I told you so, 20 years later

In January 1994, Alan Sagar, Deborah Socolar, and Peter Hiam published an opinion piece in the Boston Business Journal advising against state authorization for the merger between MGH and Brigham and Women's, and the other community hospitals, and the physician organizations that ultimately became the Partners healthcare System.

Their summary is evident from the out-take you see above: This is largely a formal merger to reduce price competition, one that does little to reduce costly duplication or to increase efficiency.

The merged hospital would have great ability to resist payers' demands for discounts.

Notwithstanding their cogent arguments, then-Attorney General Scott Harshbarger, approved the deal two months later.

A Boston Globe report several years later lent credence to their points about a failure to rationalize care across the institutions: 

The year before his death in 1998, Partners cofounder Dr. H. Richard Nesson told the Globe that he was still looking for ways to consolidate.

"I do not believe, for example, that we should both be doing every kind of transplant," Nesson said.

A decade later, Partners continues to offer an array of competing transplant programs, even though surgeons sometimes struggle to find enough work to keep skills sharp. Mass. General surgeons performed fewer than the minimum 10 lung transplants per year required for Medicare certification in four of the last seven years, drawing a letter of concern from federal regulators in 2006. The Mass. General surgeons wrote back that their work is of such high quality that low volume is not a hazard.

The Brigham added a new pancreas transplant program recently, even though the existing program at Mass. General typically does only one or two transplants a year. Brigham surgeons predicted to the state they would perform 10 pancreas transplants in 2007, but they did only two.

And the insurers noticed:

Charles Baker, [Governor] Weld's secretary of Health and Human Services, came to regret signing off on the merger when he later became CEO of Harvard Pilgrim Health Care and sat across the bargaining table from Partners. He has compared it to "having the grenade that you throw on one end of the boat roll back down and blow up on you when the boat shifts."

Now, the current attorney general has entered into an agreement with Partners, with the following headline: Comprehensive Agreement will Fundamentally Alter Partners’ Negotiating Power for 10 Years; Cap Prices, Physician Growth, and Hospital Expansion for Entire Partners Network.

As we have discussed, the agreement is deficient in several ways.  Here are some more:

There is no mention of a return of excess profits obtained since PHS was created, which made possible the growth of an excessive balance sheet, plus the expansion of physical facilities, plus the acquisition of the current physician network.

The Globe noted:

It's little more than a hole in the ground now, but the $686 million 10-story addition underway at Mass. General will be the costliest hospital project in state history, and one of the most expensive in the country, according to a leading construction consultant. The facility, which will expand bed capacity by 17 percent, is not so much gold-plated as it is vaultingly ambitious: a state-of-the-art expansion nestled inside an existing hospital. 

Across town, the Brigham recently opened a $382 million heart center equipped with the world's most powerful CT scanner. In the suburbs, major new outpatient centers are taking shape in Danvers and at Gillette Stadium in Foxborough.

Today the company says it controls 22 percent of the eastern Massachusetts inpatient market. But the percentage of patients living in the four counties nearest Boston who were discharged from a Partners-affiliated hospital rose from 19 percent to 37 percent from 1996 to 2006, according to the Massachusetts Health Data Consortium.

The pricing power and excess revenues have all been documented in the AG's own reports for several years. As well as a CHIA recent report.

“What surprises me most is the difference between Partners and their next biggest competitor,’’ said Áron Boros, executive director of the Center for Health Information and Analysis, which compiled the report. He said Partners has been able to negotiate high prices with all insurers, unlike other systems. “None of them has the consistent success of Partners in driving prices up,’’ he said.

The amounts involved are in the billions.  Yes, billions, not hundred of millions.  This has been a pervasive tax on the Massachusetts economy.

That doesn't change much under the deal, as reported on WBUR's Commonhealth blog:

If Partners prices rise 2 percent a year, and prices for similar Boston hospitals go up 3.6 percent, the gaps narrow, Boros says.

“Specifically, our 2012 data shows that Brigham and Women’s prices are 24 to 33 percent higher than Beth Israel Deaconess Medical Center and 26 to 59 percent higher than Tufts Medical Center. After six years, these gaps close to 13 to 21 percent higher for BIDMC and 15 to 45 percent higher for Tufts,” Boros said.

Of course that assumes insurers in Massachusetts would offer lower cost hospitals rate increases that are almost twice as high as Partners, something they have never done before.

In short, Partners gets to keep the money already extracted from the public, while collecting future excess revenues. What a reward for years of monopoly-like behavior. 

The AG met them over the bargaining table and blinked rather than pursuing a full course of remediation.  It's great to issue thorough reports, but not if they don't properly inform the development of legal standards or public policy.