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Sunday, 11 December 2016 16:21

Metro seeks to refinance $200M in bonds through U-M Health System

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The University of Michigan Health System’s acquisition of Metro Health appears on track to close in the near future.

Recently, Metro Health initiated a refinancing of up to $200 million in bonds through U-M Health System, a move that will reduce financing costs and ease restrictive covenants on existing bonds.

The health system also recently filed four letters of intent with the Michigan Department of Health and Human Services that sought and received a waiver for a certificate-of-need review of the deal. The LOIs cover the transfers of ownership for Metro Health Hospital; the West Michigan Radiation Oncology Center in Wyoming; and the Metro Health Outpatient Surgery Center, an outpatient surgery center on Cascade Road in Grand Rapids operated in a partnership with Orthopedic Associates of Michigan.

The LOIs filed with the state indicate that U-M Health System will assume full control of Metro Health as the sole corporate owner once the deal closes.

Metro Health CEO Mike Faas declined to comment on the status of talks to craft a final agreement with U-M Health System, although the filings with the state and the bond refinancing indicate the process is proceeding. The LOIs did not provide information on the level of capital commitment that U-M Health System will make to Metro, nor did they offer any other financial details regarding the deal.

The two health systems signed a letter in June to affiliate and approved a definitive agreement two months later with the expectation that a final deal could come by the end of the year or in early 2017.

Affiliating with U-M Health System would give Metro Health, which relocated to a new hospital in suburban Wyoming, Mich. less than a decade ago, the scale and the access to expertise and capital needed for breaking out of the shadows of its larger competitors in the Grand Rapids market.

“To have a first-class facility, in conjunction with first-class care, can only mean good things for Metro Health,” said Bret Jackson, president of the Ann Arbor-based business-labor coalition Economic Alliance for Michigan that’s heavily involved in health care issues in the state.

U-M Health System in return would get a much larger physical presence in the West Michigan market, where it already partners with Metro Health on a radiation oncology center at Metro Health Village in Wyoming. U-M Health System also provides pediatric cardiology and pediatric endocrinology care at Metro Health.

The move into the Grand Rapids market through the deal with Metro Health makes sense for U-M Health System as reimbursement practices have started to change the health care industry, Jackson said.

Transitioning to valued-based contracting increases risk for health systems as revenue and payments from insurers are based more on quality and patient outcomes. The change has resulted in a period of consolidation across the country, as health systems seek to get bigger to mitigate risk and optimize costs.

“U of M is quickly and quietly becoming a regional health system, kind of like other health systems in the state. Before it was, ‘We’re U of M, so everybody’s going to keep coming to us. We don’t need to branch out,’” Jackson said.

That attitude has been changing, he said, noting U-M’s failed attempt in 2013 to acquire Allegiance Health, an ongoing clinical and business partnership with Midland-based MidMichigan Health, and numerous outreach services to care providers around the state.

“If Metro goes through, that’s a serious move in hospital system affairs in our state,” Jackson said.

When the University of Michigan Board of Regents approved the definitive agreement with Metro Health in September, health system executives and university administrators cited the potential to build a presence in the West Michigan market as a driver for the deal.

“Our mission as the state’s flagship medical institution is to provide the best of care across the state of Michigan,” said Dr. Marschall Runge, CEO of the U-M Health System. “We really think the best way to do that is to provide the very best care at the right time and place. We have not had the opportunity to provide the best care in Western Michigan and there are many there who need the specialized care that we provide here.

“We think there is a great opportunity to work with Metro Health and build capabilities that they do not have, and that their population as well as others in the Western Michigan area will be able to benefit from. There will be occasions when we will be able to coordinate care in a way that will be convenient and cost effective for patients receiving care in Grand Rapids or, if needed, to come to Ann Arbor.” 

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