WYOMING — Six months into its new life as part of the University of Michigan Health System, Metro Health has a clearer view of its future based on capital investments to drive growth.
After years of struggling to finance growth initiatives, Metro Health has started prioritizing building a broader primary care base and weighing future possible expansion into new markets in the months since it was acquired by Ann Arbor-based U-M Health System.
Since the January affiliation, Metro Health has acquired a family medical practice in Lowell and recruited other doctors. Metro Health also recently began the process of seeking state certificate-of-need approval to upgrade the level of its special care nursery at the Spartan Stores Family Childbirth Center in Metro Health Hospital.
The initiatives are just the start of Metro Health’s growth under U-M ownership, said President and CEO Michael Faas.
“Metro Health has started a new chapter in its life,” Faas said in an interview with MiBiz to discuss the affiliation at the six-month mark. “We are now going to become a force in the market.”
The emphasis on building a broader primary care base was one priority emanating from early strategic planning following the affiliation with the U-M Health System. The relationship allows Metro Health to invest far more capital today than it was able to in the past.
Prior to the affiliation, covenants in the bonds Metro Health issued a decade ago to finance a new suburban hospital campus in Wyoming limited capital spending to $10 million annually on acquisitions, facility upgrades and expansion, and new facilities. U-M refinanced up to $200 million in bonds with the acquisition, freeing Metro Health to pursue growth, invest more capital and “(make) things possible that weren’t possible before.”
“What we have now is the ability to keep growing while we maintain what we’ve already created,” Faas said. “Now we can say, ‘That’s in the realm of possibility. We should at least explore it.’ That is the game-changer.”
In the 2018 fiscal year budget, university regents targeted up to $25 million in capital investments for Metro Health, according to U-M Health System President David Spahlinger. Capital spending would get split evenly between facility maintenance and upgrades and new initiatives, he said.
The 2018 fiscal year budget projects continued losses in the short term for Metro Health. The hospital was projected to record an estimated operating loss of $11.6 million on operating revenues of $376.9 million for the 12 months that ended June 30.
The budget for the new fiscal year projects an operating loss of $12.1 million on operating revenues of $412.9 million. The margin improves from a negative 2.9 percent to a negative 0.3 percent when interest expenses are excluded.
U-M Health System expects Metro Health will post an operating loss in the 2019 fiscal year before moving into the black in the third year of the affiliation, Spahlinger said. The projected losses are tied to higher planned capital spending to drive growth, he added.
“We anticipate that will turn around as the programs grow,” Spahlinger said. “That depends on how much investment you have to make and how the market responds to our initiatives.”
‘CHOICE BEING CREATED’
Metro Health’s growth is predicated on adding “substantially more” primary care providers, and not just family practitioners, Faas said. The organization wants to attract OB/GYNs, pediatricians and other disciplines, he added.
Most recently, doctors at Michigan Obstetrics & Gynecology PC became employed physicians at Metro Health after years of affiliation. Most likely, the doctors eventually would have gone to work for Metro, although becoming part of U-M Health System “just made it all the more likely that they would,” Faas said.
In the six months since affiliating, Metro Health has seen a change with more physicians and potential partners who are willing to talk with the health system. In the past, Metro had to pursue partnerships.
The University of Michigan brand has been resonating with physicians who may want to align with the health system and have stepped forward, Faas said.
“All the opportunities in this broader region — organizations, physicians and others — see Metro in a new light,” Faas said. “They see choice being created in the market and they see an option being created in the market. They want to know if there is a way they could align with us, if it makes sense, and so we’re having conversations that were not possible before.”
Metro Health wants to recruit 10 to 12 physicians annually and recently added intensivists that staff intensive care and critical care units. The health system has ongoing conversations with pulmonologists and bariatric surgeons, he said.
At the same time, U-M has begun to fill service voids. That’s meant, for example, having faculty physicians from Ann Arbor such as gastroenterologists hold regular office hours at Metro facilities.
In looking into the future, the health system also may return to developing primary care and outpatient centers. Previously, Metro Health developed a new outpatient center every 18 months or so. Budget constraints and a focus on developing Metro Health Village in Wyoming significantly slowed that strategy.
Now under the U-M umbrella, Metro Health can work to “fill the ones we have and maximize them,” and then look at developing additional outpatient centers, whether in its core market of Kent County or in adjoining counties, Faas said.
“For the first time, that becomes a bigger question,” he said. “Do we penetrate closer to us, because there are still locations within the greater Grand Rapids area where we don’t have a real presence, or do we look to expand geographically? That’s really what we haven’t answered yet.”
Metro Health operates 16 neighborhood physician offices and outpatient centers, most of them in Kent County. The health system has a list of four or five locations “where there’s a need in a community” and where “we would like to have a presence,” Faas said.