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Lahey explores merger with Beth Israel

'Most CEOs are having discussions with their boards,' said Lynn Nicholas of the Mass. Hospital Association. "Most CEOs are having discussions with their boards," said Lynn Nicholas of the Mass. Hospital Association.
By Liz Kowalczyk
Globe Staff / June 8, 2011

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The Lahey Clinic and Beth Israel Deaconess Medical Center, two respected teaching institutions, have become the latest Massachusetts hospitals to explore a merger in a health care market bracing for dramatic shifts.

Dr. Howard Grant, president of Lahey in Burlington, recently proposed that the two institutions join forces, though both sides stressed that the discussions are preliminary. Grant declined to comment to the Globe, but hospital spokesman Scott Hartman confirmed that “a draft document was shared with the BID to start a conversation.’’

That the two well-known hospitals are discussing a possible merger, whether or not the talks progress, highlights a growing restlessness among doctors groups and hospitals, as providers jockey to make sure they are well positioned for expected changes in the health care industry.

“Most CEOs are having discussions with their boards about their options,’’ said Lynn Nicholas, president of the Massachusetts Hospital Association. “What this means in the long run is the consolidation of the provider market.’’

Hospitals across Massachusetts are merging or considering it, because of a growing trend toward giving providers an annual budget for each patient, adjusted for the patient’s specific medical condition, rather than separate fees for each appointment, test, and procedure. Doctors and hospitals that are part of larger coordinated networks and can oversee all of a patient’s medical needs are considered most likely to succeed under this system of global payments.

Doctors and hospitals also will be forced to take on more financial risk. If they run over budget in caring for a patient, they can lose money; if they come in under budget, they can turn a profit.

“If you are going to assume risk, there is safety in numbers,’’ Nicholas said.

She said she did not have any information about the Lahey and Beth Israel Deaconess talks, but she noted that if they merge and bring on community hospitals, they would form “a really rich and formidable network’’ that would “provide a great deal of choice’’ for patients.

Grant’s vision, according to a hospital person familiar with the proposal who was not authorized to speak about the discussions, is to form a parent corporation with its own chief executive to oversee a fully integrated health care system that includes the two teaching hospitals, as well as a half-dozen community hospitals. Hartman, however, downplayed the proposal, saying that Grant is “talking to everybody.’’

“Dr. Grant has talked to almost every single teaching hospital in the state and talked to the majority of hospitals in our service area,’’ Hartman said.

Beth Israel Deaconess spokesman Jerry Berger echoed those remarks. He said the two institutions have not signed a memorandum of understanding, usually a first step when hospitals get serious about affiliating.

“We talk to lots of people about lots of things in this economy and climate and with the changes in health care,’’ Berger said.

Dr. Gene Lindsey — chief executive of Atrius Health, a large physicians’ group that refers patients to both Lahey and Beth Israel Deaconess — said he did not know the details of the discussion. But, he said, he would favor any hospital merger that “reduces needless competition and duplication of services.’’

Beth Israel Deaconess is the product of a 1996 merger of Beth Israel Hospital and New England Deaconess Medical Center. More than 1,000 US hospitals merged during the last wave of consolidation in the 1990s in an attempt to gain financial clout against managed-care insurance companies.

But in many cases, the board members who constructed the mergers underestimated how difficult it would be to unite administrators, doctors, and nurses who spent years working in vastly different institutions. While ultimately successful, the Beth Israel Deaconess merger was deeply troubled for years.

Today, the Harvard teaching hospital has 631 beds and had more than 630,000 admissions, outpatient visits, and emergency room visits last year. It employs more than 6,000 people and has a campus in Needham.

The hospital board is searching for a replacement for former chief executive Paul Levy, and it is unclear how that might affect the timing of a merger.

Lahey, founded as a group physicians practice in 1923, has 317 beds and about 4,500 employees. It is a teaching hospital for Tufts Medical School and has a campus in Peabody. According to its website, it sees 3,000 patients a day.

If the two sides move forward, it is unclear what would happen to their competing proposals to merge with or buy Northeast Health System in Beverly. Four networks have made formal offers to the North Shore hospital system, including Lahey, Beth Israel Deaconess, Steward Health Care System, and Vanguard Health Systems.

Steward, owned by New York private equity firm Cerberus Capital Management, has been moving aggressively to buy hospitals, after purchasing the Catholic Caritas Christi network.

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

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