Partners HealthCare soon might find itself back in court after a Massachusetts judge rejected an agreement that would have allowed the Boston-based system to acquire three hospitals. But Partners may not have better luck the second time around unless it tries a completely different approach to winning regulatory approval, legal experts say.
Massachusetts' new attorney general, Maura Healey, has threatened to sue Partners if it moves forward with the proposed acquisition of one of those facilities, South Shore Hospital in Weymouth. It was unclear Friday whether Partners would pursue the acquisitions anyway. Partners CEO Dr. Gary Gottlieb said in an e-mail to employees that the “leadership team will now take the time to evaluate all of our options.”
Some experts said Partners' chances of winning in court aren't promising if it proceeds with the proposed acquisitions of South Shore and the Hallmark Health System hospitals with campuses in Medford and Melrose. Matthew Cantor, a partner who specializes in antitrust in healthcare at Constantine Cannon in New York City, said that the decision Thursday by Suffolk Superior Court Judge Janice Sanders “seems to reflect that there is some significant merit” to Healey's objections, and that “the defenses that have been raised of efficiency by Partners at this time will not necessarily hold the day.”
Mark Botti, co-leader of the global antitrust and competition practice group at Squire Patton Boggs in Washington agreed that Sanders' decision doesn't bode well for Partners' prospects of a successful acquisition of the three hospitals. “If the case were brought before the Superior Court, I would expect that this decision might make it harder,” said Botti, a former chief of the litigation section of the antitrust division of the Justice Department.
That's not to say that Partners might not try. The health system did not have the opportunity to present its full defense of the acquisitions in the recent case before Sanders because that case was about the agreement between Partners and former Attorney General Martha Coakley, not the acquisitions themselves, Botti said. “There is still room for Partners to defend its merger,” he said. “It knows better than you or I (how) to evaluate whether it could successfully defend that challenge.”
The judge's decision was over a consent decree reached between Coakley and Partners last year to resolve an antitrust investigation into the deal. The agreement would have allowed Partners, already the largest health system in the state, to acquire the three hospitals in exchange for not raising prices beyond the rate of inflation through 2020. Competing health systems, however, called the agreement anticompetitive. Partners argued the settlement would improve care coordination and slow cost growth.
Sanders rejected the deal, saying she had “serious concerns' about its enforceability.
A Partners spokesman on Friday said his system is exploring its options on what to do next. Gottlieb, who's stepping down this year as CEO, said in a December interview with Modern Healthcare that if the judge ruled against the deal, his system would have to search for a new approach. “We'd have to figure out what elements of the strategy will be harder to implement and what levers we need to pull to move those pieces forward,” he said. “These are important hospitals. We have very strong and close relationships. They worry about being alone in this marketplace. So we have those relationships to take care of, and at the same time, we have to figure out how we move forward with the strategy.”
Moving ahead with the acquisition isn't Partners' only option. Partners or the hospitals might try to abandon the deal, depending on the terms of their agreement. Leaders of those hospitals might be thinking, “We've been hanging out here long enough in terms of making our plan and pursuing what's good for our constituents, we don't want to go through the pain, difficulties, and distraction of further litigation,” Botti said.
In that case, there's the question of whether those hospitals might want to partner with a different health system and if so, which one. Representatives of Hallmark and South Shore on Friday said they were exploring their options and declined to say whether they were looking into affiliations with other systems. Attempts to reach Boston-based Steward Health Care System for comment were unsuccessful.
It's also possible Partners could try to fashion a different sort of agreement with the state to acquire the hospitals, Botti said.
Offering structural changes, such as divestments, often has been a more successful strategy than price caps in reaching antitrust agreements with regulators, experts say. “Anti-trust precedent is legion in saying an otherwise anticompetitive merger is not remediated by price caps,” Cantor said. It's possible, he said, that Healey's threat to sue Partners if it moves forward with the acquisitions is an attempt to get Partners to offer other concessions, such as divesting physician practices or hospital assets, before it takes on the three hospitals, Cantor said.
Cantor and Botti agree that Judge Sanders' decision would send a signal to other hospitals that settlements in mergers will be more successful if they include structural changes such as divestments rather than just conduct-based measures such as price caps. “This is a significant decision because I think you're going to have a lot of merging hospitals see that now a price cap remedy did not facilitate their merger,” Cantor said.
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