For-profits gobbling up community hospitals in Michigan

Marquette General Hospital’s history in the Upper Peninsula runs deep.

For more than a century, it has served as a beacon for the sick and the frail, a generous employer, and a stalwart presence in this old mining community.

Yet without much fuss Marquette General was transferred in 2012 to new owners, a for-profit hospital system with headquarters outside of Michigan. Its $100 million debt was cleared and a new chapter begun as a Duke LifePoint hospital. Soon it will have a brand-new building, somewhere in or around Marquette.

Since 2010, nearly a dozen community hospitals in Michigan have done the same, joining larger systems like McLaren Health, Spectrum Health and University of Michigan Health System. Like Marquette General, they faced the same economic pressures: lower Medicaid and Medicare reimbursement rates; billing and quality mandates of the Affordable Care Act; a trend away from inpatient care, and a tougher time accessing money to upgrade infrastructure. But while the hospitals cite greater clout with insurers, studies also warn of the likelihood of rising health-care costs.

For struggling hospitals in communities like Marquette, the new investment these growing for-profit hospital systems are making is a positive, says Brett Jackson, president of the Economic Alliance for Michigan, a statewide labor-business coalition.

“We always keep our eyes open to see what the reaction is and what the consequences will be,” he said. “So far, independent community hospitals that may have once been in danger of closing have been able to be maintained, and have even seen investment in those properties that they otherwise wouldn’t be able to achieve.”

Yet the consolidations don’t sit well with some. The disappearance of independent hospitals, which once represented the noblest aspirations of the community – a barometer of its sophistication and altruism – has some observers worried that bottom-line thinking will affect quality of care, result in a loss of jobs and services, a rise in costs, and indifference to the people who nurtured the hospital for generations. They are correct on at least one point: There is some evidence that hospital consolidation can mean higher health-care costs.

“We do have concerns about the ability of very large corporations, especially for-profit corporations, to interact and respond to the community’s needs in the same way as hospitals in the past have been able to do. The decisions are being made far away,” says Marjorie Mitchell, executive director of the Michigan Universal Health Care Access Network, an organization that promotes comprehensive health care coverage and better health outcomes.

Former U.S. Rep. Bart Stupak, who represented the Upper Peninsula and part of northern Michigan for 18 years, said he wonders how committed Duke LifePoint is to continuing the traditions of MGH, given its outsider status and its profit motive. And he said it troubles him that the hospital may move outside the city, leaving behind a giant husk of an old building.

“All the years taxpayers have supported this hospital, what did they receive in return?” Stupak asked. “I have a bit of a problem with a for-profit taking over a nonprofit and pledging to invest in the community. Will they bring more services, more specialists? I’m not sure those questions were explored. Who spoke for the citizens of Marquette County?”

When Duke LifePoint Healthcare – a joint venture between Tennessee-based LifePoint, with 56 hospitals in 19 states, and the Duke University Health System – applied for a tax status change with the state attorney general’s office, it agreed to set aside at least $15 million for the Marquette General Foundation. The company gave the foundation $23 million, but then broadened its mission to fund health-related projects throughout the U.P., and was renamed the Superior Health Foundation. Stupak finds that unfair.

“That foundation is to benefit health care across the UP, but if I’m a resident who has supported the hospital, why would Iron Mountain be able to access our foundation?” Stupak asked.

He is seemingly among the few skeptics. At a community forum held in Marquette in 2012 to discuss the impending sale of Marquette General, only one person – a local hospital pathologist -- expressed concern about the “monopolistic” intentions of LifePoint; otherwise, there was widespread enthusiasm about the sale.

It’s easy to see why.

For-profit hospital systems can fatten city and county coffers and breathe new life into old, often struggling institutions – even if it’s at the expense of local control and a sense of homegrown responsibility to a community.

Duke LifePoint, for example, promised to bolster the regional hospital with more specialists. And as a for-profit entity, it has generated new revenues for Marquette. Last year, the hospital paid $2.6 million in property taxes. LifePoint also bought two other small U.P. hospitals last year, extending its reach in the U.P. health-care market by establishing new referral bases.

Another example is unfolding in Detroit. Vanguard Health Systems, a Nashville company (later bought by Tenet Healthcare), dramatically increased revenues for the Detroit Medical Center’s eight hospitals in the first two years after purchasing DMC in January 2011. (Vanguard in turn was purchased by Dallas-based Tenet Healthcare Corp. last fall) According to Crain’s Detroit Business, profits rose by $70 million in those years by treating more patients while aggressively cutting costs (and jobs). Vanguard also made large capital improvements, helping to contribute to the rising fortunes of the Midtown Detroit community.

In Detroit, as elsewhere in Michigan, whether this trend is ultimately beneficial to the hospitals and the communities they serve depends on the execution. Are the new regimes caring for patients in a more efficient way, or rushing cases through to churn admissions? Are they cutting administrative bloat, or shortchanging care to squeeze profits?

On the flip side, nonprofits like Flint-based McLaren Health are no less constrained in their acquisitive behavior, and without paying taxes. McLaren has been on a buying spree, continually adding to its stable of hospitals (11 and counting) and other health-care properties (e.g., nursing homes, assisted living facilities) throughout Michigan.

CEO Philip Incarnati said McLaren looks for hospitals along the I-75 and I-69 corridors that have the greatest market share in their respective regions and can benefit from the “scale synergies” and access to capital that McLaren can provide.

Indeed, McLaren’s capital investments are impressive. It plans to spend upwards of $100 million to replace an outdated tower at McLaren Northern Michigan in Petoskey; it invested in physical changes at Cheboygan Memorial Hospital after buying it out of bankruptcy and turning it into an outpatient center, and it plans to build a cancer center and replace an old tower at Port Huron Hospital, one of its recent acquisitions.

Incarnati insists, however, that nonprofits, even large nonprofits, are different. “Nonprofits borrow money no different than for-profits, but at better rates,” Incarnati said. “There’s a difference in terms of who owns you: Our master is the community; in a for-profit, it’s shareholders.”

Unlike for-profits, he said, his company doesn’t sweep out the local hospital board so it can replace it with its own people. “As long as you meet your quality and financial goals, you won’t hear from us,” he said. “It’s a nice blend of local independence, yet with the benefits of larger player.”

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Tue, 03/18/2014 - 9:23am
Do some more digging Julie. It all started with LBJ's "Great Society" Medicare and Medicaid entitlements. The government got involved in healthcare and smart people realized there was now money to be made. Doctors started partnering up, and hospitals started becoming corporations. Slowly but surly retirees from large companies saw their healthcare plans change to supplemental plans because now at 65 Medicare kicked in. Then the supplemental plans finally started going away. Healthcare costs started going up, up, up. And now we have Obamacare. It's just like Milton Friedman said, 'if you put government in charge of the Sahara Desert in five years you'll run out of sand.' Government is NOT the answer, it's the problem.
Jonathan Ramlow
Tue, 03/18/2014 - 2:30pm
Gus, do some more digging yourself. Go to your local library and read books about American health care by Paul Starr and T.R. Reid. Your view is much too narrow and uninformed to be taken seriously. Quoting Milton Friedman in this context is irrelevant. In general, we have no problem entrusting our government with all things military, and we do not seem to be running out of tanks. All other economically advanced countries decided years ago that all citizens deserve good health care and that the way to achieve that end is to have a single-payer system managed by the government. Are their systems perfect? Of course not. But they do manage to achieve better health outcomes at lower costs than we do. In the end it is a moral issue: do all of us deserve good, effective health care, or are there some, perhaps many, of us who do not deserve such benefits. I think I can guess where you would stand on that question, but I'd be happy to find out that I've guessed wrong.
Wed, 03/19/2014 - 10:01am
Jonathan, Spoken like an altruistic socialist. Ah yes, the government is here to serve the people and can do no wrong. Really? See Detroit. See Chicago (following in Detroit's wake). See anything the government runs - postal service, social security, pension plans, etc. It's a wreck...Federal and State. If the US Treasury didn't have a printing press we'd be screwed already (that day is coming anyway when people stop accepting our currency as is already happening in China). The problem Jonathan is the government, period (both sides, btw). The government knows no competition, has no accountability, and unfortunately like anything run by fallable people the government has no moral conscience. People serve themselves, been doing that since Adam and Eve (cue the "crazy right wing evangelist" judgement). The best way to balance quality and cost is simple...competition. Let the marketplace, comprised of smart people/companies, compete on a level playing ground and what happens? Quality goes up and costs go down. Healthcare is no different. The government cannot provide that which it hasn't taken. Medicare, Medicaid, Obamacare...all just a massive redistribution. The sad thing is in the end the people that get hurt the most are the ones the blowhard bureaucrats (aka 'politicians') promise to protect. Although those are often the people that voted them into office so perhaps they're getting what they deserve.
Fri, 03/21/2014 - 9:49am
Jonathan, directing me to read what a couple liberal authors have to say about health care is not boing to broaden my view, and quoting Friedman is not irrelevant. Government does national defense just fine because that is one of it mandates. Our Constitution says nothing about the government providing health care for all citizens. I would suggest that you might want to do some more digging. All those other economically advanced 'social democracies' you speak of are not really doing that great a job of providing health care. Do you know anyone from Canada, for instance, who really likes Canadian health care? Talk to people from Great Britain as well. Or try talking to some Italians. I Italy you have to get to the doctor's office two hours before it opens to get in line to get a number, and then hope that they actually get to your number by the end of the day. And stop reading UN reports. The US is the only country that actually reports accurate, all-inclusive numbers. Other countries report highly sanitized numbers. So the data does not provide a true and accurate comparison of health care stats.
Tue, 03/18/2014 - 10:10am
Gus, How is that we spend more money per person than countries with even more government involvement in healthcare like Canada, Britain, France, Japan, etc. and get worse outcomes? Is American government uniquely bad or do we rely too much on the private sector to fulfill public needs?
Fri, 03/21/2014 - 10:22am
Glen, see my reply to Jonathan, specifically the part about UN stats health care. Our per capita costs for health care are higher for a whole variety of reasons, not the least of which is that so many hospitals in the US today are more like luxury hotels than hospitals. We are the leader in medical technology, we have an aging population, and even 'the poor' in the US suffer from obesity. Medicine used to be 'a calling,' now it is big business. We were doing just fine until the government got involved in health care. Now the federal government is doubling down with Obamacare. Education is another mess. We used to be the benchmark for the civilized world. Then the federal government got involved in education in a big way. Now we are spending three times what we were spending in 1970 on education with zero gains in terms of results. Government is not the solution, it's the problem.
Tue, 03/18/2014 - 10:27am
I agree, Gus. What's the big deal about "not-for-profits"? Especially in Michigan not-for-profit just means they spend most the money they get and call the leftovers "reserves", know in the real world as profit. I've looked at many of the Form 990 tax returns for not-for-profit hospitals, insurance companies, EMS services, etc. They pay themselves extremely well, better than most for profit entities (I know, for profit is a dirty word) and have excess VP's, directors etc. The also don't have to pay several of the taxes the entities just like them DO have to pay. In my mind most all Michigan not-for-profit's are a scam on the taxpayers.
Tue, 03/18/2014 - 11:03am
My mother works as a nurse at what used to be Gratiot Community Hospital (in Alma), but is now called MidMichigan Medical Center -- Gratiot. Gratiot was first purchased by Midland several years ago because its dialysis unit was deservedly famous (and profitable). According to several employees, the takeover was horrible. No one knew if they were going to keep their jobs or not, creating a culture of fear and resentment. Midland eliminated LPN positions as a cost-cutting measure, and hired more RN's to replace them. Anyone can tell you that RN's not only cost more, but they aren't supposed to be doing all the patient care -- that's mostly for LPNs and CNAs. So the patient-to-nurse ratio went WAY up, and to make matters worse, employees were told that they have to consistently have "excellent" ratings on patient survey forms, otherwise they get canned. And now, Gratiot and Midland alike were purchased by the U of M health system, so there's a whole other system of rules that Gratiot employees need to learn. It's a hugely stressful work environment. And it has absolutely NOTHING to do with LBJ's reforms. It's neoliberal economic policies at work -- deregulation has caused this mess, just like it has in education.
Tue, 03/18/2014 - 11:42am
Duke Life Points take over is the absolute worst thing that has happened to the PEOPLE of Marquette. The service went from good to terrible, virtually overnight. The first and most important question when a patient walks through the door; How are you going to be paying for our services? NOT patient care!! The obvious answer to the lack of patient care starts with the employees at MGH. There's not a week that goes by that a group of employees aren't walked out the door, whole departments in some cases. There hasn't been raises given to the employees in 6 or 7 years. Check the inflation rate over that time! Every employee, excluding doctors and RN's have been made to take 1 day, unpaid, per pay period off. The cost of insurance has doubled or tripled in this time. Every thing has become regimented; You must punch in at the exact start time and punch out at the exact end time, you must take a scheduled lunch. You cannot be off by ONE minute, plus or minus, it goes in your file moreless as a write up. If you have ant type of appointment you HAVE TO use vacation time, you cannot make it up, come in early, stay late. Employees used to get longevity bonus, albeit $100 on your ten year, $200 15 years and so on, gone! Turkeys at Christmas, gone! My wifes department has to take out there own garbage and her floor has not been vacuumed in months, do to the "cutbacks". This is a hospital where NO employee is happy nor confident of their job or their enviroment. Thet're building a new hospital "soon" but the painted and recarpeted an area, that most think, didn't need it. Then laid off the employees who did that work!!
Wed, 03/19/2014 - 2:40pm
I agree completely Mark. I am a student nurse at MGH and since the buyout, many of my professors have advised me against ever working at MGH. When I am in clinic- their is always multiple employees complaining of lost days and all of the BS with the lunch breaks that must be taken (and in some cases a nurse really CAN NOT take a break when she must be working discharges, hanging blood, etc that only RNs can do) and patient care is very limited due to this. It is a scary thing, being getting ready to graduate in May and planning on stay in MQT.
chuck gehrke
Tue, 03/18/2014 - 6:34pm
The first and most basic question to be answered in any discussion about the American healthcare system is: Do we, as a nation, have the responsibility to provide equally accessible, available, affordable, high quality healthcare for 100%of our population? Until we answer this question any other discussion is a waste of time, talent and effort. Healthcare dollars should be spent for healthcare not: paying dividends, paying outrageous salaries to executives, building majestic edifices for public wonderment, etc., etc. The for-profit business model has no place in a healthcare system! To pick just one of several misperceptions for comment in the preceding entries - not-for-profit healthcare institutions must provide a significant portion of their services to the underserved and economically disadvantaged, in order to qualify for their tax status as a not-for-profit. For profits have no obligations to provide anything of this type to their community and in fact are known to divert uninsured or underinsured emergency room patients to the not-for-profit hospital in the community.
Wed, 03/19/2014 - 10:06am
Profit, profit, profit for the Corporatocracy while health care declines, declines, declines for the common person and very own U.S. president becomes a central spokesperson for private insurance companies...
Wed, 03/19/2014 - 11:04am
As usual, comments are emotional and personal.
Lightning McQueen
Wed, 03/19/2014 - 3:08pm
Regardless of the Hospitals status (Profit or Not-for-profit) and irrespective of your ability to pay – you cannot be turned away from an Emergency Department when you seek services for a life threatening injury/ illness, childbirth, etc. Furthermore, in the emergency department, you cannot be asked for your insurance information prior to being seen by a physician. Sure, upon entering the ER lobby or when brought in on a stretcher by the ambulance drivers, the hospital representative will ask for your name, birthday, and what illness brings you in so they can start a chart for you. But the actual registration happens (show me your insurance cards) once you have been assigned to a room in the department. The physician is not influenced by the type of insurance you have (or lack thereof) when he/she is treating you for your acute myocardial infarction, hemorrhage, or stubbed toe. Require admission? – Now that’s a different story as some insurances dictate where you are admitted and the services your plan actually covers/approves. Refusing a patient? Once stable, I think it is completely reasonable for the big bad for profit hospital to transfer a patient to another appropriate inpatient facility for admission based on their ability to pay, so long as the receiving hospital can provide the required services (for example, treatment for pneumonia). I am not an elitist… I’m all for the practice myself! If I was underinsured, uninsured, non-working, experiencing financial hardship (whatever the case maybe), I am all for the big bad for-profit hospital sending me out to that non-for-profit PALACE of a hospital in West Bloomfield, MI for my required admission. I hear that poor struggling not-for-profit offers something similar to a hotel concierge service, whereas they will send someone to my house and let my dog outside while I am admitted to the hospital. But, it doesn’t stop there! For my therapy to get stronger, I will take a walk on the outdoor beautifully groomed walking trails, but not before I grab something tasty at one of their amazing restaurants inside the hospital. Later, I will retire to my very nicely appointed private room where the medical staff that has been trained in customer focused care will treat me like a VIP. Those poor, poor not-for profits…. It’s terrible to think they are broke and still able to offer such advancements. How do they do it? Meanwhile, shame on the dirty rotten for-profit facility group in Detroit for streamlining operations, being accountable, improving services, boosting customer satisfaction scores, and for paying the little over looked thing known as TAXES. God knows, the city doesn’t need any more tax revenues. The audacity to think you would ship me to a competitor not-for- profit hospital because I am indigent, uninsured/underinsured, or have no ability to pay for the services you are going to provide me during admission. It seems so unfair (And it seems unlikely too). I just hope those poor broke not-for-profits can afford to care for me (in the voice of Homer Simpson) “the ACA will get me out of this one”. But then again, I look around and see renovations and expansions as these not-for profits are buying up other hospitals, building new towers, and offering fancy services! How do these broke not-for-profit hospitals manage? I suppose the tax break is a contributing factor to their success… oh, and by providing services to me as an indigent is one way they qualify for this tax status…. I see how it works now. When did profit and capitalism become such dirty words in America?
Wed, 03/19/2014 - 4:30pm
I wonder why a perfectly good hospital with a $30 mil new surgery center is still vacant. Henry Ford Health closed the former BiCounty Hospital in Warren in 2012 and there it sits unused and the locals have to travel 3 + miles to go to an emergency room.
Thu, 03/20/2014 - 9:48am
Thank you, Lightning McQueen and Joe! My sentiments exactly. Not-for-Profit is a scam.
Mon, 03/24/2014 - 10:48am
I'm interested in a completely different aspect of these sales - the conversion foundation that is established as part of the deal. Too often, these become nothing more than anohter way to fill the coffers of the now for-profit hospital. For example, paying for indigent medical care. These foundations should serve a wider community interest and health should be defined much more broadly than medicine and medical care. The California Endowment and the California Wellness Foundations are outstanding examples, in my opinion, but neither would be pursuing the grantmaking and program strategies that benefit health broadly defined if it wasn't for citizen input. In Michigan, these deals seem to happen in the dark.
Wed, 04/23/2014 - 4:30pm
I have had the opportunity to work in Canada and the US as a medical practitioner, with 8 years at one of the most famous non-profit health care systems in the US, the Mayo Clinic in Rochester MN. There absolutely is a difference in the motives of for profit companies and not for profit entities. There are some very good health care delivery systems that are for profit, but most of the public is not informed and does not have the first hand experience. If you think they have the same motivations you are fooling yourself.