Vineyard and Nantucket Hospitals Move to Join Massachusetts General

By JULIA WELLS

Trustees at the Martha's Vineyard and Nantucket hospitals this week announced their intention to join Massachusetts General Hospital and its parent company, Partners Health Care, as affiliates by the end of the year.

Trustees at each Island hospital have signed a memorandum of understanding that is expected to lead to a definitive agreement. Final approval must come from the Massachusetts Department of Public Health. If the deal is concluded as anticipated, it will end an era of independent nonprofit cottage hospitals on the two Islands that stretches back for more than 80 years on the Vineyard and more than 90 years on Nantucket.

Under the terms of the agreement, Massachusetts General Hospital and Partners Health Care will contribute $5 million to each Island hospital for capital needs. For the Vineyard hospital this means the likely completion of a $42 million capital campaign to build a new hospital, the largest campaign in the history of the Island.

The affiliation deal is largely driven by finances, including a complicated back story that involves the shift by the two Island hospitals to critical access designation, which led to a Medicare reimbursement ripple effect that has cost other Massachusetts hospitals huge sums of money.

But hospital leaders said this week that the proposed affiliation, which is not a merger, will have huge benefits on the clinical side as well, opening up direct access to the full spectrum of medical services at a world-class health care system with sophisticated, state-of-the-art information technology and a teaching affiliation with Harvard Medical School.

Photo

"Is this a leap of faith? Absolutely. Can I think of a better institution in the country to take a leap of faith with? I cannot. Who better to be in control of our health care?" said hospital vice chairman Timothy Sweet this week.

"We have solidified the future of the hospital, and I cannot think of any better way that you could assure the future of the hospital," said hospital chief executive officer Tim Walsh.

Warren Spector, who is co-chairman of the Vineyard hospital's capital campaign, said: "The way I think of it is we are striving to take advantage of the knowledge, training and resources of a world-class medical system, while at the same time keeping the advantages we have of a well-run local institution. That to me is a quality guarantee for people on the Island."

Under the terms of the agreement, each hospital will retain its own governing board, name, and control of charitable contributions.

But, in the end, the proposed deal does mean a transfer of ownership: Partners Health Care will own the hospital real estate, will control the budget, and will retain final decision-making authority. Partners will appoint 20 per cent of the board of trustees, while 80 per cent will remain local. The memorandum of understanding for the Vineyard hospital includes a stipulation that there will be no reduction in current services, Mr. Sweet and Mr. Walsh said.

Mr. Sweet emphasized that the agreement is in its earliest stages, and extensive due diligence lies ahead.

"This is the start of the deal," he said. "We are going to be doing a lot of fact-finding to make sure this is right for everyone.

Among other things, no exit clause has yet been crafted if either hospital decides in the future that it wants to pull out of the affiliation. Mr. Walsh said there is a provision in the memorandum of understanding to discuss such a clause.

Photo

Mr. Sweet, Mr. Walsh and Mr. Spector said every large donor who has pledged or given money to the capital campaign was contacted about the pending agreement, and all have given it their blessing.

But Mr. Spector said the $5 million gift was in no way a deciding factor. "It's nice to get some additional money for this, but we're not doing this for short-term financial gain, because otherwise we would just have raised the money," he said.

Begun 15 months ago, the capital campaign recently surpassed the $36 million mark. Mr. Spector said the $5 million gift would put the campaign over the top of its goal, but he said if the agreement is concluded and the gift then is made, any money beyond that used for the campaign will go into a capital reserve fund.

"We want to get all the money raised (through signed pledges and gifts) by the end of October," Mr. Spector said.

Mr. Walsh and Mr. Sweet said the memorandum of understanding has been in the works since last summer, but the unusual financial situation with Medicare has been known for much longer. The situation was triggered when both Island hospitals achieved critical access status, a special designation which allows small rural hospitals to receive reimbursement for the actual cost of services. The 25-bed Vineyard hospital was named a critical access hospital in 2003, and the 19-bed Nantucket hospital followed suit a year later.

Ordinarily Medicare reimbursements are only for a portion of the actual cost of services, and the formula used to determine reimbursement includes an adjustment for wages.

In every state in the country, Medicare establishes what is termed the rural floor for the wage index, Mr. Walsh said. In Massachusetts the floor was established by the two rural Island hospitals, which have higher wages due to a high cost of living.

Mr. Walsh and Mr. Sweet said that once both Island hospitals became critical access hospitals, there were no more rural hospitals in the state, and Medicare decided to use a national wage index in calculating reimbursements. This caused the large hospitals to lose a staggering amount of money - about $250 million - as a result of lower reimbursements, Mr. Walsh said.

This created a strong incentive for the pitch from Partners Health Care to acquire the two Island hospitals.

The Windemere Nursing Home and Rehabilitation Center, which is owned by the hospital, will be included in the deal. Windemere loses money, while the hospital has been operating comfortably in the black for the last couple of years. Mr. Walsh said the critical access designation opened the door to profitability, partly through the use of what are termed swing beds in acute care.

Ironically, in order for the deal to be complete, one of the two Island hospitals will have to give up its designation as a critical access hospital.

Partners Health Care is a nonprofit consortium formed in 1994 when Massachusetts General and Brigham and Women's hospitals joined. Partners has since acquired other affiliates, including McLean Hospital, Faulkner Hospital and Newton-Wellesley Hospital.

Both the Vineyard and Nantucket hospitals already have collaborations with Massachusetts General in some medical specialties, including cardiology, radiology, neurology and dermatology.

Mr. Sweet said he is conscious of the enormity of the decision for the Island.

"It comes down to one word all the time and that is control - are we going to lose our sense of identity, control and autonomy? We have been thoroughly convinced that is not the case," he said, adding: "Partners' general philosophy is to allow individual hospitals to operate as usual. And we think the potential for rewards is huge. I know on the Vineyard we are very independent-minded, but when you sit down and think about it, the hospital is right now controlled by 15 trustees and really the ultimate control rests with the Department of Public Health and the Massachusetts Attorney General. Operations will not change at all." He also said:

"As far as where we are in the last few years - we're only halfway to where we want to be. We went from a dysfunctional institution to a well-run, well-managed hospital. But the future for small rural hospitals appears to be in deep, deep trouble and this is the best way to protect what we have. Having this backstop is good, because as history has shown, we can lose our way pretty easily."

Mr. Spector agreed. "The idea is not to change all the good that has been done; the goal is not to take all the decisions out of the hands of the people on Martha's Vineyard and give it to the people in Boston. The goal is to take all the benefits of a world-class health care system and give it to the people of the Vineyard. The state-of-the-art technology system information is a valuable asset that we could never build ourselves, and you cannot achieve without being an affiliate because of privacy rules," he said, concluding:

"I understand that people on the Island will ask the question, are we losing local control, are they not going to understand the needs we have? I am convinced from the conversations I participated in with Partners Health Care that all these things will turn out to be advantages, not disadvantages."