What Does the Beth Israel/Lahey Health Merger Tell Us?

FOR THE BETTER part of this decade, Massachusetts had been on a roll regarding its health system’s performance. Since passage of the 2006 universal health insurance law, we’ve been tops in having the lowest number of uninsured the nation. Recent national surveys on cost, quality, access, and public health from the Commonwealth Fund, the United Health Care Foundation and others show the Bay State to be best or among them. As Michael Widmer noted in his October 7 Upload piece, over the past five or so years, even the state’s performance on controlling costs has also been a national standout.

Still, history teaches that these trends can turn downward on a dime. And self-congratulations can obscure lingering and insidious system weaknesses. The current controversy over the proposed merger of Beth Israel Deaconess Medical Center, Lahey Health, and other hospitals and physician organizations into “Beth Israel Lahey Health” (BILH) brings into sharp relief underlying systemic problems that are getting worse, not better.

Last week, the state’s Health Policy Commission released its final analysis of the cost, quality, and access impacts of the merger. They estimate $158.2 to $230.5 million in added annual costs above current projections from this deal. Also last week, the health commission reported on the projected annual costs of Question 1, the November Massachusetts ballot initiative that would set statutory nurse-patient ratios in all acute care hospitals – estimating $679 to $949 million in new annual costs in our $61.1 billion state health system.

In this commentary, I consider the implications of the BILH proposal based on review of key reports and conversations with key players. My colleague, Paul Hattis, recently provided a helpful commentary in CommonWealth on ways to mitigate the impact of the BILH merger. I want to examine the larger picture.

First, BILH would have a large and negative impacts on health care cost control in Massachusetts without improvements in access for vulnerable communities or in higher quality. On average, BILH institutions today are moderately priced health systems. The merger would transform them into economic rivals to the state’s unchallenged medical care behemoth, Partners HealthCare. If approved, BILH would remain a system, like its predecessor hospitals and like Partners, that draws patients and money primarily from white, affluent communities, not disadvantaged, poorer and MassHealth dependent communities.

Second, the two state agencies with oversight authority are now seeking an agreement with BILH parties on conditions that would accompany the merger because these officials are not confident they possess necessary legal tools to stop it. The Department of Public Health, through its Public Health Council and Determination of Need process, believes it lacks authority to reject proposed mergers and acquisitions because of cost concerns. Attorney General Maura Healey can fight violations of anti-trust, public charities, consumer protection, and other laws and is not confident she can use these tools to block BILH as she did to Partners’ 2014 proposal to absorb South Shore Hospital and Hallmark Health System. (Though the Health Policy Commission is empowered to evaluate mergers and acquisitions and refer to the AG, they lack enforcement power.) The BILH deal exposes a regulatory gap that should be evaluated and addressed by the Legislature.

Third, some state officials wonder whether stopping BILH is the right thing to do. A key question is, would Massachusetts would be better off with two Partners rather than one? Officials disagree. Partners has had an uninterrupted ride since Massachusetts General and Brigham & Women’s hospitals affiliated in 1994, a deal that originally promised to cut costs, merge services, and become one system.

Instead, Partners became a price-taking monolith that leaves our two biggest hospitals as each other’s main competitors. Meanwhile, non-Partners hospitals curse at their lesser payments, at Partners’ raiding of key physicians and physician groups, and at other insults at the hands of the big kid on the block. Some Health Policy Commission members believe new competition is the only way to bring Partners down a notch or two. Some believe—like it or not—that we are heading toward more consolidation, not less, and we should get used to the notion of five or so major systems. BILH is the second, not the last.

Fourth, the BILH deal really results from state political leaders’ unwillingness or inability to address hospital payment variation. The attorney general, the Health Policy Commission, special legislative commissions, and others have documented variation for over a decade now.

The 2017-18 state legislative session that ended in July saw House and Senate bills emerge to address variation, though in strikingly different ways. Leaders’ inability to reconcile the bills led to nothing in late July. Some key health system leaders, not affiliated with Partners, objected to both bills as doing more harm than good. Prospects for another stab at this in the 2019-20 legislative session are uncertain.

Fifth, because state leaders have not addressed deep payment disparities, health industry players such as the BILH parties seek to address discrepancies themselves in ways that—as the Health Policy Commission report makes clear—will do more harm than good. This reminds me of the mid-to-late 1980s, when Massachusetts had mandatory hospital rate setting to control the growth of hospital spending. That system, operating under different guises between 1975 and 1991, had periods of effectiveness and ineffectiveness. In response, various hospital coalitions emerged to complain of perceived hardships and inequities and to press local legislators for payment relief. Each deal triggered demands from other hospitals, contributing to rate setting’s collapse in 1991.

Ironically, the key architect of 1991 deregulation was the golden boy of Gov. William Weld’s administration, Undersecretary of Health & Human Services Charlie Baker. The ironies continue because it was the uncertainties and risks in the new deregulated environment that convinced Mass. General and Brigham and Women’s leaders to protect themselves by creating Partners HealthCare. When they sought state approval for that deal in 1994, Weld’s then-Secretary of Health & Human Services Charlie Baker was one of the key state officials to green light it. In the early days of deregulation, it made sense to allow all willing parties to compete. Now, Gov. Baker wrestles with approving another mega-merger formed in reaction to Partners’ market dominance.

As state and BILH officials negotiate conditions to allow the merger to progress, yet a further irony is that any restraints will apply to the second-place BILH wannabes, and not at all to the market dominant Partners. Little wonder that the BILH parties are feeling resentful.

Experience tells me that these kind of disputes and disruptions tend to expand in scope well beyond the original parties. Leadership to reset the rules of the road must come from the top. That means Gov. Baker should cast aside the Hamlet role and articulate a vision out of this mess. That vision needs to create more sensible division of labor among state agencies with a hand in these processes. It needs to create long-overdue remediation for unjustifiable payment disparities. And it needs to articulate a more coherent and compelling vision for how our system can be strengthened and improved, focused on community health needs and not the needs of the big and powerful players.

Author: John McDonough

I offer insights and opinions on how to improve health care systems for everyone

One thought on “What Does the Beth Israel/Lahey Health Merger Tell Us?”

  1. Whatever is applied to this situation must be applied to Partners, which no one is willing to do. The merger is not the problem, never controlling Partners is the problem. What is extremely wrong is having a competitive group in the market, be told they have to play the bigger player with their hands tied. The worst thing now is to regulate the new guy and let Partners run amok with no restrictions holding onto an enormous reserve. Don’t get me wrong, they all provide wonderful service, but so can others if one behemoth is not allowed to play by different rules.

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