Spectrum rehab bid could hurt Mary Free Bed

August 29, 2010
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Spectrum Health’s tentative proposal to open a 30-bed acute inpatient rehabilitation program by July 2011 at Blodgett Hospital could hamper Mary Free Bed Rehabilitation Hospital’s survival, a Mary Free Bed leader said last week.

An internal Spectrum Health business plan, anonymously leaked to the media last week, indicates that simply by retaining the patients it refers to Mary Free Bed today, Spectrum would cut the rehabilitation hospital’s annual volume by more than half, from 929 to 405, based on fiscal year 2009 statistics.

Affiliation talks between Spectrum Health and Mary Free Bed, both nonprofits based in Grand Rapids, are continuing, said Kent Riddle, chairman of the Mary Free Bed hospital board of trustees.

“To tolerate a big drop in referrals would be a real problem,” Riddle said. “I’m not privy to the business plan, so I can’t really speak to that. If we lost those kind of referrals, we would have to totally look to a different service or some kind of a compatible service. We’re a community charity, and we run on slim margins intentionally because we give a lot of charity care.”

Also, eliminating Spectrum Health referrals to Metro Health’s eight-bed inpatient rehabilitation unit would slice annual volume at the Wyoming hospital’s rehabilitation unit from 255 to 153, based on 2009 numbers, according to the Spectrum analysis.

“It’s a business plan,” Spectrum Health spokesman Bruce Rossman said. “These kinds of plans are an important part of the decision-making process when considering any new program. They are usually written well before any decision is made on a project. That’s the case here. No decision has been made. There’s usually many business plans floating around at any given time. Some get a green light and for some the answer is no — they are shelved and never seen again.”

In the most aggressive scenario described in the business plan, the 80-bed Mary Free Bed would close and Metro Health’s program would be pushed to capacity by referrals mainly from Saint Mary’s Health Care.

The business plan surfaced following last month’s revelation in an anonymous memo that the Mary Free Bed Guild, which has owned the rehabilitation hospital for 120 years, was balking at overtures to join Spectrum Health.

Spectrum’s Grand Rapids facilities provided 56.4 percent of Mary Free Bed’s inpatient volume and 40 percent of Metro Health’s volume in fiscal 2009, the plan states.

A timeline included in the business plan shows that Spectrum Health would invest $5.3 million to launch the program, including renovation of 30,000 square feet on Blodgett’s fourth floor, and the work would begin shortly after the inpatient addition at Blodgett opens in October.

No Certificate of Need would be required for Spectrum to implement such a plan, said Lody Zwarensteyn, president of Alliance for Health, a nonprofit which reviews CON applications in West Michigan.

The Spectrum document shows Mary Free Bed with an acute rehabilitation market share of 48.1 percent for the hospital system’s 13-county service area in West Michigan. The market share for Metro Health’s rehab unit was 14.4 percent.

Based on its latest Internal Revenue Service filing, Mary Free Bed revenues for the tax year ending March 31 were $38.2 million, down from $40 million the previous year. It ended the latest tax year with a positive balance of $1 million, and $44.4 million in assets.

Spectrum Health’s budget for the current 2011 fiscal year, which started July 1, anticipates revenues of $3.8 billion. At a June public meeting, Spectrum officials estimated the margin for the 2010 fiscal year at $223 million. The system has 960 beds in Grand Rapids and owns one of the area’s major health insurers, Priority Health.

Spectrum’s business plan argues that inpatient rehabilitation is the health system’s missing link in the four-level continuum of post-acute care. The health system already provides a long-term acute care hospital, skilled nursing and home health services.

Having its own inpatient rehabilitation survey also would allow Spectrum to retain more patients who currently may be referred to skilled nursing or home health services or re-hospitalized outside of the system, the business plan states. Spectrum also would be able to capture revenue from ancillary services, such as lab work, for which Mary Free Bed now primarily utilizes Saint Mary’s.

The document estimates an 8 percent to 9 percent net margin for the proposed rehabilitation unit based on 80 percent occupancy.

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