Just seven weeks after announcing their intention to negotiate an affiliation with the giant Partners Health group, Martha's Vineyard hospital trustees voted unanimously to approve the landmark sale agreement on Saturday.
The transfer of ownership is set for a public hearing before the Massachusetts Department of Public Health next Tuesday, and pending the expected conditional approval from the state, the Island hospital will effectively end more than 80 years of independence and join Massachusetts General Hospital, the major subsidiary of Partners, the largest hospital group in the state.
A staff analysis prepared by the state public health department and provided to the Gazette this week recommends that the change in control of the hospital be approved, subject only to the new owners adopting a comprehensive system of interpreter services, data collection on race, ethnicity and language and outreach to the LEP (Limited English Proficiency) communities - mostly Brazilian - on the Island.
The analysis also states in plain English that the contemplated transaction is a transfer of ownership.
The affiliation deal is envisioned as a way to integrate the Vineyard into the full spectrum of medical services at a world-class health care system and wire it into a sophisticated electronic system for managing patient records, as well as to guarantee the hospital's future financial viability.
The affiliation agreement, a copy of which was provided to the Gazette this week by the state health department after the hospital declined to do so, formally endorses the promises made to Islanders by Partners Health and Vineyard hospital executives at a public meeting last month.
The agreement provides for a one-time payment of $5 million to the Vineyard hospital, and pledges to make up for any loss of revenue which could result from a change to the Island hospital's status under Medicare.
It does not, however, answer the question of whether the Vineyard hospital or the Nantucket hospital, which is entering a parallel affiliation agreement, will have to give up its status as a critical access hospital, a special designation for small rural hospitals which allows them full cost reimbursement for their services.
One of the driving factors in the deal, from the Partners end, was that the sacrifice of critical access status by one of the two small hospitals could ultimately lead to an estimated $250 million in extra Medicare funding for state hospitals, including tens of millions of dollars for Partners.
The Vineyard hospital's chief executive officer Timothy Walsh said the decision on which hospital would have to give up its critical access status would not be made until after the deal has gone through the whole approval process.
"That's under discussion with Partners," he said. "The problem is, until you get off critical access, some of the numbers are pretty elusive. But we think we have a pretty good handle on it. There could be a million [dollars] there. Somewhere around that number. That's the compensation [which Partners would have to pay] if we drop the critical access status."
But he thought Nantucket was a better bet to change status.
"We've done a lot with the critical access designation, a lot of programs . . . I don't really think Nantucket has built that many programs around it, so it's probably an easier thing to do there than it is here. And they do have a higher wage index than we do. But we'll have to see what unfolds on it," Mr. Walsh said.
He predicted considerable cost savings from the affiliation.
"We know a few numbers," he said. "We spend about $600,000 to $700,000 a year on malpractice insurance. And we can probably save 35 or 40 per cent with their malpractice scheme. They do their own analyses and they've developed a product that's really good and it's less expensive.
"There will be savings in purchasing too, but it's hard to tell how big at the moment.
"But the big one is the electronic medical record system that comes with the deal. There are no user fees or software fees. So we'll be able to do it for really small money, just buying a few PCs. I would figure maybe $25,000 worth of computers. So instead of spending millions, it's just a couple of PCs," he said.
One detail of the affiliation agreement which was never made public by hospital leaders involves overhead cost allocation; under the terms of the agreement, Partners will begin allocating a full share of overhead costs to the Vineyard hospital after five years.
"Partners agrees," the document says, "that for . . . fiscal years 2007 through 2011 no parent and system service costs will allocated to MVH."
After that, however: "PHS will allocate to MVH its full share of parent and system costs on the same basis that PHS allocates such costs to other organizations within the Partners system," subject to negotiation "regarding a mutually acceptable subsidy . . ."
Once entered into the affiliation, neither party can withdraw without the agreement of the other, a condition which has concerned some Islanders.
But Mr. Walsh said he would "rather not" have an exit clause, "because if anyone wanted to get out I think it would be them wanting to get rid of us. If we started losing money the way we did 10 years ago, they might say ‘This is not a great deal.'
"The problem you get into is the more we get into their system, the harder it is to unravel, because we start to get very valuable things from them like information systems, and if you wanted out, you would have to give them up," he said.
The deal establishes a complicated new system of governance between the respective boards of trustees. The Island hospital board will retain local control of day-to-day operations. But it will cede considerable financial independence to Partners and MGH.
While existing endowment, pledges and fundraising money will continue to be used locally, all investments must be put into a pool fund controlled by Partners. Partners will also have control over all expenditures over $500,000, new debts, business ventures and capital fundraising.
The affiliation agreement provides that 20 per cent of the board will be appointed by Partners.
The four Partners members were appointed on Saturday. They are Dr. Peter Slavin, president of Mass General; Brent Henry, vice president and general counsel for Partners; Ann L. Prestpino, Mass General senior vice-president for surgical and anaesthesia services and clinical business development, and Dr. Andrew L. Warshaw, chairman of the Mass General department of surgery and a Mass General board trustee. Dr. Warshaw and Mr. Henry are both summer residents of the Vineyard.
"What we have here," Mr. Walsh said, "is 80 per cent of the board will be Island trustees. If a vacancy occurs in that group, nominations come from that group. The only veto power is for cause, which is spelled out in the document and that's a two-way street. The Islanders' trustees could also veto a Partners trustee.
"We've talked to other Partners hospitals in there and it's never happened that they've turned down a board nomination," he said.
Meanwhile, fundraising for the Island's new hospital building will continue, despite the fact that the $5 million to be paid as part of the affiliation would push the total raised over the $42 million target figure.
Warren Spector, co-chairman of the hospital capital campaign, said the campaign will continue until the total amount has been raised, not including the $5 million from Mass General.
"We're going to do it ourselves because we can and because we should," Mr. Spector said this week. He said he anticipated the goal would be reached early in the new year.