Business

After Partners failure, Hallmark Health reviews its options

20hallmark - Alan MacDonald. (Hallmark Health System)

Hallmark Health System

Hallmark’s CEO Alan MacDonald.

Another Massachusetts community hospital system may soon become part of a big health care network.

Hallmark Health System of Medford has drawn the interest of more than a half-dozen potential suitors, according to people with knowledge of the matter. Locally, they include Beth Israel Deaconess Medical Center, Steward Health Care System, Lahey Health, and the parent company of Tufts Medical Center.

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Like many community health care providers, Hallmark is struggling to compete against prestigious academic medical centers and has decided that teaming up with a bigger organization is the best way to stay viable. Hallmark sought a merger with Partners HealthCare, but that fell apart because of antitrust concerns late last year.

The parent company of Melrose-Wakefield Hospital in Melrose and Lawrence Memorial Hospital in Medford, Hallmark is a major health care provider in those and other North Shore communities.

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Hallmark issued a request for proposals last month and has begun reviewing the responses. The companies eyeing a deal include three national hospital chains: Tenet Healthcare of Dallas; Prime Healthcare of Ontario, Calif.; and Prospect Medical Holdings of Los Angeles.

The flurry of interest in Hallmark is an indicator that consolidation will continue to shape the health care market, as hospitals look for ways to reduce costs, gain market share, and adapt to new laws and changing payment systems.

Alan Macdonald, Hallmark’s chief executive, said he expects the winning bidder to be chosen and a deal negotiated in the coming months. He declined to speak about the specific organizations that have expressed interest in Hallmark, citing nondisclosure agreements, but said he is pleased with the strong response.

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“We asked others what their vision would be in helping us strengthen ourselves in the community, and their vision of our helping them in their mission,” Macdonald said. “We hear back from lots of people . . . and no two are exactly alike. Each system is a little different.”

Community hospitals are struggling in a changing health care market. They have lower reimbursements and fewer patients than larger and wealthier hospitals in Boston. They also face competition from walk-in medical clinics that are quickly expanding across the state.

In just the last few years, Winchester Hospital joined the Lahey system, Jordan Hospital in Plymouth became part of Beth Israel Deaconess, and Cooley Dickinson Hospital in Northampton joined Partners.

Hallmark generated nearly $295 million in revenues in the fiscal year ended Sept. 30, 2015, but it lost about $9.1 million. That was greater than a $5.8 million loss the year before.

As part of a larger health system, Macdonald said, Hallmark would be able to recruit top doctors, invest in needed renovations, and gain access to a broader base of patients. Hallmark needs a bigger population of patients to adopt new payment systems, in which health care providers assume financial risk for their patients and are responsible for delivering care on a budget, he said.

Against this backdrop, Hallmark began discussing a plan to be acquired by Partners, the state’s largest network of doctors and hospitals. Partners owns 10 hospitals, including Massachusetts General and Brigham and Women’s in Boston.

But that deal, and a similar plan by Partners to acquire South Shore Hospital in Weymouth, faced opposition from health policy officials and a judge who said Partners’ expansion would raise health spending across the state while giving the organization even greater market power.

‘We asked others what their vision would be.’

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After more than three years of talks, Hallmark and Partners called off their deal in December, and Hallmark said it would explore new opportunities.

“When Partners and Hallmark decided not to pursue a relationship together, that didn’t change Hallmark’s need to take action and develop a sustainable strategy,” said Ellen Lutch Bender, chief executive of the Newton consulting firm Bender Strategies LLC. “These are complicated times in health care, and it’s hard to have a go-it-alone strategy in this market.”

The health systems now interested in doing a deal with Hallmark declined to comment or did not respond to requests for comment on their discussions.

Beth Israel Deaconess issued a statement saying it is always open to conversations with providers who share its “commitment to high quality, affordable care.”

Similarly, Burlington-based Lahey said it always seeks partnerships with organizations that share its “mission to deliver coordinated, high-quality care . . . at an affordable cost.”

Lahey and Beth Israel Deaconess have held merger discussions of their own in the past, but no deal materialized.

Tufts and Boston Medical Center also held merger talks that fell through last year. But Tufts joined with Lowell General Hospital to create a new company Wellforce.

More recently, Southcoast Health System of New Bedford said it was exploring a deal with Rhode Island’s Care New England Health System.

“Most organizations have been pursuing strategies that helps them grow,” Bender said.

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