Let The Rejoicing Begin, Or Not—Massachusetts AG’s Settlement With Partners Healthcare Is No Harbinger of Things to Come

by BakerHostetler
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After almost half a dozen years of investigating Partners HealthCare’s (Partners) contracting practices and its proposed acquisitions of two competing hospital systems, Massachusetts Attorney General (AG) Martha Coakley announced a “final resolution” that she says “will fundamentally alter [Partners’] negotiating power for 10 years and control health costs across [Partners’] entire network.” But before you run off thinking what’s happened in Massachusetts is some kind of a road map for you to follow to get your proposed transaction across the finish line, you’d better think twice. But first, some background.

Back in 2009, the AG’s office began its investigation into Partners’ “ability to extract high prices in contract negotiations with payers,” because of “its effective ability to demand ‘all or nothing’ contracting with the health insurers”—that is, “the payers are effectively required to take the entirety of the Partners network, or take none of it and have no Partners hospitals or providers within the insurer’s network of providers.” The AG’s investigation also focused on Partners’ practice of “joint contracting with certain affiliated providers who are not owned by Partners”—that is, “health care providers who are not owned or employed by Partners but on whose behalf Partners negotiates reimbursement rates with payers.” The AG expanded its investigation to include Partners’ proposed acquisitions of South Shore Health and Education Corp. in 2012 and Hallmark Health Corporation in 2013, each of which operates competing hospitals in portions of eastern Massachusetts. The AG’s office didn’t go it alone either. It “coordinated” its “investigation with that of the Antitrust Division of the Department of Justice,” and “reviewed hundreds of thousands of documents, compiled and reviewed economic projections, interviewed witnesses, and conducted depositions of relevant market participants.”

In the AG’s view, the proposed settlement “is the first action of its kind to directly address [the] market dysfunction” caused by “the ability of Partners to charge higher prices based on its negotiating power” and “goes well beyond” simply blocking Partners’ proposed acquisitions “by reducing the negotiating power of Partners, limiting its ability to acquire physicians, and controlling costs across its entire network.” How you may ask? By (1) allowing payers to split Partners into separate contracting entities for up to ten years—that is, academic medical centers, community hospitals and physicians, South Shore Hospital and Hallmark Health Systems; (2) preventing Partners from contracting with affiliate physician groups that are not part of its owned hospitals for ten years; (3) capping health costs at the rate of inflation across the entire Partners network through 2020; (4) capping its physician growth for five years; (5) blocking further hospital expansion in eastern Massachusetts, including Worcester County, Massachusetts, for the next seven years; and (5) appointing an independent monitor to be chosen by the AG’s office and paid for by Partners to ensure that Partners adheres to the terms of the settlement agreement.

Why isn’t the AG’s settlement with Partners some kind of a road map for you to follow to get your proposed transaction across the finish line? First and foremost, most provider transactions are investigated by the Federal Trade Commission (FTC), which is in the middle of an impressive winning streak blocking provider transactions (both hospital and physician acquisitions). (The FTC typically takes the lead in investigating provider contracting issues too.) The FTC’s preferred remedy also is structural (divestiture) in transacts, not conduct-oriented (like in the case of Partners). And finally, the outcome in Massachusetts is unique, because the AG’s investigation into the two proposed acquisitions grew out of the existing investigation focused on Partners’ contracting practices. Against this backdrop, it is not at all surprising that the AG took the lead in attempting to negotiate a comprehensive resolution covering the investigation into the acquisitions and contracting practices. It is highly unlikely that the FTC would horse-trade conduct restrictions and price caps (like in the case of Partners) to allow an anticompetitive transaction to close.

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