The Sale of Chelsea Hospital
St. Joe's takeover holds promise, perils
by Vickie Elmer
After nearly forty years of independence, Chelsea Community Hospital is giving up its autonomy for the safe harbor of a giant health care empire.
The impending sale to Saint Joseph Mercy Health System, part of Novi-based Trinity Health, is likely to bring new doctors and services as well as a new forty-bed wing and other physical improvements. But it also may mean higher prices, fewer jobs, a greater emphasis on profitability, restrictions on contraception and sterilization, and other changes.
“Chelsea Hospital was a premier hospital for people. I’m afraid it will become [another] St. Joe’s,” says Robert Squiers, a retired state police officer who has been to both hospitals and finds St. Joe’s more impersonal. “Sometimes when things get too big, you get lost in the system.”
Kathleen Griffiths, who has served as Chelsea Hospital’s CEO for ten years, understands such concerns. But she’s confident the sale is the right move.
“It was wiser for the hospital to make this decision when we were in a strong position rather than waiting [until] when the hospital was weaker,” she says. “I’m not naive [enough] to think there won’t be changes here . . . [but] if we are a successful hospital, to suggest that St. Joe’s would want to come in and disrupt something that is working here is not a logical conclusion.”
Chelsea Community Hospital has indeed been a success by many measures—patient satisfaction, medical outcomes, fund-raising, professional talent, community connection. Its nationally known head pain clinic and other specialized services draw from well outside Washtenaw County.
As the largest employer in Chelsea, the hospital is an engine of the area’s economy, as well as a meeting place and a location for fund-raising events and award banquets. “They’ve been such a good corporate citizen,” says mayor Ann Feeney. “They support so much with money and advertising dollars.”
But after the sale, the hospital will no longer be run locally. Chelsea Community Hospital will keep its name and a local board of directors, but
the key decisions will be made by St. Joe’s and its parent, Trinity Health, the nation’s fourth-largest nonprofit health care organization. Trinity owns or manages forty-four hospitals with $6 billion in annual revenues.
Some residents wonder if fewer services will be available locally. “Nobody wants to see any of the programs cut,” says Maggie Roberts, owner of Service First Home Care in Chelsea, who worked at the hospital part time for a decade.
But officials say such worries are unfounded. “This is going to be a vibrant community hospital, not a shell,” says Eric Skye, CCH’s chief of staff.
Nestled in a wooded, tranquil 119-acre campus, Chelsea Community Hospital has thrived for decades by collaborating and cooperating with both the University of Michigan Health System and St. Joe’s. The idea was to give residents of Chelsea, Dexter, Manchester, and environs “a single entry point” for health care services, says Will Johnson, Chelsea’s CEO for twenty-three years. Some services—such as delivering babies—were left to the larger hospitals, while CCH specialized in areas where it could excel.
John Hansen, former state senator and former superintendent of the Dexter Community Schools, remembers his first visit to Chelsea Hospital. After an accident at a construction project, he headed to the emergency room, where he was quickly stitched up—and only afterward was asked for his insurance information. “They just took care of me,” he recalls, “and then they did the paperwork.” Hansen, a former hospital trustee, hopes the “personal small-town care” won’t fade away.
The hospital opened in 1970 as a private business owned by a group of doctors led by Michael Papo. The emergency room and intensive care unit were added four years later. In 1972 the physicians were bought out by a group of hospital trustees and other community leaders, who turned the organization into a nonprofit. “We worked so hard to be a community hospital,” says Arlene Howe, who served on the board before and after that transition. Howe was instrumental in
bringing a U-M family practice unit to Chelsea Community Hospital. More than thirty years later, it’s still thriving, with 30,000 patient visits a year, two dozen physicians, and thirty family-medicine residents who rotate through the clinic and hospital.
Howe also convinced the board to bring in a full-time hospital administrator—Johnson. During his tenure the hospital added the head pain clinic (1978), an inpatient rehabilitation center (1980), and a women’s health center (1986). “Will was very good at borrowing money” to make improvements to the hospital, Howe says. When he retired, the street leading to the hospital was named for him. He still lives within a block of the hospital and visits its Health & Wellness Center fitness club.
Johnson says he hopes the hospital’s mission—combining small-town values with high-quality medical treatment—goes forward. According to Hansen, “Will Johnson prized [the hospital’s] independence” and rebuffed many overtures and merger offers over the years.
The decision to end that independence was neither easy nor quick. More than three years ago, the hospital undertook a review of its aging buildings. The board hired a consulting firm to develop a plan. An expansion and renovation project was recommended, costing about $70 million and centered on a new three-story, forty-bed wing.
Chelsea attorney Patrick Conlin, who chaired the board, says the members spent a year considering alternatives. They looked at staying independent and raising or borrowing the money themselves, Conlin says. But, he says, given the economic realities—including the growing clout of health insurers to set rates for hospital services—they asked themselves, “Are we really being responsible board members to say ‘Let’s brazen it out and do it alone’?”
In October 2007 a majority of the board voted to join forces with either St. Joe’s or the U-M. “Talk about a difficult decision and a delicate thing,” given the long-standing ties with both major institutions, says Conlin. The Saint Joseph system won out in February, Conlin says, because it has more of the “big community hospital model” and is “just a little more like us” than the U-M’s University Hospitals. Many of Chelsea’s hospital services—from the emergency room to the radiology department—are staffed with physicians who also practice at St. Joe’s.
Griffiths, Chelsea’s CEO, declines to reveal either the purchase price or the amount St. Joe’s is committing to planned improvements. But according to Conlin, the hospital’s been promised a “brand-new or massively redone” emergency room and a new forty-bed hospital wing within five years.
If all the details come together, the sale could be completed by the end of the year. Griffiths is likely to retire within a year or two, and decisions on executive pay, who will be the next CEO, and other key issues will be decided by the board at Saint Joseph Mercy Health System and ultimately by the parent company, Trinity Health.
The scope and timing of the expansion project are still unsettled. Steve Paulus, the Saint Joseph Mercy Health System’s point man on the purchase, says St. Joe’s has agreed to “a dollar figure” for the facilities improvements but adds, “I don’t know how that will be paid for,” and cautions there are “caveats” to the five-year timeline.
Trinity Health has lent millions to its hospital systems before. The corporation has a healthy AA debt rating, five years of rising profit levels, and lots of money in the bank. It had $3.2 billion in cash and investments at the end of 2006, enough to produce $280 million in investment income for that year, according to a report by Fitch Ratings. “Their size and scale allows them to weather storms,” says Fitch director Anthony Houston.
By contrast, Chelsea Community Hospital’s existing debt carries a BBB rating. So joining Trinity may lower borrowing costs for the hospital expansion and new technologies at Chelsea, Houston says. And, he adds, Trinity knows how to use its management and financial strengths: “Their history has been to fully engage” in each organization they manage, he says, and Trinity brass is “pretty aggressive in making sure they’re not laggards” in efficiency and profitability.
Trinity will bring best practices, financial benchmarks, and patient care standards to Chelsea over the coming months. And Chelsea will have some say in setting the new measures of its operations. “We will work with them to establish performance expectations,” says Paulus. “Chelsea is an extremely well-run hospital. Their stewardship of their resources is excellent.”
Yet Saint Joseph Mercy Health System keeps a higher share of its revenue—about 12 percent of every dollar brought in—than Chelsea’s 9 percent. And personnel costs represent 57 percent of total revenues at Chelsea, compared to 49 percent at Trinity hospitals.
Griffiths says the health system has given assurances that the merger will bring no job losses. But management will continue to look for “opportunities for efficiencies,” she says, including possible consolidation of some support services.
After the buyout, CCH patients may see new oncology and chemo¬therapy services and perhaps improvements in cardiology and other specialties, Griffiths says. But overall, some experts say, mergers usually have the opposite effect: they move services from the smaller hospital to the larger one acquiring it.
Griffiths says the many St. Joe’s physicians who already practice part time at Chelsea will encourage other doctors to come. But some doctors privately question why any more physicians would drive to Chelsea once that hospital is part of a health care organization they can access closer to their main market area.
Chelsea Community Hospital has not done abortions for years, but in 2007 seventy women had their tubes tied there, and an unknown number of men had vasectomies. Those procedures and anything else related to contraception will no longer be done in the hospital once CCH becomes part of a Catholic organization. And Saint Joseph Mercy Health System employee health plans do not cover birth control.
However, doctors in the medical building on the hospital campus will be able to prescribe birth control and perform in-office vasectomies, says Paulus. The U-M’s Chelsea Family Practice Center also will be separated from the hospital, so it will be exempt from Trinity Health’s rules prohibiting contraception and certain end-of-life procedures.
The U-M clinic has a “very long and very productive affiliation” with the hospital, says Skye, CCH’s chief of staff and a part-time professor at the U-M Medical School. More than twenty physicians affiliated with the university practice at Chelsea, and they will continue to use the hospital and its facilities and operations, as will U-M medical residents. “There’s a long-term commitment, a contractual commitment,” says Tom Schwenk, chair of the U-M’s family medicine department.
Schwenk acknowledges that the U-M wanted to acquire Chelsea Community Hospital and is disappointed it wasn’t chosen. “It certainly makes it trickier for the university not to own Chelsea Hospital,” he says. “I have all sorts of concerns about things that might happen that are not favorable to us in Chelsea.” But, he adds, “that’s too speculative to discuss.”
Two groups could end up squeezed by the buyout in years ahead: consumers and the hospital’s employees.
By merging, hospitals can increase their negotiating power with health insurance companies. This allows them to improve profitability, but charging insurers more for some medical procedures can trickle down to employees too, says Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University. “There could be substantial harm to consumers” when a hospital buyout reduces competition in a region, says Gay¬nor. “Price increases can be substantial.” Some employers may pass along those higher costs to their staffs; others may just stop offering insurance. “Hospital mergers increase the number of uninsured,” Gaynor says, citing research from the University of Minnesota. But Chelsea CEO Griffiths says no price increases arising from the buyout are anticipated.
As for the hospital workers, “I would hope they wouldn’t do a big reduction in staff,” says Mayor Feeney. CCH employs about 1,025 people, and they will become Saint Joseph Mercy Health System employees about a year after the merger is completed. Hospital officials say the pay and benefits are comparable, but some workers are concerned.
Maggie Morehouse, Chelsea’s director of nursing, says her 230 nurses are asking about staff-patient ratios, changes in operations, and hospital culture. “They want local leadership and a visibility of leadership,” she says. “There’s always . . . fear of the unknown.” But Morehouse herself isn’t worried. She’s worked with doctors from St. Joe’s for many of her thirty-two years at Chelsea and believes it’s “community based. Their nursing care is excellent.”
Others wonder how the sale will affect CCH’s community support. “Half the people in Chelsea are financial supporters of the hospital,” says Squiers, the former state police officer. He’s among them, but he says he may not donate as much now that it has the resources and fund-raising apparatus of Trinity.
Trinity aims to sustain CCH’s local connections with a new health foundation. Established with cash proceeds from the sale, the Health and Wellness Foundation for the Chelsea Community will take over ownership of the hospital’s Health & Wellness Center and its share of the Silver Maples Retirement Community. It will also support the hospital with fund-raising and other initiatives.
Griffiths says she knows some donors are skittish. “What’s really important for our local donors is that any money that is raised in Chelsea stays in Chelsea,” she says. She’s promising this will be the case. The big unknown is whether Chelsea will still feel the same sort of pride and connection with its local hospital once it’s owned by an out-of-town corporation.
[Originally published in January, 2009.]