Southcoast Health System, a New Bedford-based community hospital chain, is seeking to combine with one of Rhode Island’s biggest health systems, as consolidation continues to remake the health care market.
Southcoast and Care New England Health System of Providence said Monday that they have entered exclusive merger talks. They hope to hash out a deal over the next several months.
Southcoast and Care New England each run four hospitals. A merger would create a new nonprofit health care company with about $2 billion in revenue, eight hospitals and more than 1,700 doctors and other providers in two states. That would make it almost as big as Steward Health Care System of Boston, the for-profit company that operates nine Massachusetts hospitals and also has about $2 billion in annual revenue.
The leaders of Care New England and Southcoast said their organizations need to grow to compete as the changing health care industry is rewarding providers that keep patients healthy and out of hospital beds. To justify new investments in electronic health records and other technologies, executives say they need to create larger organizations that care for larger groups of patients.
Lawrence W. Vernaglia, a health care lawyer at Foley & Lardner LLP in Boston, said a deal between Southcoast and Care New England may foreshadow a trend.
“In the future, you’re going to see a lot more deals crossing state lines,” he said. “Patients don’t see the state lines, so it’s kind of irrational that hospitals do.”
Care New England went looking for a merger partner earlier this year, asking for proposals from companies big and small. Southcoast emerged as the winner, beating out three other health systems — including Partners HealthCare of Boston — to start negotiations with Care New England.
Partners’ interest in Care New England came just months after the health system, which owns 10 Massachusetts hospitals, gave up a plan to acquire South Shore Hospital in Weymouth because of antitrust concerns raised by Attorney General Maura Healey. Partners is still contemplating a takeover of two community hospitals in Melrose and Medford.
Care New England shares a clinical affiliation with Brigham and Women’s Hospital, a Boston teaching hospital owned by Partners. Rich Copp, Partners spokesman, said Partners was “interested in building upon that relationship.” The Brigham affiliation will continue, Copp said.
Dennis D. Keefe, chief executive of Care New England, said Southcoast is a better fit because it is a similar in size and located nearby.
“We serve contiguous markets, but not highly overlapping markets, so it’s easy for us to broaden,” Keefe said in an interview.
The merger, which the two organizations are seeking to complete over the next six to 12 months, would need approval from authorities in Rhode Island and Massachusetts, as well as the Federal Trade Commission, Keefe said.
In pursuing a deal with Southcoast, Care New England is giving up on merging with its biggest Rhode Island competitor, Lifespan Corp. Care New England and Lifespan held merger talks in the past, but without reaching a deal.
The proposed merger of Care New England and Southcoast would unite two systems with different clinical strengths. The Rhode Island system is known for its women and infant services, for example, while Southcoast has focused on building heart surgery and other cardiovascular programs.
If the merger is completed, Care New England would likely send patients to Southcoast for heart care, and Southcoast would send some patients to Care New England for women’s health services, said Keith A. Hovan, chief executive of Southcoast.
“We anticipate trying to be an efficient, lower-cost provider,” Hovan said. “That is the future of health care.”
Southcoast operates Charlton Memorial Hospital in Fall River, St. Luke’s Hospital in New Bedford, and Tobey Hospital in Wareham. It also jointly runs Southcoast Behavioral Health in Dartmouth, with Tennessee-based Acadia Healthcare.
Care New England is the parent company of Women & Infants Hospital in Providence, Butler Hospital in Providence, Kent Hospital in Warwick, R.I., and Memorial Hospital in Pawtucket, R.I.. It also runs wellness, behavioral health, and other facilities.