The state Health Policy Commission on Wednesday unanimously approved a report warning that Partners HealthCare System’s planned takeover of South Shore Hospital in Weymouth would drive up costs and hurt competition, leaving a decision on whether the much-scrutinized deal can go through up to state and federal antitrust regulators.
At stake is whether Boston-based Partners, already the state’s largest hospital and physicians organization, will be allowed to grow more. Partners’ plan to acquire 378-bed South Shore Hospital — as well as a separate agreement to acquire the Hallmark Health hospitals in Medford and Melrose — would cement its dominance in Eastern Massachusetts.
“The question is how big is big?” said commission chairman Stuart H. Altman, who acknowledged health care providers have been trying to expand their networks partly to better coordinate care. “How much do you need to control to make this work? As groups get bigger, they have used their power of bigness to generate higher [reimbursement] rates.”
Investigators from the state attorney general’s office and the US Department of Justice have spent more than four years looking into alleged anticompetitive practices by Partners, which operates the Harvard-affiliated Massachusetts General and Brigham and Women’s hospitals.
While their inquiry is largely finished, they had been awaiting the final report from the Health Policy Commission — a watchdog agency created by the state Legislature in 2012 to monitor and rein in medical costs — before determining what to do.
Partners chief of staff Peter Brown said his organization remains committed to the South Shore acquisition. He said the commission overlooked data provided by Partners showing its initiatives, including a Medicare accountable care organization, are containing costs.
“We’ve got a distinct difference of opinion with the Health Policy Commission,” Brown said. “They’re viewing this transaction through a lens of the past based, for the most part, on outdated data. We’re looking at this affiliation through the lens of the present and the future, where state and federal laws are guiding us as we focus on improving care coordination that will be better for patients and the communities we serve, as well as lowering the cost curve.
At South Shore Hospital, spokeswoman Sarah Darcy said, “We continue to disagree with the [commission’s] assumptions and conclusions — and remain fully committed to successfully advancing our proposed merger.”
The commission’s final take on the proposed deal mirrored its Dec. 18 preliminary report, which said the plan to bring South Shore Hospital and its affiliated Harbor Medical Associates into the Partners system would boost annual spending by the state’s three largest health insurers by a projected $23 million to $26 million, overwhelming potential savings of a merger.
Those higher projected costs include $15.8 million a year from increases to Harbor Medical and South Shore Hospital doctors and $7.4 million to $10.6 million from anticipated shifts in physician referrals after the acquisition. The report also noted Partners has the highest hospital and physician market share statewide, while South Shore Hospital and Partners currently have the largest and second largest market shares for inpatient services on the South Shore.
“We found that market concentration in the South Shore region would rise sharply,” Karen Tseng, the commission’s director of policy for market performance, told commissioners.
Last month, Partners released a forceful rebuttal to the initial report. It said the merger would result in more integrated care, saving millions of dollars a year. Partners said the commission’s analysis of the market impact employed “flawed reasoning” and contained “inexplicable omissions.”
But the conclusions in Wednesday’s final report — approved 9 to 0 — differed little from those in the preliminary report. While crediting Partners’ efforts to save money by expanding Medicare programs, it said those savings amount to no more than $6.6 million a year, not close to offsetting projected higher payments to the hospital’s employed and affiliated doctors.
Commission staffers were quick to dispute Partners’ rebuttal, with Tseng saying much of it was “unsubstantiated by evidence and, in some cases, contrary to objective data.”
Some commission members, such as Altman, a professor of health policy at Brandeis University, and David Cutler, a health economist at Harvard University, took a conciliatory tone, encouraging Partners and other health care providers weighing expansion to work to control costs and make health care more efficient. But another member, Paul Hattis, a public health professor at Tufts School of Medicine, peppered Tseng with questions about data from the Partners rebuttal, in an apparent effort to further repudiate Partners’ claims.
“We didn’t really change anything” from the initial report, Hattis said.
Brown, for his part, said Partners stood by the analysis in its rebuttal.
Under the state law that created the health commission, it lacks the authority to block a merger, so Partners and South Shore Hospital can technically close on their deal within 30 days. But the commission, under a process spelled out in the 2012 health cost containment law, referred the report to Attorney General Martha Coakley’s office for further review. Coakley has been working with the US Department of Justice on the Partners investigation.
Brad Puffer, a Coakley spokesman, declined to comment.
Talks between Partners executives and state and federal regulators, which have intensified in recent months, could delay Partners’ timetable for completing the merger. Or they could result in a settlement in which the two parties agree to conditions that allow the deal to go forward but blunt its impact on cost and competition.
Alternatively, regulators could seek to halt the acquisition by bringing suit on antitrust grounds. That could result in a legal battle dragging on for months or years.