Massachusetts deal sets new benchmark on post-closing price increases
Massachusetts regulators recently used a novel (or at least, not often employed) approach to allow a major hospital merger and attempt to control the newly combined system’s behavior post-closing. Beth Israel Deaconess Medical Center and Lahey Health were allowed to form a new system with the thinking that it would be a strong No. 2 system ($5 billion in revenue) to rival to the 800-pound gorilla in the Bay State — Partners HealthCare.
The agreement restricts price increases at the more than a dozen hospitals in the new Beth Israel Lahey Health to 3 percent annually for seven years. These “conduct remedies” are rarely used by antitrust enforcers, whether because they aren’t tough enough or because they are too restrictive — take your pick. (Both opinions are expressed in the article linked above.)
Should we expect to see similar regulatory approaches elsewhere? As so often in healthcare, the specific environment may limit the chances to apply this remedy elsewhere. Massachusetts has the infrastructure to enforce an agreement like this, with multiple state agencies that measure healthcare activity and track the impact of policies. That infrastructure resulted from a 2012 state law that set a benchmark of 3.1 percent for annual increases in overall healthcare spending.
From a communications standpoint, it makes sense to be prepared for this question from regulators and media. Boston is a closely watched market. The Beth Israel-Lahey deal has been in the news a long time — it was announced in January 2017 — so those who follow this issue are well aware of it. The specific number creates a benchmark that future deals can be measured against. Questions may include:
Why can’t you offer to limit price increases the way a recent merger in Massachusetts did to win approval?
Would you agree to limit price increases to win regulatory approval?
What level of price increases should we expect if you are allowed to merge?
While it can be difficult to argue the numbers, providing examples of previous efficiencies gained through consolidation can build the credibility to assert that a deal will bring savings.
“What the attorney general’s office is hoping is this merger is pro-competitive, not anti-competitive. That it could lead to some benefits. That maybe now Partners faces a more formidable rival. Precious little in the way of efficiencies has flowed from hospital mergers in the past 30 years. It would be great if this one was different.”
It won’t be easy. It will take a concerted effort. It will be worthwhile to help employees, physicians, regulators, elected officials and patients see the efficiency gains from a merger.
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