Massachusetts' new healthcare transparency agency is arguing that Partners HealthCare's acquisition of a suburban hospital is likely to raise employer and payer costs, setting the stage for state or federal authorities to block the deal.
Based on an agreement dating back to late 2012, Partners wants to acquire the 378-bed South Shore Hospital and its Harbor Medical Associates physician organization, arguing that the integration fits well within the aims of the state's Chapter 224 cost containment law.
That law, among many other things, sets benchmarks for the growth rate of the state's total health spending and directs a new independent agency, the Health Policy Commission, to scrutinize and publicize quality and cost trends to inform other state regulators, like Attorney General Martha Coakley, who can block mergers and acquisitions.
In its first "cost and market impact review," the Health Policy Commission argues that the proposed acquisition would "increase health care spending, likely reduce market competition, and result in increased premiums for employers and consumers."
Partners and South Shore Hospital have not shown that the deal will "drive overall performance improvements of South Shore providers, or how corporate integration of the parties is instrumental to achieving proposed care delivery reforms," the commission concluded.
The commission's prediction of limited quality improvement resulting from the deal may be partly due to the fact that Partners, South Shore Hospital and the practice group all already exceed state and national averages "across a spectrum of measures." There is "very little material variation in quality performance between them," the commission wrote.
But with those clinical quality boasting points and, even more than that, large market share, the "resulting system is anticipated to have increased ability to leverage higher prices and other favorable contract terms in negotiations with commercial payers."
Partners and South Shore, based in the Boston suburb of Weymouth, are both financially strong and are the two leading competitors for inpatient services in South Shore's service area. Partners and the South Shore physician organization also have high total medical expenses, partly due to "high hospital prices," the report noted.
"In each region where the parties operate, their hospitals have higher prices than nearly all other area hospitals, and Partners' physicians have some of the highest prices in the state," the commission wrote in its report.
With both providers serving more commercially insured patients and fewer Medicaid patients than other area hospitals, the commission estimates that the deal would lead to increased utilization and commensurate increased physician hospital spending of about $23 million to $26 million a year for the state's three main commercial payers, Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim and Tufts Health Plan.
"Overall, based on the evidence the parties provided," the commission argues, "increases in spending are anticipated to far exceed potential cost savings from expanding Partners' existing PMH initiatives into the South Shore region," referring to Partners' population health management strategy integrating primary, acute and post-acute care.
According to the Health Policy Commission, the review of Partners' South Shore proposal "is the first time any state has authorized a policy-oriented, prospective review of the impact of healthcare transactions that is distinct from an administrative determination of need or law enforcement review of antitrust or consumer protection concerns." The commission, led by David Stetz, a former staffer of Massachusetts Senate President Therese Murray, has sent the report to the state attorney general, who along with the U.S. Justice Department could block the deal.
South Shore is one of 13 provider systems in Massachusetts with a single hospital, in addition to 11 independent hospitals remaining after the waves of consolidation led by Partners and Steward Health Care, among other smaller systems.
Partners, which also has the planned acquisition of the two-hospital Hallmark system pending, disputes a number of the Health Policy Commission's findings and argues that many were based on flawed assumptions.
Instead of increases, Partners' model projects savings of $158.6 million over eight years for commercially insured patients.
The commission failed to see the potential for those savings, Partners argues, with an "inexplicable omission of potential efficiency gains through the population health management initiatives of the transaction and its misreading of payer contract provisions."
Some of those savings, Partners argues, could come from reducing South Shore's commercially insured admission rate of 79 per 1,000. If admissions for commercially insured patients at South Shore could be brought down to the 56 per 1,000 rate of a comparable Partners' hospital, Newton-Wellesley, about $19 million of payer spending on inpatient care could be saved, Partners argues.