GloucesterTimes.com, Gloucester, MA

July 19, 2011

Northeast, Lahey join forces

By Richard Gaines
Staff Writer

Northeast Health System and Lahey Clinic Tuesday announced an affiliation that would create a $1.5 billion, integrated regional health system along an axis from Gloucester to Burlington, to be governed by a new nonprofit corporation with equal representation from both sides of the health care marriage.

Anchored by Beverly and Gloucester's Addison Gilbert Hospitals, Northeast and its North Shore neighbor, Lahey, have had a long working relationship in special fields, notably cardiology, critical care and surgery.

Leveraging a world-class brand name for the physician-led teaching hospital founded in Boston in 1923, the new entity will be called Lahey Health System.

It will be led by Howard Grant, the current president and CEO of the Lahey Clinic, now centered in Burlington with a hospital-medical center at the North Shore Mall in Peabody and other facilities across the region.

"The new entity," Grant said Tuesday in a joint telephone interview with Northeast CEO Ken Hanover, "will be focused on delivering the right care at the right place at the right time, with an emphasis on the need to provide services closest top home at the highest quality and the lowest cost."

"No money is changing hands; the new parent entity will control all the resources of the two organizations, (including Addison Gilbert)," Grant and Hanover said in the telephone interview.

Further additions to the new entity are anticipated.

"We have already had discussions with other providers in the region who are like-minded," said Hanover.

Northeast a 'subsidiary'

Hanover will remain at the head of Northeast, which, under the agreement, will function as a subsidiary of the future holding company.

They said Tuesday that the agreement to forge an affiliation of the two systems had been reached within the past 24 hours, and documented in a "letter of intent"; the full detailed agreement will be the focus of work over the next 90 days, then submitted for public scrutiny and regulatory approval.

Each affiliate has more than 5,000 employees; Northeast has 600 physicians and 700 nurses, while Lahey has 500 physicians and 1,100 nurses.

"The affiliation will allow the Northeast Physician Hospital Organization and Lahey Clinic to develop more innovative approaches for effectively coordinating and managing patient care under current and proposed payment models," Northeast and Lahey said in a joint press release.

Sen. Bruce Tarr, R-Gloucester, who has been involved in oversight of the operation and management of Northeast, said the entities have agreed to community meetings about the future health care for Cape Ann through Addison Gilbert as part of Lahey Health System.

"This is an arrangement with potential upside (for Cape Ann) because of the depth and focus that Lahey brings, it provides the opportunity for a truly integrated system of care from primary to tertiary," Tarr told the Times in a telephone interview. "Hopefully, this will reduce AGH's role as a pawn in the competition between big teaching hospitals."

Tarr, however, cautioned that "Addison Gilbert's role in this system of care needs to be well-defined."

Community board members

The announcement said that the new board will include members unaffiliated with either board chosen from the community in addition to an equal number of the two affiliates' boards.

In an industry sector dominated by merger/acquisitions involving the big and strong swallowing up small and weak, the agreement announced Tuesday is anomalous.

While half the size of Lahey in value and without its global reputation, Northeast has been viewed as a financially solid $500 million regional health system organized around a network of acute care hospitals — with Beverly Hospital as the centerpiece, Addison Gilbert, which was acquired in 1994, BayRidge psychiatric hospital in Lynn, and the outpatient adjunct to Beverly Hospital in Danvers.

Still, facing ominous challenges from the giant Partners Health Care which redeveloped a factory in Danvers into an outpatient facility imposingly called Mass General North Shore — and changes to health law, including the so-called federal ObamaCare and medical regulations designed for systems scaled to serve at least 1 million patients, the Northeast trustees early this year decided to solicit proposals for expansion.

The spring and summer were spent working with a consultant and an in-house "affiliation advisory committee" to evaluate proposals from another nonprofit — Beth Israel Deaconness Medical Center in Boston, which, while world-renowned has had troubled leadership. The four suitors for Northeast also included two for-profit health care companies — Steward, assembled by an equity investment firm on the acquired foundation of the Caritas chain of Roman Catholic hospitals, and the Tennessee-based Vanguard Health System, which has acquired two hospitals in central Massachusetts.

Steward withdrew

Steward withdrew from the bidding process earlier tis month, but did not announce the decision until Tuesday.

Hanover, who previously identified "investment capital" as a primary goal in the search for an affiliate, said Tuesday that combining with Lahey would yield "sufficient cost synergies and revenue opportunities" and also "limit leakage out of the organization."

With these improvements, Hanover said, "We can improve our business performance, improve our margins.

"Our market position and model of care will be sufficiently attractive to investors," he added.

Jeanine Burns, secretary of the Northeast Nurses Union, said that, while she could not speak for her members, "just for myself, I'm happy it's a non-profit."

She said she is also glad that Lahey has emerged as Northeast's new partner because "Northeast has had a relationship with Lahey" that has already provided Cardiac surgical and other services.

In that sense, she said, "they've been a part of us."

Unlike Northeast, the nurses at Lahey are not unionized, but Burns said her colleagues had reached a contract agreement with Northeast that should be signed by Friday, well in advance of the transformation of Northeast and Lahey into the affiliated organization.

Second transition

The transition into Lahey Health System would be the second adoption for Addison Gilbert in 17 years.

The first — traumatic, divisive and controversial on Cape Ann — occurred in 1994 after the trustees of the 97-year-old community hospital, cherished and generously supported by residents of the island cape, sold it to the larger nonprofit that would become Northeast Health System.

With it, many residents have long said, went a sizeable endowment including a collection of paintings purportedly including works of Fitz Henry Lane, other art — and local control.

The value of AGH's endowment at the time of the merger with Beverly was $26 million; Beverly's endowment was only $29 million, but that slight advantage translated into total corporate control.

Some Cape Anners felt they were sold out, but even many of those who didn't grated as Northeast seemed determined to marginalize AGH, following the prompts of the fast-evolving health care industry and consolidating surgical services in Beverly, where Hanover's predecessor, Stephen Laverty, undertook a modernization and expansion campaign.

Tarr, then-Gloucester Mayor John Bell — backed by community activists and AGH nurses — organized a task force to serve as a counterweight to Beverly's force, and through much of the last decade defenders of the community hospital worked to keep the essentials of an acute case facility on the Washington Street campus.

The impending, third volume of Addison Gilbert's history would affiliate it with one of the pillars of Boston's reputation, built in the early 20th century, as a world capital of medicine.

Boston roots

The Lahey Clinic, a teaching hospital for Tufts University School of Medicine, opened at 605 Commonwealth Avenue, Boston in 1923 — the year Gloucester celebrated its tercentenary.

The founder, the noted gastroenterologist Frank Howad Lahey, had a vision of a clinic where many specialists could practice under the same roof, and patients could benefit from one-stop medical care. The concept was ahead of its time, and through the middle of the century the clinic drew patients from many nations.

Adapting to suburbanization, Lahey abandoned Boston for Burlington in 1980. Today, Lahey's facility in Burlington includes an ambulatory care center serving more than 3,000 patients each day and a 317-bed hospital.

The facility at the North Shore Mall in Peabody serves more than 800 outpatients each day and includes a 10-bed hospital.

Both feature 24-hour emergency departments, while an American College of Surgeons-verified Level II Trauma Center is based at the Burlington. Lahey also has an ambulatory care facility in Lexington, with primary care physician offices in Amesbury, Arlington, Billerica, Danvers, Essex, Hamilton-Wenhem, Haverhill, Ipswich, Lynnfield, Merrimac and Wilmington.

Irving E. "Chip" Rogers, chairman of the board for Lahey Clinic, was publisher of the Gloucester Daily Times for three years beginning in 2002, when his family, longtime owners of the Eagle-Tribune based in North Andover and previously Lawrence, acquired Essex County Newspapers, a group that included the Times, the Salem News and the Daily News of Newburyport.

The four papers were then acquired 2005 by Community Newspaper Holdings Inc., based in Birmingham, Ala.

Richard Gaines can be reached at 978-283-7000, x3464, or at rgaines@gloucestertimes.com.