Massachusetts General Hospital and Brigham and Women's Hospital, two of the largest and most prestigious teaching hospitals in New England, said this week that they will merge.

The move was announced at a press conference late Wednesday afternoon by the two hospitals' boards of directors, who termed the move a "merger of equals with a parent organization overseeing both hospitals."

"Both hospitals will retain their individual identities, and operations will continue as usual at both locations," said J. Robert Buchanan, president and chief executive officer of Brigham and Women's, at the press conference. Buchanan said the merger will help "preserve the core patient care, research, and teaching missions of the hospitals."

Buchanan said the merger is also intended to reduce the annual operating budgets of the two hospitals by 20%, or a combined $240 million per year.

Both Brigham and Women's and Massachusetts General are teaching affiliates of the Harvard University Medical School.

Moody's Investors Service and Standard & Poor's Corp. placed their ratings for the hospitals under review as a result of the merger announcement.

Massachusetts General Hospital has $524 million of outstanding senior debt. It is rated A1 by Moody's Investors Service and A by Standard & Poor's Corp.

Brigham and Women's has $320 million of outstanding debt, rated Aa by Moody's and A-plus by Standard & Poor's.

Fitch Investors Service Inc. does not rate either hospital.

"When you look at it, that's a lot of debt for a hospital," said Dennis Farrell, a vice president and director at Moody's, referring to the two facilities' outstanding bonds. "The core performance of the hospitals have been adequate and fairly strong, but not outstanding."

Hospital officials said that both institutions are strong enough to wage a battle for patients, but they decided it would be too damaging an effort with uncertain results.

Farrell said that both hospitals have a lot of positives that will make this merger easier than most.

"Both of these hospitals are internationally renowned organizations on the cutting edge of research and training," Farrell said. "They each have a medical staff of a caliber commanding a great deal of respect."

Joan Pickett, director of Standard & Poor's health care group, said, "It's still premature to discuss the credit too much while it's under review. But for the overall market, we view this kind of move positively."

Pickett said there were still a lot of details to be resolved with the merger, and noted that she sees this as a harbinger of the future shape of the health care industry.

The health care reform package proposed by President Clinton has forced hospital officials to rethink their financial performances and debt positions and to seek out new ways of surviving in an increasingly competitive health care environment.

For most of the Boston area's recent history, local hospitals and universities have been a major boost to the local economy.

Hospital officials at both facilities said it is premature to expect any layoffs, service reductions, or other changes that might worry prospective patients.

"For the patient requiring service, they will look the same, they will be staffed by the same people, there will be the same familiar entities," said H. Richard Nesson, chief executive officer at Brigham and Women's.

Brigham and Women's Hospital was itself the sum of a merger. In 1975, Boston Women's Hospital and the Peter Bent Brigham and Robert Breck Brigham Memorial Hospitals merged.

The merger announced this week must still receive final approval from state Attorney General Scott Harshbarger's office.

"Usually a review of this kind would take a couple of months," said George Weber, chief of the consumer protection and antitrust division of the attorney general's office. "In mergers of this kind we will look to see if the party will have market power so that prices could be raised with impunity and also if that market power is overshadowed by the services the merger will provide to the community."

Earlier this year, the two largest hospitals in Lowell, Mass. -- St. Joseph's Hospital and St. John's Hospital -- merged. The merger was viewed more as a means of survival, unlike the Massachusetts General-Brigham and Women's merger.

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