Metro Says It Wouldnt Raise Fees

October 21, 2002
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GRAND RAPIDS — Metropolitan Hospital would build a new $141.5 million facility without having to raise fees to help pay for it, as growing patient volumes and vast efficiency gains generate significantly higher margins in the years ahead, executives say.

Efficiency gains resulting from a new facility would outpace regular annual increases in unit costs, helping to push Metro’s annual operating margin from 4.33 percent for the just-completed fiscal year to 8.75 percent in FY 2007-08, according to a consultant’s financial analysis.

In an era where health care pricing is largely established based on reimbursement rates, those kind of efficiency gains and higher margins are needed, Metro Chief Financial Officer Bob Smedes said. Payments from health insurers, HMOs, Medicare and Medicaid will only “increase modestly,” if at all, in the future and probably at less than the rate of inflation, Smedes said.

That requires Metro to design a new hospital that will produce major efficiency gains, Smedes said.

“In other words, Metropolitan will necessarily need to pay for the project from lower costs that produce higher margins, not at the expense of employers, unions and other purchasers,” Smedes said during a public hearing last week on a request to relocate the hospital from Grand Rapids to suburban Wyoming.

“New efficiencies are vital to the survival of Metropolitan Hospital,” he said.

Metro’s application to the state for a certificate of need that’s required to proceed with the project indicates revenues over expenses will grow from $5.4 million during FY 2002-03 to $21.6 million in 2007-08.

The financial implications of the relocation were among the arguments Metro representatives presented in support of the relocation during an Oct. 15 public hearing, hosted by the Alliance for Health.

The Alliance for Health’s CON Evaluation Board will issue a recommendation by the end of November to the state Department of Community Health on whether to approve the project.

The public hearing drew no objections and plenty of support for Metro to relocate to a new 208-bed hospital that would anchor a suburban “health care village” featuring a myriad of complementary health care services. The health system envisions developing the project on 160 acres at Byron Center Avenue and the new M-6 freeway.

Those backing the proposal, echoing the arguments that Metro executives have put forward for months, say the move would improve access to health care in the rapidly-growing southwest portion of Kent County.

All of the four acute-care hospitals now in Kent County are allocated within close proximity of each other in Grand Rapids and East Grand Rapids.

“There’s been a blanket in health care resources that hasn’t covered our area for quite a long time,” said Kevin Green, chairman of the Wyoming-Kentwood Area Chamber of Commerce. “There’s a clear case of broad community support because of the benefits Metro brings.”

Other supporters touted the economic benefits they believe would result in the community from having a large health care complex located in Wyoming.

“This will be a big enhancement to the quality of life,” Wyoming Mayor Douglas Hoekstra Jr. said.

Metro largely bases the need for a new site on the inability to accommodate growing patient volumes at its aging hospital on Boston Avenue SE in Grand Rapids. The 14-acre site is landlocked and provides little room for expansion, Metro representatives say.

Metro’s outpatient volumes grew 76 percent from 1995 to 2000. Emergency room visits grew 75 percent during the period, births increased 45 percent and surgical procedures rose 20 percent.

As it gains market with the new facility, Metro anticipates inpatient admissions growing from 8,439 in its 2002 fiscal year to 9,010 by FY 2007 and 10,132 by 2009. Metro’s emergency room visits also are projected to grow nearly 80 percent between now and 2009, from 36,761 to 66,109 annually.

Representatives have argued that Metro’s very survival depends on securing approval to relocate to a new, far more efficient facility. Doing so would make Metro a much stronger competitor in a market now dominated by Spectrum Health, they say.

“Allowing Metro to move preserves the kind of competition in health care and in managed care our community needs,” said Matt Bissell, a board director at Metro Hospital and the president and CEO of Bissell Graphics Corp.

“It’s time for the Alliance to get on board and really support this exceptional project for our community,” Bissell said.

Metro would finance the new hospital with capital generated from a variety of sources, according to its CON application.

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 health plazas and take the equity, and then operate them under a lease agreement with the new owner.

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

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