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Northeast hospital ponders sale, merger

Deal would hasten consolidation in state

By Robert Weisman
Globe Staff / January 21, 2011

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Northeast Hospital Corp. in Beverly is exploring a merger or sale to a larger health care system, a move that would accelerate a trend toward hospital consolidation in Massachusetts and reshape the health care landscape on the North Shore and Cape Ann.

So far, Northeast has talked to two nonprofit hospitals and a pair of for-profit companies. It owns Beverly Hospital, Addison Gilbert Hospital in Gloucester, BayRidge psychiatric hospital in Lynn, and a Danvers outpatient clinic.

The company has had preliminary discussions with Lahey Clinic in Burlington, which operates a satellite hospital in Peabody, and the Harvard-affiliated Beth Israel Deaconess Medical Center in Boston, Northeast chief executive Ken Hanover said yesterday. Both have long-standing clinical partnerships with Beverly Hospital.

Hanover said he has also talked with for-profits Steward Health Care System, the Boston company formed to run the Caritas Christi hospitals, and Vanguard Health Systems, a national chain based in Nashville.

If Northeast merges with another nonprofit or is sold to a private health care company, it could make the North Shore and Cape Ann a model for the kind of integrated health care delivery being pushed by some Massachusetts insurers and medical care providers. Under such a system, specialized medical centers collaborate with health plans and community hospitals in an effort to control costs and improve the quality of care.

“For an organization to be successful in the era of health care reform, you’re going to have to serve a larger geography,’’ Hanover said. “You’re going to have to have more scale and a lower cost structure.’’

Northeast is not the only health care system seeking a partner. Steward, owned by New York private equity firm Cerberus Capital Management, last month agreed to buy Merrimack Valley Hospital in Haverhill and Nashoba Valley Medical Center in Ayer for $21 million. And during the summer, Cambridge Health Alliance, which runs hospitals in Cambridge, Somerville, and Everett, said it would seek a buyer or an affiliation with a stronger health care system.

As the Massachusetts and US health care overhauls advance, Hanover said, hospitals and doctors will increasingly be pushed into “global payment’’ systems under which they will be given annual budgets to provide care and asked to share the financial risk with insurers.

Hanover said he may still talk to other parties about an alliance and hopes to make a decision later this year. The state’s largest health care provider, Partners HealthCare Systems, has not been involved in discussions. Partners owns Massachusetts General and Brigham and Women’s hospitals, and also operates two North Shore Medical Center sites in Salem and Lynn.

Because of its dominant market position in the region, Partners has been advised by state regulators that it would face tougher scrutiny if it sought to expand on the North Shore, according to two people familiar with the situation. They spoke on the condition of anonymity because they were not authorized to discuss regulatory issues.

Howard R. Grant, who was hired last year as Lahey Clinic’s chief executive, said he was awaiting Northeast’s request for a proposal. Grant said he expected Lahey, which has had a long partnership with the 220-bed Beverly Hospital, would submit a bid for Northeast.

“There’s a historic relationship between Northeast and Lahey,’’ Grant said, noting that Lahey physicians have trained Beverly counterparts to provide cardiac services and Lahey critical care doctors have staffed intensive care units at Beverly Hospital.

“Lahey already has a significant commitment on the North Shore,’’ he said. “I believe it’s possible to more rationally allocate resources in these communities so we can bring more services to the communities and people can stay in the communities for care.’’

Beth Israel Deaconess, which collaborates with Beverly Hospital on cancer care, is “always looking to expand our relationships and affiliations,’’ said Stan Lewis, the Boston hospital’s senior vice president for network integration. “We have had a conversation [with Northeast], and look forward to more conversations,’’ he said.

Steward spokesman Chris Murphy said he could not confirm his company is talking with Northeast. Joel Lee, a spokesman for Vanguard — which runs MetroWest Medical Center in Framingham and St. Vincent Hospital in Worcester — said the company does not discuss potential takeovers.

Financially pressed independent community hospitals in Massachusetts will increasingly need to align with big Boston teaching hospitals or cash-rich private health care companies to cement their place in a more integrated health care system and boost their market power in negotiations with insurers, said Stuart H. Altman, health policy professor at Brandeis University.

“They sit in the shadow of the Partners system on the North Shore,’’ Altman said of Northeast. “Like other community hospitals, they want a broader patient population and greater leverage with [insurers]. A number of hospitals are operating on very thin [profit] margins.’’

Northeast last summer began a cost-cutting campaign that included eliminating 75 to 100 of its 2,400 jobs. Hanover told employees at meetings late last year that those cuts have been completed and that the system is profitable.

Word that the hospitals could be sold to a larger company has sparked anxiety among Northeast employees and jitters in Gloucester about the fate of Addison Gilbert, a 122-year-old hospital that merged with Beverly Hospital in 1995. A group calling itself Partners for Addison Gilbert Hospital has scheduled meetings in Gloucester and Rockport next Tuesday to discuss the situation at Northeast and rally Cape Ann residents to support the hospital.

“People here fear that Addison Gilbert won’t survive, and it leaves people with a sour taste,’’ said one of the organizers, Peggy O’Malley, a Gloucester resident and a former nurse at both Addison Gilbert and Brigham and Women’s. “We want the people in the community to be included in any deliberations and deal-making that might affect the future of our hospital.’’

Hanover said he has told community leaders that he does not intend to close Addison Gilbert. But he said the type of care it provides could change.

Robert Weisman can be reached at weisman@globe.com.