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Hospital Survival May Depend on Mergers

Karen Minich-Pourshadi, for HealthLeaders Media, October 11, 2010

Christopher Columbus was more than an explorer, he was a savvy financier (and to some a conquistador). He knew that his exploits required more funds than he could come up with on his own, so he had no choice but to negotiate the financial backing of Spanish Queen Isabella I. Three ships and a long journey across the ocean later, Columbus reached America.

Columbus’ willingness to partner for financial gain is a fascinating example which, perhaps, more hospitals should consider mirroring for their own success. That’s an idea I’ve been pondering since reading two recent reports by Standard and Poor’s and watching more than a few hospital mergers. Before the great recession and the enactment of the Patient Protection Act none of this would probably have crossed my mind, nor the minds of most CFOs, however these days, partnerships and mergers for future growth and survival just seem to make sense.

Here’s what got me thinking that perhaps it’s time for more hospitals to merge, or at least partner with others. First, there’s Michigan. The crash of the auto industry put a lot of folks in Detroit out of work; however the fallout was further reaching than one city, sister cities in Michigan also struggled. Financial strain took a toll on business and towns across the state and more than a few hospitals found themselves cutting to keep the bottom line in the black. When there was no more low hanging fruit (a.k.a., quick-fix cuts) it was time to look for another pathway to bolster the financials.

Lo and behold, in September, Central Michigan Community Hospital announced it will be merging with McLaren Health Care. The McLaren system consists of eight regional hospitals across the state and serves 29 counties. The merger gives CMCH access to more than 10,000 associated physicians, technological and medical advancements, and increased capital for investments. Sounds like a smart way to grow and gain financial stability.

Interestingly that same month, Traverse City, Mich.-based Munson Healthcare announced it would not move forward with a merger with Grand Rapids, Mich.-based Spectrum Health, noting that they preferred to pursue an affiliation with another health system. Apparently the University of Michigan Health Systems approached Munson Healthcare about a possible affiliation as an alternative to a merger. Yet another smart path for a financial boost.

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