Beaumont Health announced Wednesday that it is considering a merger with a large out-of-state hospital system, a deal that Beaumont says isn't expected to result in layoffs or hospital closures and will give it the safety of bigger size amid uncertainties in the health care business.
Beaumont said it has signed a nonbinding letter of intent with Advocate Aurora Health, a 28-hospital system in Illinois and Wisconsin that was formed by a 2018 merger of suburban Chicago-based Advocate Health Care and Milwaukee-based Aurora Health Care.
Combined, the organizations would form a massive $17-billion nonprofit hospital system with dominant presences in three states.
The deal is not a sale, but rather an asset merger of the hospital systems under the control of a single, 15-member board of directors that would have equal representation from the legacy Beaumont, Advocate and Aurora systems.
Beaumont would keep its brand name and a regional headquarters in Michigan. The new parent organization would have a different name — still to be decided.
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Beaumont CEO John Fox said on Wednesday the deal is now in its due-diligence period and could be finalized later this year, pending approval from state attorneys general and an antitrust review by the Department of Justice. Beaumont is the largest hospital system in Michigan with eight hospitals.
“It is about exploring and creating a regional organization to accelerate our ability to advance health care across the upper Midwest," Fox said. “The new organization would bring together the preeminent health care systems in Wisconsin, Illinois, and Michigan as a new organization and a new name that has yet to be determined.”
Fox told reporters Wednesday that the Advocate Aurora deal has nothing to do with the May cancellation of Beaumont's plans to acquire the smaller Akron, Ohio-based Summa Health system. He said the COVID-19 crisis necessitated changes to the Summa deal, and when Beaumont and Summa couldn't reach an agreement on those financial changes, the deal was off.
“With Advocate Aurora, they wanted to partner with Beaumont with or without Summa," Fox said.
Discussions began pre-COVID
Advocate Aurora has dual headquarters in Milwaukee and suburban Chicago and reports $12.8 billion in annual revenue and more than 70,000 employees.
Beaumont Health has annual revenue of about $4.7 billion and 38,000 employees.
Its last merger was a 2014 deal when it swallowed Dearborn-based Oakwood Healthcare Inc. and Farmington Hills-based Botsford Hospital. An earlier 2013 merger attempt with Detroit-based Henry Ford Hospital System unraveled due to differences in the systems' business and doctors' compensation models.
Discussions between Beaumont and Advocate Aurora began in late 2019 and paused amid the coronavirus outbreak, officials said.
Fox said the merger would provide Beaumont with more financial resources and ability to make greater investments in patient care than it can on its own. Fox said he doesn't anticipate any job losses because of the planned merger.
In addition, the merger could result in relocating the Oakland University William Beaumont School of Medicine to Royal Oak from Auburn Hills.
"It’s something we’ve been talking about for a long time, and this transaction we think would enable that to finally happen," Fox said.
A need for size?
The Beaumont CEO said there are business cases for the merger, too.
“We are facing extraordinary, if you will, challenges from new players in the market that are much more disruptive," Fox told reporters on a media conference call.
"Hospitals and physicians are the most diffuse, disaggregated part of the health care economy," he said. "The pharmaceutical, device, insurance (sides) have all consolidated way more than the provider side has. And in addition, we have new players coming into the market — Amazon, Walmart, CVS and others — who all want to take a piece of the $4-trillion health care economy, and either find a profit opportunity in that or become a new gatekeeper in terms of patient flow.”
Fox continued, "So we are facing a lot of challenges. And even though Beaumont Health is big at $5 billion, it’s really not big enough to play with those kinds of players. And we think that the three of us … given our concentration (as) the leaders in our respective states, (the merger) gives us an extraordinary opportunity to be more successful."