Starkman: Former Spectrum CFO Trashes Beaumont Merger and Warns of 'Massive Financial Loss'

June 25, 2021, 9:08 PM

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

By Eric Starkman

Meet Michael Freed, decidedly among the bravest persons in Michigan and one who acts on his conscience when it comes to protecting the health care of his hometown Grand Rapids community.

Freed was CFO of Grand Rapids-based Spectrum Health for nearly 19 years, and later headed the hospital company’s lucrative Priority Health insurance arm for six years. On Thursday he posted an open letter on his LinkedIn page to Spectrum’s board implicitly questioning Beaumont Health's financials and warning that merging with the Southfield-based hospital network is ill advised.

“I don’t see any value in this merger,” Freed says of the marriage deal Spectrum and Beaumont jointly announced last week. “I only see the potential for massive financial loss.”

Michael Freed doesn't "see any value in this merger."

Freed warns Spectrum’s directors: “When you sign the documents that will permanently change this region, your signature will forever hold you accountable for the repercussions.”

Despite Freed’s damning allegations, Beaumont spokesman Mark Geary ignored a request for comment. Spectrum’s four-person communications team also ignored a request for comment. The silence is understandable. It’s near impossible to put a positive spin on a critical and passionate letter written by a former top executive who played a major role transforming Spectrum into a western Michigan powerhouse.

The courage it took for Freed to write and post a letter questioning the judgment of Spectrum’s board and reminding them of their fiduciary responsibilities cannot be emphasized enough. Spectrum’s board includes Doug DeVos, co-chair of Amway, whose family is among the most powerful in Michigan. Grand Rapids’ business community is small and tight knit, and Spectrum is a major employer in western Michigan.

Much of Freed’s letter focuses on why merging with Beaumont is very bad for western Michigan residents, but in doing so he calls out Beaumont’s lack of financial transparency and notes that the few disclosures Beaumont makes don’t add up.

“Have you tried to find Beaumont Health’s financial statements?” Freed asks. “I’ve been looking for the past week and have not located them. If they’re out there, they’re certainly not easy to find and, no, a few quotes about financials every quarter does not count as ‘transparency,’ at least not in my book.”

Freed notes that Beaumont claims to have 300 days of cash on hand but doesn’t have a top-tier bond rating allowing it to borrow money at the best rates.

'I can suspect ... the problem'

“If (Beaumont’s) operating margins are adequate, and they have plenty of cash, what’s the problem? I can suspect what the problem is but, without transparency, I can’t know.”

Julie Fream

Freed doesn’t disclose his hunch about Beaumont’s financials, which received less oversight than he possibly knows. The head of Beaumont’s audit committee was Julie Fream, who earlier this month became the hospital network’s chair and has no auditing experience or background listed on her LinkedIn page.

After posting his letter, Freed noted on his LinkedIn page that Beaumont made $167 million from its operations in 2020, which included revenue recognition of $349 million from the CARES Act and FEMA payments for Covid. He also noted that Beaumont received Medicare advances of $505 million in 2020 that needs to be returned this year.

It’s not clear whether Freed knows that Beaumont CEO John Fox was among U.S. hospital executives who shouted the loudest about a “looming financial crisis” for the health care industry because of the pandemic. Those warnings are what led Congress to approve the financial largesse that Beaumont and other hospitals benefited from.

Spectrum’s due diligence team will be unable to get clarifications on Beaumont’s financials from the company’s CFO because it doesn’t have one. John Kerndl, who joined Beaumont in 2016, quit in March. Also unavailable for clarifications will be Dawn Geisert, Beaumont’s former compliance chief. She bolted last month.

Underscoring Beaumont’s disregard for transparency, the company routinely waits till the very last day before filing its Form 990, a document nonprofits are required to make public revealing compensation and other critical information.  

Beaumont CEO John Fox

Freed is seemingly unaware of how desperate Beaumont CEO John Fox is to find a merger partner and complete the sale before year-end. In addition to lacking a CFO and chief compliance officer, Beaumont has yet to find a replacement for its chief marketing officer, who left last September. The company’s chief revenue officer left earlier this month.

Beaumont is having difficulty attracting mid- and lower-level employees as well.

“Beaumont does not have a good reputation regarding how they treat employees. We talk with many of them,” Joanne Giardini-Russell, a Brighton Medicare consultant posted on Freed’s LinkedIn page.

John Fox Is the Problem

Multiple sources have shared they’ve been told by some Beaumont directors that Fox can’t be fired, but no one gave a reason as to why. The scuttlebutt around town is that Beaumont directors believe that a merger is the only way to get rid of Fox. Fox has a change of control clause in his contract, meaning he will likely receive a lucrative exit package.

In his letter, Freed expresses concern that seven Beaumont directors will be named to the combined Spectrum-Beaumont board and that they could ultimately exert undue influence. My guess is that if Freed understood how Beaumont’s directors stood idly by while Beaumont imploded, he’d challenge their appointments regardless.

Freed might want to reach out to Mark Shaevsky, a prominent southeastern Michigan attorney and a former Beaumont board member before it merged with two lesser hospital companies in 2014. In a September letter to Michigan Attorney General Dana Nessel warning about Beaumont’s implosion, Shaevsky spoke of the need for “independent” directors to “bring some stability to the organization.”

Nessel ignored Shaevsky’s concerns.

Spectrum CEO Tina Freese Decker obviously believes the Beaumont merger is already a done deal. Freese Decker this week toured Beaumont Troy Hospital, and notably neither Fox nor COO Carolyn Wilson were in tow. What, if any, role Wilson will play after the merger hasn’t been disclosed.

What’s becoming increasingly obvious is how Freese Decker, like John Fox, is prone to making public statements that have no basis in fact. A trade publication quoted Freese Decker today as saying there’s “widespread enthusiasm” in western and southeastern Michigan for the merger.

As of this writing, Freed’s letter received 40 “likes” and other shows of support, and not a single criticism. Said Kevin Cawley, a Michigan health care consultant: “The only possible value I could identify (for the merger) was in national and international physician recruitment, and that frankly is a stretch.”

Reach Eric Starkman at: Beaumont employees and vendors are encouraged to reach out, with confidentiality assured.

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