By David Riley
Picture the state’s suburban and rural hospitals as nervous dates, seeking a stable partner in an uncertain health care world.
After a wave of consolidations and new alliances last year, industry leaders say 2012 will likely bring another round of community hospitals pairing up with what they hope will be their perfect match.
“People aren’t exactly speed dating, but I do think that some community hospitals feel somewhat of an urgency to identify the right partners for them to move forward in the new environment,” said Lynn Nicholas, president and CEO of the Massachusetts Hospital Association.
Hospitals and other health care providers are under mounting pressure from state and federal regulators and insurance providers to cut costs while improving the ways they coordinate patient care.
The changes come on top of existing struggles at many community hospitals, such as Medicare and Medicaid payments that fall short of the actual cost of treating elderly and poor patients, and competing with large academic medical centers in Boston.
Several freestanding, nonprofit hospitals said they plan to remain independent this year. But several last year scrambled to partner with academic centers to provide more specialized services locally, strengthen existing partnerships, pool resources with other community hospitals or join larger networks in hopes of staying competitive.
Consolidation could lead to better-coordinated care, and mergers have led to new investments in hospitals that need upgrades, said Amy Whitcomb Slemmer, executive director of patient advocacy group Health Care for All.
But the group wants the state to ensure expanding institutions don’t end up hiking costs for patients or making it harder to access care in a larger system.
“There is an oversight responsibility that we think will be important as the marketplace is changing so dramatically,” Slemmer said.
Mergers and changes
The first merger of the year already took place in early January, with Beth Israel Deaconess Medical Center taking over Milton Hospital. Winchester Hospital and Hallmark Health System, owner of Lawrence Memorial Hospital in Medford and Melrose-Wakefield Hospital, also are discussing possible partnerships.
Last July, Northeast Health System, owner of facilities in Beverly, Gloucester, Danvers and Lynn, announced plans to merge with Lahey Clinic in Burlington. In Lowell, Saints Medical Center and Lowell General Hospital, which also serve patients from nearby communities, announced a new partnership last October.
But some of the biggest changes came with the arrival of a major for-profit player among traditionally nonprofit hospitals.
Steward Health Care System was founded by Cerberus Capital Management in 2010 to take over six ailing Caritas Christi hospitals — Good Samaritan Medical Center in Brockton, Norwood Hospital, St. Anne’s in Fall River, Holy Family in Methuen, and Carney and St. Elizabeth’s in Boston.
Steward since added four more hospitals to its fold, including the bankrupt Quincy Medical Center and Morton Hospital in Taunton, both former non-profit models.
The company also got the OK from state regulators to market a health insurance plan for small businesses and forged new affiliations with physician groups that previously worked with other networks.
Last April, officials at Taunton’s formerly non-profit Morton Hospital and Medical Center were elated, as they announced that the city’s community hospital was to be sold to Steward Health Care System.
Then-CEO Maureen Bryant said the deal would eliminate $30.5 million in unfunded-liability debt related to Morton’s pension plan and $28 million in long-term debt.
The deal, which ultimately was approved by the state’s attorney general, obligates Steward to a 10-year capital commitment of at least $110 million, with $25.5 million being spent within the first year of the deal.
In 2010, Morton Hospital narrowly averted a strike by nurses belonging to Massachusetts Nurses Association.
Later that year the hospital eliminated a defined-benefit 401 (k) retirement plan formerly afforded to its 800 non-union workers and replaced it with a 403(b), the latter of which reduces administrative costs.
Also in 2010, the administration instituted austerity measures when it eliminated its transitional-care unit and closed an occupational health-services program in its off-campus Northwoods Medical Center.
Steward spokesman Chris Murphy said it’s still too early to speculate as to whether either of those services will be reinstated.
“We’re working on a capital plan right now,” he said.
Murphy also said that other than some “cosmetic repairs” to the building, Steward officials are still “working on a long-term case study” for spending the first year’s $25.5 of million capital improvements.
Bryant said her board’s decision came down to choosing either Steward or the non-profit Southcoast Health System. In the end, she said, Steward simply displayed an overwhelming financial clout that would improve services, cut costs and attract new physicians.
Eliminations and cuts
In 2011, Steward announced it was eliminating a small, although unspecified, number of administrative positions at St. Anne’s.
But later that year Steward also announced plans to spend $35 million to add a facility specializing in cardiac catheterization and including additional, private inpatient rooms.
As for this year, spokesman Murphy said Steward is “always looking to grow our physician network.”
The company made waves early this year when it dropped out of the Massachusetts Hospital Association. Murphy said Steward’s interests sometimes differ from the association, which represents many different types of hospitals.
Steward’s approach has critics, including the Massachusetts Nurses Association. The union backed Steward’s purchase of Caritas, but since filed complaints claiming the company has fired nurses in retaliation for union activity or minor infractions.
The nurses group also worries what will happen to hospitals Steward has bought once its contractual commitments to keep them open expire, spokesman David Schildmeier said.
“These communities have hospitals they need,” he said. “They shouldn’t lose them because of the chess game of these huge corporations.”
Murphy said Steward saved hospitals that otherwise might have closed and made major investments in updating the facilities. He said the Nurses Association’s complaints are motivated by contract disputes.
“Not only did we keep the hospitals in the community, keep the jobs in the community, we helped them to grow,” Murphy said.
The Mass. Council of Community Hospitals also recently asked the attorney general’s office to review Steward’s contract with Whittier Independent Practice Association, a doctors group that traditionally worked with Anna Jaques Hospital in Newburyport.
Overall, the council is looking for guidelines on how far health care mergers can go, said Executive Director Donald Thieme. Is there a limit to the number of hospitals a for-profit company like Steward or Vanguard Health Systems, which owns MetroWest Medical Center in Framingham, can own?
“Our questions with the attorney general had as much to do with clarifying what I call the rules of the road regarding consolidation,” Thieme said.
Changes for 2012
Major changes in health care this year will only add pressure to hospitals, which leaders said will likely fuel more reorganization.
Gov. Deval Patrick has proposed a major overhaul of how hospitals, doctors and other health care providers are paid. He favors “global payments,” or an overall budget for each patient, rather than charging a fee per service, which critics blame for driving up the cost of health care.
The global payment approach is meant to give health care providers incentives to eliminate duplication and waste, and keep patients healthy to avoid preventable illnesses. Hospital leaders expect state legislators release their own proposals on payment reform early this year.
Federal health care reform also created incentives for providers to set up “accountable care organizations,” a new health care model meant to lead to better management of a patient’s treatment, from primary care doctors to specialists to hospitals. This, too, is hoped to cut costs.
All this encourages more coordination, fueling hospitals’ appetite to join larger networks and attract patients to lower-cost community institutions that offer quality that is similar to higher-cost academic medical centers.
Massachusettshas a far less consolidated hospital system than other parts of the U.S., with independent nonprofits dominating much of the state, Nicholas said.
“That (consolidation) trend is aggressive and irreversible,” she said. “Because of our tight geography, we will be much more consolidated in the future than we are now.”
The jury is out on whether mergers will ultimately benefit patients, Thieme said. Consolidation can help hospitals share resources and expertise. But mergers also mean less competition and more clout for fewer providers.
“The pendulum had swung too far to independents before, and fragmentation,” Thieme said. “Now the pendulum is swinging the other way. The question is if it swings too far.”
— Staff Writer Charles Winokoor contributed to this report.