Business

Starkman: Beaumont's Demise Assured as Board Ignores Calls for CEO's Firing

December 09, 2020, 9:10 PM

The writer, a Los Angeles freelancer, is a former Detroit News business reporter who blogs at Starkman Approved.

By Eric Starkman 

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John Fox

Despite a cacophony of calls from doctors and donors calling for his resignation and accusations that he’s compromised patient care, Beaumont Health CEO John Fox declared he will remain in his job “at least” two more years.

The remarkable disclosure was buried at the bottom of a lengthy Crain’s Detroit Business story posted late Tuesday, declaring there were “no smoking guns” in the documents Beaumont filed with Michigan’s attorney general outlining the terms of its since-cancelled merger with Illinois-based Advocate Aurora. Crain’s said it obtained the so-called letter of intent after filing a Freedom of Information request and touted its “exclusive” interview with Fox.

Although Fox and his corporate spokesman, Mark Geary, have repeatedly made statements that are misleading or deceptive, Fox’s cavalier declaration that he plans to remain as CEO at least until his contract expires in 2022 would seem to indicate that he’s received board assurances that his job is safe. Most CEOs, even those whose competence haven’t been called into question, generally pay lip service that they serve at the behest of the directors who oversee them.

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Beaumont COO Carolyn Wilson

Fox remaining in place, along with COO Carolyn Wilson and chief medical officer David Wood Jr., ensures that Beaumont -- a hospital network once ranked among the top 50 in the country --- has reached the point of no return. Beaumont in recent months has experienced a stampede of talent, including more than a dozen top-ranked surgeons, about 50 doctors, and roughly half its fellowship trained anesthesiologists working at its Royal Oak and Troy campuses, where the majority of Beaumont’s lucrative surgeries are performed.

A shortage of anesthesiologists is already causing a disruption of surgical cases. Just prior to Thanksgiving, Daniel Silvasi, the surgical director of Beaumont Troy, sent a memo to surgeons warning that as a result of the shortage, surgeries scheduled at Beaumont’s Macomb Surgery Center might have to be moved to Troy “to optimize staffing and coverage.”

Beaumont’s anesthesiology crisis will likely worsen in January when NorthStar Anesthesia, a controversial outsourcing company whose contract accelerated Beaumont’s implosion, takes over. Deadline Detroit has learned that nearly 20 percent of Beaumont’s certified registered nurse anesthetists have only agreed to work for NorthStar on a contingency basis, meaning they set their own schedules and can’t be forced to come in when NorthStar needs them.

Beaumont’s flagship Royal Oak hospital, where more complicated and challenging surgeries are performed, is going to be especially hard hit. Many CRNAs who previously worked full time at the hospital have cut their hours, agreed to work part time, or only on a contingency basis. As a result, the hospital in January so far has lined up only 60 full-time equivalent positions. It needs more than 100 full-time equivalent positions to operate efficiently. (Two part time positions are considered a full-time equivalent.)

Accelerating the Exodus

CRNAs are the linchpin of NorthStar’s business model and without a sufficient number of them Beaumont’s surgical business will be curtailed, likely accelerating the exodus of more surgeons. Complicating matters at Royal Oak is the exodus of anesthesiologists trained in sub-specialties, including the entire intensive care team.

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Beaumont board chair John Lewis

The co-heads of Beaumont’s cardiology department in September sent a letter to Beaumont board chair John Lewis putting him on notice they have no confidence in NorthStar. Robert Safian, a Harvard-trained cardiologist, has written multiple letters to Beaumont’s directors and trustees demanding that Fox and his deputies must immediately be fired or Beaumont’s decline will be irreversible.

With Fox, an accountant, remaining in place, it’s highly likely the best and most conscientious Beaumont surgeons and doctors increasingly won’t be treating their patients at Beaumont. Already, dozens of Beaumont surgeons have arranged admitting privileges at rival hospitals or area ambulatory centers. Fox needs Beaumont’s once thriving surgical business to maintain his desired profit margins that generate his approximately $6 million annual compensation.

Come January, southeastern Michigan residents wanting treatment at a nationally ranked hospital will have to drive to Ann Arbor to seek medical care at Michigan Medicine or Ohio to be treated at the Cleveland Clinic. With Fox, Wilson, and Wood remaining in place, Beaumont’s glory days will fast become a distant memory.

Fox doesn't enjoy the support of the full board, according to sources and a letter by prominent Detroit-area attorney Mark Shaevsky warning Michigan Attorney General Dana Nessel that Fox must be fired. His protector is understood to be chair John Lewis, a former top executive at Comerica. It’s not publicly known why Lewis is steadfast in his support for Fox and what metrics he’s using to justify that support, particularly since he’s been warned that Beaumont’s patient care has been compromised.

What’s becoming increasingly clear to me is that Fox’s power extends well beyond his CEO position at Beaumont. He is an officer of the Michigan Health & Hospital Association and was its chairman until this past July. The MHHA funds one of Michigan’s biggest political action committees. Fox, in turn, is a major donor to the MHHA’s Health Pac.

Mass Purchasing

Beaumont and Fox also appear to be at the nexus of the controversial companies that do mass purchasing for hospitals, known as group purchasing organizations (GPOs).

Four companies – and soon it will be three because of a merger – handle the majority of the hospital purchasing for America’s hospitals, ranging from bandages to pacemakers. It’s an estimated annual $230 billion business with little regulation or government oversight.

GPOs claim they save hospitals billions in costs because their size allows them to cut better deals. However, studies have shown that hospitals could get significantly better pricing if they negotiated outside their GPOs.

The boards of GPOs are heavily stacked with hospital executives, often showered with lucrative cash and equity benefits. The nation's biggest GPO is Vizient. In a 2017 Vizient presentation, Beaumont’s Fox is listed as being on that company’s “CEO executive board.” It’s not clear if Fox still holds that position.

Beaumont’s GPO is Nashville-based HealthTrust, which boasts having more than 1,400 members.

In August, Deadline Detroit reported that Beaumont was pressuring its orthopedic surgeons to use Stryker medical implants, despite objections they were inferior products. Beaumont qualified for a rebate if it used Stryker products 75 percent of the time. That deal was negotiated by HealthTrust.

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Dr. Jeffrey Fischgrund

When Beaumont’s surgeons weren’t complying with the Stryker mandate, Jefferey Fischgrund, a spine surgeon and a top Beaumont executive, insisted that he had to personally approve requests from orthopedic surgeons wishing to use products other than Stryker’s. He insisted in an email the requests be made orally, not in writing.

Since 2013, Fischgrund has received more than $930,000 for consulting and other services from Stryker, a Kalamazoo-based medical technologies firm. After Deadline Detroit published its story, Beaumont stopped pressuring its orthopedic surgeons to use Stryker products.

Rebates deals aren’t illegal, but they are controversial because it results in physicians and surgeons being pressured to use medical instruments and devices based on costs, not necessarily what’s best for their patients. The U.S. Governmental Accountability Office in 2014 expressed concerns that hospitals weren’t “appropriately reporting” the rebates they receive from vendors.

It would appear that Beaumont is on the cutting edge of rebate deals. In August, HealthTrust named Beaumont its “Outstanding Member” of the year because of the hospital network’s success “converting contracts” and adopting new contract categories. Converting contracts is industry jargon for when a hospital meets previously negotiated quotas to qualify for a rebate, according to industry source. 

The Giveaway

As for Crain’s declaring there are “no smoking guns” with regards to Fox’s controversial attempt to literally give away Beaumont and its $3-billion cash reserve with no money changing hands, the board may have had a financial incentive to rubber stamp the deal.  According to a source, Advocate Aurora directors are paid $80,000 a year to serve on the board, while Beaumont’s directors work for free. 

Advocate Aurora’s spokespeople didn’t respond to a request for comment.

Crain’s also noted that “contrary to a well-publicized rumor, Beaumont’s merger letter of intent contained no ‘golden parachute’ clause that would have given Fox $20 million or more if he left after the merger was completed.”

As noted by attorney Mark Shaevsky in his letter to AG Nessel, Fox’s contract likely contains a “change of control” clause entitling him to various provisions if Beaumont was sold. The terms of his exit package wouldn’t be outlined in the letter of intent. Speculation about the $20 million was based on the exit package the CEO of one of Beaumont’s predecessor hospitals is believed to have received to fade into the sunset.

Crain’s quotes Fox as saying the pandemic was responsible for the merger falling through. An Advocate Aurora spokesman previously said the deal fell through because of Beaumont’s “internal issues.”

If the Crain’s story is correct that the merger letter of intent makes clear that Advocate Aurora’s CEO would be CEO of the combined companies, it provides yet another example of Fox issuing false statements. When asked at a news conference announcing the deal who would be CEO of the combined enterprise, Fox said that management determinations hadn’t yet been made.

Reach Eric Starkman at eric@starkmanapproved.com. Beaumont employees and vendors are encouraged to reach out, with confidentiality assured. Also, if you wish to support Deadline Detroit's independent journalism please sign up for a $3 a month membership or a one-time donation.

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