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.

Henry Ford Hospital to expand Helicopter Transport Service

The Detroit Free Press

Detroit’s Henry Ford Hospital on Friday will begin expanded helicopter services to transport critically ill and trauma patients from as far as 150 miles away in Michigan and Ohio.

The service is a partnership between the hospital and Superior Air-Ground Ambulance Service, an Elmhurst, Ill., company that also works with Ford to shuttle patients by ambulance to the Detroit facility.

Ford, like some larger hospitals, previously rented helicopters from several other companies, as well as the University of Michigan, to bring patients from its own and other hospitals, said Dr. Pat Patton, director of trauma at Ford and division head of Detroit acute care surgery. He said he expects the new service will bring two or three patients to Ford a day, up from that number each week. Ford has the largest intensive care program in the state.

The contract will allow Ford trauma and critical care teams to be more involved in the transport and hand-off arrangements of patients from one facility to another, Patton said. A Ford spokesman said the hospital did not want to disclose the length or cost of the contract.

Two Michigan Health Systems See Gains And Losses

Originally Posted To The Detroit News

Two major Detroit hospital systems -- the Detroit Medical Center and Henry Ford Health System -- made money on operations in 2008, despite huge losses incurred from unpaid medical bills and a deepening recession that's causing more people to lose their jobs and Michigan health insurance.

The DMC reported making $39 million on operations in 2008, an increase from the prior year and the largest one-year gain on operations since 1997, said CEO Mike Duggan.

Across town, Henry Ford also made money on operations in 2008, netting about $53.5 million, according to its unaudited financial results. That profit, however, was a drop from 2007 when Henry Ford made about $100.2 million from operating activities.

Operating income is an industry yardstick for measuring hospital performance absent investment income and other non-operating items.

Warren-based St. John Health, which has its flagship hospital in east Detroit, doesn't release its year-end financials until after June 30, when its fiscal year ends.

Despite the gains, Henry Ford and the DMC lost hundreds of millions of dollars last year on uncompensated care -- unpaid medical bills they don't expect to collect payment on -- and in the investment market, which plummeted last fall, putting millions of dollars in unrealized losses on their books. Many of the losses are due to newly unemployed workers who are no longer insured by a Michigan health insurance company.

Henry Ford, which has its headquarters on West Grand Boulevard in Detroit, saw its uncompensated care costs rise from $132 million in 2007 to $161 million last year. The seven-hospital health system also lost about $45 million on investments, dragging down its net profit to $8.5 million by the year's end.

Similarly, the DMC, which has its main hospital campus in Detroit's midtown, booked $47 million in unrealized investment losses in 2008, causing the organization to post a net loss of $6.5 million in 2008 -- the first red ink the hospital has seen since it began making money again in 2004 after nearly a decade of losses.

Duggan said the medical center doesn't usually focus on unrealized investment gains or losses, because the stock market is constantly in flux and those figures aren't directly related to operating performance.On uncompensated care, the DMC did better, reducing its losses from $266 million in 2007 to $255 million last year. The reduction came largely because the medical center made a better effort at enrolling its Medicaid-eligible patients in the Michigan Medicaid insurance program, Duggan said.

"We consider it to have been an excellent year," Duggan said, adding the city's long-term economic problems have forced the DMC to make cuts ahead of some industry rivals. "What other people are going through right now, the DMC went through in 2003 and 2005," Duggan said.

Duggan added the DMC hopes to begin construction on a $30 million outpatient center for its Children's Hospital of Michigan this year, but is waiting for the bond market to improve.

Other Metro Detroit hospitals have faced a challenging year.

In Oakland County, Beaumont Hospitals -- a historically strong financial performer in the region -- lost $29 million on operations in 2008 and has had to lay off staff.

And a report by the Michigan Health and Hospital Association released earlier this year found that 60 percent of Michigan hospitals reported a negative operating margin in the third quarter of 2008, following huge investment losses and last fall's Wall Street meltdown.

In that same quarter, the average margin had fallen to minus 2.9 percent, from plus 2 percent in 2007, the report found.