Massachusetts State Court Deals Significant Blow to Partners Healthcare Hospital Mergers

On Jan. 29, 2015, Massachusetts Superior Court Judge Janet Sanders rejected a proposed consent judgment that would have allowed Partners Healthcare—a 10-hospital and 6,000-physician system (and the largest health system and private employer in Massachusetts)—to acquire three of its direct-competitor hospitals just north and south of Boston, while adding hundreds of doctors to the Partners network. Commonwealth v. Partners Healthcare Sys., Inc., No. SUCV2014-02033-BLS2, 2015 Mass. Super. LEXIS 4 (Mass. Super. Court, Suffolk County, Jan. 29, 2015).

When the three hospital mergers were announced in 2012-2013, the Massachusetts Attorney General’s Office expanded its then-ongoing investigation of Partners—in concert with the U.S. Department of Justice— as to whether Partners’ negotiating with insurers on behalf of Partners unaffiliated physicians violated consumer protection laws. The Attorney General and Partners reached an agreement that was simultaneously filed in Superior Court with the Attorney General’s complaint seeking to block the mergers. Under the proposed settlement, Partners agreed to price caps, including: a general cap on raising providers’ rates on commercial business above the lower of either medical or general inflation, and a “[t]otal [m]edical [e]xpense” cap on business for which Partners bore “commercial risk” (i.e., reimbursements from HMOs), but excluding programs such as privately managed federal reimbursement programs (e.g., Managed Medicare). Both caps would expire after six and a half years, at which point Partners could revert to rates that, according to Judge Sanders, were “undisputedly high.”

Partners also agreed to non-price restrictions. First, insurers would be able to purchase à la carte access to the Partners network, as opposed to only the more-expensive entire network, but only for seven years followed by a more restricted three years. Second, and also time-limited, Partners could no longer negotiate on behalf of physicians with insurers to garner higher reimbursement rates, unless the physicians were Partners affiliates or members of affiliate physician groups. And, third, the proposal imposed a five-year physician and network growth cap, but set at 2012 baselines when Partners’ medical staff numbers were at their highest, and the Attorney General was granted approval authority for all Partners eastern Massachusetts hospital acquisitions for over seven years.

The parties agreed that although the case was pending in a Massachusetts state court, they would follow the procedures of the Tunney Act, 15 U.S.C. § 16, which applies to federal antitrust actions. After receiving public comments and conducting hearings, on Jan. 29, 2015, Judge Sanders rejected the settlement on two primary grounds. First, she believed the deal was not in the public’s interest, as it would “cement Partners’[s] already strong position in the health care market and give it the ability, because of this market muscle, to exact higher prices from insurers for the services its providers render,” and hurt consumers due to higher premiums and deductibles in their insurance plans. The Judge also rejected the price caps and conduct-based remedies as being insufficient to offset the anticompetitive effects of the mergers.

Second, the Judge did not believe the court could properly oversee and enforce the settlement. The court would be required to oversee the monitoring and implementation of the settlement over for 10 years, during which the health care system is expected to continue to face significant and complex changes.

The court’s rejection of the settlement could have significant implications for other health care providers seeking to expand their networks through acquisitions or mergers. As the court noted, it is not typical for a state Attorney General, rather that the DOJ or FTC, to challenge a hospital merger. It also it not typical for court—federal or state—to reject a proposed settlement agreement between the enforcement agency and the merger parties. Whether these shifts represent new trends or are unique to Partners remains to be seen.

Judge Sanders’s decision is available here.