Grow or die. It’s the choice facing any business — including the health care business.
For Partners HealthCare, growth is now curtailed in Massachusetts — at least when it comes to acquiring hospitals. This once unstoppable network of doctors and hospitals was stopped in its expansionary tracks last January when a judge rejected a plan to allow Partners to acquire three community hospitals. The new state attorney general also threatened an antitrust suit if Partners tried to push ahead anyway.
With its bricks-and-mortar growth now on hold in Massachusetts, Partners is readjusting its business model. Maybe it’s time to throw it out — and de-partner Partners.
Partners is the not-for-profit health system that oversees two great hospitals — Massachusetts General and Brigham and Women’s — and a portfolio that now stretches throughout much of the state. Given the current attitude of Massachusetts regulators, has it outlived its usefulness? Can those two flagship hospitals grow more as independent entities than they can under Partners?
Jealous rivals who despise Partners for its market dominance, and the power and arrogance associated with it, often whisper about a breakup. Apparently, they are not the only ones to contemplate the possibility. When Dr. David F. Torchiana, a cardiac surgeon and the chief executive of Partners, was asked at a recent meeting with Globe writers and editors whether the alliance between the two hospitals still makes sense, he said, “It takes a lot to dissolve a 20-year relationship,” but “The thought has crossed my mind.” Later in the conversation, he stressed there are no plans or discussions underway; he was just thinking theoretically. “It would be disastrous if we did it now,” he noted.
No one wants a disaster, but it is an interesting idea.
Partners HealthCare, launched in 1994, was a business model ahead of its time. It joined together two Harvard teaching hospitals to market a gold-standard brand that promoted cutting-edge medical research and also promised cost savings. However, the alliance between MGH and the Brigham did not merge hospital assets. The two flagship hospitals still compete with each other and remain financially independent.
The arrangement dramatically altered the health care landscape in Massachusetts. Over the years, Partners expanded to become the state’s largest nonprofit network of doctors and hospitals. Its growing market share gave it power to set prices and negotiate favorable reimbursements from private payers — to the detriment of competitors. The flagship hospitals also keep their beds full via referrals from community hospitals and physician groups that are now part of the Partners network.
Today, there’s increasing scrutiny of health care costs, and reimbursement formulas are changing. That puts pressure on the Partners business model.
In December, Partners reported $11.7 billion in revenues, up from $10.9 billion the previous year. As the Globe reported, the health system generated a $106 million operating surplus; that was offset, however, by a $198 million loss in income from investments and other non-operating accounts, resulting in a net loss of $92 million.
For the math to work for Partners, noted Torchiana, it must grow: “You shrink when you’re not growing in business,” he said. How does that happen if Partners can’t acquire hospitals in Massachusetts? “We need to look regionally, nationally, and internationally,” he said.
That’s not so easy. Each state has its own regulatory authority, and expanding internationally must be done cautiously.