Health Care

Metro Health changes prompt concerns

November 21, 2014
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A member of the Michigan Certificate of Need Commission has expressed his concerns as a member of the community regarding the potential merger of Metro Health and the Tennessee-based Community Health System.

Robert L. Hughes, employee benefits specialist at Advantage Benefits Group and member of the Michigan CON Commission, said, in his personal opinion, based on the executive changes at Metro Health, there is an uncertainty about who will be making decisions about the direction of the organization if the merger happens.

“Obviously, this merger has been in play for a long time. If it is going to happen, either way, that doesn’t bode well for local control. Any time there is a merger, people are going to lose their jobs,” said Hughes. “To see that many people go that quickly … you wonder what kind of local control there will be.”

Another point of concern Hughes mentioned refers to the possibility of Metro Health becoming a for-profit hospital under the affiliation with CHS and what the model will look like as the first for-profit hospital in the area.

“It isn’t going to give them any more leverage with negotiating with Blue Cross Blue Shield of Michigan and Priority Health,” said Hughes in reference to CHS being based outside of Michigan. “I worry about the impact on the local control, but I also realize Metro had to do something to compete with Spectrum.”

Upon completing the remaining due diligence process, the proposal between Metro Health and CHS is subject to review by Michigan Attorney General Bill Schuette, based on common law and statutory authority protecting charitable assets based in Michigan.

On Feb. 20, Metro Health hosted a Grand Valley Metropolitan Council meeting, and Mike Faas, president and CEO at Metro Health, noted the equity partnership would grant CHS 70 to 80 percent ownership of Metro Health.

The agreement also included a balanced board of 50 percent existing Metro board members and 50 percent CHS members, which would grant “the community ongoing tremendous say-so of future direction,” Faas said back in February.

The 208-bed, acute-care hospital at 5900 Byron Center Ave., Wyoming, recently made structural changes at senior leadership levels. Amidst the continued effort on behalf of Metro Health to work toward an affiliation with CHS, a memo was sent to area media in which Faas indicated the organization made those changes due to the potential merger. The memo also indicated several members either resigned or their positions were eliminated.

A copy of a second memo from Faas addressing Metro Health medical staff, dated Nov. 10, indicated the newly formed management structure is “more flexible and more empowering for managers and supervisors” and creates increased alignment between Metro and CHS. The memo also indicated that issues with senior management “manifested themselves,” and the positions are once again staffed by Metro Health professionals, on an interim basis.

Other information indicated eight executive positions were terminated or resigned, including: chief operating officer, chief financial officer, vice president of human resources, chief nursing officer, chief medical officer, vice president of ancillary services, vice president of risk management, and vice president of practice management. The leaked information noted only three executives were terminated, while the rest resigned with severance approval.

In response to the inquiry regarding possible changes and continued work toward a strategic partnership, Ellen Bristol, spokesperson for the health system, said in a written statement the organization is continuing to work with CHS toward an affiliation and is not aware of any issues preventing the partnership.

“We are working to position ourselves for an affiliation that will benefit our community, our patients and our dedicated team. As such, we have done some restructuring at senior leadership levels, and consequently, we received resignations from some individuals,” said Bristol. “This is not uncommon when affiliations like this occur and, as an organization, Metro Health was prepared for these management transitions.”

Metro Health also made changes to its board structure in 2011 with the decision to split its 18-member board into two separate entities, which would allow the hospital board to provide oversight of daily operations, and the Metropolitan Health Corp. board would lead the parent corporation, including the physician group and Pennant Health Alliance collaborations.

Metro Health Hospital board member appointments included: Jacqueline Scott, chair; Jane Ross, vice chair; David Rodriguez, secretary; Michael Price, treasurer; and Faas. Metropolitan Health Corp. board representatives included: Doyle Hayes, chair; Steve Van Andel, vice chair; Jacqueline Scott, secretary; David Ondersma, treasurer; and Faas.

The Grand Rapids Business Journal attempted to reach Faas, but was told he was not available. The Business Journal also attempted to reach members affiliated with Metro Health boards, including Hayes, Scott and Van Andel. Hayes and Scott deferred inquiries to the Metro Health spokesperson.

“In order to protect individuals’ privacy and out of respect, we do not customarily comment on personnel issues,” said Bristol in the written statement. “The organizational changes in no way impact patient care, and Metro Health is positioned for a smooth and positive transition with CHS. We have a strong, competent leadership team supported by talented and seasoned employees.”

The health system originally announced actively searching for a strategic partner in 2012, and in September 2013, Metro Health proposed a potential joint venture with the Tennessee-based Community Health Systems and has been working to complete a due diligence process and position itself toward an affiliation.

With roots tracing back to 1942 and an original location within the city of Grand Rapids at 1919 Boston St. SE, the former Metropolitan Hospital became known as Metro Health Hospital in October 2005 in anticipation of opening its suburban Wyoming health care campus in 2007.

The 7.4 mile move from Boston Street to Wyoming prompted a temporary rule change with the state Certificate of Need Commission to allow the hospital exemption from the typical relocation standard of no more than two miles from an existing site. The decision to relocate the hospital was prompted by an inefficient and aging facility and the inability to build a new facility in the surrounding area.

At one point in time, the hospital board promised to share savings generated by efficiency gains with the community, but ultimately determined it would need the increased operating margins to secure the capital for the project, according to a Business Journal report Nov. 25, 2002.

Originally estimated to cost roughly $141 million to build, Metro Health partnered with Granger Group to construct a LEED-certified, 208-bed hospital on 180 acres of land, which would eventually become a health care campus. The two organizations acquired the 180-acre campus in a 50/50 partnership and guaranteed the purchase and demolition of the former hospital campus, according to the Granger Group website.

Metro Health’s partnership with Granger Group also included: development of a 62,000-square-foot professional office building with an operating lease requiring no capital investment, and structured a sale/leaseback and purchased five outpatient clinics from the hospital, to infuse $13 million of cash and liquidity for new hospital construction. The overall project cost included $100 million in revolving capital investment, $35 million for land and infrastructure, and an overall $1 billion upon completion of future development.

In the original CON application, Metro Health noted its financing plan included: the sale of $79.3 million in tax-exempt bonds through the Michigan State Hospital Financing Authority to be paid off over a 30-year period; $30 million from the sale of “non-core assets” that incorporated acreage not used for the hospital; and $20 million in cash derived from ongoing operations and $5 million from fundraising.

The CON application also included Metro Health’s anticipation of projected revenue over expenses to grow from $5.4 million during the fiscal year 2002-03, to $21.6 million in the fiscal year 2007-2008.

Taking into account an unforeseen long-term economic recession and slow recovery, Metro Health CFO Tim Susterich filed a Form 990 with the Internal Revenue service in 2013 with a preparer from Plante & Moran PLLC, which noted revenue less expenses for the current year as $7.97 million. Although total revenue increased from $271.9 million in 2012 to $283.9 million in 2013, revenue less expenses was $8.6 million in 2012.

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