Business & Tech

Beth Israel, Lahey resume merger talks. Will fourth time be the charm?

An entrance to Beth Israel Deaconess Medical Center, in Boston, is illuminated by lights Sunday, Oct. 12, 2014. A patient at Harvard Vanguard Medical Associates, in Braintree, Mass., who has visited Liberia, was brought to the medical center in Boston by ambulance Sunday. The medical center in Braintree said the patient complained of a headache and muscle aches. A statement from Ben Kruskal, chief of infectious disease at the Harvard Vanguard Medical Associates, does not mention Ebola in the Sunday incident. (AP Photo/Steven Senne)
Steven Senne/AP
Beth Israel Deaconess Medical Center in Boston.

The hot and cold relationship between Beth Israel Deaconess Medical Center and Lahey Health is hot again.

Top executives from the two hospital systems are discussing a possible merger, according to people with direct knowledge of the negotiations, the fourth time they have explored a deal in the past five years.

The talks are in early stages, and it’s too soon to say what a combination of the two organizations might look like, the people said. As in the past, an agreement might not be reached.

Advertisement

Beth Israel Deaconess owns four hospitals, including its flagship teaching hospital in the Longwood Medical Area, and Burlington-based Lahey also owns four hospitals. On their own, they are already among the bigger health systems in Massachusetts, but executives at both organizations — as well as many of their competitors — believe that they need to expand to stay competitive.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

A merger of Lahey and Beth Israel Deaconess would create a significant counterpart to Partners HealthCare, the state’s largest health system, which runs Brigham and Women’s and Massachusetts General hospitals.

It’s unclear whether the state would approve of such a transaction. Partners dropped plans for two acquisitions last year after facing regulatory opposition on antitrust and cost issues.

While state health officials have indicated they’re open to deals that help curb rising medical spending, that’s not an easy determination to make. A linkup by Beth Israel Deaconess and Lahey could help reduce spending if it draws patients away from higher-priced hospitals — or it could have the opposite effect if the two systems use their combined market power to extract higher payments from insurers.

Representatives at Lahey and Beth Israel Deaconess declined to comment on their discussions, but they issued nearly identical statements saying they are open to new partnerships.

Advertisement

“BIDMC is always open to opportunities to affiliate with providers that share our commitment to high quality, affordable care, but we don’t comment on any specific discussions,” spokeswoman Jennifer Kritz said.

Lahey spokesman Chris Murphy said, “Lahey Health continually seeks collaborative partnerships with health care organizations that share our mission to deliver coordinated, high-quality care for our patients at an affordable cost. We cannot comment on any specific discussions.”

David E. Williams, president of Health Business Group, a Boston consulting firm, said Beth Israel Deaconess has been looking for ways to grow its network since its biggest rivals, Mass. General and Brig-ham, merged in 1994 to create Partners.

“Beth Israel Deaconess never got involved in the original Partners transaction, and ever since then they’ve been looking for a way to get bigger and be stronger like Partners,” he said. “Lahey is a strong, medium-sized player that’s come up time and again.”

Many hospital leaders in Massachusetts have sought mergers and acquisitions in recent years, a reaction to growing pressure to control costs and attract new patients in a competitive market.

Advertisement

Health care providers also argue that they need larger populations of patients to be successful under new payment models that give doctors and hospitals set budgets under which to provide care.

But hospital deals are complicated and can be difficult to pull off. Just last month, for example, Southcoast Health System of New Bedford and Care New England Health System of Providence abandoned their merger plans after negotiating the deal for almost a year.

Talks between Lahey and Beth Israel Deaconess failed in the past because of disagreement over who would lead a combined organization.

It’s unclear whether they have settled the issue this time, though it’s possible that Lahey’s 64-year-old chief executive, Dr. Howard Grant, may retire in the coming years, while the chief of Beth Israel Deaconess, 52-year-old Dr. Kevin Tabb, is likely to work for several more years.

Lahey discussed deals with at least two other hospital systems this year — Hallmark Health System of Medford and Elliot Health System of Manchester, N.H. — but failed to complete either one. Beth Israel Deaconess, meanwhile, won approval to strengthen ties with New England Baptist Hospital and MetroWest Medical Center of Framingham.

Major hospital deals must be reviewed by the Health Policy Commission, a state agency that monitors transactions for their effect on health care costs. Massachusetts has set a benchmark of containing overall medical spending growth to 3.6 percent a year, a target the state missed in 2014 and 2015.

The commission has not yet received notice about a potential deal between Beth Israel Deaconess and Lahey.

Commission spokesman Matt Kitsos said that if the agency receives notice, it would review any proposed deal for its “potential impact on the competitive market, the Commonwealth’s ability to meet the health care cost benchmark, and ultimately on employers and consumers.”

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