Partners HealthCare System has reached a tentative agreement with state regulators that would allow it to complete a long-planned takeover of South Shore Hospital, but limit how much Partners can charge for medical services and prevent the state’s largest health care system from adding more hospitals and physicians’ groups for years, according to several people with knowledge of the deal.
The settlement with Attorney General Martha Coakley’s office follows five years of government inquiries into Partners’ pricing, competitive practices, and market power. An agreement came only after months of often tense negotiations, the parties familiar with it said. They spoke on the condition of anonymity because they weren’t authorized to discuss the matter.
Health care officials in Massachusetts and beyond have been closely following the long-running investigation into Partners’ market clout in anticipation that a resolution could establish a road map for costs and competition in an industry that is rapidly consolidating.
Under the deal, which has yet to be formally signed, Partners’ prices would be tied to the rate of inflation, currently about 1 to 1.5 percent. That is significantly less than the recent trend of health care cost increases.
Partners also agreed to negotiate separate contracts with health insurers, setting different terms for different kinds of hospitals. There will be one for its Harvard-affiliated teaching hospitals, Massachusetts General, and Brigham and Women’s; another for Partners-owned community hospitals such as North Shore Medical Center and Newton-Wellesley Hospital; and a third for the 378-bed South Shore Hospital in Weymouth. That would prevent the Partners community hospitals from imposing the higher rates paid to its teaching hospitals.
The state Health Policy Commission in February approved a report warning that Partners’ proposed takeover of South Shore Hospital, 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.
Brad Puffer, a spokesman for Coakley’s office, declined to comment.
Partners said the parties have yet to wrap up their settlement talks. “There is no formal agreement at this time, and discussions with the Massachusetts attorney general’s office are ongoing,” said Partners vice president Rich Copp.
It was not immediately clear whether the US Department of Justice, which has been investigating alleged anticompetitive activity by Boston-based Partners, working in tandem with the Massachusetts investigators since at least 2010, is a party to the agreement. Daniel Stratton, a spokesman for the Justice Department, declined to comment.
The comprehensive agreement is being called a “conduct remedy,” meaning the attorney general’s office will sign off on the acquisition of South Shore Hospital on the condition that Partners accepts strict limits on its business practices and agrees to be monitored for as much as a decade.
Coakley and top officials in her office were said to have concluded that such an arrangement would do more to rein in costs and level the playing field in the state health care market than bringing a lawsuit to stop the takeover of the Weymouth hospital. They wanted Partners to “pay a steep price,” according to a health care professional familiar with their thinking.
Key to the deal is a series of so-called standstill provisions, or caps, ranging from five to 10 years, which limit how much Partners can command in reimbursements from insurers and preventing it from strengthening its market dominance by acquiring additional hospitals and physicians practices. The hospital cap does not cover Hallmark Health, parent of Wakefield Hospital and Lawrence Memorial in Medford. Hallmark signed an agreement in 2012 to be acquired by Partners, but the hospitals have yet to close on that deal.
The deal also prevents Partners from negotiating health insurance contracts on behalf of doctors groups affiliated with but not employed by Partners. And it allows Partners community hospitals to accept lower-cost insurance products even if its teaching hospitals don’t.
Health care analysts offered different views on the tentative settlement.
“It strikes me as a very fair approach and a very smart approach,” said Marc Bard, president of health care consulting firm MB2 in Newton. “The AG’s office is saying they want to limit the risks around cost and forming a monopoly but recognize the benefits of a very high quality hospital system bringing services to a community that could benefit from it.”
But Boston University professor of health policy Alan Sager called the settlement a “functional compromise” by Coakley, who is a Democratic candidate for governor.
“This strikes me as more of a political deal than a health care deal,” Sager said. “If we’re relying on competition to hold down health care costs, the more competitors the better. The harm to the public will accrue more slowly under this deal, but the harm will occur.”
The joint state and federal investigation into Partners became public in April 2010 when US antitrust regulators sent letters to Partners and three large Massachusetts health insurers demanding documents related to Partners contracting and other practices. The demand letters indicated they were seeking to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using market influence to limit or artificially raise prices.
In November 2008, a Globe Spotlight team investigation examined the effects of the Partners health system on medical costs.
Whether the settlement between Partners and Coakley’s office spells the end to that five-year probe may not be known unless the Justice Department — which has never formally acknowledged the investigation — signs on to the deal or releases a statement clarifying its position.