LANSING — University of Michigan Health will extend further across the state with the acquisition of Lansing-based Sparrow Health.
On Thursday, the University of Michigan board of regents approved the acquisition of Sparrow Health, whose board okayed the deal on Nov. 28. The acquisition should close in the first half of 2023, pending regulatory approval.
Acquiring Sparrow Health furthers Ann Arbor-based University of Michigan Health’s strategy to grow across the state. Nearly six years ago, University of Michigan Health acquired the former Metro Health in Grand Rapids, which is now known as University of Michigan Health-West.
University of Michigan Health-West has since expanded several clinical services, including launching open-heart surgery this fall, and formed collaborative care networks for cardiology and oncology with Trinity Health Michigan, the parent organization of Trinity Health Saint Mary’s hospital in Grand Rapids and Trinity Health Muskegon.
“For University of Michigan Health, this is an important step toward our long-term vision of a statewide system of highly coordinated care; a vision that Sparrow also embraces and is excited to build toward,” said Dr. Marschall Runge, M.D., Ph.D., CEO of the health system’s Michigan Medicine, dean of the U-M Medical School and executive vice president for medical affairs at the University of Michigan.
“Upon closing, U-M Health will create a clinical care network that builds upon the strengths of the world-class U-M academic medical center and a very successful community-based health system. Together the two organizations will focus on bringing increased health care innovation to mid-Michigan and beyond,” Runge said in a statement.
As part of the acquisition announced Thursday, University of Michigan Health committed to investing $800 million in Sparrow Health System “through facility projects, operations, and strategic investments over eight years.”
“We will invest in numerous improvement and growth initiatives based on community need, such as renovations to our Neonatal Intensive Care Unit at E.W. Sparrow Hospital in Lansing and geographic growth across the communities we serve. This will also strengthen our key service lines including cardiology, oncology, orthopedics, and neuroscience,” said Joseph Ruth, executive vice president and COO of Sparrow Health System. “This infusion of investment into Sparrow services will provide job growth and career development opportunities that would not otherwise be available to our caregivers.”
Sparrow Health has 115 mid-Michigan care locations that include E.W. Sparrow Hospital in Lansing, community hospitals in Carson City, Charlotte, Ionia and St. Johns, Sparrow Specialty Hospital, and nearly 500 primary care providers and specialists.
In 2019, University of Michigan Health signed an affiliation agreement with Sparrow Health for pediatric medical services that “paved the way for ongoing collaboration between the two systems,” according to the merger announcement. University of Michigan Health subsequently made a minority investment in Sparrow Health-owned Physicians Health Plan, which provides health coverage to more than 70,000 members and 300 employers and includes a Medicare Advantage plan.
Sparrow Health’s merger “builds upon the successful partnership,” University of Michigan Health President David Miller said in a statement.
“This established partnership has clarified the strong cultural alignment between U-M Health and Sparrow, while providing incredibly important pediatric care to families throughout Mid-Michigan,” Miller said. “Our expanded partnership with Sparrow will further strengthen U-M Health’s ability to provide quality health care in communities beyond southeast Michigan.”
Like many health systems, Sparrow Health has been hit hard by rapidly rising operating costs for labor and supplies.
The Lansing State Journal reported that the health system this fall planned job cuts and recorded a $90 million net loss for the first six months 2022.
Hospitals today face a “very, very challenging situation when it comes to the bottom line performance,” Michigan Health & Hospital Association CEO Brian Peters said earlier this week in a media briefing.
“The preponderance of our membership right now would tell you they have seen worse financial performance to this point in the year than they have seen in many, many years, perhaps decades. They are under water in terms of the patient care margins,” Peters said. “It is really a very, very challenging situation when it comes to the bottom line performance of our hospitals.”
Peters could not speculate on whether the tight finances for many hospitals may spur more merger and acquisition activity among Michigan health systems, though “what we do know is this activity has been on the rise, we know what the drivers of that trend have been, certainly.”
Sparrow Health’s acquisition by University of Michigan Health is the second major merger of Michigan health systems this year. The former Spectrum Health in Grand Rapids and Southfield-based Beaumont Health closed in February to create the largest in-state health system based in Michigan, now known as Corewell Health, with 22 hospitals.
In a much smaller deal, the former North Ottawa Community Health in Grand Haven merged into Trinity Health.