Detroit Medical Center makes offer to acquire Wayne State University Physician Group

Detroit Medical Center on Wednesday asked permission of its academic teaching partner, Wayne State University School of Medicine, to present an offer to the board of University Physician Group to acquire the medical school's 500-member faculty practice plan, Crain's has learned.

DMC and Wayne State medical school have been in talks since early March on a long-term clinical services agreement. The last agreement expired March 31 and the partners are on a month-to-month extension.

"Despite our collective successes, our contractual relationship and the need to begin renegotiation has caused tension and frustration," DMC CEO Joe Mullany said in a letter Wednesday afternoon to Dr. Jack Sobel, dean of the medical school.

"The tension has been heightened due to the public disclosure of the (medical school's) distressed financial condition."

Last December, Wayne State announced it was undertaking a financial turnaround because a review discovered a $29 million annual loss – amounting to $1.5 million per month - for the medical school and its faculty medical group. This was just two months after learning the school had been taken off accreditation probation.

Last month, less than 40 of about 572 medical school faculty members were notified they were in jeopardy of losing their jobs unless research or patient care production increased.

David Hefner, vice president for health affairs of Wayne State, has acknowledged to Crain's that the medical school is putting in place financial controls and a three-year turnaround plan.

Hefner told Crain's he has not yet seen the DMC letter and could not immediately comment on that.

However, WSU spokesman Matt Lockwood said UPG is not for sale.

In his letter, Mullany said he has been approached by several "prominent (medical school) department chairs to re-establish discussions whereby DMC acquires the University Physician Group."

DMC has made several offers over the years to acquire UPG. Last year, DMC informally proposed to absorb the academic group. Wayne State officials, who have previously refused any sale, recently hired two top executives to manage UPG.

Mullany said there are three structures UPG could consider toward acquisition: full employment, professional services agreement or joint venture.

If the UPG board agrees to pursue discussions, "a detailed action plan would be developed to complete the process during 2016," he said. "Any of these structures would free us from the constraints of our current contractual model."

Mullany closed the letter to Sobel by adding, "We are at a critical juncture that will determine the future success of DMC and the long-term viability of UPG. This is our time to redefine our relationship and allow (the medical school) to focus on academic and research excellence."

Conrad Mallett Jr., DMC's chief administrative officer, told Crain's there have been at least three formal meetings with Wayne State over the clinical services contract. He said another meeting is planned for next week and this offer for UPG is not the final offer and part of the process.

Mallett said Mullany and Reginald Eadie, M.D., CEO of DMC's Detroit Receiving, Harper University and Hutzel Women's hospitals, were scheduled to hold a town hall meeting Wednesday night with more than 125 physicians, including Wayne State faculty. Mullany was to present the UPG plan to the doctors to garner support, he said.

"We want a broad and deep relationship with Wayne State that is highly functional and successful," Mallett said.

However, Mallett said Wayne State officials want a "higher payment" for clinical services than DMC believes is allowed under Stark Law, a federal law approved in the 1980s that is intended to prohibit health care organizations from overpaying doctors for services.

"Because (Wayne State medical school) faculty account for less than half of the DMC inpatient volume (18 percent in 2015) we do not qualify for the academic medical center exception to the Stark Law," Mullany said in the letter to Sobel.

Hefner said he does not believe the Stark Law applies in this case. "They have brought this up before," he said.

Mallett said DMC's interpretation of Stark Law limits payments to Wayne State "under the very strict rules of fair market value."

Mallett said the sale of UPG can allow Wayne State "to get to a point of financial opportunity."

Since 2009, when the current contract was negotiated, DMC has paid the medical school and faculty group practice an ever-declining amount — $51 million in 2015 compared with $68 million in 2009 — for teaching and clinical services.

Mallett said the teaching contract is not under negotiation this year.

In previous interviews, Mullany has said DMC wants Wayne State to help it become a top 15 academic health system. Wayne State officials have said it wants DMC to help it achieve a top 40 medical school ranking.

DMC is investor-owned by Dallas-based Tenet Healthcare Corp.

"Detroit Medical Center makes offer to acquire Wayne State University Physician Group" originally appeared on the website of Crain's Detroit Business.