Boston Medical Center, Tufts Medical Center abandon merger

Image of Tufts Medical Center from tuftsmedicalcenter.org.

Boston Medical Center and Tufts Medical Center have concluded months of merger talks without a merger. It would have been Boston’s first major hospital deal in more than decade, but complexities over the deal eventually killed the plan.

“Over the last several months, Tufts Medical Center and Boston Medical Center have carefully considered how we might combine our two organizations,” said BMC CEO Kate Walsh and TMC CEO Michael Wagner, MD, in a joint statement. “After much consideration, we have determined that at this time it is best for our medical centers to remain separate.”

Based on geography alone, the deal made sense and it should have been “reasonably straightforward to combine programs, build scale, and generate savings,” wrote Massachusetts-based healthcare consultant David Williams earlier this year. “Tufts has a good reputation, too, but has a hard time standing out. BMC is well respected, but the large safety net population makes it hard to invest to compete effectively.”

But two sources close to the organizations told the Boston Globe that one bone of contention was Tufts’ goal of expanding commercially insured patients, a move that could  conflict with BMC’s safety-net status, which brings in $100 million in Medicaid disproportionate share funding.

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Affiliated with Boston University’s Medical School, BMC has a 482-bed hospital, 4,500 employees and 1,200 physicians, and is the state’s largest safety-net hospital, the descendent of the Boston City Hospital that merged with the Boston University Medical Center in 1996. In the last fiscal year, BMC earned $34 million in profit on more than $1 billion in revenue, while half of its patients are covered by Medicaid. (BMC’s HealthNet Plan Medicaid HMO has seen losses in recent years, along with Partners’ Neighborhood Health Plan.)

Despite that issue, Williams thinks a merger  between the two is kind of inevitable. “I expect it will be discussed again within the next few years.”

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BMC is also in the midst of a $270 million renovation project.

Tufts Medical Center is located just one mile north of BMC. The Tufts University affiliate has its 415-bed flagship hospital, as well as the Floating Hospital for Children, and is itself in the midst of a merger with the  Lowell General Hospital, under the health system name of Wellforce. In the last fiscal year, Tufts earned $9 million on more than $850 million in revenue. Tufts also serves many Medicaid and Medicare patients, but more commercially-insured patients than BMC.

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The key question for each institution is “whether they would be stronger together than they are separately,” said Paul Levy, who’s credited with saving a post-merger Beth Israel Deaconess Medical Center as CEO from 2002 to 2011.

“If not, this could be a case of strapping two leaky lifeboats together, leading to a faster demise than if they remained apart,” Levy wrote on his blog, Running A Hospital, laying out a raft of challenges for the proposed merger.

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One is the “diminution in public support for safety net hospitals, like BMC,” in the era of universal health insurance. Another, for Tufts, is that it has one of the weakest referral bases of all the teaching hospitals in Boston, Levy wrote. “Third, BMC has a large number of unions that, in the words of a prior CEO, "’make it impossible to manage.’"

Administrative economies of scale could be achievable, along with leverage in supply chain purchasing and insurance contracts, Levy argued, and there would also be opportunities to rationalize clinical offerings, although this is where the organizational cultures of the two systems could have gotten in the way.

“For example, both hospitals have kidney transplant programs that are, frankly, too small to justify in the own right.  By combining them, costs could be reduced and outcomes likely improved. Might there be other examples?” Levy wrote. “But it is often  difficult to accomplish such rationalizations, in that the doctors in each hospital might feel a proprietary interest in their programs. Someone would have to negotiate a new clinical leadership agreement.”

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With the exception of Partners’ 1994 founding through the Massachusetts General and Brigham and Women’s hospitals, healthcare mergers in greater Boston have usually turned out to be more like acquisitions, Levy argued.

“Most mergers are not mergers. They are takeovers by one party. The BIDMC example is apt,” he said. “A so-called merger of New England Deaconess Hospital and Beth Israel Hospital in the mid-1990's was actually a takeover of the former by the latter. This led to resentment, alienation, and near bankruptcy.”

The Tufts-BMC deal would have been the first large hospital merger since the formation of BIDMC. A merger idea between BIDMC, Lahey Health, in the suburb of Burlington, and the physicians group Atrius Health, was withdrawn last year.

Twitter: @AnthonyBrino