As Massachusetts health care becomes increasingly dominated by large health systems, more than a dozen community hospitals are banding together in a new partnership.
Under the arrangement, called the Massachusetts Value Alliance, hospitals are working together to slash costs by buying some supplies and services together. By teaming up, they have greater leverage in negotiating prices with vendors that sell equipment, software, and other things hospitals need.
Leaders of the effort describe the partnership as a “virtual system,” spanning the state from the Berkshires to the South Coast, though they remain independently operated.
“As a $260 million hospital, I only have a certain amount of buying power. But as a $3 billion virtual system, we have a lot more clout,” said Christine Schuster, chief executive of Emerson Hospital in Concord, one of three hospitals that founded the effort.
The alliance is open only to independent community hospitals — not to those owned by large systems such as Partners HealthCare or the new Beth Israel Lahey Health.
“As community hospitals, we want to continue to have our community be the focus — not someone else’s,” Schuster said.
Ten community health systems that include more than a dozen hospitals have joined the partnership. In addition to Emerson, they are: Berkshire Health Systems, Harrington HealthCare, Heywood Healthcare, Holyoke Medical Center, Lawrence General Hospital, Signature Healthcare, South Shore Health, Southcoast Health, and Sturdy Memorial Hospital.
Their effort began three years ago but was not made public until this month. Hospital leaders said they already have saved millions of dollars, though they declined to detail all of the specific savings.
The alliance is taking shape as community hospitals continue to face challenges. They often struggle to compete with wealthy Boston teaching hospitals that have better-known brand names. And health insurers tend to pay community hospitals less than they pay large teaching hospitals for the same medical services.
State lawmakers crafted legislation last year to narrow that payment gap; they failed to reach a compromise, but Beacon Hill is expected to consider a new health care bill this year.
Smaller hospitals often seek mergers and acquisitions to help them stay viable. This new alliance, however, represents a different strategy.
“It provides the ability to get those economies of scale while continuing to operate as separate organizations,” said Holly Collins, a partner at Mercer who is consulting for the hospital alliance.
“It gives them some of the advantages of a merger, in terms of purchasing benefits, but without some of the difficulties of going through a merger,” Collins said.
Several of the hospitals have signed a contract with Quest Diagnostics, a company that processes blood tests. The arrangement allowed the hospitals to lower their costs by contracting together — South Shore said it is saving more than $100,000 a year — while Quest gained a larger customer with more tests to process. Previously, the hospitals each had separate contracts for lab work.
Three of the hospitals teamed up to purchase electronic health record software.
Several are also working together on employee benefits. They are jointly buying dental benefits and life insurance, for example, collectively saving an estimated $3.2 million this year.
Next year, the hospitals plan to jointly hire a health insurer to administer medical benefits for their employees. The alliance hospitals collectively provide health benefits to more than 16,000 workers.
“As our margins continue to shrink, we have to find ways to work together,” said Dr. Gene Green, chief executive of South Shore Health, the parent of South Shore Hospital in Weymouth.
South Shore once sought to be acquired by Partners, the parent of Massachusetts General and Brigham and Women’s hospitals, but that deal was scrapped over antitrust concerns.
Green, who heads the Massachusetts Value Alliance, said the member hospitals are considering a number of additional joint contracts for services ranging from medical equipment maintenance to landscaping.
The hospitals could decide to work together more closely — by jointly negotiating rates with health insurers, for example. That kind of affiliation would require a notice to the state Health Policy Commission, which reviews mergers and other hospital deals for their impact on health care costs.
“Health care is changing and transforming at a rapid speed,” Green said. “All possibilities have to remain on the table.”
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