Monday, June 14, 2010

Marketplace misconception

There is much to be said for the proposed acquisition of the Caritas Christi system by Cerberus, a private equity firm. The potential for capital infusion into the hospital system, funding of the employees' pension plan, and payment of state and local taxes are among the attributes of the deal. The proposal will be under state review for a number of months but has already stimulated a lot of news coverage.

Of course I am not privy to internal business plans, but I believe that the most recent press reports have created a misconception about the likely future role of the Cerberus system in the Massachusetts marketplace. The Boston Globe recently reported that the company is seeking to acquire other community hospitals. The story cited sources who said that Cerberus would want "to create a chain large enough to compete in markets outside Boston with nonprofit Partners HealthCare, the state’s largest medical provider and owner of Massachusetts General Hospital and Brigham and Women’s Hospital."

In the Boston Herald, too, an article asserts that Cerberus "could threaten Partners’ role as the dominant player in the Greater Boston medical market."

This is a useful misconception if you are the Partners system and are facing regulatory review and criticism for having used your dominant market power to secure higher payments from the state's insurance companies for your doctors and hospitals.

But there is little reason to believe that Partners will be hurt by a strengthened and expanded Cerberus network. The hospitals that have been mentioned as potential acquisitions are not in areas that compete with the outlying Partners hospitals. Several actually are current competitors of Caritas Christi hospitals.

It is thus more likely that the acquisitions would help bolster the presence of the Caritas hospitals in those geographic areas it already serves and permit it to branch out into areas not covered by Partners' community hospitals. This makes good business sense in that insurance rates in Massachusetts are higher for hospitals that enjoy a geographic advantage. Even if the insurance rate system is changed to eliminate that kind of pricing advantage, the Cerberus strategy would be helpful in the creation of Accountable Care Organizations that are likely to accompany payment reform (See here, on page 11.)

Finally, the Cerberus community hospitals will need access to tertiary care for those patients who cannot be treated locally. The idea that Cerberus would engage in a commercial battle with Partners seems inconsistent with its likely consideration of MGH and Brigham and Women's as potential tertiary destinations.

3 comments:

Anonymous said...

"Cerberus," not Cerebus :-)

There's something poetic about the Archdiocese making a deal with an entity named after the three-headed guardian of the gates of Hades.

Cerberus received a back-door TARP bailout after the debacle with GM/GMAC when GMAC was permitted to convert to bank holding company status:

http://www.reuters.com/article/idUSTRE5BT06O20091231

Exactly what experience does Cerberus have in the healthcare delivery business (3% of its management team have "Health" experience), let alone in anything like the uber-competitive Boston market? How will their heavily Republican leadership (Feinberg, Snow, Quayle) interact with unions?

Cerberus is not exactly all about transparency. The word "shadowy" comes to mind:
http://www.reuters.com/article/idUSTRE4AJ8X820081120

http://blogs.abcnews.com/thenote/2008/12/reclusive-cerbe.html

We shall see!

Paul Levy said...

Oops, I apologize! Have fixed it.

Chuck Frame said...

I work for a company that offers a collaborative care model that many hospitals nation wide are bringing on to capitalize on the changes happening now and in the future.