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Merged hospitals may rival Partners

Beth Israel-Lahey talks reflect market; cost-effectiveness of deal questioned

By Robert Weisman
Globe Staff / June 9, 2011

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Merger talks between Lahey Clinic and Beth Israel Deaconess Medical Center reflect a jockeying for position in the Massachusetts hospital industry that is picking up speed amid changes in how health care is delivered and paid for, analysts said yesterday.

The discussions are in the early stages, and both sides have cautioned that it is too soon to predict their outcome. But an alliance of the two major academic medical centers would reshape the state’s medical terrain and could present a formidable competitor to Partners HealthCare System Inc., the state’s dominant hospital and physicians organization.

To improve their chances of success, market watchers said, Lahey and Beth Israel Deaconess would have to continue to operate independently while forming a Partners-like parent company that could also affiliate with community hospitals across the region. The trick would be to avoid the mistakes that tripped up CareGroup Inc., a failed holding company formed by Beth Israel and several other hospitals in the mid-1990s to vie with Partners.

Some hospital analysts disagreed with each other yesterday on whether a partnership of Lahey, a Burlington affiliate of Tufts Medical School, with Harvard-affiliated Beth Israel in Boston makes sense. “There’s a lot of intellectual firepower on the clinical side of both organizations, so it gives them an opportunity to cross-fertilize best practices,’’ said Steven J. Tringale, managing director of Hinckley Allen & Tringale, a Boston health care consulting firm.

But Ellen Lutch Bender, president of health care consulting firm Bender Strategies LLC in Boston, questioned whether a merger of a pair of prestigious teaching hospitals would fly at a time when reining in health care costs has become a priority and groups of community hospi tals have been pioneering lower-cost health care delivery.

“In our current changing market, I don’t believe the marriage of two academic medical centers is the right model for health care,’’ Bender said. “That union piles on costs and doesn’t create savings. And saving money, being efficient, is the name of the game.’’

Merger negotiations at a growing number of hospitals across the state are driven by several factors. One is Governor Deval Patrick’s proposed health care payment overhaul, which would put providers on annual budgets for delivering care for patients instead of paying them for individual visits and procedures. A second factor behind consolidation talks is a push by state and federal officials to create so-called accountable care organizations — groups of doctors and hospitals that would band together to provide medical care under the new global payment systems.

In addition, the campaign by Steward Health Care System LLC to build a chain of for-profit community hospitals around Massachusetts and beyond has put pressure on independent hospitals and doctors to strike partnerships that will help them compete.

Steward hospitals account for about 13.2 percent of the beds in the Boston area, compared with 30.5 percent for Partners facilities, which include Harvard-affiliated Massachusetts General and Brigham and Women’s hospitals, according to a new analysis of hospital consolidation from the Washington, D.C., firm Bates White Economic Consulting.

The analysis shows that Beth Israel, Mount Auburn Hospital in Cambridge, and New England Baptist Hospital in Boston have 14 percent of area beds. Those hospitals, and three others in the Boston suburbs, were part of CareGroup, a consortium that has shrunk and now exists only as a bond-holding organization operating out of a Beth Israel office building. A dozen other area hospitals, including Lahey, Tufts Medical Center in Boston, and Boston Medical Center, have 42.3 percent of beds, according to the hospital analysis.

Unlike the Steward system, which has combined financially struggling community hospitals in an effort to create a more efficient management structure, a Beth Israel-Lahey alliance would join two financially healthy institutions that have long been strong players in the area health care market.

Lahey posted a net gain of $35.4 million in 2009, while Beth Israel recorded a net gain of $30 million, according to the most recent financial reports filed with the state attorney general’s office. A spokesman for Attorney General Martha Coakley said both hospitals have received filing extensions until Aug. 15 for their 2010 financial reports, a common practice.

While the two parties have different clinical models — Lahey relies on doctors that are hospital employees, while Beth Israel has doctors on its payroll, as well as a large independent physicians group — some believe combining forces could work to their advantage in the emerging health care environment. Tringale said a larger organization “helps you with infrastructure, both information technology and clinical. It gives you a bigger patient base and a broader insurance pool. And it gives you more leverage in negotiating with payers.’’

But the two hospitals would have to overcome a number of obstacles, including different cultures and medical school affiliations and overlapping services that could compete with one another. Both also have been involved in past consolidation efforts that failed — Beth Israel as part of the ill-fated CareGroup consortium, and Lahey as a partner in a merger with Dartmouth Hitchcock Medical Center in New Hampshire that was later dissolved.

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