Partners HealthCare reaches deal with Massachusetts’ attorney general

Massachusetts Attorney General Martha Coakley says her office has reached an agreement with Partners HealthCare that lets New England’s largest not-for-profit health system purchase an additional community hospital in the state in exchange for agreeing to adhere to certain terms that limit its ability to continue to grow and leverage its size and market dominance to raise prices.

Coakley’s office and the Department of Justice had been conducting an antitrust investigation into Partners HealthCare and its plans to acquire South Shore Hospital and Hallmark Health System. Partners currently includes two academic medical centers, Brigham and Women’s Hospital and Massachusetts General Hospital, as well as seven community hospitals, and has made no secret of its plans for expanding and consolidating both horizontally through the purchase of more hospitals and physician groups, and vertically through launching its own insurance option.

In January, it announced it was raising funds for expansion and facility improvements through selling $425 million in bonds. In addition, also in January, its CEO, Gary L. Gottlieb, told investors at the J.P. Morgan Healthcare Conference in San Francisco that Partner’s strategy was to create a new medical model that integrates hospitals with insurance products and draws patients from across the country to its top-ranked academic medical centers while also offering lower cost community hospital services.

Such actions could be seen as either bold or aggressive depending on one’s perspective, and Partner’s had accumulated critics along the way. In February, the state Health Policy Commission even released a report concluding that if Partners’ acquired South Shore Hospital, it would result in increased costs.

However, Coakley expressed her view that the state could gain more by striking a long-term deal with Partners — some of the provisions will last until 2024 — than in attempting to block its acquisition attempts again and again.

“Suing Partners would potentially block further expansion of its network, but would also maintain the status quo in the market,” Coakley said in a statement. “We believe this agreement will do much more. It fundamentally reduces the negotiating power of Partners for the next 10 years to better control health costs for families and businesses, and helps level the playing field in the market.”

According to the terms of the deal, Partners agreed to six key provisions in return for the state dropping its attempt to block its acquisition of South Shore Hospital and Hallmark Health System. These were:

1. Letting payors contract with Partners Network providers on a component basis for academic medical centers, community hospitals and physicians, South Shore Hospital, and Hallmark Health Systems for the next seven years. In addition the academic medical centers and community hospitals will remain separate components for the next ten years.
2. Ending joint contracting on behalf of non-owned physician group affiliates outside its own physician hospital organizations for the next ten years. According to the attorney general’s office, this has traditionally been a way that Partners has expanded its market reach. This restriction would not apply to physicians employed within the Partners network.
3. Promising to not raise charges across the Partners network more than the rate of general inflation for the next six and a half years. Inflation has been well below the rate of healthcare cost increases for Partners over the past 10 years. If Partner’s does raise its prices more than inflation one year, it will refund the amounts charged or received.
4. Agreeing to also not raise individual rates at South Shore Hospital more than general inflation for next six and a half years.
5. Capping the number of Partners network community physicians at the Partners 2012 baseline physician level for three years and only increasing the number of Partners network community physicians by two percent for the two years following that period.
6. With the exception of Emerson Hospital, a current Partners affiliate, promising not to acquire any more hospitals in eastern Massachusetts (Worcester County and areas further east) for the next seven years without the review and pre-approval of the Attorney General’s Office.