In its first act, a new Massachusetts oversight commission has fired a shot across the bow of the biggest frigate in Boston harbor: Partners HealthCare System, the prestigious parent of MassGeneral and Brigham and Women's hospitals.

The Massachusetts Health Policy Commission, created by the state's most recent healthcare reform law (Chapter 224), is charged with developing health policy to reduce overall cost growth while improving the quality of care, and monitoring the healthcare delivery and payment systems in the state.

One of its duties is to scrutinize mergers, acquisitions and other alliances that fundamentally change the competitive landscape. In its first report of this kind, released Dec. 18, 2013, the commission concludes bluntly that Partners proposed acquisition of two major players in Boston's southern suburbs would raise overall medical costs on the South Shore by $23 million to $26 million.

Noting that both systems are currently high-quality and high-cost, few quality benefits would follow such a consolidation, the report says. With only Jordan Hospital still independent on the South Shore, although it's considering aligning with Beth Israel Deaconess, a Partners-South Shore merger would have a lock on the market, the report concludes.

The resulting system is anticipated to have increased ability to leverage higher prices and other favorable contract terms in negotiations with commercial payers, the report says.

In fact, one of the commission members said publicly this week that Partners should just back off its plan to acquire South Shore Hospital and Harbor Medical Associates.

This isn't the first time Partners, the main teaching system for Harvard University, has been bashed by state regulators for high prices. In 2011 and 2012 reports, Attorney General Martha Coakley issued stinging rebukes of the elite system for its high costs. These reports were eagerly embraced by Massachusetts health plans to justify cutting Partners out of their narrow networks, and for taking some of the heat off themselves for healthcare cost inflation.

Even now Partners has acquisition pots bubbling, this time on the North Shore: a proposal to acquire Hallmark Health Systems, which operates Melrose-Wakefield Hospital and Lawrence Memorial Hospital in Medford. This week the commission voted to take a look at that deal, as well as Lahey Health's proposed acquisition of Winchester Hospital, also in the northern suburbs.

The Partners-South Shore report is preliminary, pending a 30-day comment period. Partners and South Shore both have issued statements criticizing its methodology and its data. Their comments will be incorporated into the final report, but are unlikely to change the general conclusions, which will be forwarded to the attorney general for possible enforcement action.

This report is sure to roil the healthcare waters in the Bay State and may chill the rapid movement toward consolidation across the state.

To the HPC's knowledge, this is the first time any state has authorized a policy-oriented, prospective review of the impact of health care transactions that is distinct from an administrative determination of need or law enforcement review of antitrust or consumer protection concerns, the report states.

And if history is any guide, it won't be the last. In healthcare reform, as Massachusetts goes, so goes the nation.

Follow Lyda Phillips on Twitter @LydaPhillipsHLI

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