Column

Starkman: CEO John Fox’s Michigan Legacy? Destroying Beaumont and Spectrum Health

September 21, 2021, 5:06 PM

Eric Starkman of Los Angeles is a former Detroit News business reporter who blogs at Starkman Approved.

By Eric Starkman

Beaumont CEO John Fox will forever be remembered in the Detroit area as a con man. As I outlined nearly a year ago, Fox and his PR guy Mark Geary play loosey goosey with the facts, spinning their way out of one crisis to another. Fox reached a new low weeks ago when he intimated unvaccinated patients were responsible for overflowing conditions at Beaumont’s emergency rooms. Covid patients comprise a small percentage of patients seeking ER treatment.

Another Fox deception was positioning Beaumont’s proposed marriage with Grand Rapids-based Spectrum as a “merger.” Geary went so far as to call it a “partnership.” In fact, Spectrum’s management will be taking full control of Beaumont, which is alarming because Spectrum has some management issues of its own, particularly in its lucrative Priority Health insurance unit.

Four top Priority executives, all of them women, have departed this year or are in the process of leaving. Priority is the entire reason Spectrum wants Beaumont because it will provide an opportunity to bulk up the plan with doctors and members. Tellingly, Spectrum doesn’t have an internal executive to oversee Beaumont, making it an even more formidable challenge to meld the two institutions.

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Beaumont CEO John Fox

Michael Freed, Spectrum’s former CFO and one of the executives responsible for helping Spectrum gain the respectability it enjoys, understands the dangers of Spectrum taking over Beaumont. Freed in June penned an open letter to Spectrum’s board warning, “I don’t see any value in this merger. I only see the potential for massive financial loss.”

Freed made his dire prediction seemingly unaware how badly Beaumont has deteriorated since his days of working in Michigan healthcare. I suspect he’d be even more critical of the deal if he knew.

Beaumont is a crippled hospital network on management life support. Virtually all of Fox’s senior management team resigned or was forced out, leaving only him and two Atlanta cronies to run an eight-hospital network. When Fox joined Beaumont more than six years ago, its flagship Royal Oak campus easily ranked among the top 50 hospitals in America. Under Fox’s leadership, legions of surgeons, fellowship-trained anesthesiologists, nurse anesthetists, and nurses have bolted.

Once nationally renowned for cardiac surgery, Royal Oak now ranks in the lowest five percent of U.S. hospitals for quality and safety. The hospital’s orthopedic surgeons, ranked among the best in the country, prefer doing their procedures at area outpatient centers and even rival hospitals. The Endoscopy Suite is functioning at 50 percent, emergency rooms are overflowing because of nurse shortages, and surgeons and other specialists keep quitting.

Anesthesiology at Royal Oak, which was once overseen by the former president of the American Society of Anesthesiologists, is now managed by NorthStar Anesthesia, a controversial outsourcing company. Patients in the know avoid Beaumont hospitals. Insiders warn they wouldn’t take their families there.

Spectrum is a respectable hospital network with a dominant market share in western Michigan, although it doesn’t rival the excellence Beaumont was known for before Fox arrived. Unfortunately, when a strong hospital system merges with a weak one, indications are the weaker one prevails.

That’s how Beaumont ended up in the sorry state that it is.

Previous Merger

Beaumont in 2014 merged with Oakwood Healthcare in Dearborn and Botsford Health Care, a combination I’d liken to the London Chop House merging with Denny’s and the Olive Garden. Oakwood was the Denny’s, and its board gained control of the merged operations. Beaumont has declined to such a degree that I’d understand if Denny’s protested if I likened the hospital network to that restaurant chain.

In a diss to their respective communities, Spectrum and Beaumont, both nonprofits, have yet to disclose the terms of their marriage, and possibly never will. It’s likely a simple merger of balance sheets and the only money that will change hands will be the millions awarded to Fox as part of his golden parachute. Multiple sources have told me that Oakwood’s CEO was given an exit package exceeding $30 million, so it’s not far fetched to speculate Fox will get at least that given he ran a hospital network more than twice the size.

Beaumont has a reserve of about $3.5 billion, and one doesn’t need Freese Decker’s Master of Health Administration degree to appreciate she’s betting that’s enough cash to clean up all the doo-doo that Fox will leave behind. What’s telling though is that no one from Spectrum has been tasked for the formidable job.

Typically, when a company makes a bet-the-farm deal to acquire another company of almost equal size, the acquiring company installs one of its top managers to handle the integration. Beaumont’s board last week retained a search firm to find an executive to succeed Fox and run what will likely become Spectrum’s southeastern Michigan operations.

Spectrum appears to be experiencing a brain drain of its own, particularly in its lucrative Priority Health insurance division. Joan Budden, CEO of Priority, retired in January and Marti Lolli, the division’s marketing chief, in June bolted to become CEO of a Salt Lake City health care system.

Mary Anne Jones appears to have stepped down as Priority’s CFO, as she is no longer listed on the division’s website. Crain’s Detroit Business in 2018 ranked Jones one of the “Most Notable Women in Finance.” Jian Yu, Priority’s chief actuary, is leaving to join Kaiser, although there has been no announcement yet.

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Tina Freese Decker

Spectrum’s PR people ignored my request for comment.

Celebrating Diversity?

Losing four prominent women within such a short time frame doesn’t speak well of Freese Decker’s leadership, particularly for an executive who says her goal is “building a health system that celebrates and reinforces diversity, equity and inclusion.” As I’ve previously reported, some Black Spectrum employees met with an attorney to explore whether they had sufficient cause to file a class action lawsuit alleging discrimination.

Spectrum has experienced considerable turnover of Black employees in its HR department. A company that can’t maintain diverse employee representation in its HR department has little hope of successfully achieving diversity system-wide.

What’s remarkable is that Beaumont’s board under chair Julie Fream waited until last week to retain a search firm for Fox’s replacement. The Spectrum takeover was announced in June, and there was an urgent need to find a replacement for Fox, who’s agreed to leave once the deal is done. Fox had previously told people he hoped to be gone by October 1, but as is typical for him, that was wishful thinking.

The FTC must still bless the takeover. Count me among those who expect the FTC to rubber stamp the deal, despite President Biden’s plea for the agency to curb hospital mergers. If the FTC throws a curve ball and nixes the deal, I’m doubtful Fream has a Plan B on how to rescue Beaumont. 

Stabalizing Beaumont

Stabilizing Beaumont unquestionably will be a formidable management challenge, requiring an executive who can hit the job running and has the stamina to keep doing so for several years. The job requires a multitude of management skills: A proven record gaining the trust and confidence of healthcare employees, the contacts to quickly build a management team from scratch, and experience working in southeastern Michigan healthcare.

Given that Spectrum is promoting its takeover as “For Michigan, By Michigan,” it would seem a no-brainer Beaumont’s board would cast its net only within the Michigan mitten, but it’s best not to make assumptions about Fream and her director colleagues.

Beaumont announced last week that Gina Arnett Thompson will join the company in early October as senior vice president and chief compliance officer, a critical position for ensuring Beaumont operates ethically and within the law. Thompson joins from MercyOne in Des Moines and earlier worked at Eskenazi Health in Indianapolis.

While serving as Eskenazi’s chief compliance officer, Thompson was named in a 2016 lawsuit filed by an auditor who alleged she was improperly fired after alerting Thompson that the hospital was filing false claims to the federal government and Indiana. Beaumont spokesman Mark Geary ignored a request for comment on how the lawsuit was resolved. 

Some of Beaumont’s issues could quickly become Spectrum’s. The nurse anesthetists at Beaumont’s Royal Oak, Troy, and Grosse Pointe hospitals unionized earlier this year, and contract negotiations with the outsourcing firm will soon be underway. An industry source told me that Spectrum’s nurse anesthetists have reached out to Beaumont’s to explore joining the Beaumont union or possibly forming their own.

The executive chosen to rescue Beaumont needs at least two years runway to turn things around and shouldn’t have the added pressure of merging a crippled institution with a healthy one. Someone capable of pulling off the task will have considerable experience and likely wouldn’t want to report to another CEO. Terminating Spectrum’s takeover of Beaumont would be a win/win for both health systems.

Although it’s rare for executives to back out of a deal, it’s not unheard of. One such executive was John Fox, who walked away without explanation from a merger with Akron-based Summa Health in May 2020 even after receiving regulatory approval.

Residents in Grand Rapids should pray that Freese Decker miraculously comes to her senses and backs out of a deal that invariably will harm western Michigan residents. Better for Freese Decker to be remembered as the executive who served John Fox his just desserts.

Reach Eric Starkman at: eric@starkmanapproved.com. Beaumont  Beaumont employees and vendors are encouraged to reach out, with confidentiality assured.

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