Getting group health: facing mammoth money problems, community hospitals size things up by becoming part of large health systems.

• Author: Martin, Edward
• Position: FEATURE

Kids swarm across soccer fields and scamper over backyard play sets in Holly Springs, where the median age of residents--31--is unusually young. "One of the fastest growing in the state," Mayor Dick Sears says of his town. With only about 900 residents in 1990, it is forecast to have 31,000 by 2015. Most adults are college-educated, and many commute to high-paying jobs in nearby Raleigh and Research Triangle Park that provide good health-insurance benefits. That partly explains what happened here last year.

"It's not often you have people come to town with money in their pocket saying, 'We'll buy the land and build you a hospital, and it won't cost your taxpayers a cent,'" Sears says. The outsider was Winston-Salem-based Novant Health Inc., the state's second-largest health system. Though state regulators have blocked it for now, Senior Vice President Jim Tobalski says Novant still hopes to build a $110 million hospital with 41 beds and four operating rooms in Holly Springs.

This bedroom community is a prize catch in a rapidly consolidating health-care industry, especially in a state where 1.4 million people--nearly one in seven--are uninsured. Once the domain of tiny community hospitals, North Carolina now is ruled by giants. "There are 183 hospitals left in the two Carolinas," says Michael Tarwater, CEO of Charlotte-based Carolinas HealthCare System. "Of those, 45 are still completely independent."

His is the nation's third-largest health system, sprawling from mountainous Hay-wood County to Charleston, 280 miles away on the South Carolina coast. With more than 5,300 licensed beds and 40,000 employees, revenue exceeded $4.2 billion last year. Novant hospitals--the system owns nine and has partnership or affiliate agreements with seven--have 2,650 beds. Revenue in 2008 exceeded $2.8 billion. At opposite ends of the state, Greenville-based University Health Systems of Eastern Carolina topped $1 billion in revenue for the first time last year, and Asheville-based Mission Health System anticipates its first $1 billion year in 2010. More than 650,000 people were treated last year in the state's 10 largest health systems, which took in $22.5 billion.

"It's kind of like looking for a spouse," Tarwater says of the system's growth. "You're looking for an alignment of values, of mission." But with a large slice of the state gross health-care product--estimated at upward of $70 billion a year--at stake, this mating game often resembles bull elk butting heads. State regulators say nearly all new-hospital and expansion requests are opposed by competitors.

Small hospitals and communities such as Holly Springs are driven into the arms of giants by the economic realities of modern health care. "We're not predatory," University Health Systems CEO Dave...