A proposed hospital merger that promises to save millions of dollars long-term, as well as improve patient care, has been derailed because upfront costs are too high.

On Saturday, the boards of directors of the Scarborough Hospital and Rouge Valley Health System voted on a $29.5-million merger that has been in the works for almost a year.

The almost $30-million price tag comes from transition costs like integrating IT systems, as well as severance packages.

But while both boards said they like the idea of merging in principle, Scarborough voted the plan “be abandoned effective immediately” because they don’t currently have the money. Rouge Valley, in more muted language, voted to continue planning for a merger but noted how to pay for it is a major concern.

“We’re saying the same thing in a different way,” said Scarborough Hospital president Robert Biron.

“Both hospitals remain committed to the merger,” he continued. “We feel that we’re just not in a position to proceed given the weak finances.”

If more money becomes available in the future, Biron said the merger would be reconsidered.

“There’s without question, from our perspective, a tremendous preference from our community to integrate our two hospitals,” he said.

Although hospital officials said the merger would pay for itself within three years by eliminating duplication and taking advantage of economies of scale, the initial $29.5 million price tag is too high for them to cover themselves. Both Scarborough and Rouge Valley had looked to the province for help.

On Friday, the chairs for both boards received an email from Ontario’s minister of health pledging a $3-million grant.

“We recognize the potential upfront fiscal challenges associated with the proposed merger,” Deb Matthews wrote in the email, calling the investment “an important step in realizing our shared goal.”

No one from the ministry responded to a request for comment Saturday.

Although both boards accepted the grant from the province, the amount falls well short of what they were hoping for.

“Both (Rouge Valley and Scarborough) are concerned with the merger’s financial viability without ministry support,” said Rouge Valley CEO Rik Ganderton, although he added “the initial $3 million of funding is an excellent first step.”

According to the minister’s email, the $3 million is intended to help the hospital corporations with capital redevelopment.

Dr. Dov Soberman, vice president of the Medical Staff Association at the Scarborough Hospital, earlier told the Star that the hospital sites are in desperate need of rebuilding and refurbishing. And Biron has said it would cost $1.5 billion over the next 20 years to patch up and maintain the old buildings.

In the email, the health minister appears to peg future funding hopes on how well the hospitals use the $3 million grant.

“Successful completion of this next step will enable our government to give serious consideration towards making further substantial investments,” Matthews wrote.

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Biron said they’re seeking clarification on what and how the money is supposed to be used.

“We don’t have full understanding of the objectives of it,” he said.