Release of details on failed Beaumont merger does little to quell critics

Critics of Beaumont Health CEO John Fox and his cost-cutting decisions that they say have driven away more than 50 top doctors haven’t changed their minds about wanting the board of directors to fire him after the release of the letter of intent to merge with multi-state player Advocate Aurora Health.

If anything, the release seems to have sown more distrust among staffers and donors who have dug in their heels in open rebellion.

Over the past several months, even after Beaumont and Advocate terminated their merger plans in early October to create a 34-hospital, $17 billion system, the desire of doctors, nurses, donors and community leaders to remove Fox and his top lieutenants has only intensified.

Fox told Crain’s last week that he has no plans to resign. Sources close to the Beaumont board of directors, who asked to remain anonymous for fear of retaliation, say that at least 10 of 16 members continue to support Fox, who also has said he believes the opposition against him represents a minority opinion.

But doctors, donors and community leaders point to several key provisions of the LOI, along with statements and decisions by Fox the past several years, that have sown more distrust and created what they say are irreconcilable differences.

Here are some key provisions in the LOI that have solidified critics’ beliefs that the merger proposal was a bad idea and that Fox must be replaced:

What the LOI said: The 12-page document described a “strategic affiliation” and “partnership” when it fact the deal was a full merger in which Advocate Aurora would assume Beaumont’s $5 billion system in exchange for a promised $1.12 billion over three years.

Critics’ reaction: The $1.12 billion investment over three years in Beaumont appears to be a misleading amount, critics say. It included $780 million, or $260 million per year, of Beaumont’s own cash generation, and only $345 million of funding from Advocate Aurora.

Beaumont response: “As part of the partnership discussions, the plans were never regarding Advocate and Aurora providing funds to Beaumont, nor Beaumont sending funds to Advocate Aurora. The partnership was going to generate pooled synergies and savings for Advocate and Aurora and Beaumont to provide the best patient care as stated within the organizations’ mission and vision.”

LOI: The new Advocate-Aurora-Beaumont (called Newco in the document) board would have complete corporate control over Beaumont operations. Beaumont would have limited reserved powers to “review and recommend” capital and operating budgets for seven years. Five legacy Beaumont directors also would have been appointed to the planned 16-member board. The 16th member would have been the CEO of Newco, which was designated as current Advocate Aurora CEO Jim Skogsbergh.

Critics’ reaction: Local control ultimately could have been lost over time as legacy Beaumont directors in Newco were only guaranteed terms during the first six years. After the initial period, the Newco board would have been self-perpetuating (appointed under Newco governance rules).

Critics also expressed concern that Beaumont, as a top U.S. News and World Report hospital, could be diminished and weakened as a system by corporate decisions made in Chicago. They also said cost-cutting decisions and asset sales of health care properties, including nursing homes, home health agency and an ambulance company, that were made over the past three years were done to facilitate the sale and make Beaumont look better to buyers.

Beaumont response: “Beaumont had a seven-year commitment to retain a strong regional board. In addition, we would have had equal representation on the parent board. Each legacy organization (Beaumont, Advocate and Aurora) would have selected five representatives for our respective states to the parent board. CEO voting or non-voting was not yet specified one way or another.”

LOI: While the document contained no golden parachutes for Beaumont’s top management, the LOI allowed the existing contracts of Fox and other top lieutenants to remain intact after the merger.

Critics’ reaction: The amount of money Fox and other executives could walk away with after the merger could be in the tens of millions of dollars based on “change of control” compensation packages typically contained in management contracts, critics said. These provisions often are worth three times an executive’s annual salary.

Fox response: During several interviews with Crain’s, Fox has denied he has any such provisions in his current management contract, which is a two-year contract believed to run through 2022. Fox said that when he does leaves Beaumont he is not entitled to receive any lingering payments. “When my contract ends, it ends,” he said.

“Most CEOs and executive leaders have severance provisions if they are terminated,” Fox said. “For the past 30 years, at the various places I have worked, I have had a severance clause in my contract if I was ever terminated. I have never received any money under any severance or separation agreement.

“If the partnership with Advocate and Aurora had proceeded and closed as estimated at the end of 2020, and I had been negatively affected and left the organization under any permitted contract term, I would not have received three times my annual compensation.”

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