Delays because of regulatory scrutiny will likely push back the timing of Beaumont Health and Spectrum Health’s proposed merger as the federal government seeks more information about it amid a backlog of filings to review.
The Michigan-based systems announced their intention to merge by signing a letter of intent in June.
One month later, the Biden administration launched its efforts to target anti-competitive practices across a swath of sectors, including healthcare, with federal agencies charged by executive order to implement 72 initiatives.
Southfield-based Beaumont Health and Grand Rapids-based Spectrum Health hoped to close on the transaction this fall absent a cancellation of the merger.
The “Federal Trade Commission is experiencing a surge in filings across all industries and will take longer than originally anticipated to review the BHSH filing,” the two systems said in a joint statement Friday.
“The two health systems are currently responding to a request for additional information from the FTC, which the organizations understand has become increasingly common,” the statement said. The systems “continue to be confident that creating a combined health system is pro-competitive and will benefit the communities they serve.”
A new timeline was not disclosed, but a spokesman said the systems believe a delay beyond the fall is now likely.
Biden’s order directs the FTC, which must sign off on mergers and acquisitions, and the Justice Department “to review and revise their merger guidelines to ensure patients are not harmed by such mergers” and vigorously enforce antitrust rules.
“Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable healthcare service,” a White House summary said. “Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors.”
Beaumont is the largest Michigan system based on net patient revenues and inpatient admissions.
Moody’s Investors Service in April affirmed Spectrum’s Aa3 rating and stable outlook. “Spectrum generated positive margins even without CARES Act funding in fiscal 2020, buoyed by stronger results at the health plan, but also because of strong volume recovery and good expense management at its largest hospitals,” Moody’s said.
Moody’s affirmed Beaumont’s A1 rating in December.
Terms of the potential merger, including the fate of both systems’ bonds, have not been disclosed, although officials did say during a call with reporters that the merger could pave the way for a debt restructuring and improved access to capital.
Beaumont carries ratings in the single-A category and has $1.5 billion of debt. Spectrum carries ratings in the double-A category and has $1.1 billion of debt.
Spectrum Chief Executive Officer Tina Freese Decker would lead the merged system with a combined 22 hospitals — 14 from Spectrum and eight from Beaumont — and $12 billion of revenues. Spectrum also operates an insurance arm known as Priority Health that is part of the deal. Beaumont CEO John Fox would leave after a transition period.
Fox came under fire from employees as the system considered a merger last year with Advocate Aurora Health, which operates the largest systems in Illinois and Wisconsin, over fears it would strip away too much local control and hurt patient care. The two initially announced their talks last June and then canceled the potential union in October.
Consolidation amid the COVID-19 pandemic has remained steady and is expected to pick up as the sector recovers from the pandemic and hospitals and systems look to manage costs and target new goals like tele-health. Partnerships with health systems that have an established market presence remain a key driver, as does access to capital.