Small hospitals seek safe financial harbor to survive

June 27, 2009
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The national recession has exacerbated financial troubles, particularly for stand-alone community hospitals, and consolidation in Michigan is far from over, Spectrum Health President & CEO Rick Breon said last week.

Breon said hospitals such as Gerber Memorial Health Services will continue to seek shelter from larger organizations.

Spectrum and Gerber announced last week that they have signed a letter of intent to explore affiliation over the next year. It’s the third such agreement Spectrum Health has announced in 2009.

“You’ve got to remember that we’ve said no to more than we’ve said yes to,” Breon said, adding Spectrum turned down an affiliation proposed by a hospital in Southeast Michigan. “Those ones we’ve said no to have taken up with other organizations. This isn’t just a Spectrum Health play.

“Consolidations are by no means over in this state, not even close. I think the real push to do it hasn’t even arrived yet.”

Gerber belongs to the Spectrum Health Regional Hospital Network, which pools purchasing power and shares best practices for quality, patient safety and other topics. Members include 15 community hospitals as well as seven Spectrum Health hospitals. GMHS also is a member of the Helen DeVos Children’s Hospital Partners in Children’s Health.

In addition to the 77-bed Gerber Memorial Hospital in Fremont, GMHS includes Continu-Care Home Health, clinics in Hesperia and Grant, Main Street Internal Medicine & Pediatrics, Women’s Health Services, three rehabilitation and Life Wellness locations and a clinic for cancer and diabetes treatment as well as occupational medicine, Executive Director of Marketing and Development Sandy Siegel said.

The organization lost $2 million in the last fiscal year, $1.4 million of that on care delivery, Siegel said. Most of the loss is tied to charity care and bad debt, she said, noting that GMHS has a higher-than-average Medicare and Medicaid caseload at 70 percent.

GMHS, which has about 500 employees, has been tightening its budget and recently closed an inpatient behavioral health unit. She said Gerber officials previously had discussions with Mercy Health Partners in Muskegon, but those did not move forward.

“Within the last couple of years, some conversations started (with Spectrum Health) and there was a visit to United Memorial at Greenville,” Siegel said. “Anything and everything is on the table. We really don’t know where we’re going to go. That’s the purpose of the letter of intent. It gives us time, both Spectrum Health and Gerber Memorial, to have a deeper conversation to explore and discover everything we want to know about the other.”

MHA Executive Vice President Brian Peters said explosive growth in Medicaid rolls, from less than 1 million to 1.7 million over six years, is stressing hospitals across the state, which has seen unemployment hit 14 percent.

“It was a Southeast Michigan concern. Now it’s a concern literally everywhere in the state,” Peters said. “We see small hospitals that typically in their history didn’t have much Medicaid now have a substantial share of Medicaid business. It’s directly impacting their financial solvency.”

With bad debt and charity care piling up as well, smaller hospitals are having a hard time keeping their bottom lines above water, he said. Hospitals also are seeing an increase in the number of insured people facing higher co-pays and deductibles who are walking away from their bills.

Larger hospital systems with a variety of services, such as long-term and skilled nursing facilities and multi-specialty practices, and a variety of income sources are better positioned financially, Peters said.

Smaller hospitals also have difficulty with producing quality and patient safety data that is becoming increasingly demanded by the government and insurance payers, he added.

And there are economies of scale for larger systems, such as being able to tap into group purchasing and credit for purchasing new medical equipment, he said.

Peters said the trends are occurring across the country.

The freezing of the credit markets since last fall’s meltdown has been hard on community hospitals, Breon added. “I think that is one of the driving forces — the economic conditions and drying up of the ability to get capital, the credit line. It’s very difficult,” Breon said.

“I do think if you’re a stand-alone institution out there, you’re evaluating it,” he added. “You may decide not to do it, but I almost guarantee you that they’re having the discussions, because everyone is. Every institution and community has to make up their own mind — what they want to do and when they want to do it.”

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