Beaumont, Summa Health Delay Hospital Merger Until After COVID-19

April 29, 2020 - A planned hospital merger deal between Beaumont Health and Summa Health will wait until after the COVID-19 crisis, according to Beaumont’s CEO John Fox.

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In an April 21 press briefing, Fox stated that both health systems are currently “all hands on deck” with managing COVID-19 outbreaks in their communities and that is taking precedent at the moment.

“We didn’t plan this, but we are deferring that until we have a little more clarity about the impact of this crisis,” Fox added regarding the planned hospital merger deal.

The news came during an announcement of Beaumont’s plans to temporarily lay off 2,475 employees as a result of the financial consequences of COVID-19. Fox explained that the pandemic has forced the health system to adjust its workforce after the organization suffered significant financial losses during the first quarter of 2020.

Beaumont recently reported a net income fall of $278.4 million, a decrease of $407.5 million over the same period in 2019. Operating revenue also dropped by $91.7 million in the first quarter.

Fox explained that much of the health system’s lackluster financial performance was not related to the COVID-19 outbreak, but the crisis will greatly impact the system’s second quarter financials.

Beaumont has stopped nearly all inpatient and outpatient surgeries and other non-COVID-19 medical services since its providers started caring for coronavirus patients five weeks ago. Since then, the number of patients seeking care unrelated to COVID-19 has dramatically declined.

To offset the financial losses, Beaumont temporally laid off some of its 38,000 employees and permanently eliminated another 450 positions. Most of the employees impacted worked for administration and in other non-patient care roles.

Executives will also take a pay cut, with Fox accepting a 70 percent temporary reduction in his base salary. The executive leadership team at the health system will also take temporary pay cuts of up to 45 percent of their total compensation.

“I am extremely proud of our team’s rapid response to COVID-19. While many front-line employees have never been busier, other parts of our operations have drastically declined or ceased. We must make difficult, quick decisions now to protect and readjust to an uncertain future,” Fox said.

Fox anticipates the economic pressures on the health system and the industry at large to continue well after the initial surge subsides.

“We must adjust the way we operate our organization moving forward,” he stated. “This pandemic has changed the delivery of health care, and we will be treating patients with this virus until we get a vaccine.”

The hospital merger between Beaumont and Summa Health, a four-hospital system based in neighboring Ohio, was supposed to close the first quarter of 2020 to bring in $6.1 billion in revenue for the two health systems.

The pandemic is wreaking havoc on hospital financial performance, according to the latest data from healthcare consulting firm Kaufman Hall.

Hospital operating margins fell by 150 percent year-over-year, coming in 170 percent below budget in March 2020, the firm recently reported. Performance is likely to get worse before it gets better as patient volumes and revenue continued to drop going into April.

Declining financial performance will impact hospital merger and acquisition (M&A) activity, experts stated. Hospital M&A activity in the first quarter of 2020 was on par with recent historical performance, with 29 announced transactions. But volume tapered off by mid-March, Kaufman Hall reported.

“At this moment, management teams are actively redeploying resources and investing time to activities necessary to manage the COVID-19 crisis,” they stated. “We anticipate a reduced pace of announced transactions in Q2 of 2020.”