M&A Deal Sparks Courtroom Battle

In a high-stakes gamble, the biggest health system in Massachusetts is trying to get bigger, but its merger plan is in the hands of a Superior Court judge.

I expected a showdown at the court hearing this week on Partners HealthCare's quest to acquire three more hospitals in eastern Massachusetts. Instead, I witnessed a clash of constitutional titans.

On Monday, Judge Janet Sanders was scheduled to hear from lawyers representing Partners and the commonwealth's attorney general's office about why their settlement deal on the merger plan is in the public interest. The hearing was slated to last less than four hours. It took all day.

The Suffolk County Superior Court chamber in downtown Boston was packed to capacity. At least 50 people, including Attorney General Martha Coakley, sat on the pew-like wooden benches in the gallery. The jury box was filled with journalists. The lawyers representing the AG, Partners, and the hospitals slated for acquisition were seated at two tables in the center of the room.

One lawyer each was present for South Shore Hospital and Hallmark Health System, which owns two hospitals in the North Shore region of the commonwealth that Partners covets.
And an attorney for a coalition of hospitals and physician groups opposed to the settlement sat alone on a document-strewn bench across from the jury box.

The only empty seat was in the witness stand next to the judge.

'I Have to Look at the Harm Alleged'
The hearing started calmly. Sanders said she wanted answers to two primary questions: first, whether there is a basis to conclude that the settlement deal would remedy the harms alleged in the AG antitrust lawsuit that had prompted the pact and whether the settlement was enforceable.

"I have to look at the harm alleged in the complaint," Sanders said. The judge referenced passages in the AG's lawsuit, including a claim that Partners' acquisition of South Shore Hospital, Lawrence Memorial Hospital and Melrose-Wakefield Hospital would "substantially reduce competition" as well as a claim that health plans need competing providers to negotiate affordable prices for healthcare services.

The judge then quizzed the AG's legal team on her second question: why the settlement deal proposes "conduct" remedies such as price controls rather than "structural" remedies such as health system divestments to offset reduction in competition.

"A structural remedy would have required litigation," replied Assistant AG William Matlack, chief of the state agency's antitrust division. He said the AG had to weigh "the risk we would litigate and lose versus settlement."

Sanders and Matlack went back and forth on the advisability of conduct remedies in the settlement deal several times. "I'm apparently not supposed to inquire [about] your likelihood of winning [in litigation]," the judge said.

Matlack replied that the AG's office had exercised its "prosecutorial discretion" in crafting the settlement deal and advised Sanders that the court is only supposed to determine "whether the enforcement action is reasonable."

The seed of confrontation had been planted.

Antitrust Remedies Probed
Before Sanders suspended the hearing for lunch, she started digging into the specifics of the settlement deal.

Her questioning focused on price caps Partners had accepted over a period of six-and-a-half years as well the health system's concession on "component contracting." The latter provision of the settlement deal would allow payers to accept pricing arrangements that apply to the entire health system or to cut pricing deals with separate Partners bargaining units over a period of 10 years.

Matlack contended that the price caps and component contracting amount to significant counterweights to the anticompetitive impact of Partners' proposed mergers. "The combination of the price caps and the component contracting fundamentally changes the negotiation dynamic," he said.

Sanders pressed for explanations of how the price caps and component contracting would work in practice. In an exchange with Partners' lead attorney, Washington, DC-based Bruce Sokler, she asked, "Why is a price cap going to be effective here?"

"The answer is, this is an antitrust consent decree, and antitrust is about price," the attorney replied.

The judge asked the AG lawyers about the likely market outcome after the price caps were lifted. "Once the time cap expires, Partners is unfettered. They are free to do whatever they want to do," Sanders said. "It is more likely there is going to be less competition in six-and-a-half years."

Matlack revisited the specter of litigation. "The comparison is what happens if we litigate and lose. We have nothing," he told the judge, adding that no one could predict the composition of the market years into the future. "It's not a foregone conclusion [that] there will be less competition in six-and-a-half years."

The questioning reached a fevered pace. As the lunch hour approached, Sokler attempted to draw a bottom line on the settlement deal. "What happened was, there was a negotiation and a compromise," he told Sanders, "and this is what has come out. Others don't like that."

Sokler said the AG's office had the authority to cut the deal. "That's why we negotiated with them," he said.

Then the confrontation sprouted.

Coakley rose from the gallery and asked for permission to address the court, which Sanders granted.

"We have come to this really over the last eight years," the AG said, gripping either side of a small wooden podium in front of the gallery. "We set up a healthcare department in the office. We have been the only agency in this state to shine light on healthcare disparity."

Coakley made a spirited defense of the settlement deal. "We worked very hard, very diligently at it. This is about what is in the best interest of leveling the playing field given where it stands now," she told the judge. "I believe the work has been done. I believe you have the information before you to make a decision."

Sanders decided it was a good time to break for lunch.

Clash of the Titans
Although fatigue was setting in, the afternoon session had a high-stakes edge.

After finishing her probe of price caps and component contracting, Sanders turned to questions about whether the settlement was enforceable. "I think it is admittedly very complicated," she said.

As the light pouring through the courtroom windows started to fade, the judge began a line of questioning she probably regrets. Referring to the results of last week's election, she said "We do have a new attorney general [set to take office in January]. Should that new attorney general have an opportunity to look at this?" she asked the AG legal team.

Coakley, who ran an unsuccessful gubernatorial campaign, will be handing over the AG's office to fellow Democrat Maura Healey.

First Assistant AG Chris Barry-Smith all but accused Sanders of usurping the executive branch's authority. "It's critical that there not be a precedent… that work cannot continue and work cannot be finished," he told the judge.

"There's a political dynamic," Sanders insisted. "Surely, we should make sure the incoming attorney general is behind this."

Barry-Smith stood his ground. "It's the institution that is the steward of the public interest," he said.

Coakley was soon on her feet again. "I want to be clear that the decision we made had nothing to do… with the office I was running for," she said.

Sanders replied that she had not meant in any way to "impugn the integrity" of the AG.

"I think you have," Coakley quickly shot back.

After a rhetorical dance that mirrored two gladiators circling one another in a coliseum, the judge returned to an apologetic tone. "The courts try to function in a political vacuum, but there are real life things that happen," Sanders said. "I am not in any way trying to impugn your integrity."

The judge adjourned the hearing moments later. Based on comments Sanders made during the proceeding, she is not likely to issue a ruling on the settlement deal until December at the earliest.

As Coakley and her legal team headed for the lobby, I asked her whether she had planned on addressing the court. "I felt that at the end… it was important for [Sanders] to hear from me," she replied.