June 23, 2014 at 11:22 pm

Metro Detroit hospitals merging to form Beaumont Health

Beaumont Hospital in Royal Oak (David Coates / The Detroit News)

A merger of three area health systems will capture about a third of Metro Detroit’s hospital revenue, without layoffs or closures, if the deal wins federal approval.

Beaumont Health System, Botsford Health Care and Oakwood Healthcare said Monday they’re joining to become one of the region’s largest health care systems.

The $3.8 billion, not-for-profit company, which will be called Beaumont Health, is expected to garner about 30 percent of hospital revenues in the region, according to the Michigan Health Market Review, making it the area’s top health institution in terms of revenue.

Once the three companies are combined, Beaumont Health will have eight hospitals in Oakland and Wayne counties and 153 outpatient sites across Metro Detroit.

“Coming together into one organization, we intend to improve the service, quality and access of health care to all of our constituents in southeastern Michigan,” Botsford CEO Paul LaCasse said during a Monday afternoon conference call with reporters.

One independent health market analyst said there are good and bad aspects of mergers such as the one announced Monday.

“You have opportunities for ... achieving efficiencies and economies of scale,” said Allan Baumgarten, publisher of Michigan Health Market Review. “It also enables them to make investments in information technology and improving systems for care management.”

However, he added, there’s potential consumers who may have to shell out more to see a doctor.

“Much of the research on this kind of consolidation in a market suggests the larger system will use its market power to increase prices,” Baumgarten said.

He said Beaumont Health’s 30 percent of Metro Detroit’s market may not be enough for it to command higher prices, but “it certainly begins approaching a number where you might be concerned.”

Henry Ford Health System would be the next largest system, and it’s expected to capture 23 percent of the market revenue, followed by St. John Providence Health System with about 16.1 percent and the Detroit Medical Center with 15.9 percent, according to the Michigan Health Market Review.

Also driving the merger is the implementation of the federal Affordable Care Act, experts said.

The law is prompting hospitals across the country to seek mergers to better manage costs and achieve efficiencies in the new health care marketplace. The law has changed the way hospitals are reimbursed and has shifted the fee-for-service model to a value-based model that rewards health care providers for improving health outcomes while saving money.

The three-way agreement comes about three months after the hospitals signed a letter of intent to form the health system.

It also comes about a year after a proposed Beaumont Health System deal to merge with Henry Ford Hospital fell apart.

State and federal regulatory approval is pending and the companies hope to complete the merger by September.

The hospitals involved are currently known as Beaumont Hospital, Royal Oak; Beaumont Hospital, Troy; and Beaumont Hospital, Grosse Pointe; Botsford Hospital, Farmington Hills; Oakwood Hospital-Dearborn; Oakwood Hospital-Southshore; Oakwood Hospital-Taylor; and Oakwood Hospital-Wayne.

The new company will have 5,000 physicians and 33,093 employees. Officials said they do not expect any employees to be laid off because of the merger.

“We’re going to be very deliberate, very thoughtful about keeping our talent pool fully and completely engaged,” Beaumont Health System President and CEO Gene Michalski said during the conference call. Turnover and attrition will likely be sufficient to reduce the number of employees, if necessary, he added.

Michalski will serve as initial CEO of the merged company. Oakwood board chairman John Lewis will serve as Beaumont Health’s chairman.

Michalski said one of the biggest differences between the new deal and the Henry Ford merger is there won’t be any geographical overlap among the hospitals.

He also said the physician practice structure is different for Henry Ford. For Beaumont, Botsford and Oakwood, it’s made up of private practices.

Furthermore, Michalski said, the corporate cultures of the three health systems are more similar to each other than that of Henry Ford.