Beaumont Health and Summa Health signed a definitive agreement to form a $6.1 billion system, the Southfield, Mich. and Akron, Ohio-based not-for-profit health systems announced Monday.
Summa, its four hospitals and health plan would be a wholly owned subsidiary of Beaumont, which has eight hospitals. The proposal follows other regional health system combinations that aim to leverage scale to boost capacity, among other endeavors.
“Conversations between leaders and staff at both organizations have been going well. We very much look forward to working even more closely together now that we have a definitive agreement in place,” Beaumont CEO John Fox said in prepared remarks. “As we grow our presence in Summa’s market area, our significant investments in our Michigan employees and operations will continue and be further enabled.”
The organizations signed a letter of intent in July—they plan to close the deal by the end of the first quarter. Summa would retain a local board under the combined entity.
Executives claim that efficiencies of scale will help them remain competitive by bolstering capital purchasing and curbing costs, among other so-called synergies. But economists continue to refute those claims, pointing to studies that detail relatively insignificant cost synergies as prices typically rise.
Beaumont reported $174.4 million of operating income on revenue of $4.66 billion in 2018, up from $168.6 million of operating income on revenue of $4.44 billion the year prior, according to Modern Healthcare’s financial database.
Through the first nine months of 2019, the organization posted $127.8 million of operating income on revenue of $3.49 billion, slightly down from operating income of $130.4 million of operating income on revenue of $3.39 billion over the same period the year prior as the company continues to restructure.
Summa reported a $24.3 million operating income on revenue of $1.38 billion in 2018, up from a $28 million operating loss on revenue of $1.31 billion the year prior. Through the first nine months of 2019, the organization posted $38.3 million of operating income on revenue of $682.4 million, down from $46.9 million of operating income on revenue of $659.4 million over the same period the year prior.
Summa has also reduced its staff and tweaked its services as it improved its financial performance. But executives said that a key to its search for a merger partner was to maintain its community-based service lines. The health system is amid a $350 million capital spending plan that increased its inpatient and outpatient footprint. It also has added or plans to add to its behavioral and women’s health operations.
The health systems have committed to “significant capital and operating projects” in Northeast Ohio and Michigan if the deal goes through. Beaumont is moving forward with its previously planned expansion of its urgent care and behavioral health capacity.