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Hospital mergers may drive up costs

The merger wave sweeping up Massachusetts hospitals and doctors threatens to increase health care prices and widen the payment gap between providers, according to warnings from industry leaders, health insurers, and regulators at a hearing Wednesday.

Talk of consolidation dominated the second of two days of hearings convened by the state Health Policy Commission, which monitors cost trends and seeks to rein in the medical spending that has become a drag on businesses, families, and governments.

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Massachusetts Attorney General Martha Coakley said since 2010 her office has documented a “well-intentioned but dysfunctional” health care industry where prices are based on market leverage rather than quality of care. Despite efforts to change that, she said, “market consolidation and price disparities remain concerns.”

That view was echoed by Eric Schultz, chief executive of Wellesley-based Harvard Pilgrim Health Care, the state’s second largest health plan. “When systems come together — we’ve seen it time and time again — reimbursement rates go up,” he said.

Other speakers cited additional factors that could boost the price of health care, ranging from increased use of insurance plans that don’t require referrals from primary care physicians to cuts in Medicare and Medicaid, the government insurance program for seniors and low-income residents. State Senate President Therese Murray said new rating factors mandated by the federal health care overhaul could increase premiums for 60 percent of Massachusetts small businesses.

Some leaders of lower-cost providers complained about the gap in payments between what they receive from commercial and government payers and what some big Boston teaching hospitals and rural hospitals with geographic monopolies can command.

“Government monitors but does not fix the disparities,” said Ralph de la Torre, chief executive of Steward Health Care System, a for-profit community hospital group based in Boston.

Much of the criticism at the hearing, held at the University of Massachusetts Boston, was directed against high-priced providers that weren’t named, notably Partners HealthCare System, which received nearly a third of the money state insurers spent on hospital care last year, according to a recent state analysis.

Coakley’s office is working with the US Department of Justice on the final stage of a four-year inquiry into alleged anticompetitive behavior by Partners, which runs Massachusetts General and Brigham and Women’s hospitals. Among the issues being decided is whether Partners will be allowed to acquire South Shore Hospital in Weymouth.

In an interview after her testimony, Coakley, who is seeking the Democratic nomination for governor, declined to talk about the status of the Partners investigation. “I’m confident we’ll be able to reach some decision that makes sense for Massachusetts,” she said.

Hospital consolidation did receive some support at Wednesday’s hearing. Howard Grant, chief executive of Lahey Health in Burlington, which last year absorbed Northeast Health System of Beverly, suggested bigger hospital networks could help control costs by better coordinating care and serving as counterweights to the largest systems.

“It’s necessary that we create legitimate competitors so we don’t cement in the disparities that exist today,” said Grant, who is negotiating with Beth Israel Deaconess Medical Center in Boston and Newton-based Atrius Health about a potential three-way combination.

Paul Ginsburg, president of the Center for Studying Health System Change in Washington, D.C., said there is less hospital consolidation in Eastern Massachusetts than in many other US metro areas.

But he said the Boston area is dominated by “must have” hospitals that health insurers cannot exclude from their networks without facing a backlash from customers. That gives those hospitals clout in the marketplace, Ginsburg said.

Ginsburg said an accelerating trend of hospitals acquiring doctors practices is also working to boost prices in Massachusetts and elsewhere. While acknowledging that doctors “see a scary future” on their own, he said that when they work for hospital systems it leads to more expensive care.

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.
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