Beth Israel-Lahey Health merger clears final approval with conditions

Massachusetts' attorney general gave a conditional green light on the merger between Beth Israel Deaconess Medical Center and Lahey Health that would create the second-largest system in the state, she announced Thursday.

The conditions include a seven-year price cap; participation in MassHealth, the state's combined Medicaid and Children's Health Insurance Program; and $71.6 million in investments supporting healthcare services for low-income and underserved communities in Massachusetts.

The price cap guarantees Beth Israel Lahey Health's price increases will remain below the state's annual healthcare cost growth benchmark of 3.1% for seven years. That will prevent more than $1 billion of the potential cost increases over a seven-year span projected by the Massachusetts Health Policy Commission, according to Attorney General Maura Healey.

The conditions outlined in Healey's assurance of discontinuance also require Beth Israel Lahey Health to coordinate services with its safety-net hospital affiliates—Lawrence General Hospital, Cambridge Health Alliance and Signature Brockton Hospital—and boost access to mental health and substance use disorder treatment across the system. The resolution requires 10 years of third-party oversight to ensure compliance.

The regulatory review process is now complete and the merger is expected to close in the first quarter of next year.

"Through this settlement, Beth Israel Lahey Health will cap its prices, strengthen safety-net providers across the region and invest in needed behavioral health services," Healey said in a statement. "These enforceable conditions, combined with rigorous monitoring and public reporting, create the right incentives to keep care in community settings and ensure all our residents can access the high-quality healthcare they deserve."

The Federal Trade Commission issued a statement on its vote to close its investigation of the merger after the AG's announcement. The assessment of whether to challenge the transaction was a close call, investigators said.

"However, based on commission staff's work and in light of the settlement obtained by the Massachusetts AG, we have decided to close this investigation," the FTC said, adding, "The commission has investigated and successfully challenged many healthcare provider mergers in recent years, and we remain fully committed to using all the tools at our disposal to protect competition and consumers in this important area of the economy."

Beth Israel Deaconess said today marks an important step in making its vision a reality.

"We share their commitment to healthcare innovation in Massachusetts, and we are eager to build on the strengths of our legacy organizations and deliver on our promise to our patients, their families and our communities," Dr. Kevin Tabb, CEO of Beth Israel Deaconess Medical Center, who is slated to be the chief executive of Beth Israel Lahey Health, said in a statement.

The Massachusetts Health Policy Commission, which has produced critical reports of the merger citing a potential to increase healthcare costs by up to $251 million per year, said it commends the conditions the attorney general placed on the deal that would help mitigate its concerns. They will have a real impact on access to treatment for mental health and substance-use disorders for patients across eastern Massachusetts, the commission said.

"Moving forward, the HPC, in collaboration with Department of Public Health and the (attorney general's office), will provide substantial public oversight and accountability of this new system to ensure that it follows through on its commitments and contributes to our shared goals of reducing healthcare spending while improving access to high-quality care in the Commonwealth," said Stuart Altman, chair of the commission.

Nearly $50 million of the $71.6 million investment will fund and support affiliated community health centers and safety-net hospitals. At least $16.9 million will be used to develop and expand comprehensive behavioral health services across the organization to increase access to mental health and substance use disorder treatment. At least $5 million will be earmarked for strategic investment to boost access to healthcare for communities of color and low-income communities through community organization collaborations and other means.

The attorney general's agreement requires Beth Israel Lahey Health to make good-faith efforts to enroll all licensed providers in MassHealth within three years and submit a plan to do so within 18 months. The combined entity guarantees there will be no caps on MassHealth patients, and that it will help with a new advertising program that aims to increase MassHealth patients.

Beth Israel Lahey Health will also engage in joint business planning with its safety-net hospital affiliates, including planning for clinical service expansion or closure, and the opening, closing or expansion of facilities.

Beth Israel Lahey Health will be the second-largest system by revenue in the state, behind Partners HealthCare.

Beth Israel and Lahey executives argued that their combination is necessary to heal a dysfunctional Massachusetts healthcare market. It's the only way to check Partners, they said. Executives said they plan to expand the state's now-limited behavioral health service network, helping divert patients from costly emergency departments. They pledged to use their combined purchasing power and expertise to lower costs, which they say will outpace any potential price increases.

The main concern raised by the commission was that Beth Israel Lahey Health would have greater bargaining leverage with commercial payers that would allow it to inflate prices by 5% to 10% a year.

The merger includes 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. The commission called it one of the most complicated mergers in the country.

The combined entity will have a network of 10 hospitals, 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.