county's authority," Rosenberg said.
Duke is pursuing other deals with area hospitals in which it is similarly taking great pains to preserve the autonomy of its partners.
The medical center is discussing an expanded relationship with 534-bed Rex Healthcare, formerly Rex Hospital, in Raleigh. Currently, Duke physicians provide pediatric subspecialty and gynecological oncology services at Rex. The hospitals said they are looking for other services they can share.
In addition, Duke is planning to link Durham Regional and Rex in a regional alliance that could also include other hospitals in the area. The alliance would not involve a merger of the hospitals' assets but would allow them to join with emerging independent practice associations to secure managed-care contracts.
At the same time, University of North Carolina Hospitals in Chapel Hill is a key player in its own evolving system.
John W. Stokes, director of institutional relations at UNC Hospitals, said the 659-bed academic medical center plans to propose by midsummer a formal business structure for a partnership with Charlotte, N.C.-based Carolinas HealthCare System, 756-bed North Carolina Baptist Hospital in Winston-Salem and 669-bed Pitt County Memorial Hospital in Greenville, N.C.
Stokes said the hospitals are discussing ways they can coordinate their marketing efforts, lab services, managed-care products, hospital management services, physician groups, information systems and educational programs.
Stokes said the not-for-profit hospitals are considering forming a limited liability company that will manage and streamline the coordinated services. The hospitals may also form joint ventures in which they buy equity in each other's managed-care products, he said.
"As we're looking at the changes caused by managed care, we're seeing that providers are going to have a position in the market to the extent that they are economically united and have discrete products that they can offer," he said. "We have a group that's very attractive to consumers looking at health insurance programs and one that will have bargaining power with third-party payers. We're on the cutting edge of medical research and have a strong geographic scope."
At least for the moment, the talks have left the Triangle's three other acute-care hospitals on the sidelines. Wake Medical Center in Raleigh has not officially joined the game. The 644-bed hospital went private April 1 after more than 30 years as a county hospital. The Wake County commissioners decided to turn the hospital over to a private operator after spurning interest from Columbia and turning down a $50 million lease offer from Tenet.
Michelle Mastri, a spokeswoman for Wake Medical, said the hospital has formed a jointly operated HMO with UNC Hospitals. Beyond that agreement, she said, Wake Medical is considering other relationships with hospitals in the area but has not agreed to join a larger alliance.
Also warming the bench are Durham's 388-bed Veterans Affairs Medical Center and 161-bed Columbia Raleigh (N.C.) Community Hospital, the Triangle's only for-profit acute-care hospital.
As the partnership agreements between such closely located providers become more formal and involve more dollars changing hands, state and federal antitrust regulators will likely step in to officiate.
The combined Duke-Durham Regional system, according to a mission statement, "will strive to be the foremost community-based health system in the Durham and Triangle Region."
The deal would combine the only two nonfederal, acute-care hospitals in Durham and give the combined system control of 34% of the acute-care beds in the Triangle.
Rosenberg said the hospitals are evaluating whether they will seek federal antitrust approval or take advantage of a recently expanded North Carolina statute.
The original 1993 statute granted state antitrust immunity to healthcare joint ventures if they provided certain benefits, such as lowering costs or improving quality. In 1995, two not-for-profit hospitals that were pursuing a deal similar to the Durham proposal successfully lobbied for the exemption to also apply to hospital mergers and partnerships (June 12, 1995, p. 20).
The lobbying hospitals-St. Joseph's Hospital and Memorial Mission Medical Center-were the only acute-care facilities in Asheville, N.C., and were seeking to maintain separate assets and ownership while being governed by a common board. The deal had been under antitrust review by the U.S. Justice Department since July 1994.
By expanding the statute, the hospitals gained protection not only from state antitrust review but also from federal scrutiny. A federal doctrine provides that activities permitted and monitored by a state are exempt from federal review. The Asheville partnership was completed in December 1995.
But, as Rosenberg noted, two other same-town hospitals, Moses Cone Health System and Wesley Long Community Hospital, decided to seek federal antitrust review rather than state exemption. The two Greensboro, N.C., providers agreed to merge last fall and recently announced their plans to file for federal antitrust clearance within the next month.
"It's too early to tell which remedy we'll pursue," Rosenberg said.