GRAND RAPIDS — Spectrum Health, which was created through a merger more than two decades ago and went on to become West Michigan’s largest health care provider, intends to merge with Southfield-based Beaumont Health.
The two health systems have signed a letter of intent to “explore creating a new health system” in a blockbuster deal that would create a health care powerhouse and the largest in-state health system.
A combined health system between Grand Rapids-based Spectrum and Beaumont would have 22 hospitals, 305 outpatient care centers and about $13 billion in operating revenue. The combined company would have more than 7,500 employed, affiliated and independent physicians.
Spectrum Health President and CEO Tina Freese Decker would run the new health system, which would take on the temporary name of “BHSH System.”
“This is a fantastic opportunity to transform health care in Michigan,” Freese Decker said in an interview with MiBiz.
“Spectrum Health and Beaumont share similar purposes, missions, visions and values. We have a long track record of providing exceptional clinical care for our communities, as well as a strong focus on academic research. So, together we are uniquely positioned to deliver greater value and exceptional care that is accessible, (and) it is equitable and affordable, while maintaining our unwavering commitment to our local communities in Michigan,” Freese Decker said. “We are coming together for Michigan, by Michigan, to improve the health of all of our communities.”
The two health systems aim to complete due diligence, integration planning and regulatory reviews by this fall, Freese Decker said. Since Spectrum and Beaumont each operate in distinct markets without any overlap, Freese Decker expects the deal to clear the required regulatory review.
Under the plan, BHSH System would have dual headquarters in Grand Rapids and Southfield. The Spectrum and Beaumont brand names would remain in local markets, “pending adoption of the overall branding plan by the system board,” according to an announcement on the plan.
“BHSH System will work together to determine a path forward that honors both legacy brands and will engage physicians, team members, donors and the community in that process,” according to the announcement.
The combined health system would have equitable corporate governance. Spectrum and Beaumont each would appoint seven seats to a 16-member board. The board would also include the CEO and a final appointment after the new health system is created.
Local boards would remain in place. In West Michigan, that would include oversight boards for BHSH Spectrum Health West Michigan, BHSH Spectrum Health Lakeland, and Priority Health.
Created through the 1997 merger of the former Butterworth Hospital in Grand Rapids and Blodgett Memorial Medical Center in East Grand Rapids, Spectrum Health consists of 14 hospitals, a large group medical practice, and a network of outpatient care centers across the region.
The health system has grown through a series of acquisitions of smaller community hospitals around West Michigan.
“Spectrum Health has a proven track record of successful integrations and partnerships that improve quality and access to care and coverage, while maintaining important local relationships with physicians, donors and community members,” Spectrum Health Board Chair Robert Roth said in a statement. “Our ultimate focus is ensuring high-quality care for patients and members that is sustainable for today and tomorrow, and we are confident that creating a new system with Beaumont Health will achieve that goal.”
HEALTH SYSTEMS AT A GLANCE
Spectrum Health also owns a 93.9 percent stake in Priority Health, Michigan’s second-largest health plan with 1 million members statewide that generates a majority of Spectrum’s revenue and earnings.
Spectrum Health in 2020 recorded operating income of $295.5 million on nearly $8.3 billion in patient revenues. That includes $188.9 million in operating income earned by Priority Health in 2020, plus a $24.8 million operating loss at Spectrum Health Lakeland in St. Joseph that operates as a separate division from the health system’s other hospitals.
For the first quarter of 2021, Spectrum Health recorded $88.4 million in operating income on $2.21 billion in revenue. The quarterly results included $59.1 million in operating income at Priority Health on $1.421 billion in revenue.
As well, combining with Beaumont could give Priority Health a stronger position in Southeast Michigan, Freese Decker said.
“It does allow Priority Health to continue to grow in Southeast Michigan in a variety of products,” she said.
Beaumont Health has eight hospitals in the Detroit area, plus 155 outpatient sites, nearly 5,000 physicians and 33,000 employees. The health system also partners on a medical school with Oakland University.
In 2020, Beaumont Health recorded $4.58 billion in operating revenues with $176.6 million in operating income.
Beaumont Health’s board Chair, Julie Fream, would become the new health system’s first board chair. Beaumont President and CEO John Fox would depart after helping to “ensure a successful transition,” according to today’s announcement.
PHYSICIAN SUPPORT, COVID RESPONSE
A deal with Spectrum Health comes after Beaumont Health and Advocate Aurora Health, a nonprofit 28-hospital system based in Downers Grove, Ill., ended merger discussions last fall that had been met with opposition from Beaumont doctors.
Beaumont has since added more system physician representatives to its board, going from three to six, “and they really helped us understand the perspective of physicians and what would be important to them in structuring a deal of this type,” Fream said in an interview.
“They’re excited, and with their excitement, we think we really have the right thing for both organizations to move forward,” she said.
The board at the new health system would have at least three physician representatives.
Freese Decker said she has “long admired Beaumont Health for their clinical excellence and what they do.”
At a time of constant conversations among health system executives about potential consolidation, “this was something where we said, ‘Let’s just get together and talk through what could be possible here to really transform health care in Michigan,’” Freese Decker said.
A combined health system would have a greater ability to invest in staff development and training, medical technology, and new services such as outpatient care centers “to better serve the needs of outpatients,” Fream said.
The COVID-19 pandemic that pushed health systems to their limits and generated financial stress for many “accelerated our vision and desire to do this,” Fream said.
“Going through these past 15-plus months has really pushed us, I know from a Beaumont perspective, to explore ways to bring value and exceptional care to our patients,” she said.
Because of the pandemic, “our purpose has never been more critical and more important than it is today,” Freese Decker told MiBiz. “What we’ve been through collectively in our state and country in the past year has solidified our purposes and what we do, and it also tells us that we can do even better.”