Financial concerns drive move toward healthcare consolidations

CEO Kevin Callahan believes a merger with Beth Israel ‘represents perhaps one of the most significant pathways of evolution for our health system in Exeter.’ (Courtesy photo)

The proposed merger between Exeter Health Resources, parent company of Exeter Hospital, and Massachusetts-based Beth Israel Lahey Health continues to move forward as a definitive agreement nears completion.

The hospital systems announced a formal letter of intent in March. Exeter Health made a public presentation in May to highlight the advantages of the merger, which includes a $375 million, 10-year investment plan by Beth Israel.

Both parties said the merger would bring together like-minded institutions focused on community care and innovation in a challenging marketplace.

“We will be able to broaden our mission,” said Kevin Callahan, the president and CEO of Exeter Health, about the many advantages of the merger. Exeter Health, which has more than $620 million in 2021 revenue, includes the 125-year-old Exeter Hospital, Core Physicians and Rockingham Visiting Nurse Association & Hospice, and has more than 2,400 employees.

The proposed affiliation and integration between two nonprofit systems comes after a multi-year attempt by Exeter Health to merge with Massachusetts General Hospital (now known as Mass General Brigham) was derailed in January 2021 due to competition concerns raised by the New Hampshire attorney general. That merger would have brought together Wentworth-Douglass Hospital in Dover, Exeter Hospital and Mass General, which acquired Wentworth-Douglass in 2019.

Callahan told NH Business Review that after the Mass General affiliation was no longer viable, Exeter Health immediately set out to find a partner. In part, this was driven by the medical and financial upheaval caused by Covid-19 pandemic, and also the reality that small-scale independent health systems were vulnerable to long-term innovation stagnation and systemic financial challenges.

“This was entirely our doing,” he said about the extensive due diligence conducted by management, the board of trustees and medical leadership before approaching Beth Israel, the second-largest health system in Massachusetts. “We decided to take a broader view, not only in the state of New Hampshire but in New England.”

Callahan said it was critical to find a like-minded partner focused on community care. He believes a merger with Beth Israel “represents perhaps one of the most significant pathways of evolution for our health system in Exeter.”

If the merger goes through after state and federal regulatory review in the coming weeks and months, Exeter Health will join a network of 13 academic medical centers, teaching hospitals, community and specialty hospitals with more than 4,800 physicians and 36,000 employees. Exeter Health would be the first health system outside of Massachusetts to join Beth Israel, which is affiliated with Harvard Medical School, and had $6.2 billion in 2021 revenues.

Beth Israel’s Massachusetts hospital network includes Anna Jaques Hospital in Newburyport, Beth Israel Deaconess Medical Center in Boston and Lahey Hospital & Medical Center in Burlington. Beth Israel Lahey Health was created in a major merger in 2019 between Beth Israel Deaconess Medical Center and Lahey Health. That merger was allowed after the newly formed Beth Israel Lahey Health agreed to stringent annual monitoring protocols set by the Massachusetts AG.

“The majority of care Beth Israel Lahey Health provides across New England is delivered in community-based settings, and we believe that Exeter’s shared commitment to high-quality care close to home makes them an exceptional fit with our system,” said Kevin Tabb, president and CEO of Beth Israel Lahey Health.

‘Healthcare is a business’

Hospital and healthcare system mergers and affiliation agreements are nothing new, especially in the past decade, as financial strains have undermined the ability of independent hospitals to survive. How mergers turn out has become a controversial research topic and depends on how success is defined. State and federal regulators have become more discerning of the promises for lower costs and better, more accessible care.

Elsa Pearson, policy director for the Policy Resource Center with Boston University School of Public Health, says more than ever healthcare consolidation is dominated by business concerns first.

“Healthcare is a business,” Pearson said. “For the hospitals doing the acquiring, merging can lead to financial gains, more brand recognition, and increased market power. For the hospitals being acquired, merging may be seen as the best way to stay afloat.”

Pearson said her research has shown too many mergers end up with overall financial success while falling short on more access and cutting costs for patients.

“Mergers that raise prices and consolidate markets are often quite successful from a business perspective,” she said. “Mergers that fail to go through are successful for the patients because access, quality and prices stay the same.” Pearson added that innovation is often accelerated by mergers. “Bigger health systems are often affiliated with medical schools and other research institutions which attracts researchers.

More money means more research.”

Steve Ahnen, president of the NH Hospital Association, says the state has taken an overall slower and careful approach to mergers.

“I think the answer is that hospitals have taken a much more deliberate approach that would serve them and their communities well,” he said.

The first major merger in New Hampshire occurred in 2013 and 2014, when then-Dartmouth Hitchcock merged with Cheshire Medical Center in Keene. In 2021, the state approved the sale of Franklin and Lakes Regional General hospitals to Concord Hospital. Also in 2020, the for-profit HCA Healthcare (which owns Portsmouth Regional Hospital and Parkland Medical center in Derry) purchased the financially ailing Frisbie Memorial Hospital in Rochester.

But in May, a proposed merger between Dartmouth Health, one of the state’s largest private employers, and Granite One Health, the parent company of Catholic Medical Center in Manchester, was sidelined due to the same anti-competitive concerns raised in the failed Mass General-Exeter Hospital merger.

Ahnen said he believes that mergers overall work out for the best.

“The pandemic certainly demonstrated the value. We learned the value of hospitals that can work collaboratively are able to move staff resources to meet urgent needs,” he said.

Callahan said the survival of small community health systems like Exeter Health can be at the mercy of trends out of their control.

“I believe you have to understand the macroeconomic forces at play to understand its impact on local dynamics,” he said. “The pandemic accelerated inflationary pressure in healthcare as the demand for services and a labor shortage increased.”

Callahan said the country’s $3.8 trillion healthcare industry is becoming dominated by gargantuan healthcare conglomerates that many are unaware of. Among them are: CVS/Aetna (over $275 billion in 2021 revenue), United Health Care/Optum (over $287 billion in 2021 revenue) and Amazon, which has also moved aggressively into the industry.

Callahan said long-term and enhanced community care can be secured with the merger. Exeter Health will become a “first-tier” (equal voice) part of Beth Israel, he said, retain a separate board and have six-year seats on the Beth Israel board.

“One of the defining factors in our board’s selection of Beth Israel was its demonstrated commitment to not only keeping care local within the community, but to deeply invest in the advancement of that care ensuring that Seacoast residents would always have access to the most advanced clinical care right here in New Hampshire, for generations to come,” he said.