Hospital Merger Advances

November 16, 2007
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MUSKEGON — The Federal Trade Commission’s decision to allow the merger of Mercy General and Hackley hospitals to proceed is a reflection of strong community backing for the proposal, their lawyer said last week.

“There’s very strong support through every element of the community for this transaction,” said David Ettinger of Honigman Miller Schwartz & Cohn in Detroit. “The FTC’s role is to protect the community, and the community felt it would be much better off with a merged hospital.”

Muskegon’s two nonprofit hospitals announced in September that they were embarking on a plan to merge.

The FTC, which unsuccessfully challenged the merger of Butterworth and Blodgett hospitals in Grand Rapids in 1997 and successfully intervened to halt a merger in Port Huron in 1995, does not comment about hospital merger applications. Under the Hart-Scott-Rondino Act, the agency did not act in the 30 days following the Muskegon hospitals’ application. FTC spokesman Mitch Katz said the silence means that a review “didn’t find any competitive problems.”

Ettinger said he believes hospital competition in West Michigan is strong.

“These hospitals compete in a broad regional market,” he said. “They depend on patients from OttawaCounty, in Newaygo and so on. They face competition in that regional market from a lot of hospitals, including Spectrum.

“If you’re looking at, will there be competition after the transaction, there will be lots of competition.”

Grand Rapids-based health care consultant Michael LaPenna said he believes the Muskegon hospitals must merge to survive.

“Those hospitals in Muskegon need to be a bigger critical mass to, No. 1, survive, and No. 2, compete,” said LaPenna, principal of The LaPenna Group Inc. “Their competition is really Grand Rapids. It’s not across the street; it’s across the county line.”

Jim Fisher, president of Shoreline Recycling, a division of Holland-based Louis Padnos Iron & Metal Co., said the business community needs a strong, local health care system in MuskegonCounty, which had an estimated 175,231 residents in 2006, according to the U.S. Census Bureau. Fisher was a member of the Unified Health Care Task Force, a group of business and nonprofit leaders, government officials and doctors who met for more than a year to examine ways to bolster health care.

“Our economic development is based on the solid companies in Muskegon today. To make sure we retain them, it’s important … to make a strong, viable health care system,” Fisher said.

Today, medical schools produce more specialists than primary care physicians, partly because specialists make more money. LaPenna noted that under current government and private reimbursement systems, hospitals also make more money in specialty areas such as cancer and heart care.

“The dollars are with specialty care right now, and so if you say we are structured as a primary care, non-specialty hospital, you just told me you are broke. You need cardiac care, oncology and orthopedics to stay in that community if you are going to keep those facilities viable.”

Eagle Alloy Inc. Vice President John Workman said he thinks the merger will allow the hospitals to have “efficiencies of scale” that will produce strong specialty centers. Workman also was a member of the Unified Health Care Task Force.

“For both to have cancer, both to have heart, is not good value,” Workman said. “This way they can focus attention on one unit and give a better product to the community.”

Mercy General was created 10 years ago by another merger. Since 2000, it has been owned by Novi-based Trinity Health, a Catholic system that owns 30 hospitals, including Saint Mary’s Health Care in Grand Rapids, and manages another 15. Mercy General has 230 beds on two campuses. As of June 30, it reported $26 million of revenue over expenses on $239 million of revenue.

HackleyHospital has 181 beds and also operates HackleyLakeshoreHospital in Shelby, which has 24 beds. In 2000, Hackley joined the sphere of Spectrum Health, but dissolved the relationship in 2005. HackleyHospital overcame a $3 million deficit in fiscal 2006 to post $1.6 million in the black, with revenue at $231 million, in the 2007 fiscal year that ended in June.

Modern Healthcare reported that Moody’s Investors Service in March “downgraded Hackley’s rating on $18.6 million in debt to Baa2 with a negative outlook.”

Muskegon Mercy General spokeswoman Kelly Kurburski said due diligence is proceeding, with the proposal expected to go before the boards of Mercy General, Hackley and Trinity Health in the first quarter of 2008.

Still, Fisher said it’s not all about the dollars.

“I think from a business owners’ standpoint, the ability to have one efficient hospital will help to stem the tide of the costs, but I think this is an issue of service more than anything else,” Fisher said. “Right now, our people get good care. We need to think in the long term. But in the short term, we don’t want to lose anything because one or another of the hospitals ends up being in serious financial trouble.”    

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