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Partners’ South Shore Hospital bid draws scrutiny

South Shore Hospital in Weymouth.

South Shore Hospital/File

South Shore Hospital in Weymouth.

Federal investigators have joined Massachusetts officials in closely scrutinizing a bid by Partners HealthCare System to acquire South Shore Hospital, one of a growing number of inquiries by regulators concerned that rapid consolidation among US hospitals could drive up health costs.

Investigators from the US Department of Justice and Massachusetts Attorney General Martha Coakley’s office recently spoke with top-level staff from at least three hospital systems that compete with Partners and one health plan, said several people in the health care industry with knowledge of the inquiry.

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The government officials said they are looking into the impact that Partners’ merger with South Shore would have on competitors, the sources said. They wanted to remain anonymous because they are not authorized to speak about the review.

The chief executive of Partners, the state’s largest hospital and physician network, confirmed the existence of the inquiry­ and said it is a routine premerger review. The company recently entered the health insurance business with its purchase of Neighborhood Health Plan and is seeking to expand south of Boston. South Shore, in Weymouth, is one of the largest remaining independent hospitals in the region.

David Marx, an antitrust attorney with McDermott, Will & Emery in Chicago, said such inquiries by the Justice Department and the Federal Trade Commission have grown common across the country because of concern about the growing consolidation of hospitals in many markets and climbing health care costs.

“Health care has been a top priority of both enforcement agencies for the last four or five years,’’ he said. “There’s a concern when competing providers merge that it could enable them to raise prices.’’

Coakley’s office and the Justice Department declined to comment.

Partners’ chief executive, Dr. Gary Gottlieb, said the inquiry is a regular review triggered when Partners filed a so-called Hart-Scott-Rodino premerger notification in July with the trade commission. He said Partners staff have spoken with Justice Department reviewers in the past few months and laid out the health system’s strategy in acquiring South Shore.

Gottlieb said the goal is to improve care and save money by operating more efficiently. Partners has a longstanding clinical relationship with South Shore, including for cancer care, reproductive medicine, and training surgical residents. Gottlieb said he wants to bring the hospital into the Partners network to make it easier to invest in electronic medical records, large registries that track patients, and other technologies and medical personnel to help coordinate care.

We want to “make it clear to the DOJ that this is really about looking at new payment mechanisms and focusing on integration with the knowledge that resources will be scarce going forward,’’ he said.

Insurers and government payers are increasingly putting hospitals and doctors on budgets to provide groups of patients with all their care, from routine physicals to emergency surgery. These new payment systems make it particularly important for hospitals and doctors to provide preventive care and coordinate tests and procedures, leading Partners to redefine its network into “medical neighborhoods,” Gottlieb said.

“We’re trying to get the right care in those community hospitals, so that people don’t have to schlep in to use academic medical centers unless there is a need for [higher-level] care or unless their neighborhood is right near the medical center. That’s changed the way we look at our network.’’

Partners, for example, decided to sever a longstanding relationship with New Bedford-based Hawthorne Medical Associates, which recently affiliated with Steward Health Care System, because Partners does not own any hospitals in that region, Gottlieb said.

He said the Justice Department’s review of the South Shore proposal is separate from a 2010 investigation by the agency into Partners. In a letter sent to Partners and the state’s three largest health insurers in April of that year, investigators from the antitrust division demanded documents relating to Partners’ “contracting and other practices in health care markets in Eastern Massachusetts.’’

The investigation sought to determine whether the system’s practices violated the Sherman Antitrust Act, which bars companies from using their market power to limit trade or artificially raise prices, according to documents the Globe obtained.

Gottlieb said he does not know the status of that investigation. “We have not received any notification that the investigation is closed. I believe the process is they would give us that notice.’’

In the new inquiry, people in the health care industry said, regulators have focused on whether competitors would be hurt if Partners merges with South Shore. Investigators also are looking at how to define Partners’ geographic market — metropolitan Boston, Eastern Massachusetts, or beyond, since Partners’ Massachusetts General and Brigham and Women’s hospitals draw patients nationally and internationally.

“Any move that Partners makes has consequences in the market,’’ said one of the people.

One executive said he discussed with Justice Department officials the issue of how Partners’ contract with Blue Cross Blue Shield of Massachusetts, the state’s largest health plan, helps set expectations for other insurers and hospitals negotiating new agreements.

Marx, the Chicago lawyer, said the Justice Department and trade commission do not closely review all potential mergers by interviewing competitors and requesting additional documents, as they are doing with Partners’ effort to acquire South Shore. They do so when providers who are seeking to merge are particularly large or when a market is especially consolidated, he said.

Hospitals and doctors groups have been merging to become more efficient as payers tighten fees. Last year, US hospitals announced 90 mergers, the highest number since 1999, according to Irving Levin Associates Inc., a firm that tracks the industry.

There have been relatively few high-profile antitrust cases brought against health care systems during the past decade, and the outcomes have varied.

Neither the trade commission nor the Justice Department challenged Partners’ acquisition of Neighborhood Health Plan.

When asked whether Partners’ purchase of South Shore could potentially lead to higher prices, Gottlieb said, “We will need to demonstrate that it will, in fact, reduce costs.’’

Partners said that it has worked to reduce costs, in part by renegotiating contracts with insurers, to reduce the amount Partners would have received by $345 million over four years.

Gottlieb also pointed out that the health care cost-control law recently signed by Governor Deval Patrick “will hold us all accountable.’’ The law limits the growth in health care spending in the state to around the growth of the state economy overall.

“That puts guardrails around some of the worries,’’ Gottlieb said.

Liz Kowalczyk can be reached at kowalczyk@globe.com.
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