A court ruling rejecting a settlement that would have allowed Partners HealthCare to acquire three community hospitals could have industry implications well beyond Boston. The decision casts doubt on expansion strategies that promise to deliver more coordinated and cost-effective care.
Suffolk Superior Court Judge Janet L. Sanders’ decision on Thursday comes as hospitals and health systems nationwide move to build bigger networks. In a case that has been followed across the country, Sanders rejected the argument that hospital consolidation would help control costs through increased efficiency and suggested that Partners’ expansion would result in higher prices for consumers across Massachusetts.
“If the settlement was upheld, it would have been a strong signal that there could have been even more consolidation in other markets following this precedent,” said David Balto, an antitrust lawyer in Washington who opposed the Partners acquisitions. “This will raise doubts about consolidation going forward, especially in very concentrated markets.”
It also raised doubts that Partners would continue its efforts to acquire South Shore Hospital in Weymouth, which Partners executives years ago called “the prize,” and Hallmark Health System, which operates hospitals in Medford and Melrose.
Partners can still try to complete the deals, but Attorney General Maura Healey has said she will sue Partners to block the mergers.
Partners executives say they are evaluating their options. With chief executive Dr. Gary Gottlieb scheduled to step down in the coming months, the decision may be left to his successor.
“Their least wise path is for Partners to try to fight this all out in court,” said Dr. Paul Hattis, a professor at Tufts University School of Medicine and member of the Health Policy Commission, a watchdog state agency that opposed the Partners deals. “It will take a number of years to resolve these matters through the legal system, and it would be a huge distraction for them.”
The Partners settlement was the result of a five-year state and federal investigation into Partners’ market activities. Former attorney general Martha Coakley presented the deal as a common-sense compromise that included price caps and limits on Partners’ future expansion.
But it drew a firestorm of criticism from opponents who felt the deal would do little to stop Partners from growing its already dominant place in the market and raising prices for consumers and insurers. Sanders sided with opponents when she rejected the deal, saying it was a “Band-Aid” approach and not in the public interest.
The settlement relied heavily on the kind of “conduct remedies” — price caps and changes to contracting practices — that have fallen out of favor in antitrust circles, said antitrust specialist Matthew L. Cantor, partner in the New York law firm Constantine Cannon LLC. Antitrust specialists typically prefer settlements that force an organization to make structural changes, such as divesting certain properties.
“This was a unique agreement because it relied on business conduct remedies like price caps,” Cantor said. “Those are disfavored by federal enforcement agencies and antitrust scholars because the caps are temporary and they are hard to monitor. A court doesn’t like to be in the business of monitoring price caps.”
Erin C. Fuse Brown, a health law professor at Georgia State University who has studied industry consolidation, said the rejection of the Partners settlement suggests that such remedies will be scrutinized more carefully in the future.
The judge’s decision won’t stop the national wave of hospital consolidation, Brown said, but “it certainly throws some cold water on plans of big hospitals to buy up other hospitals."