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Part 2

Fueled by profits, a healthcare giant takes aim at suburbs

Partners HealthCare’s push has community hospitals running scared, and crying foul

This story was reported by Globe Spotlight Team members Scott Allen, Marcella Bombardieri, Michael Rezendes, and editor Thomas Farragher, as well as Liz Kowalczyk and Jeffrey Krasner of the Globe staff. It was written by Farragher and Kowalczyk, and was originally published on Dec. 21, 2008.

It was a gala affair with fancy finger food, festive balloons, and 150 guests mingling beneath a tent on a construction site where heavy machines had already begun to carve the earth.

When Partners HealthCare Inc. broke ground on its enormous $144 million outpatient center in Danvers in September 2007, guests were invited to sign a steel I-beam that would help form the clinic's sturdy frame. Company officials talked about transforming medical care on the North Shore. There was warm applause and congratulations.

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But just five miles down the road, the event was greeted with consternation. More than that, with fear.

Beverly Hospital officials were just weeks from cutting the ribbon on an outpatient clinic of their own - a sparkling $30 million medical-surgery center - and worrying about their ability to compete against the deep pockets of Partners. They also felt sure they were being punished for an earlier collision of interests that angered the giant.

As Dr. Henry A. Frissora, a surgeon at Beverly Hospital, would later say about Partners' expansion into the suburbs: "It seems like they want the whole pie now."

Indeed, since Massachusetts General Hospital and Brigham and Women's Hospital joined forces to create Partners in 1993, the company has opened outposts across a wide swath of eastern Massachusetts - community hospitals, outpatient centers, and physician groups that have strengthened its dominant position in the region.

While overnight stays at hospitals in and around Boston grew just 3 percent in the decade that ended in 2006, discharges at Partners hospitals jumped 19 percent. Partners' outpatient business, including lucrative imaging procedures, has increased more than 15 percent in the last five years.

It is an unapologetic battle for suburban market share. But is it a fair fight? Not really, a Spotlight investigation shows.

Partners, as the Globe reported last month, receives markedly higher payments from insurers for patient treatment; it can offer doctors much higher pay than competing community institutions; and it comes to market with a multibillion dollar war chest - the proceeds of those higher insurance rates - to go with its coveted brand name.

To the north, west, and south of Boston, the playing field is tilted. Other big hospital companies are reaching into the suburbs, too. But nothing to match Partners, which increasingly has the look of an unstoppable force.

In the shadow of Gillette Stadium in Foxborough, the healthcare giant is putting the finishing touches on a handsome $43 million, 75,000-square-foot outpatient clinic where its physicians will repair knees and perform day surgery, sending shivers down the spines of nurses and doctors at nearby Caritas Norwood Hospital, which already is nearly $4 million in debt and poised to lose even more.

In Weymouth, Partners is part of a joint venture that is building a cancer center to compete with a similar facility two miles away that opened only last year. MetroWest Medical Center in Framingham is trying to revive its cancer center after the center's director left to work at a rival Partners facility down the street, taking staff and most of the patients with him. And then, of course, there is the major venture in Danvers that has Beverly Hospital on the defensive.

It's all part of an ambitious strategy, one driven by Partners executives' belief that the Bay State hospital business has come down to the survival of the fittest. Who will reap the profits - or surpluses, as they are called in the world of nonprofits - needed to thrive and grow?

"What that does is it puts pressure on every hospital to try to manage for surplus," said Jack Connors, the longtime Partners board chairman.

But for community hospitals that historically have been the backbone of Massachusetts healthcare, it's not that simple. At least 20 hospitals in Massachusetts closed in the 1990s, and for others, there are warning signs of trouble ahead.

Two dozen hospitals are awash in red ink, hamstrung, they say, by reimbursement rates much lower than what Partners commands and by the defection of their own physicians, who are taking high-profit services, like digital imaging, from hospital suites and into their private exam rooms. And the prospect of Partners bringing its expensive brand of downtown medicine into their territory frightens them further.

Why should patients care about the survival of such community institutions? For the majority of medical work, they perform just as well as downtown teaching hospitals and do so much more cheaply.

"Their concern is legitimate and genuine," said Charles Baker, president of Harvard Pilgrim Health Care, the state's second-largest health insurer. "If we keep replacing low-cost community capacity with higher-cost downtown Boston capacity, it's going to be hard to make the math work in a way that's affordable."

During the past decade, Partners has massively outspent other hospitals on inpatient expansion projects - $1.1 billion for new buildings at the Brigham and Mass. General.

And its outpatient expansion, including lucrative imaging work, is also paying big dividends.

- Over the 11 years that ended in 2007, Partners' revenue from certain outpatient procedures jumped 324 percent, to $1.7 billion, an increase partly due to the acquisition of several suburban hospitals. That compares to a 163 percent rise statewide, according to the state Division of Health Care Finance and Policy, which collects the data from hospitals. Partners now gets nearly one of every five dollars spent on outpatient care statewide.

- According to Partners' own data produced for bond holders, the network's outpatient business is flourishing. From 2003 to 2007, routine office visits, procedures such as cardiac catheterization, scans, and treatments such as chemotherapy have grown to 4.3 million visits, procedures, and treatments.

- Partners opened the $219 million Yawkey Center in 2004 at Mass. General, the largest outpatient clinic in New England. Once a limited presence outside Boston, Partners' outpatient network is now paid four times as much as the number-two system, Beth Israel Deaconess Medical Center, state data show.

"Inpatient used to be the ball game," Connors said. "Outpatient is now the ball game."

While Partners officials say the rates they charge at their new satellite facilities outside Boston will be subject to negotiations with health insurance firms, Baker said that when Partners moves out to the suburbs, he expects that it will bring its higher rates with it.

At the community hospitals Partners owns, that already is happening. Blue Cross pays Newton-Wellesley, North Shore, and Faulkner hospitals, on average, 14 percent more than it pays other eastern Massachusetts community hospitals, according to private insurance data obtained by the Globe.

"I think it's reasonable to assume that Partners will expect MGH rates in Danvers," Baker said. "There's no reason not to assume that."

Baker's firm is now negotiating a multiyear contract with Partners. He and other health insurers have been criticized by some economists who say the high rates they pay Partners have overcompensated the hospital system, enabling its expensive expansion.

Private insurance data shows that the Partners flagship hospitals, Children's Hospital, and a few others are, on average, paid about 15 percent to 60 percent more than their rivals.

"By paying Partners more, you build up their war chest and then they build more and more and then they drive other people out of business," said Marc Roberts, a professor of political economy at the Harvard School of Public Health. "This is a huge slow-motion train wreck for the Massachusetts healthcare system."

But Connors, arguing that there's plenty of work for everyone, says Partners is putting nobody out of business.

And in all the hand-wringing about market power and unequal reimbursement rates, he sees something else at work.

"In Norwood, we're the bogeyman of the season because we're going to Foxborough," he said. "In Beverly, we're the bogeyman of the season because we're going to Danvers. In Boston, we've been the bogeyman ... because we're larger and we have more resources.

"I frankly think that some of it is jealousy. Maybe that's not fair, but that's how I read it."

Medical arms race

As the New England Patriots wage football battle on the artificial turf of Gillette Stadium, a fleet of ambulances idles on a strip of asphalt beyond the south end zone. About 10 times each game, they race up Route 1, past a gantlet of auto outlets, and arrive moments later at Caritas Norwood Hospital.

Waiting to receive the sick or injured fans is Kathleen Merrigan's emergency room. Staffing is beefed up on game days, and Merrigan, the ER's nurse manager, is proud of her staff's work to treat Foxborough's walking wounded.

So earlier this year, during an otherwise sleepy local Chamber of Commerce presentation, she was startled to learn that the Patriots' plan for a $350 million commercial and retail complex at the stadium included a 75,000-square-foot Partners outpatient center for orthopedic and sports medicine, with space for services like cardiology, dermatology, and plastic surgery.

"Actually, I had to control myself," said Merrigan, a 12-year veteran of Caritas Norwood. "I would have loved to have gone up to this person and said just very politely and respectfully, `Did you ever consider what effect this is going to have on my little hospital that's down the street?"'

Dr. John B. Chessare, the former interim chief executive of Caritas Christi Health Care, said he was so upset at the prospect of Partners bulldozers revving on Norwood's doorstep that he tried to negotiate a truce. After all, he said, Norwood, like any general hospital, depends on profitable businesses such as orthopedic surgery to help pay for less lucrative but necessary services.

Dr. Gary Gottlieb, president of the Brigham, had been quoted in a Globe story about Patriot Place, saying that Partners "would love to work collaboratively with the community hospitals."

So Chessare said he picked up the phone last year and decided to test Gottlieb's collaborative spirit.

"I said: `You can't do this. We already have threats. Let's try to do something together,"' recalled Chessare, who at the time also served as the Norwood hospital's president. He said he suggested putting the logos of both hospitals on the building.

"Is there a way we can get a piece of this?" Chessare said he asked Gottlieb.

Gottlieb and Chessare met once, and then left details to subordinates - talks that never gained traction, Gottlieb said, because Norwood never came to the table with a sufficiently specific plan.

During an interview earlier this year at Caritas Norwood, Chessare passionately decried Partners' move into his neighborhood, arguing that the healthcare giant was triggering a medical arms race in which the rich get richer and the poor face extinction. Community hospitals are already doing much of the same work that Partners is offering and doing it more cheaply and, for the most part, just as well, he said.

"It's cherry picking," Chessare said. "What are they going to do there? They're going to do high-end imaging. Why? Because you make money at it. And they're going to do ambulatory surgery. Why? Because you make money."

And why, he wondered aloud, weren't state officials investigating this unlevel playing field.

"I really wish the attorney general would get into action as the supervisors of not-for-profits in Massachusetts," he said at a healthcare finance conference in June.

Chessare suggested that he knew that he was violating an unwritten code among hospital executives not to air dirty economic laundry in public. But he declared: "We're not clamming up anymore."

But then, in short order, Chessare was replaced as Caritas Christi's chief executive by Dr. Ralph de la Torre, who had been Beth Israel's chief of cardiac surgery. And by mid-October, Chessare had left Norwood altogether, to "pursue other opportunities," according to Caritas Christi, a six-hospital chain owned by the Archdiocese of Boston.

Connors, who has advised Cardinal Sean P. O'Malley and raised millions for local catholic schools, said he was the one who alerted the Caritas search committee that it should take a look at de la Torre. But, Connors insisted, he was not the deal's "kingmaker."

"Is [de la Torre] in the tank because [I] made an introduction?" Connors asked. "Absolutely not."

Nevertheless, after de la Torre replaced Chessare, Caritas Norwood's interest in condemning the competition from Partners evaporated. Scheduled interviews with the Globe were canceled. Offers to photograph its emergency room were rescinded.

Dr. Adam Glasgow, a surgeon who had scrubbed floors at the hospital as a teenager and then followed his father into practice there, had been encouraged by Chessare to help plead his hospital's case. But with Chessare gone, Glasgow said he received word from superiors to no longer cooperate with the newspaper, an edict the veteran surgeon said he found insulting.

"These are my patients," Glasgow said. "These are my operations that I should be doing. And when they tell me I can't tell my story and I can't let the public know, I wonder what's their motivation."

Earlier this month, Brian Carty, a spokesman for Caritas Christi declined comment about this story. Carty, who until 2000 was a top executive of the Boston advertising firm co-founded by Connors, was among de la Torre's first appointments to his management team.

But days later, Caritas decided to break its silence.

De la Torre said he never asked anyone to stop speaking to the Globe. He said he wants to focus on fixing things at Norwood and stop fretting about what Partners is doing in Foxborough. "I'm not worried about the things that are happening around me because I have too much to fix," de la Torre said.

A lucrative move

If Partners' move to the suburbs is provoking Bronx cheers from the front offices of some community hospitals, it is drawing sustained applause from the nation's top bond rating houses.

Last year Moody's Investors Service gave Partners nearly its top rating on $700 million in tax-exempt bonds, in part because of Partners' plans beyond the Boston city limits.

"The ambulatory care strategy represents a new strategic venture, aimed at increasing accessibility for repetitive treatments and retaining profitable services in areas where Partners' patients reside," Moody's said.

In other words, while their competitors complain about duplicative services and unfair competition, Partners knows that its suburban strategy has lucrative potential.

Partners has pushed for and won substantially higher reimbursement rates for outpatient work. For example, a simple chest X-ray that brings Brockton Hospital $80 commands twice that, $160, at Mass. General, according to state figures. A chest X-ray at Faulkner Hospital, the Partners-owned community hospital in Jamaica Plain, costs $120, while the same service at nearby Milton Hospital gets $90.

And leaders like Connors are hardly shy about firing back at those who are critical of the way Partners conducts its business.

Of Paul Levy, chief executive of Beth Israel, a rival downtown teaching hospital, Connors said: "There are not enough crying towels to keep this guy in service. ... He can't get rolls of dimes fast enough to drop dimes to complain about Partners."

Of Baker, Harvard Pilgrim's president, he said: "Charlie once told me that he wakes up every morning wondering if this is the day Blue Cross is going to decide to put him out of business. So Charlie's convinced himself he has to be nervous. ... Charlie gets right over there on the Paul Levy side of the pew."

And here's Connors on one local hospital executive with whom Partners has tangled: "Whenever he sees Partners, he goes into the red zone."

Battle lines

One red zone in the battle for the suburbs lies at the tangled nexus of roadway interchanges and suburban sprawl near the Liberty Tree Mall in Danvers, where dueling outpatient centers soon will compete for the same universe of clientele.

Beverly Hospital's 99,000-square-foot medical-surgery center on a seven-acre slice of the old Danvers State Hospital property is a handsome three-level clinic of polished blond wood and state-of-the-art exam rooms for lab work, digital imaging, breast cancer treatment, orthopedic services, and day surgery.

Its glossy, high-production brochure makes it sound like Beverly won the race, asking: "Does anyone even remember the name of the second man to walk on the moon?"

That would be the 200,000-square-foot outpatient and medical office facility that the Partners-owned North Shore Medical Center is building just a few miles up the road, on the site of a former light bulb factory. Formally known as the Mass. General North Shore Center for Outpatient Care, it will open next year, offering state-of-the-art cardiac diagnostics, advanced imaging services, and minimally invasive surgery. The three-story center also will serve as the new home of the North Shore Medical Center Cancer Center, which will move there from Peabody.

The leaders of the competing hospitals view the expansion - and its consequences - through opposing lenses.

Robert G. Norton, North Shore Medical Center's president and CEO, called it a matter of economic survival for his operation, the weakest part of the Partners system, which, he said, has lost $56 million since 2003 and depends on subsidies from Partners. Much of that economic drain is because the residents of some of North Shore's poorer communities rely disproportionately on government insurance that doesn't pay hospitals as much as private insurance like Blue Cross.

"I've never believed, quite frankly, that community hospitals were going to be put out of business by this," Norton said. "There's a lot of work that community hospitals do in Massachusetts. ... Now, will some of the work shift so that patients choose to get their care in a more comprehensive cancer care setting? I think the answer is yes."

That's exactly what members of the Beverly Hospital community say they are afraid of: the loss of patients who will be drawn to brand-name medicine at an even newer and bigger center owned by a Boston-based behemoth that can command higher reimbursement rates.

"That's the part that makes it hard for us in the community institutions," said Dr. Gregory A. Bazylewicz, a family practitioner in Manchester. "We're going to have to continue to do it on a lower reimbursement level. And that along with the deep pockets that that big organization has makes it an unfair competition."

The outpatient sites in Danvers are bricks-and-mortar exclamation points to a medical feud that has long been brewing on the North Shore. And Bazylewicz has had a ringside seat.

He led Beverly Hospital's nearly 300 doctors when they were members of Partners' network of community doctors. The affiliation enabled the Beverly physicians to earn higher insurance payments in exchange for meeting Partners' quality standards. Administrators on both sides agree that there were private high-level talks in late 2005 about working even more closely together.

But in the end, the fledgling courtship fizzled. And, instead, outright warfare ensued.

In early 2007 Partners kicked the Beverly doctors out of its network. It said that because the local hospital was referring some patients needing advanced care to non-Partners hospitals, it could no longer ensure quality. The administrators said they weren't being disloyal and only turned to other hospitals for help on tough cases when Partners' teaching hospitals wouldn't.

Some members of the Beverly medical staff saw a different motivation for Partners' action. They believe Beverly Hospital was getting in the way of Partners' expansion.

"It's the big guy coming in and just saying, `We'll strangle you. It might take a little while. But we'll strangle you,"' said Dr. Augustine P. O'Keeffe, a radiologist and former medical staff chief of Northeast Health System, Beverly Hospital's corporate parent.

Since then, both sides have engaged in an expensive advertising campaign and, of course, dispatched separate battalions of construction workers to work sites for their competing clinics.

"Everybody's putting up buildings," said Frissora, the Beverly Hospital surgeon. "Do we need all those buildings? Probably not. But do you have to do them to survive in the marketplace? Yes. ... Is it good for a community to lose their community hospital? It is not. Is it right to be using your clout, using your muscle, using your money to spend a whole lot to destabilize a place and get it to close...? I don't see that that's in the benefit of our patient."

State steps in

As the struggle for the suburbs rages, the state has stepped in, adopting a new rigorous review process earlier this year to determine whether new facilities for outpatient work like those being built by Partners are duplicative or cost effective, and whether they are imperiling nearby community hospitals.

But the new regulations may have just the opposite of their intended effect, as they are being enforced after the major phase of Partners' expansion and may now limit the ability of Partners' competitors to fight back.

"It's too late, in a way," said Stuart Altman, a professor of national health policy at Brandeis University. "(Outpatient) is the tough issue. Not only [does Partners] do more of it, they get paid more to do it."

Or, as Baker of Harvard Pilgrim put it, "The horse may be pretty much out of the barn."

Indeed, to a degree no other system has come close to matching, Partners has been off and running for years.

Since 1996, the state has given Partners approval for 29 new MRI and PET scanners - six of them in the suburbs - and a suburban radiation therapy center, costing a total of $82 million. Partners has another $19 million in proposed imaging and radiation therapy projects awaiting state approval. Partners says the dollar figures, which were provided by the state Department of Public health, should be somewhat lower.

Connors, the Partners chairman, said he sympathizes with executives of smaller hospitals who worry about already razor-thin margins disappearing when Partners comes to town.

"I understand where they're coming from," said Connors, a former advertising executive and the most public face of Partners. "We do look like we're at least 800 pounds when we move into their neighborhoods. I get that part. Now, you know that I'm sort of a market forces guy, and there used to be a Ford dealer in every town.

"So I don't see it as predatory," he said. "I don't see it as a problem. I see it as just the way life works."

But from his office at Framingham Union Hospital, Andrei Soran, the chief executive officer of MetroWest Medical Center, said Connors' free market metaphors are inapt because of the inequalities of the Massachusetts healthcare market.

Not only is Soran's medical center reimbursed at a level well below Partners' downtown rates, but, according to Blue Cross insurance data obtained by the Spotlight Team, MetroWest's reimbursement rates are also at least 16 percent below those collected by a Partners-owned community hospital, Newton-Wellesley Hospital, just 12 miles to the east.

"Knowing that somebody gets such a high premium feels like that's not a free market," Soran said.

While hospitals in Beverly and Norwood fear fallout from the major outpatient clinics that are nearing completion, Soran says his chief competition for outpatient work comes from a 50-member group of Partners' 6,000-member physician network that has become an efficient feeder system for its downtown teaching hospitals.

Charles River Medical Associates, with offices in multiple medical buildings along Union Avenue just a few hundred yards from Framingham Union Hospital's front lobby, is a member of Partners Community Healthcare Inc. Its acronym, PCHI, is pronounced "peachy," a breezy nickname that does not describe how Soran feels when he reviews figures showing a steady drain of his business to Partners doctors, who are paid 15 percent to 40 percent more than his doctors, based on Blue Cross rates.

"We're losing because of that," he said.

Over the last decade, the four largest Boston teaching hospitals have gained market share not only in the city but also in the suburbs, according to discharge data collected by the state. Mass. General in particular has been a juggernaut. In the four counties from which the big city medical centers draw most of their patients - Suffolk, Norfolk, Middlesex, and Essex - MGH's inpatient discharges grew 41 percent from 1996 to 2006, while discharges overall in those counties grew a mere 3 percent.

Partners' executives provided an analysis showing that 20 of 39 non-Partners community hospitals lost market share in their primary service area in that period, while 19 hospitals held steady or gained. Anna Jaques Hospital lost market share in four of its top five communities - Newburyport, Amesbury, Merrimac, and West Newbury, while Mass. General, Lahey Clinic, and the Brigham picked up patients in those communities. But the hardest hit community hospital has been MetroWest. It lost market share in five of its most important communities, while the number of patients from those towns going to Partners hospitals increased by 32 percent, according to discharge statistics from the Massachusetts Health Data Consortium. Partners said patient demand for quality is the driving force behind those numbers. Beth Israel Deaconess Medical Center saw a 67 percent gain in those towns, although the hospital's raw number of patients from the region is about one-third that of Partners.

`You can't stop this'

As those trends continue, Soran said, the books become more difficult to balance at MetroWest Medical Center. In the first three months of the new fiscal year, Soran estimated, MetroWest is $4 million in the red, considering all factors, including taxes and depreciation.

Partners' "power is derived from those huge reimbursement rates," Soran said, referring to insurance payments.

When Charles River opened an endoscopy center, MetroWest had to close 1.5 procedure rooms at the hospital where that work had been performed. About a year ago, when the director of MetroWest's oncology care moved down the street to join the Charles River group, he took nearly 1,000 patients and the nursing staff with him, effectively closing the center. MetroWest is now resuscitating its cancer program, incurring millions of dollars in costs in the process.

In his office a half-mile away, Brian Parillo, the practice administrator for Charles River Medical Associates, said that while he believes that MetroWest bungled its dealings with the cancer center director, he generally empathizes with the hospital, which has to maintain a 24-hour operation to treat its patients and handle emergencies while competing with a well-financed outfit down the street which has no such demands and can operate 9-to-5.

"I think the hospitals are correct," Parillo said. "It's not quite a level playing field."

And he offered this bit of free advice to Vanguard Health Systems, the for-profit corporate parent of MetroWest and Leonard Morse Hospital in Natick: Close Natick and consolidate in Framingham.

"It's totally asinine for that hospital to exist," Parillo said. "The only reason why it does is because of politics."

Soran said there will be changes in the way Leonard Morse operates, but that decision will be made by him and the Vanguard leadership in consultation with the community.

"It would be great for Newton-Wellesley if Leonard Morse would not be there," he said. "I'm not sure it would be great for the community."

Dr. Thomas H. Lee, chief executive of the Partners physician network, said the pattern being played out in Framingham is the medical marketplace at work, not the handiwork of some nefarious big-city bully.

"You can't stop this," he said. "No one can stop this. This is not something that Partners is doing to community hospitals. ... This isn't Partners. This is the natural changes occurring in the marketplace."

Partners has said any fair evaluation of its work in the suburbs must include the $151 million worth of services and programs it provides in other communities. It operates health centers in places like Charlestown, Revere, Chelsea, and Jamaica Plain. It also said some of the community hospitals it has acquired, most notably Lynn's Union Hospital, would have failed if it had not ridden to the rescue.

Connors said Partners is not interested in adding more hospitals to its network. But even before the global economic collapse further weakened hospitals already on the edge, Connors had said he believed some Massachusetts hospitals were likely to fail.

"My guess is that somebody is going to want us to be the white knight," the Partners chairman said. "Now, that may be arrogant on my part, but I don't think so. And I think we have the resources to say, `You tell us where you've got a problem, Madam Attorney General, or Mr. Governor. And we'll come back and tell you what we can do for you."'

When asked about Partners' role as the potential leader of a healthcare rescue squad, Commissioner John Auerbach of the state Department of Public Health did not brighten at the prospect.

"Choice is good when it comes to healthcare," Auerbach said. "So to the degree to which consolidation eliminates choice for patients, I don't think that's good. I think that patients should always have a choice."

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