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Steven Syre | Boston Capital

Steward stirs déjà vu

By Steven Syre
Globe Columnist / July 1, 2011

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I feel like I’ve seen this movie before.

The rapid consolidation in the state’s hospital industry - punctuated by yet another deal this week - is starting to look a lot like the Massachusetts banking business in its merger-driven days of the 1980s and 1990s.

Steward Health Care System emerged the winner - again - with an agreement to add Quincy Medical Center to its growing portfolio of hospitals. Quincy will become the sixth hospital to strike a deal with Steward since the for-profit company closed on its purchase of the beleaguered six-hospital Caritas Christi group last year.

In a pattern reminiscent of the banking-consolidation era, a few dominant medical organizations are looming even larger as smaller hospitals give up on long legacies of independence. In the case of hospitals, smaller competitors are looking at a difficult financial future that could threaten their survival. More deals are surely ahead.

A couple of decades ago, a handful of big institutions like Fleet Financial Group, Bank of Boston, Shawmut National, Bank of New England and, later, Citizens Financial Group dominated banking consolidation.

Now a small group of medical institutions such as Partners HealthCare, Steward, Vanguard Health Systems Inc., and probably Beth Israel Deaconess Medical Center in combination with some future partners are positioning themselves to survive and thrive as Eastern Massachusetts health care anchors in a rapidly changing medical environment. Atrius Health, the big doctors group, is another important piece of the puzzle.

But the hospital merger story has really been about Steward so far. The plot in a nutshell: Inject hundreds of millions of dollars of private money into a capital-strained nonprofit hospital market about to be squeezed by medical payment reform and see what happens.

Again and again, Steward and its private equity owners have emerged as the buyer of institutions in various stages of financial distress. Generous promises for capital improvements, friendly labor agreements, and the fact that Steward’s for-profit hospitals pay taxes to their local communities have been a winning strategy.

First Steward absorbed the Caritas hospitals. Then it acquired Merrimack Valley Hospital in Haverhill and Nashoba Valley Medical Center in Ayer. Next, Steward signed agreements to acquire Morton Hospital and Medical Center in Taunton and Landmark Medical Center in Woonsocket, R.I. Then, add a letter of intent to buy Saints Medical Center in Lowell.

Now Steward intends to buy Quincy Medical Center, a hospital with a long history of money trouble, including a missed bond payment last month. Among the medical center’s supporters no doubt thrilled by Steward’s offer was state House majority leader Ron Mariano, a Quincy Democrat and the single most important state legislator in the current Massachusetts debate about health care reform.

Put all those deals together and Steward will be managing hospitals with about 2,100 beds. How big is that? Bigger than Massachusetts General Hospital, Brigham and Women’s, and Beth Israel Deaconess combined.

Steward originally won support from the likes of Attorney General Martha Coakley for solving the Caritas problem. Now it is approaching the size of a true market counterweight to giant Partners.

So far, Steward has had the merger field mostly to itself. Vanguard, which owns hospitals in Framingham and Worcester as part of its larger national group, bid for some of the local institutions that were up for sale. But Vanguard launched an initial public stock offering earlier this month and was in no position to make aggressive hospital bids in the midst of that process.

Regulators, who must approve most hospital sales, already think Partners - owner of Massachusetts General and Brigham and Women’s, among other hospitals - is too big and powerful. Beth Israel, searching for a new chief executive, is not in a position to make any dramatic moves.

Many people, including me, have been amazed at the kind of money Steward has been willing to spend on hospitals and wonder how it can make financial sense over time. But Steward insists it will save more and make more at those hospitals when facilities are improved and patients decide to go to them instead of traveling to Boston.

Consolidation - among banks or hospitals - is about the advantages of scale. But it’s harder to pull off at a hospital and more important to succeed where a day’s work is often about life and death.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.