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A Legal Pain for Massachusetts Hospitals?

The state's attorney general has launched an antitrust probe to see if some physicians and hospitals wield too much market power

Massachusetts is home to some of the world's top hospitals, including the famed Massachusetts General. Have some of these eminent institutions become too powerful? The Bay State Attorney General's office has decided it wants to test that question. It has opened an antitrust probe into the state's health-care industry, aimed at determining whether years of consolidation has produced hospitals or physician practice groups with too much market power, BusinessWeek Online has learned.

Two Boston attorneys whose clients are targets of the probe say the antitrust arm of Attorney General Thomas F. Reilly's office on Jan. 4 issued "civil investigative demands" requesting a wide range of data related to hospitals and their relationships with doctors. Some 40 hospitals received the letter, the attorneys say. "My understanding is that this is a sweeping investigation," says Michael Costa, a health-care attorney with Greenberg Traurig in Boston. A spokesman for Reilly declined to comment.

The probe comes at a difficult time for the state's health-care industry. In the last two years, several providers have become embroiled in disputes over rising prices and physician referral practices. Many of the state's smaller community hospitals have been losing money for years, while a handful of larger ones remain financially strong. This week, however, one of Boston's big hospitals, Beth Israel Deaconess Medical Center, disclosed it lost $67 million last year and was headed for a $102 million loss this year unless drastic changes are made.

TEST RUN?

  Attorney General Reilly has already conducted a similar probe on a smaller scale. On Oct. 3, his office issued a report on antitrust issues that had been raised by the state legislature involving two Springfield (Mass.) hospitals. His inquiry did not result in any findings or a lawsuit.

Reilly's new investigation may be an extension of the Springfield probe. While the intent of the inquiry is not spelled out in the AG's letter, Costa believes it's aimed at one or two large physician practice groups in Boston, which he declined to identify.

Another attorney who asked not to be named believes the state may be gathering data in anticipation of having to evaluate potential buyers in the event of the sale or breakup of Beth Israel Hospital. One potential buyer is Partners HealthCare, which owns Massachusetts General Hospital and a dozen other top hospitals in and around Boston.

POWER PLAYS.

  The state probe is aimed at determining market power among physicians and hospitals. The letters ask hospitals to turn over detailed data on physician practices and billing. The data requested include where physician referrals come from, the number of patient admissions, and the top 10 diagnostic-related groups billed.

Costa says some of the hospitals are worried about meeting the state's Jan. 25 deadline for turning over the data. "Hospitals are willing to respond, but some don't have the [staff] resources to do it by the 25th," he says.

The hospital probe only adds to the high-profile issues on Attorney General Reilly's plate. His most recent priority has been in an entirely different arena: professional baseball. He has been investigating the sale of the Boston Red Sox to former Florida Marlins owner John Henry. No doubt, the Red Sox inquiry will deliver the politically ambitious Riley some big headlines. An antitrust case against big Boston hospitals could result in plenty of publicity as well.

By Geoff Smith in Boston

Edited by Douglas Harbrecht

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