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Partners-Harvard Pilgrim Merger Motivated by Data?

Analysis  |  By Gregory A. Freeman  
   May 09, 2018

Data may be the key to surviving in the changing healthcare industry.

The proposed merger between Partners HealthCare and Harvard Pilgrim Health Care is yet another response to pressure on all healthcare industry sectors to find innovative paths to success in a market where old business models aren't going to work.

Data is the necessary element in any solution, healthcare leaders are concluding, so someone else who has more data, or a different kind of data, is an attractive partner. 

That appears to be the case with the nonprofit healthcare system Partners and Harvard Pilgrim, a medical insurer in Massachusetts. Partners was founded by Brigham and Women's Hospital and Massachusetts General Hospital and includes community and specialty hospitals, a managed care organization, physician network, and a community health center.

Related: Expect M&A Deluge to Continue Through 2018 and Beyond

Leaders from both companies have been in negotiations for months, The Boston Globe reported. The options include Partners acquiring Harvard Pilgrim.

The deal is likely to face scrutiny from regulators, the newspaper notes. Massachusetts Governor Charlie Baker was once the head of Harvard Pilgrim and said the state would look carefully at the proposed merger to assess the effect on consumers.

Data could be key

The proposed merger is "a defensive one," says David Friend, MD, chief transformation officer and managing director of the Center for Healthcare Excellence & Innovation with the consulting firm BDO. Friend also sits on the board of FallonHealth, a health plan in Massachusetts.

"Partners HealthCare brings access to patients and their data to the table, and Pilgrim brings access to their customers, as well as pharmacy benefits and claims data," he says. "By banding together as one, the two entities are better positioned through access to more potential customers, a streamlined supply chain and, ideally, improved care coordination and outcomes."

Both companies are primarily motivated by the search for data, Friend says.

"Care is being pushed outside the walls of the hospital, and traditional care models are being challenged, putting pressure on providers to cut costs and improve outcomes," he says. "This is especially true in Massachusetts—a state with higher-than-normal healthcare costs driven by hospital spending and enrollment changes. One key ingredient to lowering costs and improving outcomes is access to population health data."

Friend notes that the Partners-Harvard Pilgrim merger is the latest in a spate of deals signifying that the entire healthcare system is converging, and by next year, the traditional pharmacy benefit manager model could be extinct.

Related: PCMA Head to Step Aside as Pressure Mounts on PBMs

"If the Partners-Harvard Pilgrim merger comes to fruition, the combined entity has the potential to provide better care outcomes at lower costs. It could also use its combined population health data to develop new services and better serve its consumers through more personalized care," he says.

A new reality

Health insurance third-party payers, such as Harvard Pilgrim, and healthcare providers, such as Partners, are facing a new reality regarding the business side of healthcare, says C. Timothy Gary, JD, healthcare attorney with Dickinson Wright and CEO of Crux Strategies, a compliance and consulting firm.

"There is a great deal of what economists refer to as transactional costs in the current system," he says. "As both providers and payers look to reduce costs, returning to an integrated staff model is one option that many will consider, as that approach presents the opportunity to reduce those transactional costs." 

Staff model HMOs were not at all unusual in the 1980s and 90s, Gary notes. Humana Health, for example, was a staff model payer before it sold off hospital holdings. The healthcare industry tends to recycle old models with new features, Gary says.

The proposed merger is part of a trend and Gary expects to see more in the future.

"Harvard Pilgrim has a footprint that extends outside of the state. One would assume that both parties look to gain market share and reduce transactions costs," Gary says. "A gain in market share for either will come at the expense of their competitors, including Blue Cross Blue Shield in Massachusetts." 

Impact of the merger

Gary says that, in addition to state regulators, the anti-trust division of the Department of Justice will almost certainly want to review the transaction. Luke Froeb, the DOJ's newly appointed deputy assistant attorney general for economics was Gary's professor at Vanderbilt University, and Gary recalls him as market-oriented.

"However, I would be very surprised if he didn't want to explore the potential impact of this type of merger on the health insurance industry, the hospitals in Massachusetts, as well as impacts on costs and access to care for patients," he says. "There is a long history with integrated staff model health systems. Some of that history is good and some far less so."

Related: Measuring Financial and Clinical Impacts of M&A Activity

The proposed merger could benefit consumers as well as the two organizations, says Jeffrey Le Benger, MD, CEO of New Jersey–based Summit Medical Group, a physician-owned, multispecialty medical practice in the New York/New Jersey metropolitan area.

"The health system is looking at cutting out the payer and becoming their own payer, and that is where the cost savings will come. The beneficiaries could eventually benefit from that," he says.

Consumers could benefit if employers enjoy lower premiums and pass on some of the savings to employees in the form of improved benefits and higher wages, Le Benger says.

Such mergers appear unavoidable in the current healthcare environment. The necessity of managing rapidly growing healthcare costs along with a continuously changing health insurance landscape have forced regional health insurance carriers and healthcare providers to look for opportunities to drive efficiencies in healthcare delivery, says Tom Silliman, regional vice president of sales with Hodges-Mace, a benefits management company.

"While we are always concerned about mergers limiting the healthcare choices of our customers, we have seen similar strategies executed across the country," Silliman says. "Our hope is that this proposed merger would deliver more competitive health insurance options for our customers while improving access to the care that they need."

Gregory A. Freeman is a contributing writer for HealthLeaders.

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