Boston Medical Center and Tufts Medical Center are pushing ahead with merger negotiations as they work to complete a deal by the end of the year.
Hospital executives have signed an initial agreement to discuss specific terms of the potential merger, which would combine Boston Medical Center and Tufts into an integrated health system, according to a statement BMC issued to potential bond buyers. BMC is selling bonds to finance the renovation of its South End campus.
The statement said a BMC-Tufts merger would help the hospitals cut costs and stay competitive in the crowded world of Boston health care. It added that a merger would provide the opportunity to consolidate facilities, without elaborating on how such consolidation would take place.
Executives said in notes to employees on Wednesday that a merger would allow the hospitals to build on their positions as lower-cost, high-quality alternatives to other Boston hospitals.
“The Tufts board and the Boston Medical Center board have agreed that there are some very exciting possibilities and laid out the principles for us to move forward in discussions,” Brooke Hynes, a Tufts vice president, said in an interview. “We have not come to an agreement that we will or will not merge. What we’ve agreed to is to continue those conversations.”
Hospital executives also have not outlined in detail how they would integrate staff and operations. They said they are analyzing each hospital’s finances, marketing, strategy, and technology, and they have hired consultants to help with the merger talks.
Kate Walsh, chief executive of Boston Medical Center, said in her note to employees that the merger talks with Tufts highlight “the significant potential benefit as we consider bringing together the complementary strengths of our organizations to create a growing, thriving new organization.”
A BMC-Tufts merger would be the biggest deal between two local teaching hospitals since Boston Medical Center was created through the 1996 merger of Boston City Hospital and Boston University Medical Center Hospital. The same year, two hospitals in the Longwood neighborhood came together to form Beth Israel Deaconess Medical Center.
Those mergers followed the 1994 creation of Partners HealthCare, formed by the combination of Brigham and Women’s and Massachusetts General hospitals.
If Boston Medical Center and Tufts reach an agreement, they will have to submit a plan to the Health Policy Commission, a state agency that monitors the impact of mergers on health care costs.
Last year, the commission found that Partners’ proposed acquisition of three community hospitals would raise spending by tens of millions of dollars a year. That fueled opposition that ultimately led Partners this year to drop its bid for South Shore Hospital in Weymouth and put its acquisition of Medford-based Hallmark Health System on hold.
The commission, however, signed off on Burlington-based Lahey Health’s takeover of Winchester Hospital last May.
Unlike other hospitals that have pursued mergers, BMC, with 482 beds, is known for treating an unusually high number of poor people and immigrants. It has the busiest emergency department in New England.
Tufts, which has 415 beds in Chinatown, also treats a large population of patients on Medicaid, the government insurance program for the poor, and is known for its large affiliated doctors network, the New England Quality Care Alliance.
Last year Tufts merged with Lowell General Hospital under a new parent company called Wellforce. Tufts plans to continue the partnership with Lowell General if it merges with Boston Medical Center.
Tufts employs about 5,000 people, and Boston Medical Center employs about 6,500.
BMC has launched a $300 million four-year construction and renovation project to make its large campus more efficient. The redesign will expand the emergency department while shrinking the hospital’s footprint overall. It is expected to save $25 million a year by cutting transportation and other costs. BMC is raising $158 million through bond sales to help fund the campus redesign.
BMC is affiliated with Boston University School of Medicine, while Tufts is affiliated with Tufts University School of Medicine. As part of their negotiations, hospital executives are discussing how to continue relationships with both medical schools. They have promised to keep affiliations with both schools.
Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@ globe.com. Follow her on Twitter @priyanka_dayal.