Spectrum Health violates merger compact

February 25, 2011
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When the Spectrum Health merger was finally approved to consolidate Butterworth and Blodgett Health systems, both the presiding judge and the Federal Trade Commission ordered that Spectrum adhere to a compact with the community. Hospital leaders pledged to the courts and community that the “new Spectrum Health entity board of directors” would be broadly community based and would insure the compact was upheld. The new entity promised to ensure openness, fairness, cooperation and collaboration with other health providers, hospitals, vendors and insurances, and to allow equal access and financial disclosure.

The Business Journal believes the Spectrum Health board of directors has an obligation to review compact violations and communicate these decisions openly to the community. Should they cower from their responsibility, the Federal Trade Commission and the Department of Justice should intercede to insure the compact is fairly administered and applied.

Since the merger, Spectrum has steadily moved away from its compact. Most recently, metro area senior citizens are caught in a power grab that leaves Spectrum without a Medicare Advantage contract with Blue Cross Blue Shield of Michigan. The victims are senior citizens living on fixed incomes and dependent on the Medicare plans Spectrum is refusing to recognize.

In Michigan, 141 hospitals and 19,000 doctors participate with BCBSM Medicare Advantage PPO. Spectrum participates with only three plans: Priority Health, which Spectrum owns, Blue Care Network Advantage and Molina, which impacts dual eligible parties only. Spectrum’s leadership pledged in the compact that it would insure a level playing field for all health plans. The Business Journal asks: Why are other carriers not recognized, including Aetna, Humana, Cigna and United Health?

No significant financial advantages or disadvantages exist for Spectrum to join a Medicare Advantage PPO. It would receive about the same Medicare payment rate whether in or out of network. The financial disadvantage is to senior citizens, the most vulnerable party, subject to greater co-pay/deductible payments for services at Spectrum. Without a contract, Spectrum can charge whatever amount it chooses.

Spectrum Health is a “gift” to the community by community leaders who merged the two institutions, and its trustees should be responsible and held accountable to the community for any actions it undertakes. Spectrum has been allowed many specialty services by the state that are either monopolies or near-monopolies, and these allow it to exert undue influence and control over the market and market prices. Recent examples of this influence have appeared on the pages of the Business Journal: Spectrum’s decision to add expensive rehabilitation services, duplicating services offered for more than 100 years by Mary Free Bed; and Metro Health Hospital’s experience with Spectrum’s monopoly that prevented Metro from providing open heart surgery and angioplasty specialties.

This latest confrontation pitting Spectrum versus the Blues is evidence that Spectrum is exerting monopolistic power and should be investigated by either the FTC or DOJ.

During merger discussions, Spectrum was asked by regulatory attorneys to divest itself of its Priority Health subsidiary, citing a conflict of interest. Spectrum answered the Priority subsidiary was necessary to counter the BCBSM strategy of using profits from its West Michigan customer base to subsidize East Michigan customers. So it was argued that Priority Health was needed to allow Spectrum to keep profits in West Michigan in order to keep rates low for West Michigan employers. Priority, however, is pursuing the identical strategy to the detriment of employers such as Steelcase, Bissell and others who had to lay-off employees due to skyrocketing benefit costs. Had those “profits” remained in West Michigan, it is clear health insurance rates for West Michigan employers — and employees — would be lower.

Spectrum is artificially building its Priority Health subsidiary by using income from West Michigan employers to expand into southeast Michigan. This also has the appearance of being a “power” move directed against BCBSM, and is being funded in part by income from West Michigan to subsidize the projected higher rates in southeast Michigan.

The Business Journal advocates that Spectrum Health trustees publicly account for these decisions. Spectrum’s compact with the community under court order specified trustees would represent the community and its best interest, not that of hired Spectrum managers.

That was the promise, and the Business Journal believes promises are to be kept in this community.

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