Becker's Hospital Review

10 CFO / FINANCE 'I only see the potential for massive financial loss': Former Spectrum CFO doubts value of proposed Beaumont merger By Alia Paavola M ichael Freed, the former CFO of Spectrum Health, said he was "stunned" when he heard that the Grand Rapids, Mich.-based system plans to pursue a merger with Southfield, Mich.- based Beaumont Health, for myriad reasons. In a June 24 open letter to Spectrum's board of directors, Mr. Freed said during his tenure they discussed possible mergers routinely and that a Spectrum-Beaumont combination "brought nothing new with it" and wouldn't enhance value. "e markets didn't overlap, so there were no significant administrative savings oppor- tunities. e ability of each hospital to grow wasn't enhanced by adding the other to the 'system,'" Mr. Freed wrote. "In short, I never saw how such a merger could improve health, enhance value or make care more affordable. I still don't." Mr. Freed was Spectrum's CFO from May 1995 to December 2013. He helped oversee the formation of Spectrum and a substantive period of growth for the Michigan system. Mr. Freed also served as CEO of Spectrum's health plan, Priority Health, from May 2012 until he retired in January 2016. In his letter, Mr. Freed outlined several rea- sons he was "stunned" by the pursuit of the merger that would create a health system with 22 hospitals, 305 outpatient centers and about $13 billion in operating revenue. Mr. Freed wrote that the merger with Beau- mont may not be in the best interest of West Michigan. He said the combination of the two systems raises questions about whether governance truly will remain in the region and with Spectrum, if financial transparency will continue and if Spectrum will continue to honor the consent decree it signed in 1997 establishing a set of operational guidelines. If the merger moves forward, "debt can be placed on the books of West Michigan while investments earned in West Michigan could be spent in SE Michigan … and vice versa," Mr. Freed wrote. "If this entity should some- day merge with other out-of-state entities, West Michigan could find itself investing in healthcare in other states as well, rather than in its own health." Mr. Freed also raised concerns over the agreement between Spectrum and Beaumont to create a 16-person board of directors, sev- en of whom would come from Spectrum and seven from Beaumont. e CEO would come from Spectrum, and one new board member will be appointed. "While this structure looks to favor Spec- trum Health initially, it would only take the hiring of a board member more favorable to Beaumont Health and the replacement of the CEO (in favor of Beaumont Health) for Spec- trum Health to find itself outvoted 9 to 7 on key issues," Mr. Freed said. Additionally, Mr. Freed noted that the merg- er has the potential for massive financial loss- es to West Michigan. In particular, Mr. Freed said losses would stem from the financial assets of Spectrum and Priority Health no longer residing in West Michigan. "I'll admit, I don't see any value in this merg- er," Mr. Freed wrote. "I only see the poten- tial for massive financial loss, both histor- ically and an undetermined amount going forward, to the region that produced all of Spectrum Health." Mr. Freed urged the Spectrum board to take a few steps before moving forward with the merger, including selling or divesting Priority Health. "When you sign the documents that will permanently change this region, your sig- nature will forever hold you accountable for the repercussions," Mr. Freed wrote. "Please sign carefully." Spectrum Health told MiBiz it remains com- mitted to the commitments in the 1997 con- sent agreement and that it "remains enthusi- astic" about the merger. "Spectrum Health is fully committed to ful- filling its consent decree obligations and will continue to uphold its tenets," the health system said. "We remain confident that cre- ating a new system not only meets our cur- rent obligations to our local communities but will also improve the health of individuals in West Michigan and throughout the state." n Auditors question sustainability of New York hospital for 3rd year By Alia Paavola O utside auditors warned that Nassau University Medical Center in East Meadow, N.Y., may not survive after its budget deficit swelled by 60 percent in one year, according to a July 3 report from Newsday. NuHealth, the entity that oversees Nassau University Medical Center, had a $102.3 million budget deficit in 2020, a 60 percent increase from 2019. This also marked the third year in a row that the annual audit of finances raised substantial doubt that the hospital could survive in its current state, according to the report. The report said NuHealth "has experienced recurring operating losses, a working capital deficit ... and is dependent on the continuation of federal, state and local subsidies, certain of which have or are scheduled to end or be reduced," the audit read, according to Newsday. News about the 2020 financial audit comes just over a month after NuHealth Chair Robert Detor resigned from the board. In his decision to resign, Mr. De- tor accused the hospital's governance of not making necessary changes at the financially struggling hospital. n

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