Lahey, Northeast Health set merger deal

Plan a 675-bed hospital network

July 20, 2011|By Robert Weisman, Globe Staff

Lahey Clinic of Burlington said yesterday it has agreed to merge with Northeast Health System, forming a hospital network that would stretch from the northwestern Boston suburbs to Cape Ann and further scrambling the Massachusetts health care market.

The deal, in which no money changes hands, would create a new nonprofit umbrella organization called Lahey Health System under the leadership of Howard G. Grant, who took over as Lahey’s chief executive eight months ago. It would have 675 licensed beds, more than 1,110 doctors, and about 10,000 employees across four hospitals: Lahey, Beverly Hospital, Addison Gilbert Hospital in Gloucester, and BayRidge Hospital in Lynn.

The Lahey-Northeast alliance, spelled out in a letter of intent, will put fresh pressure on other community hospitals - and on Boston teaching hospitals such as Beth Israel Deaconess Medical Center and Tufts Medical Center - to line up more partners and strengthen their own systems in a new era of integrated health care delivery.

If such efforts succeed, it could mean better coordinated health care and lower costs for patients.

Earlier this year, Beth Israel had preliminary talks with Lahey about a potential merger, though Grant said he has primarily focused on forging an affiliation with Northeast.

“This is a big win for Lahey Clinic,’’ said Ellen Lutch Bender, president of health care consulting firm Bender Strategies in Newton. “With Lahey and Northeast linking up, I wouldn’t be surprised to see other hospitals become part of this new organization. Standalone hospitals are unlikely to be long-term survivors.’’

The financial health of the Massachusetts hospital sector has weakened as a result of the struggling economy. Sixteen hospitals, nearly a quarter of those operating in the state, lost money last year, according to a report by the state Division of Health Care Finance and Policy. Two community hospitals have filed for bankruptcy protection, while several others have aligned themselves with Steward Health Care System, a for-profit group formed last year by New York private equity firm Cerberus Capital Management.

Northeast, by contrast, is a financially stable hospital group that posted a profit of $3.7 million in 2010. Its board of trustees decided last winter to explore a merger or sale after becoming convinced its hospitals would need more resources and lower costs to succeed as state and federal governments overhaul health care delivery and payment systems.

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