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3-hospital takeover by Partners OK’d

Settlement includes limits on expansion, prices; some doubt it will rein in a giant

Attorney General Martha Coakley said she had been prepared to sue Partners.

Jonathan Wiggs/Globe Staff

Attorney General Martha Coakley said she had been prepared to sue Partners.

A court-appointed monitor will closely watch Partners HealthCare System’s actions for the next decade as part of a settlement announced Monday between Attorney General Martha Coakley and the state’s largest health care company.

The preliminary agreement resolves a three-year investigation into allegedly anticompetitive behavior by Partners, over which Coakley made clear she was prepared to sue the organization. It allows Partners to complete its long-planned acquisition of three community hospitals in Eastern Massachusetts, in return for accepting limits on expansion and prices for the next five to 10 years.

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Coakley told reporters that although Partners is world-renowned for its quality medical care, its high prices have burdened families and businesses, drained taxpayers, and hurt community hospitals.

“I determined at the beginning of this process that the Partners transactions could only proceed if we obtained a global set of remedies to address the Partners problem,’’ she said, referring to the company’s alleged use of its market power and brand name to charge more than many of its competitors.

The agreement, Coakley said, moves her office “from documenting this problem to solving it.’’

Dr. Gary Gottlieb, Partners’ chief executive, said that operating under the new restrictions “is going to be a challenge for us.” But he said the agreement will allow the organization to better coordinate care for patients between doctors’ offices, community hospitals, and academic medical centers, through shared electronic medical records and other investments in the new Partners hospitals:

South Shore, in Weymouth; Hallmark Health System’s Lawrence Memorial, in Medford; and Melrose-Wakefield.

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Health care analysts, however, offered mixed reviews about the long-term impact of the deal on Partners’ ability to dominate the health care market and whether it would help bring its prices more in line with those of other hospitals.

The agreement, for example, allows insurers to split Partners into four separate contracting entities — academic medical centers, community hospitals, South Shore Hospital, and Hallmark Health — for up to 10 years, in an effort to reduce Partners’ market clout, which it has used to require insurers to contract with all of its entities, according to the attorney general’s staff.

Insurers have always been allowed to ask to negotiate separately, but now Partners will have to agree to those requests, the attorney general’s office said. It is unclear, however, whether health plans will make such requests at a time when the health care system is moving toward integrated networks.

Insurers refused to comment on the details of the settlement yesterday.

Nancy Turnbull, associate dean at the Harvard School of Public Health, said the agreement “permits Partners to take over three more hospitals, which will increase its market power in new geographic areas, regardless of whether the hospitals have to contract separately or not.’’

The settlement also limits Partners’ price increases to general inflation, which has been averaging 1 to 2 percent, for 6½ years. South Shore Hospital’s individual prices will also be frozen at this rate.

Over the past decade, Partners has “routinely negotiated price increases of 4 to 5 percent, and sometimes up to 10 percent,’’ Coakley said. “This rate cap places a low ceiling on the largest driver of health care costs in Massachusetts.’’

But the organization can increase its overall revenue, including money earned from providing a greater number of medical services, up to the statewide cap of about 3.6 percent. The state’s 2012 health care cost-control law limits all providers to this ceiling.

“If you think about who is getting higher or lower payment rates, it’s not clear to me how limiting them to inflation addresses the disparities,’’ said Nancy Kane, a professor at the Harvard School of Public Health. “How will everyone catch up?’’

Turnbull and Kane said, however, that Coakley is limited in the actions she can take to control Partners’ growth. Suing the company over the South Shore merger and “blocking that one transaction doesn’t change the status quo that much,’’ Kane said.

Coakley acknowledged publicly for the first time Monday that the investigation into Partners was jointly conducted by her office and the US Department of Justice.

The federal agency would not comment, but the attorney general’s office said the Justice Department would determine the status of its investigation when Coakley files a complaint against Partners — along with the settlement agreement — in either state or federal court.

The agreement must be finalized by June 16 and then approved by the court.

The state Health Policy Commission in February approved a report warning that Partners’ proposed takeover of South Shore, one of the largest remaining independent hospitals in the state, could drive up costs and hurt competition.

It was left up to the attorney general to decide whether to let the deal go through.

Stuart Altman, a professor of health policy at Brandeis University and the commission’s chairman, said that he is “very pleased’’ with the agreement.

“It doesn’t do everything, but it sets in motion the potential to really improve the marketplace in Massachusetts,’’ he said.

The agreement prohibits Partners from acquiring any more hospitals in Eastern Massachusetts for seven years without approval from Coakley’s office.

Emerson Hospital in Concord is excluded from this provision because it already has a close relationship, which includes joint contracting, with Partners.

The deal also limits growth of Partners’ community physicians network, which has shrunk in recent years amid the government investigations.

Gottlieb told employees in an e-mail that the organization can restore the network to its 2012 size, adding up to 550 doctors in the next three years. Partners also will stop joint contracting for a small number of doctors — about 200 — that it does not employ and whose practices it does not own.

The court-appointed monitor will report to the attorney general’s office and be paid for by Partners.

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

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