Business & Tech

NE Baptist to join merger of Beth Israel and Lahey

New England Baptist Hospital’s campus in Mission Hill section of Boston.
Suzanne Kreiter/Globe staff/2014
New England Baptist Hospital’s campus in Mission Hill section of Boston.

The big merger of Beth Israel Deaconess Medical Center and Lahey Health is getting even bigger.

New England Baptist Hospital said Thursday that it agreed to join the two health systems as they plan a combination to challenge Partners HealthCare, the state’s largest health network. Mount Auburn Hospital in Cambridge also may take part in the deal.

Beth Israel Deaconess and Lahey disclosed in January that they would merge under a new parent company. With the Baptist and Mount Auburn, the organization would include 10 hospitals generating more than $5 billion in annual revenue.

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The new group would be the second-largest health system in the state, but it would still be second to Partners, which has 10 hospitals in Massachusetts, one in New Hampshire, and more than $12 billion in revenue.

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The deal, which still needs state and federal approvals, would be the biggest among hospitals in the state since Massachusetts General and Brigham and Women’s joined to create Partners in 1994.

Located atop Boston’s Mission Hill, the Baptist is independently run and specializes in the care of joints and muscles. It has a clinical affiliation with Beth Israel Deaconess and is part of that hospital’s contracting network, which negotiates with insurers. Given that relationship, Baptist president Trish Hannon said it’s “natural” for the Baptist to join the merger.

“The Baptist brings a unique strength as a specialized orthopedic and musculoskeletal institution,” she said in a statement.

Lahey and Beth Israel Deaconess have their own orthopedics departments. But for the Baptist, the merger would provide access to a larger pool of patients who need joint replacements and other orthopedic care. The 118-bed hospital has been indepen-dently run since its founding in 1893.

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Other specialty hospitals have also been looking for ways to link up with larger systems as the health care industry continues to adopt new payment systems that encourage doctors and hospitals to keep their patients within set provider networks. Massachusetts Eye and Ear, a specialty hospital in Boston, filed plans this week to be acquired by Partners.

Harvard Business School professor Robert S. Huckman said the Baptist is known as a high-quality hospital, which could burnish the reputation of the combined Beth Israel Deaconess-Lahey health system. “The Baptist would benefit from being closely affiliated with a larger group of primary care practices that could serve as sources of referrals,” he added.

Mount Auburn, a 225-bed Harvard-affiliated hospital in Cambridge, is still deciding whether to join the deal. Mount Auburn, the Baptist, and Beth Israel Deaconess handle their debt through a parent corporation called CareGroup Inc., but they operate independently.

“We are in discussions with Mount Auburn Hospital about their potential participation,” Lahey spokesman Chris Murphy said in an e-mail. “We think they would be a strong addition to the new system.”

Mount Auburn chief executive Jeanette Clough said by e-mail that executives and physicians are “actively discussing” the merger and expect to make a decision about next steps in the next few weeks.

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“Mount Auburn, BIDMC, Lahey and New England Baptist Hospital share a commitment to a high value system of care,” she said.

Burlington-based Lahey and Beth Israel Deaconess, based in Boston’s Longwood Medical Area, have argued that their combination will create a large but relatively lower-cost health system that will help control overall medical costs by drawing business from other more expensive hospitals.

“By combining three high quality, lower cost health systems, we can transform the region’s health care delivery system, creating a stronger, integrated organization,” Lahey’s chief executive, Dr. Howard Grant, said in a statement.

But such a deal also raises the possibility that a big new hospital company could drive up costs, by using its new market power to extract higher payments from insurers.

“The more hospitals that join in with BI, Lahey, and others, the greater leverage they will enjoy over Blue Cross, Harvard Pilgrim, and Tufts,” said Alan Sager, a professor at the Boston University School of Public Health, referring to the state’s largest health insurers.

Lahey’s chief has agreed to step down once the merger is complete. Dr. Kevin Tabb, the chief executive of Beth Israel Deaconess, is slated to lead the combined system.

Beth Israel Deaconess and Lahey had discussed a possible combination on and off for years before signing initial agreements to merge earlier this year. They are among many hospitals and health systems in Massachusetts that have considered such deals to grow their base of patients and remain competitive during a period of rapid change in health care.

But those deals are not always welcome. Partners was forced to drop its planned acquisition of three hospitals in 2015 after concerns from Attorney General Maura Healey and others that the deals would give the company too much market power and drive up health care costs. Partners’ competitors — including Beth Israel Deaconess and Lahey — launched a coalition to fight those mergers.

But no such opposition has mobilized yet against the Beth Israel Deaconess-Lahey merger. The hospitals must seek approval from state and federal authorities, including Healey’s office. The deal is also likely to be scrutinized by the state Health Policy Commission, a watchdog agency that studies the effect of hospital mergers on health care spending.

After the hospitals file their formal merger plans, the approval process is expected to take about a year.

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