Columns

Ken Winter

Tough Times
for Community Hospitals

February 21, 2012

Petoskey’s Northern Michigan Regional Hospital (NMH), one of Northern Michigan’s crown jewels in regional health care, announced recently that it joined a network of nine other Michigan hospitals as a subsidiary of Flint-based McLaren Health Care. McLaren is one of the top 25 integrated health care systems in the United States and one of the top two or three in Michigan.

For some the change came as a surprise, given the hospital’s unique and independent history. However, it fell victim to the same challenges faced by many Michigan health care providers. In the 1980s there were more than 220 Michigan hospitals, virtually all independent. Now there are only 140, according to the Lansing-based Michigan Health & Hospital Association.

The announcement made last month by Reezie DeVet, NMH president & CEO, ended a long series of financial blows, including one of the country’s longest nursing strikes and recent heavy financial losses ranging from $8.1 million in 2008 to $6.3 million in 2010. Similar stories are being repeated in community hospitals across the state.

“Becoming a subsidiary of a larger health system is consistent with our strategic plan,” wrote DeVet in a letter to NMH friends. “Northern Michigan Regional Hospital will realize cost savings through enhanced buying power, be able to borrow money at improved interest rates and gain access to capital for needed equipment and technology. Most importantly, this relationship moves Northern Michigan Regional Hospital significantly toward long-term sustainability.”

Perched high on a hill overlooking the blue waters of Lake Michigan’s Little Traverse Bay, the health facility has received national designations and honors, including some presented by the late President Gerald Ford.

Petoskey started earning a reputation for its healthful climate for allergy sufferers in the 1870s. Just after 1878, an unsuccessful oil-drilling expedition at the mouth of the Bear River had also uncorked a fast flowing artesian well full of minerals. The town, with a 1,152 population (now 6,000+), quickly capitalized on the “mineral well” and found itself with two resorts where “sickly folk” could drink, bathe and steam themselves in “healthy water.” By 1882 some 40,000 people registered in Petoskey hotels for the summer season.

Petoskey itself started growing and developing a special niche encouraging summer tourists to come to the region because of its quality health care. Wealthy benefactors and summer resorters with last names like Gamble, Ford, Offield, Otis and Coleman have supported NMH for decades, which many believed would immunize the hospital from uncertain economic times that plagued other hospitals and ensure its independence.

The late Dr. Dean Burns, who returned to his hometown after his Chicago medical training and Mayo Clinic fellowship to start the Petoskey hospital in 1931, created another asset. He established the Burns Clinic, an independent medical group practice that grew to a 125-physician-owned multi-practice nicknamed the “Little Mayo of the North.” The clinic had been a major fixture in Petoskey for 68 years, attracting patients from a 100 mile radius – year-round residents, affluent retirees and vacationers alike.

The crack in the health care wall started in 1999, when the clinic collapsed after it was sold to the Nashville, Tennessee-based PhyCor health management group.

Five years later the clinic shut its doors in the wake of physician discord over compensation and productivity issues, unhappiness with PhyCor’s management of the clinic, and the clinic’s decision to terminate its contract with Blue Cross Blue Shield of Michigan, the region’s and state’s dominant insurer. That strategy backfired when other health plans failed to enter the market and the clinic lost many of its patients and only 20 doctors remained.

The meltdown was a shock not only to the region, but also to the adjacent NMH, where Burns Clinic physicians had referred their patients. To survive, the hospital, backed by its then $33 million foundation, set up a management services organization to recruit and help physicians set up private practices.

The second shock wave came November 14, 2002, when the hospital, the town’s largest employer, found nearly 270 nurses walking out in an attempt to affiliate with the Teamsters union. The hospital hired costly temporary replacements after only about half of its nurses eventually returned to work. The nearly three-year strike was one of nation’s longest and costliest nursing strikes.

Brian Peters, hospital association vice president, says NMH’s affiliation with a larger health care system is not unusual. Health care reform, private payer insurance reimbursement changes, cuts in state Medicare, economics and demographic changes to an older population needing more health care have played a major role in the need for consolidation.

“All of those things put an increasing press on an independent hospital that doesn’t have the access to capital,” he added, as there has also been a shift from insurers paying for volume to pay for performance.

Peters said many hospitals are also finding themselves needing to replace facilities that were originally built in the 1940s, financed under the Hill-Burton Act to overcome a nation-wide hospital shortage and establish a VA hospitals network. The law represented a conservative compromise with liberal congressional members to prevent national healthcare.

“It’s really a cascade of issues,” he said. “You can’t tackle many of these issues without top notch equipment and technology.”

Besides needing new capital for equipment, Peters said, hospitals must recruit top-talent physicians, who have been leaving Michigan and causing a statewide physician shortage.

The result is a dramatic new chapter for the Petoskey hospital – in what has become an all too familiar health care story.

Ken Winter, former editor and publisher of the Petoskey News-Review and member of the Michigan Journalism Hall of Fame, teaches political science and journalism at North Central Michigan College in Petoskey and Michigan State University.