A specter haunting health care
West Michigan is a prime area for mergers/acquisitions as health care faces reform.
Metro Health is seeking a partner. Trinity Health, which owns major hospitals in West Michigan including Saint Mary’s, announces a huge multi-state merger with another large Catholic hospital system. McLaren Health Care, one of the fastest growing systems in eastern Michigan, is interested in West Michigan. Spectrum Health System keeps expanding, both in services and territory.
One expert on the business economics of health care says just the “specter” of the changes coming under the federal Patient Protection and Affordable Care Act is one factor behind the reshuffling.
At Metro Health, the board said in an announcement last week that it wants to find a “strategic partner” because the changing health care landscape, accelerated by the PPACA, “has presented numerous opportunities for growth for Metro Health. Additional capital will assist Metro Health in seizing these opportunities.”
“Make no mistake, Metro is not for sale,” said Mike Faas, president and CEO of Metro Health, in a prepared statement. However, Faas said in an interview that the Metro Health board is “looking at every opportunity, from joint ventures to partial ownership to the possibility of acquisition.”
But the PPACA signed into law by President Obama in March 2010 is not the sole driving force behind the reorganizations in health care, according to two health care experts from Grand Rapids: Michael La Penna of the La Penna Group consultants, and Lody Zwarensteyn, president of the nonprofit Alliance For Health.
“It’s not driving all of it, but it is a factor,” said Zwarensteyn. “Increasingly, organizations are going to be responsible for having high-quality care and low cost, and in order to do that, there is some strength in numbers, and you can get economies of scale. So, many organizations are considering if they can stand alone or not.”
The PPACA introduced the concept of accountable care organizations, entities that adhere to the standards set by the government for acceptable quality, pricing and accessibility to all. ACOs that meet with government approval will be better positioned to receive government contracts to care for Medicare and Medicaid patients, and employers exasperated with spiraling health care costs will be more interested in ACOs, too.
“The federal government’s point is that health care costs have been uncontrollable,” said Zwarensteyn, so the ACO concept will offer incentives “for higher quality care, better pricing, better value.”
ACOs are starting to form around the nation, and a couple have formed in southeast Michigan including Michigan Pioneer ACO, anchored by Detroit Medical Center and more than 200 physicians who provide services to Medicare patients there.
None have formed in West Michigan yet, but La Penna said he thinks there will probably be one or two covering this area. He said it is no secret in the industry that McLaren officials have been in Grand Rapids recently at several “high level meetings,” although he had no involvement in those.
“As an independent hospital, Metro Health is very much a standout, so they’re going to have a lot of very aggressive suitors,” said La Penna.
The best opportunities in Michigan for mergers and acquisitions to strengthen a health care organization is in West Michigan, he said. “It’s not Detroit, Flint, Lansing, Kalamazoo. It’s West Michigan.”
Faas said the board will be looking at “a series of three to four” potential partners over the next few months, and he confirmed that McLaren Health Care was in consideration.
“One of the things that is attractive about them is they are the largest provider of osteopathic medical education in the state. They are someone that would certainly move to strengthen Metro, not weaken it, because they have no other competitor in the market, and they certainly have a very strong financial position. Those are pluses.”
The McLaren system includes 10 hospitals and scores of other medical facilities in 54 counties in eastern and northeastern Michigan. According to its website, it is a $4.2 billion organization with a sustained revenue growth rate of 20 percent a year for nearly 20 years. It has 16,000 employees and more than 10,000 network physicians, and it also has a wholly owned medical malpractice insurance company.
Metro Health, which opened its new 208-bed, $165 million facility in Wyoming in 2007, is an osteopathic teaching hospital and the smallest of the three acute care hospitals in Grand Rapids.
In the announcement, Doyle Hayes, chairman of the Metro Health board, said the organization’s “cash position is the best it’s been in years and our partnerships with other health care institutions have proven to be beneficial endeavors. This is the next step in our work.”
“One issue is the depth of our financial resources. If we’re going to do everything we should do then we’re going to need a capital partner to get there,” said Faas.
Another issue is very apparent with the Affordable Care Act, said Faas, in that “scale, or size,” or a hospital being essential “to the market is going to be a driving force. And we’re always going to be a hospital in Kent County that’s not the largest.”
The largest is Spectrum Health System, with nine hospitals, 183 service sites, two physician groups with more than 700 providers, an HMO with 600,000 members.
Metro Health wants to “craft choice,” said Faas. “Make sure there’s always choice, that there isn’t just one player in a market for any service.”
Metro has already been building new partnerships. In 2008, it opened a cancer center in partnership with the University of Michigan Health System. Two years later, Metro Health partnered with the University of Michigan Health System and Trinity Health-West Michigan to form the Pennant Health Alliance, which shares some support services.