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Partners defends plan to expand

Rebutting state, says South Shore merger would save millions

Partners HealthCare, under growing pressure from regulators to abandon expansion plans, will file a forceful rebuttal Friday arguing that its proposed merger with South Shore Hospital and a related doctors’ group would save about $27 million a year in health care costs.

The largest Massachusetts hospital and physician network contends that a state commission’s preliminary report criticizing the deal as costly and anticompetitive uses flawed reasoning and contains “inexplicable omissions.’’ The commission’s analysis concluding that the merger would give Partners too much market power is absurd, the rebuttal charges.

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The Massachusetts Health Policy Commission, a new watchdog agency charged with restraining the growth of health spending, released its review of the proposed merger last month. The deadline for Partners to respond is Friday. The health care organization provided an advance copy to the Globe.

Partners and South Shore Hospital project a strikingly different financial impact than the commission, which said the acquisition of South Shore and Harbor Medical Group would boost the state’s three largest health insurers’ spending by a projected $23 million to $26 million annually. That increase, it said, would overwhelm potential savings from more efficient operations.

Partners said the commission misinterpreted its physician contracts with insurers and ignored savings from improving the coordination and quality of care for privately insured patients on the South Shore.

For example, South Shore Hospital admitted 79 patients for every 1,000 commercially insured people in its service area in 2010, considerably more than Newton-Wellesley Hospital, a similar community hospital in the Partners network. By investing more heavily in primary care and mental health services and using information technology to target patients for preventive care, Partners argues, it would reduce admissions at South Shore. Newton-Wellesley’s rate that year was 56 admissions per 1,000 people.

Stuart Altman, a professor of health policy at Brandeis University and the commission’s chairman, would not comment on the report Thursday because he had not read it.

“We have promised everyone we’d be open and fair,’’ he said. “If they make points we think are appropriate, we will make adjustments in our report. We are not anti-Partners and we are not pro-Partners.’’

The commission is scheduled to vote Feb. 19 on a final report on the merger. It is also pressing forward with a review of Partners’ plans to take over a pair of community hospitals north of Boston. The commission, created last year to help bring health cost increases in line with the state’s economic growth, will refer its report on Partners’ proposed South Shore expansion to Attorney General Martha Coakley’s office for further review, it has said.

Coakley’s office and the US Department of Justice are also examining Partners’ planned acquisition of 378-bed South Shore Hospital in Weymouth as part of a broader investigation into allegedly anticompetitive practices by the Boston-based health care system. The Health Policy Commission does not have authority to block any of the deals, but state and federal antitrust regulators could sue to prevent the acquisitions.

The commission acknowledged that Partners’ merger with South Shore has the potential to save $6.6 million by improving care for Medicare patients. The analysis is based on Partners’ success at lowering medical costs for chronically ill elderly patients through home visits and other intensive preventive services.

Partners said such measures, broadly called “population health management,” will become even more widely used as hospitals and doctors take on financial risk for the health of their patients.

But the commission said it could not project similar savings for commercially insured patients based on this program, because Medicare recipients are older and sicker, and therefore the opportunity for savings is greater.

Partners said the commission could have estimated savings for privately insured patients using other methods. For example, since 2009, Brigham and Women’s Hospital, which is part of the Partners system, has saved $83 million on inpatient care by shifting cases to less-expensive Faulkner Hospital, another Partners hospital. In response, Partners and South Shore said they plan to replicate this strategy by sending patients with less complicated cases to Shore Shore instead of to Brigham and Massachusetts General Hospital.

Partners contended the commission’s analysis of Partners’ market share on the South Shore is “incorrect and unreliable’’ because it defined South Shore Hospital’s market too narrowly, ignoring that it faces competition from four nearby hospitals, all of which have joined larger hospital networks. Partners argued the commission does not understand its insurer contracts. Health policy staff estimated the cost of physician services would increase if the merger goes through, in part because South Shore doctors would end up getting paid higher fees Partners has negotiated with insurers.

But Partners said it cannot automatically charge higher teaching hospital rates for these new doctors because the contracts include caps on the number of physicians that can be paid the more generous fees. A spokeswoman for Blue Cross Blue Shield of Massachusetts said the insurer could not comment in detail Thursday night, but agreed that Partners could not unilaterally bring Harbor Medical doctors into its contracts. In other words, the fees would have to be negotiated.

The commission said this is exactly the problem. “Like all contract terms, growth caps are negotiated, and thus subject to the exercise of bargaining leverage,’’ it said. “As contracts are renegotiated, growth caps can increase.”

Partners and South Shore pointed out that community leaders on the South Shore overwhelmingly support the merger, and the rebuttal included letters from Mayor Susan Kay of Weymouth, state Representative Garrett Bradley of Hingham, and several patients.

Nancy Kane, a professor at Harvard School of Public Health, said “there are a lot of unknowns,’’ but that research has shown that, in the long run, market consolidation causes “prices to go up and it’s not measurably better quality. Often community hospitals get more expensive.’’

The savings Partners and South Shore are projecting from improving the coordination and quality of care are possible, but unproven, Kane said.

“It’s great if they can do it . . . but the evidence is not there yet. The whole industry is struggling to achieve that.’’

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