Starkman: Why Beaumont’s John Fox Could Haul More Than $30 Million Back to Atlanta

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

By Eric Starkman

Ponder this for a moment:  If I controlled a company with substantial assets, infrastructure and a $3.5 billion cash reserve, how much would you compensate me if I handed the business over to you for free?

For Tina Freese Decker, the CEO of Spectrum Health, this wasn’t a hypothetical question. Beaumont CEO John Fox this week rewarded Freese Decker with the sweetheart deal I’ve just described. The question remains how much will the goose that laid Freese Decker’s Beaumont hospital eggs be compensated? 

In a moment, I will explain why Fox could argue that he deserved more than $30 million as part of his “golden parachute” contract agreement. I will also explain why southeastern Michigan residents should be raging mad and demanding that board chair Julie Fream resign as chair of BHSH, the temporary name for the newly combined operations of Spectrum Health and Beaumont.

Beaumont CEO John Fox is headed for the door Friday

Fream, whose day job is president and CEO of the Original Equipment Suppliers Association (OESA), was vice chair of Beaumont during the disastrous seven-year reign of Fox and bears considerable responsibility for allowing the hospital system’s decline. 

Fream’s published comments in The Detroit News Tuesday reflects the same FU attitude towards Metro Detroit that Fox, whose primary homes are in Atlanta and North Carolina, displayed during his sojourn in Southeast Michigan.

“No, we do not disclose the specific terms,” Fream told The News when asked about the payment Fox will receive for handing Freese Decker the keys to Metro Detroit’s biggest hospital kingdom. 

Why aren’t the terms being immediately disclosed? 

Contrary to what Fox and Fream seemingly believed, Beaumont, a nonprofit, never belonged to them. It belonged to the residents of Southeast Michigan. Fream and the other Beaumont directors had a responsibility to protect Beaumont and ensure it provided quality care. Fox was the hired hand mistakenly chosen to run the place. 

Julie Fream

The reason Beaumont wasn’t required to pay taxes dates to a bygone era when hospitals were supported by churches and community groups and run by doctors, nurses, and other medical professionals. In those days hospitals really were nonprofits, limping along trying to provide healthcare to their communities.

Most hospitals today still enjoy their nonprofit status, but they are hardly limping along. Healthcare is an immensely lucrative business, albeit a deliberately inefficient one with lots of people with their hands in the corporate cookie jar. U.S. hospitals are mostly run by suits, not doctors. Fox is an accountant with a business degree, and Freese Decker holds master’s degrees in health administration and industrial engineering.

How profitable are hospital “nonprofits”? In Beaumont’s case enough to pay John Fox $25 million or more during his seven years as Beaumont’s CEO for what was indisputably a disastrous performance, except with regards to the company’s financials and profit margins. We don’t know yet what Fox earned in 2021. 

 In 2020, according to the News, Fox was paid $6.42 million in salary and benefits. Recall that Fox in early 2020 said he was taking a 70 percent pay cut because of the pandemic, but his total compensation declined that year by only about five percent from the $6.74 million he earned in 2019. It’s yet another example of Fox’s and Beaumont PR chief Mark Geary’s habit for making deceptive and inaccurate claims. 

Compared to Cleveland Clinic

Let me put Fox’s compensation in perspective. Tomislav Mihaljevic, president and CEO of Cleveland Clinic, in 2019 earned $3.3 million. Cleveland Clinic’s flagship hospital consistently ranks among the top hospitals in the world. Yes, the world. Cleveland Clinic also operates 18 other hospitals and more than 220 outpatient clinics in Florida, Las Vegas, Toronto, Abu Dhabi, and London, England. 

Mihaljevic is no suit. He’s a world-renowned surgeon, having performed more than 3,000 procedures and published more than 140 peer review articles. He holds a patent for minimally invasive cardiac surgery. He put himself through medical school in his native Croatia working as a nursing assistant, so he knows what it’s like to be a low-level healthcare employee.

Not surprisingly, Cleveland Clinic consistently ranks high in national surveys as being one of the best places to work. Under Fox’s leadership, Beaumont was known as a miserable place to work, which is why nurses at Royal Oak in 2019 sought to form a union. Fox spent nearly $2 million on a successful union busting effort to intimidate and frighten them. 

How can any hospital board responsibly pay Fox more than $6 million a year to drive an ailing eight-hospital system into the ground when a hospital system that’s considerably bigger and better is paying a top-tier surgeon only $3 million? 

Here’s why Fox could net an additional $30 million more because Freese Decker agreed to take over the Beaumont mess he created. In what ranks among the most disastrous hospital mergers of all time, Beaumont in 2014 merged with Dearborn-based Oakwood Healthcare and Farmington Hills-based Botsford Health Care. Two sources independently told me it was their understanding that Oakwood CEO Brian Connolly was paid more than $30 million in severance as part of the Beaumont deal. The sources told me that they got their information from different board members with first-hand knowledge of the payments.

Full Disclosure

Connolly’s payments should have been fully disclosed in so-called Form 990 filings, which nonprofits are required to file and give a glimpse of their financials. But there are lots of ways to bury compensation and severance payments. One way is to dole the severance payments out over a period of years; Connolly’s name showed up receiving payments in Beaumont’s filings years after he left. I previously identified $9 million of those payments. 

Connolly’s payments could have been made through various corporate entities, which are easy to overlook. Beaumont, which has a history of posting its filings on the last possible day required by regulations, in the past was quite adept at making it difficult to track compensation. Some executive payments were previously noted in the parent company’s filings, while others were disclosed in hospital subsidiary filings. It takes someone quite experienced in financial disclosures to make sense of it all.

Beaumont spokesman Mark Geary

Geary, Beaumont’s PR guy, essentially admitted to The News that Beaumont engages in hocus-pocus disclosures. He said that $593,000 of Fox’s 2020 compensation was reported on prior returns.

I’m guessing that Fox deferred some earlier compensation, but how much other compensation has been deferred and why? If there’s a good explanation, Geary should have provided it. 

Geary typically ignores my inquiries, unless I’m writing about something legally sensitive like Beaumont’s orthopedic surgeons being pressured to use medical devices they considered inferior. I’ve reported multiple times that Connolly was rumored to be paid more than $30 million in severance, and Geary has yet to dispute the number.

Oakwood was only a four-hospital system network, and a very mediocre one. Fox delivered to Freese Decker an eight-hospital system network, one with a $3.5 billion cash reserve. It’s a safe bet that Spectrum didn’t pay any money for Beaumont. Instead, Spectrum agreed to give Beaumont’s board a 50-percent representation in the combined operations and let Fream become chair. 

Even if Connolly only received a $9 million severance, Fox could easily argue he’s entitled to more than $30 million because the Beaumont he turned over to Spectrum was twice the size of Oakwood.  Connolly’s severance was awarded in late 2014 or early 2015, and hospital executive compensation has increased substantially since then. Freese Decker has a vested interest in seeing that Fox gets a handsome payout because it will drive up the benchmark for her golden parachute or retirement payout when she steps down.  

Board chair Fream, who holds a Harvard MBA, told The Detroit News that Beaumont’s board used an "independent consultant" to determine Fox’s compensation. Consultants are part of the executive compensation con game. Any consultant hoping to get business knows they must concoct formulas that pay CEOs ever higher rates of compensation. When Fox joined Beaumont in 2015, he was paid just over $2 million. Some consultant convinced Beaumont’s board Fox was worth three times as much.

Driving up executive compensation benchmarks was Fox’s gift to Michigan’s hospital industry. I suspect that’s what Brian Peters, CEO of the Michigan Health & Hospital Association, was referring to when he issued a statement thanking Fox for his “many contributions and outstanding leadership.”

Tina Freese Decker

Freese Decker is the chair of the MHHA and nominally Peters’ boss. 

The decision on what to pay Fox is ultimately a board decision, although it’s not clear to me if that means Beaumont’s predecessor board or the new Spectrum board. Regardless, Fream as chair of both boards had, or will have, major influence on the decision. (Fream was named chair of Beaumont’s board last May.) 

Ill-Prepared Spectrum

Underscoring how ill-prepared Spectrum is to move forward with its takeover, no permanent replacement has yet been found for Fox to run Beaumont’s operations, despite the deal being announced in June. The takeover creates Michigan’s biggest employer with 64,000 employees, and Spectrum doesn’t have an HR executive in place. Freese Decker said her “biggest priority” is a diverse workplace, but the executive position overseeing employee diversity is also open.

Spectrum’s tag line to promote its Beaumont takeover is "For Michigan, By Michigan." They’ve even trademarked the slogan, as if someone would want to steal it. Presumably, if it's “By Michigan” the only possible job candidates are executives who were born or live in Michigan. 

The universe of experienced Michigan people who fit the bill is quite limited. I’ve repeatedly heard the same two names. If Freese Decker wants to treat me to a couple of martinis at my favorite Michigan watering hole, I’ll give her the two names and save her a bundle paying the executive search firm she’s retained. 

Spectrum’s takeover is already an early disaster, one that responsible hospital boards would never have approved, particularly during a pandemic. Beaumont employees are so far underwhelmed. One physician emailed me Tuesday: “BHSH…everyone thinks it looks like bullshit …”

Spectrum’s former CFO from the get-go warned the deal could result in a “massive financial failure.” One possible way to prevent this would be to immediately remove Fream from the BHSH board, and ultimately the other former Beaumont directors. 

During Fox’s entire time in Michigan, he played the state’s political leadership, the local southeastern business community, and the Detroit media for a bunch of Yahoos. Given what he pulled off, I’d say he was correct.

Reach the writer at eric@starkmanapproved.com. Beaumont  Beaumont employees and vendors are encouraged to reach out, with confidentiality assured.

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