Southfield, Mich.-based Beaumont Health called off its acquisition of Akron, Ohio-based Summa Health, the health systems announced Friday.
The regional combination would have added four hospitals and a health plan to Beaumont's eight hospitals, creating a $6.1 billion system. The organizations signed a letter of intent in December and planned to close the deal on April 1.
When Beaumont told Summa last week that it was pulling out, the news came as a significant disappointment, Summa Health CEO Dr. Cliff Deveny said. Summa had turned around its finances and quality metrics over the past several years, and hoped it could leverage its position to attract investment and grow quicker than it could alone, he said.
"We had a lot of interest from other health systems," Deveny said. "Today, none of those health systems are the same as what they were pre-COVID."
Summa has fared better than some of its peers thanks to its health plan, which is doing well, Deveny added, noting that Summa is not in "any distress."
Surgeries and hospital admissions are about 85% recovered while ED and outpatient services are around 70%, he said. But home care, hospice and rehab hospitals are all ahead of budget.
For its most recent quarter ended March 31, Summa reported a $10.6 million operating loss on $354.5 million of revenue, down from an operating income of $4.5 million on $339.6 million of revenue relative to the prior year, according to Modern Healthcare's financial database.
Beaumont expects to shed $1 billion to $2 billion of its approximately $5 billion in annual revenue as it has had to delay about 80% of its non-urgent procedures.
"The 20% to 40% drop in our revenue can in no way be absorbed by our 4% operating margin and cash reserves," Beaumont Health CEO John Fox wrote in a March op-ed published by Modern Healthcare. "That missing revenue is critical cash needed to meet our payroll of 38,000 healthcare employees every two weeks. Our situation is similar to other hospital systems across America."
For its most recent quarter ended March 31, Beaumont recorded a $54.1 million operating loss on operating revenue of $1.07 billion, down from an operating income of $37.6 million on operating revenue of $1.15 billion relative the prior year.
COVID-19 has upended hospitals' merger and acquisition plans as providers manage diminished revenues and higher expenses. This week, four Chicago safety-net hospitals ended their merger plans after state funding dried up. Thomas Jefferson University withdrew its bid for Fox Chase Cancer Center from Temple University earlier this month.
Across all sectors of the economy, merger and acquisition filings have been down, said Noah Phillips, commissioner of the Federal Trade Commission.
"Companies are burning through cash reserves, ability to access equity and debt markets is less than it was, so you are seeing a downward trend in acquisition," he said during the FTC's annual antitrust meeting broadcasted last month.
Some opportunistic buyers will likely pursue deals amid the distressed market, healthcare M&A experts said. Although, the "failing firm" argument will only go so far, warned Ian Connor, the FTC's Bureau of Competition director.
"Think twice before making apocalyptic predictions of imminent failure during a merger investigation," Connor wrote in a May 27 blog post. "Counsel who make too many failing-firm arguments on behalf of businesses that go on to make miraculous recoveries may find that we apply particularly close scrutiny to similar claims in their future cases."