Beth Israel Deaconess, Lahey Health executives counter their combination's cost-raising concerns

Health system executives involved in the proposed Beth Israel Deaconess Medical Center and Lahey Health System tie-up sharply criticized the Massachusetts Health Policy Commission's conclusion that the merger would raise healthcare costs, claiming that its methodology was flawed and that the deal would ultimately save money.

Health system executives said that the marriage would level the playing field, facilitating "market-based competition to address unwarranted price variation and other market dysfunction." The systems believe the merger will yield an estimated $149 million to $270 million in annual savings five years after the merger is completed.

The deal involves Beth Israel in Boston and Lahey in Burlington, Mass., as well as Boston's New England Baptist Hospital, Mount Auburn Hospital in Cambridge and Anna Jaques Hospital in Newburyport. The combined entity would have a network of 10 acute-care hospitals, the largest in the state. It would also have three affiliate hospitals in the Cambridge Health Alliance, Lawrence General Hospital and Metrowest Medical Center and more than 4,000 physicians.

The combination would put the new system behind Partners and its nearly $14 billion in total revenue in 2017. It would ultimately lower costs, in part by luring patients from Partners, executives argued in a 64-page rebuttal to the commission's estimation that the merger would give the provider leverage to increase healthcare spending by $168.1 million to $251 million per year, which would outweigh the "efficiencies."

The commission's projections have been wrong before, the executives said in their rebuttal. When Lahey acquired Winchester Hospital in 2014, the commission used the same "willingness-to-pay" model to predict a 4% to 5% increase in prices. But prices did not materially change.

The Beth Israel-Lahey system would fill a void in clinical services including behavioral health treatment, and blocking the deal would reduce access, executives argued.

"The preliminary report grossly overstated the potential impact of the merger on pricing and commercial spending in Massachusetts," according to the rebuttal.

They systems estimate that redirecting care from higher-priced providers would net $9 million to $14 million in savings, integration would net $52 million to $87 million, cost synergies would save $42 million to $66 million and other savings would yield $46 million to $103 million.

Specifically, more behavioral health services would cut down on emergency department use and save $23 million to $58 million a year five years after the merger, according to the rebuttal. A consolidated home health program, improving population heath initiatives and reducing unnecessary post-acute care would reduce costs by $15 million annually. Bundling pharmaceutical contracts, allowing pharmacists to work closer with high-risk patients and tweaking the formulary would net $8 million a year. Implementing a system-wide nurse triage program for primary care, reducing administrative burden and improving workforce development would save an additional $6 million a year.

Also, the merged entity would develop a more streamlined ambulatory-care network, standardize purchasing, reduce the outsourcing of certain commercial reference laboratory testing services, and centralize claims and clinical data for population health analytics, executives contend.

The hospital executives argue that maintaining the status quo would hurt Massachusetts residents, since the systems reported a combined operating loss of $70.8 million a year in fiscal 2017 and would likely have to pare down services.

Merging would create a bona fide competitor to Partners and force the provider to lower its prices, a factor that the commission's willingness-to-pay model did not calculate, according to the rebuttal.

The Massachusetts Health Policy Commission found that the Beth Israel-Lahey merger would increase its bargaining leverage with commercial payers and potentially allow it to boost prices around 5% to 10%, increasing spending by an estimated $138.3 million to $191.3 million annually for inpatient, outpatient and adult primary-care services. Specialty physician services spending could increase by an additional $29.8 million to $59.7 million. These conservative price hike estimates would still result in lower prices than Partners, the commission found.

There is limited research proving that a second dominant provider would benefit competition, said Cory Capps, partner at consulting firm Bates White said at the commission's July 18 hearing. Also, the potential cost savings derived from the merger would not offset the potential to hike prices with increased bargaining leverage, Capps said.

The Massachusetts Association of Health Plans and the Massachusetts attorney general agreed with the commission.

The commission, which notably does not have veto power over the proposed merger, plans to issue a final report in September.