Business

Partners pays a price after bid for South Shore Hospital

Partners executives spent two decades pursuing the 378-bed South Shore Hospital in Weymouth, one of the largest remaining independent hospitals in Massachusetts.

Zack Wittman for the Boston Globe

Partners HealthCare executives spent two decades pursuing the 378-bed South Shore Hospital in Weymouth (pictured), one of the largest remaining independent hospitals in Massachusetts.

Executives at other hospitals had grumbled for years about Partners HealthCare, privately calling the owner of Massachusetts General and Brigham & Women’s hospitals an “800-pound gorilla” that always seemed to get its way, often at their expense.

But it wasn’t until Partners struck a deal with Attorney General Martha Coakley in May to acquire three more hospitals that rivals finally took a public stand. Within days, leaders from four health care systems met for dinner at Tufts Medical Center, each agreeing to potentially pour hundreds of thousands of dollars into lawyers and consultants to fight the expansion.

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“We must all work together in a thoughtful, deliberative and robust fashion to have our voices heard,” wrote Tufts president Michael Wagner in his invitation to the May 22 meeting, calling the Partners expansion “potentially devastating for all of us.”

Gary Gottlieb, president and CEO of Partners HealthCare.

Pat Greenhouse/Globe Staff

Gary Gottlieb, president and CEO of Partners HealthCare.

The hospital uprising — which included Beth Israel Deaconess Medical Center, breaking rank with its fellow Harvard-affiliated teaching hospitals — helped transform a deal that once seemed almost a foregone conclusion into one of the most contentious and closely watched hospital expansion pushes in the country.

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Suffolk Superior Court Judge Janet L. Sanders, who will hold a hearing on the proposed expansion on Monday, said she’s never seen so much opposition to a negotiated agreement.

More than 170 organizations have filed comment on the case, many critical of a deal that would cement Partners’ standing as the dominant health provider in most of Eastern Massachusetts.

“People are very careful talking about Partners,” said the Rev. Burns Stanfield, pastor of Fourth Presbyterian Church in South Boston and president of the Greater Boston Interfaith Organization, one of the first public critics of the expansion. “But once they started talking, they kept talking.”

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A Globe review of the controversy was based on interviews with more than two dozen people close to the events, many speaking on condition of anonymity because they were recounting private conversations and decisions. They described how Coakley’s office and Partners leadership alike underestimated opposition to the agreement, hoping their deal would mark the end of more than four years of legal wrangling and brinkmanship. Instead, it was only the beginning.

Partners’ plan to buy South Shore Hospital in Weymouth and two hospitals north of Boston came while the state’s largest private employer already was under investigation for allegedly abusing its prestige and market power to drive up the price of health care. The grinding review had drawn in lawyers from the Justice Department, generated tens of thousands of pages in documents, and cost Partners tens of millions in legal fees.

The investigation has also put Partners’ renowned hospitals — better known for saving lives than for hard-nosed business tactics — under an uncomfortable glare.

Almost up to the moment the settlement was announced, Coakley’s attorneys were threatening to sue Partners to block the acquisitions. Rather than risk losing in court, Coakley ultimately agreed to let Partners grow, but with a host of conditions, including price caps and the appointment of a monitor to make sure the agreement is followed.

Neither side sounded a triumphal note when word of the deal leaked out in May. Coakley said the agreement would go “from documenting this problem to solving it,” while Partners called it “a really hard deal” and fended off complaints inside the 10-hospital, 6,000-doctor system that the restrictions were too onerous.

But critics, pointing to the findings of a little-known new state agency, saw an agreement full of loopholes that a company with Partners’ resources could easily get around.

The Health Policy Commission, created in 2012 to help control Massachusetts’ highest-in-the-nation health costs, found that the Partners acquisitions, if unchecked, would raise costs by nearly $50 million a year for the three largest health insurers alone. Partners disputed those projections, but they clearly registered with Judge Sanders.

“Where I have serious concerns is the impact the settlement has on Massachusetts, on the health care costs for all Massachusetts citizens,” Sanders told a crowded courtroom on Sept. 29.

Now, an agreement that figured to be a major achievement for Coakley, who investigated Partners after a Globe Spotlight series on the company’s outsized impact on health costs, is in doubt. Coakley is leaving office after losing the race for governor last week. Her successor, Attorney General-elect Maura Healey, has expressed skepticism about the deal even after Coakley renegotiated the terms this fall to add more restrictions.

And Partners chief executive Gary L. Gottlieb, who is stepping down after a sometimes rocky five-year tenure, is battling criticism that Partners was politically tone-deaf for trying to expand when it was already under investigation for, essentially, being too big and powerful.

In a Globe interview, Gottlieb stressed that he pursued the acquisitions to support a strategic plan that, over the long haul, would produce better quality care at a lower cost. The analysts who predict cost increases, he said, are using outdated information that doesn’t take account of the way Partners is changing. For instance, he said the company has already cut $300 million in costs.

Gottlieb believes Partners should win approval for the deal despite the criticism, arguing that it is not Sanders’ job to reform health care. She only needs to determine whether the deal between Coakley and Partners is fair.

“I’m hopeful that the judge will focus on the rule of law,” said Gottlieb.

Either way, Sanders’ deliberations will be closely watched, not just in Massachusetts, but nationwide, as a wave of hospital mergers sweeps the health care industry and federal regulators show an increasing willingness to block deals.

“Across the country, people are looking at this process and how it plays out,” said David Seltz, executive director of the Health Policy Commission. “Partners is one of those national brands. It is one of the biggest systems anywhere.”

The Prize

At Partners headquarters in Boston’s Prudential Tower, they called it “the prize.”

Partners executives spent two decades pursuing 378-bed South Shore Hospital in Weymouth, one of the largest remaining independent hospitals in Massachusetts. From the time Partners was formed in 1994 by the merger of Mass. General and Brigham and Women’s, executives envisioned South Shore as part of a ring of Partners-owned hospitals that would send their sickest patients to Partners’ famous downtown teaching hospitals.

To Partners executives, it was all about transforming health care, more tightly integrating the delivery of medical services so that patients got the right care in the right place, whether in Boston or closer to home. Though critics viewed the system as a steamroller, driving up prices and flattening competitors, Partners officials always said they were on a mission to build something not just bigger but better.

But South Shore played hard to get, and a bid to acquire the hospital broke down in the mid-1990s after months of negotiations. After that, South Shore executives gladly accepted Partners’ investments in their facility — notably a joint cancer care center with Brigham and Women’s — but made it clear they didn’t want the Boston medical establishment running their hospital.

So when South Shore officials indicated a few years ago that they might be open to a merger, Gottlieb had the chance to capture the prize that had eluded his predecessors.

Gottlieb, who took the top job at Partners in 2010 after a successful run as president of Brigham and Women’s, said he didn’t hesitate, noting that other large hospital systems were consolidating as well.

“We had a belief that this is the direction the market is moving,” said Gottlieb, a psychiatrist by training with an MBA from the University of Pennsylvania’s Wharton School.

The proposed acquisition, announced in June 2012, startled Partners’ rivals, most of whom were scrambling to take over other hospitals themselves, often with less success. Partners’ move came after a period in which it had followed a mantra of “better, not bigger,” rather than absorbing other hospitals in Greater Boston. Now, critics feared, Partners was entering another expansion phase.

For Gottlieb, the stakes were high, too. As chief of Partners, he struggled to balance the many competing interests both inside and out, antagonizing some doctors with his attempt to standardize clinical practices across Partners hospitals, and alienating some managers as meetings dragged on without resolutions.

The South Shore acquisition would require even greater diplomatic skill to navigate, because it came while 19 government attorneys and economists were poring over Partners records to determine if it had abused its clout to obtain higher prices for its services than competitors.

Spotlight on Partners

Coakley’s lieutenants could hardly believe it when they learned that Partners was negotiating to acquire South Shore. For years, they had been giving Eastern Massachusetts hospital executives what they called the “heavy scrutiny talk,” warning that if they tried to merge with Partners in the middle of an antitrust investigation, they would face difficult questions from Coakley.

Officials in the attorney general’s office thought they had made it clear the boss didn’t want Partners to get bigger.

But the truth was that by the spring of 2012, her investigation of Partners’ size and power had lost some of its momentum.

After a 2008 Spotlight series showing that Partners doctors and hospitals received higher pay for the same medical services — with no proven difference in quality — she had launched a review of Partners’ negotiations with insurance companies, looking for signs that Partners was illegally bullying them into favorable terms.

After more than two years, and even with the assistance of the US Department of Justice in Washington, Coakley’s office had found no evidence strong enough to take legal action against Partners.

But the proposed takeover of South Shore Hospital gave the investigators a new hook: If the acquisition happened, Partners would be treating fully half of all the hospital patients on the South Shore, almost four times more than the nearest competitor, according to an analysis by the Health Police Commission.

Attorney General Martha Coakley.

Jessica Rinaldi/Globe Staff/File

Attorney General Martha Coakley.

For antitrust lawyers, that sounded a lot like a budding monopoly, and they immediately turned their attention to whether they should attempt to block it.

When Partners formalized plans to acquire South Shore, “that’s when the conversation got more intense,” said Brent Henry, Partners’ general counsel.

When Partners negotiated a deal to acquire hospitals in Medford and Melrose-Wakefield too, in January 2014, the health care system and Coakley were on a collision course.

At the end of 2013, Coakley’s office notified Partners that it was prepared to sue to stop the South Shore acquisition, and later said she might also challenge Partners’ acquisition of the two hospitals owned by Hallmark Health. Each side insisted to the other it expected to prevail in court, but both privately recognized that the outcome of a suit was uncertain.

Thus began months of negotiations — sometimes friendly, occasionally heated — between Partners and the attorney general. While Gottlieb and Coakley each attended a few meetings, they left most of the negotiating to their deputies — Henry and chief financial officer Peter K. Markell for Partners and Deputy Attorney General Christopher Barry-Smith and antitrust division chief Will Matlack for Coakley.

Partners insisted that the bargaining resolve not only the merger-related issues, but that it also end the lingering antitrust investigation. Coakley, for her part, directed her staff to settle only if they could get a better deal for the public than if they went to court.

Throughout this period, Coakley was gearing up to run for governor, but people directly involved in the talks said Coakley’s political interests never came up. One political adviser said that the campaign staff was not even briefed on the negotiations and, if they had been, this adviser said, they probably would have urged her to keep fighting.

By early April, after dozens of meetings and proposals, the two sides were deadlocked on everything from how long Partners would have to accept price caps to whether there was a way to reduce Partners’ clout in contract negotiations with insurance companies.

Finally, Coakley served notice to Partners that she was prepared to sue within five days if no settlement were reached. That “walkaway moment,” as one participant described it, spurred the negotiations, and by early May, the settlement had taken shape.

Neither side was thrilled, but Coakley said the deal would address Partners’ prices and market conduct as well as the mergers, a “global set of remedies.” Gottlieb said that operating under the new restrictions “is going to be a challenge,” but he expressed hope the pact would allow Partners to concentrate on its mission of providing better coordinated care for patients.

None of the negotiators was prepared for the pushback.

‘We had to try to stop it’

On the day Coakley announced the settlement clearing the way for Partners to add three hospitals, the most powerful arguments against expansion had come from an agency that few took seriously when it was created in 2012.

The Health Policy Commission didn’t have the power to stop or approve anything, but it did have authority to study and review potential mergers. Led by an accomplished board that included chairman Stuart H. Altman, a prominent Brandeis professor and health care economist, its staffers made Partners’ acquisition of South Shore Hospital their first big project. That is, after they attended to more prosaic duties.

“Our first task was getting a printer,” said Lois Johnson, the commission’s general counsel, who was the third employee at the agency in January 2013.

Johnson, like policy analyst Karen Tseng, had come from Coakley’s office, where they had worked on reports about the high cost of Partners. Under the direction of Seltz, a bow-tie-wearing 33-year-old who is sometimes mistaken for an intern, they began producing sophisticated analyses of what would happen if Partners grew.

In February 2014, the commission unanimously approved a report warning that the South Shore takeover would drive up costs and reduce competition while providing little measurable improvement in quality. The report became ammunition for Coakley’s negotiators, though Partners officials challenged the findings across the board.

But almost as soon as the settlement with Partners was announced, other powerful voices began raising concerns similar to the Health Policy Commission’s.

David Spackman, who oversaw hospitals in Coakley’s office before taking a job as general counsel for Lahey Health in Burlington in 2012, organized morning conference calls with top lawyers for Partners’ competitors, planning a counteroffensive that would include business groups and independent antitrust lawyers speaking out against Partners’ expansion.

“The size and scope of the settlement was so stunning and so bad for the Commonwealth as well as for us that we had to try to stop it,” said Spackman, whose hospital would face new competition from Partners if it acquired the nearby Hallmark Health hospitals.

It was no surprise that Lahey and Tufts led the opposition to Partners, and that the feisty Lahey president, Howard Grant, was its face at public forums. But one guest at the first organizing meeting sent a more striking message: Kevin Tabb, chief executive of Beth Israel Deaconess Medical Center, a teaching hospital of Harvard Medical School just like Partners’ major hospitals.

Within the clubby world of academic medicine, Harvard Medical School institutions didn’t criticize one another publicly, but Tabb, who had come to Beth Israel from Stanford University after many years in Israel, didn’t follow the protocol. When he went public with his opposition to Partners’ expansion, it strained his relations with Mass. General president Peter L. Slavin, with whom he had socialized on a trade mission to Israel earlier this year.

Over the summer, scores of people and institutions flooded Sanders’ court with criticism of the deal, including a cluster of antitrust lawyers who urged Coakley to reconsider filing suit to stop the expansion. What had once seemed a hard-won compromise that would resolve a difficult situation for both Gottlieb and Coakley had now become a major headache — one that was no longer in their control.

The intensity of the outpouring surprised even some people who organized it. At one of the first meetings of hospital officials to oppose the expansion, one consultant told the group, “We should do our best, but remember, Partners always wins.”

It’s now unclear whether Gottlieb or Coakley will still be in office when the issue is resolved. Gottlieb last month said he will leave Partners to lead the nonprofit global health organization Partners in Health next summer. Coakley narrowly lost last Tuesday’s gubernatorial election to Charlie Baker, who, like other candidates, had criticized her settlement with Partners.

The outcome of their multiyear tangle is now in the hands of Sanders, who in the past has presided over business litigation cases that drew little attention. She can approve the settlement, reject it, or send it back to the parties for further work.

“If someone was to ask me what is going to happen, I’d say I don’t know,” said Altman, the Health Policy Commission chairman, who has not taken a position on the settlement despite his panel’s critique of the mergers. “Whatever happens, I think Massachusetts will be better off. The environment of business as usual in health care is gone.”

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Gottlieb: Partners HealthCare gets bad rap in health debate

Suffolk Superior Court Judge Janet L. Sanders, who will hold a hearing on the proposed expansion on Monday, said she’s never seen so much opposition to a negotiated agreement.

Aram Boghosian for The Boston Globe/File

Suffolk Superior Court Judge Janet L. Sanders, who will hold a hearing on the proposed expansion on Monday, said she’s never seen so much opposition to a negotiated agreement.

Andrea Estes of the Globe staff contributed to this article. Robert Weisman can be reached at robert.weisman@globe.com. Scott Allen can be reached at scott.allen@globe.com.
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