Language in the state budget that lawmakers are hammering out now would help some of the state’s largest hospital systems grow, fueling concerns of monopoly.

One would grant UNC Health, as well as ECU Health in eastern North Carolina, antitrust exemptions that some lawmakers say the systems need to partner with struggling rural medical facilities.

One expert on the industry calls the proposal “idiotic.”

The Federal Trade Commission, which reviews hospital mergers to preserve competition in the sector, has weighed in against the change, saying it would likely increase health care costs and lower the quality of care as competition is reduced.

Another proposal — essentially one sentence in nearly 400 pages of budget text — would end a long-standing rule that limits in-state expansion for Charlotte-based Atrium Health, a 40-hospital system that’s part of one of the biggest hospital companies in the country.

Atrium is forbidden most expansion in North Carolina outside its home in Mecklenburg County because it’s organized as a local hospital authority, a throwback to its earlier days that comes with limitations but also with quasi-government powers, including eminent domain and its own antitrust protections.

The hospital’s competitors have opposed the changes, fearing a massive expansion. They say these changes would give UNC Health and Atrium unfair advantages in the marketplace and a legal edge that would make it extremely difficult for other hospital groups to compete.

Spokespeople for Atrium didn’t respond to multiple interview requests about the proposal. UNC Health officials say they need the antitrust change to thrive in an industry marked by hospital systems gobbling up private physician practices and growing ever larger, including through out-of-state partnerships that are unavailable to a university hospital.

They also promised an ongoing commitment to healthcare in rural North Carolina.

“We’ve run to the rural parts of the state when no one else has,” UNC Health spokesman Alan Wolf said. “Name one other health care system outside of ECU that is serving rural North Carolina. There are none.”

Lawmakers who are supporting the effort say the changes will strengthen the systems’ role as a provider of last resort, particularly in rural areas. In addition to the antitrust language and other regulatory shifts, the state Senate’s budget proposal includes hundreds of millions of dollars for new facilities where UNC Health and ECU Health would partner.

“I’m trying to create more options out there across the state for individuals to receive their healthcare,” said Sen. Ralph Hise, R-Mitchell, who is a Senate budget-writer.

ECU Health leaders declined an interview request and didn’t respond to specific questions about the legislation.

“In general, ECU Health is grateful for legislators’ commitment to exploring ways to strengthen rural health care,” spokeswoman Ashlin Elliott said in an email.

FTC criticism

After the UNC antitrust language emerged at the statehouse, Federal Trade Commission officials sent Hise and other key health care leaders a letter blasting the proposal.

The regulator said UNC Health doesn’t need an antitrust carve out to collaborate with other entities and that the measure’s main effect “would be to shield mergers and conduct that would violate the antitrust laws by depriving patients and workers of the benefits of competition.”

The change would likely increase healthcare costs and could reduce wages and benefits for healthcare workers as UNC colludes with one-time competitors, the letter states.

“Experience has taught us that antitrust exemptions threaten broad harm to many while benefiting only a select few,” it states.

UNC Health said it has never had an expansion blocked by FTC review. But every major transaction goes through that review, they said, and in some cases the system has made decisions meant to avoid federal roadblocks. In some cases, they said, the system might want to own a location, but it ends up simply managing it to avoid antitrust concerns, which limits its ability to make capital investments.

The changes would make UNC Health a more unified system, as opposed to a federation, system executives said. It also changes the way UNC Health and entities that it owns, including UNC Rex, a separate private nonprofit hospital owned by UNC Health, issue debt, saving the system money, they said.

Outside experts say antitrust exemptions are dangerous. Barak Richman, a Duke Law professor who researches healthcare policy and antitrust issues, said it would be “idiotic” to give a large system antitrust immunity.

“The whole health policy world is demanding more antitrust enforcement against hospitals,” Richman said in an email. “Hospital consolidation is the primary cause of price inflation, and it’s one of the biggest problems with the current U.S. healthcare system. It’s just an incredibly foolish policy.”

As for the Atrium language, Richman said the company is “all about expansion.”

“And expansion isn’t a bad thing, per se,” he said. “It’s just a problem when it creates market concentration, which is exactly what they want to do.”

Eastern merger concerns

Before the Senate budget emerged with antitrust exemptions for UNC Health and ECU Health, a standalone bill just dealing with UNC Health passed the state Senate.

Some of that support has faded since the vote, and long-standing worries in eastern North Carolina that UNC Health might one day absorb ECU Health fuel some of the opposition.

The Senate budget also includes hundreds of millions of dollars for new facilities that UNC Health and ECU Health would operate together, as well as an edict that they collaborate in rural North Carolina in a project called “NC Care.”

The money, combined with the antitrust language and some of ECU Health’s recent financial struggles, have some thinking a forced merger would be next. The hospital in January announced the closure of several ambulatory clinics following a $46 million loss in the 2022 fiscal year.

“In my humblest opinion, it’s a set up,” Sen. Kandie Smith, D-Pitt, said.

“It looks like it’s almost preparing for a larger takeover,” Smith said. “Wouldn’t you want to get things right before you take over?”

UNC Health officials say that’s not their plan at all, and top lawmakers say nothing like it would be forced.

“Anything that happens between UNC and ECU will be as a result of collaboration, of partnership, of those entities,” Speaker of the House Tim Moore said. “Nothing that is forced from this General Assembly.”

Senate Republican Leader Phil Berger said he doesn’t see a merger in the offing, just “more cooperation, working together, maybe some combination of some back office stuff.”

Berger, and other Senate Republicans, have repeatedly said they want the two hospital systems to have the tools they need to be the state’s provider of last resort, and to step in in rural areas when community hospitals have financial trouble.

Richman, the Duke University professor, said the issue isn’t whether the two merge, it’s that the antitrust language is bad policy, period.

“A monopolist with a light blue color on its front will not be much different from a monopolist with a purple color on its front,” he said, referring to the UNC and ECU hospital groups’ logos.

High level talks

Key health policy and budget writers in the House said in recent weeks that they didn’t know much about the UNC antitrust provision or the Atrium expansion language, and that these issues would likely be decided by the legislature’s “corner offices.”

That means Moore and Berger, the General Assembly’s top leaders who handle the final big-picture budget negotiations each year. That process is ongoing now, and both men have indicated the UNC and Atrium language will likely be among the last issues decided in a budget process that also includes fights over tax rates, teacher salaries and a wealth of other issues.

Berger said last week that he and Moore hadn’t even discussed these issues yet.

Both changes are Senate priorities, embedded in the Senate budget proposal and not the House’s. Moore was non-committal when asked about them recently.

Those talks, which lawmakers once hoped to conclude in June, have extended into July.

Moore also noted the FTC letter as a strike against UNC’s antitrust exemption.

“I have, certainly, concerns with it,” he said. “I think if there’s a way to allow a greater partnership between ECU and UNC on the hospital side, that’s something certainly to look at, but there’s a lot of discussion to look at.”

Healthcare session

The cumulative impact of these proposed changes and others working their way through the North Carolina General Assembly is wide-ranging. Even lawmakers typically involved in health policy, and hospital executives themselves, struggle to describe the overall vision of a legislative session unusually focused on foundational health care policy.

Medicaid expansion could bring the biggest immediate impact, but with the Atrium language, the antitrust language and a potential second rollback on certificate-of-need competition limits, lawmakers are mulling changes that would shift the playing field for hospital mergers and operations for decades to come.

“I think this session will have dealt with health policy in a substantive way that we’ve not seen for a very long time,” Berger said.