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Published in Health Care
Hospital executives signing an agreement in 1997 to merge Blodgett Memorial Medical Center and Butterworth Hospital. Hospital executives signing an agreement in 1997 to merge Blodgett Memorial Medical Center and Butterworth Hospital. COURTESY OF SPECTRUM HEALTH

Born from a merger, Spectrum Health grows into major health care player

BY Sunday, July 18, 2021 05:17pm

The seeds for what became West Michigan’s largest health care provider took root nearly three decades ago.

In the early 1990s, Blodgett Memorial Medical Center and Butterworth Hospital were fierce rivals engaged in a proverbial medical arms race, each trying to outdo the other. By 1993, business leaders across the region had had enough.

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As Butterworth and Blodgett each sought to build up their own medical specialties and buy the latest technology, the intense rivalry created costly redundancies in care, said Lody Zwarensteyn, who for four decades ran the former Alliance for Health, a health planning agency in Grand Rapids. Rather than have the two organizations continue as rivals, business leaders began to demand more collaboration, Zwarensteyn said.

The final straw came in the early 1990s when Blodgett, situated in a landlocked residential neighborhood in East Grand Rapids, planned a massive 100,000-square-foot expansion to the hospital. Neighbors in the affluent community loudly opposed the plan. Blodgett directors later settled on a plan to build an entirely new hospital elsewhere.

The move would have positioned Blodgett along I-96 in eastern Kent County with a new $187 million hospital that was far more accessible than the longtime East Grand Rapids campus. 

Meanwhile, Butterworth was planning $73.9 million in upgrades and renovations at its hospital campus on the edge of downtown Grand Rapids.

The Hillman Commission

Blodgett’s plan for a new hospital led to the formation of the Kent County Area Health Care Facilities Study Commission, commonly known as the Hillman Commission, that was chaired by the late federal Judge Douglas Hillman.

The Alliance for Health “was only too happy to oblige” when Kent County commissioners asked it to help set up an independent group to examine health care in Grand Rapids and “see what was really needed,” Zwarensteyn recently told MiBiz.

“The Alliance constituency were sick and tired of Butterworth and Blodgett trying to bash each other’s brains out to be the first, the best, the brightest of anything that came down the pike,” he said. “So we assembled the Hillman Commission.”

The 23-member Hillman Commission, composed of regional business leaders, spent months examining health care in Kent County and hospitals’ needs. The panel issued 72 recommendations in May 1994, finding that “capital investments by health care corporations have not been adequately controlled by market forces alone” and that “consolidation among hospitals in Kent County would have beneficial effects on the community.”

Zwarensteyn said the report essentially found: “To hell with these two hospitals particularly trying to bash each other’s brains out. The best solution would be to get together. We didn’t even define what that ‘get together’ would be, it was just ‘work together.’”

A merger with conditions

The Hillman Commission report laid the foundation for the eventual merger between Butterworth and Blodgett. Prompted by the report, hospital executives began talking, and the boards at each hospital had agreed to a merger by the end of May 1995. Executives asserted that merging Blodgett and Butterworth would avoid nearly $100 million in capital expenses and generate $68.5 million in operating efficiencies over five years.

Federal trade regulators thought otherwise. In January 1996, the Federal Trade Commission sought a federal court order to prevent the merger from proceeding, arguing that combining the two largest hospitals in Grand Rapids would concentrate too much power in the merged health system that would control 65 to 70 percent of the market.

U.S. District Court Judge David McKeague ultimately ruled against the federal agency. McKeague concluded in his October 1996 ruling that the merger would “result in significant efficiencies, in the form of capital expenditure avoidance and operating efficiencies, totaling in excess of $100 million,” which he called a “substantial amount, and represents savings that would … invariably be passed on to consumers.”

The ruling included a consent decree in which Butterworth and Blodgett agreed to five community commitments that included freezing charges temporarily, assuring equal treatment of health plans, and not providing favorable pricing to affiliated insurer Priority Health. The consent decree also included limits on operating margins, commitments to serving the underserved and medically needy, and governance and transparency. 

Some of the commitments continue today, including an annual review of the health system’s finances by a permanent advisory committee, plus the routine posting online of quarterly and annual financial statements.

The FTC appealed McKeague’s ruling to the U.S. Sixth Circuit Court of Appeals in Cincinnati, but backed down when a measure introduced in Congress threatened to defund the agency’s antitrust enforcement, according to Zwarensteyn.

In a September 1997 news release, the FTC said commissioners voted 3-0 to end the challenge to the merger “after concluding that further litigation in the case is not in the public interest.”

Spectrum Health is born

With the FTC case over, Blodgett and Butterworth came together soon afterward. A new nonprofit corporation resulting from the merger, Spectrum Health, was formally incorporated on Sept. 19, 1997.

However, integrating the two rival hospitals and their individual medical staffs proved difficult.

In a 2018 interview with MiBiz, former Spectrum Health President and CEO Rick Breon recalled that when he took over in September 2000, the first issue he had to address was culture. The two hospitals had been “warring factions” for decades in the Grand Rapids-area health care market.

“You had these great legacy organizations, and so when you bring them together, what’s created? It was not one acquiring the other. It was a bringing together of like-sized, like-thinking organizations, so you had to create the culture,” said Breon, who retired in August 2018 after leading Spectrum Health for 18 years.

“When I came in, there was still a lot of Blodgett versus Butterworth going on, but I think there was a willingness to try to figure out a way to merge the two together,” Breon said at the time. “That’s what I saw, a willingness and anticipation. And if we did that, we might be able to have something pretty special here.”

That “something” was ultimately a large, integrated health system providing tertiary care that was previously unavailable locally and an organization that now spans a wide geographical market stretching from Big Rapids and Ludington well to the north of Grand Rapids to St. Joseph in the southwestern corner of the state.

Spectrum’s growth strategy

Over two decades, Spectrum Health grew through a series of acquisitions involving community hospitals and primary care and specialty medical practices. That growth enabled Spectrum Health to launch specialized medical services that previously were unavailable in the market.

The acquisitions included a large cardiology practice in Grand Rapids, West Michigan Heart, and the region’s largest group medical practice, Michigan Medical P.C., in 2009. Both were integrated into Spectrum Health Medical Group, which the company had formed a year earlier.

The first community hospital acquisition came via United Memorial Health System in Greenville in 2003. Gerber Memorial Hospital in Fremont followed in 2010. As the health care industry continued to consolidate, community hospitals in Ludington, Zeeland, Big Rapids, Hastings and St. Joseph all became part of Spectrum Health.

Spectrum Health declined other deals and potential suitors over the years, including “more than one” unnamed Detroit-area health system that inquired about a merger, Breon said in 2018.

“We have turned down several opportunities with other organizations — to either acquire, merge or any of that — because we feel strongly we wanted to be West Michigan-based,” Breon said.

Tina Freese Decker, who’s been with Spectrum Health since 2002 and previously served as executive vice president and chief operating officer, succeeded Breon as CEO after his retirement.

Other potential mergers have failed to move forward. Traverse City-based Munson Healthcare ended merger talks with Spectrum Health in 2010 to pursue other options. 

Spectrum Health also was in talks with Mary Free Bed Rehabilitation Hospital in 2010, but those discussions ended later that year without a deal. However, the two organizations signed an agreement in 2018 to form a “deeper relationship” and work together on research and coordinating patient care.

Over the past two decades, Spectrum Health has also invested heavily to develop new facilities and medical specialties, including initiating heart, lung and bone marrow transplants. Spectrum Health performed its first heart transplant in 2010. The idea behind launching each service was that patients in West Michigan who needed a transplant would no longer have to travel outside of the region to destinations such as Chicago, Detroit or Ann Arbor.

Meanwhile, Spectrum has expanded with hundreds of millions of dollars of investments in new facilities. The $80 million Fred and Lena Meijer Heart Center opened at the downtown Butterworth Hospital campus in 2004. Four years later, Spectrum opened the Lemmen-Holton Cancer Pavilion, a $78 million outpatient cancer center across the street. The new $286 million Helen DeVos Children’s Hospital followed on the Butterworth campus in 2011, built with $103 million in donations that included $50 million from the DeVos family.

Spectrum Health also developed a number of integrated care outpatient campuses across the region that consolidated primary and specialty care doctors in local communities into a single location and added services such as diagnostic labs and medical imaging.

As Spectrum Health grew over the last two decades, so did its health plan.

Priority Health came together with the 1992 merger of Butterworth HMO and Holland-based Lakeshore HMO. It later added Traverse City-based NorthMed HMO in 1999, extending Priority Health into the northern Lower Peninsula. In 2007, Priority Health acquired the Care Choices HMO and PPO plans from Trinity Health to move into the Southeast Michigan market.

In 2019, Priority Health further expanded its market presence in Southeast Michigan with the acquisition of Detroit-based HMO Total Health Care Inc. 

The second-largest health plan in Michigan behind Blue Cross Blue Shield, Priority Health has more than 1 million members enrolled in a variety of commercial, individual, Medicare and Medicaid plans.

Today, Spectrum Health consists of 14 hospitals in West Michigan, 150 ambulatory care sites, more than 31,000 employees and 4,700 physicians and advanced practice providers. Spectrum Health owns a 93.9 percent share of Priority Health. Munson Healthcare owns a 5.5 percent stake and Petoskey-based McLaren Northern Michigan owns 0.6 percent.

‘Aggressive and self-serving’

Spectrum Health’s growth at times angered competitors in West Michigan, a market that covets collaboration and partnerships. For example, executives at Mercy Health Saint Mary’s publicly objected years ago when Spectrum Health withdrew from a 15-year-old consortium for graduate medical education to sponsor its own program instead.

In Grand Haven, Spectrum Health drew the ire of the small North Ottawa Community Health System with the development of the $50 million Health Pointe outpatient medical center in a joint venture with Holland Hospital, which had signed a clinical affiliation with Spectrum a few years earlier.

As the Health Pointe project went through a contentious local zoning review in 2016, Roger Spoelman, then-president of Mercy Health in West Michigan, wrote an op-ed for local publications that stated Spectrum Health “had historically been an important collaborator in the community,” but its “style had become aggressive and self-serving.”

Other executives in the region also have privately complained that Spectrum Health had become too big and exerts too much influence over the market.

In his 2018 interview with MiBiz, Breon dismissed complaints about Spectrum Health’s size and tactics as “sour grapes.” In discussing Spectrum Health’s growth and regional expansion, he said the health system needed to become much larger to launch and sustain the kinds of specialized medical care that the market lacked.

“The ability to be the size that we are is the ability to bring things into this community that otherwise wouldn’t happen,” Breon said. “It’s enabled us as a community to be able to develop services and keep services local.” 

Spectrum Health at a glance

HQ: Grand Rapids                                                                        

President and CEO: Tina Freese Decker

Employees: More than 31,000

2020 operating revenue: $8.29 billion

2020 operating income: $412.2 million

Hospitals: Butterworth Hospital (Grand Rapids), Helen DeVos Children’s Hospital (Grand Rapids), Blodgett Hospital (East Grand Rapids), Big Rapids Hospital, Gerber Memorial Hospital (Fremont), Kelsey Hospital (Lakeview), Ludington Hospital, Pennock Hospital (Hastings), Ludington Hospital, Reed City Hospital, United Hospital (Greenville), Zeeland Community Hospital, Lakeland Medical Center (St. Joseph), Lakeland Hospital (Niles and Watervliet)

Read 2121 times Last modified on Monday, 19 July 2021 08:47
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