SalemNews.com, Salem, MA

September 8, 2011

Hospital heads discuss affiliation, costs and health care reform

By Ethan Forman
Staff writer

DANVERS — The heads of Northeast Health System and Lahey Clinic told business leaders yesterday how pending health care reform drove them to get together to cut costs and provide a greater range of services to patients.

Kenneth Hanover, Northeast Health System's president and CEO, and Dr. Howard Grant, Lahey Clinic's president and CEO, were part of a panel discussion featuring four local hospital chiefs. Robert Norton, the president of North Shore Medical Center, which includes Salem Hospital, moderated the discussion as Sandra Fenwick, the president of Boston Children's North, which recently opened in Peabody, rounded out the panel.

The breakfast forum, sponsored by the North Shore Chamber of Commerce, drew a crowd of about 400 to the Danversport Yacht Club.

Much of the discussion focused on the affiliation of Northeast, the parent company of Beverly Hospital, and Lahey Clinic, which is headquartered in Burlington and has a branch hospital in Peabody. The new organization, announced in July, will be called Lahey Health System and be led by Grant.

Just how that will reduce costs is still under study, Grant said. The systems could reduce staff by eliminating those with functions that duplicate each other, and officials are looking at where facilities may be underused, but nothing has been finalized, Grant said.

The two systems operate emergency rooms just miles apart, at Lahey in Peabody and the ER at Beverly Hospital.

There are also opportunities to "export care" from one system to the other when appropriate, as Lahey has experience with complex care for adults, while Beverly Hospital has obstetrics, pediatrics and behavioral care that Lahey lacks.

Over time, the systems will probably find "there are a large number of opportunities" to cut costs, Grant said.

In his opening remarks, Norton explained how increases in health care costs are driven in part by underfunding for government-subsidized care, which he said amounts to 70 cents on the dollar for Medicare and Medicaid patients. About half of the patients who come to North Shore Medical Center in Salem get some sort of government subsidy, he said, so the cost of their care is shifted onto those who can pay.

Health care reform will change the way hospitals are paid, to keep people well, rather than the old "fee-for-service" model.

Hanover said the affiliation with Lahey was tied to these health care changes, because even though Northeast has $500 million in revenues, "we didn't believe we were big enough."

"The market was changing dramatically," Hanover said. "Scale was going to be absolutely critical to reposition our cost and our service structure."

Grant, who is also an attorney, said he had just been hired to run Lahey this past fall when talk of a deal with Northeast came up. At first he was reluctant to tackle something like a merger, but became convinced it made sense.

Fenwick of Children's Hospital said that amid all the talk of cost-cutting, saving money should not be the only measure of a hospital's worth. Hospitals need to focus on care. Children's expansion on the North Shore means specialists from Boston can now treat children in Peabody, she said.

Staff writer Ethan Forman can be reached at 978-338-2673, by email at eforman@salemnews.com or on Twitter @DanverSalemNews.