STATE OF NORTH CAROLINA CONSUMER PROTECTION

DEPARTMENT OF JUSTICE
TOLL-FREE IN NC:
JOSH STEIN 9001 MAIL SERVICE CENTER
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ATTORNEY GENERAL RALEIGH, NORTH CAROLINA 27699-
OUTSIDE OF NC: 919.716.6000
9001
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WWW.NCDOJ.GOV
Reply to
Jennifer T. Harrod
jharrod@ncdoj.gov
(919) 716-6692

August 8, 2018

via electronic mail

Donald R. Esposito, Jr, J.D.
Senior Vice President & General Counsel
Mission Health System
12 Ardmore St.
Asheville, NC 28803

Re: Potential acquisition of Mission Health System, Inc., by HCA

Dear Mr. Esposito:

As we discussed in our phone call last Thursday, our office has been reviewing public interest
provisions that are commonly included in transactions involving nonprofit hospitals. Given
Mission Health’s strong operating and financial position, we believe Mission should be well-
positioned to negotiate for strong terms to protect public health interests, as has been done in
other similar transactions. Examples of such protective terms include the following:

Maintaining existing facilities and services

• Agreement by HCA (or its successors and assigns) to operate current hospitals for at
least ten years, with commitments that are robust and not subject to significant
conditions or contingencies.
• Identification by the Mission Board of current services lines that should be
maintained under HCA ownership, taking care to include critical care or lines of
service that may be necessary to provide reasonable access to hospital services in the
region served by Mission Health, such as obstetrics, behavioral health, and
emergency.
• All commitments to maintain services and facilities stated in terms that are specific
and measurable.

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• Agreement by HCA to maintain its commitment to the NC Medicaid program,
agreeing to contract with all Medicaid managed care companies operating in their
catchment area.
• HCA to provide notice to the Attorney General prior to divestiture or change of
control of any of the health care facilities, which notice shall include an analysis of
the impact to residents in Mission’s service area.

Charity care policies

• Specific and measurable terms, including requirements for publicizing charity care.
• A dollar floor with an escalator clause, indexed to the CPI for the Asheville region
and/or population growth, with appropriate provisions to redress any violation of this
provision.
• The Board should consider appropriate limits on collections activities.
• Annual audits of charity care, with reporting to Dogwood Health Trust (DHT)
certifying that the required charity care has been given.

Community benefits

• Provisions to maintain or expand current footprint of public benefit programs (e.g.,

Tooth Bus).
• Provisions to continue contractual relationships with government or public service
entities (e.g., Sexual Assault Response Team and Sexual Assault Nursing
Examination Services provided to law enforcement agencies; research partnerships
with universities).
• Provisions to continue or expand footprint of existing training of health professionals,
including residency slots and specialty mix.

Limitation on anti-competitive provisions

• We have significant concerns about imposing restrictions on DHT’s activities

directed towards improving health in western North Carolina. While we recognize
that buyers frequently seek covenants not to compete from business sellers, there are
many reasons why such a provision may be inappropriate or overly broad in this
situation. Mission already has a strongly predominant market share, and that seems
likely to increase with HCA’s backing. Giving HCA the right to stop DHT from
pursuing activities that HCA might deem competitive could give HCA an outsized
role in dictating whether and how the charitable purpose of Mission carries forward.
In addition, many of the reasons buyers seek protection via noncompete clauses are
absent in this situation. HCA will be acquiring all of Mission’s operating assets,
nearly all of its employees and officers, and its name. DHT is a newly-created entity
that is not planning to be in the business of directly providing health care. When the
asset purchase agreement is signed, DHT will have no employees and no health care
facilities. If, for example, HCA chooses to sell a Mission hospital, it is difficult to see
how it would have a legitimate interest in controlling who purchases that hospital.

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Independence of medical staff/local control

• Provisions to ensure the professional independence of medical staff (e.g., no change

in medical staff officers, committee chairs, or hospital privileges for existing medical
staff; maintaining an open medical staff without differentiating in operating room
availability between employed physicians and those in private practice).
• A local governing board that has control over issues such as credentialing, quality
control, and accreditation.

Enforcement of the above

• Enforceability of public interest covenants, including capital commitments, by both

the Attorney General and DHT.
• Annual certification to DHT of compliance with public interest covenants.

Foundation

• Endowed with full market value of Mission.

• Independence of DHT board members from Mission/HCA.
• Appropriate qualifications for DHT officers.
• Charitable purpose for DHT focused on serving western NC, with approval by
Attorney General prior to changing the charitable purpose, articles of incorporation,
or bylaws of DHT.
• Limitations on former Mission board members serving on the board of DHT.
• Geographic diversity and representativeness of board members throughout the service
area, including from those counties with a current hospital.

The purpose of this letter is to provide the parties with advance notice of certain issues
the Attorney General considers important for the protection of the public interest.
Necessarily, as we learn more information during our review, additional issues are likely
to arise. We look forward to discussing these matters further with you.

Best regards,

Jennifer T. Harrod
Jennifer T. Harrod
Special Deputy Attorney General
Consumer Protection Division

Cc: Swain Wood

Kevin Anderson
Haynes Lea

HCA-001600