For Immediate Release - May 19, 2014

AG Coakley Reaches Agreement in Principle with Partners HealthCare

Comprehensive Agreement will Fundamentally Alter Partners’ Negotiating Power for 10 Years; Cap Prices, Physician Growth, and Hospital Expansion for Entire Partners Network

BOSTON – In a resolution that would fundamentally alter the negotiating power of Partners HealthCare for 10 years and control health costs across its entire network, Attorney General Martha Coakley today announced a groundbreaking agreement with Partners that would allow the organization to acquire South Shore Hospital and Hallmark Healthcare.

 The agreement in principle reached today still must be finalized between the parties by June 16 and then approved by a Court. It is the result of an extensive investigation by the Attorney General’s Office and the Department of Justice into the organization’s contracting practices and into Partner’s intentions to purchase South Shore and Hallmark hospitals.

The conditions set forth in the agreement include: allowing payers to split Partners into separate contracting entities for up to 10 years; preventing it from contracting with affiliate physician groups that are not part of its owned hospital for 10 years; capping health costs at the rate of inflation across the entire Partners network through 2020; capping its physician growth for five years; and blocking further hospital expansion in eastern Massachusetts, including Worcester County, for the next seven years.

“Suing Partners would potentially block further expansion of its network, but would also maintain the status quo in the market,” AG Coakley said. “We believe this agreement will do much more. It fundamentally reduces the negotiating power of Partners for the next 10 years to better control health costs for families and businesses, and help level the playing field in the market.”

The Attorney General’s Office and the Department of Justice have been conducting an antitrust investigation into Partners Healthcare for months. In February, the Health Policy Commission (HPC) released a report concluding that Partners’ acquisition of South Shore would result in increased costs and referred the report to the AG’s Office for further investigation.

Following this investigation, the terms included in this agreement-in-principle include:

Component Contracting – 7 to 10 years

Payers will now be allowed to contract with Partners Network providers on a component basis, reducing Partners’ bargaining power in the market. Those components will include: academic medical centers, community hospitals and physicians, South Shore Hospital, and Hallmark Health Systems. The academic medical centers and community hospitals will remain separate components for 10 years. South Shore and Hallmark will remain separate components for seven years and then become part of the community hospital group.

Restriction on physician affiliate contracting – 10 years

Partners will cease joint contracting on behalf of non-owned physician group affiliates outside its own physician hospital organizations. This has traditionally been a way that Partners has expanded its market reach as compared to other providers. This restriction would also not apply to physicians employed within the Partners network.

Comprehensive Partners network price growth restriction – 6.5 years

Partners cannot raise costs across its network more than the rate of general inflation, which over the last several years has averaged between one to two percent and has stayed well below the medical market’s average. The inflation rate is also well below the rates traditionally negotiated by Partners over the past decade and the current Health Policy Commission benchmark of 3.6 percent. This price restriction covers all of Partners providers, including hospitals, out-patient facilities, physicians, health care professionals, and all other related Partners billed services. In any year that Partners does not comply with this cost freeze, it will refund the amounts charged or received.

South Shore Hospital price growth cap – 6.5 years

South Shore Hospital’s individual rates also are frozen at a rate of general inflation. This separate price restriction will help directly address the cost concerns raised by the referral from the Health Policy Commission’s “Market Impact Review.”

Physician growth restriction – 5 years

The number of Partners network community physicians shall not exceed the Partners 2012 baseline physician level for three years. Partners then cannot grow its community physicians by more than two percent for years four and five. All AMC physicians practicing outside metro Boston will be counted toward this community physician cap.

Hospital growth restriction – 7 years

Partners is prevented from acquiring hospitals in eastern Massachusetts – defined as Worcester County and areas further east – absent review and approval by the Attorney General’s Office.  Emerson Hospital, a current Partners affiliate, is not included in the agreement.

Chief of the AG’s Antitrust Division Will Matlack, Assistant Attorneys General Matthew Lyons, Michael Franck, Michael MacKenzie, Paralegal/Economic Analysis Daniel Van Lunen, Assistant Attorney General and Chief of the AG’s Healthcare Division Tom O’Brien and Deputy Attorney General Chris Barry-Smith worked on this case.

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