Financing Plan For Metro New Site

September 6, 2002
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GRAND RAPIDS — Metro Health Corp. is counting on a mixture of bonds, sales of existing assets, cash and philanthropy to finance a new $141.9 million hospital proposed in Wyoming.

The health system last week began the public process toward securing state approval to relocate Metropolitan Hospital from Grand Rapids’ southeast side to a 160-acre parcel that it envisions turning into a “health care village” along the South Beltline freeway that would include a myriad of complementing health care providers and services.

“We’re very comfortable we’ve put together a very solid plan,” said Jim Childress, Metro’s vice president of marketing and communications.

Proposed in a certificate-of-need filing with the Michigan Department of Community Health is a 208-bed, acute-care hospital that would have all private rooms and provide Metro the space needed to accommodate growing demands for clinical services.

Metro is basing its case for state approval of the relocation on the assertion that its existing hospital is aging, inefficient and obsolete, and an inability to build a new facility on surrounding acreage.

The Alliance for Health, which will evaluate the proposal and issue a recommendation for approval or denial to the Department of Community Health, will hold a public hearing on Metro’s plans late this month or in early October, President Lody Zwarensteyn said.

Metro anticipates approval from the state by the end of the year with construction beginning in August 2003. Occupancy is targeted for June 2006.

Financing for the new suburban campus, an idea Metro first unveiled publicly 18 months ago, would come from several source.

The primary method is the sale of $79.3 million in tax-exempt bonds through the Michigan State Hospital Financing Authority. Metro would pay off the bonds over a 30-year period at 6 percent interest.

Another $30 million would come from the sale of “non-core assets” that include the remaining acreage of the 160-acre parcel not used for a new hospital, as well as seven health plazas Metro has developed around Kent County over the years. The idea is to sell the heath plazas and take the equity, and then operate them under a lease agreement with the new owner, Childress said.

The remaining capital would come from $20 million in cash from ongoing operations and a $5 million future fund-raising campaign.

Absent from the financing equation is the sale of the existing hospital facility on Boston Street SE, which executives earlier indicated could generate $12 million to help pay for a new hospital. Metro still intends to sell the facility with the goal of having the site redeveloped for residential uses.

The filing of the CON application comes after Metro spent more than a year in a sometimes contentious process of securing a change in state rules governing hospital relocations.

A compromise rule change reached last spring and drafted specifically to accommodate Metro will allow the hospital’s relocation 7.4 miles from its existing site to the new campus. The temporary rule change sunsets at the end of the year, at which time the relocation standards for hospitals revert back to no more than two miles from an existing site.

Metro executives contend the new suburban hospital campus is needed to enable the health system to effectively compete in a local health care market that’s dominated by Spectrum Health and increase capacity to meet growing service demands well into the future.

Metro’s projections foresee steady growth in inpatient admissions, outpatient procedures and emergency room visits well into the future. Outpatient volumes, after more than doubling since the mid-1990s, are projected to grow by 9 percent annually from 2004 to 2008 and then by 5 percent a year in subsequent years.

Executives conservatively estimate a new facility would generate $5 million in operating efficiencies, plus an undetermined amount by changing numerous procedures and processes that will enable hospital staff to work more efficiently, Chief Financial Officer Bob Smedes said.

“That will produce even more savings, we think,” Smedes said.

The new hospital represents just the first phase of development at the Byron Center Avenue site. Metro envisions forging partnerships to create a “health care village” that would include amenities such as physician offices, wellness and fitness centers and pharmacies, as well as commercial and retail uses.

While Metro has yet to sign any partnerships for the village, “we have some very interesting possibilities,” Childress said.

“The kind of reaction we’ve gotten has suggested we’re on the right track,” he said.    

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