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And Then There Was One: Economic Pressures Squeeze Metro Detroit Hospitals into Consolidation

Reduced reimbursements. A shift toward global payment. A demand for integration, quality of care and medical specializations. In order to compete amidst today’s healthcare market pressures, independent hospitals in Michigan and around the nation are increasingly deciding that they cannot go it alone. A recent Detroit News article reveals how this trend is playing out in Metro Detroit, with one of the region’s last two independent hospitals poised for acquisition.   

Observers of Detroit’s healthcare environment are reportedly not surprised by the news that Crittenton Hospital Medical Center has signed a letter of intent to join St. Louis-based Ascension Health, the largest Catholic and nonprofit health system in the nation. With Monroe-based Mercy Memorial Hospital announcing on January 6 that it is joining the ProMedica health care company, the Crittenton deal will leave Doctors’ Hospital in Pontiac as the region’s last remaining independent hospital.

Laura Wotruba, spokeswoman for the Michigan Health and Hospital Association, said that this is not a Michigan issue, but rather a widespread pattern. “[It is] a national trend [and] something we’ve been seeing around the country.”

While Crittenton stated that the move was “in order to create a clinically integrated network of care that best serves our patients,” it also confirmed that financial pressures encouraged the sale.

The region’s healthcare market changed dramatically with the 2011 sale of the Detroit Medical Center to Vanguard, a national nonprofit hospital chain. The acquisition laid a foundation upon which other local -- many independent -- hospitals were challenged to realize greater economies of scale. In the past year, three other independent Metro Detroit hospitals have been absorbed by larger chains.

The Affordable Care Act (ACA), which has increased pressure on all hospitals to cut costs and increase efficiencies, has driven consolidation. More patients have been added to the system, while new rules and regulations have been layered on healthcare providers, making it more expensive to operate – particularly as an independent hospital.

Other variables have also contributed to the diminishing footprint of the independent hospital. One has been a shift from hospital care to outpatient care, brought about by technological advancements that allow physicians to provide more tests and procedures away from large medical facilities. Another has been the need to upgrade IT systems and facilities to comply with rules and regulations beyond the ACA.

For example, the Health Information Technology for Economic and Clinical Health Act (HITECH) requires healthcare providers and doctors to implement Electronic Health Records (EHR). The Health Insurance Portability and Accountability Act (HIPAA) – and its new omnibus rule which went into effect in 2013 –also places a number of onerous requirements on hospitals. In this highly regulatory environment, many independent hospitals have chosen to consolidate in light of the immense capital investments required to comply with the new regulatory framework.

There is clearly a trend toward consolidation. Foster Swift’s health care attorneys have successfully handled a number of sophisticated transactions for hospitals and health systems looking to consolidate. Please contact us to learn more.

Categories: Electronic Health Records, Health Care Reform, HIPAA, HITECH Act, Hospitals, News & Events, Regulatory

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Gary has nearly 40 years of experience and has earned a reputation for handling sophisticated transactions for hospitals, managed care organizations, HMOs, health insurers, physician groups and other provider entities and for helping his clients stay on top of complex regulatory issues, such as Anti-Kickback Statute, Stark II, Medicare, Medicaid, and BCBSM reimbursement appeals. 

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