Beaumont-Henry Ford merger could save millions, say execs, board chairs

Craine's Detroit Business ^ | October 31, 2012 | Jay Greene

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If Henry Ford Health System and Beaumont Health System are successful in merging, the new organization could save tens of millions of dollars by reducing duplication, avoiding unnecessary costs and improving operational efficiencies, according to executives and board chairs of the two health systems.

"The benefit to employers (through the merger) is lower costs and higher quality care," said Sandy Pierce, chairman of Henry Ford's board of trustees.

Executives of Henry Ford and Beaumont announced in a news conference Wednesday morning that they have signed a letter of intent to begin merger discussions that would create the largest health care system in Southeast Michigan with $6.4 billion in annual revenue and 42,000 employees.

Top executives and board chairs of the two health systems said the noncash transaction would be completed in 120 days, pending regulatory and antitrust approvals.

"We have been looking at opportunities for some time," said Gene Michalski, Beaumont's CEO. "Our goal is to be a national leader, and in some ways we are (both) that way already. We are looking to do more."

Nancy Schlichting, Henry Ford's CEO, said the potential merger with Beaumont is something that fits nicely with Henry Ford's culture and strategic plan under health care reform.

"We always had a lot of respect for Beaumont," said Schlichting, adding: "Beaumont is an ideal partner for us. They have a common vision for the direction health care is going with the shift to wellness and care at home."

Crain's reported earlier this month that Beaumont was discussing a merger or affiliation with several for-profit and nonprofit health systems, including Henry Ford, the University of Michigan Health System and Vanguard Health Systems, which owns Detroit Medical Center.

Michalski declined to comment on previous merger discussions, citing confidentiality agreements, but said the Beaumont board has been considering partners the past 20 months.

Schlichting said the Henry Ford board decided earlier this year that coping with reimbursement cuts under the Affordable Care Act and the movement to greater outpatient and preventive care from inpatient care necessitated a merger partner.

The Henry Ford board voted last Friday to pursue merger discussions exclusively with Beaumont. On Tuesday afternoon, the Beaumont board voted to do the same; the two organizations signed the letter of intent shortly thereafter.

Under the letter of intent, the Beaumont and Henry Ford organizations would keep their individual names and branding strategies. However, the merged parent organization, which would receive the assets and liabilities of the two health systems, would operate under a new name that hasn't yet been determined.

Initially, the medical staffs would remain independent, but over time would slowly become integrated into a "hybrid" model, said Ananias Diokno, M.D., Beaumont's executive vice president and chief medical officer.

"Beaumont has been successful in integrating private groups and employed physicians," said Diokno, adding that Beaumont physicians support the new organization.

John Popovich, M.D., Henry Ford's chief medical officer and CEO of Henry Ford Hospital, said Henry Ford Medical Group's 1,200 employed physicians and another 600 private practice physicians in the Henry Ford Physician Network are looking forward working with Beaumont's more than 650 employed physicians and 2,500 private doctors.

"We all are looking for clinical efficiencies," Popovich said. "The critical part is we won't be paid on volume anymore. We will be paid based on value. This is something we all agree on."

The organizations also would negotiate a new governance model for their hospitals and parent board, which will be created with equal representation of both boards.

Executives said they intend to maintain their existing medical school relationships. Henry Ford is closely affiliated with Wayne State University School of Medicine. Beaumont is financially and clinically tied with the Oakland University William Beaumont School of Medicine.

However, the foundations of both organizations would be merged into a single entity.

Reports were circulating the past week that preliminary discussions between the two organizations had determined that Schlichting would be named CEO of the merged organization.

But Michalski said those decisions have not been made.

"The timing of my retirement will be subject of discussion" during the next four months the board and management committees meet to discuss the merger, said Michalski, 64.

"I am not subject to (Beaumont's) mandatory retirement age (at 65)," Michalski said. "I have already had that discussion with the board. They wanted me to stay longer."

Schlichting said decisions on consolidating departments and naming executives of the merged institution also will be made at a later date.

"There will be millions of dollars of savings" over the next few years as the two organizations streamline operations, reduce duplication, negotiate better supply deals and avoid unnecessary costs, Schlichting said.

Beaumont is a three-hospital regional health care provider with a total of 1,744 licensed beds, 18,000 employees and more than 3,000 physicians in Oakland, Macomb and Wayne counties.

The Henry Ford system includes five hospitals with 1,843 beds, 24,000 employees, the 1,200-physician Henry Ford Medical Group, the 643,000-member Health Alliance Plan of Michigan and 30 primary care centers.

A Henry Ford-Beaumont health system could include eight hospitals and 3,600 beds. Henry Ford also operates two other health care institutions, including mental health and rehabilitation facilities.