Zeeland the latest to hook its star to Spectrum Health

July 12, 2010
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ZEELAND — Zeeland Community Hospital is the latest object of Spectrum Health’s interest. But the 57-bed community hospital in Ottawa County asked for it, President Henry Veenstra said.

Hospital leadership spent nearly a year examining five options for the future — including merging into Spectrum, he said.

“We gave every one of the options fair and equal consideration,” he said. “I think when all is said and done, the opportunity with Spectrum, we felt, was more in line with how this patient base can be served.”

The two nonprofits announced last week that they have signed a non-binding letter of intent, which allows them 120 days to examine each other in more detail prior to making final decision on a merger.

Zeeland is the latest potential addition as Spectrum Health has negotiations pending in Traverse City and Petoskey. Fremont’s Gerber Memorial Hospital joined Spectrum in May. Spectrum already owns the community hospitals in Greenville, Kelsey and Reed City. The health system also manages the county-owned Mecosta County Medical Center in Big Rapids, where merger discussions are now on hold.

A group of business and community leaders in Holland and Zeeland tried to convince the two hospitals to merge, and Holland Hospital expressed interest. But Holland Hospital’s decision last fall to build a primary care doctors’ office in the ZCH neighborhood signaled an end to that concept.

ZCH embarked in August on a review of five options for coping with the rapidly changing health care environment: remain independent; forge an alliance with Holland Hospital and North Ottawa Community Hospital in Grand Haven; join Holland Hospital; join Trinity Health, which owns Mercy Health Partners in Muskegon and Saint Mary’s Health Care in Grand Rapids; or join Spectrum Health.

ZCH issued requests for information from Holland, Spectrum and Trinity, and all three responded.

“At the same time, we held a number of what we called our stakeholder meetings, so we shared the information we had received on the initial request with our employees, with our medical staff, with our retirees, with our donors and our community,” Veenstra said.

The hospital conducted a public meeting, as well, he said, and interviewed four “health care opinion leaders” to gather their reactions.

One of those interviewed was health care consultant Michael LaPenna, principal of The LaPenna Group Inc. based in Grand Rapids.

“In health care right now, there is a tremendous amount of consolidation going on around the country,” LaPenna said.

“Zeeland went through a very thoughtful process and looked at many different options. This was a Zeeland request, rather than Spectrum pitching it. That’s a good way to go about it.”

Health care reform is adding complexity for community hospitals, Veenstra added.

“The health care environment is getting much more complex,” he said. “With health care reform there are a lot of things that will be coming down the pipe. As a community hospital, we don’t necessarily have all the resources to know what we are going to have to do.”

ZCH brings to the table a bottom line that is in the black for the fiscal year that ended Sept. 30, 2009, Veenstra said. With net patient revenue at $45.8 million and total revenue at $46.8 million, the hospital reported a margin of about $1 million, he said.

The 2008 fiscal year ended about $1 million to the negative side, due to costs associated with a new facility on top of sour investment returns as the market and economy sank.

“We really turned it around from 2008,” he said, with a salary freeze and cutting expenses.

ZCH opened a new 114,000-square-foot, $38 million hospital in 2006 and still owes $26 million on the tax-exempt bonds that paid for it, Veenstra said. ZCH also owns the 28,000-square-foot Professional Office Building that is attached to the hospital.

The hospital’s patient mix is about 40 percent Medicare, but patients covered by Medicaid are in the single digits, Veenstra said.

In fiscal 2009, ZCH counted $4.4 million in community benefits, including $1.8 million in bad debt, $625,000 in unreimbursed Medicaid care, $870,000 in unreimbursed Medicare, $400,000 in charity care, and $730,000 in other categories such as in-kind donations and professional education.

In contrast, Spectrum Health expects $3.9 billion in revenue in the 2010 fiscal year that began July 1. About half of that is expected to be generated by the system’s insurer, Priority Health.

“As we look at our service area, the part that kind of blends with the Grand Rapids hospitals is in the Hudsonville-Jenison area,” Veenstra said. “Our referral patterns basically go into Grand Rapids and basically go to Spectrum for the patients that we can’t take care of. As we began to look, it just made more sense that Spectrum has the depth of expertise that we’ll need. … They have a track record, in terms of having community hospitals that are a part of the system, that they have … done their best to retain the culture in those communities, and that really impressed us.”

A Zeeland-Spectrum merger also gives ZCH a “strong partner” by providing direct competition to Holland Hospital as it aims to grow its primary care presences in Zeeland, LaPenna added. ZCH also gains help in recruiting and leadership succession planning, he said.

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