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JTV will have video coverage of Allegiance Health’s “Breakfast for Business” on Thursday’s Bart Hawley Show with guest host Mike Archer.  Here is an outline summary of this morning’s event by JTV’s Gary Binkowski.

Breakfast for Business

Allegiance Health “Merger” with University of Michigan Health System (UMHS)

December 4, 2013

Allegiance Health CEO Georgia Fojtasek opened with a brief explanation for the rationale behind the proposal.

  • Currently Allegiance Health (AH) has pursued a change from the pay for volume outlook on healthcare provided for the Jackson community to pay for value.
  • Goal: To increase the health of the Jackson community.
    • This cannot be done by AH alone
    • Thus the backing of University of Michigan Health System (UMHS)


  • AH will become a part of the UMHS
    • Both already work together on certain health services (i.e. radiation oncology)
    • This will be a Non-profit transfer of assets
      • No check, an expansion of both entities
      • To better serve the patients and to adapt to the rapidly changing environment
        • Goal: Patients receive the right care from the right providers at the right place and at the right time.
        • This will allow AH/UMHS to take advantage of the best services of both entities
        • AH has only signed a Letter of Intent…A Proposal
          • It has not been determined how AH will generate funds as a part of UMHS.



  • Affiliation Benefits: According to Georgia, these were “must haves” as they drafted the Proposal
  1. 1.     Local Governance
  • AH will have a separate governing board
  • Board will consist of community members, physicians, UMHS individuals (more to come on this)
  1. 2.     Financial Stability
  • UMHS will invest $100 million over 7 years
  • Upon closing, UMHS to present $25 million to AH Foundation
  • Maintenance capital to be paid by UMHS
  1. 3.     Clinical Resources
  • Commitment to “essential service” for 10 years
  • To further develop the “Signature Clinical Programs” that are already in existence
    • (cardiovascular & radiology oncology)
    • Support Graduate Medical Education and Trauma Service
    • To get the most out of ACO’s (Accountable Care Organizations, federal funding that gets kicked back to hospitals, having certain programs will increase $$’s)

At this point Ora Hirsch Pescovitz (CEO of UMHS) spoke about why they chose AH

Why Allegiance First? (top 3 points were most important according to Pescovitz)

  • Share common values, mission, and purpose
  • Extraordinary work evident
  • Second to none management teams
  • Geographic proximity
  • Already some work is done together (clinical)
  • High quality/low cost setting
  • Value that the programs are here for the community – and wanting to keep them here
  • Impressed with leadership and community involvement

Larry Schultz – Chair, Board of Trustees

Schultz spoke briefly on the purpose of AH and why it was in the best interest of the hospital and the community that UMHS absorb AH.

  • To continue to grow, adapt, and serve, we recognized that we needed a partner, UofM was that.
  • Not because of the past but because of the future. (referencing the changing atmosphere of health care)
  • “[A] Charitable health system must continue to be successful.”
  • UofM has come to realize the importance of the community to the hospital (AH).
    • This aspect proves the need for local control/governance
    • This health system needs the people (consumers) who have the ability to go elsewhere.
      •  95% of Medicare/Medicaid users in the area choose to use AH, but the percentage of people who have their own insurance independently or through an employer that use AH is drastically lower.
      • “It is the right place, right time, and we believe this is the right partner.”

Q & A

Questions were written down by those in attendance and were answered by several leaders: UM CEO,CFO AH CEO, Board of Trustees Chair…

Q: What do the coming months look like?


  • The Attorney General is responsible to close the deal because of the non-profit status
  • Due-diligence on the part of UMHS
  • Several transfer of assets
  • Best case scenario, closing Mid-summer. More likely to be 12-18 months

Q: What does this mean for costs? Health care provided by employers.

A: By taking advantage of economies of scale, AH hopes to use this opportunity to “work the curve” to make health care more affordable.

Q: How does this impact the residence program?


  • There is no reason to change it
  • This was a buying point for UMHS
  • UMHS looks to send some of the UofM students to AH because they are running out of room in Ann Arbor

Q: What type of corporate citizen will UMHS be?


  • UMHS has a good track record in Ann Arbor
  • Terms of agreement should be an evidence of this
  • One buying point of UMHS… AH is already a good member of the community
  • Being part of UofM means success and failure rests on them
  • Not looking to close AH at any time.
    • There is no room for patients in Ann Arbor. They would like to use AH as an outlet
    • According to Ora Pescovitz

Clinical Development: 10 year commitment to development


Q: Does UMHS receive higher reimbursement?

A: Answered by UMHS CFO Paul Castillo

  • Yes… In short
  • ACO’s kick back more for extra teaching, programs, etc…

Q: Will it change AH’s reimbursement?

A: In short, No. Castillo wouldn’t comment much on the monetary side. He said his legal advisors wouldn’t think it wise to continue (jokingly) but he still didn’t offer much insight to what the dollars looked like.

Q: How will this look on the Balance Sheets?


  • Service side provided by UMHS
  • AH will still have its own balance sheet

Q: What will the governance look like?


  • Board will change numbers.
    • 15 to 18 (18 will be a temporary board)
    • 18 to 13 members (7 UofM, 5 AH, and the CEO)
    • It will be a fiduciary with full control, however, UMHS still has power to override if AH board doesn’t do its job.


AH Foundation

Long term: current size is $1.5M, anticipating $25M deposit upon signing of deal

In relation to the Affordable Care Act

Regardless of your stance, medical service is too expensive. 19,000 uninsured in Jackson

Anchor Initiative: AH & Consumers

350+ highly paid/highly skilled individuals coming in to town for jobs

Development of urban core

Will this change devotion to Anchor Initiative? “Nothing can change and nothing will.”

Q: Is there a transition plan?


  • Still a lot of business work to do
  • “important to focus on what will be at the end” AH does not want to spend 3 years on this project.

Q: How can this group help/get involved and make things better?


  • Ask the right questions. There will be a 30-60 day time period to ask. (AH website)
  • Needs community support
  • We want to demonstrate what Jackson can do
  • “We do not want to become a mini Ann Arbor”
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