Two Goliaths in Michigan health care — Beaumont Health and Spectrum Health — announced Thursday they’ve signed a letter of intent to unite, forming a new, massive health system that would employ 64,000 people and operate 22 hospitals spanning the state.
The deal is to include Priority Health, an insurance plan that enrolls 1.2 million people under the Spectrum Health umbrella and claims to be the fastest growing and second largest in Michigan.
“We are — Spectrum Health and Beaumont Health — taking the next step in our bold vision to transform health in Michigan,” said Tina Freese Decker, president and CEO of Spectrum Health, who also will lead the new health care organization if the pact is completed.
“What we’ve been through collectively in our state and our country over the past year has really solidified why we exist and what we do. And it also tells us what we can do even better. So it is with this in mind that we are really excited about the opportunity to bring together Spectrum Health and Beaumont Health. … We are coming together for Michigan by Michigan to improve the health of our community.”
The new health system, which would be Michigan’s largest, is to be called the BHSH System temporarily, Freese Decker said.
“We’re going to take our time to figure out what that new name is while honoring and respecting the legacy names,” she said.
If the plan passes regulatory reviews, the BHSH System is to have dual headquarters in Grand Rapids and Southfield.
The Federal Trade Commission reviews mergers of hospitals and physician groups to uphold antitrust laws, encouraging competition to drive down costs, improve care and foster innovation. The Department of Justice similarly reviews mergers of insurance plans.
Both federal agencies have ruled against mergers in the recent past. In 2020, the FTC challenged at least five such deals, Becker’s Hospital Review reported.
Freese Decker hopes this merger will get regulatory approval by the fall.
“There are no overlapping areas in our market, and so there are no intentions right now of any closures for hospitals or services as a result of this integration,” Freese Decker said.
“In fact, we want to make sure we can continue to grow our services and so I expect things to continue as they are right now.
“I’m very confident that this combination to create a new health system would be very favorable to our state,” Freese Decker said, noting that the health systems are not competitors based on the markets they serve, and only one health insurance plan will be involved in the creation of the entirely new nonprofit health system within Michigan.
“The (state) Attorney General’s Office is aware, but because this is two Michigan nonprofit organizations coming together to create a new system … we do not believe that this is something that the AG needs to approve.”
Southfield-based Beaumont brings to the merger eight hospitals and about 33,000 employees in southeastern Michigan. It has 3,375 hospital beds, 155 outpatient sites and a net revenue of $4.6 billion.
Grand Rapids-based Spectrum Health has 31,000 employees and 14 hospitals in western Michigan. It has 2,573 hospital beds, 150 outpatient sites and a net revenue of $8.3 billion.
“We are not exchanging money in this; we are creating a new system,” Freese Decker said. She did not answer questions about how big of a share of Michigan’s health care market the new hospital system would serve.
Julie Fream, the chair of Beaumont Health’s Board of Directors, has been tapped to lead a new 16-member board for the joined health system. The board is to include seven people appointed by Beaumont Health, seven people appointed by Spectrum Health, Freese Decker and a new board member to be appointed once the merger is complete.
At least three physicians will serve on the board.
Current Beaumont Health President and CEO John Fox will see the deal through, and then leave the organization. Fream declined to disclose how much money Fox will receive as an exit bonus.
“He does have a change-of-control agreement,” Fream said. “That will be part of the total compensation that he receives upon exit from the organization.
“We don’t make the details of the contract public. Of course, eventually the information does come out in the (Internal Revenue Service) Form 990, but it’s not something that we generally make public.”
This isn’t the first time Beaumont has entered talks to merge with other health systems.
In 2012, Beaumont and Detroit-based Henry Ford Health System considered melding into a single, $6.6 billion organization that would have included 10 hospitals and 200 patient care sites. Negotiations fell apart in May 2013 when Beaumont doctors threatened to revolt.
Two years later, Beaumont merged with the Dearborn-based Oakwood Healthcare System and Botsford Hospital in Farmington Hills.
Since then, Beaumont leaders have signed at least two other letters of intent to enter talks to merge with out-of-state health systems.
In July 2019, Beaumont announced plans to acquire Summa Health, an Akron, Ohio-based nonprofit hospital system that employs 7,000 people at four hospitals and community health centers.
Under that deal, Summa Health would have become a subsidiary of Beaumont and would have maintained local leadership and a local board. But the acquisition was called off two months into the coronavirus pandemic when Summa Health’s leaders withdrew from the arrangement.
A few weeks later, Fox announced Beaumont had once again entered negotiations to merge with yet another out-of-state hospital system.
This time, it was with Advocate Aurora, a 28-hospital system based in Illinois and Wisconsin. The deal, which would have resulted in a $17 billion company with 36 hospitals in three states, dissolved in October 2020 as unrest among Beaumont doctors and a no-confidence petition demanded Fox and Chief Medical Officer David Wood Jr. be removed from leadership.
This time, the outcome will be different, Fream said.
“The initial conversations we’ve had internally with our senior leadership and with the doctor leaders has been just one of excitement,” Fream said. “They understand and know Spectrum Health and so they are very excited to be able to share knowledge and to work together — whether that’s in research or in extending to the fields that they are in.”
“It’s a very exciting thing for … our doctors on the Beaumont Health side. And in talking with Tina, she has indicated that the doctors in her organization feel the same way.
“The two organizations have so much in common in terms of our vision and our values. And putting that together, really, will allow us to create a new organization that will move us toward value-based care rapidly for the state of Michigan.”