Beth Israel, Lahey Health Finalize Hospital Merger Deal

Two major health systems in Boston recently finalized a hospital merger deal, creating a system of more than 4,000 physicians across Massachusetts.

After years of planning, Beth Israel Deaconess Medical Center and Lahey Health have officially merged to establish Beth Israel Lahey Health. The new health system has 13 hospitals including four academic and teaching hospitals affiliated with Harvard Medical School and the Tufts University School of Medicine.

Beth Israel Lahey Health also employs over 800 primary care physicians and 3,500 specialty physicians, as well as 35,000 employees across its system. With a large physician network, about three-quarters of eastern Massachusetts residents will be within five miles of an employed primary care physician from the health system.

Former CEO of Beth Israel Deaconess Medical Center Kevin Tabb, MD, anticipates the hospital merger to transform healthcare in the Bay State. Tabb will serve of the new health system’s President and CEO.

“With the creation of Beth Israel Lahey Health, we have an unprecedented opportunity to care for our patients and our communities in new and better ways,” he stated in the official announcement. “This is just the beginning of our journey to transform healthcare in Massachusetts into what we know it can and should be.”

“We believe everyone should have access to high-quality, affordable care, whether they live on Cape Cod, the North Shore or somewhere in between,” he added. “Through local and system partnerships, as well as the enthusiasm and talent of all our employees and providers, we will invest in and strengthen community-based care, informed by innovation and discovery.”

The recent merger is one of the largest healthcare transactions to occur in Massachusetts in decades. The new system has nearly the same market share as the largest system in the state, Partners HealthCare System.

State officials worried that the Beth Israel-Lahey Health merger would result in reduced competition and higher costs. A report from the Massachusetts Health Policy Commission actually estimated the deal to increase costs by $128.4 million to $170.8 million annually for inpatient, outpatient, and adult primary care services.

Massachusetts Attorney General Maura Healey, however, still approved the hospital merger proposal. Although, she stipulated that the new system would have to abide by a seven-year price cap to quell concerns that the new system would significantly increase prices for consumers.

The final merger of Beth Israel and Lahey Health is changing the landscape of Massachusetts healthcare. And the formation of the new system may be pushing Partners to engage in some healthcare merger and acquisition activity of its own to remain competitive.

Partners is in talks to merge with Care New England in Rhode Island. The two systems signed a definitive agreement to merge in February 2018. The deal would strengthen the ties between the two systems which have had a clinical affiliation since 2009.

The proposed deal would help Care New England improve its financial standing, which reportedly delayed negotiations at first. The Rhode Island provider incurred a $47 million operations loss in 2017.

If finalized, the hospital merger deal would add Kent Hospital in Warwick, Women & Infants Hospital of Rhode Island in Providence, the VNA of Care New England in Warwick, Butler Hospital in Providence, and the Providence Center in several Rhode Island locations under the Partners HealthCare umbrella.

The deals happening in Massachusetts are representative of a large trend in the healthcare industry.

Providers are actively seeking new acquisitions and mergers to survive in the changing environment. Healthcare merger and acquisition activity increased 14.4 percent in 2018, according to data from PricewaterhouseCoopers (PwC).

Declining reimbursement rates, value-based care, population health management, and consumerism in healthcare are driving provider organizations to explore new partnerships. Mergers and acquisitions can help providers achieve economies of scale, improve efficiency, and enhance care quality and coordination.

Healthcare mergers and acquisitions are creating larger and larger systems across the US.

However, not all deals are come to fruition. Two of the largest non-profit health systems in Texas recently called off a proposed hospital merger deal. Baylor Scott & White Health and Memorial Hermann Health System decided to end talks after deciding the systems are “capable of achieving our visions for the future without merging at this time.”

Increased scrutiny of proposed deals at the state and federal level may be causing providers to reconsider new potential partnerships. But providers still do not seem to be significantly slowing down their merger and acquisition activity.