Massachusetts AG Defends Partners M&A Deal

The office of the Massachusetts attorney general responds to public comments on a settlement pact between the state and its largest employer, Partners HealthCare. The agreement, it concludes, is better than the likely outcome of a lengthy court battle.

The showdown is set.

Massachusetts Attorney General Martha Coakley has filed her office's response to the final set of public comments filed on a merger and acquisition settlement between Partners HealthCare and state officials.

Partners HealthCare, the largest private employer in Massachusetts has been on a years-long quest to expand further and consolidate its holdings. The contentious matter reached a pivotal point in a Boston courthouse last week with the filing of the AG's response.

Coakley and Partners reached the settlement pact earlier this year to resolve an antitrust case the AG had pressed in Suffolk Superior Court over the health system's M&A plan, which features the acquisition of three suburban hospitals.

Partners HealthCare M&A Deal Under Scrutiny

In the response document Coakley's office file last week, the AG calls on the state court to approve the settlement deal on several grounds:

• The settlement advances the public interest, including measures such as a healthcare service price cap over a period of several years that helps address "the harms threatened by Partners' acquisitions."
• Broad policy concerns raised in public comment letters filed by foes of the settlement deal are beyond the state's authority. "Most of these comments are grounded in advocacy about important healthcare matters, but the issues raised by these organizations are often outside the antitrust principles and analysis that supports the Commonwealth's Complaint," Coakley's office wrote.
• The settlement deal is clear and enforceable. "The price cap cannot be gamed in any meaningful way," the AG's office wrote, adding, "Partners' ability to negotiate different price increases for different services is unlikely to materially cause its revenues to increase at a rate greater than the price cap."

The conclusion of the AG's response letter claims the settlement pact is better than the likely outcome of a lengthy court battle. "Accounting for all the fully investigated facts, the realities of litigation risk, and the broad, immediate and effective remedies contained in the settlement, this Consent Judgment is superior to uncertain and prolonged litigation," Coakley's office wrote.

On Nov. 10, Suffolk Superior Court Judge Janet Sanders is set to hear oral arguments from the AG and Partners on why their proposed settlement deal is in the public interest. After that hearing, the fate of the settlement pact is expected to be in Sanders' hands.

Opposition Remains Entrenched
The last round of public comment letters filed on Partners' M&A plan focuses on revisions to the proposed settlement deal between the health system and Coakley's office. The comment letters, which were submitted by a court-ordered Oct. 21 deadline, include expressions of stiff opposition.

Laura Pellegrini, president and CEO of the Massachusetts Association of Health Plans, filed a direct but polite comment letter on behalf of the group's 17 insurers, which provide healthcare coverage for 2.6 million Bay State residents. "We recognize the effort that has gone into the investigation and proposed judgment, but believe the amended provisions fail to address our overriding concern that the proposed judgment will not remedy the market dysfunctions it seeks to correct and could have the unintended effect of increasing healthcare spending," she wrote.

Attorneys for the Washington, DC-based American Antitrust Institute are equally skeptical in their comment letter submitted on Oct. 21. "We ultimately conclude, as we did in our original comments, that the proposed consent should be rejected as not in the public interest because it does not adequately remedy the competitive harms alleged in the complaint and it will be difficult and costly for the judiciary to enforce," the attorneys wrote.

The AAI attorneys raise several criticisms of the price caps in the proposed settlement deal, including the ability of the court to enforce the price caps; the likelihood that the price caps "provide, at best, only temporary relief;" and "concerns that the price caps do not apply to Medicaid Managed Care or Medicare Advantage."

Rigorous M&A Review Process
To boost coordination of care and shore up their finances, health systems from coast to coast have launched a wave of M&A efforts. Partners has faced a particularly arduous journey in its attempt to acquire South Shore Hospital in South Weymouth, MA and two other suburban hospitals.

Partners has been in acquisition talks with South Shore Hospital for three years, according to a health system official. In May, Coakley struck a settlement deal on Partners' proposed M&A plan, sparking a legal inferno in Suffolk Superior Court.

An aspect of the court battle that is unique to Massachusetts is a new state healthcare law adopted in 2012: Chapter 224. In a comment letter filed at the attorney general's office on Oct. 21, Stuart Altman, PhD, chairman of the state Health Policy Commission, describes a critical provision of Chapter 224 that establishes Cost and Market Impact Reviews for healthcare organization transactions.

The CMIR process includes "public assessment of a broad spectrum of potential impacts from healthcare market changes, ranging in changes from cost, quality, and market performance to impacts on the availability and accessibility of services," Altman wrote.

Under Chapter 224, the Health Policy Commission bears responsibility for conducting CMIR investigations. If the CMIR process raises any red flags, a report is filed with the attorney general's office. After conducting a CMIR probe of Partners' M&A plan, the Health Policy Commission filed two reports with Coakley's office: one on the proposed South Shore Hospital acquisition and the other on Partners' proposal to acquire Hallmark Health System, which includes a pair of hospitals in Medford and Melrose.

Coleen Elstermeyer, chief of staff at the Health Policy Commission, says Massachusetts is leading the nation in conducting rigorous reviews of health system mergers and acquisitions. "To our knowledge, Massachusetts' CMIR process is unique; no other state has authorized such broad, policy-oriented reviews that enable the public and policymakers to assess the cost, quality, and access impacts of health care transactions. Such reviews are distinct from, but may complement, administrative determinations of need and law enforcement reviews," she says.

Rich Copp, Partners' VP of communications, says opponents of the health system's M&A plan have turned the CMIR process to their advantage. "Judge Sanders is being asked to approve a settlement agreement arising out of a complaint filed by the AG alleging antitrust violations. These allegations are being asserted based on extensive antitrust investigations that were conducted by the AG and the federal Department of Justice into Partners' past contracting practices and proposed acquisition of SSH and Hallmark."

"The Health Policy Commission's findings, pursuant to Chapter 224, are merely part of the input that the DOJ and the AG considered in reaching their conclusions. But the public nature of the HPC's process has allowed competitors and payers to express their opposition in a forceful way."

Copp says the CMIR process has placed Partners' M&A plan under unprecedented scrutiny. "Thus far, the judge has opted to continue to let those voices be heard as she considers whether to approve the settlement. Most courts would yield to the judgment of the DOJ or a state AG to settle a case, given the well-established legal principle of prosecutorial discretion."