Duke LifePoint Eyes Michigan's Upper Peninsula

Michigan's remote Upper Peninsula may soon have a new blue chip player competing in the healthcare arena with the likes of the prestigious Mayo Clinic and Henry Ford Health System.

Duke LifePoint Healthcare this week announced that it has signed a memorandum of understanding to explore a partnership with Marquette General Health System, a regional referral center that serves about 300,000 people in a 15-county area in the U.P.

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If the deal is finalized in the coming months and approved by the Michigan Attorney General, Duke LifePoint would take ownership sometime this summer and MGHS would become a for-profit entity.

MGHS President/CEO Gary Muller says it is too early to put a price tag on the value of the deal, but he told HealthLeaders Media that an outright ownership arrangement by Duke LifePoint, with oversight from locally controlled board of trustees, makes the most sense.

"Our board looked at different joint ventures, 80-20, and 50-50 partnerships," Muller explained. "They felt like the best thing for the community is to have an outright acquisition by Duke LifePoint because otherwise you don't gain as much capital or involvement. You do give up autonomy to an extent, but why go halfway?"

Muller says MGHS is negotiating from a strong financial position, but also with an understanding of the new challenges for recruiting, service lines, and capital that non-urban, not-for-profits face in a shifting and highly competitive healthcare delivery landscape.

For example, the health system had planned on Medicare reductions of about $55 million over the next decade. A few weeks back, however, they were notified that the reductions would total about $90 million.

"A lot of the companies come in and buy hospitals that are in trouble. We are definitely not in trouble, but I will give our board credit for looking ahead," Muller says. "It's like when you are selling a house. You want a nice house with a good roof. It is, in a way, giving an asset to another company. But what we and our board see is a larger gain for the community in terms of quality and the tax base. Local control is still going to be here because we will keep the board."

While the notion of surrendering community ownership to an out-of-state for-profit company required some adjustment, Muller says the MGHS board "took a leap of faith and changed their whole perception."

"We see many boards that don't take our board's position. A few of them are neighbors. They see the hospital as their asset, but it is really the asset of the patients and the communities," he says. "Not-for-profits lack the capital and the scale that we will have and their communities will suffer."

Muller says that the MGHS board also recognizes that Duke LifePoint would bring assets, efficiencies and a national reputation for quality.

"We are a fairly large $310 million business and with our scale of purchasing we will immediately save on that," he says. "We can recruit physicians better through Duke. We are also looking for quality oversight, which our doctors are very much looking forward to, even though we are doing well. They know that to compete with Mayo Clinic up here or Henry Ford downstate we need to be a little bit better."

William F. Carpenter III, chairman/CEO of Brentwood, TN-based LifePoint Hospitals, told HealthLeaders Media he doesn't believe that MGHS' remote location will pose significant logistical or cultural challenges.

"Our focus was on North Carolina and the surrounding region but clearly the Duke LifePoint partnership has a range beyond that," he says. "When you look at the map you see a region in the Upper Peninsula that is very well suited to what we are trying to accomplish in that original vision; to build a strong network there around a regional medical center in Marquette."

If the deal is finalized, MGHS will be the first hospital in Michigan for LifePoint, which now operates 56 hospitals in 19 states.

"The focus of Marquette General will continue to be on patients in the Upper Peninsula so they are able to receive quality care close to home. The Duke LifePoint partnership will enhance that.  I don't think of it as being in competition with anybody. I see it strengthening community-based care in the Upper Peninsula."

Carpenter believes that hospitals across the nation are in the same situation as MGHS and could be ready for a new business model.

"They are considering how they will respond to the significant financial pressures that they feel based on the lingering effects of the recession, based on the reductions in reimbursements that are facing us, [and] based on the very challenging regulatory environment that faces all of us, the cost of technology and capital improvements," Carpenter said.

"LifePoint and Duke LifePoint are perfectly aligned with the interests of local community hospitals in dealing with that because we bring resources designed to improve quality of care and designed to provide state-of-the-art technology and make capital investments in community hospitals," he says. "It is a great match."