Watchdog agency: Combined Beth Israel-Lahey Health could raise prices postmerger 

A bar chart showing positive business growth
The potential merger between Beth Israel and Lahey Health could lead to higher prices, according to a state agency. (Getty/NicoElNino)

The planned merger between Lahey Health and Beth Israel Deaconess Care Organization could lead to higher costs for patients, the Massachusetts Health Policy Commission said in a draft analysis about the deal.

The commission conducted a willingness-to-pay analysis, which measures the potential impact of a merger on prices based on competition. Based on that model, the commission projects that the combined Beth Israel-Lahey system would have greater bargaining power, leading it to potentially increase prices notably. 

The group estimated that prices for inpatient care could increase by between 5% and 6.7%, leading to spending increases of between $38.3 million and $51.4 million, the analysts said at a public meeting Wednesday. For outpatient care, prices could increase by 8.4% to 12.2%, boosting spending by $88.4 million to $128.4 million. 

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Beth Israel and Lahey announced their merger plans in January 2017, and leaders at both health systems predicted lower costs as a result of the union. Since then, multiple prominent voices in Massachusetts—including the Michael Wagner, M.D., CEO of Tufts Medical Center, and Maura Healy, the state's attorney general—have warned the deal could actually have the opposite effect. 

The deal would allow the unified system to challenge the state's largest provider, Partners HealthCare, and would allow it to overtake Partners in its share of primary care services statewide.  

The combined health system would provide an estimated 23.8% of the state's inpatient care, close to Partners' 2016 rate of 27%, and 24.9% of outpatient care. Partners provided 26.9% of outpatient care in Massachusetts for 2015, according to the commission. 

In primary care, the combined system would provide an estimated 17.7% of the state's primary care services, compared to Partners' 2015 rate of 14.1%. 

However, the report does not project that the combined system would significantly change Partners' market share or lead that system to lower prices, as Beth Israel and Lahey have argued. The analysts also noted that even if the combined Beth Israel-Lahey system raised its prices post-merger, it may still offer care at a lower cost that Partners' facilities.  

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In addition, the commission's projections may be conservative, the analysts said, as their model doesn’t include all factors that could lead to higher prices—for example, the joint health system explicitly wants to increase its leverage, and the model is based on its current market reach. 

The commission also found that the combined entity could achieve some cost savings by reducing patient "leakage" to other systems or facilities, and by shifting patients from higher-cost care to lower-cost care within the joint system. However, they could find "no reasonable scenario" in which the savings would be significant enough to offset projected price increases. 

As Lahey and Beth Israel are both large and influential systems in Massachusetts, the HPC announced late last year that it would conduct the review.  

The draft report will be available for public comment for 30 days, and the commission will then reconvene to consider and vote on a final version. As the commission conducted its analysis, the merger was approved by the Massachusetts Department of Public Health and the state Public Health Council.