Michigan, Ohio health systems move forward with merger plans

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Michigan-based Beaumont Health and Ohio-based Summa Health said this week that they have signed a definitive merger agreement to form a $6.1 billion system.

Under the terms of the agreement, Summa's assets will be combined with Beaumont's at the time of closing. If the transaction is approved by state and federal regulatory agencies, the acquisition will expand Beaumont's hospital count to 12 and increase total revenue to $6.1 billion.

“As part of the BH/Summa merger, the plan is to bring Summa debt within the BH obligated group,” said Beaumont Health chief financial officer John Kerndl. “As part of the transaction, we will evaluate the two organizations’ outstanding debt structures.”

Both systems are big players in their respective markets. Beaumont is among Michigan's largest healthcare systems and includes eight hospitals and a total annual net patient revenue of $4.7 billion. It operates eight hospitals and has nearly 5,000 affiliated physicians, 38,000 employees and 3,500 volunteers.

Summa Health, which has total annual revenues of $1.4 billion and employs about 7,000 people, includes a network of four hospitals, community health centers, a health plan, a physician-hospital organization, and a multi-specialty physician organization.

Kerndl said he did not anticipate that the merger would have an impact on Beaumont’s credit rating in the short term. “We believe it will have a positive impact in the long term,” he said.

Moody’s Investors Service rates Beaumont’s hospital revenue bonds A1 and S&P Global Ratings rates the Michigan health system’s bonds A-plus. The outlook from both is stable. The system has roughly $1.5 billion of outstanding debt.

Moody’s downgraded Summa’s $350 million of debt in 2017 to Baa2 citing unexpected operating losses and higher capital spending. Summa announced in 2017 that it was beginning a search for a potential partner or merger with another health system to help ensure long-term financial stability.

Executives have said that efficiencies of scale will help them remain competitive by bolstering capital purchasing and curbing costs. The definitive agreement comes six months after the health systems signed a letter of intent to merge. They plan to close the deal by the end of the first quarter.

Under the agreement, Summa Health will maintain a local board to oversee clinical operations in Ohio and will continue to offer its SummaCare health insurance.

Beaumont Health plans to continue growth in Northeast Ohio and Michigan, including capital and operating projects, according to the release.

“We believe that by becoming part of the Beaumont family, we will be able to gain efficiencies from being part of a larger organization, further invest in delivering high quality, patient-centered care and improve local access to the services most needed by our patients and communities,” Summa Health Board Chair Anthony Lockhart said in a statement.

The proposal follows other healthcare consolidations that aim to create great scale and scope to reduce care costs and administrative hassles and operate more efficiently.

CommonSpirit Health formed in February following a merger between San Francisco-based Dignity Health and Catholic Health Initiatives in suburban Denver, created the largest not-for-profit.

In the Chicago area, independent hospitals have allowed themselves to be scooped up by systems to deal with evolving market trends and lean balance sheets, and two more are poised to follow.

Last June, the larger and higher-rated Evanston, Illinois-based NorthShore University HealthSystem said it will acquire Swedish Covenant Hospital. Swedish has had its eye on such an acquisition, having been in negotiations with a handful of systems. The acquisition still requires regulatory approval.

Last July, Peoria, Illinois-based OSF HealthCare and Little Company of Mary Hospital & Health Care Centers based in the Chicago suburb of Evergreen Park announced they were in exclusive negotiations to merge. Regulatory and church sponsorship approval is needed from the boards of the two Catholic providers. Financial terms were not disclosed and the union is expected to be completed in early 2020.

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