Published in Health Care

Reporter’s Notebook: Mercy, North Ottawa deal could further change lakeshore health care market

BY Sunday, April 10, 2022 09:48pm

Bringing North Ottawa Community Health System into the family would give Mercy Health a larger base in an Ottawa County market that was once the home of three independent community hospitals and has become a battleground for far bigger competitors.

Trinity Health Michigan, the Livonia-based parent corporation of Mercy Health in West Michigan, and North Ottawa are going through due diligence after signing a non-binding letter of intent to examine the viability of a merger.

Mercy Health for years has been easing into Ottawa County with physician offices in Holland, Hudsonville and Spring Lake. As well, Mercy Health has had a clinical partnership with North Ottawa since 2016, and in 2018 bought the Grand Haven health system’s physician group.

Adding a hospital to the mix would solidify and expand Mercy Health’s position in the Ottawa County market, creating competition with Spectrum Health and further altering the lakeshore health care market’s competitive balance.

“It’s obvious the lakeshore is a contested marketplace between Mercy and Spectrum,” Mike LaPenna, a health care planning consultant and the principal of Grand Rapids-based LaPenna Group Inc., said in a recent conversation about the potential Mercy-North Ottawa deal.

“This gives Mercy some sort of companion hospital to its operation up in Muskegon,” LaPenna said. “That’s the last bastion on the lakeshore that Mercy could get. If Mercy wants to have any type of presence in Ottawa County and Muskegon, they need something strong in Grand Haven.”

Executives at Mercy Health and North Ottawa declined an interview request to discuss how the health systems could come together and what may happen at the Grand Haven hospital, which for years has struggled financially.

North Ottawa’s 81-bed hospital in the 2020 fiscal year lost $762,630 on total revenue of $52.1 million, according to the most recent annual filing to the IRS. 

Financial filings indicate that North Ottawa Community Hospital recorded net losses in several prior fiscal years going back a decade.

As an acute care hospital, North Ottawa typically has just a small number of beds occupied each day. During a 2020 beset by the COVID-19 pandemic, North Ottawa had a daily inpatient occupancy rate of just 9 percent, or an average of 7.3 patients who were hospitalized, according to data from the Michigan Department of Health and Human Services.

North Ottawa’s occupancy rate has been steadily declining for years, dropping from 11.8 percent in 2018 and 9.4 percent in 2019, according to state data.

LaPenna expects “strategic and dramatic” changes to occur in Grand Haven if North Ottawa’s merger into Mercy Health happens. Should Mercy and North Ottawa reach a deal, those changes “will have to reflect the realities of Ottawa County consumer medical care in the year 2022, not 1992,” LaPenna said.

For instance, LaPenna raised the potential of North Ottawa becoming a surgical and medical imaging center under Mercy Health with a “very, very high-end urgent care center.”

One example of how a transaction led to a big change for a community hospital came recently in Van Buren County, where Kalamazoo-based Bronson Healthcare acquired South Haven Community Hospital in January 2017. Bronson proceeded to develop a new $22 million hospital in South Haven to replace an aging facility.

The two-story, 52,000-square-foot Bronson South Haven Hospital opened last May with significantly less inpatient bed capacity — which dropped from 49 to eight — to reflect low inpatient volumes. The new hospital mainly focuses on primary care, wellness, disease management and the most-used medical services.

Ottawa County’s health care market at one time consisted primarily of Holland Hospital and Zeeland Community Hospital to the south, and North Ottawa in Grand Haven. Spectrum Health acquired Zeeland Community in 2011, two years after buying the former Michigan Medical P.C. physician group that had offices in Holland and Grand Haven.

Holland Hospital later formed a clinical partnership with Spectrum Health and has extended its market over the years south to South Haven and north into Grand Haven.

More recently, Holland Hospital has been collaborating with University of Michigan Health-West (formerly Metro Health) on heart and neurosciences care, and looks to further build on those ties.

University of Michigan Health-West President and CEO Peter Hahn said he welcomes the opportunity to do more on the lakeshore, which could bring further changes and competition to the market.

“We see a lot of potential future collaborations there,” Hahn said of the growing ties with Holland. “We’re really excited about potential future stuff that we do together.”

University of Michigan Health-West presently has physicians in Hudsonville, Jenison and Allendale. As well, the health system has clinical partnerships through joint ventures with Mercy Health for heart and cancer care.

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