Legality of CHS and UNC partnership questioned

CHARLOTTE — The proposed partnership between Carolinas HealthCare System and UNC Health Care may have originated illegally according to a prominent insider waiting for details about the new non-profit organization.

Tom Fetzer is a former mayor of Raleigh and sits on the UNC Board of Governors. He believes a deal was made in "secret" between Carolinas HealthCare System and UNC Health Care.

"This is our state's two largest hospitals," explained Fetzer, "One of which is owned by UNC and the UNC Board of Governors doesn't find out about this deal until four days before it's made public?"

Fetzer wrote a letter to his colleagues on Thursday asking if state law was broken by keeping the Board of Governors out of the loop.

Letter from Tom Fetzer to UNC chair:

"As both of you are aware, I have consciously and intentionally abstained from participating or even attending any BOG meetings, discussions or briefings on the proposed merger between UNC Health Care and Carolinas Health Systems. As has been previously disclosed, I represent entities that may be impacted by the proposed merger.

However, I do have questions and concerns about the process by which the BOG was informed of the proposed merger and the timeliness thereof.

I refer to NCGS 116-37 (b) (4):
"The board of directors (of UNC Health Care) shall keep the Board of Governors fully informed about health care policy and recommend changes necessary to maintain adequate health care delivery, education, and research for improvement of the health of the citizens of North Carolina."
To my knowledge, no members of the BOG that I'm aware of were informed of this proposed merger until a few days before it was made public.

In my opinion, this begs the reasonable question: were relevant North Carolina statutes followed during the period, which many have described as being the better part of a year, in which this proposed merger was being planned?

The BOG makes several appointments to the UNC Health Care Board and our only employee, the President of the UNC system, serves by statute--ostensibly to represent and reflect the interests of the BOG and, as the aforementioned statute requires, to keep the BOG "fully informed about health care policy".

Do you believe the UNC Health Care Board has complied with state statute in this regard?
Thank you for your attention to my question and I await your thoughtful response."

"Was the statute followed? Was North Carolina law followed? Was the Board of Governors kept fully informed about this significant development in health care policy," asked Fetzer in an interview with investigative reporter Paul Boyd.

Carolinas HealthCare Systems provided Channel 9 with the following statement in response to our inquiry about Fetzer's comments:

"Teams from Carolinas HealthCare System and UNC Health Care are diligently working on the details of our joint operating agreement. Providing clear solutions for healthcare’s most pressing challenges for North Carolina communities has always been the goal of the proposed joint operating company. Details about the UNC Board of Governors and their function can be best answered by the team at UNC Health Care."

Late Friday night the Chairman of the UNC Board of Governors, Lou Bissette, responded to Fetzer with a sharply worded letter requesting that he "refrain from engaging in further action related to the UNC Health Care matter" while the board seeks advice from the State Ethics Commission.

UNC board chair email to Tom Fetzer:

"We are responding to your email because we are concerned about your potential conflicts under the North Carolina State Ethics Act. As you know, the Ethics Act requires you, as a member of the Board, to identify potential conflicts, disclose them, and then refrain from participating in any official action relating to a conflict, which includes any verbal or written action in furtherance of official action. As you acknowledge in your email to Margaret, you have recused yourself from participating in Board of Governors discussion and action regarding the proposed joint venture between UNC Health Care and Carolinas HealthCare System. Given your status as a registered lobbyist for WakeMed Health and Hospitals and for Blue Cross and Blue Shield of North Carolina, both of which are lobbyist principals, we believe it is appropriate for you to have recused yourself from participating as a member of the Board of Governors in any official action regarding the UNC Health Care proposal.

 Given the potential seriousness and consequences to you of the ethics issue here, we request that you refrain from engaging in further action related to the UNC Health Care matter until we are able to receive advice from the State Ethics Commission staff or the Commission concerning the nature, scope, and consequences of the conflict that has led you to recuse yourself from official action until now.  

Regarding your specific question to Margaret, a response will be provided to members of the Board of Governors who have not recused themselves from consideration of the UNC Health Care matter. Please call either of us if you would like to discuss this issue."

Fetzer had already recused himself from the partnership review process because he works as a health industry consultant and is a registered healthcare lobbyist.

Chairman Bissette also sent a letter to the UNC Board of Governors on Friday night defending the legality of the proposed partnership announced in August 2017. Bissette argues that all statutes have been fully met and a review process is ongoing.

UNC Board of Governors chair statement to other board members:

"We write to address the question that Tom Fetzer posed to Margaret regarding the process by which the Board of Governors (BOG) has been informed of the proposed joint venture involving the UNC Health Care System and Carolinas HealthCare System. Because Mr. Fetzer and several other members of the Board of Governors have previously recused themselves from any official action concerning the UNC Health Care matter due to conflicts or potential conflicts under the State Ethics Act, this email is being sent only to those Board members who have not recused themselves from consideration and discussion of the issue.

 Dr. Roper and his team, along with the leadership of the UNC Health Care Board of Directors, informed the Board of Governors by August 2017, that they were considering a transaction with Carolinas HealthCare System to form a joint operating company. Dr. Roper provided briefings to the Board of Governors in meetings on August 28 and September 8. In addition, Dr. Roper and members of his leadership team addressed questions from individual Board members prior to and after those briefings, and continues to do so.

The proposed joint venture was described in brief terms in a non-binding letter of intent, which was signed on August 30, and has been released to the public. The letter of intent states that the parties expect to, “continue in good faith to negotiate the terms of any definitive agreements required to accomplish the Proposed Transaction,” but that, “[a]ll terms described [in the letter of intent] are terms of tentative agreement, subject to final confirmation and agreement in the definitive agreements to be developed over the next several months.” In addition, the letter of intent makes clear that it is non-binding.

After conferring with Board members, Chairman Bissette formed a special committee to review the proposed UNC Health Care/Carolinas HealthCare partnership in November 2017. Since that time, outside legal counsel and financial advisors with expertise in health care system and academic medical centers were engaged to evaluate the proposed venture and advise the committee and the Board. The committee has met four times, and will be arranging further briefings for the Board about the proposed joint venture at the January and March Board of Governors meetings.

 In view of this background, it is clear that UNC Health Care has been providing information about the proposed joint venture, which is still under negotiation, for at least five (5) months. The proposed transaction remains under negotiation, and cannot and will not move forward unless and until such time as the parties (UNC Health Care and Carolinas) reach full agreement on all terms to be reflected in a definitive agreement. The UNC Health Care Board of Directors has therefore met the requirements of the North Carolina statute that requires the board of directors to keep the Board of Governors fully informed about health care policy. You can review N.C.G.S. 116-37(b)(4) and the rest of the health care statute by following this link: https://www.ncleg.net/EnactedLegislation/Statutes/PDF/BySection/Chapter_116/GS_116-37.pdf.

The president of the University of North Carolina serves, by statute, as a voting member of the UNC Health Care System Board of Directors. The board of directors has 24 members in total, 12 of which are appointed by the Board of Governors. Nothing in the statute distinguishes the president’s responsibilities as a director from any of the other directors’ responsibilities. Mr. Fetzer’s statement that the president serves as a member of the board of directors, “ostensibly to represent and reflect the interests of the BOG,” and to keep the BOG informed is not supported by the language of the statute. In fact, the statute makes clear that the obligation to inform the Board of Governors belongs to the UNC Health Care Board of Directors, which the Board of Directors has done."

The public was first told about this proposed partnership six months ago and both hospital groups have indicated they want to sign a definitive agreement early this year.

Fetzer says some big questions remain unanswered.

"The Board of Governors is there to protect and represent the interests of the people of North Carolina. They deserve to know why this deal was kept so secret for so long," said Fetzer.

State Attorney General Josh Stein said he's waiting for the deal to be finalized before investigating consumer protections.

Cox Media Group