On February 17, 2015, the largest health care provider in Massachusetts, the non-profit Partners Healthcare System, Inc. (Partners), dropped its bid to acquire South Shore Hospital based in South Weymouth, and the Commonwealth of Massachusetts dropped its antitrust suit that had challenged the acquisition.[1] Whether state or federal regulators will permit Partners’s proposed acquisition of Hallmark Health Corp. (Hallmark)’s two acute care hospital remains to be seen.

The decision by Partners comes a month after a Judge rejected a consent judgment that Partners and former Attorney General of Massachusetts Martha Coakley proposed regarding Partners’s agreement to acquire three acute care hospitals in the greater Boston area.[2] Less than a year ago, on June 24, 2014, the Attorney General of Massachusetts had simultaneously filed a complaint and a proposed consent judgment with Partners regarding Partners’s acquisition of South Shore and two hospitals operated by Hallmark.

The consent judgment would have permitted the acquisitions, but imposed a range of time-limited conduct remedies affecting Partners’ contracting with health plans and expansion of its controlled panel of physicians.  Specifically, the consent judgment included four components: (a) a general price cap, and a cap based on the total medical expenses that would expire in six and a half years; (b) permitting insurers to negotiate to contract for only certain components of the Partners network, rather than the entire network for ten years; (c) prohibiting doctors who are not associated through a Partners hospital-affiliated physician health organization from jointly contracting with Partners; and (d) imposing certain restrictions on physician and network growth.

The case raised complex competition policy and antitrust issues, which remain even after the recent decision by Partners and South Shore to halt the acquisition. Over the years, Partners has assembled a broad system of hospitals and affiliated physician groups which includes two tertiary flagship hospitals – Massachusetts General Hospital and Brigham and Women’s Hospital – and also reportedly has employed a range of “all or nothing” type contracting practices with health plans.

Of note, while the proposed consent judgment would have limited that activity to some extent, it did not propose structural relief or an outright ban on “tie in” type contracting within separately defined components of the Partners system.  Nor did the complaint, as filed, allege any antitrust violations other than with regard to the proposed acquisitions of the three additional smaller hospitals.

The Suffolk County Superior Court requested comments from the public on the potential impact of the acquisition on region’s healthcare market.  After heavy criticism of the proposed consent judgment in public comments, including comments by the Commonwealth’s own Health Policy Commission and by Crowell & Moring LLP on behalf of the Massachusetts Association of Health Plans, a new Attorney General withdrew support for a modified version of the consent judgment that had been filed.[3] The court disapproved the consent judgment. Judge Sanders concluded that the proposed judgment did not reasonably and adequately address the harm of loss of competition, in part because it employed conduct remedies not structural ones. Moreover, the court also determined that the terms of the settlement required undue ongoing oversight by the court, and thus posed difficulties in enforceability.

Partners’s merger with Hallmark remains in limbo, and Partners and Hallmark have publicly stated that they will “take a pause” to “reflect on [] next steps.” The Attorney General of the Commonwealth and the Department of Justice will continue to evaluate whether to permit Partners’s acquisition of Hallmark’s two community hospitals.