In face of opposition, Partners unlikely to expand further in Mass.
For two decades, Partners HealthCare was unstoppable. It expanded from Boston to the north, south, and west, becoming the state’s largest and most powerful network of doctors and hospitals.
But the health care company now acknowledges that its long period of expansion by acquisition in Massachusetts is over. Partners and Hallmark Health System, which operates hospitals in Medford and Melrose, broke off their agreement to merge this week, signaling a new era for Partners and the end of its ambitions to grow substantially in Massachusetts.
“We don’t think we’re going to be able to expand here through acquisitions,” Dr. David Torchiana, chief executive of the health system, said Friday. “We need to look regionally, nationally, and internationally.”
The Hallmark deal was the second acquisition that Partners has abandoned this year in the face of opposition from state officials, antitrust specialists, consumer advocates, and competitors, who said the mergers would raise already-high health care costs and bolster Partners’ formidable market power.
In February, Partners gave up its bid to take over South Shore Hospital in Weymouth after a judge rejected a settlement that would have allowed the merger and Attorney General Maura Healey threatened legal action if Partners continued to pursue the deal.
“Partners has bumped up against a ceiling in terms of how big it can get without violating antitrust laws,” said Robert Field, a professor at Drexel University who studies hospital consolidation. “It’s been inching toward that ceiling for many years now, and I think it finally hit its head.”
Partners has grown steadily since it was founded in 1994 by the merger of Brigham and Women’s and Massachusetts General hospitals.
Over the past two decades, it added hospitals in Boston, Salem, Lynn, Newton, Nantucket, Martha’s Vineyard, and Northampton.
It remains a dominant player. With Brigham and Mass. General, Partners owns two of the country’s most prestigious hospitals.
The health system includes some 6,000 doctors and an insurance company. It operates a massive biomedical research operation, and it boosted revenues to $11.7 billion this year.
Torchiana said Partners must continue to grow to ensure that it generates the revenues to cover its growing expenses, but will focus its efforts on affiliations and partnerships outside Massachusetts.
Partners is already stepping up efforts to grow beyond the state. Last month it launched projects to help build hospitals in Malta and Ivory Coast, in addition to other hospital projects it is pursuing in China.
The health system is also commercializing its research, including medical software that helps doctors understand genetic data.
Partners earned $110 million in revenues this year from licensing technology and spinning off startups.
The decision to call off the Hallmark merger brings a long-running controversy to an end. After Partners announced plans in 2013 to acquire South Shore Hospital and Hallmark, headquartered in Medford, the state Health Policy Commission voiced strong objections.
The deals would have raised Partners’ leverage to negotiate with insurers and increase health spending as much as $49 million a year, the commission said.
At the time the plans were announced, Partners, the state’s priciest health system, was already the focus of a state and federal antitrust investigation.
Former Attorney General Martha Coakley crafted a deal that would have allowed Partners to acquire South Shore Hospital and the Hallmark properties, Lawrence Memorial Hospital, and Melrose-Wakefield Hospital, in exchange for other concessions.
But her successor, Healey, opposed the settlement, and a judge later rejected it.
After giving up the South Shore bid, Partners put the Hallmark deal on “pause.”
This week, the break with Hallmark turned into a breakup.
Hallmark is struggling financially, and its executives and local officials agree it needs to find a richer partner to survive.
Hallmark’s board voted Thursday to end exclusive merger discussions with Partners and explore deals with other hospital systems. The decision became public Friday.
“We are fortunate to work in proximity of the most reputable providers of health care in the country,” Alan Macdonald, chief executive of Hallmark, said in a memo to employees. “There are many opportunities for us to explore.”
Stuart Altman, chairman of the Health Policy Commission, said Partners’ decision to drop its acquisition plans shows the commission is carrying out its goal of protecting consumers from undue increases in medical spending.
“We’re not opposed to thoughtful consolidation or restructuring,” Altman said. But hospital consolidation plans “really need to be based on improving quality and access, and not just a thinly veiled attempt to raise prices,” he added.
Partners’ plans have come under so much scrutiny that Partners executives have had to do some soul searching.
Torchiana acknowledged Friday that the thought of breaking up the company — a drastic step — “has crossed my mind.” But that thought never led to any formal discussions or plans, Torchiana said
Torchiana, a cardiac surgeon, became chief executive in March, after 12 years leading the physicians network at Mass. General. He said that a dismantling of Partners would be “absolutely disastrous.”
Partners still has modest options for growth in Massachusetts, such as adding outpatient clinics. It recently opened walk-in urgent care clinics in Brookline, Newton, and Watertown
But “Partners is in a new era,” said David E. Williams, president of the Boston consulting firm, Health Business Group. “What the regulators and the Health Policy Commission are signaling is that they don’t want Partners to grow by acquisition.”