Rex Healthcare transparency questioned

A high-profile effort to purchase an affiliate of UNC Hospitals has raised questions about the financial transparency of the UNC Health Care System.

UNC Hospitals’ financial statements are audited yearly by the state, but the health care system’s Enterprise Fund — created in 2005 and used by the system to distribute money between its various entities — has never been fully audited.

“There’s a lot of money that’s moving around in different areas that may be perfectly fine, but nobody knows because nobody’s ever looked at it,” said Bill Atkinson, WakeMed Health and Hospitals president and CEO.

WakeMed has been embroiled in a public battle with the UNC Health Care System since its $750 million bid to buy Rex Healthcare was rejected by the system’s Board of Directors in August.

A state legislative committee is considering the bid independent of the health care system and could possibly sell Rex without UNC Health Care’s consent.

Both WakeMed and Rex Healthcare, an affiliate of UNC Hospitals, are based in Raleigh.

Atkinson said the state should not be involved in a “for-profit” operation at Rex, and UNC Health Care has not fully disclosed the operations of its Enterprise Fund.

But Karen McCall, spokeswoman for UNC Hospitals, said all transactions involving the fund have been audited — though the Enterprise Fund in its entirety has not been reviewed.

The N.C. Office of the State Auditor did not consider an audit of the entire fund necessary because it already looks at all revenues and expenditures of the hospitals, said Dennis Patterson, spokesman for the agency.

Contributions to the Enterprise Fund are marked as “unusual expenditures” in the audits.

“Just because you audit a big entity with lots of moving parts doesn’t mean that every moving part needs to be examined,” he said.
But Patterson said there have been discussions about auditing the Enterprise Fund, and he anticipates an audit will be completed in the near future.

State audit records show that $62.4 million of expenditures across the system were funded through the Enterprise Fund in fiscal year 2010. UNC Hospitals contributed more than $43 million to the fund that year.

Other entities of the UNC Health Care System, such as Rex, also make contributions to the fund, which are not specified in the audit.

The system used the fund to transfer $10 million to the UNC School of Medicine in fiscal years 2007 and 2010.

McCall said the transfers would not be possible if the system did not own Rex, which benefits the system by spreading out costs.

The UNC Health Care System had $1.9 billion in net operating revenue for fiscal year 2010 and ran a net operating margin of $101.7 million.

“UNC uses our margin to support the School of Medicine,” McCall said. “Without Rex, we would not be able to support the school.”

The revenue from selling Rex “would not justify dismantling the health care system,” she said.

UNC Hospitals received almost $2 million from Rex in the form of employee contracting services in fiscal year 2010 and paid more than $600,000 to Rex for management, legal and contracting services, according to state audits.

McCall said Rex has produced a direct benefit of $20 million for the system since its purchase in 2000, not including the benefits derived from shared costs.

But Atkinson said simply investing the $750 million bid would generate more revenue than Rex currently does.

“There’s many ways the medical school could have a large sum of money — for forever — off of a public transaction of this magnitude,” he said.

WakeMed requested public records regarding the use of the Enterprise Fund almost a year ago, but Atkinson said he is not satisfied with the information provided by UNC Hospitals.

“It is distasteful that part of what we’re dealing with is the lack of truthfulness about what’s happening,” he said.

Contact the State & National Editor at state@dailytarheel.com.