Spectrums Job Engine Chugs Along

June 8, 2007
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GRAND RAPIDS — Grand Rapids’ largest employer, Spectrum Health, expects to fuel the local market with 500 new health care jobs and continue to drive commercial construction jobs with a higher-than-normal plan for capital expenditures in fiscal 2008.

But Spectrum Health CFO Mike Freed warned at last week’s annual public meeting that health care’s decade-long construction binge in Grand Rapids will eventually wind down.

“It’s not going to go on forever,” Freed said. “It may seem like it, driving down Michigan (Street), but it won’t go on forever. This is a period of time that we’ve planned for. And we’ve expected that next year (2009) won’t look like this.”

Freed said that the system plans to carry a capital budget of $262 million for 2008. That’s about $100 million more than a typical year, and more than is typical for other U.S. health systems with double-A bond ratings, he said.

“It is predominately in two places, and they’re those two big places outside the front door,” Freed said. “So you’re looking at the Helen DeVos Children’s Hospital construction going on on one side and, of course, the Lemmen-Holton Cancer Pavilion going in on the other side. That’s really the main difference.”

Between private companies, hospitals, the Van Andel Institute and the MichiganStateUniversity medical school, health care construction on the

Michigan Street
hill alone is expected to top $1 billion in the first decade of the 21st century.

Investment by KentCounty’s hospitals amounts to more than $800 million. Spectrum Health’s $78 million outpatient cancer treatment facility is expected to open in 2008, and the $250 million DeVos Children’s Hospital in 2010. This year also marks completion of Metro Health’s new $165 million hospital in Wyoming. In 2008, Saint Mary’s Health Care’s $60 million HauensteinCenter, an outpatient and inpatient facility for neurological disease, is expected to open, three years after the Trinity Health-owned hospital unveiled the $46 million LacksCancerCenter

John Doherty, president and CEO of Associated Builders & Contractors, said he thinks

Michigan Street
’s Medical Mile will carry large contractors through 2010.

“What the construction industry is looking for is other things that may be spin-offs related to those projects going on, either after that period of time or incidentally,” Doherty said.

“We’re anticipating a good market, but not necessarily an overheated one, for the next two to three years. We’re hoping that the added economic activity as a result of these facilities will create demand for more restaurants, more schools, more entertainment, more retail.”

At the same time that the big contractors have benefited from health care construction, small- and medium-sized firms have been scrambling to land enough jobs in out-county areas, Doherty said.

“A lot of smaller and medium-size companies are having a hard time finding enough work outside of where we see the big cranes going on,” he added. “I think the picture is somewhat skewed by the work downtown. It is not necessarily what we would consider a boom economy for construction as much as a very good market for the larger firms.”

In the meantime, Freed said the number of Spectrum Health patients is increasing, and he expects that Spectrum will need to add 500 employees system-wide in fiscal 2008, bringing total employment to 11,361 full-time equivalents. Some 460 new jobs are slated for the two Grand Rapids hospital campuses, which are projected to employ 8,233 by the end of this month, and 8,691 by the end of June 2008.

Anette Estrada, chair of the Finance Advisory Committee that oversees Spectrum Health’s adherence to the consent decree that allowed the 1997 merger between Butterworth Hospital and Blodgett Memorial Medical Center, said the system expects to spend $6.1 million on programs for the underserved for fiscal 2007. The consent decree committed Spectrum to spend $6 million annually on such programs, which primarily supports the Healthier Communities program.

Freed said Spectrum Health Grand Rapids expects payments from insurance companies, government programs and self-paying customers to rise 4.4 percent overall. That increase is fueled by a 7.25 percent average price hike set to go into effect July 1.

Freed attributed nearly 4 percent of that price hike to charging payers more to cover the gap between Spectrum’s costs and payments from the government programs for the elderly and the poor.

“One of the big concerns that we have next year is our Medicare and Medicaid losses will grow to $110 million,” Freed said. “Keep in mind that at the time of the merger, these losses were zero. So this $110 million tax on West Michigan has developed in the last 10 years.”

Consolidated income, at $2.7 billion, is expected to grow 16.4 percent, thanks to growth in membership at Spectrum-owned health plan Priority Health, which is expanding into Southeast Michigan; an average 6.5 percent increase in insurance prices; and the hospital price hikes.

Expenses across the board, estimated at $2.6 billion, include $268 million in additional claims from Priority Health’s bigger membership base; $64 million in salary and benefit increases; $53 million in additional supplies; and $12 million in miscellaneous spending, such as bad debt, depreciation and interest. Expenses are expected to be 17.7 percent higher in 2008 than in 2007.

The total system margin is expected to slip from 4.8 percent, as estimated for the 2007 fiscal year ending June 30, to 3.4 percent for 2008. Freed noted that is below the upper quartile margin for similar U.S. health systems as set by Moody’s and Standard & Poor’s, which currently is 7.5 percent.

Ten years after ButterworthHospital and BlodgettMemorialMedicalCenter merged to form Spectrum Health, three conditions remain in force from the consent decree: the margin threshold; $6 million set aside for the underserved; and an open budget and pricing process. A meeting is set for Thursday at Spectrum Health Healthier Communities,

320 Michigan St. NE
, to examine the budget for the underserved.

“This is our 10th year, and I think the health care landscape in Grand Rapids and West Michigan has changed quite a bit in these last 10 years, to say the least — I think for the better,” Spectrum Health CEO Richard Breon said.     

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