Once completed, this merger would bring two nationally- respected departments of pathology and clinical laboratory into the combined health system

Two of the nation’s most prominent academic departments of pathology and clinical laboratory medicine will become part of a single “super-health system” if a just-announced plan to merge takes place. In Detroit on Wednesday, it was announced that Henry Ford Health System and Beaumont Health System had each signed a letter of intent to merge.

CEO Nancy Schlichting of Henry Ford Health System and CEO Gene Michalski, of Beaumont Health System discussed the plan to merge their health systems at a press conference on Wednesday, October 31. The deal is subject to further discussions and due diligence. No target date for completion of the merger was provided.

Merger Would Bring Together Two Prominent Departments of Pathology

Once completed, the merger would bring together Michigan’s two largest, nationally recognized health systems. It would create a single, $6.4-billion nonprofit entity that includes 10 hospitals, with 3,700 beds, and 200 other patient care sites, according to a report in in the Detroit Free Press.

Pathologists and clinical laboratory managers should understand that there are strategic reasons that motivate these two health systems to explore the benefits of operating as a single, huge health system. One primary motive for the merger is economic. “I don’t think it’s any secret to anyone that there are rapid changes in the health care landscape today across the country, at the statewide level and certainly in southeast Michigan,” stated Michalski of Beaumont Health. He pointed out, for example, that redundant costs could be eliminated, such as duplicate backup systems for new electronic medical records systems.

In Wednesday’s press conference, Beaumont Health CEO Gene Michalski (left) and Henry Ford Health CEO Nancy Schlichting discussed details of the proposed merger of their two health systems. If completed, the merger would bring two prominent academic departments of pathology and clinical laboratory into a single health system. (Photo by David Coates, copyright The Detroit News.)

In Wednesday’s press conference, Beaumont Health CEO Gene Michalski (left) and Henry Ford Health CEO Nancy Schlichting discussed details of the proposed merger of their two health systems. If completed, the merger would bring two prominent academic departments of pathology and clinical laboratory into a single health system. (Photo by David Coates, copyright The Detroit News.)

Schlichting of Henry Ford Health called the merger a “rare opportunity in health care.” She noted that healthcare reform has helped to bring about a monumental shift from inpatient to outpatient care and focus on keeping people healthy, as well as treating sick people. This indicates that both health systems recognize that the emphasis on preventative care and the need to fully integrate both clinical care and operational systems is one big factor behind this decision to merge.

Pathology Departments Affiliated with Different Medical Schools

One aspect of this proposed merger that will be of highest interest to medical laboratory executives and pathologists is how the merger treats the two departments of pathology and laboratory. Both health systems have strong ties to medical education and research institutions.

The Henry Ford Health System is affiliated with Wayne State University (WSU) School of Medicine. Across town, Beaumont Health System helped establish and is closely tied to the new Oakland University (OU) William Beaumont School of Medicine.

At Henry Ford Hospital, the Senior Vice President and Chair of Pathology and Laboratory Medicine is Richard J. Zarbo, M.D., Ph.D.. For Wayne State University, the Chairman of the Department of Pathology and Laboratory Medicine is Wael Sakr, M.D..

Pathology Chair for Oakland University Medical School

For Beaumont Health and Oakland University School of Medicine, the Chair of the Department of Pathology and Laboratory Medicine is Mark Kolins, M.D.. Both Henry Ford and Beaumont maintain strong pathology residency programs.

Commenting on the reasons for the merger of these two influential health systems, WSU Professor of Health Economics Gail Jensen Summers, Ph.D., told the Detroit Free Press that:

  • The combined, larger health system would be in a stronger position to negotiate with health insurers for higher payments.
  • Once completed, the merger with Ford provides Beaumont access to Henry Ford’s Health Alliance Plan (HAP) health insurance.
  • HAP is expected to be a major player in Michigan’s health insurance exchange when the health care act is fully operational in 2014.
  • Patients living in the suburbs who opt for HAP could access care at Beaumont facilities, rather than traveling to a Ford facility in the city.

Speaking at the news conference, both CEOs calmed fears of massive layoffs and downsizing of medical schools. They stated that they did not anticipate facility closings. They also stressed that employee labor agreements and affiliations with medical school would remain unchanged. With 23,000 employees, the Ford Health System is the fifth largest employer in metro Detroit, and Beaumont, with 14,000 employees, is the largest employer in Oakland County, which includes some of Detroit’s suburbs.

Will It Be a Merger of Equals?

It is unclear which health system would dominate–or CEO would prevail–but Ford is the larger of the two entities. It has six hospitals, 1,974 patient beds, 28 medical centers and other special care facilities.

Beaumont has three hospitals with 1,726 hospital beds. It operates nine medical centers, as well as outpatient and special care facilities and home medical equipment stores. Ford’s revenues in 2011 totaled $4.22 billion, while Beaumont revenues last year totaled $2.1 billion. Michalski said both CEOs would be involved in the transition.

The health systems have agreed on at least a 90-day due diligence period to work out merger detail. At that stage the deal will require the state’s approval.

Some details were provided in a press release issued by Beaumont Health System:

  • The merged health system would have a single board of directors, with equal representation from both entities.
  • The two systems would retain their own names until the partnership decides on a new name.
  • Medical staff would remain independent.
  • The two systems would collaborate on research to attract researchers, research dollars and clinical trials.

The academic institutions would continue to operate independently. However, some overlapping services and operations may eventually be integrated.

Speculating about Consolidation of the Two Clinical Laboratories

In fact, post-merger, it would make sense to integrate such clinical laboratory functions as courier services and informatics systems at the laboratories of the two health systems, particularly in the short term. That would produce both cost savings and operational benefits.

A thornier issue may be what to do with the respective clinical laboratory outreach programs at each health system. It would not be advantageous to have sales reps from two different arms of the same integrated health system calling on the same doctors to solicit their medical laboratory testing referrals. But it is too early to speculate on how the post-merge health system would address this issue.

What is important about this story is that consolidation within the hospital industry continues to take place. Clinical laboratory managers and pathologists should expect to see similar deals within their own community, if state and federal regulators allow Beaumont and Henry Ford to complete this proposed merger.

—By Patricia Kirk

Related Information:

Beaumont Health System Press Release

Obama’s health care plan, cost savings drives merger of Beaumont, Henry Ford

Merged Henry Ford, Beaumont hospital systems would be financially stronger 

New website for combined Beaumont, Henry Ford health system news

Parts of Beaumont, Henry Ford merger will have to be approved by the state

Mega health-system deal in the works, sources say

Tom Walsh: Mega-deal between Beaumont, Henry Ford Health System may be in the works