Coakley-Partners deal

The attorney general says agreement will disrupt the status quo; others skeptical

Attorney General Martha Coakley approved a deal on Monday that allows Partners HealthCare to complete its acquisition of South Shore Hospital in Weymouth and two affiliated physician practices as long as it limits future price increases across its entire network to the rate of general inflation and agrees not to expand its hospital network for the next five to seven years.

Coakley, in announcing the agreement in principle, said blocking the South Shore acquisition, which was the recommendation of the state’s Health Policy Commission, would have only maintained the status quo in the health care marketplace. She said her deal, by contrast, has the potential to reduce the negotiating power of Partners for the next 10 years and establish a more level playing field for its competitors.

“Given the options, we got a very strong agreement,” Coakley said at a press conference in her office. She refused to say whether she would have preferred to break up Partners into smaller pieces, an approach some health care analysts have supported.

Gary Gottlieb, the president and CEO of Partners, sent a note to employees on Monday in which he sounded relatively pleased with the outcome of the negotiations. “The challenges we will face with these conditions are not new to our organization,” he wrote. “We will need to find more savings and efficiencies… It has been clear that going forward we will need to operate within a tighter budget envelope. Society and the marketplace are calling on us to do so. This means that there will be tradeoffs and decisions to make and we will need to manage them, carefully and thoughtfully.”

Coakley, a Democratic candidate for governor, has long been critical of Partners for using its size and power in the marketplace to drive up prices and enrich its coffers. “It’s a Goliath in a market that has used its dominance to drive up costs,” she said at the press conference. “With this agreement, we move from documenting the problem to solving it.”

The deal places restrictions on the way Partners can operate over the next 10 years but does not impose any long-term, radical changes on its operations. Partners is known not only for the quality of care it offers at its world-renowned teaching hospitals in Boston but also for its political clout. The $9 billion health care nonprofit is the biggest lobbyist on Beacon Hill and its employees are typically a major source of donations for political candidates. One of Coakley’s Democratic rivals, Steve Grossman, was asked earlier this year where he stood on the Partners-South Shore merger and he spent several minutes talking without ever answering the question.

Partners needed regulatory approval to acquire South Shore Hospital and two affiliated physician practices. The Health Policy Commission in February recommended against the merger, saying it would actually drive up costs by $23 to $26 million a year. The commission kicked the issue over to Coakley, who spent several months negotiating with Partners. Some terms of a tentative agreement were leaked to the Boston Globe late Friday, so Coakley obtained a signed agreement in principle Monday morning. That agreement must still be approved in court, which could take a month or longer.

As part of the deal, Partners agreed to limit price increases over the next 6.5 years for all of its contracts with commercial insurers to the rate of general inflation, which has been running 1 to 2 percent. Increases of that magnitude would be below the current 3.6 percent benchmark being used by the Health Policy Commission. Gottlieb, in his letter, said the increase in total medical expenses for Partners HMO contracts would be no greater than the Health Policy Commission’s growth cap.

The deal also limits price increases at South Shore Hospital specifically to the rate of general inflation. “This separate price restriction will help directly address the cost concerns raised by the referral from the Health Policy Commission,” Coakley said in a statement outlining the deal. But, in their referral, members of the Health Policy Commission said they wanted to see evidence that health care spending would fall if they approved the acquisition.

Aside from the South Shore Hospital acquisition and two other deals already in the works with Hallmark hospitals in Wakefield and Medford and Emerson Hospital in Concord, the Coakley-Partners agreement bars any further hospital acquisitions by Partners in eastern Massachusetts, without the attorney general’s approval, for seven years.

Coakley said the agreement also bars Partners for the next three years from growing its physician network beyond what it was in 2012, although the company would be allowed to expand that network by 2 percent in years four and five. The agreement also prohibits the company from contracting on behalf of “non-owned physician group affiliates” for the next 10 years.

Gottlieb, the Partners CEO, said the provision dealing with physician practices would let Partners add up to 550 doctors outside of metro Boston over the next three years and add an additional 40 in years four and five. Health care networks have been gobbling up physician practices at a rapid pace as they seek to expand access to patients and prepare for an environment in which health care payments are capped.

Finally, the agreement breaks Partners into four component parts that will each negotiate separately with insurers on rates. The four parts are academic medical centers, community hospitals and physicians, South Shore Hospital, and Hallmark Health Systems. Aides to Coakley said the provision would prevent Partners from leveraging the prestige of Massachusetts General and Brigham and Women’s hospitals to secure higher rates for the rest of its health care network.

Coakley’s approach won support from some health care analysts and some of her political rivals, but others said it may be unreasonable to expect competition to lead to lower health care prices if there are fewer competitors in the marketplace.

“Monopolistic deals like this are a huge part of what makes health care so expensive in Massachusetts,” said Evan Falchuk, an independent candidate for governor. “Partners has already amassed enormous market power, which has translated into spiraling health care premiums for everyone. This deal does nothing to change that, and in fact allows Partners to close on a massive acquisition that will further strengthen its market dominance. This practice started when Republican Gov. Bill Weld (alongside his then HHS Secretary Charlie Baker) deregulated the hospital market in the 1990s, and it continues to this day under Democrats.”

Jeff McCormick, another independent running for governor, said he welcomed the attorney general’s focus on reducing health care costs, but he said it wasn’t clear to him how allowing Partners to vertically integrate its operations will yield long-term benefits. “When larger companies get bigger and stronger, I don’t know how that promotes greater competition,” he said. He also wondered what happens once the term of the attorney general’s deal expires and when a new attorney general takes office.

Alan Sager, a professor of health policy and management at Boston University, who has long raised concerns about health care consolidation in Massachusetts, called the Coakley-Partners deal “gravely defective. It leaves us with business as usual in Massachusetts health care – that is, with a failure to advance toward a more competitive market, and a failure to take competent government action.”

Baker, a Republican candidate for governor, called the agreement a good start. “But to truly reduce the cost of health care going forward and improve quality, Massachusetts must insist on full price transparency from all providers for all services from all payers. We needed it 10 years ago and we certainly need it now,” he said in a statement.

Stuart Altman, the chair of the Health Policy Commission, didn’t take a stand specifically on Coakley’s agreement with Partners but said he was pleased the attorney general was addressing concerns the commission raised.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Grossman, the current state treasurer and one of Coakley’s Democratic rivals for goveror, said he favored resolving disputes through negotiation rather than lawsuits. In a statement, he said he would support the agreement as long as it addresses the issues raised by the Health Policy Commission.

“This deal apparently represents a common-sense solution that will continue to deliver quality care to residents of the South Shore as well as control health care costs for consumers and employers,” he said.