Hospital Coalition is Key Foe in MA Merger Deal

Broad, hospital-led opposition plays a crucial role in a court battle over the latest healthcare mega-merger in Massachusetts.

The battle lines have been firmly drawn in one of the country's most contentious clashes of healthcare consolidation titans.

When I moved to Boston fresh out of college in 1988, Eastern Massachusetts was peppered with independent community hospitals. Now, South Shore Hospital in South Weymouth is one of the last independent community hospitals in the entire region, and about a half dozen large health systems are vying for the winner's circle in the consolidation end game.

Boston-based Partners Healthcare, The Bay State's largest private employer with about 60,000 workers, has coveted South Shore Hospital for two decades. Two weeks ago, Partners' latest attempt to acquire the South Weymouth facility along with two hospitals north of Boston suffered a dramatic setback.

State Superior Court Judge Janet Sanders ruled against the merger deal, which had garnered the blessing of the Massachusetts Attorney General's Office in the form of a proposed consent judgment.

The Ruling
In her Jan. 29 ruling, Sanders cited two reasons for her decision.

"First, it is not in the 'public interest' as that has been defined by the case law," the judge wrote in her ruling. "By permitting the acquisitions, the settlement, if adopted by this Court, would cement Partners' already strong position in the healthcare market and give it the ability, because of this market muscle, to exact higher prices from insurers for the services its providers render.

These Partners-driven increases in costs are estimated by an independent state agency, the Massachusetts Health Policy Commission (HPC), to amount to tens of millions of dollars a year. Those costs will ultimately be borne by consumers and employers in the form of higher insurance premiums and higher deductibles on their insurance plans.

The Proposed Consent Judgment, which contains temporary price caps and other so-called 'conduct-based' remedies, does not reasonably or adequately address the harm that is almost certain to occur as a consequence of the anticompetitive conduct by Partners. …"

"Second, this Court has serious concerns as to the enforceability of the Proposed Consent Judgment. Where a consent decree contemplates ongoing judicial involvement, as it does here, and there are substantial questions regarding enforcement, this alone is sufficient to reject it. The Proposed Consent Judgment envisions a ten-year period during which this Court could be called upon to resolve disagreements among the parties in at least ten different areas, including on complicated issues relating to healthcare pricing.

Moreover, this lawsuit is brought at a time when the entire healthcare field is undergoing enormous change. This Court is ill-equipped to keep abreast of those changes as they unfold over the next decade or to predict at this point how such changes might affect the meaning and application of the Proposed Consent Judgment going forward."

'Extraordinary' Actions
Sanders could have cited a third factor in her decision: The effectiveness of a grand coalition formed by Partners' prime competitors, including Boston-based rivals Beth Israel Medical Center and Tufts Medical Center.

"Usually when hospital mergers occur and there are anti-competition concerns, the other hospitals in the market sit on their hands. But in this case, the coalition's actions are really extraordinary," David Balto, a lawyer and former federal official who represented the American Antitrust Institute in Sanders' courtroom, told me this week. "They brought everybody together, from regulators, to unions, to other healthcare providers."

Balto says Partners' quest to acquire three more hospitals prompted stiff resistance from a powerful and highly competent set of opponents.

"We were reaching a level of concentration where competition was under threat, but this is Eastern Massachusetts, this is the best and the brightest," Balto says.

He says he always left his meetings with Partners' competitors impressed with their firm grasp on even the most minute issues linked to the AG's proposed consent agreement. "These people really have a vision of what the market should be like. They knew this merger would make a competitively broken system even worse."

Sanders' ruling will have repercussions beyond The Bay State, but it does not mark the death knell for conduct remedies in healthcare mergers, Balto says.

"The ruling really was groundbreaking, but it does not mean conduct remedies are always inappropriate," he says, citing a recent two-hospital merger deal in Utica, NY, which incorporates conduct remedies that Balto says are well-suited to the community's "financially fragile market."

"Regulators need to be nimble and flexible. There are tremendous challenges that hospitals face," he says. Elements of the Patient Protection and Affordable Care Act such as care coordination initiatives are one of the driving forces behind healthcare consolidation efforts across the country, he adds. "Eventually, there are compromises that regulators are going to have to make."

'Not Just a Power Grab'
In recognition of those compromises, Balto offers an olive branch to his legal adversaries at Partners. "Give them their due. There are important changes that they have in mind to coordinate care and to lower the cost of healthcare. These mergers were not just a power grab. They had legitimate goals that they were trying to accomplish."

In an interview last week, Andrea Murino, the Washington, DC-based attorney who has been representing the coalition, told me her clients welcomed Sanders' ruling warmly.

"We are delighted the judge realized that the proposed remedies didn't remedy anything. They were untested and would do very little to mitigate the market power that Partners enjoys," Murino said.

She shares Balto's views on the conduct remedies in the Partners merger deal and in healthcare merger cases generally. "Conduct remedies don't achieve long-term structural changes that restore competitive balance. In this case, they were too thin, too flimsy, and not commensurate with [the anticompetitive elements of the merger]… There are certainly lots of consolidation remedies, even in healthcare, where the remedies can improve competition. It really depends on the facts and the specifics of the organization you're dealing with. I don't see the world as black and white."

With Sanders' ruling upping the ante in the Eastern Massachusetts healthcare consolidation end game, Partners is apparently plotting its next move carefully. "We're currently evaluating all options," says Rich Copp, the health system's VP of communications.