Antitrust Law Daily Wrap Up, ACQUISTITIONS & MERGERS NEWS: AAI urges Massachusetts court to reject Partners Healthcare System settlement, (Sep 12, 2014)

By Greg Hammond, J.D.

The American Antitrust Institute (AAI) is requesting that a Massachusetts Superior Court judge reject a proposed settlement that would allow Partners Health Care Systems, Inc. to acquire South Shore Health and Educational Corp. and Hallmark Health Corp. According to a letter—penned by AAI attorneys Richard M. Brunell and David A. Balto—the proposed conduct-based remedies—including component contracting, growth restrictions, and price caps—are not in the public interest, because they will likely fail to restore competition lost in the Eastern Massachusetts health care market as a result of the acquisition (Massachusetts v. Partners Healthcare System, Inc. Case No. 14-2033 (BLS)).

“AAI has an interest in this matter not only because it will affect consumers in a large and important health care market, but because Massachusetts’ national leadership in health care innovation and regulation, as well in as antitrust enforcement, could make the settlement an unfortunate precedent for resolution of anticompetitive hospital mergers by other states,” Brunell and Balto stated.

In the letter sent to Judge Janet L. Sanders, AAI made the following points:

First, “the court has ample legal authority to reject the settlement as not being in the public interest,” stated Brunell and Balto.

Second, the AAI attorneys argue that conduct remedies are inferior to blocking an anticompetitive merger, because they are typically unsuccessful; federal enforcement agencies and courts have rejected such remedies in hospital mergers between direct competitors; and courts lack the necessary expertise and capability to adequately regulate firms with market power.

Third, the settlement is generally flawed because: (1) it is time limited, does nothing to change Partners’ increase in market power, and prices can therefore be expected to rise; (2) it will likely cause extensive and continuing court involvement due to the complex, technical, and—in some cases—ambiguous language; and (3) conduct remedies are demonstrably problematic in mergers such as this.

Fourth, the price caps are flawed because: (1) they are limited in scope and do not cover quasi-private plans; (2) they might be ineffective due to general or medical inflation; (3) they “perversely” provide incentives to reduce quality, and do nothing to address the potential diminution in quality competition; (4) they do nothing about Partners’ already existing supra-competitive pricing and rate advantage over the providers in the area; (5) the proposed price regulation would be difficult to administer, and fails to consider changes in the scope and types of services; and (6) health care or insurance consumers might not benefit from the refund mechanism if the price caps are exceeded in any year.

Finally, the component contracting provision is also flawed, because: (1) it will do little to nothing to alter Partners’ ability and incentives to increase prices post-merger; (2) it contradicts the alleged efficiency justification of the mergers; (3) the settlement fails to provide sufficient protection from actions Partners could take to make component contracting unattractive to payers; and (4) payers and consumers may be steered away to out-of-network Partners’ providers.

“It is evident that the acquisitions of South Shore and Hallmark will further Cement Partners’ already substantial market power in eastern Massachusetts,” Brunell and Balto asserted. “In a best-case scenario, the proposed remedies act as a porous stopgap to constrain Partners from raising its already supra-competitive prices.” As such, the AAI requests that the court reject the proposed settlement, finding that it is not in the public interest.

Attorneys: Richard M. Brunell and David A. Balto (Law Offices of David A. Balto) for the American Antitrust Institute.

Companies: American Antitrust Institute; Partners Healthcare System, Inc.; South Shore Health and Educational Corp.; Hallmark Health Corp.

News: AcquisitionsMergers Antitrust MassachusettsNews