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Henry Ford Health System CEO Nancy Schlichting

Henry Ford Health System, Beaumont plan to merge

By Ashok Selvam and Paul Barr
Posted: October 31, 2012 - 11:30 am ET

(Story updated at 3:30 p.m. ET.)

After much speculation, Beaumont Health System, Royal Oak, Mich., and Henry Ford Health System, Detroit, have signed a letter of intent to merge, creating a new not-for-profit system with eight hospitals in Southeast Michigan.

Terms for the agreement call for the new system to have a single board made up equally of representatives from both systems and for the organizations' foundations to be combined under a single, to-be-determined name, officials told reporters during a Wednesday morning news conference.

A lead administrator for the new system and the number of members who would sit on the board haven't been selected yet, Beaumont CEO Gene Michalski said. Michalski and Henry Ford President and CEO Nancy Schlichting would help make those decisions in the coming months. Beaumont and Henry Ford have agreed to negotiate exclusively over a 120-day period. They expect to complete a definitive agreement for creating the new system during the first half of 2013.

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“If it needs to be extended, it will be extended,” Michalski said.

Both existing systems, though, would keep their own names, and their respective medical staffs and physician groups would remain separate. Beaumont approached Henry Ford about 20 months ago. Michalski said a move was needed so the system could continue to offer patients the same services it does today: “Frankly it was a riskier option to go it alone,” he said.

Expanding the new system's footprint beyond Michigan is an option in the future, Schlichting added. However, she and Michalski acknowledged both organizations needed to do work before they consider further growth.

Looking at recent deals—like the one two weeks ago when Trinity Health and Catholic Health East announced their merger plans—told the two parties that a move needed to be made.

“Both systems recognize that the way healthcare is provided today—where it is offered, how it is paid for, how it is measured—is changing dramatically,” said Steve Howard, chairman of the Beaumont's board of directors, in a news release. “Reimbursement for care is declining, the care itself is shifting to more convenient outpatient settings and more emphasis is being placed on keeping people healthy, not just treating them when they are sick.”

The merged system creates few redundancies; however, the two sides said they will analyze any overlaps. Schlichting said consolidation wouldn't breed any hospital closures in the foreseeable future. Henry Ford in March closed Henry Ford Macomb Hospital—Warren, after the facility suffered an operating loss of more than $70 million over the past five years. While she didn't totally rule out future layoffs, she said most of the employees at the shuttered hospital were transferred to other jobs at other Henry Ford facilities.

“We have gone through the process to learn how to protect our people, and this is something that we are very committed to,” she said.

Schlichting and Michalski said their organizations both have strong balance sheets and that the merger would provide a chance to improve their financials. Beaumont earned $2 billion (PDF) in net patient-service revenue in fiscal 2011. That's up 2%, or a $4.2 million increase, from fiscal 2010. Henry Ford earned $2.2 billion (PDF) in net patient-service revenue in fiscal 2011, up 2.7%, or a $5.7 million increase from fiscal 2010.

The numbers represent a comeback for Beaumont, which trimmed the equivalent of 788 full-time positions in 2008 and 2009. Michalski said Wednesday that those layoffs came in the “deepest, darkest days” of the recession. He doesn't anticipate deep staff cuts because of the merger.

While Schlichting said the nearby Detroit auto industry taught her that “there's no such thing as a match made in heaven,” she did acknowledge similarities in culture and strategic goals that make Henry Ford and Beaumont good partners. That includes having the same electronic health record system. Beaumont already has a state-of-the-art Epic Systems Corp. system, while Henry Ford gets it in 2014. Patients' records will be available to physicians wherever within the system the patients receive care, the release stated.

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