Business

Boston, Tufts medical centers scuttle merger talks

Tufts Medical Center has 415 beds in Chinatown.

Suzanne Kreiter/Globe Staff

Tufts Medical Center has 415 beds in Chinatown.

Merger talks between Boston Medical Center and Tufts Medical Center broke down this week, scrapping a deal that would have been the biggest alliance of two city hospitals in nearly two decades.

Although they did not specify why the deal fell apart, the hospitals were apparently unable to overcome differences in culture, mission, and strategies for the future, analysts said.

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“Culture always trumps strategy,” said Ellen Lutch Bender, president of the consulting firm Bender Strategies LLC.

In a joint statement, Dr. Michael Wagner, the chief executive of Tufts, and BMC chief executive Kate Walsh said only that integrating two large teaching hospitals would have been a “complex task” and it was “best for our medical centers to remain separate,” but open to future collaboration.

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The collapse of the talks makes it uncertain how the two hospitals will move forward in a consolidating health care market of bigger, richer, and more powerful competitors.

Both hospitals have struggled financially in the past and face the challenge of expanding their patient bases beyond the poor and elderly covered by government programs.

BMC and Tufts began negotiating last year, hiring consultants and holding many meetings to hash out a merger that hospital leaders thought could help them gain a broader network of patients, cut costs, and stay competitive in the crowded Boston health care market. As recently as last month, the hospitals said they hoped to complete a deal by year’s end.

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But after long discussions, executives decided they ultimately had different goals and that combining operations would be too complicated, according to people involved in the negotiations. BMC and Tufts each are affiliated with different medical schools, Boston University and Tufts, respectively.

Their campuses, although just a mile apart, are distinct; combining their operations could have been a huge, expensive effort requiring years to complete and resulting in job cuts among their combined workforce of 11,500 people.

“Whenever you see a potential merger of any kind, in particular of large academic medical centers, even when it seems to make sense it can be very difficult to pull off,” said David Williams, president of the Boston consulting firm Health Business Group. “There’s a lot of people that have senior titles now that would have to be reassigned, or may not have that same level of responsibility. You don’t need two chiefs for each department.”

While hospital leaders said they share some of the same goals — namely, to be lower-cost alternatives for high-quality care in Boston — each has its own focus. BMC is known for serving the city’s poorest and most needy patients. Tufts, with nearly 60 percent of its patients covered by government programs, has sought to expand partnerships with doctors and hospitals outside of Boston and gain referrals from across Eastern Massachusetts.

Tufts wanted to focus on expanding its base of commercial patients, while BMC wanted to remain focused on its position as a safety-net hospital, rather than risk losing more than $100 million in annual payments it gets from the federal government for caring for large numbers of Medicaid patients, according to people involved with the negotiations.

If the merger had gone through, Walsh, the leader of BMC, would have led the combined organization as chief executive, while Wagner, the head of Tufts, would have been the top executive overseeing physicians, those people said.

With 482 beds in the South End, BMC is the largest safety-net hospital and has the busiest emergency room in the state. About half of its patients are on Medicaid, the government insurance program for the poor.

Tufts, which has 415 beds in Chinatown, also treats many patients on Medicare and Medicaid but has a larger base of commercial patients. Tufts merged with Lowell General Hospital under a new parent company last year. It has affiliations with other community hospitals and a large doctors network, the New England Quality Care Alliance.

Tufts earned less than $9 million on operations last fiscal year, down from about $14 million the previous year. BMC earned about $34 million, up from $7 million the year before.

Williams, the health care consultant, said the decision to abandon the deal indicates that neither hospital is desperate. “Nobody’s operating from a position of huge weakness and feel they need to merge in order to survive,” he said.

This is the latest in a string of mergers and acquisitions that have fallen apart.

Beth Israel Deaconess Medical Center, Lahey Health of Burlington, and the doctors group Atrius Health were in talks to merge until those discussions collapsed in February 2014.

Partners HealthCare, the state’s largest health system, was pursuing a takeover of South Shore Hospital in Weymouth but abandoned that deal after the attorney general and a judge opposed it over concerns it would raise costs.

The last big Boston hospital mergers happened in the 1990s, starting with the creation of Partners through the union of Brigham and Women’s Hospital and Massachusetts General Hospital in 1994.

Beth Israel and Deaconess merged in 1996, as did Boston City and Boston University Medical Center, the two hospitals that make up today’s Boston Medical Center.

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