Grand Blanc, Mich.-based McLaren Healthcare Corp. plans to acquire St. Luke's Hospital in Maumee, Ohio, a deal that would give McLaren its first hospital outside of Michigan.
Through the deal, McLaren would become the sole shareholder of St. Luke's and commit to as much as $120 million in capital investments in the hospital over the next five years, McLaren President and CEO Philip Incarnati said.
Those plans include building a cancer center that would be affiliated with the National Cancer Institute-designated Barbara Ann Karmanos Cancer Institute in Detroit. McLaren said it would also invest in a new orthopedic, neuro and spine center, renovate St. Luke's intensive care center and surgical suites and fund other infrastructure upgrades at the Ohio hospital.
That would enable St. Luke's, which has operated in the red the past three years on a budget of about $200 million, to provide quality services to its market while also helping stabilize its finances, President and CEO Dan Wakeman said.
The organizations expect to complete the deal, pending board and regulatory approvals, by mid-2020.
Located near Toledo, St. Luke's has 176 beds but is licensed to operate 314.
It queried 15 large, Midwest health systems before identifying McLaren as the strongest partner, Wakeman said.
The two organizations had been in talks the past six months but have known each other and talked about different opportunities for years, he said.
"Critical to our decision was the framing opportunities that position St. Luke's to continue to play an important role in delivering essential and expected health services to the community, while providing an attractive environment for our physicians to practice and being an employer of choice," Wakeman said.
St. Luke's has been financially challenged, like other independent hospitals in urban markets in the Midwest, he said.
"We knew we needed to have an organization with scale to provide the capital ... to do the strategic things we need to do for this community," Wakeman said.
Given McLaren's scale in Michigan, "there's only so much more we could do (in the state), short of a merger with another similar- sized company," Incarnati said.
While McLaren is in discussions with unnamed parties in Michigan, he said, right now, the biggest opportunities for growth are going to come in Ohio and Indiana.
"St. Luke's Hospital is a valuable healthcare provider in this region," Incarnati said. "We look forward to growing and enhancing the hospital's services and programs to continue their long-standing tradition of providing superior-quality healthcare close to home."
Bringing St. Luke's into the McLaren fold will offer opportunities to grow in Northwest Ohio, Incarnati said. And given that it's a contiguous market to Michigan, it creates opportunities for operational savings.
McLaren expects to post $5.7 billion or more in revenue for fiscal 2020, Incarnati said.
The fully integrated health network includes 14 Michigan hospitals, about 350 outpatient ambulatory surgery and imaging centers, 490 employed primary and specialty care physicians, commercial and Medicaid HMOs, home health and hospice providers serving Michigan and Indiana. It also operates a network of cancer centers and providers, anchored by the Karmanos Cancer Institute. The deal would bring 1,200 employees at St. Luke's to the 26,000 employed by McLaren.
St. Luke's merged with ProMedica, another health provider, in 2010. ProMedica fought the government's efforts to block the merger for five years in the courts before being ordered to separate by the Federal Trade Commission, according to a February 2017 Toledo Blade report. The FTC said the merger severely limited competition in the Toledo area and would drive up medical care prices, according to the report.
St Luke's has been struggling to operate independently since, Wakeman said.
This article was originally published in Crain's Detroit Business.