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Our Take: Michigan’s U-M Health, Sparrow Health combine to form $7 billion health system

Apr 10, 2023

Sparrow Health System, a six-hospital system based in Lansing, Mich., officially became part of Ann Arbor, Mich.-based University of Michigan Health (U-M Health) on April 1. 

The combined health system has an enterprise value of approximately $7 billion and more than 200 sites of care throughout the state. According to the news release, Sparrow Health adds more than 120 sites of care, approximately 10,000 staff, and an estimated 600 employed primary care providers and specialists to U-M Health. 

“This is an incredibly proud moment for Sparrow, as joining University of Michigan Health enables us to accelerate our expansion of services, build greater breadth and depth of clinical expertise, and seamlessly integrate leading-edge technology and other updates into our facilities,” said Sparrow Health System CEO James Dover.

“This combination creates a clinical care network that builds upon the strengths of the world-class University of Michigan Health academic medical center and Sparrow’s successful community-based health system,” said Paul Brown, chair of University of Michigan’s board of regents.

Eventually, Sparrow will transition “to a brand aligned with University of Michigan Health,” according to a set of Q&As on Sparrow Health’s website. 

Sparrow Health System said the combination builds on an existing partnership established in 2019 between U-M Health and Sparrow Children’s Center, in addition to U-M Health’s investment in Sparrow’s health plan, called Physicians Health Plan. 

U-M Health has committed to investing $800 million in Sparrow over the next eight years. 

Although Sparrow Health System is part of U-M Health, it will continue to operate as a nonprofit organization and its physicians and other clinicians will continue to be employed by Sparrow. 

The board of Sparrow Health System will continue to lead the health system’s local operations, and three board members will become members of the U-M Health Corporation Board. 

In separate news, Sioux Falls, S.D.-based Sanford Health and Minneapolis-based Fairview Health Services have delayed their proposed merger again — this time for an unspecified period of time. They postponed their planning closing date earlier this year by two months, from March 31 to May 31, at the request of Minnesota’s attorney general’s office. 

If the merger eventually takes place, the resulting entity will be a $14 billion health system with 58 hospitals and approximately 78,000 employees. The deal was announced in November but has faced considerable pushback, largely over concerns about an out-of-state health system gaining control of the University of Minnesota Medical Center, which Fairview owns.  

The health systems said they would give the AG’s office 90 days’ notice ahead of their intended closing date.

“We respect the thorough review underway by the attorney general’s office and are honoring their request for more time as we continue work toward finalizing our combination,” the systems said in a joint statement. “We remain confident in the benefits of the merger for our people, patients, and communities and our shared vision to advance world-class health care for all we serve.” 

What else you need to know
The Federal Trade Commission has ordered Illumina to divest Grail, reversing last year’s ruling by an administrative law judge at the FTC that dismissed antitrust charges in a complaint filed by FTC staff. In 2021, Illumina, a San Diego-based company that provides next-generation DNA sequencing, completed its $7.1 billion acquisition of Grail, a company with headquarters in Menlo Park, Calif., that makes an early detection liquid biopsy test capable of screening for multiple types of cancer — even though regulatory agencies in the U.S. and Europe had not completed their antitrust investigations. The two companies are currently being held separate under terms of the Interim Measures Order of the European Commission. The FTC issued its order to divest on Monday, saying the acquisition would “stifle competition and innovation in the U.S. market for life-saving cancer tests.” Illumina told various news outlets it would appeal the FTC’s order. Meanwhile, in a letter to investors filed with the Securities and Exchange Commission, activist investor Carl Icahn reiterated his view that the companies should be separated and Illumina CEO Francis deSouza should be replaced.

The Department of Justice is appealing the recent ruling by a federal judge in Texas that invalidated the Affordable Care Act’s preventive care mandates. The mandates require insurers to cover certain preventive services and treatments with no cost share for plan members, but the judge ruled that insurers and employers do not have to comply with coverage recommendations made by the U.S. Preventive Services Task Force and adopted after the ACA became law in 2010. He said enforcing the recommendations violates the Constitution’s Appointment Clause because the task force was not appointed by the president or confirmed by the Senate. The case now heads to the Fifth Circuit Court of Appeals.    

On Friday, another federal judge in Texas issued a preliminary ruling suspending the FDA’s approval of mifepristone. If the approval is overturned, the drug could be banned nationwide. Mifepristone was approved in 2000 in combination with misoprostol to end pregnancy through seven weeks of gestation; the FDA later extended the gestation period to 10 weeks. The judge said the ruling would not take effect for a week, giving the FDA time to seek an emergency appeal. Right after the ruling in Texas, a federal judge in Washington state issued a preliminary injunction in a separate case filed by more than a dozen state attorneys general; that ruling enjoins the FDA from taking any action that would restrict the availability of mifepristone in the states represented by the plaintiff AGs. 

CMS’ final payment rule will raise Medicare Advantage (MA) payments by 3.32% in 2024 and phase in risk adjustment changes over a three-year period instead of implementing all of the changes next year. Among the changes, CMS will transition from the Internal Classification of Diseases (ICD)-9 coding system to the ICD-10 system to bring MA payments in line with current health practices and make them consistent with other federal health care programs, according to the agency’s announcement. The agency said the policies would “help make more accurate payments” and “[reduce] incentives to cherry-pick healthy beneficiaries and discriminate against sicker patients.” CMS also said it would “continue to pay more for someone who is dually eligible for Medicare and Medicaid than someone who is not when they have the same diagnoses.” Specifics of the final payment rule are available in a fact sheet.

New York launched a new pharmacy benefit program called NYRx for people enrolled in the state’s Medicaid program. The new fee-for-service program is designed to improve prescription drug access and coverage for enrollees and simplify the prescribing process for clinicians, according to a news release. Enrollees will have access to a statewide network of more than 5,000 pharmacies, the largest network in New York. Pharmacists and physicians will prescribe medications based on a single, uniform list of drugs governed by an independent board of experts. The Medicaid program will pay pharmacy costs directly, eliminating the need for pharmacy benefit managers.

The FDA authorized InflaRx’s Gohibic (vilobelimab) as a treatment for critically ill adults hospitalized with COVID-19. The drug, a first-in-class monoclonal anti-human complement factor C5a antibody, is to be initiated within 48 hours of receiving invasive mechanical ventilation or extracorporeal membrane oxygenation (ECMO). Complement factor C5a targets a part of the immune system thought to play a role in the inflammation that leads to COVID-19 disease progression, the FDA noted in a press release


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