Health care watchdog: BI-Lahey merger will hike costs
Commission members think new system can work with conditions
By 
A REPORT ON by the state’s health care industry watchdog analyzing the proposed merger of Beth Israel Deaconess Medical Center and Lahey Health says the marriage won’t produce the kinds of savings the hospitals project nor tamp down Partners HealthCare’s stranglehold on the market.
But members of the Health Policy Commission aren’t convinced that the models its staff members used are the only likely outcome of the merger and they also expressed confidence that if the union goes through, they can recommend conditions that would create price controls and protect smaller hospitals.
“That’s one assumption,” Health Secretary Marylou Sudders said of the price increase forecasts. “We see reports that say a merger will just drive up prices. But have we looked for models that show in a merger, can you drive down prices, can you constrain prices. We don’t have a model in here that shows a merger that could constrain costs.”
Dr. Stuart Altman, chairman of the commission, said while creating a larger health entity can invariably lead to increased costs for patients as well as sucking revenues from smaller community hospitals, the commission, which does not have the power to approve or kill the merger, can use its bully pulpit to exact concessions.
The $5.3 billion Beth Israel-Lahey merger, with the new entity to be called Beth Israel Lahey Health, would create a 13-hospital network that includes 4,200 physicians. Officials at the two hospital systems claim the merger would keep costs low by expanding its geographical coverage, shift care from high-cost providers, keep some of the struggling hospitals that will be part of the new system afloat, and, most importantly, offer a competitive alternative to Partners’ dominance in the region.
But the report from commission staffers took historical data from mergers in Massachusetts and elsewhere to project potential savings and increases, with the conclusions that the latter was more likely than the former.
“Achieving care redirection consistent with the parties’ estimates could result in savings, but there is no reasonable scenario in which such savings would offset spending increases if (the health system) obtains the price increases described,” the report stated.
The report created a new pricing model called “Willingness to Pay” in which analysts broke down data to project increases. It showed price increases ranging from 5.7 percent hikes for inpatient care at the lowest level to 12.2 percent increases for outpatient care at the highest projected level. All told, the report projects medical spending at the new entity to increase by nearly $200 million, and that’s over and above the statutory 3.1 percent benchmark cost increase.
Katherine Scarborough Mills, the policy director of the commission’s market performance team, said not only are there questions regarding the cost hikes, the impact on Partners is also muddy.
“The price increases [estimates] are likely conservative,” said Mills. “Current evidence doesn’t prove they’d draw from Partners. If the parties offered lower prices, then we would see potential (for reducing Partners’ leverage).”
The impact on Partners was as much a focus of the discussion as the potential costs. Commissioner Don Berwick, a pediatrician and former gubernatorial candidate who oversaw Medicare in the Obama administration, called Partners “the elephant not in the room.”
Dr. Howard Grant, president and CEO of Lahey, said the report failed to acknowledge the unique health care situations in the Bay State, which has some of the highest health care costs in the nation.
“The cost of care in Massachusetts is way, way higher than it needs to be but it’s not going to be solved until there’s legitimate competition in the commonwealth,” said Grant, who is leaving his post to spend more time with family and will not be part of the new system. “The proposed merger provides the market with exactly what you’ve been clamoring for.”
But Norm Dechene, CEO of Wellforce which includes Tufts Medical Center and several community hospitals, said the merger does nothing to reduce Partners’ market share and instead creates two bigfoots in the field who will push the lower-paying patients on Medicare and Medicaid into community hospitals and draw patients with the higher-paying commercial insurance to the bigger systems.
“I think the merger is too big, too fast,” said Dechene. “This will create, in my opinion, a duopoly. It will exasperate not abate the conditions we have right now, the ability for other systems to compete, to attract physicians. It will increase the burden on lower-income communities.”
Some of the commissioners said the lack of specificity from Beth Israel and Lahey makes an accurate analysis of the move difficult.
“This merger could be a plus in terms of adding competition,” said Commissioner Ron Mastrogiovanni. “As a small businessman I’m looking for cost-effective options, consumers are looking for cost-effective options. But we need more information.”
Dr. Kevin Tabb, Beth Israel CEO who will hold that position in the new company, said they are not purposely withholding information but, rather, the complexity of the merger creates a lot of moving parts. But he said the merger is in the best traditions of Beth Israel, which was founded more than a century ago.
“It is time to try something new in this market and we think we can do that,” Tabb told the commission. “I’m committing to you we will be more specific in the coming days. Beth Israel was founded to meet the needs of the underserved. We can make this a win-win situation.”
The commission, which will forward its reports and recommendations to state and federal agencies including Attorney General Maura Healey who has already expressed concerns about the merger, voted to move the draft report to the next stage. The commission will accept public comment for 30 days and then there will be another 30 days before the final report is written and voted on, making it the end of September before any action is taken.
“The likeliest losers are the unfortunate hospitals” that aren’t profitable,” he said. “There are a lot of very weakened institutions that are just hanging on. We have to figure out a way to minimize the losers and in fact make the losers into winners.”