Metro Detroit’s large, nonprofit hospitals get an infusion of private sector competition
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•St. Joseph Mercy Health System in Ann Arbor, a subsidiary of Trinity Health in Novi, opened a $294-million patient care tower in Ann Arbor in May and has another $161 million in projects under way, including a $43 million surgery center in Canton, a $60 million renovation to Chelsea Community Hospital, and a new diagnostic imaging center, and a new emergency department.
•The largest expansion of all is under way at the University of Michigan Health System, with 3 million square feet of new clinical and research space, including a new hospital for children and women, a cardiovascular center, a depression center, and an eight-story addition to the Kellogg Eye Center.
And those aren’t the only items on the drawing board at U-M. The medical center is exploring new ways to expand its presence outside the region over the next five years. “Future investments will really be throughout the state. We’re talking across the board,” says Ora Hirsch Pescovitz, CEO of U-M Health System and executive vice president for medical affairs. “It could span from partnership relationships with physician groups, to joint ventures, to, potentially, facilities. One shift in our thinking is that we have been more Ann Arbor-centric in the past than we will be in the future. It’s a more collaborative, flexible model of expansion.”
•To the north, Flint-based McLaren Health Care has aggressively expanded into the southeast Michigan market. In 2006, McLaren acquired Mount Clemens Regional Medical Center and, nearly one year later, the POH Regional Medical Center in Pontiac.
McLaren also built a large medical campus in Independence Township in northern Oakland County, including a 135,000-square-foot medical office building and a 42,000-square-foot cancer center costing around $350 million. Future plans call for a 200-bed hospital — something that would require state approval or a legislative exemption.
Other hospital groups are busily developing cancer centers and medical office buildings, and upgrading aging patient towers and other facilities. There’s little choice, analysts say.
With an aging population, a flattened economy, and a wave of national health care reform that will hit by 2014, “Incrementalism isn’t going to get you there,” says Henry Ford Health COO Robert Riney.
In the recent past, as the region’s uninsured population grew, hospitals streamlined operations and cut waste with lean programs borrowed from automakers. They also tightened spending and boosted quality. But the challenges now confronting hospitals require a different take.
At least part of the promise of health care reform was that, by 2014, hundreds of thousands of new patients in the state would be covered by commercial insurance plans. That should spark demand for health care services that were delayed or never considered by area hospitals.
“Hospitals will be in good shape to benefit, but they have to have invested to keep specialists happy and make themselves attractive to patients,” says Allan Baumgarten, a Minneapolis-based health analyst familiar with the Michigan market.
That’s particularly important in a region where there are no clear market share leaders. In a metro area that’s been shrinking for some time, the eight large health care systems are vying to protect their turf.
According to a recent report on Michigan’s hospitals from Baumgarten, Beaumont Hospitals claims 19.3 percent of the region’s market share, based on inpatient days in 2008 — the latest numbers available. Not far behind is St. John Health, with 17.6 percent; Henry Ford, with 17 percent; and the Detroit Medical Center, with 16.1 percent. Oakwood claimed 11.3 percent; Trinity Health, 6.4 percent; and McLaren, 3.7 percent; with 8.6 percent going to independent community hospitals and other systems. Not included in Baumgarten’s analysis are Ann Arbor hospitals.
The DMC-Vanguard arrangement could usher in consolidation as systems try to leverage size to compete, Baumgarten says, pointing to Cleveland as an example of a market that bulked up to two mega-systems in response to the introduction of a for-profit. “In a lot of markets, when you’ve had [the] entry of for-profit systems, the response has been consolidation and system-building,” he says.