Starkman: Beaumont Expects Imminent FTC Approval for Spectrum Takeover of its Faltering Hospital System

January 27, 2022, 7:36 PM

The writer, a Los Angeles freelancer, is a former Detroit News business reporter who blogs at Starkman Approved.

By Eric Starkman

Beaumont Health’s management believes all regulatory hurdles have been cleared for Grand Rapids-based Spectrum Health to take over Metro Detroit’s faltering hospital network.

Beaumont and Spectrum have instructed their IT departments to ramp up integration of their respective systems in anticipation of an announcement that the Federal Trade Commission has approved Spectrum’s takeover of Beaumont. Ken Septer, Beaumont’s vice president of infrastructure and services delivery, said on a videoconference with IT employees this week that an announcement could come as early as Tuesday, although he emphasized the target date was his own speculation and not set in stone.

Spectrum and Beaumont

Septer reports to Hans Keil, Beaumont’s chief information officer, who reports to CEO John Fox. It seems likely that Septer’s speculation is well informed.  

Beaumont spokesman Mark Geary ignored a request for comment. 

Septer told employees that the deadline has passed for the FTC to request additional information concerning Spectrum’s takeover, leading Beaumont and Spectrum to believe that approval is imminent. I couldn’t determine why or how Beaumont knows that the FTC will vote yes, but likely its Washington lawyers have some insider agency intelligence.

Beaumont and Spectrum want their IT systems ready for integration so the health systems can hold a joint town hall meeting to address employees and trumpet the benefits of the deal, which will create Michigan’s biggest hospital system and employer.

If the FTC approves Spectrum’s takeover, it would be a giant diss to President Biden, who last July issued an executive order instructing the FTC to be more critical of hospital mergers because studies show they invariably result in higher patient costs and poorer quality of patient care. 

Tina Freese Decker, Spectrum CEO

Although Spectrum CEO Tina Freese Decker claims her takeover will result in more affordable healthcare for Michigan residents, that seems highly doubtful. Thanks to Blue Cross Blue Shield of Michigan, which has a dominant market share, Michigan’s hospital prices are already among the lowest in the nation.

As for quality of care, since Freese Decker was named CEO of Spectrum in September 2018, patient safety at the company’s flagship hospital has declined. When Freese Decker assumed the helm, Spectrum’s Butterworth Hospital in Grand Rapids enjoyed an “A” safety rating from Leapfrog, a watchdog group that monitors hospital safety. Under Freese Decker’s watch, Butterworth’s Leapfrog rating subsequently fell to a “C” but has since been upgraded to a “B.”

Beaumont’s flagship Royal Oak hospital also has a “B” safety rating. By comparison, Michigan ranks 10th among states whose hospitals achieved Leapfrog’s highly coveted – and difficult to achieve – “A” ratings.

Freese Decker rivals Beaumont’s Fox in making unfounded and disingenuous statements. In a recent interview with the local Grand Rapids publication, Freese Decker said there has been no community opposition for her planned takeover. In fact, Spectrum’s former CFO Michael Freed publicly warned that Spectrum’s takeover of Beaumont could result in a “massive financial loss” and said he will hold Spectrum’s board accountable for approving what he said is a misguided deal.

Freed played an instrumental role bolstering Spectrum’s reputation in Michigan and nationally.

Freese Decker also said that her “biggest priority” is “building a health system that celebrates and reinforces diversity and inclusion for employees, patients, families, and members.” Notably, Spectrum’s head of diversity, a lifelong Michigan native, quit after Spectrum announced its takeover to join as head of HR an Indiana hospital considerably smaller than a combined Spectrum/Beaumont.

Spectrum’s Black employees last year considered filing a class action suit last year for what they alleged was discriminatory and racist treatment. As an example, one Black employee was told to be “very mindful” of her “nonverbals and tone (e.g. facial cues, furrowed brows, pursed lips).” The employee was also instructed to “build her resilience and Teflon” and to avoid asking “direct why” questions.

A source told me Spectrum’s former diversity chief was frustrated by his inability to achieve meaningful change. Freese Decker has yet to commit to any meaningful diversity targets, and neither Gov. Gretchen Whitmer, AG Dana Nessel, or any other Michigan politician served by Spectrum and Beaumont hospitals have demanded any diversity commitments.

Notably, Freese Decker is the chair of the Michigan Health & Hospital Association. Fox is a past chair.

Beaumont and Spectrum have positioned their combination as a “merger,” which technically it is. Although financial terms of the deal haven’t been disclosed, it’s known that seven Beaumont board members will serve as directors of the combined health systems and that eight will come from Spectrum. An additional director will also be named.

Julie Fream, Beaumont board chair

Beaumont board chair Julie Fream will serve as chair of the combined companies, but Fream has demonstrated that she is unsuited to serve on a hospital board. Fream was previously vice chair of Beaumont and was among the directors who stood by CEO John Fox while he was destroying the hospital system, and a survey revealed that doctors overwhelmingly had no confidence in him or his management team. Fream’s day job is president and CEO of the Original Equipment Suppliers Association, a trade group.

Spectrum CEO Tina Freese Decker will be one of the directors of the combined companies, and there’s no reason to believe that Fream will challenge Freese Decker any more than she did Fox.

Moreover, there likely will be no senior Beaumont executives working at the combined company. Beaumont CEO John Fox has said he will leave, and most of his management team has already bolted. Freese Decker and her management team will be free to do as they please.  

Beaumont has faltered badly since Fox became CEO in 2015. Beaumont Royal Oak once ranked among the best regional hospitals in the country, but it has lost more than a dozen prominent surgeons in recent years, a trend that accelerated after the hospital system outsourced its anesthesia to a controversial firm. Morale at the Royal Oak hospital has been dismal, particularly among the nursing staff.

Beaumont CEO John Fox

Under Fox’s leadership, Beaumont has been in a perpetual cost-cutting mode, but Spectrum appears poised to reverse the trend.

Fox disclosed in a recent company video that Beaumont plans to spend “significant dollars” to embark on a three- to five-year plan to expand the health system’s private bed capacity. He said the expansion would involve “a lot of local planning in terms of where these bed towers are located,” seemingly indicating a substantial footprint expansion.

If Spectrum is planning to invest significant monies in Beaumont, I expect that will be included in the PR hype when the two companies announce the deal.

A promise by Spectrum to make a significant investment in Beaumont possibly helped tip the scales and garner the FTC’s approval. That said, the investment involves little or no risk for Spectrum, as Beaumont has a cash reserve of $3.5 billion.

Although Spectrum and Beaumont are nonprofits supposedly accountable to the communities from which they are exempted paying taxes, they haven’t disclosed the financial terms of their deal. It is likely similar to the terms Chicago-based Advocate Aurora struck in 2020, whereby it planned to take over Beaumont in a cash-free transaction in exchange for giving Beaumont directors a one-third representation on Advocate Aurora’s board.

The terms were so obscenely favorable to Advocate Aurora the two companies were forced to abandon the deal. Spectrum is giving Beaumont’s board nearly 50 percent representation, but I’m doubtful that it’s paying any money to take over the hospital system and its $3.5 billion cash reserve. Fox is motivated to do such a sweetheart deal because he likely will be paid tens of millions of dollars as part of his golden parachute.

Former Attorney General Frank Kelley

Attorney General Nessel also had to bless Spectrum’s takeover. But Nessel’s approval was widely perceived as a given as she is decidedly among Michigan’s least effective attorney generals in recent memory, a far cry from longtime AG Frank Kelley who was nationally known and respected for his consumer advocacy and protection. If Kelley, who died last year, was AG while Fox was destroying Beaumont, I’m confident he would have forced the CEO’s removal as well as Fream and the other hospital directors who supported him. 

Spectrum and Beaumont continued working on their marriage even in the midst of another Covid surge in Michigan that overwhelmed both hospital systems, as well as others. One possible reason for Michigan hospitals being overrun is they have been dispensing medications known to have no benefit treating omicron, the dominant strain in the U.S.

Kaiser Health News, a trade publication, reported last week that Michigan hospitals far and away were administering useless – and costly -- Regeneron and Eli Lilly monoclonal antibody therapies, a whopping 5,800 doses in the previous two weeks. While the therapies were effective treating earlier strains of Covid, it’s been known for some time they are useless treating patients with the omicron strain. Kaiser didn't name specific hospitals. 

Florida ranked second administering 5,200 useless monoclonal antibody therapies, followed by Indiana, Missouri, Louisiana, California, Oklahoma, Kansas, Georgia, Ohio, New York, and Mississippi.

Richard Curbelo

Postscript: This month marks the one-year anniversary of the passing of Richard Curbelo, the healthy 51-year-old patient who died from intubation complications undergoing a routine colonoscopy at Beaumont Royal Oak three weeks after NorthStar Anesthesia took over. The co-heads of Beaumont’s cardiology department previously cautioned then board chair John Lewis they had “serious concerns” about NorthStar’s capabilities, but their warnings were ignored.

R.I.P. Richard. While Fox is toasting the millions he earned destroying Beaumont and putting patients at risk, I know your memory lives on with your fiancé, family, and friends.

Reach the writer at Beaumont  Beaumont employees and vendors are encouraged to reach out, with confidentiality assured.

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