In latest merger bid, Beaumont seeks union with Spectrum Health to create $13B system

By | June 20, 2021

Dive Brief:

  • Beaumont Health and Spectrum Health are looking to merge in a deal that would result in Michigan’s biggest health system with 22 hospitals and 64,000 employees across the state, with combined annual revenue of almost $ 13 billion.
  • Executives of the two systems announced Thursday they have signed a letter of intent to explore creating a joint health system. The deal would include Spectrum’s Michigan-based health insurance plan, Priority Health, which has 1.2 million customers.
  • It’s the third large-scale merger bid for Southfield-based Beaumont since 2019. Talks with two other out-of-state systems fell apart amid the coronavirus pandemic and doctor opposition to the deals.

Dive Insight:

Beaumont seems increasingly desperate for a deal.

Most recently, in October, Beaumont ended merger discussions with Advocate Aurora Health after numerous physicians, hospital staff, community members and legislators aired concerns the deal would have anticompetitive effects and lead to higher prices. That deal would have resulted in a 36-hospital system spanning Wisconsin, Illinois and Michigan with combined annual revenue of $ 17 billion.

In July 2019, the nonprofit announced plans to acquire Ohio-based nonprofit system Summa Health. Under the deal, Summa, which has four hospitals, would have become a subsidiary of Beaumont and maintained local leadership. However, Summa withdrew from the deal in 2020, a few months into the coronavirus pandemic.

Beaumont considered merging with Detroit-based Henry Ford Health System in 2012. The deal would have created a single $ 6.6 billion organization with 10 hospitals, but negotiations crumbled in 2013 when physicians balked.

Beaumont CEO John Fox attracted a significant amount of criticism in past merger talks. A no-confidence petition from doctors following the failed Advocate Aurora tie-up demanded he be removed from leadership.

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If the Spectrum Health merger goes through, Fox plans to leave the organization, the press release says. The joint system would be helmed by Tina Freese Decker, the president and CEO of Spectrum.

The merger would result in a new entity with dual headquarters in Grand Rapids, where Spectrum is headquartered, and Southfield. The leadership team would split their time between the two locations on different sides of the state, according to the release.

Oakland County Executive David Coulter, who opposed the Advocate Aurora deal, said he doesn’t necessarily object to the latest bid.

“The long-term financial health of Beaumont is crucial,” Coulter said in a statement. “I appreciate that concerns about a previously proposed Beaumont alliance were considered and I look forward to hearing more details about the new partnership.”

Beaumont has eight hospitals and about 33,000 employees, with net revenue of $ 4.6 billion; while Spectrum has 14 hospitals and about 31,000 employees, with net revenue of $ 8.3 billion. Both saw their topline improve last year during the coronavirus pandemic.

Officials contend the merger would result in more efficient, affordable healthcare because of the system’s increased size and economies of scale.

Lower costs due to increased efficiencies is a common justification for hospital mergers, but largely hasn’t held up under scrutiny. Numerous studies have shown hospital consolidation is instead associated with poorer patient experiences and little-to-no change in the quality of care; slower wage growth for nurses and other workers; and steeper healthcare costs, the brunt of which is borne by consumers in the form of higher premiums and out-of-pocket costs.

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In monopoly markets, prices are 12% higher than in areas with four or more competing hospitals, according to one study.

​Yet, facing headwinds like flattening admissions and lowering reimbursement, hospital M&A has steadily increased over the past decade. And that’s not likely to change after COVID-19: Analysts say provider consolidation will even accelerate after the pandemic, as larger systems look to bulk up their market share and diversify offerings, and smaller, cash-strapped facilities look to gain access to more resources.

Despite calls from antitrust groups and patient advocates for federal regulators to take a harder stance against such deals, challenges from the Federal Trade Commission and Department of Justice have been largely nonexistent or proved fruitless. In March, the FTC abandoned its challenge of the merger between Philadelphia systems Jefferson Health and Einstein Healthcare Network — its first challenge of a major hospital merger in three years.

Of the five hospital deals challenged by federal regulators last year, only one resulted in the total dissolution of the merger.

Beaumont and Spectrum say they expect to complete the transaction by the fall.

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