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    Much riding on ruling on Partners expansion

    Weymouth addition could alter industry

    Federal investigators are nearing a decision on whether to allow the massive Partners HealthCare System to take over South Shore Hospital in Weymouth, a long-awaited verdict that could dramatically affect costs and competition in the Massachusetts health care industry.

    The review coincides with a broader inquiry over the past four years into alleged anticompetitive behavior by Partners, the state’s largest hospital and doctors organization. Dozens of lawyers and economists from the US Department of Justice, joined by state Attorney General Martha Coakley’s office, have conducted scores of interviews in Boston and Washington, D.C., with senior executives from Partners, its competitors, and health insurers.

    Their efforts, supported by tens of thousands of pages of legal documents, have attempted to answer a complicated question: How big is too big for a health care system?


    As the decision on the Partners-South Shore merger looms, hospital and insurance executives are speculating about it in hallways, boardrooms, and restaurants. If regulators allow Partners to absorb 378-bed South Shore Hospital, many say, it will become more difficult for other hospitals to vie for patients and harder for health plans to hold down prices. If the deal is scuttled, or regulators place stringent conditions on the merger, it could create tough hurdles for hospital mergers and acquisitions in a sector where consolidation is rampant.

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    Such a scenario would signal “there is a tipping point [on the size of a hospital chain] and they are going to set limits,” said health care consultant Marc Bard, codirector of the Tufts Health Care Institute, an educational group. “Their message would be, ‘We are not going to simply stand back and watch this runaway train create an uncompetitive environment.’ ”

    Partners executives have traveled to Washington repeatedly over the past two years to discuss their hospital and physician network with antitrust investigators at the Justice Department. The department has taken a more activist posture on mergers recently, filing a lawsuit last month to stop the proposed pairing of American Airlines and US Airways. This spring and summer, Justice Department investigators, along with their counterparts in Coakley’s office, interviewed executives from systems that compete with Partners as well as health insurance executives.

    Their conversations have gone beyond the market impact of a Partners and South Shore merger. There were also questions about the original intent of Partners and how it has grown over the years, as well as its plans for managing the cost and quality of care for larger groups of patients, according to industry executives with knowledge of the inquiry.

    According to a recent state analysis, nearly one-third of the money Massachusetts insurers spent on acute hospital care last year went to Partners, a Boston-based system that includes 10 hospitals and 6,000 doctors.


    But the upcoming decision by the Department of Justice and Coakley’s office is expected to be confined to the South Shore deal and possibly another pact Partners is negotiating with Hallmark Health, parent of Wakefield Hospital and Lawrence Memorial in Medford. Partners and Hallmark last year signed a preliminary agreement to merge.

    Government regulators do not have the power to block outright Partners’ acquisition of South Shore. But if they determine the deal would let Partners drive up prices for medical care south of Boston, the government could file suit and seek an injunction to stop the merger. More likely, regulators could alert Partners executives that they are prepared to take legal action and allow the system to drop the deal rather than engage in a costly court battle.

    If no action is taken, Partners would extend a formidable network of suburban hospitals ringing the city that includes North Shore Medical Center in Salem to the north and Newton-Wellesley Hospital to the west. Partners also owns Massachusetts General, Brigham and Women’s, and Faulkner hospitals in Boston, and McLean Hospital in Belmont.

    Regulators could also tell Partners they oppose the South Shore deal unless Partners makes concessions, such as divesting other hospitals or affiliated doctors practices. Or they might require South Shore to negotiate payments from insurers separately. In May, Partners was allowed to acquire 140-bed Cooley Dickinson Hospital in Northampton — its first hospital takeover since Martha’s Vineyard and Nantucket Cottage hospitals in 2006 — on the condition it negotiate insurance contracts separate from the Partners system for five years.

    Partners chief executive Gary L. Gottlieb said in an interview last year that the goal in acquiring South Shore is to improve care and save money. He wants to bring the hospital into the Partners network to make it easier to invest in electronic medical records and large registries that track patients.


    Gina Talamona, a spokeswoman for the Justice Department’s antitrust division — which has been deeply involved in both the Partners conduct and merger reviews — declined to comment on the investigation. Brad Puffer, a Coakley spokesman, said her office “is continuing to review the [proposed] transaction.”

    ‘There is a size that’s too big, where the situation becomes noncompetitive.’ - Ruselle W. Robinson

    Partners vice president Rich Copp said its executives have been talking with state and federal officials for more than a year, but he would not disclose details. “These discussions occur frequently, and they’re treated as confidential,” he said.

    South Shore spokeswoman Sarah Darcy said, “the process is still under review.”

    State regulators have scrutinized Partners for years, repeatedly finding it commands some of the highest prices in Massachusetts. In 2010, Coakley found insurers pay some hospitals, including those aligned with Partners, twice as much money as others for similar medical care, either because they have name-brand recognition or geographic dominance.

    The following year, Governor Deval Patrick’s administration confirmed providers are paid widely varying amounts for the same level of care — and that some, like Partners, receive substantially more even for common procedures such as appendectomies.

    Partners has maintained its hospitals are paid more for legitimate reasons, including to support their extensive research and teaching enterprises. The organization has stressed it has been working to cut costs by, among other things, renegotiating contracts with health insurers. In 2011, it set aside $40 million to help reduce insurance premiums for small businesses.

    But regulators were irritated when, despite the government scrutiny, Partners pressed forward with agreements to acquire South Shore, Hallmark, and Cooley Dickinson. Partners executives, while continuing to cooperate with investigators, concluded they could no longer remain on the sidelines at a time when competitors are expanding and promising to move care from Boston to community hospitals.

    Some hospital leaders believe the US government has sent contradictory signals about hospital consolidation, said Ruselle W. Robinson, health care attorney for Boston law firm Posternak Blankstein & Lund. While the federal health care overhaul encourages hospitals and doctors to form larger networks to better coordinate care, he said, antitrust investigators have been focused on the higher prices that stem from market dominance.

    “There is a size that’s too big, where the situation becomes noncompetitive. That’s what they’re looking at” in the Partners case, Robinson said.

    Soon after a 2008 Globe Spotlight series investigation found hospitals such as Mass. General and Brigham and Women’s were routinely paid 15 to 60 percent more for essentially the same services as other hospitals in the Boston market, Coakley launched her investigation into alleged anticompetitive behavior by Partners. The state invited the Justice Department to join the inquiry.

    In April, 2010, federal antitrust investigators sent letters to Partners and three large Massachusetts health insurers demanding documents related to Partners’ “contracting and other practices in health care markets in Eastern Massachusetts.” The letters indicated they were seeking to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using market power to limit or artificially raise prices.

    Partners took a conciliatory stance toward regulators under former chief executive James J. Mongan, largely refraining from pursuing new hospitals, people with knowledge of the inquiry said. But after Gottlieb took the Partners helm in 2010, they said, the organization became more aggressive in asserting its right to expand. In addition to its plans to take over Cooley Dickinson, Hallmark, and South Shore, it acquired Neighborhood Health Plan, a transaction that put Partners in the health insurance business for the first time.

    After merger plans are disclosed, acquirers typically are required to send notifications to the Federal Trade Commission, which recently moved to block the merger of two Georgia hospital systems. But because the market-conduct investigation already was underway, the Justice Department took over the review of the Partners and South Shore alliance.

    Investigators spoke with top-level executives at several hospital systems and health insurers in 2012, and conducted another round of interviews this year, according to the people with knowledge of the inquiry.

    Robert Weisman can be reached at Liz Kowalczyk can be
    reached at

    Correction: Because of a graphic artist’s error, an earlier version of the map that ran with this story misnamed Lawrence Memorial Hospital.