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Hallmark merger stalled as Partners HealthCare studies options

Among the hospitals that would be involved in the transaction is Melrose-Wakefield Hospital.
Among the hospitals that would be involved in the transaction is Melrose-Wakefield Hospital.Matthew J. Lee/Globe Staff/File

Nearly a year after Partners HealthCare was forced to give up its bid to acquire South Shore Hospital in Weymouth , the state's largest health care system has yet to decide whether to forge ahead with a second stalled acquisition that could throw it into another intense debate over its size, market power, and impact on rising health care costs.

Hallmark Health System, which owns community hospitals in Medford and Melrose, has been in limbo ever since the deal was put on hold early this year, losing money, waiting to finance needed upgrades, and unable to discuss a potential merger with anyone else. Ultimately, local officials say, the long-term survival of the Hallmark hospitals depends on linking up with a bigger, richer health care system.

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Partners HealthCare chief executive David Torchiana on the potential acquisition with Hallmark Health System: “We’re still trying to figure that out.”
Partners HealthCare chief executive David Torchiana on the potential acquisition with Hallmark Health System: “We’re still trying to figure that out.”Greater Boston Chamber of Commerce/The Greater Boston Chamber of Commerce

"I don't see a bright future for the hospital in the long run if they don't partner with someone that can make them sustainable," Melrose Mayor Robert J. Dolan said.

Partners and Hallmark officials have in recent weeks explored whether a deal is still possible. Last month, Dr. David Torchiana, chief executive of Partners, and Alan Macdonald, CEO of Hallmark, met with the state's Health Policy Commission, which reviews proposed mergers and their impact on health care costs.

Coleen Elstermeyer, the commission's chief of staff, said Partners executives requested the meeting but did not give any indication about whether they would move ahead with the Hallmark acquisition. "We're still trying to figure that out," Torchiana said in a brief interview Thursday.

A Hallmark spokesman declined to comment.

Last year, the Health Policy Commission voiced concern that Partners' acquisition of Hallmark would add to Partners' market power, increase health care spending as much as $23 million a year, and lead to higher premiums for employers and consumers. The commission declined to comment on how it would respond if Partners pursued the deal again.

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But there is little reason to believe the commission would respond differently if Partners and Hallmark presented the same deal, Torchiana acknowledged. "I'd guess we'd have to come up with something that would be significantly different, in all probability," he said.

Partners, whose network includes 10 hospitals and 6,000 doctors, and Hallmark, which owns Lawrence Memorial Hospital in Medford and Melrose-Wakefield Hospital in Melrose, have been in talks for at least three years. Their proposal to merge followed Partners' earlier and more controversial agreement to acquire South Shore Hospital, which already dominated the market south of Boston.

The two mergers became part of a settlement negotiated by former attorney general Martha Coakley, which allowed the deals to go through in exchange for other concessions, such as price caps. But the settlement was opposed by consumer advocates, antitrust experts, a coalition of Partners competitors, and eventually Coakley's successor, Attorney General Maura Healey, who took office in January.

The same month, a judge rejected the settlement, finding that the acquisitions by Partners, one of the state's most expensive providers, would increase health care costs for consumers. In February, Partners abandoned the South Shore merger, while putting the acquisition of Hallmark on hold.

Healey's office would not comment on how she would respond if Partners moved ahead with the Hallmark acquisition.

David Balto, an antitrust lawyer in Washington who opposed Partners' expansion plans, said market power in a Hallmark acquisition would be less of an issue than it was in the proposed South Shore Hospital deal. "But," he added, "all you have to do is look at the Health Policy Commission's report and you see there still are concerns there."

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Leaders of Hallmark, which lost $5.8 million on operations last year, have argued that they would not be able to upgrade aging hospital buildings, technology systems, or medical services without the cash and support a new parent company like Partners would provide. Executives of both health systems have said a merger, by putting many different medical services under one organization, would allow for more coordinated care for residents of the North Shore.

The Hallmark deal was part of a broader plan at Partners to consolidate and reorganize its network in the North Shore. As part of that plan, Partners has moved to close its community hospital in Lynn and expand services at its hospital in Salem, which jointly make up North Shore Medical Center.

At Hallmark, Partners planned to convert Lawrence Memorial Hospital from an acute-care facility with 134 beds to a smaller short-stay hospital with 20 to 40 beds, while renovating the 234-bed Melrose-Wakefield Hospital.

"Partners had a vision of a combined health care system north of Boston," said Ruselle W. Robinson, a health care lawyer at Posternak Blankstein & Lund LLP in Boston. "They have to figure out if that still makes sense. They may want it to look different now."

Meanwhile, Robinson noted, Hallmark appears to be just waiting. "They haven't really done anything. It appears they haven't looked for another suitor," he said.

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Hallmark doctors are part of Partners' physicians network and many local officials and residents see a takeover by Partners, which generated $11 billion in revenues last year, as the best way to save two struggling community hospitals.

"The life of our local hospital is much stronger with a merger," Medford Mayor Michael J. McGlynn said, "and if you have the opportunity to merge with the king, then you should do it."


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