TRAVERSE CITY — Community leaders continue to question Munson Healthcare's stated desire to increase its borrowing power by merging with a large hospital system.
Prospective merger partner Spectrum Health of Grand Rapids owns seven hospitals and an insurance company. Its AA bond rating and financial clout make it attractive for Munson, which has $343 million worth of expansion projects planned over the next five years.
In exchange, Munson Healthcare, with its two hospitals and other health care-related operations, would become a division of Spectrum.
The proposal at its core is a swap of Munson's local autonomy for Spectrum's capital might, said Ralph Cerny, former Munson Medical Center president and CEO.
"By virtue of its size, Spectrum has the ability to borrow a whale of a lot more money," Cerny said. "But I still have questions if there are other alternatives to joining Spectrum."
Cerny said he's met with Munson's administration and has a good idea of its long-term capital needs. He's requested Munson officials provide him with other financial options, including market assumptions about how much debt it can bear.
Cerny said he wants to review that information before he votes on the proposed merger.
Member-owned
Munson Healthcare, like most nonprofits in Michigan, is owned by its members, currently 173 community residents and former administrators and board members such as Cerny.
Another 137 current board members from Munson Healthcare and its affiliated hospitals and organizations complete the group. The corporate members, as Munson calls them, elect the Munson Healthcare Board and vote on changes to bylaws and articles of incorporation. That includes the proposed merger with Spectrum.
"People are asking a lot of questions," Cerny said. "I don't think (Munson) has all of the answers yet."
Munson officials met with some corporate members this week and has another meeting scheduled for May. Munson denied a Record-Eagle reporter's request to attend the meeting.
Attendees said Munson officials discussed long-term capital needs, answered questions from attendees, and introduced them to Richard Breon, Spectrum Health's president and chief executive officer.
"We didn't have any new info per se, just more detail, a little bit better financial information to give out," said Tom McIntyre, chairman of the Munson Healthcare board of directors.
About $154 million of the capital plan includes normal spending on such things as medical technology, equipment replacement and upgrades, routine building repair and computer upgrades at Munson Medical Center.
But the plan also includes two big-ticket items: a $42.3 million cancer treatment center and a $127.8 million tower at Munson Medical Center to house an additional 100 beds and upgrade the obstetrics and neonatal intensive care units.
Munson would have to borrow most of the money for those two projects, said Mark Hepler, Munson Healthcare's chief financial officer.
The market shows a substantial interest rate spread between AA-rated hospitals such as Spectrum and A-rated hospitals like Munson, Hepler said. Those interest costs come out of Munson's operational budget.
"Our proposed relationship with Spectrum puts us in a financial position to borrow the necessary monies to keep Munson state-of-the-art," McIntyre said.
'Comforted' by meeting
Pat Wilson, a corporate member and a former Munson in-house attorney, said he's had concerns, but Tuesday's meeting moved him to support the merger.
"I was comforted by the meeting," Wilson said. "I'm ready to take a leap of faith by this type of relationship. Munson is going to need this kind of partnership and I think it will be a good fit."
Others remain unconvinced, and worry about loss of local control when Spectrum Health owns Munson Healthcare and makes appointments to its board.
Harry "Scrub" Calcutt, president of Northwestern Bank, told Munson officials in February they don't need Spectrum's borrowing power. A Calcutt spokesman on Thursday said his position has not changed.
The Traverse City Chamber of Commerce's executive committee this week declined to take a position on the proposed merger.
"People are waiting to see what the deal is, and there is no deal," said Doug Luciani, chamber president and a Munson corporate member.
Luciani said the chamber won't take a stance until it knows more. The Chamber could support the merger if it appears such a move will bring new capital investment to Traverse City that will grow business.
"If it looks like a bad deal for Traverse City, if it would stop us from growing ... we could take a position against it," he said.
Luciani said Munson's strong financial health allows it to negotiate local autonomy from a position of strength, and he trusts the current Munson board not to surrender too much control to Spectrum.
"It's a board of homers," he said, "and I personally don't believe it will give up much local control."
