Spectrum President and CEO Tina Freese Decker would serve as the top executive for the new company. John Fox, the embattled president and CEO of Beaumont, would assist in the transition in the merger then depart the company.
The new system, with a temporary legal name of BHSH System, would have a dual headquarters in Grand Rapids and Southfield, the companies said.
The merger would likely create tens of millions in cost savings between the two health systems, largely by eliminating duplicating administrative functions and workers.
Freese Decker declined to discuss any potential layoffs or cost-cutting measures as the two parties are still in negotiation, she told Crain's in an interview.
"We're just starting with the letter of intent and regulatory approval," Freese Decker said. "We will be able to share info further once the deal is closer to completion."
The merged company would be run by a 16-member board of directors that would include seven seats appointed by Beaumont, seven seats appointed by Spectrum, Freese Decker and a member to be named later. The board would include at least three physicians, the companies said in the release.
Spectrum's integrated insurer, Priority Health, will also be overseen by the new health system. Priority accounted for more than $5 billion of Spectrum's $8 billion in revenue last year. Beaumont does not have an insurance arm.
On a call with Crain's, Freese Decker said the opportunity to expand Priority's scope via a merger with Beaumont is a major selling point. Priority has 1.2 million members.
"We will want to expand Priority Health throughout the system," Freese Decker said. "We can deliver on value with integrated health systems."
The merger also will allow the two hospital systems to restructure debt, Fream said, and gain more access to capital.
As of March 31, Spectrum had about $947.1 million in long-term debt, and Beaumont had about $1.47 billion in debt at the end of 2020.
It's the third try for a merger in two years for Beaumont.
Beaumont signed a letter of intent to acquire Akron, Ohio-based Summa Health in July 2019, only to cancel that deal in May 2020 as revenues collapsed during the COVID-19 pandemic.
In June 2020, Beaumont announced another letter of intent to merge with Downers Grove, Ill.-based Advocate Aurora Health. That merger would have created a $16 billion, 36-hospital system with locations in Michigan, Illinois and Wisconsin.
Beaumont officials touted that merger as a potential boon, as the letter of intent outlined a $1.12 billion investment in Beaumont over three years at $375 million annually, Crain's reported.
Of the $1.12 billion promised to Beaumont, the breakdown on projects included $75 million for relocation of the Oakland University William Beaumont School of Medicine from Rochester to Royal Oak; $15 million for the $45 million mental health hospital in Dearborn; and $26 million to finish an urgent care center in Macomb County.
But the deal also met with major backlash. A month after announcing the letter of intent, a "no confidence" petition began circulating among Beaumont's physicians, calling for the system's board to fire Fox and Chief Medical Officer David Wood Jr.
"Over the last five years, we the medical staff of Beaumont Health have seen a rapid and progressive deterioration in every aspect of patient care at Beaumont Health. We no longer have confidence in the administration's ability to provide a safe place for us to care for our patients," the petition said.
The petition also took aim at the Aurora merger, fearing it would remove local control from Michigan hospitals. Beaumont's board quickly responded that the Michigan hospitals would remain under local control.
But the damage had been done. In August, Beaumont and Aurora announced merger talks had been delayed and those talks ultimately ended in October.
Physicians and donors worried that merger talks with Aurora would restart in 2021 once the pandemic had settled down, but Fox told Crain's last year that the deal was dead. He did, however, leave the door open for another merger.
"There is nothing specific at this time, but (merger talks) are constant. It is inherent in the industry," Fox said.
Freese Decker said the talks between Spectrum and Beaumont have been ongoing for a long time but got serious more recently.
