01 November 2012

Beaumont Health System Merges with Henry Ford Health System

story first appeared in Detroit Free Press

Here's a multiple-choice question about the big hospital hookup plan unveiled Wednesday by the Beaumont and Henry Ford health systems, which plan to join 10 hospitals and 41,000 employees in a giant not-for-profit marriage.

Is it:

(a.) Scary?
(b.) A necessary survival move?
(c.) An opportunity to forge a medical supersystem with cachet to rival names like Mayo, Johns Hopkins or Cleveland Clinic?
(d.) All of the above?

Let's go with (d.) as the correct answer, for the following reasons:

  • Giant mergers are always scary in any industry. Scary to employees who fear they will lose jobs in the name of synergy; scary to competitors; scary to suppliers who fear being squeezed, and scary to consumers who fear being treated like numbers by large institutions and worry they will become specks of dust to an even larger corporate behemoth.
  • Survival is indeed Job One in health care today, as pressure intensifies to control per-patient spending by spreading fixed costs across a larger population.

"We have a tsunami coming with Medicare," Henry Ford CEO Nancy Schlichting said of the aging baby boom generation. In other words: How on Earth will we possibly pay those looming bills?

It's also true that Henry Ford and Beaumont are highly regarded hospitals with national reputations in robotic surgery, heart and vascular services, transplants and quality care. Combining them holds potential to attract more research grants from outfits such as the National Institutes of Health, and to attract more patients from around the world for specialty treatment.

Executives of the two hospital systems were careful Wednesday to sidestep talk of possible facility closings or staff layoffs, but the phrasing of a few of their comments left little doubt that they will be looking for savings, if and when they close a deal by mid-2013.

Schlichting said in the short run they're not planning the closure of any facilities. Note the preface: "in the short run."

 Beaumont CEO Gene Michalski said that there is a demand for "higher quality at less cost." "At less cost" being the key words.

According to Schlichting, the merger is an opportunity to make sure there is a more efficient model for care.

We all know what "a more efficient model" means -- careful cost control -- but Schlichting knows that is essential to survival, which makes other things possible.

Sandy Pierce, chairwoman of the Henry Ford Board of Trustees, talked about "growing" the new entity. But how do you grow by just merging two nonprofit groups, without an infusion of new cash that a for-profit partner might have provided?

Pierce predicted that the larger scale would help draw more patients from outside Michigan -- and hinting that future acquisitions in other states are possible.

Steve Howard, chairman of Beaumont's Board of Trustees, agreed that out-of-state expansion is possible down the road.

If all that sounds grandiose for a couple of outfits that are toiling today in a challenging environment, as bond rating agencies have candidly stated, it's not unattainable.

A big reason for confidence is the leadership at Henry Ford and Beaumont, and specifically the presence of Schlichting, 57, a rock star in the health care field, a director of the American Hospital Association and current chairwoman of the Detroit Regional Chamber.

While the Beaumont and Henry Ford leaders said Wednesday that no decisions have been made yet on the future CEO and governance team, Schlichting is a good bet. She's younger than Beaumont CEO Michalski, 64.

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