Report raises concerns about potential Massachusetts health system merger

Les Masterson

Oct. 1, 2018

Dive Brief:

• A new report by the Massachusetts Health Policy Commission (MHPC) raised multiple concerns about the proposed merger between Beth Israel Deaconess Medical Center and Lahey Health and referred the matter to the state attorney general's office.
• The independent state agency said the merger could lead to healthcare spending increasing by between $128.4 million and $170.8 million annually for inpatient, outpatient and adult primary care services. Other spending impacts include another $29.8 million to $59.7 million annually for specialty physician services.
• The commission said the merger could lead to improved quality and efficiency, but that the companies hasn't provided a specific plan on how that would happen.

Dive Insight:

Public officials have watched this deal since its announcement, raising the issue of potential market concentration and the resulting ability to hike up prices. As M&A in healthcare continues its steady pace, regulators will continue to examine the issues.

The Massachusetts commission said the organizations involved in the merger, which include multiple facilities in the eastern part of the state, have traditionally had low to moderate prices and moderate spending levels compared to other Massachusetts providers. In fact, recent acquisitions by Beth Israel and Lahey haven't changed spending trends.

However, after the potential transaction, the combined company's market share would equal Partners HealthCare System, which is the largest health system in Massachusetts. Market concentration would increase substantially with the newly formed company gaining "enhanced bargaining leverage with commercial payers," according to the commission.

It estimated that the bargaining leverage would allow the new company to increase commercial prices. This added power could lead to more healthcare spending.

The health systems' plans to shift care to lower-cost settings within the combined entity would result in savings, but "there is no reasonable scenario in which such savings would offset spending increases if BILH obtains the projected price increases," according to the Commission.

"To date, the parties have not committed to constraining future price increases, despite the fact that their own financial projections indicate that they expect internal efficiencies and new revenue that would allow BILH to invest in its proposed care delivery programs and enable BILH to be profitable without significant price increases," the report added.

Another concern is the patient mix. The hospitals in the proposed system have a lower Medicaid patient mix on average and also care for a smaller portion of non-white patients than other large eastern Massachusetts systems. The impacted communities are also more affluent than average. The commission said it's not clear how the merger might affect those patient mixes.

With the report finalized, the merger proposal goes to Massachusetts Attorney General Maura Healey, who has raised her own concerns about the deal. A spokesperson for her office told Healthcare Dive on Friday that the office shares the commission's concerns about the proposed merger.

The official said the AG’s office is "engaged in ongoing discussions" with Beth Israel and Lahey representatives "on enforceable conditions to address cost and access concerns, particularly for low-income communities and communities of color."

"We will carefully review the final report, including the HPC's referral and recommendations," the spokesperson said.

The proposed merger would create a large competitor to Massachusetts' other health system, Partners HealthCare, which also has its own health insurance company (Neighborhood Health Plan, which is becoming AllWays Health Partners in January). Partners has also explored its own plans in recent months, including expanding its footprint to Rhode Island. 

Though health systems usually merge and consolidate to expand their footprints with the goal of efficiencies, a recent analysis by the National Bureau of Economic Research found that acquired hospitals save only 1.5% of total costs after a deal. That’s an annual average savings of $176,000.

Despite questions about how much systems are actually savings from these deals, M&A remains red-hot in healthcare. The Commonwealth Fundrecently said providers are consolidating faster than payers. Deloittepredicted that, if the consolidation trend continues, only half of the current health systems will remain in the next decade.

PricewaterhouseCoopers said the second quarter of the year was the 15th quarter in a row with more than 200 healthcare M&A deals.

https://www.healthcaredive.com/news/report-raises-concerns-about-potential-massachusetts-health-system-merger/538475/