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Massachusetts Approves Partners' Acquisitions, But With Conditions

Massachusetts Attorney General Martha Coakley has given the green light to Partners HealthCare's bid to acquire two health systems, but the state also hammered out an agreement that will alter Partners' negotiating power for the next decade.

At issue are two transaction targets: Hallmark Health System in Melrose, Mass., and South Shore Hospital in Weymouth, Mass. Partners and Hallmark signed a definitive agreement in February, in which Partners would acquire Hallmark's two hospitals — Lawrence Memorial Hospital of Medford and Melrose-Wakefield Hospital in Melrose — and integrate them with Partners' North Shore Medical Center, a two-hospital system based in Salem, Mass. Partners has tried to purchase South Shore for more than a year, but state regulators brought up several grievances, arguing the acquisition would increase healthcare spending and give Partners a stranglehold in the market.

In its deal with the state, Partners will acquire Hallmark and South Shore, but it will have to abide by several rules. Among the most stringent is a payer contracting restriction: For the next seven to 10 years, health insurers will able to negotiate contracts with separate components of Partners instead of the system alone. For example, payers will be able to contract separately with Partners' academic medical centers, like Massachusetts General Hospital and Brigham and Women's Hospital, both in Boston, as well as its community hospitals and physicians. Hallmark and South Shore will also be separate contracting entities for the next seven years before they are included in the "community hospital" group.

In addition, Partners will not be able to contract with payers on behalf of its nonowned physician group affiliate, nor can it raise prices at any of its hospitals or provider groups above inflation for the next six-and-a-half years. Partners will also not be able to acquire any hospitals in eastern Massachusetts without full review and approval from the state.

"Suing Partners would potentially block further expansion of its network but would also maintain the status quo in the market," Ms. Coakley said in a news release. "We believe this agreement will do much more. It fundamentally reduces the negotiating power of Partners for the next 10 years to better control health costs for families and businesses, and help level the playing field in the market."

In an interview with The Boston Globe, Gary Gottlieb, MD, CEO of Partners, said the restrictions would "be a challenge for us," but the agreement was one of the only ways to approve the system's proposed transactions.

Last year, a state analysis found that Partners dominated Massachusetts' healthcare market: The system received 31 percent of all commercial payer money for acute-care services in 2012.

More Articles on Hospital Transactions:
7 Recent Hospital Transactions and Partnerships
Key Issues in Mergers and Acquisitions: Is Ownership a Downward Trend?
Northwestern Memorial HealthCare, Cadence Health Reach Definitive Merger Agreement

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