The Partners Healthcare deal to acquire two Eastern Massachusetts health care systems — South Shore Hospital and Hallmark Health — is a very bad idea. It would make a behemoth even larger. You don’t have to be an antitrust lawyer to predict the consequences of even more market power: higher prices, less competition, and the squeezing out of smaller players.
Even without this merger, Partners accounts for about one-third of all hospital revenue and one-fourth of all physician revenue in the state. Partners’ prices hover around 30 percent higher than the state average, and its “total medical expenditures” — adjusted for the severity of the patients it cares for — are nearly 10 percent higher than the average.
So why then would the government let the acquisition happen?
The proposed terms negotiated by the Attorney General’s office, recently open for public comment and now under review in Suffolk Superior Court, purport to offer safeguards. The main ones are these: Partners agrees not to raise prices over a six-year period at a rate higher than general inflation, and it agrees that health plans can pick and chose components of the system to contract with, rather than having to take all of Partners or none.
So, the argument goes, the deal would offer more options for insurers and patients, and will slow the growth of health care costs. And, proponents say, the deal will stabilize two key Massachusetts systems that are vulnerable to failure if left on their own while also elevating the quality of care because Partners is so good at what it does.
The Health Policy Commission — the nearly toothless but highly competent independent oversight body established by the 2012 state health care cost containment law — does not concur. The commission has studied historical data from the Massachusetts Center for Health Information and Analysis, also known as CHIA, which is charged to monitor the costs and quality of care. From it, the commission predicts that the acquisitions will lead to higher prices and raise total costs to individuals and businesses in the state by tens of millions of dollars per year. What’s more, although quality metrics are limited, CHIA so far finds no objective evidence that Partners hospitals or physicians offer overall better care than the average. Finally, it suggests that neither South Shore nor Hallmark is anywhere near the brink of failure — they don’t need to be rescued by a deep-pocketed player like Partners.
The antitrust community consistently opposes as ineffective the kind of remedy that this deal proposes. Agreements such as promising to keep prices down or to permit selective contracting are called “conduct remedies,” as opposed to “structural remedies.” Federal Trade Commission official Deborah Feinstein reiterated in June that her agency “generally rejects” conduct remedies because they are “an inferior substitute for allowing competition along separately owned providers to determine market behavior,” are difficult to enforce, and “nearly always focus on price. . . denying consumers the benefit of non-price competition.”
Now let’s be clear: Partners is a fabulous medical organization in many ways. It’s where the first successful kidney transplant was done. Doctors and patients come there from all over the world to learn about and receive the latest in high-tech care. Among its hospitals are some of the most highly admired teaching and research institutions on the planet. We need to keep it healthy.
But we also need to keep Massachusetts healthy — medically but also with respect to total community well-being. Between 2001 and 2014, nearly every category in our state budget has been reduced in real terms — by a lot. Public higher education: down 26 percent. Early childhood education and care: down 28 percent. Local aid: down 44 percent. Parks and recreation: down 43 percent.
It can’t be ignored that in the meantime, state health care expenditures are up 63 percent. Moreover, it’s the same on the private side. Businesses in our state know that our medical costs — the highest in the nation — are one of the biggest barriers to growth. Employees know that their take-home pay has, at best, stayed level, while out-of-pocket medical costs and payroll deductions for health insurance have soared.
Put simply, health care in Massachusetts is confiscating opportunities for public investment, private job growth, and worker security. Partners is a big part of that problem. The proposed deal doesn’t solve this — instead it heads in the wrong direction.
If the only way to solve the health care cost problem were to ration or withhold care, I would oppose that totally. Fortunately, there is a much better option: Change care to focus on patient needs, not institutional growth.
We have plenty of examples for what can be done: Base care in teams. Center services at home. Use information and communication technologies to replace visits and cut delays. Include behavioral health care thoroughly. Give power and voice to patients. Make sure that costs and quality are fully transparent to everyone. And expand the roles of nurses and other non-physician professionals.
Health care systems that have adopted such steps reduce costs dramatically, help people stay healthier, and deliver higher quality. One case in point: The increasingly famous “Nuka” system of care owned and operated by Alaska natives in Anchorage. Nuka has cut hospital use, emergency visits, and specialty use by more than 50 percent in less than five years. Outcomes and satisfaction for patients and staff soared.
What does this tell us? The highest performing health care systems try to empty their hospitals, not fill them. That requires a new attitude, a new business model, and new payment structures.
Yet the Partners deal shores up the status quo. If it goes through, hundreds of physicians and three additional hospitals will become part of a higher-cost system, and prices will rise, not fall. Neither the law nor the proposed agreement contains a clear and agreed-upon way to monitor prices even during the six-year agreement period, and once that period ends, Partners can do anything it pleases with prices and growth.
In addition, the metrics that the Health Policy Commission, CHIA, and any potential court-appointed monitor of the proposed settlement can use to track cost and quality of care are incomplete. For example, metrics of total medical expenditure so far apply only to a minority of Partners’ patients (those in its HMO plans). This sets the scene for endless debates on data, not forceful remedies. All too predictably, when CHIA published its annual report in September, Partners, which was the only organization whose 2013 cost increases exceeded the 3.6 percent growth cap for all three major Massachusetts health plans, attacked the calculation method — not the cost increases.
What to do? Let’s draw a line — now. The South Shore and Hallmark deal is just a symptom, but stopping it can be a first step toward cure.
I suggest denying Partners this purchase for at least three years. During that time Partners can try to prove that they can verifiably reduce both prices and total medical expenditures for their entire patient population (not just the 11 percent under at-risk contracts) substantially (how about 10 percent?) while improving the quality of care, outcomes, and patient satisfaction. After all, if they cannot contain costs and improve care with the physicians and for the populations they already serve, what reason do we have to believe that they can do it for the newly acquired markets? Partners then should be asked to show that a much of the savings achieved has been returned to businesses and workers in the form of lower per-capita costs.
At the same time, the Commonwealth should invite the US Department of Justice to re-enter the merger negotiations and apply its authority and information for antitrust scrutiny and enforcement. Twenty distinguished national antitrust experts have already weighed in against the Partners deal in a public statement. This Massachusetts matter is iconic for the whole nation, in which market after market is facing the threat of over-consolidation of health care delivery. DOJ officials can and should help.
In creating a new Massachusetts health care system, Partners needs to lead, not drag its feet. It pioneered in kidney transplants, and it can pioneer in achieving better care, better health, and far lower cost. I wish it would do that voluntarily, but monopolies rarely undercut themselves. So, using all the tools of public policy, enforcement, and information that we have as a Commonwealth, we’ll need to change the game. Partners should have no other choice than to help create a future in which health care returns to government, businesses, and workers a fair share of the money that it has for too long kept to itself.
Dr. Donald M. Berwick is former administrator of the Centers for Medicare and Medicaid Services.