Munson + Spectrum, and the tag-team trend that’s taking over

TRAVERSE CITY – Hospitals across the state and country are increasingly saying "I do" to partnerships with other hospitals as a way to suture widening healthcare costs.

"We do believe this is a trend that's ongoing and likely intensifying in Michigan in the near future," says Brian Peters, executive vice president of operations for the Michigan Hospital Association.

Some 25 years ago, virtually all of the 200-plus hospitals in Michigan were independent, freestanding organizations, Peters said. Today, 100 of the 144 hospitals operating are part of another system either through ownership or a loose affiliation – a movement that's expected to gain momentum.

"Over the next 20 to 30 years, it's highly likely the number of truly independent hospitals will decline," he said.

Both strong and independent not-for-profit systems, Munson Healthcare and Spectrum Health of Grand Rapids last month announced their intentions to integrate. They signed a non-binding letter of intent that gives them the green light to discuss how they might combine resources to create the benefits of a larger health care system, while maintaining their regional delivery-of-care approaches.

"It's not technically a merger – we're still working on the exact nature of the transaction," said Doug Deck, president and CEO of Munson Healthcare. "In a merger, one company goes away, so … it's a partnership, and we're working on the nuances."

During the next few months the hospitals will be doing two things, Deck said: "Due diligence – sharing financial information, looking at each other's books, contracts and any affiliations we might have – and, two, negotiating the final agreement."

The hoped-for deadline of June 1 could change based on how discussions go, he added.

For the Health of It

The Munson Healthcare board, with the help of a Chicago consultant, examined six Michigan systems as potential long-term partners. They "came up with Spectrum as the best partner," Deck said. Both Munson and Spectrum are ranked high on Moody's bond rating scale, and are their region's top employers.

So, if both are so financially fit, why form a partnership now?

A myriad of factors are driving the move toward integration in this case and across the country: the pressure to contain costs, challenges and changes in health care reform, the rising demand for accessible care, and physician recruitment and capital requirements, to name a few.

"If a hospital knows it's going to be faced with construction of a new facility or an expansion, to be part of a larger system gives you access to greater capital," Peters said. "That's significant."

Access to more physicians is no doubt an attractive quality of partnering with Spectrum. Both hospitals already have a good relationship with MSU's College of Human Medicine, and soon Spectrum's allopathic program will be moving to Grand Rapids – a move that could only enhance Munson's recruitment process, Deck said. "By being a part of that with Spectrum we'll have direct access to doctors, and if you have doctors, you have both value and volume. And if you have that, it's also access to capital."

Arlene Brennan, long-time health care consultant and executive director of Traverse Health Clinic, thinks this is the perfect time for the hospitals to be scoping each other out.

"The time to be talking with another entity and to really be looking long-term strategically is when you're in a situation of strength," she said. "And, certainly, Munson is so reputable, it just seems like it would be the appropriate thing to do, in whatever form it might take."

Whatever the outcome, Brennan doesn't expect it to affect Munson's dedication to the clinic.

"I hope the relationship that our organization has had with Munson and all of its subsidiaries would remain strong," she said. "I know of no other hospital in the state that has worked as closely with a county health plan and a free and low-cost clinic to ensure people who meet our criteria receive comprehensive care. The support from Munson and their generosity has been phenomenal."

Employment Outlook

Munson employs more than 6,000 and 655 physicians; Spectrum 16,000 and 1,500 physicians. Do words like

integration, collaboration and partnership spell j-o-b l-o-s-s for employees? Not necessarily, says Peters.

"Health care is a bit unique. In other sectors during an integration, quite often there's elimination of duplicate operations. But in health care, and in particularly in Michigan, we have real shortages in many professional areas, and health care is an economic engine for the state into the future." BN