The boards of three health systems located in Southeast Michigan have given the green light to merge, creating a $3.8 billion combined organization.
Beaumont Health System in Royal Oak, Oakwood Healthcare in Dearborn and Botsford Health Care in Farmington Hills signed a definitive agreement Monday, approximately three months after they announced they would explore a merger. The new name of the eight-hospital system will be Beaumont Health, and each hospital will be renamed at a later date.
The deal is significant for the three-county Detroit region because it “has been somewhat behind the curve in consolidation,” said Allan Baumgarten, a healthcare consultant who analyzes the Michigan market. Last year, Beaumont tried to merge with Henry Ford Health System, a $4.5 billion organization, but physician and cultural differences nixed the deal after six months of negotiations.
The new Beaumont system will account for about 30% of the Detroit market, based on hospital inpatient and outpatient services, where it competes with Henry Ford, Detroit Medical Center and St. John Providence Health System. “On a geographical analysis, these three organizations are very compatible and help create a much more comprehensive geographic coverage for the region,” Baumgarten said.
Detroit-area health systems are competing for dwindling numbers of inpatients, which is pushing them to partner on value-based care and cut costs wherever possible. Inpatient admissions at Beaumont were down 2.1% in the three months ended March 31, and they were flat overall in 2013. Oakwood and Botsford posted lower volumes last year. “Basically they're saying: We need to do some right-sizing and get bigger to sort of maintain the market share, or at least the volume, we see declining,” Baumgarten said.
“This milestone demonstrates our mutual commitment to working together to improve quality, efficiency and value for our patients,” said Beaumont President and CEO Gene Michalski in a news release. Michalski will lead the new system as CEO. “We'll be able to share and build on our individual successes and will stand stronger together during a time of major transformation in the health industry.”
The transaction now requires state and federal approval, which is expected by this fall.
Michalski, Oakwood CEO Brian Connolly and Botsford CEO Dr. Paul LaCasse will lead a CEO council to guide the system through the transition. Hospital leaders also previously announced a clinical leadership group will oversee the integration among physicians and other providers.
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