In Massachusetts, the expansion of the state's largest health system is offering a fractious case study of clinical integration and payment reform.
Two decades after its founding with the merger of Massachusetts General and Brigham and Women's hospitals, Partners HealthCare is the most prestigious, largest and highest paid health system in Massachusetts -- and still growing.
As part of a market settlement negotiated by attorney general and gubernatorial candidate Martha Coakley, Partners could acquire two large suburban providers, the South Shore Hospital in Weymouth and Hallmark Health System in Melrose, if it is approved by county superior court judge Janet Sanders and survives any legal challenges.
The settlement would require Partners to cap prices at the two-hospital Hallmark system in Melrose for six-and-a-half years, with increases set at either general or medical inflation, whichever is lower. Partners would also have to continue the current level of psychiatric and behavioral services at Hallmark and North Shore facilities for five years.
Coakley argues that the agreement will curb the health system's financial power and "fundamentally alter the way Partners contracts with health insurers" for at least a decade.
The proposed agreement caps Partners' price increases at the lower of the rate of general or medical inflation across its network through 2020. It also ends Partners' ability to seek "all or nothing" networks, bars contracts with affiliate physician groups that are not part of its hospitals for 10 years, and prohibits hospital acquisitions in eastern Massachusetts for the next seven years.
Consolidation, integration and reform
While the state's largest commercial payer, Blue Cross and Blue Shield of Massachusetts, has remained neutral, the expansion has still drawn a fair amount of criticism, including opposition from rival hospitals like Atrius Health, Beth Israel Deaconess Medical Center and Tufts Medical Center, and skepticism from antitrust advocates and local media.
In the Boston Globe, where investigative series have chronicled aggressive pricing practices with insurers, columnist Tom Farragher suggested recently: "Let's cage the gorilla known as Partners HealthCare."
One prominent critic, Paul Levy, the former president of Beth Israel, a Harvard teaching affiliate, argues that Coakley's settlement seems to ignore her own investigation's findings, since it does not address the "provider price disparity."
"The AG spent several years documenting the fact that Partners' market power is responsible for the substantially higher rates it receives from insurers for the same work done by other academic medical centers, community hospitals, and physicians," and then concludes "this topic is irrelevant to the complaint she initially filed," Levy wrote on his blog.
Levy was CEO of Beth Israel from 2002 to 2011 and believes the price disparities between Partners and its peers have been unfair and, in retrospect, legally questionable.
In "one of the oddest conversations I had as CEO of Beth Israel Deaconess Medical Center, the CEO of one of the Partners hospitals urged me to stop complaining about the disparities," Levy wrote in July. "He suggested that we should just be content with PHS [Partners Health System] getting high rates and thereby establishing a ceiling under which we could operate at lower rates. He asserted that we would do worse if PHS were not there jacking up its own prices. (I now regret not reporting this conversation to the AG and DOJ as a veiled attempt at price-fixing.)"
Levy also argues that the Federal Trade Commission has been conspicuously absent from the Partners expansion -- even after taking a markedly more aggressive stance on hospital consolidation nationally. In the past two years, the FTC intervened and successfully blocked three hospital mergers and, recently, tentatively won its first ever case challenging a health system's acquisition of a physicians practice, in Idaho.
"The U.S. government has taken a bye on the Partners case," Levy said in an email. The FTC declined to respond.
Partners, meanwhile, has defended its expansion as necessary for providing what is perhaps the most advanced and complex care in New England, while also meeting the cost reduction goals of the Affordable Care Act.
"We have made a commitment to the Commonwealth and our patients to lead in improving healthcare quality and addressing cost," Partner's CEO Gary Gottlieb, MD, wrote in the Boston Globe recently.
"We will become the most scrutinized, regulated healthcare system in the state if not the country," wrote Gottlieb, who is also a psychiatry professor at Harvard Medical School. "But we will accept these limits because we believe that working with South Shore and Hallmark Health, superb local hospitals which sought our partnership, will allow us to provide the highest quality care by delivering it closer to the homes of our patients at lower cost."
Whatever the opinion of Partners' might and expansion, the health system's rise and ambitions raise a health reform question nationally: How big is too big?
"We never know that," said attorney Mark Rust, managing partner at Barnes and Thornburg, in an interview. "It's a subject of immense controversy that stretches now 25 years."
It is somewhat unusual that the attorney general has taken the lead in settling Partners expansion, rather than the FTC, Rust said. But then again "this seems to be a very unique situation in a variety of ways, a unique set of circumstance economically and politically," he said.
"We are indeed entering a new era, in which large, well-capitalized health systems are going to do all these things required to get off fee-for-service and undertake population health," Rust added.
Tacit approval from the FTC, with no intervention or even comment in the case, may be the Obama Administration's way of letting health reform play out in Massachusetts, the state that tried to pioneer universal coverage in 2006 but still had to legislate price controls in 2012, with the growth of statewide healthcare spending capped at 3.6 percent last year.
"I would be extremely surprised if Martha Coakley is going into court with an agreement that is not already blessed by the FTC," Rust said. "I don't think that Partners would be agreeing to this settlement if they thought there was a chance the FTC was going to come in and undo it."