Tufts Medical Center in talks with Vanguard Health Systems about teaming up to buy hospitals

Tufts Medical Center is considering teaming up with for-profit Vanguard Health System to buy independent hospitals in Massachusetts and work with Tufts’ physician organization to negotiate better deals with health insurers.

The proposed alliance, while not a merger, could reshape the state’s health care industry by giving Tufts and Vanguard more clout to compete with the fast-growing Steward Health Care System as well as with Partners HealthCare System, Massachusetts’ largest medical-care provider.

Tufts Medical Center, in Boston’s Chinatown neighborhood, would retain its status as a nonprofit teaching affiliate of nearby Tufts University School of Medicine, while Vanguard, based in Nashville, Tenn., would remain an investor-owned chain of 29 hospitals across the US. But they would form two joint operations with hybrid legal structures that would allow them to be more competitive in the fast-changing health care industry.

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One collaboration, a “management services organization,” would be partly owned by the Tufts doctors group, called the New England Quality Care Alliance, which already has a relationship with Vanguard’s Massachusetts hospitals. The new arrangement would expand already existing medical services in areas such as chronic care management, and allow the parties to jointly share risk in new global payment contracts with health insurers. Such contracts give providers fixed budgets to care for patients and rewards them for providing quality care that’s under budget.

New England Quality Care Alliance doctors would also take part in Vanguard programs with employers that focus on wellness.

The second venture would allow Tufts and Vanguard to offer a range of stronger options—from clinical affiliations to mergers to acquisitions—to independent hospitals seeking to bolster their their financial standing and prepare for a future of more integrated health care. Tufts and Vanguard have been largely on the sidelines during the past two years as Steward, Partners, and Beth Israel Deaconess Medical Center expanded their franchises.

Tufts physicians group officials have begun informally briefing their 1,600 members—employees of Tufts Medical Center and affiliated doctors—about the negotiations with Vanguard. The doctors would have to sign off on the alliance.

“You have to bring physicians into the discussion,” said Eric Beyer, chief executive of Tufts Medical Center and its Floating Hospital for Children. “You can’t present this as a done deal.”

It’s unclear how Massachusetts regulators will react to potential acquisitions involving money pooled by nonprofit and for-profit partners. Both parties said they would consider new hospital partnerships across the state, including the expansion of existing Tufts relationships with Lawrence General Hospital and Jordan Hospital in Plymouth.

The first test case would be Tufts’ plans to take a minority stake in Vanguard-owned MetroWest Medical Center, which operates Framingham Union Hospital and Leonard Morse Hospital in Natick.

“It’s Vanguard’s way of tying our cart to Tufts,” said Erik Wexler, president of the New England market for Vanguard and chief executive of the Vanguard-owned Saint Vincent Hospital in Worcester, which has residency programs with the University of Massachusetts Medical School in Worcester.

The MetroWest hospitals already are for-profit, and any nonprofit jointly bought by Tufts and Vanguard would have to convert to a for-profit. That process requires a recommendation by the state attorney general to the Supreme Judicial Court of Massachusetts, which would have to approve the conversion. The state Department of Public Health also must sign off on any plan to turn a nonprofit hospital into a for-profit organization.

Despite their different ownership structures, Tufts and Vanguard executives Tuesday said they have similar cultures and a shared focus on serving patients.

“Our view is the best systems evolve over time because you have a common view and common values,” Beyer said.

Tufts, its physician group, and MetroWest already are working together in other ways. Last month, they were jointly awarded an $88.5 million loan by the US government to create the nonprofit Minuteman Health Initiative, the state’s first member-owned health insurance plan. It expects to offer coverage starting in 2014 to individuals and small businesses through private brokers and the Massachusetts Health Connector, the state’s online insurance marketplace.

Jeffrey I. Lasker, president of the New England Quality Care Alliance, said members briefed on the plans had plenty of questions but were excited about the prospect of strengthening Tufts’ alliance with Vanguard. “We want to preserve care at community hospitals, and increase the amount of care provided at local community hospitals,” Lasker said.