Testing the waters

Tufts-New England Medical Center's Floating Hospital for Children and Children's Hospital are holding negotiations that could lead to a partnership or merger, and dramatically change Boston's healthcare landscape.

Executives at the two hospitals, longstanding competitors, said yesterday they agreed to conduct exclusive negotiations over the next six weeks to see whether they can work out a deal. The discussions developed this summer, soon after Ellen Zane took over as chief executive of Tufts-NEMC. She saw that the historic Floating Hospital, which began in 1894 as a hospital ship sailing Boston Harbor, was losing money and patients.

Children's Hospital, meanwhile, is financially strong and so overflowing with patients that it turns some away. The hospital, which already treats one-third of all hospitalized Massachusetts children, this summer began advertising nationally. Last month, it bought Sterling Medical Center in Waltham for $53 million in cash, which it plans to convert to a large suburban outpost.

Zane said she did not believe Floating could flourish, or maybe even survive, without a partnership that would bring in more resources.

"The dilemma we're confronted with is that pediatrics in this region is not expected to grow over the next decade," she said. "We felt it would be extremely difficult to allocate sufficient resources to the Floating."

Under an agreement, Children's Hospital could make major investments in the Floating, including building computerized medical records, said Children's chief executive Dr. James Mandell. Floating also lacks a pediatric emergency room.

Hospital executives said they will try to work out details of a partnership by the end of November, but that a merger or other arrangement is possible, too. Leaders at both hospitals said some clinical departments would be combined. One possibility would be for the Floating to transfer the license for its 110 beds to Children's, which would put them under the control of that hospital's board. The hospitals also may keep their current board structures and appoint an advisory board to oversee the Floating.

But Zane said NEMC's "line in the sand is the Floating name. The Floating name is going to be there," she said. That opens the door to naming the new entity "Children's Hospital at the Floating," or some variation.

According to the hospital's website, a Congregational minister who was struck by the sight of poor women and their sick children cooling themselves on Boston's waterfront began the Floating. He rented a boat, which took mothers and children out on the water and provided medical care. The hospital later relocated ashore and has been at its current site, near Boston's Chinatown, since 1931.

After Zane hired a consultant this year to look at the Floating's future, Massachusetts General Hospital also made a preliminary written proposal to NEMC, but later withdrew it. Mass. General chief of pediatrics Dr. Alan Ezekowitz said the hospital did not want to operate from two campuses. Another issue is that NEMC's doctors are on the faculty of Tufts University School of Medicine and educate Tufts students, while Mass. General and Children's work with Harvard Medical School.

What's happened to the Floating and Children's over the past few years is typical of the area's healthcare market. Many smaller hospitals have struggled, while larger ones have grown. The Floating has 70 doctors and treated 3,015 overnight patients in the fiscal year that ended September 2003, while Children's employs 885 physicians and cared for about 22,000 inpatients in 2003.

NEMC, which last year dissolved its merger with Lifespan, a Rhode Island hospital and doctor network, posted an operating loss of $29 million in fiscal year 2003, more than double its $12.5 million operating loss in 2002. The hospital recently sold a building for $28 million for a cash infusion, but still expects to post a 2004 loss.

Zane said she does not know how much problems at the Floating have contributed to NEMC's overall losses, because the two hospitals are governed by one board and have combined budgets. But she said the pediatric hospital's losses are a factor.

Zane and Mandell met with their staffs yesterday afternoon to tell them about the negotiations.

Dr. Brian Gilchrist, chief of pediatric surgery at Floating, said Zane called him into his office to ask his opinion of the move. He said yesterday that doctors and nurses are concerned about losing their jobs, but he is hopeful a deal with Children's will help the Floating.

"The reason we're in this is to help kids who are hurt or are in pain, and our hospital will be better because of this," he said. "I am the only pediatric surgeon." He said the hospital has one intensive care doctor and one nephrologist. "I have a wonderful first team but no bench strength."

"We've been in limbo the last few months," he added, saying staff was aware of talks with Children's and Mass. General.

Mandell said he did not anticipate layoffs at either hospital.

"But I can't tell you every patient would walk through the same door that they used to walk through to get services," Zane said.

Liz Kowalczyk can be reached at kowalczyk@globe.com.