Business

Partners’ deal to acquire three hospitals rejected

The decision caps a long process that started three years ago when Partners started pursuing South Shore Hospital.

Zack Wittman for the Globe/File

The decision caps a long process that started three years ago when Partners started pursuing South Shore Hospital.

A Superior Court judge on Thursday dealt a devastating blow to Partners HealthCare’s plans to expand its dominance across Eastern Massachusetts, rejecting a controversial deal that would have allowed Partners to acquire three community hospitals and add hundreds of doctors to its network.

After months of deliberations, Suffolk Superior Court Judge Janet L. Sanders sided with opponents of the acquisitions, who argued that allowing Partners to expand more would give the health system, already the state’s largest and most expensive, the market power to further increase costs.

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It’s highly unusual for judges to reject consent judgments, and Sanders’ decision came as a surprise to many in the health care industry who had expected the settlement to be approved.

In a 48-page decision, Sanders found that the settlement negotiated by Partners and former attorney general Martha Coakley did not provide sufficient protections to keep Partners’ market power in check — and thus help control health care costs for Massachusetts consumers in the years ahead.

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She called the remedies in the settlement a temporary “Band-Aid” and the deal far too complex for the court to properly enforce. It would, Sanders said, “cement Partners’ already strong position in the health care market and give it the ability, because of this market muscle, to exact higher prices from insurers for the services its providers render.”

The ruling was a stunning setback for Partners and for Coakley, who brokered the deal with Partners after five years of investigation and several months of negotiations. Partners could still press forward with the acquisitions — but under the threat of litigation.

Coakley’s recently elected successor, Attorney General Maura Healey, said earlier this week that she would file an antitrust lawsuit to kill the deal if Sanders rejected the settlement. Healey’s declaration was seen by many as paving the way for the judge’s rejection of the deal.

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“Our office is prepared to litigate to block this transaction if Partners chooses to move forward,” Healey said in a statement Thursday. “We remain committed to tackling the challenge of controlling health care costs while also promoting quality and access.”

30partners - Judge Janet L. Sanders (Massachusetts Trial Court)

Massachusetts Trial Court

Judge Janet L. Sanders.

Partners officials said they are determining their next steps. In a note to employees, Dr. Gary Gottlieb, the chief executive, said he was disappointed with the judge’s decision.

“The judge has said ‘no’ to an agreement that we believe would have paved a pathway to delivering high-quality care closer to home for patients and their families in a lower cost community-based setting,” said Gottlieb, who is scheduled to step down in the coming months. “Our leadership team will now take the time to evaluate all of our options.”

Coakley, in an e-mail, said she is proud of the work her office did to shed light on health care costs in Massachusetts, including “the disproportionate clout of Partners.”

The settlement would have forced Partners to cap its price increases to the rate of inflation and put temporary limits on its future expansion and contracting practices.

Partners also would have had to pay for a monitor to track its progress for a decade.

“The court has made a decision, which I respect, but it also illustrates that the work must continue to try to control health care costs while continuing to provide access and quality in Massachusetts,” Coakley said. “I am confident the attorney general’s office will continue to be an important voice in this work.”

Andrea Agathoklis Murino, an attorney representing Partners’ competitors, said the course of the case was “fairly unprecedented.”

Murino said it was now up to Partners to decide whether to press ahead or abandon its expansion plans. “I’m not sure that continuing to fight this would make the most sense for their organization,” she said.

The ruling caps a process that started three years ago when Partners began pursuing a merger with the 378-bed South Shore Hospital. Partners later disclosed plans to take over Hallmark Health System, which has a 234-bed hospital in Melrose and a 134-bed hospital in Medford. Partners argued that a bigger network would allow it to deliver better care more efficiently.

Partners’ merger plans received a barrage of opposition from competitors, antitrust specialists, consumer advocates, business groups, and others. Coakley, who ran an unsuccessful campaign for governor last year, was criticized in many corners for negotiating a deal that many observers and health policy specialists said was too generous to Partners.

But in Medford, Melrose, and particularly on the South Shore, many consumers and local officials supported the acquisitions, expecting Partners’ investments to improve facilities and raise the quality of care. Both South Shore Hospital and Hallmark said they were dismayed by the judge’s decision and would explore their options. “It is disappointing that the voices of the people of our broad region, who have spoken out by the thousands in support of the vision described in this proposed merger, have been lost in the politics of this process,” Sarah Darcy, spokeswoman for South Shore Hospital, said in a statement.

Partners was created by the 1994 merger of Brigham and Women’s and Massachusetts General hospitals. Since then it has grown to include 10 hospitals, 6,000 doctors, and 60,000 employees, from Northampton to Nantucket. Partners, a nonprofit, collected $11 billion in revenue in the fiscal year that ended Sept. 30.

The judge’s ruling is a victory for a coalition of the health system’s competitors, who launched a campaign last year to thwart its expansion plan.

“This decision is one that many of us will look back on and say we did our job,” said Tufts Medical Center’s chief executive, Dr. Michael Wagner, who organized the coalition’s initial meeting.

“We brought this [settlement] out into the light of day and made sure there was an appropriate public dialogue and discussion on the expansion of Partners.”

The court ruling also shows the impact of the Health Policy Commission, a watchdog agency created in 2012 to monitor health care costs. The commission opposed Partners’ merger plans and issued reports warning the deals could raise health spending by $49 million a year.

“The agreement clearly fell short of stopping Partners from getting so big that they could pretty much control the market,” said commission chairman Stuart Altman. “It tried to slow Partners down but it didn’t stop them from growing.”

Shirley Leung contributed to this report. Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal. Robert Weisman can be reached at robert.weisman @globe.com. Follow him on Twitter @GlobeRobW.
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