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Health

Population growth fuels hospital competition across NC’s Triangle region

Hospital Aerial.png
Laura Pellicer
/
WUNC
An aerial view captures construction work at Duke Health's new medical campus in Cary, N.C. on Oct. 18, 2021. The site, which will include a 40-bed hospital, is located in a fast-growing area of Wake County. It benefits hospitals to be in areas of high growth and high net-worth households.

In a brand new shopping center off Green Level West Road in Apex, Kelly Chtcheprov grabs a bottle of sparkling wine out of the refrigerator. There's that familiar clinking sound of bottles gently colliding before Chtcheprov unwraps the cork and pops it free.

Kelly Chtcheprov Bottle Theory
Jason deBruyn
Kelly Chtcheprov pulls a draft beer at Bottle Theory, the shop she recently opened with her husband, Pavel, in Apex, one of the fastest growing parts of the state.

"This is a bottle of our house Cava. It is a sparkling wine from Spain, and a Rosé, and it's one of our best sellers," said Chtcheprov. "Everyone loves bubbles; everyone loves to celebrate. "

Chtcheprov and her husband, Pavel Chtcheprov, opened this bottle shop, Bottle Theory, just a couple months ago. It's in one of the fastest growing parts of southwest Wake County, which is already one of the fastest growing parts of the state. Kelly Chtcheprov says they love the area, but felt there was still something missing.

"Even though there's so much growth, there wasn't that watering hole, neighborhood pub place for people to gather," she said. "And we kept saying, 'Oh I wish someone would open a bottle shop.' And then during the pandemic we looked at each other and said, 'We should just open our own bottle shop!'"

But there was something else that made this specific location rise above the rest. Less than one mile away, Duke Health is building a new medical campus that will include a 40-bed hospital.

"If a hospital is coming here, then the growth that we're seeing and the community building that's here, is here to stay," said Kelly Chtcheprov. "And it will continue over the... years to come."

It's more than just bottle shops that have an eye on the new medical complex. Just on the other side of the bottle shop is a new neighborhood with custom homes that start in the $800,000s. Head sales agent Lisa Catalano called Duke Health "a great selling point" to homebuyers.

Of course, it also benefits hospitals to be in areas of high growth and high net-worth households.

"It's really just population growth, is what it boils down to," said Roy Tempke, chief operating officer of UNC Rex Holly Springs, another new hospital in southwest Wake County, talking about the reasons why the health system chose that location.

Hospitals have a duty to not refuse care to anyone, regardless of ability to pay. And Tempke highlighted aspects of the Holly Springs hospital, like a food pantry, that help it cater to an underserved community. But health systems also need to generate revenue, and patients with good health insurance plans make up the bulk of that income.

"All hospitals, like any business though, do have to have enough business that can help us cover our overhead so we can pay the bills like anybody else," Tempke said. "I would be remiss if I said that was not part of the consideration. That wouldn’t be true."

UNC Rex Holly Springs
Courtesy of UNC Rex
A medical helicopter lands at UNC Rex Holly Springs.

This is partly why hospitals compete so fiercely. North Carolina has strict health service regulations, and hospitals must receive approval before building. Competing hospitals almost always try to intervene. For instance, UNC Health, the parent organization of UNC Rex, objected to the Duke Green Level Hospital calling it an "unreasonable attempt to gain massive amounts of market share from other providers."

This kind of written comment is common when competing hospitals look to expand, and Duke Health has filed plenty of negative comments on UNC Health-backed applications. For a new UNC Health hospital recently approved by the state, Duke lambasted the UNC application calling its projections "highly specious," its assumptions and methodology "flawed," and its presumptions "unfounded."

As individual hospital systems grow, health services will increasingly consolidate in the major metro areas. In addition to the UNC Rex hospital in Holly Springs and the Duke Health campus in Cary, UNC recently won approval for a new hospital in Durham County. But it will put that 40-bed hospital in Research Triangle Park, about as close to Raleigh as possible, while still being geographically in the Durham/Caswell service region.

Hospitals reap tax benefit, shirk charity care responsibility

While hospitals compete with each other, they reap tax benefits for providing charity care and other community benefits. But a new report from the N.C. Treasurer's office finds hospitals across the state aren't holding up their end of the bargain.

Collectively, North Carolina's largest hospital systems benefited from federal, state and local tax exemptions worth more than an estimated $1.8 billion in 2020, according to the report, which was done in conjunction with Johns Hopkins Bloomberg School of Public Health. However, charity care at those hospitals totaled only about $1 billion, less than 60% of the worth of those tax exemptions.

The N.C. Treasurer's office oversees the State Health Plan, the health insurance plan that covers more than 720,000 state workers and their dependents. Treasurer Dale Folwell oversees the plan and has for years argued that the plan overpays medical providers, specifically hospitals. In releasing the charity care report, he again criticized health systems.

"Charity care is the heart of what it means to be a nonprofit hospital," Folwell said in a statement. "Our hospital systems justify overcharging state employees and taxpayers by pointing to their charity care costs. But now we know that is not fully accurate. They are profiting on the backs of sick patients."

Charity care treasurer report.jpg
Johns Hopkins University
A Johns Hopkins analysis of charity care figures prepared for the N.C. Treasurer's office suggests that North Carolina’s largest nonprofit hospital systems reaped tax breaks worth more than an estimated $1.8 billion in 2019-2020. Across the majority of these systems, charity care spending did not exceed 60% of the value of their tax breaks. Fewer than 25 hospitals outstripped the value of their tax exemption with the amount of their charity care spending in North Carolina.

Some health hospitals, particularly smaller ones, took a financial hit during the pandemic. But many large systems performed well financially. In fiscal 2020, Duke University Health System reported $125 million of operating income. That same year, University of North Carolina Hospitals reported $91 million of operating income, according to audited financial reports.

Fiscal years for these organizations run from July to June. For the fiscal year that ended June 30, 2021, DUHS reported $121 million of operating income and UNC Hospitals reported $257 million of operating income.

In addition, non-operating income was particularly strong this past year. DUHS reported non-operating income of $1.6 billion, and UNC Hospitals reported non-operating revenue of $373 million. This income comes largely from investments in the stock market and elsewhere, so it's not necessarily cash available to the organizations. If the organizations keep these investments, they could take a hit in value if markets decline.

Competition leaves rural counties with fewer health care options

The urban-rural divide that runs throughout North Carolina hits health care especially hard. Consider that there is a rate of 80 physicians per 10,000 population in Durham County, but just 3 per 10,000 in Caswell County, according to data from the Sheps Center for Health Services Research. Brandy Bynum Dawson, senior director of policy and advocacy at the North Carolina Rural Center, said those disparities exist in all of the state's rural counties.

"We definitely see that there are huge gaps when it comes to medical health providers, and there's a huge shortage in the state, and has been for a very long time," she said.

Still, rural areas have not been completely left behind, according to Rural Center President Patrick Woodie.

"There's not a lot of new hospital construction going on in rural communities. But there has been, I would say, quite a bit of investment in rural health care infrastructure," he said.

Health workforce shortage
Sheps Center
North Carolina faces a health care workforce shortage in all areas, but particularly so in rural areas.

That infrastructure comes in the form of partnerships. Large systems, including Duke and UNC, have formed various kinds of partnerships with dozens of rural health systems that were in danger of closing completely. But it's still economics that drive hospital executive decisions. Rural areas have a higher percentage of people who fall in the so-called coverage gap. They don't make enough money to afford private insurance, but since Medicaid hasn't been expanded, they aren't poor enough to qualify for the government run program. Woodie said there are various ways to help, but one policy change in particular stands out.

"There is no single public policy decision that could be made, that would cover more people than would some version of expanding Medicaid," he says.

That's been a political non-starter for many rural legislators, many of whom are Republican. But Woodie said the rural center has been working to find a compromise on that issue that would benefit millions, many in rural communities.

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