The University of Michigan Health System formally announced Tuesday a partnership agreement with Allegiance Health, a health system based in Jackson, Mich. The agreement will eventually grow UMHS’ patient capacity by 50 percent — adding Allegiance’s 490 beds to its system.

Per the proposed agreement, signed Monday, the two organizations would continue treating their own patients but would share resources and capital as needed while the University takes on the role of “parent company” to Allegiance. Ultimately, UMHS will absorb Allegiance.

Though the regulatory filings and due process necessary to formalize the agreement will likely progress through mid-summer, UMHS CEO Ora Pescovitz expressed enthusiasm for the project, repeatedly saying in a conference call Tuesday that the purchase will benefit both partners’ programs.

“We’re very excited about the proposed affiliation, which will enable us to serve the community better, make a big difference in improving health and creating a better community during health care reform,” Pescovitz said. “We believe that we’re a state resource and want to improve the quality of care within Michigan. It’s also critical to provide the right care, at the right place, at the right time and to keep local care local.”

Patients requiring complex care would be treated in Ann Arbor, not unlike the referral base the hospitals have built in the past.

The University plans to invest $25 million in Allegiance initially, which will fund routine maintenance and equipment. Over the next five to seven years, there will be a total of $100 million invested in the partnership, though it’s expected that Allegiance will contribute to this sum through increased efficiency and strategic capital moves.

The acquisition of Allegiance will add 430 physicians to UMHS’ current 2700. Additionally, average annual outpatient visits will increase by 48,000, on top of UMHS’ current annual average of 1.94 million visits. The partnership also doubles the number of hospital care facilities.

Georgia Fojtasek, president and CEO of Allegiance Health, said during the conference call that Allegiance has had a steady relationship with the University leading up to the decision, including collaboration between the oncology and cardiovascular departments.

“We have a long history with the University of Michigan that the community may not be aware of due to its geographical proximity and clinical resources,” Foitasek said. “This will give us the foundation to leverage in the new era of health care because we both have formidable resources.”

Fojtaskek clarified that there are no plans to alter Allegiance’s leadership or staff at this time, saying there’s been a “commitment to stay” during this time of transition. She added that the feedback from her staff has been largely positive.

“People have a respect for the University of Michigan and the high-quality work that they do with sophisticated and high levels of care,” she said. “This will be a good thing for the community as a whole.”

Fojtaskek said financial distress “was not a guiding principle” in the decision. Though this is the first time UMHS will absorb another health system, the University has partnered with other hospitals in the past, including the Trinity and MidMichigan Health systems.

In regards to training future physicians, both CEOs expressed confidence in the validity of Allegiance’s intern program and want to work to continue to grow its graduate medical and residency programs as well.

Though UMHS and Allegiance will eventually comprise one formal health system, there is no decision yet as to what it will be called.

“We’ve embarked on numerous partnerships in the past, though this is the first of this nature,” Pescovitz said. “Since it’s fully integrated, it was not taken lightly. But we felt most aligned with the values that Allegiance has, as well as their mission vision and our relationship and strong referral base.”

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