Traverse City Record-Eagle

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September 10, 2010

Munson: Spectrum merger deal dead

BY BRIAN McGILLIVARY bmcgillivary@record-eagle.com

TRAVERSE CITY — Munson Healthcare won't merge with Spectrum Health but will continue to investigate potential partnerships with other health care providers around the state.

Officials with northern Michigan's largest health care system formally pulled the plug Thursday on their pending merger talks with Grand Rapids-based Spectrum, after those discussions piqued the interest of other health care systems around the state. Officials said they'll investigate other forms of affiliation with both Spectrum and other health care organizations that "fall short" of a merger.

"Our goal here all along is to retain our standing as a top 100 hospital," said Tom McIntyre, chairman of the board for Munson Healthcare. "As we went through this process ... it became more and more apparent there were other options that needed to be looked at more closely."

Munson Healthcare CEO Ed Ness said they will explore potential affiliations with Spectrum, Trinity Health based in Novi, Northern Michigan Regional Health System in Petoskey and the University of Michigan Health System.

"We have a lot of good options, ... but frankly we haven't had enough discussion about things specific to Spectrum or others," Ness said. "We know what our needs are ... but do others have any interest?"

Spectrum CEO Richard Breon said the merger discussions weren't a wasted effort and Spectrum will work with Munson to find partnerships that will benefit both health care systems. Northern Michigan hospital in Petoskey walked away from affiliation talks with Spectrum this summer.

"A lot of these organizations have these discussions, and sometimes they end up in the merger and sometimes they don't," Breon said. "Frankly, I don't think there's anything Spectrum Health could have done differently."

Munson officials did not cite any single factor for its change of direction. Munson began talks with Spectrum in late 2008 and acknowledged those discussions in January with a letter of intent to pursue a partnership arrangement that could've converted Munson into a division of Spectrum. The letter of intent was extended over the summer and formally expired with Thursday's announcement, officials said.

Munson officials touted Spectrum's strong financial base as an incentive that could help Munson attain an estimated $340 million in capital projects and technology upgrades needed over the next decade.

Strong community reaction complicated talks, and touched on the potential for loss of local control. Some community members also questioned Munson's long-range capital projections.

Following the surprise departure of former Munson Healthcare CEO Doug Deck, the board promoted Ness and announced it would hold off on a decision. The board commissioned a third-party review of its capital estimates and a community-wide survey of its corporate members, doctors and other community leaders.

The results of both were important factors in the board's decision, officials said.

Consultant FTI Cambio's review of Munson's financials showed its need for additional capital at more than 40 percent below Munson's own projected capital gap of $130 million over the next decade. FTI Cambio also told Munson it was likely to grow slower than it had originally projected, but it still had a significant gap of about $75 million.

Ness said the hospital's goals and needs remain the same, but they may have to scale back some projects. Munson and FTI Cambio agreed Munson is likely to run out of bed space by 2015, so a new bed tower has become its top priority, Ness said.

The survey by the Rossman Group showed that despite almost three months of community meetings and discussion by Munson, just 36 percent of those surveyed supported a full merger with Spectrum. More than half were undecided, and most of those said they wanted more information before deciding.

When asked if Munson should continue to stand alone, respondents were split almost equally, with about a third agreeing, a third disagreeing, and a third unsure. An overwhelming majority, 88 percent, wanted Munson to explore all types of partnerships, joint ventures and affiliations.

"Given everything, in the end, when you boil it all down, the best thing was to pursue relationships that stop short of a merger," Ness said.

Dr. Robert Sprunk, chairman of the Munson Medical Center Board, said time was also becoming a factor.

"We needed to put an end to the debate," Sprunk said. "This was a long, deliberate, complicated issue and we've made one decision but it isn't the end. The board's work, the hospital's work, has not stopped and will not stop."

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