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University of Michigan’s Michigan Medicine finalized the acquisition of Lansing-based Sparrow Health System on Saturday, following receiving regulatory approvals.
The pair are expected to host a news conference at 2 p.m. today.
Related: Michigan Medicine to buy Lansing-based Sparrow Health
Under the acquisition, news first reported by Crain’s Detroit in December, Michigan Medicine plans to invest $800 million into the struggling Sparrow system over eight years.
The combined health system is now a $7 billion health system that operates more than 200 locations.
“This is an incredibly proud moment for Sparrow as joining University of Michigan Health enables us to accelerate our expansion of services, build greater breadth and depth of clinical expertise, and seamlessly integrate leading-edge technology and other updates into our facilities,” James Dover, president and CEO of Sparrow Health System, said in a news release obtained by Crain’s. “We look forward to realizing our shared goal of delivering nationally renowned clinical excellence in an accessible way for patients.”
When the UM board of regents approved the deal in December, Marschall Runge, CEO of Michigan Medicine and dean of the UM Medical School, told Crain’s that the deal was a strategic move to grow UM’s ability to care for more patients and more complex patients.
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“We get referrals from all over the state and we just don’t have the capacity to increase referrals to Ann Arbor,” Runge told Crain’s. “We’ve learned through our affiliations we can improve care locally, not just in Ann Arbor. So five years down the road, we want to increasingly take care of the most ill and most complicated patients in the state.”
One in three adults lives with at least two medical conditions that require treatment. Health systems are building more ambulatory care settings to care for common ailments and surgeries, thus freeing up specialists to deal with those complex patients.
Michigan Medicine’s Ann Arbor hospital already is known as a destination hospital, and it’s looking to disperse more complicated, and often higher margin, patients away from its main hospital.
Runge said roughly two-thirds of the investments will be in facility improvements and the last third will go to “substantive” capital investments, such as new buildings and large technology investments.
“(These investments) will allow Sparrow to proceed more rapidly (to treat complicated patients) by making some of these changes,” Runge said.
This is also the impetus for the Ann Arbor system to spend nearly $1 billion on a new 12-story, 264-bed hospital adjacent to its existing hospital in Ann Arbor. In December, it received one of the state’s largest philanthropic gifts: $50 million to rename the hospital to the D. Dan and Betty Kahn Health Care Pavilion, expected to be completed in 2025.
Michigan Medicine has rapidly increased its affiliations in recent years, largely through its pediatric services.
The Ann Arbor-based health system signed a master affiliation agreement in 2012 with the country’s fifth largest health system, Livonia-based Trinity Health, to bring more pediatric services across the state. The latest move included opening pediatric urology and orthopedic clinics in November at Trinity Health Oakland Hospital in Pontiac as well as a surgery clinic coming online in January.
The partnerships between the systems include a joint venture to run Chelsea Hospital and joint operating agreements to bring UM Health cancer and cardiovascular services to Trinity’s operations on the west side of Michigan.
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Michigan Medicine and Sparrow signed an affiliation agreement in 2019, with Michigan Medicine integrating pediatric services at the Sparrow Children’s Center in Lansing. A full merger was rumored during the negotiations for the affiliation. Michigan Medicine also made a minority investment in Sparrow’s health plan, Physicians Health, in 2019.
It’s unclear what will happen to Sparrow’s existing partnership with Michigan State University’s College of Human Medicine and College of Osteopathic Medicine.
The sale comes as Sparrow Health System announced plans earlier this fall to lay off hundreds of workers after recording a $90 million loss during the first six months of the year, even as it struggles with worker shortages.
The Lansing-based hospital system said in September that rising costs have left it no choice but to part with staff mostly in leadership and non-patient care roles. Some eliminations will be in clinical roles where patient volumes have declined.
The system would not comment beyond its statement and would not define the exact number of job losses.
“Expenses have risen across all categories, including supplies and salaries, wages, and benefits, while patient volumes have declined, and the cost of contracting agency labor has skyrocketed,” the system wrote in the statement at the time. “In effect, the COVID pandemic may be over clinically, but it has caused a financial pandemic for the nation’s healthcare providers. As a result, we are implementing staff reductions that impact several hundred roles at the health system.”
Michigan Medicine employs about 25,000 employees with net patient revenue of $4 billion in 2021. Sparrow employs roughly 10,000 employees with net patient revenue of $1.2 billion. Michigan Medicine operates just one hospital in Ann Arbor and 40 ambulatory facilities, while Sparrow operates six hospitals in Lansing, Carson, Ionia, Charlotte, St. Johns and a specialty hospital inside its main Lansing hospital. It also operates 56 ambulatory facilities.
The deal marks the second major health system merger since last year.
In February 2021, Spectrum Health in Grand Rapids merged with Southfield-based Beaumont Health to create the state’s largest health system with more than 60,000 employees and 22 hospitals. The merged system renamed itself Corewell Health in October last year.
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