A pair of community hospitals in North Central Massachusetts have agreed to form a strategic alliance, accelerating the trend toward health care industry consolidation in Massachusetts while creating a stronger player in the 15 rural towns north of Worcester.
The 153-bed Heywood Hospital in Gardner said it has signed a letter of intent to align with Athol Memorial Hospital, a 25-bed facility serving the North Quabbin area along the Massachusetts border with New Hampshire.
The deal leaves Vanguard Health Systems, the Nashville-based for-profit hospital group that had explored acquiring Athol Memorial, without a partner in the area. Vanguard owns Saint Vincent Hospital in Worcester, which has a clinical affiliation with Athol Memorial, as well as Framingham-based MetroWest Medical Center. But after contemplating a merger with Athol for the past year, Vanguard said it ultimately supported the hospital’s alliance with Heywood.
Under their agreement, the two hospitals will continue to operate independently but be governed by a common board of trustees drawn from the Heywood and Athol boards. They will also create an umbrella administrative structure, with Heywood’s president, Winfield S. Brown, serving as president and chief executive of the overall organization.
“We are two low-cost providers,” Brown said Thursday. “By coming together, we’ll be able to provide more local care. Local care with high quality at low cost is the formula now.”
Brown said Athol Memorial, which is roughly breaking even financially, sought to connect with a stronger partner. Under the state’s new health care payment law, Athol Memorial is set to receive a boost in its Medicaid reimbursements because it is a critical-access hospital that treats patients who have few other options in the area. While that should help improve the hospital’s finances, it wasn’t a factor in Heywood’s decision to form the partnership, Brown said. He said the hospitals had formerly competed for patients in some rural communities.
The partnership, he said, will enable the hospitals to make their services more efficient at a time when hospitals statewide are consolidating and forming so-called accountable care organizations that can provide coordinated health care for patients and negotiate for better rates with health insurance payers.
“Together, we have a geographic base and a critical mass of patients where we can play in the arena of coordinated care,” Brown said.
Their decision to forge a local alliance marks a departure from the model of larger hospital groups such as Beth Israel Deaconess Medical Center, Partners HealthCare System, and the for-profit Steward Health Care System swallowing up unaffiliated community hospitals, said Stuart H. Altman, professor of national health policy at Brandeis University in Waltham.
“This is an alternative to what we’ve mostly witnessed, which is community hospitals being incorporated into one of the big systems,” Altman said. “This is an attempt by two community hospitals to form a community alliance to avoid being eaten up by the systems.”
Since purchasing Saint Vincent and MetroWest’s Framingham Union Hospital and Leonard Morse Hospital in Natick in 2004, Vanguard has not made any acquisitions in Massachusetts. In recent years, Vanguard has been outbid by Boston-based Steward in competitions to buy some community hospitals in Eastern Massachusetts.
But Erik G. Wexler, chief executive of Saint Vincent and the new president of Vanguard Health Systems-New England, said Vanguard has no intention of backing away from the region. Wexler said the company concluded the alliance with Heywood made more sense for Athol Memorial. But he said Vanguard remains open to other hospital deals across the region.
“We continue to be very enthusiastic about the New England market, even outside of Massachusetts,” Wexler said. “When opportunities come up, we’ll look at them. Vanguard is in the market, and we’ll stay in the market.”