Hackley-Spectrum Split Is 'Amiable'

December 27, 2004
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MUSKEGON — The pending dissolution of a four-year-old affiliation with Spectrum Health stems largely from Hackley Health’s desire to remain independent rather than become a full subsidiary of the Grand Rapids health system.

In the last year, the nine-hospital Spectrum Health system has been restructuring into a corporate parent for all its affiliates and subsidiaries in order to streamline the structure and better connect all parties, internal controls and governing boards.

That process left Hackley Health, which affiliated with Spectrum Health in January 2001 through a unique arrangement that stopped just short of an outright asset merger, pondering Spectrum Health’s offer to take the next step and become a wholly-owned subsidiary as other health systems and hospitals have done — most recently United Memorial Health in Greenville.

After a careful review, Hackley Heath directors passed on the offer and decided that the Muskegon health system should remain independent.

“For the moment, that seems like the right thing to do,” Hackley Health Chief Executive Officer Gordon Mudler said. “It worked well and Spectrum is great to work with, but the affiliation model is not the model they had put together for their entire organization.”

The affiliation was forged four years ago with the thinking that Hackley Health might eventually take the next step and merge with Spectrum Health, a move Mudler says would have been the “natural evolution” of their ties.

While becoming a wholly owned part of the Spectrum Health system wasn’t the right move right now, Mudler personally doesn’t discount the possibility of exploring the move again in the future.

“Who knows what the future holds?” he said. “It’s always difficult to predict the future, but do I see it as a possibility? Yes.”

The formal affiliation ends Dec. 31 in what both sides describe as an amiable parting. The two health systems will continue to collaborate when possible.

“We’re still going to be looking to do things and vice versa,” Spectrum Health President and Chief Executive Officer Rick Breon said.

Should Hackley Health directors ever reconsider their decision, the offer to become a wholly owned subsidiary remains on the table, Breon said.

“Absolutely. The door is still open for them,” he said. “Any organization that wants to have that discussion, we’re willing to listen to them.”

Under the affiliation agreement, Hackley Health maintained a local board of directors and level of autonomy, even negotiating its own participating agreements with insurers and managed-care companies, although Spectrum Health had approval over Hackley’s annual operating budget and appointment of directors. Spectrum Health also held two seats on Hackley Health’s board of directors, and Hackley had two positions on the Spectrum corporate board.

The affiliation came about when Hackley Health sought to partner with another hospital or health system to leverage their collective bargaining power to generate savings when purchasing medical supplies and equipment.

The formation a year and a half ago of a regional network of hospitals in western Michigan, led by Spectrum Health, essentially eliminated from the equation a key rationale for the affiliation.

Hackley Health will remain a member of the Spectrum Health Regional Hospital Network, the coalition consisting of 13 independent community hospitals and seven Spectrum Health-owned entities that in the last year and a half has saved participants a collective $2.3 million through group purchasing.

“It’s getting us the benefits of retaining something larger while retaining some level of independence,” Mudler said.

The affiliation provided Hackley Health a pipeline to tap Spectrum Health’s expertise in an array of administrative functions, Mudler said.

The Hackley Health system includes two hospitals, Hackley Hospital in Muskegon and Hackley Lakeshore Hospital in Shelby, a primary care network of 40 physicians, home care and hospice arms, outpatient behavioral health services and a number of related health-care businesses. The health system recorded revenues of $188.4 million in its most recent fiscal year, with an operating income of $4.5 million, and it employs about 2,200 people.

The end of the affiliation with Spectrum Health will not affect patient services or Hackley Health’s existing participating agreements with health insurers and managed-care companies.    

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