Unrest is escalating among Beaumont Health physicians as the board of directors contemplates a significant merger with Advocate Aurora Health, a large hospital system based outside of Michigan. This potential merger has sparked a no-confidence petition circulating among Beaumont Doctors, reflecting deep dissatisfaction with the current leadership and the proposed alliance.
The petition specifically targets Beaumont CEO John Fox and Chief Medical Officer David Wood Jr., urging for their removal. A cover letter accompanying the petition criticizes the executives for prioritizing the financial health of the eight-hospital system, allegedly at the detriment of patient care and the community’s well-being. Deadline Detroit first brought the existence of this petition and its criticisms of the merger to public attention.
The cover letter accompanying the petition states, “Over the last five years, we the medical staff of Beaumont Health have witnessed a rapid and continuous decline in all facets of patient care within Beaumont Health.” It further emphasizes a severe lack of trust in the current administration’s capacity to ensure a safe environment for patient care.
Last month, Beaumont Health, Michigan’s largest hospital network, publicly announced its non-binding letter of intent to explore a merger with Advocate Aurora Health. Beaumont’s leadership has cited financial advantages as the primary driver behind this potential merger. They argue that joining forces with Advocate Aurora would enable greater investments in patient care across Beaumont facilities, exceeding what Beaumont could achieve independently.
Further Reading: Beaumont Health eyeing merger with out-of-state hospital system Advocate Aurora
Read More: Beaumont CEO says he’s taking a 70% pay cut as layoffs sweep through administrative staff
It is important to note that this is not intended as a sale but rather a merger of assets, creating a substantial $17 billion entity. This new organization would be governed by a unified board with equal representation from Beaumont and the pre-merger Advocate and Aurora systems, which themselves merged in 2018 to form Advocate Aurora.
In response to growing concerns, Beaumont’s board of directors, in a public letter to employees on Tuesday, voiced their support for the proposed merger. They emphasized potential benefits, including a projected $1.1 billion investment in Beaumont’s clinical programs, technology, and Michigan-based facilities over the next three years. This level of investment significantly surpasses Beaumont’s current capital improvement budget.
The board’s letter also highlighted that the merger would allow Beaumont to maintain a 4% net-positive margin, crucial for debt repayment and unforeseen financial needs. “Let us be clear – the Board is not ‘selling’ Beaumont,” the letter asserted. “Beaumont Health will remain a Michigan-based corporation with its own board, leadership, and regional headquarters. Any claims to the contrary are simply inaccurate.”
Crain’s Detroit reported that Beaumont doctors intend to present their no-confidence petition to the board before month’s end, aiming for 1,000 signatures or anonymous online votes. Many doctors are choosing to remain anonymous due to fears of job repercussions, according to Crain’s. The physician spearheading the petition drive has not yet responded to requests for comments.
CEO Fox Defends Merger Rationale
Beaumont executives maintain that merger discussions with Advocate Aurora began prior to the COVID-19 pandemic. The pandemic has placed immense financial strain on hospital systems nationwide, primarily due to the cancellation or postponement of non-emergency medical procedures.
John Fox, who joined Beaumont in 2015 after a 16-year tenure at Emory Healthcare, replaced retiring CEO Gene Michalski. In a recent interview, Fox stated that he has conducted multiple Zoom meetings with Beaumont doctors to address concerns and answer questions regarding the potential merger.
Fox refuted the notion that Beaumont is seeking a merger out of financial desperation. He pointed to Beaumont’s historically strong credit ratings from agencies like Moody’s Investors Services, which gave Beaumont an A1 rating with a “stable” outlook in late 2018, citing low credit risk and “strong profitability margins,” even before the pandemic.
“Beaumont was in a stronger financial position before COVID than it was five years prior,” Fox stated. “We have expanded our physician base, increased our market share, indicating patient satisfaction with our services. Crucially, we have made substantial progress in enhancing our quality and safety metrics.”
However, Fox acknowledged that the merger would strengthen Beaumont’s long-term financial stability, particularly given the ongoing financial uncertainties brought about by the COVID-19 pandemic and its impact on hospital revenues.
“Maintaining financial health is crucial for fulfilling our mission,” Fox explained. “Financial instability – something Beaumont has faced in the past – can negatively impact our ability to attract skilled nurses, maintain quality equipment and supplies, and ensure overall operational effectiveness.”
In April, Beaumont announced plans to lay off 2,475 employees and permanently eliminate approximately 450 positions due to the pandemic’s financial repercussions. While over 1,360 of these employees have since been rehired, with potential for more to return, the initial impact was significant.
Beaumont was slated to receive $321 million in federal assistance through the CARES Act, as reported by COVID Stimulus Watch. Despite this relief, Fox stated that Beaumont experienced a 40% revenue decrease at the height of the pandemic, and the CARES Act funding did not fully offset these losses. Current revenue remains approximately 10% below pre-COVID levels.
Adding to financial pressures, Fox took a 70% reduction in his base salary for the year and forfeited his bonus as part of Beaumont’s cost-cutting measures. IRS filings from 2018 indicate Fox’s total compensation was $5.9 million, but he has declined to disclose his 2019 compensation.
Doctor Compensation and Contract Concerns
Doctors have voiced concerns to Crain’s Detroit about a new physician compensation model introduced this year at Beaumont. They report experiencing pay reductions and allege that Beaumont is “offering compensation significantly below market value.”
However, both CEO Fox and Chief Medical Officer Wood argue that the new compensation structure has resulted in a net increase in overall physician compensation across Beaumont, even though some individual doctors might see a decrease.
The revised model aims to standardize compensation across the Beaumont system. Executives stated that previously, some physicians were being paid as much as 30% less than colleagues at other Beaumont hospitals for comparable work.
“While there were both winners and losers in this adjustment, the total expenditure on physician compensation actually increased slightly,” Fox explained. “This was not a cost-saving initiative. It was implemented to establish a fair, transparent, and compliant compensation system.”
Fox also defended the implementation of noncompete clauses in contracts for certain Beaumont specialists. These clauses restrict physicians from leaving Beaumont to join another hospital system within a 35-mile radius for a period of one year. Doctors have expressed strong disapproval of these restrictions, arguing they limit their professional freedom and ability to work near their homes.
CMO Wood clarified that these noncompete clauses apply selectively to specialist physicians in whom Beaumont has made substantial investments. “The purpose of the noncompete is to protect that investment,” Wood stated. “Noncompetes are not included in contracts for physicians where Beaumont is not making a special investment. It is a targeted approach.”
Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.
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