Merger between Henry Ford, Beaumont health systems is off

(Story updated with comment from Beaumont Health System.)

Physician discontentment and cultural differences appear to have ended the six-month merger talks between Henry Ford Health System and Beaumont Health System.

A statement by CEO Nancy Schlichting of Henry Ford at 4:39 p.m. today ended speculation on the future of the proposed merger, which would have created a $6.4 billion, 10-hospital integrated health system.

"After much deliberation, the Henry Ford Health System board of trustees has voted to allow the letter of intent with Beaumont Health System to expire at the end of this week and to not continue further discussions," said a statement today by Schlichting addressed to Henry Ford employees.

"This decision was made because it became apparent that two very different perspectives had emerged for the new organization between Henry Ford and Beaumont.

"As a result, many of the foundational elements in the letter of intent, including preserving two academic medical centers in Detroit and Royal Oak, were no longer supported by some leaders at Beaumont.”

Henry Ford officials declined further comment about issues that led to collapse of the merger talks.

However, merger savings and efficiencies are generally found in two areas. One, reduced staffing as payroll accounts for 60 percent of expenses. Two, consolidating duplicative services that sometimes drive overutilization and excessive spending.

For example, Henry Ford's 802-bed flagship teaching hospital in downtown Detroit and 1,070-bed Beaumont Hospital's main facility in Royal Oak, Mich., have several top tertiary care, or advanced, programs that overlap, including oncology, neurosciences, heart and orthopedics.

The two academic-based hospitals also have close affiliations with medical schools that some might say duplicate purposes. Henry Ford has had a long-term relationship with Wayne State University School of Medicine. It was Beaumont's vision that helped to create the 5-year-old Oakland University William Beaumont School of Medicine.

Schlichting said Detroit-based Henry Ford will continue its strategic plan in preparing for healthcare reform.

"I am so grateful for all of the contributions of our team members during this process, and have learned a great deal that will help us as we pursue our vision," Schlichting said in the release. "Throughout the entire merger process, people repeatedly commented on the professionalism, expertise and engagement of our staff, and I am so appreciative of all of your efforts."

Last week, Crain's Detroit Business reported exclusively that five clinical service chiefs at Royal Oak, Mich.-based Beaumont Health System asked the Beaumont board of directors to reconsider its proposed merger with Henry Ford.

Three Beaumont board members voted to block a vote to reconsider the merger, but sources told Crain's that physicians at Beaumont continued to press for a termination of the merger talks.

Beaumont officials were unavailable for comment at deadline.

However, Beaumont and Henry Ford also last week extended their letter of intent to give more time to work over many unsettled details.

It was clear, however, independent physicians at Beaumont wanted to continue to work with Beaumont management—and not Henry Ford—in preparing for changes under reform.

In a statement received by Crain's at 6:29 p.m., Beaumont CEO Gene Michalski said:

"We have benefited greatly from our merger discussions and have great respect for our colleagues at Henry Ford. However, we found through our discussions that we are not aligned on how to achieve our vision for a model health system due to differences in our structures and business models.

"We are very grateful to our board members, physicians, nurses, leaders and other professionals who worked very hard during the due diligence process with great professionalism and enthusiasm," Michalski said.

Now that the Henry Ford deal is off, a Beaumont official said executives would begin to look for another merger partner. More than 18 months ago, Beaumont hired a consultant to help identify potential health systems with which to merge.

Last summer, Crain's reported that Beaumont talked with many nonprofit and for-profit health systems, including the University of Michigan Health System and Vanguard Health System, the Nashville investor-owned chain that also owns Detroit Medical Center.

"Henry Ford ends talks with Beaumont; merger between health systems is off" originally appeared in Crain's Detroit Business.