The largest hospital network in Massachusetts and the state's second-largest health insurer confirmed Friday that they began talks about a possible merger last year.
Several sources say Partners HealthCare and Harvard Pilgrim Health Care are close to signing a letter of intent, although the official word from both parties is that the discussions are preliminary.
"These conversations are occurring in a very dynamic health care environment," says Harvard Pilgrim spokeswoman Joan Fallon, "in which the organizations that will be best positioned for future success are those that can create a truly seamless consumer experience that improves health outcomes and lowers costs."
Partners echoes those sentiments.
"As the health care environment changes and insurers and providers increasingly share financial risk, traditional relationships are shifting," says Partners spokesman Rich Copp. "Partners is constantly exploring new partnerships and relationships with other providers and insurers with the goal of improving the health care delivery system for our patients both locally and around the world."
Partners already owns one insurer, Neighborhood Health Plan (NHP), but Harvard Pilgrim would give the hospital system a much bigger footprint in Massachusetts and beyond. Harvard Pilgrim has a substantial number of large employers that are self-insured, it offers coverage in New Hampshire, Connecticut and Maine, and it has a small but established Medicare Advantage plan. NHP has recently shifted from Medicaid to the private insurance market, but is still building that business.
Both Harvard Pilgrim and NHP have lost members during the last two years. Shifting all Partners employees and their families, about 100,000 people, from Blue Cross Blue Shield to Harvard Pilgrim and NHP, which already manages some of that coverage, would be a substantial boost for both health plans.
Several sources say Partners sees this potential deal, first reported by the Boston Globe, as a way to give doctors more control over patient care.
But it may be hard to control costs from inside Partners. As one health insurance analyst put it, which Partners medical director wants to say, "No, that surgery is not necessary," to every famous doctor at Massachusetts General and Brigham And Women's hospitals?
Partners and Harvard Pilgrim have each invested in population health, a strategy that measures the health of a group of individuals and focuses money and staff on the patients in greatest need. Both see opportunities to improve care for patients with asthma or diabetes, for example, by working more collaboratively.
In that light, the merger would make sense, says Harvard T.H. Chan School of Public Health professor Nancy Kane.
"As you go toward value-based payment systems, you need the skill sets of what insurance plans do," says Kane. "On the other hand, unless Harvard Pilgrim will get special discounts from Partners that they've never gotten before, it will make the Harvard Pilgrim plans even more expensive than they are now."
If the two health care organizations formalize a deal, it would likely trigger both state and federal antitrust reviews.
The office of Massachusetts Attorney General Maura Healey would assess the merger from several angles, including: as a possible violation of antitrust laws; to determine whether the charitable missions of the two nonprofits are consistent; and to gauge the market impact for consumers. And the state Health Policy Commission (HPC) would likely take a deep dive to determine whether the merger would affect the workforce and increase health care costs overall.
There's already consensus: Combining Partners and Harvard would be a big deal.
"This would be a major restructuring of the health care delivery system in Massachusetts," says HPC board Chairman Stuart Altman.
Altman stresses that the details aren't clear. Would this be an affiliation in which Harvard Pilgrim and Partners remain independent, or would Partners own the insurer? The latter raises more concerns for Altman.
"If the only way you could receive your care at a Partners facility is if you are insured by this entity -- now, I'm not saying they'd do that, but if they did, that would be a much more momentous change," Altman says. He adds that if Partners acquires Harvard Pilgrim, it may well create the biggest combined insurance system and delivery system in the country.
On the federal level, some health care analysts expect the Trump administration to be less rigorous in reviewing possible antitrust violations, but members of the Federal Trade Commission have said that applying antitrust laws to the health care industry remain a priority.
There is some concern at Partners and Harvard Pilgrim that a public debate about the pros and cons of this new alliance would put the parties on the defensive during a period when they are trying to resolve outstanding agreements.
No public officials expressed deep concerns Friday, at least not on the record.
"The administration believes that any health care merger or transaction must be transparent and viewed through the lens of addressing affordability and improving quality for consumers and businesses who purchase that care," says Marylou Sudders, secretary of health and human services for Gov. Charlie Baker. "Our administration was informed [Friday] morning about the ongoing discussions between the two companies and will examine any transaction if it advances."
Partners is already spending a lot of time in negotiations and fulfilling regulatory requirements.
It recently completed the acquisition of Mass. Eye and Ear; is in negotiations to acquire Care New England, the second-largest health care network in Rhode Island; and is having conversations with Lifespan, the Ocean State's largest health care system.
Tufts Health Plan, the third-largest insurer in Massachusetts, declined comment on a possible Partners-Harvard Pilgrim entity. Harvard Pilgrim and Tufts explored and ended a proposed merger in 2011.
Blue Cross CEO Andrew Dreyfus says he's aware of media reports about the talks but "since these stories reflect preliminary discussions, it would be premature to comment further."
Some sources say the Partners-Harvard Pilgrim talks are driven, in part, by the proposed merger of Beth Israel Deaconess Medical Center and Lahey Health. That merger is still under review by the HPC, but Partners may be looking for ways to cement and protect its market share in anticipation of increased competition.