When Summa Health put itself on the market last year, the name Beaumont Health wasn’t on most people’s radar.

But after their initial surprise, some observers said the proposed marriage between Summa and Michigan’s biggest hospital system makes sense.

A letter of intent has been signed for Southfield, Mich.-based Beaumont Health to acquire Akron-based Summa. Beaumont will become Summa’s parent company, and the two will pool their resources to have a combined $6.1 billion nonprofit organization in annual revenues and 45,000 employees in two states.

Under the deal, which is expected to close by the end of the year, Summa will maintain a local board, local President and CEO Dr. Cliff Deveny and the Summa name.

Before the tentative deal was announced last week, many industry insiders thought Pittsburgh-based UPMC, University Hospitals, MetroHealth or the Cleveland Clinic were the most likely suitors.

Dr. Waleed Nemer, president of the Summit County Medical Society, which represents physicians and health care professionals in the county, said he was surprised by Beaumont, but believes “it’s the right move.”

“We need another flavor in this area other than Cleveland Clinic and University Hospitals,” said Nemer, an independent internal medicine physician. “Whenever you have competition, you know in every position or every job situation or institution, it’s always better for the consumer.

“It’s a solid boost for Summa. The majority of the physicians are welcoming this partnership and the reason is this will keep the name Summa, which we all really want or really favor.”

Beaumont is a “very reputable large Michigan operation” that has “done very well over the years. It’s a strong operation, no question about that,” said J.B. Silvers, a health finance professor at Case Western Reserve University's Weatherhead School of Management.

Silvers gave credit to Deveny, an Akron native who started his career at Summa and returned in 2017 right after a crisis at Summa that saw the ouster of its former CEO after physicians voted no confidence in him, the loss of the emergency medicine residency program and a financial freefall as physicians and patients walked away from the hospital system.

Deveny was able to right the ship so that he and the board were not negotiating for a new partner in a fire sale, Silvers said.

“They had their troubles but they turned it around. They were negotiating from a position of strength. It was not a turnaround situation, which it might have been a few years ago,” Silvers said.

Success questioned

However, not everyone thinks Summa has succeeded.

Sue Myers of Hartville uses several area health systems, including Summa, for her family’s health needs.

She’s familiar with Beaumont’s name since her daughter in Michigan delivered her children at a Beaumont hospital.

Beaumont CEO John Fox last week said Summa would keep its name as it grows in Ohio because it’s got the local brand recognition.

But Myers said she’d rather Summa drop its name and take on Beaumont’s name.

“To average people, we all think Summa has gone downhill so badly that we’re afraid of it. It would almost be better if it started again,” said Myers. “I would much rather they put Beaumont’s name on it and say, ‘We’re new to the area and here’s why.’ ”

It’s possible Beaumont will use Summa’s name and brand in Ohio to grow in the state initially and then later rebrand to Beaumont, said Allan Baumgarten, an independent analyst of healthcare markets who has been publishing reports about healthcare markets in eight states, including Ohio and Michigan, for more than 20 years.

“I’m not that sure (Beaumont) won’t try to use the Beaumont name (in Ohio) at some point,” said Baumgarten.

Beaumont has strong financials and has been expanding, Baumgarten said.

The system is launching 30 new urgent care centers in the Detroit suburbs this year and will build a new mental health hospital in Dearborn and three new outpatient campuses in suburban Detroit.

The acquisition of Summa is its first move across state lines, said Baumgarten.

“They want to expand their footprint even if they maintain the Summa brand,” he said. “I think they’ll be posting maps in their Southfield (Michigan) offices showing Michigan, Ohio and maybe Indiana and others.”

Hospital systems are looking to grow beyond their own markets because many are topped out in their own regions, Baumgarten said.

“They start casting their gaze more broadly to where else can they expand to because growth is the number one goal for many of these large health systems,” he said.

Beaumont formed in 2014 when three hospital systems in Michigan combined under the Beaumont name.

The health system is strong because it is largely in suburban Detroit, with strong relationships with doctors and a relatively low percentage of Medicaid patients, which helps their profitability, he said.

Local control

Deveny, Summa’s CEO, said under the agreement Summa will have local decision making on clinical services and will be accountable for operations and performance. Beaumont will have “super-majority rights … if we sell assets, our budget, naming of the CEO and if we’re going to acquire anything or spend over a certain amount.”

This acquisition is set up differently than the merger in 2014, when the other hospital systems were folded into the Beaumont name with one board.

In this proposed deal, Beaumont will get five of the 16 board seats that current minority owner Mercy Health, which merged with Bon Secours last year, now controls. Summa representatives also will get three seats on the Beaumont board of directors.

Having representation on the parent board had to be an important part of negotiations, Silvers said. “they need to have a seat at the table; otherwise, they’re a distant subsidiary.”

No money will be exchanged between Summa and Beaumont, Deveny said, but the organizations will pool their resources and buy out Mercy’s 30 percent ownership. Mercy’s new parent, Bon Secours, had notified Summa that it was moving in a different direction.

Beaumont has pledged an undisclosed amount of capital into Summa, as it seeks opportunities to grow.

Access to capital is probably more important than cash in a deal, said Tom Campanella, director of the health care MBA program and a professor of health economics at Baldwin Wallace University.

“Now more than ever, organizations are looking for partners that create an opportunity for long-term success. Short-term dollars are probably a little bit less of an issue than being with the right strategic partner and ensuring long-term success,” he said.

Summa still had five years left in its minority ownership with Mercy Health, but the new parent owner said its focus was a national platform, officials said.

That likely accelerated Summa’s search for a new partner, said Olga Beck, a senior director at Fitch Ratings, who has been following Summa for several years.

Beck said Summa seems to have found a strong financial partner that understands its market and lets it maintain local control.

Beck last fall affirmed an A- bond rating and upgraded Summa’s outlook to stable from positive, citing significant improvement in 2018.

Growth opportunities

Summa’s health insurance business, SummaCare, was the real carrot in the deal, Campanella said.

Beaumont does not have a health insurance arm and SummaCare was a strong key to the deal, Beaumont’s CEO John Fox confirmed last week.

The insurance arm of Summa has been in business for 25 years, while many other health systems have had insurers and shut them down, Campanella said.

Summacare is strong in the Medicare Advantage market for senior citizens, which “will really be the growth engine for hospital systems for many years to come,” Campanella said. Medicare Advantage plans are optional managed-care plans that offer enhanced services and help paying for medical care for Medicare enrollees.

Said Beaumont’s CEO Fox: “When we were looking at partnership opportunities, we looked at a lot and walked away from a lot. One of our pieces was it would be nice to partner with somebody who’s got some competency in (insurance) and is in the Medicare Advantage and commercial. Summacare has done pretty well and we’re anxious to learn more about it.”

Summa and Beaumont officials said the deal will lead to growth in the insurance business, as well as health care services and facilities. Deveny didn’t elaborate on Summa’s expansion plans except to say the health system will look at opportunities to close gaps in the market and keep Akron-area patients from leaving to seek care in Cleveland, Columbus and Pittsburgh.

Campanella said he’s sure Summa and Beaumont have multiple plans for growth, which could include moving north to Cleveland and west to Toledo, which is closer to Beaumont’s Michigan market.

“The idea of expanding your geographic market and opening yourself up for more customers ultimately makes a lot of sense. You’ve just got to be able to deliver,” said Campanella. “ The biggest advantage they have is they have a tandem approach. They have both SummaCare and the health system.

“As SummaCare expands potentially in more geographic areas, it allows them to fuel it because the overall network would be Summa the health system. It’s sort of a tandem strategy that can’t be looked at in a silo way.”

Baumgarten, the national analyst, said he’s not so sure the growth will be in Toledo or Cleveland.

He also doesn’t see Beaumont expecting Summa to send patients several hours away to its hospitals in Michigan.

Most hospital systems use a hub-and-spoke design, with community hospitals or facilities feeding the specialists at the main campus.

“I think they’ll want to make strategic investments in certain lines of business to try to keep more patients in the Akron area, which I think is a good thing for Akron and maybe why somebody from a little farther away was appealing to Summa,” Baumgarten said.

Having the backing of Beaumont will help Summa compete with its cross-town rival, Cleveland Clinic Akron General, “not in the sense of challenging Cleveland Clinic, but in the sense of we can play on the same pitch as the Cleveland Clinic.”

“Summa now has the Beaumont system behind it with its capital and its connection and its recent academic medical status in the Detroit area, presumably that creates opportunities for Akron now,” Baumgarten said, referring to a collaboration in recent years with Oakland University to form a medical school.

Beaumont, with its $4.7 billion in annual revenue, had its long-term credit rating raised by Standard & Poors last August from A to A+ and Moody's Investor Services in November affirmed Beaumont's A1 stable outlook, saying it "will maintain strong profitability margins resulting in adequate debt service coverage."

Beaumont’s Fox said the health system will continue to look at other opportunities beyond Summa, but “we’re trying to be very disciplined and conservative about it. The worst thing you can do is make a mistake.

“We want to partner with players who will help us be better and hopefully we have things to offer to Summa,” he said. “We don’t have a need just to become bigger. Bigger’s got to make us better.”

 

Beacon Journal consumer columnist and medical reporter Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com. Follow her @blinfisherABJ on Twitter or www.facebook.com/BettyLinFisherABJ and see all her stories at www.ohio.com/topics/linfisher