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Lahey’s cost-aware network growing north of Boston

Dr. Arthur P. Rabinowitz, director of Lahey Hospital’s stem cell transplant program, examined patient Joe Damato of Haverhill.

Joanne Rathe/Globe Staff

Dr. Arthur P. Rabinowitz, director of Lahey Hospital’s stem cell transplant program, examined patient Joe Damato of Haverhill.

The future of health care in Massachusetts isn’t taking shape just along Boston’s Longwood Avenue or on the banks of the Charles River.

State regulators, mindful of the high costs of big-city hospitals, also have their sights on Exit 33B on Interstate 95.

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Nestled beside a suburban shopping mall, miles from the towering medical centers of downtown Boston, Lahey Health may be a model for the future of coordinated care. Lahey Hospital and Medical Center in Burlington has been taking care of some of the sickest patients around — at a cost that’s 12 to 40 percent less than Boston’s academic medical centers.

Lahey has kept its beds full and its doctors busy thanks to referrals from new partnerships, including new sister hospitals in Beverly and Gloucester. The network is poised to grow this summer with the addition of Winchester Hospital, and Dr. Howard Grant is constantly searching for ways to make it even bigger.

Grant, president and chief executive of Lahey Hospital and its parent company, Lahey Health, said the strategy is to expand the system so it can care for a large population of patients, to keep routine care in community hospitals, and to bring only the most complex cases to the teaching hospital in Burlington.

“We believe we’re doing exactly what the Commonwealth is asking health care providers to do,” Grant said.

The model of pushing basic care to community settings and reserving expensive teaching hospitals for only the sickest patients is one that other systems, including the state’s largest, Partners HealthCare, have said they’re following in an industrywide effort to control the growth of health care costs.

‘We believe we’re doing exactly what the Commonwealth is asking health care providers to do.’

Dr. Howard Grant, Lahey Health chief executive 
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Early data from state regulators and the hospital indicate Lahey is on the right track.

“From what we’ve been able to see, Lahey itself has a lower price point and seems to be able to keep overall total medical expenses under control,” said Stuart Altman, chairman of the state Health Policy Commission. “To the extent that it does keep patients in the community rather than sending them to the higher-cost centers in the city, that is a positive in terms of cost.”

Lahey’s lower-cost proposition is the reason the Health Policy Commission didn’t try to block its bid to acquire Winchester Hospital. Instead, the commission found the deal could save up to $2.7 million in annual health care costs, predicting more patients would shift north from higher-priced Boston hospitals to Lahey facilities.

Dr. Howard Grant, chief executive of Lahey Health, said he is always looking for more ways to expand the Burlington-based network. He believes providing care in local hospitals and medical centers benefits both patients and the communities north of Boston.

Jonathan Wiggs/Globe Staff

Dr. Howard Grant, chief executive of Lahey Health, said he is always looking for more ways to expand the Burlington-based network. He believes providing care in local hospitals and medical centers benefits both patients and the communities north of Boston.

Winchester will add 229 beds to the Lahey network, which acquired the 223-bed Beverly Hospital and 46-bed Addison Gilbert Hospital in Gloucester two years ago.

A few independent hospitals remain in the region north of Boston, but most have been joining networks led by the state’s largest health systems.

Partners runs North Shore Medical Center in Salem and Lynn and is planning to absorb Hallmark Health’s Lawrence Memorial Hospital in Medford and Melrose-Wakefield Hospital in Melrose.

Steward Health Care runs two hospitals along the New Hampshire border. And Lowell General Hospital is working to form a new health system with Boston’s Tufts Medical Center.

Lahey intends to be one of the survivors.

“Lahey is working to carve out territory north of Boston,” said Ruselle Robinson, health care lawyer at the Boston firm Posternak Blankstein & Lund LLP. “That area, like much of Eastern Massachusetts, is predominantly serviced by Partners, but Lahey is trying to strengthen its foothold.”

Grant, 61, came to Lahey in 2010 from Geisinger Health System in Pennsylvania, an organization nationally known as a model for coordinated patient care.

He is confident his plan will allow Lahey to compete head-on with Partners and others, but he doesn’t like to put it in those terms. He prefers to talk about the benefit to patients and the community. As in, why send a North Shore resident with a brain tumor or a bad heart all the way to Boston when there are plenty of surgeons and specialists in Burlington, and the care is cheaper?

“It’s making sure the right patients come here,” Grant said.

Since Lahey acquired Beverly and Addison Gilbert hospitals, both have been busier, thanks to more referrals from Lahey’s primary care physicians. And the Lahey name has appeal, said Denis Conroy, chief executive of the Beverly and Gloucester hospitals, together known as Northeast Health System.

“More and more frequently, we’ll hear someone come in and say we came to the emergency department because we know you’re part of Lahey,” Conroy said.

Inpatient admissions are up 4 percent at Beverly and 3 percent at Addison Gilbert in the first half of this fiscal year over last.

In turn, Beverly and Addison Gilbert have helped Lahey by referring more patients to Burlington instead of to Boston.

The same reshuffling of patients should happen with Winchester Hospital. Currently, Winchester patients needing complex care end up at several different hospitals, and their care isn’t tracked under a singular electronic health record as it will be once Winchester joins Lahey in July.

“We will try to send more [patients] to Burlington,” said Kevin Smith, chief executive of Winchester Hospital. “When we indiscriminately send patients all over the place, it often ends up costing the patient, their employer, their insurance company, more money.”

Lahey Hospital also got a boost in referrals last summer after signing an affiliation deal with the doctors group Atrius Health. Atrius agreed to send patients north of Boston to Lahey rather than a big-city medical center.

The Burlington hospital known for many years as Lahey Clinic, a teaching facility for Tufts University School of Medicine, posted $60 million in profit last fiscal year, with a strong operating margin of 7.6 percent, according to state figures.

Lahey has just 341 beds, unusually small for a teaching hospital that does advanced procedures such as organ transplants and neurosurgery.

Massachusetts General Hospital, the biggest hospital in New England, by comparison, has nearly 1,000.

With fewer beds, Lahey faces less pressure at a time when the health insurance payment model is changing to reward providers for keeping patients healthy and out of hospitals.

State and federal laws have spurred a new wave of health industry consolidation in Massachusetts, and Grant, like his peers in hospital corner offices, is looking for more potential mergers.

“We’re talking to everybody to try to understand what the priorities are for other institutions,” he said. “There isn’t a day that goes by where I don’t either have meetings or conversations with a number of other leaders of other institutions.”

He spends so much time talking to other executives, courting the donors he needs to help Lahey Hospital rebuild its dated emergency department, and trying to raise Lahey’s public profile, that he’s bringing on a new chief executive to run the day-to-day operations of the Burlington hospital.

Dr. Joanne Mather Conroy, a 25-year industry veteran, will begin July 10. She will report to Grant, who will remain chief of the Lahey health system.

Looking ahead, Grant didn’t rule out rekindling talks with Beth Israel Deaconess Medical Center and Atrius to create a formidable health system to compete with Partners and Steward. Talks on the nearly final deal fell apart in February.

“I know that right now we need to grow,” Grant said. “I don’t have any preconceived notions.”

Lahey told the Health Policy Commission it has no plans to raise prices when it adds Winchester to its network. Whether Lahey remains a lower-cost alternative to some of its competitors remains to be seen.

“As Lahey becomes bigger, as it includes more hospitals and in particular, if they go ahead and merge with Beth Israel Deaconess Medical Center, will they then have the leverage of Partners, which will enable them to get Partners-level prices?” said Alan Sager, professor of health policy and management at Boston University School of Public Health. “The rhetoric of cost reduction may surpass the reality.”

But Smith, the Winchester chief executive, argued it is in Lahey Health’s interest to control prices.

“We sit eight, nine miles from perhaps the most respected health care brand in the world, that being Massachusetts General Hospital and Partners,” he said. “The main competitive advantage that a system like Lahey has in this environment is to strike that balance to provide high-quality results [at] a responsible level of pricing. If we were to use the size of Lahey to raise our prices, we would lose that competitive advantage. . . . Then we have to compete on brand.”

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.

Correction: An earlier version of this story misspelled Dr. Arthur P. Rabinowitz’s last name in an online photo caption.

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