East Boston, South End health centers to join forces

The East Boston Neighborhood Health Center, at 20 Maverick Square, is looking to cut costs by sharing resources.David L. Ryan/Globe Staff/Globe Staff

For half a century, they have served the underserved in their parts of the city: the poor, the homeless, the uninsured. Now the East Boston Neighborhood Health Center and the South End Community Health Center plan to do this work together.

The two health centers are planning a merger. The East Boston center will acquire the South End center, in the first such deal in the state in decades.

The agreement was triggered by the same factors that spur many other mergers: a desire to share resources and slash costs.

It would give the fast-growing East Boston center a foothold in a new neighborhood while offering a financial lifeline to the much smaller South End center, which has struggled to turn a profit in recent years while providing primary care, mental health care, and other services.

“By doing this merger, the South End Community Health Center’s legacy will be protected,” said Bill Walczak, its chief executive.

“We’ll be able to continue all of those services without any cuts. We will lower our administrative costs.”

Walczak, who plans to step down this summer, said patients should not expect any changes. “Same staff, same location, same name,” he said.

Leaders of the two health centers finalized their agreement last week. They need state and federal approvals to complete the transaction. Officials at the state’s Executive Office of Health and Human Services said Wednesday that its secretary, Marylou Sudders, supports the pending deal.

The East Boston and South End centers are among 52 in Massachusetts, which collectively serve about 1 million patients. The nonprofit centers receive federal funding to provide primary care and other health services to poor and vulnerable populations.

They rely heavily on public dollars, and many are struggling to break even, according to the Massachusetts League of Community Health Centers.

The group’s chief executive, James W. Hunt Jr., said health centers historically couldn’t pursue mergers unless they were willing to give up critical grant money — but federal rules changed in recent years, allowing for more transactions.

“The need to find efficiency to sustain services basically encouraged these kinds of partnerships,” Hunt said.

“We’re going to see more . . . affiliations in all arenas of health care, including community health centers.”

The South End center, which serves about 19,000 patients, has struggled with stagnant payment rates and increasing pressure to cut costs, Walczak said. About three years ago, its board began considering a merger.

The East Boston center, meanwhile, has been opening new sites and adding patients; it now has about 90,000.

The acquisition of another smaller health center would continue that expansion.

“We’ve had growth as part of our strategic plan,” said Manny Lopes, the chief executive of the center, which is based in Maverick Square. “This fit in.”

Lopes said the two health centers are not planning any layoffs, but they expect to cut costs by consolidating some executive positions. The East Boston center employs nearly 1,200 people; the South End center has about 180.

Health care mergers tend to incite concerns that providers will use their combined clout to command higher prices. But that is less likely to be an issue among health centers because most of their revenue comes from government programs, not from private insurance companies.

The East Boston health center, which collects about $150 million in annual revenue, nearly 10 times as much as the South End center, will continue to explore other acquisitions.

“If we can step in and help an organization continue to provide those services, and provide financial stability, and continue to scale our operations, that’s what we’re looking for,” Lopes said.