LANSING — As nonprofit hospitals, UM Health-Sparrow and McLaren Health Care Corp. dominate Greater Lansing’s health care landscape. Their footprints continue to grow with McLaren’s new hospital and planned expansions for both entities.
This is not unique to Lansing.
About 91% of Michigan hospitals are tax-exempt nonprofits, according to one estimate. Recent research found that in 2021 at least 70% of their collective $1.3 billion tax benefit was due to their exemption from state taxes. The hospital systems report to the IRS their charity care and community benefits spending as one tradeoff for their tax-exempt status.
What does that mean – for the patients they serve, the people they employ and the communities in which they are located?
After reviewing five years of IRS 990 tax filings, court records and talking to health care researchers across the nation, here are key findings from the State Journal’s reporting. Full story here.
What is the impact of hospital mergers for patients?
Hospital mergers have been happening across the country for decades, resulting in greater concentration of who owns health care systems.
That means people in the Lansing area, like many others in Michigan and the U.S., live in highly concentrated hospital markets where they have fewer choices for who provides necessary care.
Researchers have been studying these transactions for years and a large body of their work has found that consolidation results in increased patient costs without definitive evidence of better care.
Patient costs increase, experts said, in part because the larger a system is, the more power it has when negotiating with insurance companies. The leverage further increases when a system is involved in multiple health care services, such as physician practices or urgent care clinics, to go along with their hospitals.
How large are Lansing’s nonprofit hospitals?
McLaren Heath Care, with its 12 hospitals across Michigan, is a $7.3 billion organization.
In 2023, UM Health-Sparrow’s six area hospitals, part of the $7 billion expanded UM Health organization, had about $1.1 billion in assets.
How much do Sparrow and McLaren spend on community benefit programs and how is that determined?
Community benefit programs include free or reduced care to low-income patients, covering unpaid Medicaid costs or projects aimed at improving the health of local communities.
After revenue offsets, UM-Sparrow tax records show its six hospitals dedicated $97.7 million for this work in 2022, the last complete 12-month reporting period. That outlay was about 7% of expenses.
McLaren reported $128 million in community benefit programs split between its 12 hospitals, equal to roughly 4.5% of system expenses in 2023.
Is there oversight of nonprofit hospitals and how they operate?
MORE: What to know about how LSJ reported the Hospital Giants project
Michigan’s nonprofit hospitals can spend however much they want on programs to improve the health of people where they’re located. They must report this spending, along with other financial information, to the IRS as one of the few requirements to maintain their federal tax exemptions. Michigan sets no requirements of its own.
The Attorney General’s Office and the Department of Health and Human Services have oversight of hospital transactions, but their reach is limited.
A transaction involving two nonprofit hospitals or systems doesn’t need AG approval prior to closing. The office can, however, file a lawsuit to block a proposed deal on antitrust grounds. Spokesperson Danny Wimmer said the office has not done so since 2019.
And while MDHHS has oversight of acquisitions, that oversight can be sidestepped.
U-M’s acquisition of Sparrow was structured so that Sparrow Health System remained the “immediate parent company” of its hospitals. U-M Health became the owner of Sparrow Health System and the University of Michigan was set as the “ultimate parent (company),” according to a MDHHS letter to the system.
Since the deal “would not constitute a change in ownership” it did not require DHHS “review and approval,” according to the letter.
It’s a similar structure to what Sparrow used when it absorbed Charlotte’s Hayes Green Beach Memorial into its system in 2019.
A UM-Health Sparrow spokesperson did not answer the State Journal’s questions about why both deals were structured that way.
Contact reporter Matt Mencarini at mjmencarini@lsj.com.
This article originally appeared on Lansing State Journal: Key findings from the LSJ’s reporting on nonprofit hospital systems and their influence
Reporting by Matt Mencarini, Lansing State Journal / Lansing State Journal
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