Beth Israel-Lahey Merger Would Increase Health Costs By Tens Of Millions A Year, Panel Finds

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An entrance to Beth Israel Deaconess Medical Center in Boston. (Steven Senne/AP)
An entrance to Beth Israel Deaconess Medical Center in Boston (Steven Senne/AP)

A state panel assessing what would be the largest hospital transaction in Massachusetts in more than 20 years finds that the merger could increase health costs by tens of millions of dollars a year.

The preliminary assessment from the Health Policy Commission (HPC), released Wednesday, calculates the proposed merger of Beth Israel Deaconess Medical Center and Lahey Health would increase annual spending statewide by $138 million to $191 million on inpatient, outpatient and adult primary care services.

Additionally, the merger would hike spending for specialty physician services by $30 million to $60 million a year, according to the HPC.

The report calls those estimates "conservative."

The analysis finds the merged entity -- which would be known as Beth Israel Lahey Health (BILH) -- would have market share nearly equal to that of Partners HealthCare, the largest hospital network in Massachusetts, and that market concentration in the state would increase substantially, giving the new hospital system more leverage to demand higher prices from insurers.

"A health plan would be in a position that they would have to contract with them," said HPC board chairman Stuart Altman. "The plans would be willing to pay these institutions more than they would have if they hadn't merged."

Some commissioners questioned that assumption and the numbers on which the spending estimates are based. Altman said the models used have become industry standards and are accepted as evidence in court.

Health economists say hospital reimbursement rates nearly always increase after a merger. But HPC commissioner David Cutler says there's very little evidence on what happens when smaller hospitals merge to challenge a market leader, as would be the case here. BILH argues that allowing it to grow and compete with Partners would erode some of Partners' market power and ability to demand higher prices.

"We believe this can be transformative for the market," said Lahey Health CEO Dr. Howard Grant. "It really can change the competitive posture in the market."

The HPC says it could only find one case, in Peoria, Illinois, where smaller hospitals merged and forced the market leader to drop prices. And some health care industry leaders say it will be difficult for BILH to prove that it would do the same.

"In theory, two big competitors could push down prices, and in industries other than health care, that's true," said Jim Roosevelt, a health care attorney at Virrell Dana and former CEO at Tufts Health Plan. "That is so far not a known phenomenon in health care."

The commission’s report does show that BILH would pull more than half of its new patients from Partners. But it could hurt smaller hospitals as well. The report estimates 14 percent of patients would shift to BILH from Wellforce, which includes Tufts Medical Center, Lowell General Hospital and MelroseWakefield Hospital.

"This adds insult to injury," said Wellforce CEO Norm Deschene. "A merged BI/Lahey would cannibalize the commercial volume of lower-cost systems that already care for a higher percentage of Medicaid patients."

BILH does have, and pledges to maintain, some of the most robust behavioral health programs in the state. But critics say the merger would reinforce an imbalance of privately insured patients.

The HPC, using hospital records, projects that BILH would treat the smallest share of Medicaid patients and the smallest proportion of nonwhite patients of any large hospital network in eastern Massachusetts.

"You don't want to make the situation worse, particularly for vulnerable populations and vulnerable institutions," Altman said.

He and other commissioners stressed that there are ways BILH could address higher spending and access to care issues. Agreeing to limit prices increases is one possibility. Contracting with hospitals that serve a large number of low-income and minority patients is another.

Beth Israel Deaconess CEO Dr. Kevin Tabb, who would lead BILH, says he expects to work collaboratively with the commission as well as with Massachusetts Attorney General Maura Healey, who has also raised concerns about the merger.

"We look forward to sitting down with everybody that has an interest in this transaction to make sure that their interests and more importantly the interests of patients in this state are addressed," Tabb said.

BILH has 30 days to respond, in writing, to the HPC's report. The HPC will revise and send its final analysis to Healey. State and federal regulators, together or separately, can contest the merger.

Some consumers want more opportunities to weigh in. The Greater Boston Interfaith Organization (GBIO) is calling for public hearing and says any approval should be conditional, subject to review.

"Savings to the providers does not necessarily result in lower costs and prices to the patient," said GBIO's Bonnie Gilbert.

This article was originally published on July 18, 2018.

This segment aired on July 19, 2018.


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Martha Bebinger Reporter
Martha Bebinger covers health care and other general assignments for WBUR.



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