(Crain's Detroit Business) Beaumont Health's proposed merger with Downers Grove, Ill.-based Advocate Aurora Health could run into a snag if Michigan Attorney General Dana Nessel enforces a 1988 state law that some believe prohibits the sale or transfer of three Beaumont Downriver hospitals without the consent of the original hospital authority that built them.
Nessel's office declined to comment for this story, but said Thursday it would be looking into Beaumont's merger plans. Beaumont said in a statement it will comply with all applicable state laws.
The three Beaumont hospitals in Taylor, Trenton and Wayne were part of the original 1946 creation of the People's Community Hospital Authority, which built and operated five hospitals in southwestern Wayne County after World War II.
In the 1980s, "it became pretty clear that public hospitals were at greater risk," Milton Mack, a hospital authority member in the late 1970s representing Wayne, told Crain's. "We formed a task force to study the future of health care. The result was to recommend that the People's Community authority be converted into a private nonprofit corporation (United Care) under laws of Michigan."
In 1988, Mack said, the state Legislature and Gov. James Blanchard approved Public Act 273 of 1988 that allowed People's Community to turn into a private nonprofit corporation with its charitable assets overseen by the Michigan attorney general's office.
"We built protective language into the statute to prevent public assets from being given away" without input from the original hospital authority and the residents of the communities it served, said Mack, a former chief judge in Wayne County probate court and state administrator emeritus.
In 1989, United Care signed a management agreement and merged with Oakwood Healthcare, a Dearborn-based four-hospital system. The board of United Care and People's Community has long since dissolved, but Mack said the community protections remain with new owner Beaumont.
Mack, who was instrumental in helping to negotiate the merger of United Care hospitals with Oakwood, said People's Community also considered a merger of its hospitals with Henry Ford Health System, Detroit Medical Center and the University of Michigan before selecting Oakwood.
By the early 2010s, the prevailing wisdom in the hospital industry was that bigger is better, so in 2014 Oakwood Healthcare merged with Botsford Hospital and Beaumont Health Systems to become Beaumont Health.
In late May this year, Beaumont announced it had signed a letter of intent to merge with Advocate Aurora, a nonprofit health system that operates 28 hospitals in Illinois and Wisconsin.
But Mack said he believes a Beaumont merger with an Illinois-based health system would violate the 1988 state law. He said Nessel should closely review the merger and state law that protects the interests of the people in Taylor, Trenton and Wayne.
"I'd like her to take a close look at whether a transfer (of assets) like this violates the spirit if not the letter of the law of these community hospital systems," said Mack. "There is no question that Beaumont will not be in control of the system once this merger and transfer happens."
In a statement, Beaumont said it would comply with state laws if its board approves the merger with Advocate Aurora.
"Beaumont Health has reviewed (all applicable state laws). If we join together with Advocate and Aurora, we will still comply with the Act's applicable provisions, which include operating as a separate Michigan tax exempt organization under Michigan law, continuing our distinct charitable mission, and serving our patients and the citizens of Michigan," Beaumont said.
John Fox, Beaumont's CEO, has said Beaumont will negotiate strong reserved powers and the Beaumont facilities will be under local control.
Currently, Advocate Aurora has corporate offices in Chicago and Madison, with CEO Jim Skogsbergh based in Chicago. He has been named one of Modern Healthcare's 100 most influential people in health care each of the last nine years.
Fox told Crain's last month that if the merger is completed it is possible a third Advocate Aurora Beaumont Health corporate office could be in Michigan, or halfway between Chicago and Detroit.
Despite Beaumont's positions, Mack said he thinks the restrictions outlined in Public Act 47 331.9, section 9 paragraph 14c are clear:
"Any contractual arrangements between the hospital authority (People's) and the nonprofit corporation (Beaumont) shall at all times require that the nonprofit corporation shall not sell all of the transferred assets without the express consent of the hospital authority and the approval by a majority of the voters in an election."
The law further states: "If all of the transferred assets are sold pursuant to this subdivision, the sale shall be for market value and the proceeds of the transaction shall be turned over to the hospital authority and used for health care needs within the service area of the hospital authority."
Mack said the Michigan nonprofit act also requires the Taylor, Trenton and Wayne hospitals to be open to the public and not close unless a public process is followed.
Beaumont temporarily closed Beaumont Hospital Wayne, the former Annapolis Hospital, during the height of the COVID-19 pandemic in April. It was converted into an all COVID-19 unit, closed again, then reopened several weeks later, but doctors still complain about not having full services.
Pete Bergeron, owner of Romulus-based Bergeron Financial LTD and a former PCHA and United Care board member, said he was outraged Beaumont closed the Wayne hospital.
"Beaumont closed Annapolis in the middle of a pandemic when they were opening makeshift hospitals at Cobo Hall (TCF Center) and at (the Suburban Collection)," said Bergeron, adding that he believes Beaumont would violate state law if allowed to merge the assets of the old People's hospitals with Advocate Aurora.
Bergeron said Nessel should force Beaumont to divest Taylor, Trenton and Wayne and give them back to the communities. He said a new board could be created to govern the facilities.
Mack said his reading of state statutes and understanding the intention of the People's board is that the hospitals shouldn't be controlled by an out-of-state company.
"(The three former Oakwood hospitals) cannot be organized under the state of Illinois," Mack said. "This would trigger the reversion clause, which means if the hospitals are sold or closed, the options are they would be returned to the community or buy them from the old PCHA."
What can Nessel do? Mack said she Nessel could take several actions. "She can say no to the merger entirely. Or, she can unwind the Beaumont-Oakwood merger and the three Downriver hospitals can choose another system" such as Henry Ford or the University of Michigan.
"Whatever she does, it should be in the best interests of the people in the communities," Mack said
After World War II, western Wayne County had no hospitals and with a growing population, the lack of access to health care services created a major public safety issue.
Under the 1946 Hill Burton Act, the federal government provided billions of dollars in grants and low-interest loans to build dozens of public hospitals in Michigan.
Shortly after, People's Community was formed to build the five hospitals that served 27 communities and was represented by a 47-member authority board. Taxpayers also financially supported the hospitals with a small millage rate they paid with their property taxes.
"The community should have a say in the management of the institutions," Mack said.
This story first appeared in our sister publication, Crain's Detroit Business.