Business & Tech

Beth Israel, Lahey health systems agree to pursue merger

The parent of Beth Israel Deaconess Medical Center (above) has agreed to negotiate a merger with Lahey Health.
Steven Senne/Associated Press/File
The parent of Beth Israel Deaconess Medical Center (above) has agreed to negotiate a merger with Lahey Health.

Beth Israel Deaconess Medical Center and Lahey Health said Monday that they plan to merge, moving forward after years of on-again, off-again talks with a deal they hope could better match the market clout of Partners HealthCare.

The merger would be the largest among hospital systems in Massachusetts since the 1994 formation of Partners, the state’s largest health network. The combined organization would start out with eight hospitals, nearly 29,000 employees, and $4.5 billion in annual revenue.

The union would create the second-biggest health system in the state by revenue, stretching from southern New Hampshire to Cape Cod. But Beth Israel Deaconess and Lahey together would still be less than half the size of Partners, which has 10 Massachusetts hospitals and $12 billion in revenue.

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The deal poses critical questions: Would it produce a lower-cost alternative to Partners? Or would it drive up costs by creating another behemoth?

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Massachusetts has some of the best doctors and hospitals in the country, but costs are high and continue to rise despite a state law that sets a target for containing spending increases. Governor Charlie Baker has proposed hospital rate caps to curb costs even further, and state legislators are considering ways to tackle the issue.

Meanwhile, President Trump and Congress are seeking to dismantle the Affordable Care Act and replace it with something that might put more pressure on hospitals.

The deal announcement comes just after Partners — the parent of Massachusetts General and Brigham and Women’s hospitals — said last week that it wants to acquire Massachusetts Eye and Ear, a specialty hospital already affiliated with Mass. General.

The previously stalled merger talks between Beth Israel Deaconess and Lahey are now moving ahead in part because one of the key stumbling blocks has been resolved: leadership. Executives said Dr. Kevin Tabb, 53, chief executive of Beth Israel Deaconess, would become chief of the combined system, while Dr. Howard R. Grant, 64, Lahey’s chief executive, plans to step down once the deal is completed.

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The board of the merged company would include an equal number of members from each health system, led by Lahey’s board chairwoman, Ann-Ellen Hornidge.

Executives at Beth Israel Deaconess and Lahey expect to spend months hashing out many details before they submit filings to regulators. The deal will be reviewed by the state attorney general’s office and the Health Policy Commission, a watchdog agency that studies all big hospital mergers and their impact on costs.

Commissioners will vet the deal thoroughly for its impact on spending, access to care, and quality of care, said Stuart Altman, a health economist who chairs the commission.

“There is the potential for real advantages for bringing a lower-cost alternative to more expensive options,” he said. “On the other hand, when you put in place a very big player, they have the potential to extract higher rates and are no longer a lower-cost alternative.”

A spokeswoman for Attorney General Maura Healey said her office will review the transaction after receiving more details.

Burlington’s Lahey Hospital & Medical Center would be part of the merged operation.
Joanne Rathe/Globe Staff/File
Burlington’s Lahey Hospital & Medical Center would be part of the merged operation.
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Lahey and Beth Israel Deaconess joined a coalition that opposed Partners two years ago when it was seeking to add South Shore Hospital of Weymouth and Hallmark Health System of Medford to its network. Partners eventually dropped those deals because of concerns from state regulators that they would lower competition and raise costs. Its initial response to Monday’s news was measured.

“As health care reform here and across the nation continues to evolve, provider consolidation is increasingly a necessary approach to dealing with the complex demands that we face collectively,” Partners spokesman Rich Copp said. “We will follow this proposal’s path through the regulatory process with interest.”

For at least the past six years, Beth Israel Deaconess and Lahey executives have considered combining to more effectively compete against Partners. But until now, they had never signed a letter of intent to merge, the first formal step in what is likely to be a long and complex process.

Lahey operates four hospitals, including its flagship medical center in Burlington, with a network that includes 1,400 doctors. Beth Israel Deaconess is the parent of the large teaching hospital in Boston’s Longwood Medical Area and three community hospitals. It has 1,200 doctors.

In a joint statement, Tabb and Grant argued the combination would give more patients access to high-quality and affordable care.

“We are engaged in ongoing discussions, exploring the opportunity to combine our two systems and create the region’s premier integrated health care delivery system, one that would offer patients exceptional care and unparalleled value, while keeping care in the community whenever possible,” said Tabb.

“I am confident that the affiliation path will position Lahey Health for further success and growth,” said Grant. “I look forward to working to bring the benefits of this combined organization to the people of Massachusetts.”

Talks between Beth Israel Deaconess and Lahey have been happening on and off since 2011. At one point, they explored a combination that included the large doctors network Atrius Health, but that never materialized. Talks started again last summer, executives said, leading to the current agreement.

“It’s a deal with a significant amount of potential,” said Steven J. Tringale, a Boston health care consultant. “On paper, you can build models to show there’s some positive value to the transaction. The issue is whether the implementation will follow the strategy.”

Although they plan to create a new parent company, neither Beth Israel Deaconess nor Lahey will ditch its name, executives said. Each system will keep its teaching programs for doctors, with Beth Israel Deaconess maintaining its relationship with Harvard Medical School and Lahey with Tufts University School of Medicine.

Many hospitals in Massachusetts and across the country have sought mergers in recent years as they face growing pressures to attract patients and provide care with lower costs.

“The health care market has gotten more complicated, and forward-thinking CEOs and boards need to move more quickly to secure their future,” said Ellen Lutch Bender, a Newton health care consultant. “Organizations don’t have the luxury of waiting and waiting.”

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