Don’t Pop the Cork Just Yet—Growing Criticism of Massachusetts AG’s Settlement with Partners Healthcare Just Might Send the Parties Back to the Drawing Board

by BakerHostetler
Contact

After touting a proposed settlement with Partners HealthCare (Partners) that supposedly would “fundamentally alter [Partners’] negotiating power for 10 years and control health costs across [Partners’] entire network,” Massachusetts Attorney General (AG) Martha Coakley is now playing defense trying to fend off criticism of the deal that just might send the parties back to the drawing board. With the Massachusetts Health Policy Commission (HPC) the latest to cry foul over the deal—a number of Partners’ competitors already have lined up against the deal, including Atrius Health, Beth Israel Deaconess Medical Center, Cambridge Health Alliance, Lahey Health Systems, Tufts Medical Center, and other hospitals and physician groups—the AG’s spokesman recently noted that the AG’s “office always retained the option to seek to renegotiate portions of this agreement.” So, what is it about the proposed deal that is generating such backlash? 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 Corporation in 2012 and Hallmark Health Corporation in 2013, each of which operates competing hospitals in portions of Massachusetts.

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 10 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 10 years; (3) capping health costs at the rate of inflation across the entire Partners network through 2020; (4) capping physician growth for five years; (5) blocking further hospital expansion in eastern Massachusetts, including Worcester County, for the next seven years; and (6) appointing an independent monitor to be chosen by the AG and paid for by Partners to ensure adherence to the terms of the settlement agreement.

What is it about the proposed deal that is generating all the fuss? In HPC’s view, based on “review of the data and evidence,” there are several flaws: (1) “[f]or the three major commercial payers, the combined transactions are anticipated to increase total medical spending by more than $38.5 million to $49 million per year as a result of unit price increases and shifts in care to higher-priced Partners facilities (provider mix)”; (2) the “resulting consolidated system is anticipated to have increased ability and incentives to leverage higher prices and other favorable contract terms in negotiations with payers (bargaining leverage), the costs of which are not included in the above projection”; and (3) “the parties to these transactions have not provided adequate evidence of how corporate ownership is instrumental to achieving the desired care delivery reforms, and their own experience and that of other providers offer compelling alternative approaches to effectively improving coordinated care delivery.”

According to HPC, under the proposed deal, “Partners appears to retain certain flexibility to allocate price increases across providers to maximize revenue and market position.” HPC says that “without an individual price cap, Hallmark providers may experience unit price growth faster than the rate of general inflation,” and that “[s]uch price increases would set a permanently increased baseline upon which future price increases would be negotiated and permanently increase baseline total medical spending, and premiums, in an area of the state that has thus far not experienced the market impact of a local, high-priced Partners facility, including by impacting providers who refer their patients to Hallmark.” “[W]ithout lasting change to the market structures and incentives that underlie the operation of bargaining leverage,” HPC says that “price caps on their own may not be effective in keeping costs down.”

HPC also thinks that the proposed deal does not fully account for the “material price impact of shifts in patient care to higher-priced Partners providers.” “Specifically,” HPS sees the “increased spending due to shifts in patient flow to higher-priced providers is not included in the agreement’s unit price constraint, but rather would be measured as increases in total medical expenses (TME)” and, “[s]ince the agreement only monitors the TME for Partners’ commercial risk business, anticipated increases in TME as Partners grows its non-risk books of business, currently including Preferred Provider Organization (PPO) and non-risk Health Maintenance Organization (HMO)/Point of Service (POS) patients, are not monitored.”  HPC also says that the proposed “agreement also does not monitor the TME of patients associated with other provider systems who receive some of their care from Partners, [South Shore Hospital], and Hallmark facilities and specialists.”

And finally, while noting that the proposed agreement “aims to mitigate Partners’ bargaining leverage by allowing payers to negotiate for all or only certain components of the Partners network,” HPC noted that “the impact of this change will depend, among other considerations, on whether and to what extent payers vigorously pursue this option and on how the market responds.”

So, what’s up next for the AG’s proposed settlement with Partners? The Suffolk County Superior Court overseeing the proceeding has extended a public comment period to September 15, 2014, and has given the AG until September 25 to respond to comments. A hearing on whether to approve the deal is now set for September 29.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BakerHostetler | Attorney Advertising

Written by:

BakerHostetler
Contact
more
less

BakerHostetler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.