SPECTRUM TO BOOST PRICES AND PROFITS

Last night Spectrum Health Corporation held its annual public meeting to announce financial information and solicit comment on expenditure of its "Healthier Communities" community outreach fund.  The meeting was hosted by Spectrum CEO Richard Breon, and about a hundred people attended including Spectrum boardmember and Amway-founder Rich DeVos.  The highlights of the meeting were:

Price increases.  Spectrum has two primary sources of revenue:  Healthcare services and healthcare insurance premiums (through Priority Health, of which Spectrum owns just under 80%).  Effective July 1st it is increasing prices for healthcare services by 8% and insurance premiums by 6-7%.  It is important to understand that not all patients will bear this burden equally.  The price increase will fall disproportionately upon patients without insurance or who belong to small insurance groups -- e.g., coverage provided through employment with a small business.  Spectrum will continue to accommodate large groups -- i.e., Medicare, Medicaid, and the biggest employers insured by Priority Health -- with discounted pricing.

Profit increase.  Spectrum is a non-profit organization, so it technically does not turn a profit, though at the end of the year it has a figure representing revenues in excess of expenses -- i.e., profit.  So that's what we'll call it to keep it simple.  This fiscal year, which ends June 30th, Spectrum will have a profit margin of 3.13% on about $1.9 billion in revenues.  Spectrum is increasing its prices to increase its profit next year by 18% to 3.68% on a targeted $2.3 billion in revenues.  Because of the cost-shifting from large groups (noted above) to small groups and individual patients, that means a disporportionate amount of that increased profit will come from the little guys.  CEO Breon announced that Spectrum's profits will go to capital expenditures -- e.g., buildings and equipment.

Executive salaries.  Yesterday Spectrum's board increased Breon's annual base salary to $700,000, which Breon confirmed in response to a question from the public.  In addition to his base salary, Breon is also eligible for incentive bonuses if the hospital meets certain performance goals set by the board.  In response to this issue, DeVos got up to address the meeting to say that the $700,000 was necessary to keep Breon from leaving River City for greener pastures elsewhere.

"Healthier Communities" program.  In 1997 the U.S. District Court approved the merger of Butterworth and Blodgett hospitals under the Spectrum umbrella on the condition that Spectrum honor a consent decree.  The decree had several conditions including a requirement to spend $6 million annually on community outreach.  To this end, Spectrum created the "Healthier Communities" program under the direction of Mary Kay Klempker, R.N., to distribute these millions to various clinics and healthcare programs in the Grand Rapids area.  Breon announced that it will maintain this annual commitment despite the expiration of the consent decree.

At the meeting Spectrum received a great deal of praise from some recipients of "Healthier Communities", in particular for the health screening and vocational programs at Grand Rapids Central High School.  There was also some dissent.  There was vocal disagreement about the effectiveness of the "Strong Beginnings" program which targets pregnant women in the city's black community.  Also, Lody Zwarensteyn of the Alliance for Health noted that an increasingly large portion of the $6 million fund was going to administrative costs, which are in effect reimbursements to Spectrum and its affiliates such as the Grand Rapids Medical Education & Research Center.  This past year that cost reached 14.2%, or about $829,000 that went to Spectrum etc. rather than community healthcare organizations.  Breon was non-committal as to even reviewing these issues.

After receiving some further praise for the "Healthier Communities" program, Breon closed the meeting.