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State Commission Refers Hospital Mega-merger to AG

September 28, 2018

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By Michael P. Norton

STATE HOUSE NEWS SERVICE

BOSTON -- An apprehensive Health Policy Commission voted unanimously Thursday to refer the Beth Israel Lahey Health mega-merger to Attorney General Maura Healey and Public Health Commissioner Monica Bharel for further review, with commission members hoping enforceable “guardrails” can be put in place to mitigate their concerns that the deal will threaten access to care and push health care costs $250 million higher.

The merger, announced in July 2017 and under government review since then, could lead to significant increases in health care spending and would create a hospital and health care network rivaling the market share of Partners HealthCare System, according to the final report of a state commission set up in 2012 by state government leaders frustrated with unaffordable increases in health care costs.

The report arrives two months after the collapse of Beacon Hill talks on a bill aimed at stabilizing struggling community hospitals and as the commission analyzes the impacts of Question 1, a ballot initiative that would require hospitals to comply with new nurse staffing mandates.

The Beth Israel Lahey Health transaction would give the new system enhanced bargaining leverage with commercial insurers, enabling it to increase prices by $128.4 million to $170.8 million a year for inpatient, outpatient, and adult primary care services, the commission concluded in its 239-page report.

In addition to cost increases associated with bargaining leverage, spending for specialty physician services could rise by $29.8 million to $59.7 million annually, beyond the increases the parties would have otherwise received, the commission reported, calling its cost escalation estimates conservative.

The deal involves, among other care providers, CareGroup’s Beth Israel Deaconess Medical Center, New England Baptist Hospital, and Mount Auburn Hospital in Cambridge; Lahey Health System’s Beverly Hospital, Addison Gilbert Hospital in Gloucester, BayRidge Hospital in Lynn and Winchester Hospital; and Seacoast’s Anna Jacques Hospital in Newburyport.

“We have not received a picture that shows us the Commonwealth as a whole will benefit from this merger,” said commission member Don Berwick, a candidate for governor in 2014 and administrator of the federal Centers for Medicare & Medicaid Services during the Obama administration.

Megan Wulff, the commission’s deputy director of policy for market performance, cast doubt on the petitioner’s claims that benefits from the transaction will flow due to increased competition.

“The parties to the proposed transaction are already providers in Massachusetts,” Wulff said. “This is a consolidation of existing competitors and research has shown that consolidation generally decreases competition and increases prices. The parties focus on the impact of the transaction on Partners but do not address the potential for a destabilizing impact on small providers.”

After the meeting, Beth Israel Deaconess Medical Center CEO Kevin Tabb, who would be CEO of the new system, told the News Service that none of the many concerns raised by commission members disappointed him and he described the meeting as another step in a process where he believes all “rational and fair concerns” will ultimately be addressed.

A Healey spokeswoman said discussions are already occurring with Beth Israel Lahey Health. “We appreciate the work of the HPC and their referral to our office to consider ways to improve the proposed merger to benefit the public,” Healey spokesperson Margaret Quackenbush said. “We share their concerns and are currently engaged in ongoing discussions with BI-Lahey representatives on enforceable conditions to address cost and access concerns, particularly for low-income communities and communities of color. We will carefully review the final report, including the HPC’s referral and recommendations.”

Wonderful or Terrible

Commission member David Cutler, a health economics expert and Harvard University professor, said the range of possible outcomes from the merger is great.

“This is the most difficult case we have ever had,” he said. The merger could turn out “absolutely wonderful” by stirring competition and lowering costs, he said, or it could be “terrible for the Commonwealth” and lead to two large high-priced systems that force all other care providers to struggle even more.

Several commission members, including state Health and Human Services Secretary Marylou Sudders, expressed disappointment that the merger proponents had not adequately responded to concerns about the merger’s impact on care or costs. The cost concerns were directly addressed in the final report.

“To date, the parties have not committed to constraining future price increases, despite the fact that their own financial projections indicate that they expect internal efficiencies and new revenue that would allow BILH to invest in its proposed care delivery programs and enable BILH to be profitable without significant price increases,” the report said.

Plans by the merger architects to shift care to Beth Israel Lahey Health (BILH) from other care providers and to lower-cost settings within the BILH system would reduce costs and proposed care delivery programs may result in savings, the commission concluded, but “there is no reasonable scenario in which such savings would offset spending increases if BILH obtains the projected price increases.”

The commission concluded the merger offers “the potential for quality improvement” but said those behind the transaction have not identified baseline data or transaction-specific quality improvement goals.

Sudders, whose secretariat oversees the Department of Public Health, said she would ask Commissioner Bharel to revisit a conditional merger-related approval granted in April and make modifications based on the commission’s report. She said the Public Health Council would take up the matter on Oct. 10 and that access to care, payer mix, behavioral health service and cost controls are among the areas to which public health staff may consider modifications.

Tools available to state public health regulators include extending conditions beyond five years, Sudders said, and predicating consideration of any Beth Israel-Lahey system expansions on complying with a pending “determination of need” approval, which itself could be revoked if officials are dissatisfied.

“The Old Playbook”

Before voting to issue its final report and refer the matter to Healey and Bharel, HPC commissioners aired their thoughts about the transaction.

“The breadth and scope of this merger was unlike anything that I think this commission had seen in its history,” said Commissioner Martin Cohen, president of the MetroWest Health Foundation. Cohen said he’s concerned about community hospitals and doesn’t believe mergers should be the only way to keep them viable.

Officials need a new approach to address the merger, said commission member Dr. John Christian Kryder, an executive partner at the Boston-based health care technology investment group Flare Capital, who said the transaction is based on the “old playbook.”

“It is a playbook to get bigger and to gain leverage in order to obtain higher prices from insurers,” Kryder said, contrasting that alleged approach with efforts in other part of the country to pursue “narrow networks” and secure lower prices and premiums in order to attract employers and consumers.

Ron Mastrogiovanni, a commission member who is also president and CEO of HealthView Services, said he thinks the merger can be positive, but said, “We can’t do this as it has been historically in the country. We really need to find a way to manage this so that it truly does become more competitive.”

Earlier this year, the Make Healthcare Affordable Coalition, a group opposed to what it calls the “13-hospital mega-merger,” called the Department of Public Health’s advancement of the merger irresponsible. On Thursday, coalition spokeswoman Hanoi Reyes told the News Service after the commission meeting that she hopes the merger is stopped, called on Healey to “stand up for communities of color,” and said the commission report “confirms our worst fears.”

After the deal was referred to Healey’s office, Marlishia Aho, communications director of 1199SEIU United Healthcare Workers East, said the union’s 60,000 workers “remain deeply concerned that this merger, if approved without additional conditions, will increase healthcare spending, reinforce patterns of segregated care and make it more difficult for patients from diverse socioeconomic and racial backgrounds to access quality and affordable care.”

Massachusetts Association of Health Plans President Lora Pellegrini called the commission’s report “thorough” and said insurers look forward to working with Healey’s office and the Department of Public Health as they review the final report.

“It is imperative that any merger approved in our marketplace enhance the quality of care for patients and not increase health care costs for employers and consumers,” she said in a statement.

Commission Chairman Stuart Altman said that while he was disappointed by responses from the petitioners to concerns about the merger’s impact raised in the commission’s preliminary cost impact report in July. Still, Altman said he believes “meaningful and enforceable restrictions” can be achieved through collaboration between Healey, Sudders, the commission and the Public Health Council.

“We were and still are looking for a win-win,” Altman said. “I know the attorney general and her staff will do the right things.”

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