Southfield-based Beaumont Health and Illinois-based Advocate Aurora Health have ended long-running merger discussions that were marked by controversy and opposition from Beaumont doctors, nurses and major donors.
Beaumont did not give a specific reason for the mutual agreement to end talks, which had been put on hold in August while eight-hospital Beaumont tried to work out issues with doctors, a growing number of community supporters and several state and federal legislators.
Beaumont and Advocate signed a nonbinding letter of intent in late June and had hoped to complete a final agreement later this year. Any deal would have required a vote by the 16-member board of directors and sign off by Michigan Attorney General Dana Nessel.
"We continue to have a very high regard for Advocate Aurora Health," said John Fox, Beaumont's president and CEO, in a statement. "But, at this time, we want to focus on our local market priorities and the physicians, nurses and staff who provide compassionate, extraordinary care every day."
While discussions began in late 2019, they were put on hold earlier this year as COVID-19 accelerated across the Midwest.
"We have great respect for Beaumont Health and we continue to believe scale will play a critical role in advancing quality, accelerating transformation and reducing cost in the health care world of tomorrow," said Jim Skogsbergh, president and CEO of 26-hospital Advocate Aurora, in a statement.
The merger would have created a 34-hospital, three-state regional system with $17 billion in annual revenue, more than 100,000 employees, 2,500 employed doctors, 650 outpatient sites and a medical school partnership, Crain's has reported. It would become the nation's seventh-largest not-for-profit health system by revenue, behind Livonia-based Trinity Health.
But over the past three months, physicians, nurses and donors have expressed dissatisfaction with Fox, COO Carolyn Wilson and Chief Medical Officer David Wood over a number of management decisions they say has led to low morale, inadequate staffing, lack of supplies, changes in anesthesia services and departures of top doctors and nurses.
In separate surveys, 76 percent of 1,555 physicians said they have no confidence in corporate management and 70 percent expressed opposition to the merger with Advocate. An even greater percentage of nurses expressed lack of confidence in management (96 percent) and opposition to the merger (87 percent). Nearly 700 nurses took the survey.
Donors late last month sent a letter urging the Beaumont board to immediately address and fully resolve problems related to physician and nurse dissatisfaction and the pending merger.
Sources have told Crain's the staffers and donors appear to be mostly concerned with a decrease in the quality of the medical staff.
In May, Beaumont abruptly Beaumont Health called off a merger with four-hospital Summa Health, an Akron, Ohio-based system. The systems had already received all state and federal regulatory approvals.
Beaumont officials said the delay was to allow both hospital systems to navigate the coronavirus pandemic and its financial fallout, but Summa executives said they were surprised by the announcement.
Advocate Aurora announced plans earlier this year to double its annual revenue from about $12 billion to $27 billion by 2025. Skogsbergh told Modern Healthcare in August that scale has helped it weather the pandemic, and that the organization will continue its trajectory.
“The outline of the deal must be carefully refined, even at the letter of intent stage,” said Joe Lupica, chairman of Newpoint Healthcare Advisors, noting that bold statements could lead to risky behaviors.
Despite this deal falling through, Advocate Aurora still may achieve its goal, said Jordan Shields, managing partner of Juniper Advisory, noting that Advocate was formed by the consolidation of two similarly sized Chicago systems and then doubled again by combining with Aurora.
“There remain substantial growth opportunities for Advocate Aurora,” he said.
Many large health systems who received federal COVID-19 relief funding are flush with cash, which may fuel M&A activity. Although, those “opportunistic” transactions are what lawmakers and employer groups like the Pacific Business Group on Health staunchly oppose. Finance experts warned that regulators will scrutinize how relief funding is used, noting that attorneys general are watching market consolidation closely.
Through the first six months of Advocate Aurora’s 2020 fiscal year, the health system reported nearly $1.49 billion in cash and cash equivalents, up from $345.5 million at the end of the same period last year, according to Modern Healthcare’s financial database. Beaumont reported $1.56 billion in cash and cash equivalents through the first half of 2020, up from $519.9 million at the beginning of the period.
“Our other clients of similar size see this as an opportune time to deploy those resources,” said Ken Marlow, a partner and healthcare industry chair at Waller Lansden Dortch & Davis, who expects more deals to come to fruition in the coming months and through next year. “They see this as primetime to get other parties to the table that pre-COVID may not have been inclined to entertain partnership conversations.”
