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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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