Can we make the (bad) BI-Lahey merger work?

If conditions are the way to go, here are my suggestions

THE RIVETING FORD-KAVANAUGH hearing before the US Senate Judiciary Committee garnered most of the public’s attention last Thursday, but a separate gathering of the Massachusetts Health Policy Commission raised important issues that could dramatically affect the local health care market.

In response to the 80-page rebuttal by the merging parties to the Health Policy Commission’s preliminary report, the agency’s staff noted additional potential savings from some care redesign efforts. Other than that, the rebuttal was almost totally disregarded as either incorrect or unresponsive to key issues. The commission affirmed findings from its July preliminary analysis, slightly reducing the predicted growth in commercially insured health care spending from the previous top range of $250 million to $230 million.

As noted in my July CommonWealth article after release of the commission’s preliminary report, the $230 million annual commercial spending increase, which will contribute to insurance premium growth, is astounding. It’s more than four times greater than what was projected if Partners had been allowed to buy South Shore and Hallmark Hospitals.

As the HPC staff and chairman Stuart Altman emphasized at Thursday’s meeting, the $230 million could be conservative. While the analysis predicts that the newly merged system would likely be able to close 30 to 40 percent of the gap between current prices and those of Partners HealthCare, it also notes that if Beth Israel-Lahey, through its contract negotiations, can raise prices even more so as to close the gap by 75 percent,  it would make the annual increase closer to $400 million.

Usually it would be a no-brainer for regulators—the attorney general and/or the Department of Public Health—to stop the transaction outright after receiving such a report. Apparently, these are not “normal circumstances,” or, as Altman noted both in July and this past Thursday, “Massachusetts is special.”

Massachusetts is so special, in fact, that for 25 years we have permitted the market dominance and exorbitant pricing of Partners Healthcare. No attorney general has been willing to seek the breakup of Partners; nor has the Legislature been willing to enact any law to check Partners’ pricing power. Instead, we look the other way or just hope for some magical, market solution.

The Beth Israel-Lahey parties argue—with apparent concurrence from HPC commissioners— that since government won’t stop Partners’ market dominance, we should create a second Partners. They claim the new system will be a “true” competitor that will take business away from Partners, creating a more competitive market yielding less spending for consumers and businesses.

But as commissioner John Christian Kryder noted Thursday, the Beth Israel-Lahey merger is not an innovative, market-disrupting proposal, containing new ideas and savings tied to care delivery or payment. It’s really much closer to a me-too approach, grounded primarily with the aim of increasing the merging parties’ revenue flows, yet accompanied by a public policy experiment that tests whether Beth Israel-Lahey’s creation can somehow reduce the growth in commercial health care spending in our state.

Clearly, the most prudent course, based on the magnitude of the spending burden that HPC predicts, would be to reject the transaction outright. After all, as commissioner Don Berwick noted, the proposed transaction in its current form “is not in the public’s interest.”

But at Thursday’s meeting, commissioners agreed – even Berwick – that the gamble is worth a try. Most commissioners commented on the need to create “conditions” tied to an approval to be written and overseen by both the attorney general and/or Department of Public Health. Health & Human Services Secretary Marylou Sudders’ Thursday comments, combined with news reports that the AG’s office is already in discussion with the parties, indicate government regulators have decided to try to go down the “conditions road” in order to address this proposed merger’s projected harms.

Given that background, here is my take on what those conditions need to address.

Scope and content: Sudders suggested five areas that should be addressed by conditions to protect state residents from the problems outlined by the Health Policy Commission. She proposed that conditions should address access to care, payer mix, behavioral health, cost control, and situs-of-care delivery issues.

Regarding access to care and payer mix, she may be contemplating a check on Beth Israel-Lahey hiring physicians away from safety net hospitals, community health centers, and other practices that could lead to their destabilization; sharing some of the system’s newly gained revenue flow with current Beth Israel contracting affiliates Lawrence General and Cambridge Health Alliance so the latter can carry out their medical and public health missions; monitoring the impact of the merger on other community hospitals; and making Beth Israel-Lahey hospitals and owned/affiliated practices more welcoming to Medicaid enrollees, the uninsured, and other vulnerable populations.

Regarding behavioral health, the public might benefit if a condition required the merged hospital system to invest in mental health and addiction services, which are often under-funded because they lose money.

Cost control is mostly about restraining commercial price and spending growth and making sure that care is provided in cost effective and efficient settings. Conditions should be tied to mitigating price increases, and limiting total medical expenditures.  This is a crucial area for the conditions to work if harms to consumers are to be avoided.

Finally, Sudders suggested that state regulators could revoke a prior-approved determination of need award if Beth Israel-Lahey failed to comply with the requirements of that approval. I thought this was a groundbreaking proposal, but rather than leaving this threat lurking in the background it would make sense to write a formal condition expressly making this a reality.

Duration of the conditions: Former attorney general Martha Coakley proposed 10 years for some provisions that were part of a proposed agreement with Partners in 2014. So why not here?

Condition creation, oversight, and monitoring of the agreement: The AG and DPH should both have roles in creating and overseeing the conditions, possibly with help from the Health Policy Commission, the Center for Health Information and Analysis, and representatives from businesses, unions, health plans, and consumer groups.

I would worry greatly if DPH was left alone to write and monitor conditions for this transaction. The agency’s track record to date is poor in this arena. Its 2016 effort to place conditions on Boston Children’s Hospital’s $1 billion  expansion project clumsily and ineffectively tried to limit potential spending and market-destabilizing harms that HPC projected for the expansion project.  And in August, DPH decided not to enforce a reporting requirement it added to its approval that would provide necessary information on whether Children’s growth in accepting out-of-state patients is on track to justify its opening of new hospital beds when construction is completed.

It is fair to argue that the conditions should not be so heavy-handed that they impede Beth Israel Lahey’s efforts to effectively compete against Partners. Nevertheless, the greater worry here is, as commission member David Cutler noted, the need to assure that creation of Beth Israel-Lahey will not be “terrible for the Commonwealth.”

Meet the Author

It is this latter worry that needs to be at the forefront of policymakers’ thinking.

Paul A. Hattis is an associate professor at Tufts University Medical School and a former member of the Health Policy Commission.