Independent commission reviewing Beth Israel-Lahey Health merger

The Massachusetts Health Policy Commission has begun reviewing the planned merger between Beth Israel Deaconess Medical Center, Lahey Health and several other hospital systems that would create the second-largest healthcare network in the state.

The commission on Tuesday launched its analysis of the deal involving Beth Israel in Boston and Lahey in Burlington, as well as Boston's New England Baptist Hospital, Mount Auburn Hospital in Cambridge and Anna Jaques Hospital in Newburyport and its impact on healthcare costs, quality and access.

The combination would put the new system behind Partners HealthCare and its nearly $14 billion in total revenue in 2017, but the combined entity would have a network of 10 hospitals, which would be the largest in the state. It would also have three affiliate hospitals in Cambridge Health Alliance, Lawrence General Hospital and Metrowest Medical Center and more than 4,000 physicians.

"As far as I know, this is as comprehensive of a review of complex mergers as any area in the U.S.," said Dr. Stuart Altman, chair of the Massachusetts Health Policy Commission.

The combined entity would have the second-largest inpatient, outpatient and primary-care market shares in the state—nearly equal to Partners—which would likely affect its leverage to negotiate hospital and physician prices, according to the commission's preliminary report. A Beth Israel-Lahey system and Partners would control about half of the state's inpatient market.

The healthcare executives involved claim that they would be able to funnel more care from higher-cost institutions and ultimately lower spending. Aside from being able to compete with Partners, the executives said the merger will allow them to contain costs and improve care by offering "comprehensive, coordinated services across complementary geographies."

Beth Israel said in a statement that it welcomes the commission's review and the chance to prove how it can achieve those goals.

But changes in referral patterns could draw patients away from lower-priced and independent competitors as well as higher-priced competitors, the commission said in its preliminary report.

"What we have found when there is merger, some doctors of hospitals or outpatient clinics get changes in payment because they have a different contractual relationship with payers," Altman said. "That leads to increased spending."

That was the case when the commission studied Partner's bid for Boston specialty hospital Massachusetts Eye and Ear, which would have increased health spending up to $61 million a year, according to its analysis.

The merger is emblematic of a wave of horizontal and vertical consolidation that seeks to lower costs and better coordinate care by leveraging scale. Antitrust regulators are tasked with determining whether the highly touted efficiencies are attainable without merging, and if the savings will ultimately result in lower healthcare costs for consumers, or if the combined system would use them for other investments.

While other types of partnerships may not create efficiencies of scale, hospitals can collaborate through clinically integrated networks and other risk-sharing arrangements, said Joe Lupica, chairman of Newpoint Healthcare Advisors.

"Hospitals don't necessarily have to give in to the brute force of a merger to collaborate," he said.

Consolidation can give health systems more leverage in negotiating more favorable rates with insurers, which often means that employers and consumers pay higher premiums.

Mergers like this can lower costs, but that doesn't mean the savings will be passed to consumers, especially given the gradual transition to capitation and more risk-based contracts, Lupica said.

"Efficiencies can create lower costs for systems, but if the merger creates undue market concentration, then not only may that cost not be passed onto consumers, there is a good chance that the cost to consumers will rise even if the costs to systems are reduced," he said.

Altman echoed that sentiment. "Let's be clear, just because an institution gets efficiencies and saves money doesn't mean that translates to lower costs and lower spending," he said.

Massachusetts ranks as having among the best healthcare delivery systems in the country. Its growth in overall health spending of 2.8% in 2016 was below the U.S. average of 4.3%, but there is still wide variation in cost. Spending at the highest-cost facility was 36% higher than the lowest-cost organization. Massachusetts still directs a lot of care through academic medical centers, including Beth Israel's affiliation with Harvard Medical School, which often have higher costs.

One of the main goals of the Massachusetts Health Policy Commission is to move more care from hospital outpatient settings to lower-cost offices and independent facilities. Medicare beneficiaries in Massachusetts visited a hospital outpatient setting for routine office visits at more than twice the national rate, resulting in roughly double the cost when compared to the U.S., according to the commission. When physicians are employed by larger health systems, their referral patterns favor higher-cost care within the system, healthcare economists found.

"The indications are that we could do a better job of keeping care in the community—some services don't have to go to an academic medical center," Altman said.

Both Beth Israel and Lahey have expanded significantly over the past several years, which gives the commission plenty of data and information to study. Overall, those deals reflect positively on cost and quality, but there is "a lot to learn in the latest study," Altman said.

Beth Israel and Lahey first proposed a merger in 2011, but plans fell through. The systems initiated another round of merger talks in January.

The commission will be keeping a close eye on how this merger would impact patient flow and what type of patients it would attract, especially minorities, Medicaid patients and others who typically aren't covered as well as other populations, Altman said. It will also be particularly mindful of maintaining behavioral health services, of which there is a shortage in Massachusetts, he said.

The commission has 180 days to review the pros and cons of the merger. It would then send its report to the attorney general and the state, which will have the power to approve or deny the deal.

"This is what's happening all over the country," Altman said.