Becoming part of the University of Michigan Health System provides Metro Health not only better access to capital needed to drive growth, but also the ability to put more of it to use.
Covenants on the bonds issued a decade ago to finance development of a new suburban hospital campus in Wyoming limit Metro Health to investing no more than $10 million annually in capital projects, including facility upgrades and expansions, new equipment, and physician practice acquisitions, President and CEO Mike Faas told MiBiz.
That’s “about half” of what Metro Health should have been spending on capital needs, he said.
Now that the affiliation has closed and the process is underway to refinance up to $200 million in bond debt through the U-M Health System, Metro Health can look ahead to no longer living with the covenants that limited capital spending.
“Those restrictions really stopped us from growing,” Faas said. “It was for us not a noose. We weren’t hung, but we were definitely hogtied.”
The bond covenants limited not just spending but planning, he said. Administrators often had to limit planning for capital projects they wanted or were needed because of the spending cap.
As part of the affiliation agreement, U-M Health System made a capital commitment to Metro Health that “will exceed ultimately” the $120 million to $125 million in capital investments over five years that Tennessee-based Community Health Systems Inc. pledged when it pursued a joint venture with the West Michigan organization in 2014 and 2015. Metro Health walked away from that deal in August 2015.
The U-M Health System capital commitment does not come with a set dollar amount, Faas said. U-M Health System instead will look at capital investments at Metro Health on a project-by-project basis.
“This is ‘what do you think it’s going to take? What do you want to do?’ This is us together deciding what do we want to spend in this market,” he said. “What we’re now doing is we’re tying financials and budgets to our vision and our goals and objectives.
“All of a sudden when we make that list, I don’t see anything we can’t do.”
Metro Health and U-M Health System signed a letter in June to affiliate and approved a definitive agreement two months later. The deal closed and the affiliation took effect Dec. 15.
The two will unveil a new logo and name change for Metro Health early next month. The health system will retain “Metro” in its name.
The smallest of the three health systems based in the greater Grand Rapids area, Metro Health includes the 208-bed Metro Health Hospital in Wyoming, Mich., plus a dozen outpatient and primary care centers and two outpatient surgery centers.
Affiliating with the U-M Health System gives Metro Health greater scale and the access to medical expertise and capital needed to better compete with larger systems in the region. Through the affiliation, Metro Health plans to expand offerings in primary care and medical specialties such as cardiology, neurology, orthopedics, oncology and women’s health.
“We’re about to become a major player in West Michigan,” Faas said. “We’re about to become what no one thought was possible. This is a huge turning point. This is a whole different player in the market with a whole different level of sophistication and a whole different level of quality.”
Building its cardiovascular program further will include examining open-heart surgery, a service line Metro Health sought to launch years ago but failed to meet state certificate-of-need volume standards. The health system will look at open-heart again, Faas said.
“We’re the largest city in America without two open-heart programs. We have to see what does that mean to us? We don’t know yet, but that’s obviously something and we will push cardiovascular in this market,” he said.
By bringing Metro Health aboard as a subsidiary, U-M Health System gets a much larger physical presence in the West Michigan market, where it has partnered since 2009 on a radiation oncology center at the Metro Health Village in Wyoming. U-M Health System also provides pediatric cardiology and pediatric endocrinology care at Metro Health.
As the two implement the affiliation, their primary focus is to “understand the clinical needs and any needs of the system, primarily focused on what the patient needs,” said David Spahlinger, president of clinical enterprises at U-M and executive vice dean for clinical affairs at the university’s medical school.
The health system has identified some needs but has yet to make final decisions on what to expand or deploy with Metro in Grand Rapids, Spahlinger said.
“What we found is there are some access issues in a number of areas. We are looking to augment that in order to reduce the wait time for patients in certain areas,” he said. “It’ll be an expansion of what we see as programs that need additional manpower in order to meet patent needs and demands.”
U-M Health System consists of three hospitals, 40 outpatient locations and home care operations that handle more than 2.1 million outpatient visits a year.