Wayne State, Henry Ford Health deep in affiliation talks

Partnership talks between Wayne State University and Henry Ford Health System, two Detroit institutions, have reached a critical phase and a letter of intent to form a collaborative agreement dubbed Project Leapfrog could be signed in the coming weeks, Crain's has learned.

For more than 18 months, top executives at Henry Ford and Wayne State have explored a variety of affiliation models with a Chicago-based consultant, Navigant Consulting.

The discussions have the potential of bringing Henry Ford a prominent medical school partnership, remaking the downtown Detroit health care landscape and disrupting fractious talks between Wayne State and its longtime partner, Detroit Medical Center.

Three of the stated goals of Henry Ford and Wayne State are to rival Michigan Medicine, the University of Michigan's health enterprise in Ann Arbor; to "leapfrog" eight-hospital Beaumont Health in Royal Oak, which has a medical school but has a much smaller employed medical group and no health insurance arm; and to create a tightly integrated clinical, teaching and research organization to serve patients, doctors and students.

The Wayne State-Henry Ford affiliation would include combining 1,530 physicians into a single medical group, offering pediatric and adult clinical services and combining research, medical student and residency teaching programs.

The subject of the talks was revealed in hundreds of pages of documents, reports and emails obtained by Crain's in a Freedom of Information Act request to Wayne State, a public university subject to state open records laws.

Wayne State provided limited interviews to Crain's to explain the documents. Henry Ford, as a private nonprofit hospital system, declined interviews but provided a statement. More than a dozen other people with knowledge about the potential affiliation were interviewed.

"We share a common vision with Wayne State University that the overall health and wellness of our community depends on a strong commitment to medical education, research and clinical innovation," John Popovich, M.D., CEO of Henry Ford Hospital, said in a statement to Crain's. "That shared vision has been the basis of the successful collaboration between our institutions and created a mutual desire to advance and deepen that relationship."

Talks have included Popovich and more than a dozen other executives and physicians such as Wayne State University President M. Roy Wilson, M.D., and Henry Ford CEO Wright Lassiter III. The executives hope the negotiations will lead to an exclusive agreement that would create a range of opportunities for Wayne State's 18 clinical and academic departments and for Henry Ford's six hospitals and 28 outpatient medical centers.

One of the affiliation documents estimates the Project Leapfrog agreement could generate as much as $200 million overall for Wayne and Henry Ford in additional clinical hospital and physician billings, enhanced Medicaid payments and additional graduate medical education funding.

The options under discussion include merging the university's 330-physician faculty practice plan into 1,200-physician Henry Ford Medical Group and creating a new and tightly integrated pediatric department among Henry Ford's 80 primary pediatricians in 20 practice locations in Detroit and Jackson and Wayne State's 130 specialist and generalist pediatricians.

Wayne State doctors could maintain their own offices, although some are expected to move over time to Henry Ford or new locations. Wayne doctors also would be integrated into Henry Ford's integrated care continuum, benefiting from cross-referrals from Henry Ford's primary care doctors.

They would continue to see patients at the medical group's Troy-based outpatient surgery and diagnostic center. It is possible that Wayne's Troy outpatient center could be consolidated with a Henry Ford medical center, affiliation documents show.

Longer-range plans in a 2025 vision statement of what might be possible could include building a "Wayne State University Health Sciences Quad at Henry Ford" across from Henry Ford Hospital on West Grand Boulevard in Midtown. Adjacent to the proposed health sciences building is the $155 million Brigitte Harris Cancer Pavilion, a six-story outpatient cancer center, that is undergoing construction. Henry Ford owns 300 acres south of its flagship hospital and has strategic plans for a $500 million south campus health and community project.

The 2025 vision also includes potentially a jointly funded second clinical research building, adjacent to Wayne State's Integrated Research Building, iBio, which is also located near Henry Ford's corporate headquarters, One Ford Place. It would be called "iBio2."

Affiliation discussions, which have picked up speed the past several months and have led to nearly 25 draft letters of intent, also could include building a new public health school for Wayne State that would be "attuned to the Detroit community's unique needs and leverages its diverse population."

Price tags for the new health sciences, iBio2 and public health school were not included. In fact, none of the documents had any capital or operational costs for the buildings, or new institutes that include neurosciences, oncology, perinatology, pediatrics and eye care that could be part of the affiliation.

Officials for Wayne State and Henry Ford also have on the drawing board a long-term plan that would combine undergraduate and graduate medical education programs. The merger could create one of the largest such programs in Southeast Michigan.

A consolidation could expand opportunities for seasoned faculty members, practicing doctors, research scientists and budding medical students and residents, documents state.

Wayne State sponsors eight residency and two fellowship programs with 143 residents and two fellows. They include anesthesiology, dermatology, family medicine, otolaryngology, physical medicine and rehabilitation, urology and internal medicine. Henry Ford sponsors 66 residency programs across a broad spectrum of disciplines at its four teaching hospitals with 911 residents and fellows.

From 2018 to 2021, Wayne State could move more third and fourth year students from other hospitals, including some based at DMC to Henry Ford, and Henry Ford would wind down non-Henry Ford relationships, affiliation documents state.

The plan calls for clinical departments to be combined, with most having a chair and a vice chair to oversee clinical and academic activities. They would have dual reporting lines to Henry Ford's CEO and Wayne's medical school dean.

The combination also could include merging WSU's $247 million research department with Henry Ford's $94 million research department, creating a $341 million-plus research enterprise that would rank 74th-largest in the nation, up from 100th in 2016, according to the National Science Foundation. The University of Michigan is ranked second with $1.4 billion and Johns Hopkins University ranks first with $2.3 billion.

Under one version of the plan, which like other ideas haven't yet been approved by the partners, Henry Ford would be Wayne State's primary clinical partner and Wayne State would be Henry Ford's. The partnership would lead to co-branding. For example, the institutional names could change to Wayne State University Health Sciences at Henry Ford Health System and the Henry Ford University Hospital, affiliated with Wayne State University, documents show.

Over the next several years, Henry Ford could replace Detroit Medical Center as the university's primary medical center partner. Talks over that relationship are going on even though Wayne and DMC are also in the midst of negotiating a clinical services and administration contract.

Depending on negotiations, Wayne officials hope the university could maintain contract relationships with DMC and at the same time work more closely with Henry Ford. This hybrid mixed-hospital arrangement could be the model for the next 20 years, but it also could be of a shorter term, affiliation documents say.

DMC has 102 residency and fellowship programs with more than 1,075 residents and fellows. In addition, the teaching hospital system trains 893 medical students each academic year, including 601 Wayne State allopathic students, 134 osteopathic students from Michigan State University College of Osteopathic Medicine and 158 other students from other U.S. medical schools.

But because Henry Ford Hospital gave up its inpatient pediatric unit to DMC Children's Hospital of Michigan more than 20 years ago, Wayne State and Henry Ford doctors would continue to refer complex pediatric patients to DMC Children's. However, affiliation plan documents call for the possibility of reopening an inpatient pediatric unit at Henry Ford Hospital, diverting some patients from Children's.

"As part of that plan going forward, we are in discussions to explore ways of improving the academic partnership between our institutions," Popovich said. "This endeavor is, in no way, intended to negate or damage the relationships both Henry Ford and WSU have maintained with Tenet and DMC. We value and respect DMC's critical presence and role in southeast Michigan and will continue to do so."

Tenet Healthcare Corp., a Dallas-based investor-owned chain with 69 hospitals in the U.S., owns six-hospital DMC, including Children's Hospital.

Any changes in the Wayne State-DMC relationship could have repercussions for the complicated web of financial relationships the institutions have.

If Wayne State struck a comprehensive deal with Henry Ford, it could at some point affect the Perinatal Research Branch housed at DMC Hutzel Women's Hospital. The contracts for the Perinatal Research Branch housed at the DMC is held by Wayne State. The PRB is a federally funded research program designed to study ways to reduce infant mortality rates.

The affiliation documents suggest Wayne State could want to "leverage" the PRB by asking the U.S. National Institutes of Health to allow the program to extend to Henry Ford Hospital. The different populations of women at Hutzel and at Henry Ford could benefit perinatal research, Wayne officials said.

In 2013, Wayne State renewed its 10-year contract for the PRB at DMC with the NIH. Detroit was chosen because of the expertise of Wayne State's Department of Obstetrics and Gynecology and the high number of pregnant women in Detroit with a higher-than-average rate of infant mortality.

An affiliation with Henry Ford could also affect the Comprehensive Cancer Care designation of Barbara Ann Karmanos Cancer Hospital, which is located on the DMC campus. Wayne State is the fiscal agent of the Comprehensive Cancer Center designation at Karmanos, where many Wayne State faculty oncologists and researchers work.

Affiliation documents suggest that Wayne State wants to work with Karmanos to extend its the Comprehensive Cancer Center designation to Henry Ford Hospital for enhanced research and clinical care.

Gerold Bepler, M.D., said he is aware of Wayne State's interest in forming a consortium with Karmanos and Henry Ford. However, he said Karmanos would have to concur with plans for a consortium, which would then need to be approved by the National Cancer Institute.

"There have been discussions with National Cancer Institute about this ... There are very clear rules from NCI. There are a couple cancer centers that are consortium cancer centers," said Bepler, noting the closest one is Case Western Reserve University and the Cleveland Clinic, which is the consortium partner.

"They have defined rules. The main partner (Karmanos) has to agree," he said. "Theoretically we could form a consortium with Henry Ford or St. John. We have talked about the possibility, but it is not a viable option."

But Bepler said any change in affiliation between Wayne State and DMC would not affect Karmanos because it has a separate relationship with the university. Most of the clinicians and all of the researchers at Karmanos are on the Wayne state faculty, including Bepler.

After four months of serious contract and affiliation talks in early 2016 with DMC, Wayne State officials concluded in April that DMC and Tenet were not serious about forging a "transformational" agreement they had discussed for months with former CEO Joe Mullany. In fact, the two had very different interpretations about what transformational meant in the larger context.

For example, DMC wanted to acquire University Physicians Group, Wayne's faculty practice plan. Wayne wanted mutual strategic planning and deeper investments by DMC in research, faculty development and clinical services.

Hefner said he had a phone conference call on March 30, 2016, with Tenet Vice Chair Keith Pitts about what it would take from a collaborative and contract funding standpoint to forge a transformational agreement with Wayne State. He told Pitts it would include "substantial upfront investments to build the academic flywheel."

"Keith told me we don't have this model at Tenet," said Hefner, who has known Pitts for many years. "I said, 'OK, then we will be a great transactional vendor.'"

Many, if not all, of the nation's 151 medical schools have deep partnerships with their primary teaching hospitals that cover medical education, clinical services and research.

In a previous interview with Crain's, Jack Sobel, M.D., dean of Wayne State's medical school said the university critically needs a like-minded hospital partner and physicians willing to "share our vision and ambition." He said he also concluded that DMC's owner Tenet doesn't share Wayne State's values.

DMC officials have said they wish to remain a contractual partner with Wayne State and hope they can continue their relationship.

"We gave them (DMC) a chance (at transformational) and they weren't interested," said Hefner, a former president of University of Chicago Medical Center and health care consultant who was recruited to Wayne State in 2015 by Wilson.

DMC said in a statement last week about the ongoing contractual talks on clinical services and administration with Wayne State: "DMC and WSU currently have a teaching agreement in place that ensures current students completion of their program. If, for some reason, we are not able to work out an agreement, it would be irresponsible not to explore other possible partnerships where we would have suitable alignment centered around delivering high-quality medical care and maintaining a world-class academic medical center."

While continuing to work on a limited contract with DMC that also would maintain the teaching affiliation, Hefner said he began meeting with most of the health systems in Southeast Michigan in the summer of 2016 about their interest in working on a comprehensive affiliation with the university. He said talks with some systems other than Henry Ford continue.

Affiliation documents show that Hefner has talked with Trinity Health Michigan, Ascension Health Michigan, McLaren Healthcare, Beaumont Health and DMC.

When Hefner approached Henry Ford's Popovich during the summer of 2016 to discuss a broad vision and strategy for an affiliation, "he told me damn straight we ought to do it," Hefner recalled.

After several months of talking, Wayne State and Henry Ford hired Navigant in October 2016 to facilitate formal negotiations. Navigant had previously worked for both Wayne State and Henry Ford. Hefner said he recused himself from the Navigant selection because he had worked for them as a consultant.

By December 2016, Hefner, Popovich and Navigant had brought in others to the talks that included Wayne State's Wilson and Sobel, and Henry Ford's Lassiter and William Conway, M.D., CEO of the medical group. The outline of the Henry Ford-Wayne State affiliation began to take shape.

Early talks envisioned the partnership would be styled as an "integrated academic health science center," a public-private partnership. While it would be modeled on several other health centers, including such examples the University of Pittsburgh and the University of Chicago, the Wayne-Henry Ford affiliation would be unique because of the histories.

If successful, Hefner said the negotiating team believes the partnership could catapult Henry Ford into a top 10 health system and Wayne State as a top 40 health center over the next decade. Besides the medical school, Wayne State's nursing, pharmacy and allied health schools would be integrated into the entire operation.

But during this time, problems were brewing between Wayne State and one of its quasi-independent clinical groups, University Pediatricians, which includes many of Wayne State's pediatric department members and is the primary group affiliated with DMC Children's Hospital.

University Pediatricians was objecting in 2016 to a variety of university rules and bylaws and argued needed to be more independent and work closer with DMC and parent Tenet.

In an August 2017 pediatric department meeting, Wilson, Hefner and Sobel made a presentation that was intended to lay out the seriousness of a confrontation brewing between Wayne State and University Pediatricians.

Wilson flatly told the pediatricians they had a choice to make: to remain part of a university or to be in a private medical group practice.

"Roy spoke to his history of working with organizations and for him, as a university president, (a teaching contract signed last fall by University Pediatricians was) subverted by the practice plan and Tenet," said Hefner at the time.

UP officials apparently took the words by Wilson as an ultimatum to drop their quest for independence, although Sobel told Crain's multiple times the university wanted to support the pediatric group within the same rules that govern the medical school's other 16 clinical practice groups.

But shortly after the meeting, UP notified Wayne that it would leave the university on March 21 as a clinical practice group. UP still has a contractual relationship with Wayne.

However, in a FOIA of their own to the University of Michigan, Wayne State found out in February that DMC, Tenet and University Pediatricians had reached out to UM about replacing Wayne State as early as October 2016, documents obtained by Crain's show.

Wayne officials were stunned because the talks between DMC, UP and UM were happening at the same time Wayne State and UP were talking about a contract renewal and it also predated the announcement UP made in late 2017 to break away from Wayne State.

But Wayne State also at the same time in 2016 was both talking about contracts with UP on pediatrics, DMC on adult services and Henry Ford about a larger and primary affiliation.

In emails Crain's reviewed from April 2016 through September 2017, executives at Wayne State and Henry Ford exchanged ideas and opinions about the progress made on the affiliation talks.

For example, Popovich told Scott Ransom, managing director of health care at Navigant in a Jan. 18, 2017, email that there was enthusiasm for the affiliation but that the executive committee at Henry Ford had questions about the focus and costs.

Talks slowed in the middle of 2017, because Lassiter, who became CEO of Henry Ford in early January of that year, needed to overhaul his management team. In June 2017, he added an executive vice president and chief strategy officer, Seth Frazier, and later in the fall, the system's CFO, Edward Chadwick, left and was replaced by Robin Damshroder.

Chadwick had expressed the largest amount of concerns over costs of the affiliation and potential disruption, at least in the short term, two sources told Crain's. But a Henry Ford official said Chadwick had left the system for other reasons than disagreements about the brewing affiliation.

By December 2017, however, the affiliation talks had progressed to a point that Wayne and Henry Ford formed a small group to draft the first joint letter of intent for the affiliation, Wayne sources said.

Documents show that Navigant has a contract to bill Wayne State and Henry Ford $112,000 for every three months. Crain's was unable to get a clear accounting from Wayne or Henry Ford on the consulting costs. However, a Wayne official estimated each partner has spent about $500,000 so far since October 2016.

Wayne and Henry Ford also asked Pricewaterhouse, a national consultant with an office in Detroit, to facilitate separate retreats for Henry Ford and Wayne State doctors to explain the potential affiliation and get feedback.

In late February, lawyers for Henry Ford and Wayne, supported by a small team of executives, developed a 16-page letter of intent that had terminology on joint governance and operations that enjoyed general support.

Hefner said the LOI draft under discussion is more comprehensive than a typical bare-bones agreement in principle. "There is a fallacy that you do the hard stuff later" in a merger or affiliation talks, he said. "If you are going to do it, you need to make hard decisions up front. We are doing that now."

Heartened by the progress, Henry Ford and Wayne State also have plans to develop a 10-part definitive agreement. Each part, which is expected to be at least 60 pages, will cover all aspects of the affiliation, including governance, operations, research, trademarks and licenses, health professions, clinical practice, philanthropy and facilities.

Under the affiliation concept, the partnership would be overseen by the HFHS board of trustees and WSU's Board of Governors, but the new "Joint Leapfrog Board" would be co-chaired by each organization's top executive. The board would have delegated responsibilities, including strategic planning, budgeting, recruiting, marketing and communications. In addition, four to six leaders from each organization would become embedded within the other organization's leadership structure.

If a letter of intent is signed this spring, Hefner said it could take three to four months to work out the definitive agreement and get board approval from both organizations. It could be implemented in the fall.

From 1999 to 2004, efforts were made between Henry Ford and Wayne State to forge an expanded medical education, research and clinical services relationship, said John Crissman, former dean of Wayne State medical school.

"It was a goal when I was dean, and it is long overdue," said Crissman. "Henry Ford has a long tradition of excellence in undergraduate medical education and has been a major contributor to WSU medical student education."

In 2008, Wayne State broached an affiliation with Henry Ford during a contract dispute with DMC that was prompted by former CEO Mike Duggan withholding about $1 million per month in payments from Wayne State. Duggan said he was concerned DMC might be paying Wayne too much, but Wayne officials believed it was a hard-ball negotiating play. The two partners later signed a five-year contract that resulted in Wayne transferring over several residency programs to DMC and accepting at least 16 percent lower annual payments from 2012-2017.

A well-known national medical education consultant to Wayne State who requested anonymity, told Crain's that multiple previous talks with Henry Ford never contemplated a complete disaffiliation with DMC. The affiliation with Henry Ford would give Wayne State many more options for clinical services, medical education and research, he said.

However, there was a discussion in 2012 in which the Wayne State University School of Medicine would be merged into Henry Ford and be called the Henry Ford School of Medicine at Wayne State University, according to affiliation documents. Henry Ford Hospital would be renamed Henry Ford University Hospital, the 2012 plans suggested.

The medical consultant said Henry Ford viewed a primary medical school affiliation with Wayne State as a "feather in its cap." He said DMC would take a financial hit, but would remain a major teaching hospital because of its residency programs and affiliation with Michigan State through its osteopathic school.

The consultant said the one problem with Wayne State going over to Henry Ford is proximity because "DMC and Wayne State are cheek to jowl." Wayne State medical school is located on DMC's campus and Henry Ford Hospital is located about three miles away.

As affiliation talks in 2008 ebbed and executives came and left Henry Ford and Wayne State, the two entities signed a medical affiliation agreement in 2010. But they never dropped the idea their affiliation might become more. In 2015, Wayne State opened its biomedical research center closer to Henry Ford at 6135 Woodward Ave. in Midtown.

During the affiliation talks in 2010, Henry Ford considered investing in Wayne State's iBio building, but backed off because of the economic recession. The state of Michigan contributed $30 million to the cost of iBio.