University of Michigan Health finalizes acquisition of Sparrow Health

• Regulatory hurdles cleared, Lansing-based Sparrow Health is now part of University of Michigan Health
• The change expands U-M’s footprint, while giving Sparrow a much-needed infusion of funds
• The acquisition also gives Sparrow’s health plan room to grow 

University of Michigan Health has formally acquired Lansing-based Sparrow Health System, the latest major hospital consolidation deal in Michigan.

Under the deal, U-M becomes the sole corporate owner of the enlarged health system.

In return, the Ann Arbor-based research and academic powerhouse will invest $800 million in Sparrow, which operates 115 sites — from its flagship E.W. Sparrow Hospital in Lansing and the adjoining, long-term, acute-care Sparrow Speciality Hospital, community hospitals in Carson City, Charlotte, Ionia and St. Johns and smaller doctor’s offices.

Related: 

• U-M hospital system to acquire Sparrow Health in latest Michigan merger
• Michigan hospitals lost 1,700 beds from staff shortages, seek more money
• Beaumont-Spectrum merger: history says higher costs, not better care

Leaders from the two systems announced Monday the final regulatory hurdles had been cleared, and framed the partnership as a historic move for 127-year-old Sparrow Health. Sparrow leaders vowed that Sparrow doctors will remain in their roles and the system will retain its community feel.

Sparrow hospitals will retain 140 governing members of hospital boards for everyday decisions, including appointing physicians to the medical staff. Those board members were retained under the agreement because they are closest to their local communities, John Pirich, chairperson of Sparrow Health System Board, told Bridge Michigan in an interview.

U-M Health “was very, very emphatic that community control at our local hospitals was very, very important,” said Pirich, who said he will remain as chairman of the Sparrow board that oversees the Sparrow hospitals. “The lifeblood of our relationship with our patients is being in their communities.”

That board will grow from 15 to 17 members as it adds two representatives from U-M Health, Pirich said.

The U-M Health board will step in for broader financial matters, Sparrow CEO Jim Dover told Bridge.

Among immediate improvements at Sparrow will be renovations at the neonatal intensive care unit at E.W. Sparrow Hospital in Lansing. Within the first 100 days, Sparrow will expand its capacity to perform reconstructive surgeries for cancer patients, for example, Dover said.

Name change? Soon.

For now, the systems will retain their separate names, according to an online Sparrow Q & A.

But that will change in the “next year or less,” said Sparrow’s Dover, during the Monday news conference.

“University of Michigan Medicine is probably the top recognized and highest regarded brand name in health care across the entire state. Based on the research I've seen in the past, Sparrow is the highest in our region,” Dover said.

“(The) question is, how do we get the best of both worlds? That's still being worked through,” he said.

Doctors, MSU to keep roles

On Monday, Dover confirmed remarks he had made in December that Sparrow’s staff of more than 8,000 will keep their roles. 

Sparrow serves about 400,000 patients, he said, and expects “that number to grow over time, and no patient will lose access to their current physician, except for those (through) normal retirement and turnover,” he said.

Likewise, the leaders say the new agreement won’t immediately impact Michigan State University’s role at Sparrow. Among other services, MSU provides residencies at Sparrow for new doctors.

Shifting sands

The agreement is the latest in a series of moves that have reshaped Michigan’s health care landscape in recent years, including the mega-partnership two years ago between healthcare giants Beaumont Health and Spectrum Health. That partnership makes the newly-named Corewell Health the state’s largest hospital and health system with 22 hospitals and more than 60,000 employees. 

The same year, MidMichigan Health signed an agreement absorbing formerly independent War Memorial Hospital in the Upper Peninsula’s Sault Ste. Marie, making War Memorial the eighth medical center in the MidMichigan Health system.

For Ann Arbor-based U-M Health, the now-cemented acquisition of Sparrow increases its patient population, and expands U-M Health to a $7 billion organization with more than 200 care sites across the state. 

The partnership builds on earlier collaborations, including a 2019 agreement that extended pediatric services to the Sparrow Children’s Center in Lansing.  

Sparrow already had a dominant share of the healthcare market in its five-county region — Ingham, Montcalm, Clinton, Eaton and Ionia counties. The U-M agreement pushes that share north of 60 percent, Dover said Monday.

Both the Federal Trade Commission and the Michigan Attorney General signed off on the agreement earlier this year, said Sparrow’s Pirich.

And patient costs?

Some studies conclude mergers can lead to higher costs and drive down quality of care. In 2021, the nation’s insurance industry called hospital consolidation “one of the main drivers of (increasing) health care costs.”

Dr. Marschall Runge, CEO of Michigan Medicine and executive vice president for medical affairs at the University of Michigan, acknowledged as much in comments Monday.

In some cases, hospital acquisitions and mergers have led to an increase in patient costs.

But U-M Health and Sparrow serve patients in different areas, he said: “We think that we can deliver care less expensively by combining our assets. That is certainly a goal of what we do,” he said.

Dover at Sparrow said being part of the nationally known U-M will help Sparrow recruit doctors nationally, but it also will help in curbing costs through its greater negotiating power.

That pressure, as well as recruitment, is being felt throughout the industry, said Brian Peters, CEO of the Michigan Health & Hospital Association, an industry group.  

“We have hospitals right now in Michigan … that are struggling mightily from a financial perspective. They're struggling with supply chain issues. They're struggling with the workforce,” he said.

Ultimately, smaller hospitals are forced to give up their independence to survive, he said.

In September, Sparrow said budget woes forced the layoffs of hundreds of employees.

“I've heard it said more than once and I really think this summarizes the situation well: ‘We value our independence, but we're not going to ride our independence to our grave,’” Peters said. “The ultimate goal of any organization — whether it's a hospital system or any other entity in the community — is not about maintaining your independence. It's about maintaining your viability.”

Insurance concerns

The Corewell agreement between Beaumont and Spectrum in 2021 repositioned Priority Health, a Grand Rapids-based insurer largely owned by Spectrum, to compete with the insurance giant, Blue Cross Blue Shield of Michigan, in southeast Michigan.

Likewise, the latest partnership expands U-M Health’s minority investment in Sparrow’s health plan, Physicians Health Plan, from 25 to to 90 percent. (The remaining 10 percent is owned by Saginaw-based Covenant HealthCare.)

PHP provides coverage to more than 70,000 members and 300 employers across Michigan and includes a Medicare Advantage plan, but its footprint could grow exponentially now.