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    State health officials endorse Beth Israel-Lahey merger

    Beth Israel Deaconess and its allies aim to take market share from Partners HealthCare.
    Davil L. Ryan/Globe staff/File
    Beth Israel Deaconess and its allies aim to take market share from Partners HealthCare.

    A sprawling merger of 13 hospitals aimed at creating a potent competitor to Partners HealthCare has cleared a key hurdle, with Massachusetts health officials saying the deal is likely to improve patient care.

    Led by Beth Israel Deaconess Medical Center and Lahey Health, the hospitals say that by joining forces they can provide high-quality care to patients across Eastern Massachusetts at a lower cost than does Partners, the state’s largest health care network.

    Beth Israel Deaconess and Lahey announced their merger plans in early 2017, after years of on-again, off-again talks. The deal grew to encompass New England Baptist Hospital in Boston, Mount Auburn Hospital in Cambridge, and Anna Jaques Hospital in Newburyport, and includes about 4,300 physicians.


    Partners owns Massachusetts General Hospital, Brigham and Women’s Hospital, and nine other hospitals, and has about 6,000 doctors.

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    “This is a play to really change the dynamics of the market,” said Leemore S. Dafny, a health care economist at Harvard Business School. “It’s a big play.”

    The recommendation to approve the merger came in a report Monday from staff at the state Department of Public Health. The endorsement carries significant weight, but the deal still needs approval from the Public Health Council, a voting body chaired by Governor Charlie Baker’s public health commissioner. It’s set to consider the deal in April. The council generally follows staff recommendations.

    The approval process is expected to continue for months, as Attorney General Maura Healey reviews the deal and the state Health Policy Commission, a watchdog agency, studies its effect on health care costs.

    The Beth Israel Deaconess system includes a large teaching hospital in Boston and community hospitals in Milton, Needham, and Plymouth.


    The Lahey system, based in Burlington, includes several community hospitals north of Boston.

    New England Baptist is a destination for orthopedic surgery.

    These hospitals, along with Mount Auburn, Anna Jaques, and their outpatient clinics, reported treating more than 1.2 million patients last year.

    Their new health system would account for 24.7 percent of Massachusetts hospital discharges for patients with commercial insurance, just below Partners’ market share of 27 percent, according to the Health Policy Commission.

    In outpatient visits, the Beth Israel Deaconess-Lahey system would have a 26 percent market share, while Partners would have 26.7 percent.


    Beth Israel Deaconess and Lahey executives have argued that their new system would pull patients from the higher-cost Partners network, which will help to contain spending statewide. They are calling their proposed new health system NewCo until they decide on a name for the company.

    “Research has shown that hospital mergers have historically resulted in more consolidated markets with reduced competition and higher prices,” Department of Public Health staff wrote in their report. “However, NewCo asserts that this transaction will introduce competition into the healthcare market in a way that will make care more affordable.”

    In a statement, the hospitals said they were pleased by the state recommendation to approve their merger.

    “This is a major step forward in the regulatory review process and brings us closer to realizing our vision of ensuring access to high-quality, affordable health care,” the hospitals said in a statement from David Passafaro, a senior vice president at New England Baptist Hospital.

    Partners officials declined to comment Tuesday.

    Dafny, the Harvard economist, said the argument that the hospitals could help contain costs by taking market share from higher-priced competitors has merit.

    “My sense is the state would like to see a market-based solution to the strength of Partners, and that building up the underdog to be able to grab share, but at lower prices, is appealing,” she said. “The question is: how likely is it that would happen?”

    A group called the Make Healthcare Affordable Coalition, which opposes the merger, immediately assailed the state report, saying that it was irresponsible to back the deal without any analysis of the impact on patient costs.

    “We are urging our city and state officials to take action to bring this merger out of the darkness and into the light through additional hearings,’’ a spokeswoman for the group, Hanoi Reyes, said in a statement.

    The coalition is backed by a Beacon Hill lobbying and consulting firm, Northwind Strategies, which has ties to other health care organizations. It argues that people of color might lose access to affordable medical services as a result of the merger.

    The Health Policy Commission is analyzing how the proposed merger would affect health care costs and the market for medical care. The commission’s report is expected in early summer. If it finds that costs are likely to increase significantly as a result of the merger, the commission can forward those concerns to the attorney general, who has the power to sue to block a transaction, and to public health officials, who can reconsider or amend their endorsement.

    David Seltz, the Health Policy Commission’s executive director, said in a statement that the transaction “represents the most significant change in the structure of the Massachusetts health care market in more than 20 years and will reshape the delivery of health care for millions of patients.”

    Last month, Partners received state approval to acquire the specialty hospital Massachusetts Eye and Ear, though the Health Policy Commission found that the deal could increase health spending significantly.

    As a condition of approval, Partners must not raise prices for Mass. Eye and Ear’s medical services any more than the state’s annual target for containing health spending. That target is set at 3.1 percent.

    Partners is now looking to expand in Rhode Island.

    Priyanka Dayal McCluskey can be reached at Follow her on Twitter @priyanka_dayal.