Tufts Medical Center and Lowell General Hospital are joining forces to form a new health care system they say will offer lower-cost medical services from Southern New Hampshire to south of Boston at a time of changes sweeping through the industry.
The alliance would link a 415-bed Boston teaching hospital that has been scrambling for a niche in the fast-consolidating market with one of the state’s largest community hospitals. Lowell General, which two years ago took over a crosstown rival, Saints Memorial Medical Center, has 434 beds on two campuses.
Under terms of a tentative agreement approved by both boards, each nonprofit hospital would continue to operate independently under a new parent organization, which has yet to be named. Other health care providers could eventually be added. The hospitals would keep their own doctor groups — the Tufts-affiliated New England Quality Care Alliance and Lowell General Physician Hospital Organization.
“Here we have two high-value, low-cost hospitals that can thoughtfully put their assets together where necessary to help the patients,” said Tufts vice chairwoman Ellen Zane, who negotiated the deal with Lowell General’s chief executive, Normand E. Deschene.
The deal is the latest to shake up the region’s health care landscape. Three competing Boston-based networks — Partners HealthCare System, Beth Israel Deaconess Medical Center, and Steward Health Care System — have been snapping up hospitals and doctor practices across the region in recent years, while Tufts largely remained on the sidelines.
Zane, contrasting the Tufts strategy with that of rival hospital giants, said the new organization would try to treat patients in the most appropriate settings, rejecting the philosophy of higher-priced competitors that believe “bigger is better and try to just grow buildings.”
Many community hospitals have been acquired outright, but Tufts has sought to establish “strategic relationships” that fall short of mergers but could bring patient referrals, said Ruselle W. Robinson, health care attorney for the Boston law firm Posternak Blankstein & Lund.
“Lowell is a strong institution,” Robinson said. “It’s banished the competition in its market. For Tufts to form a relationship with Lowell is a good move for Tufts because it has had difficulty finding suitable partners.”
Located in Boston’s Chinatown, Tufts Medical traces its history to 1796, when Paul Revere and Samuel Adams helped found New England’s first permanent medical facility.
But despite its affiliation with Tufts University School of Medicine, its strong Floating Hospital for Children in Boston, and a respected physicians group, Tufts Medical has lost out to larger rivals in recent contests to acquire community hospitals. Most recently, Beth Israel Deaconess bested Tufts in a bid for the former Jordan Hospital in Plymouth.
Those failures to close deals raised questions about Tufts’ ability to compete in a region dominated by Partners, Beth Israel Deaconess, and Steward.
The new partnership comes as financial pressures on all hospitals are mounting. Cuts in Medicare and Medicaid — the government insurance programs for senior citizens and low-income residents — are squeezing revenue. At the same time, economic uncertainty is causing many people to delay elective procedures, and new health insurance reimbursement policies are paying hospitals less by classifying some overnight patient stays as “observation” cases.
Under the agreement, Zane, 62, would become chairwoman of the parent organization, and Deschene, 59, its chief executive. Michael Wagner, 54, would continue to run Tufts, where he last week was named chief executive. Deschene would stay on as Lowell General’s chief executive.
Because a large percentage of its medical cases are complex and it received tens of millions of dollars in federal research funding, Tufts Medical’s annual revenue of $877 million last year was nearly triple the money taken in at Lowell General.
But Tufts lost $5.6 million in the first quarter of fiscal year 2014, following a $10.2 million surplus in the 2013 fiscal year, according to data filed with the state Center for Health Information and Analysis.
Lowell General registered a surplus of $24.3 million in fiscal year 2013 and a gain of $2.1 million in the first quarter of the current fiscal year.
Executives from the two hospitals said that many details about the deal remain to be finalized. Hammering out the agreement and getting approvals from the state Department of Public Health and the Department of Justice could take six months, they said.
The hospitals plan to integrate patient data and capitalize on group purchasing to save money.
But among the questions that must still be answered is how much power the parent organization would have over the individual hospitals.
Lowell General already refers about half of its patients requiring more complex medical procedures to Tufts and its adjacent Floating Hospital.
“It’s going to allow us to build on that relationship,” Deschene said, “and build on each organization’s strengths so that we can deliver complete connected care.”
Tufts’ medical school, which sends its residents to Tufts Medical Center, would assign some to Lowell General so they can better understand the workings of community hospitals.
“This provides us an opportunity to give students and residents a broader range of experiences consistent with how health care is really delivered,” Wagner said.
A longtime teaching hospital, Tufts Medical serves patients in the Boston neighborhoods of Chinatown, the South End, Dorchester, and South Boston, and communities on the South Shore.
It also has clinical affiliations with the MetroWest Medical Center hospitals in Framingham and Natick, along with Saint Vincent Hospital in Worcester. All three hospitals are owned by Dallas-based Tenet Healthcare Corp., which is not a party to the new deal.
Lowell General’s takeover of Saints Memorial in 2012, after a Saints plan to be purchased by Steward collapsed, brought together a hospital that historically served the gentry with one that catered to the health needs of mill workers in Massachusetts’s fourth-largest city.
The combined hospital competes with nearby Lawrence General Hospital, Steward-owned Holy Family Hospital in Methuen, and Merrimack Valley Hospital in Haverhill, and Lahey Clinic in Burlington.