"I can't say it never will happen in the weeks, months and years to come. But our board has not made any decisions to talk with anybody. Management is not interested in selling to anybody."
Regardless of whether Beaumont is sold, hospitals are looking for growth to contend with cuts in Medicare payments over the next few years and uncertainty over whether state legislators will vote to expand Medicaid by a projected 500,000 people under the federal Patient Protection and Affordable Care Act. Hospitals are counting on offsetting Medicare cuts by replacing formerly uninsured patients with additional people covered by Medicaid and those newly insured in 2014.
Other changes under reform include hospitals working with physicians and other providers to contract as accountable care organizations. ACOs have the potential to reduce costs and improve quality but place hospitals and physicians at financial risk if costs exceed payments.
"This market is under-represented by for-profits compared with other states, but Michigan is really waking up to it now. Two years ago, when there was a lot of this (for-profit acquisition) in other states, Michigan didn't seem to want to touch it," said Gregory Drutchas, principal at Detroit-based Kitch Drutchas Wagner Valitutti & Sherbrook PC and head of its healthcare practice.
"But the new trend in the compensation market stimulates not only for-profits to start looking for acquisitions, but nonprofits might start looking to the market in order to not lose a competitive advantage to the for-profits."
As margins get tighter and garnering cash from operations gets tougher, experts said, fewer healthcare providers will be able to resist the appeal of private equity or public company capital to fund much-needed equipment purchases or building renovations. This too could spur for-profit conversions and acquisitions.
Currently, for-profits account for just seven of Michigan's 134 community hospitals, and about 13,200 of their nearly 222,000 employees statewide, according to data from the Michigan Health & Hospital Association.
They are the five DMC hospitals belonging to Vanguard, Pontiac-based Doctors Hospital of Michigan and Marquette General Hospital, which was nonprofit until a sale last month to Duke Lifepoint LLC in a deal valued at $483 million, including about $125 million cash. Michigan had no for-profit hospitals just four years ago.
Eight of the 18 bidders on debt-saddled Marquette were for-profits, according to a report on the proposed sale by Michigan Attorney General Bill Schuette.
"It's becoming very difficult for the independent hospital to stay viable and still be independent. And Marquette was a very good example," said Michael Boudreau, managing director at Bloomfield Hills consulting firm O'Keefe & Associates and a transactional adviser to some health care companies.
"Now we're starting to see that same kind of pressure moving upstream, even occasionally to the size of a Beaumont-type provider."
Boudreau said O'Keefe has served as an adviser on at least seven hospital mergers and acquisitions in the past two years, predominantly in the Midwest, compared with averaging just one such transaction per year a decade ago.
Joshua Nemzoff, CEO of New Hope, Pa.-based Nemzoff & Co. LLC, which has handled at least 200 hospital deals in the past 30 years, said nonprofit hospitals usually explore a sale only when they think they can't survive. Several in that position that thought the Affordable Care Act would stem the financial drain of their uncompensated care are having a rude awakening, he said.
"A lot of hospitals who thought the ACA was going to be their savior, and they've found, if anything, it's more of a neutral-cost kind of reform," he said. "Uninsureds were supposed to move into a category of compensated care, but Medicare reimbursement is declining, unemployment is high and managed care organizations will become more competitive in their pricing. So they're right back where they started from."
Not everyone in the market is warming up to for-profits and their cash. The CEOs of Garden City and Crittenton confirmed the Vanguard talks but have said previously those hospitals are not for sale.
And Beaumont, which could add more than 1,744 licensed beds, 18,000 employees and more than 3,000 physicians to Michigan's for-profit contingent, has "no deal on the table" and management has not shown interest in a sale, Killian said. DMC declined to comment on the Beaumont rumor, and Crain's was unable to contact HCA.
Mark Kopson, chairman of the health care industry group at Bloomfield Hills-based Plunkett Cooney PC, also said Michigan may be seen as a fertile ground for acquisitions due to the under-representation of for-profit owners. Medicaid expansion under the ACA (Blue Cross Blue Shield of Michigan has estimated Medicaid could add more than 450,000 patients in the state) and the need to find efficiency through scale are also driving merger-and acquisition talks, he said.
Plunkett Cooney was local regulatory counsel for Duke LifePoint in the Marquette acquisition. Kopson would not discuss that deal, but did say access to private equity capital and cost pressures on independent hospitals are "factors present in almost all for-profit acquisitions" of nonprofits.
"Michigan was almost universally looked on before Vanguard (buying DMC) as a nonprofit provider state, and has lagged in this trend," he said. "And one of the factors hospitals have to consider is the access to capital, which private equity firms have. And one of the drivers for that is the constant need for capital improvements."
Beaumont had a 54 percent drop in net income to $35.5 million in 2011 from $78 million in 2010, fueled by dwindling investment income on its stock market investments, even though revenue increased to about $2.18 billion. Net income also slid in 2011 for Henry Ford Health System, Oakwood Healthcare Inc., St. John Providence Health System and Trinity Health.
Beaumont executives have said the company was able to pare expenses more than 11 percent since it lost money after the global market collapse in 2008. But the hospital also enjoys a quality-of-care reputation that would add to its appeal in the acquisition market.
HCA has been on the hunt recently, adding more than a dozen hospitals in the past three years, and like Beaumont it enjoys a quality reputation, with 80 of its hospitals ranked among the top 10 percent nationwide.
Mark Lezotte, shareholder in the business and transactional practice at the Troy office of Hall Render Killian Heath & Lyman PLLC, said an increase of accountable care organizations and hospital participation in the Medicare Shared Services Program will put an increase focus on saving money as a means to greater government compensation.
"Payment mechanisms that are starting to happen will place a premium on coordination and communication efficiency, and you'll see more of a focus on measured outcomes than on (billing) activity. That's going to put a focus on scale and coordination among providers in the system to avoid duplicative services," he said.
"Access to capital is important because Michigan hospitals will need to expand and modernize and find cost controls under the new law. Those things are starting to happen now in the market, and some of them won't be cheap."