A key state board on Wednesday dealt another challenge to the quest of the state's biggest health system to become even bigger.

The Health Policy Commission found that Partners HealthCare's proposed takeover of Hallmark Health System, which runs two hospitals north of Boston, would reinforce Partners' market power, raise spending on medical care by $15.5 million to $23 million per year, and increase premiums for employers and consumers.

Partners operates Brigham and Women's and Massachusetts General hospitals, as well as several community hospitals, health centers, and a health plan. It wants to absorb Hallmark's Lawrence Memorial Hospital in Medford and Melrose-Wakefield Hospital in Melrose. It plans to convert the Medford hospital to a short-stay facility, while renovating the Melrose facility.


The Hallmark hospitals already are affiliated with Partners.

"It is unclear how this merger is necessary to improve clinical quality in ways the parties' longstanding affiliation has not," the commission's report said. The panel asked Partners and Hallmark to submit more information.

The Health Policy Commission also had big concerns about Partners' controversial bid to acquire South Shore Hospital in Weymouth and referred that merger to Attorney General Martha Coakley. Coakley brokered a deal with Partners that would allow it to complete the acquisition of South Shore, as well as the two Hallmark hospitals.

That deal blunts the impact of the commission's findings on Hallmark. The commission cannot block mergers but can refer deals it determines are bad for consumers to the attorney general, who in turn can investigate and go to court to stop them. In the Hallmark case, Coakley has essentially approved the acquisition as part of the settlement with Partners.

The settlement, which must be approved by a judge, allows the Hallmark terms to be modified based on the findings of commission. Coakley's spokesman, Brad Puffer, said the attorney general "will seriously factor this latest report into further discussions with Partners."


On Monday, a state judge set a three-week comment period before ruling on the Coakley-Partners deal, delaying the resolution of a five-year state and federal investigation into Partners' market power and contracting practices. Coakley, a Democratic candidate for governor, has said her deal puts sufficient limits on Partners and forces changes to the company's contracting practices.

The Health Policy Commission used Wednesday's hearing to raise concerns about the proposed Hallmark merger, suggesting it is a deal that should go to the attorney general for further investigation. Members voted to send a summary of their reports to the court as part of the public comments allowed by the judge.

"Here we go again," said Dr. Paul Hattis, a member of the commission. "The numbers aren't quite as bad as the South Shore transaction," which was more obviously a "money grab," he added.

Partners' size already has provided the market power to become the state's highest-paid health care system. Partners' competitors, including Atrius Health, Beth Israel Deaconess Medical Center, Cambridge Health Alliance, Lahey Health, and Tufts Medical Center, have been vocal in their opposition, claiming Coakley's settlement will allow Partners to gain even more clout and push prices higher.

Dr. Guy Spinelli, chairman of Atrius Health, a physicians group, asked the Health Policy Commission to actively monitor Partners, particularly if the Coakley deal is ultimately approved by the court.

State law is meant to ensure that complex health care transactions be "fully transparent and thoroughly and thoughtfully reviewed," Spinelli said. "The proposed settlement agreement undermines that goal."


But Brent Henry, general counsel at Partners, countered: "If this consent judgment gets approved by the court, Partners will become the most heavily regulated health system in the state."

Partners argues the acquisition of Hallmark would allow it to provide better care in lower-cost community settings. Partners spokesman Rich Copp dismissed rivals' concerns. "They are not advocating the public interest," he said. "They are advocating their private interests."

Alan Macdonald, Hallmark Health's executive vice president for strategy and external affairs, told commissioners that the quality of care will decline without help from Partners.

"We actually lost money on operations last year," he said. "We can't do it alone."

Priyanka Dayal McCluskey can be reached at priyanka. mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.