For Immediate Release - June 24, 2014

AG Final Resolution with Partners Would Alter Provider's Negotiating Power, Restrict Growth and Health Costs

BOSTON –In a resolution that will fundamentally alter the provider’s negotiating power for 10 years and control health costs across its entire network, Attorney General Martha Coakley today reached a final agreement with Partners HealthCare resolving her office’s antitrust investigation into the organization.

Filed in Suffolk Superior Court today, the consent judgment is expected to be considered by a judge at a hearing at a later date. If approved by the court, the consent judgment will resolve an antitrust investigation by the Attorney General’s Office into Partners and its acquisition of South Shore Hospital.

“Our office was the first to shine a light on the ability of Partners to charge higher prices based on its negotiating power,” AG Coakley said. “Today’s resolution is the first action of its kind to directly address that market dysfunction. While a lawsuit could have blocked Partners’ expansion to South Shore Hospital, it also would have maintained the unacceptable status quo in the health care market. Today’s resolution goes well beyond that by reducing the negotiating power of Partners, limiting its ability to acquire physicians, and controlling costs across its entire network.”

The Consent Judgment is the result of extensive investigations into Partners’ market conduct and proposed acquisitions. The Office of the Attorney General issued its first Civil Investigative Demands regarding Partners’ conduct and affiliation practices in 2009.  Following Partners’ announcement of its proposed acquisitions of South Shore in 2012, and of Hallmark in 2013, the Attorney General issued additional Civil Investigative Demands to evaluate the likely competitive impact of those proposed acquisitions. 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.

As part of these investigations, attorneys and staff of the Attorney General’s office and their experts have reviewed hundreds of thousands of documents, compiled and reviewed economic projections, interviewed witnesses, and conducted depositions of relevant market participants.  The Attorney General also coordinated her investigation with that of the Antitrust Division of the Department of Justice. Staff and experts of each office often worked together to examine the potential competitive effects of the various transactions and practices at issue. 

The conditions set forth in the agreement include: allowing payers to split Partners into separate contracting entities for up to 10 years; preventing Partners from contracting with affiliate physician groups that are not part of its owned hospitals 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.

A monitor, selected by the AG’s Office and paid for by Partners, will ensure that every part of the agreement is fulfilled over the duration of the consent judgment. If Partners violates the terms of the consent judgment, the organization could be held in contempt of court and face penalties.

The HPC has not yet completed its review of the proposed Hallmark transaction. The Consent Judgment includes a provision requiring that Partners and the Attorney General confer to seek to mitigate any material price impacts predicted by the HPC in its final review as a result of the proposed acquisition.    

Following this investigation, the terms included in the consent judgment today include:

Component Contracting – 7 to 10 years

Payers will 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 its costs across its network more than the rate of general inflation, which over the last several years has averaged between one and two percent and has stayed 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 services, 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 to payers the amounts charged or received.

South Shore Hospital price growth cap – 6.5 years

Independently, South Shore Hospital’s prices will also be limited to the 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 will not exceed the Partners 2012 baseline physician level for three years. The acquisition of South Shore Hospital means that Partners will be within 200 physicians of the 2012 levels. Partners then cannot grow its community physicians by more than two percent for years four and five. All community physicians as well as AMC physicians practicing in the community 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 subject to this discretionary review. However, any proposed purchase of Emerson by Partners would be subject to HPC review and antitrust review as all other hospital acquisitions.

Independent monitoring – 10 years

An independent monitor will be chosen by the Attorney General’s Office and paid for by Partners to ensure that Partners adheres to the terms of the agreement. If Partners violates the terms of the consent judgment, the organization could be held in contempt of court and face penalties.

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 Public Protection and Advocacy Bureau Mary Freeley, and Deputy Attorney General Chris Barry-Smith worked on this case.

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