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2 big doctor groups may merge

Fallon Clinic-Atrius deal would cover nearly 1m patients

By Steven Syre
Globe Staff / April 22, 2011

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Two of the state’s largest private medical practices are in talks to merge into a giant doctor-run group that would care for nearly a million Massachusetts patients and significantly escalate the pace of health care consolidation throughout the state.

Atrius Health, which runs the Harvard Vanguard system and four other doctors practices, is in advanced talks with Fallon Clinic, the Worcester-based medical group.

“Fallon Clinic and Atrius Health are in significant discussions about how we can improve patient care together through an affiliation and hope to reach a conclusion shortly,’’ Fallon and Atrius said in a joint statement. Company executives declined to comment further.

Patients would probably not see any disruption in their medical care if the practices merge. But a larger, combined organization may be able to provide more convenient medical services and could work with insurers to offer new kinds of heath care coverage to businesses with employees spread around the state.

Atrius has 844 doctors and more than 717,000 patients, most of them members of Harvard Vanguard Medical Associates. Fallon’s more than 250 doctors care for nearly 250,000 patients at 20 Central Massachusetts locations.

The Atrius-Fallon talks are taking place against a backdrop of furious consolidation in the hospital sector.

Steward Health Care System, the former Caritas Christi group, acquired two additional hospitals recently and struck deals this month to buy two more. And other smaller Massachusetts hospitals are believed to be contemplating mergers and affiliations with larger institutions.

Hospitals are also building bigger physician networks, affiliating with doctors or hiring them outright, funneling more patients to their institutions. Large physician networks at Steward, Tufts Medical Center, and the parent company of Massachusetts General Hospital and Brigham and Women’s Hospital are among the growing hospital-based doctor groups.

A combined Atrius-Fallon would be a much different kind of health organization, however, built around doctors and big enough to negotiate aggressively with hospitals on reimbursement rates and shared financial risks.

“These are two high-quality group practices,’’ said Marc Bard, managing director of Navigant Consulting, a health care consulting firm. “They’re making themselves very, very attractive to a lot of hospitals as a logical clinical and business partner. That’s the bottom line.’’

The overhaul of the health care system and pressure to contain medical costs are driving hospital mergers and consolidation of physician practices across Massachusetts. These combinations are intended to reduce overhead costs, spread financial risks over a broader base of patients, and improve bargaining clout in business negotiations between doctors, hospitals, and insurers.

The consolidation of doctors and institutions also anticipates a potential sea change in health care payments, with providers receiving a fixed amount of money to care for patients, rather than collecting fees for individual procedures.

Governor Deval Patrick has submitted a health care bill that would encourage, but not mandate, such arrangements — known as accountable care organizations — in Massachusetts.

As hospital-based groups have grown larger and prepared for such a system, some insurance executives worried privately that the institutions would wield too much market power.

“We need to keep a balance of power in this state between physicians and hospitals,’’ said a senior health insurance executive who did not want to be identified to avoid antagonizing business partners.

“If we have a strong Atrius, we can keep some of the hospitals in check. I worry that too many physicians are becoming employees of hospitals. [Hospitals] are doing it because they want to control referrals — I get it — but it’s not healthy.’’

Combined, Atrius and Fallon would enjoy a few immediate advantages. Both use the same electronic medical records systems, billing systems, and patient-appointment software. Both have experience managing care under insurance contracts that require them to shoulder some of the financial risk of covering and caring for patients.

Years ago, Atrius and Fallon were health maintenance organizations that combined medical care and insurance coverage. The original Fallon Community Health Plan was modeled, in large part, on the Harvard Community Health Plan HMO. Both organizations eventually split up — into separate organizations of medical practices and insurance providers.

More recently, Fallon Clinic has explored other business ventures.

Two years ago, the doctors organization held talks with Fallon Community Health Plan, the insurer, and St. Vincent Hospital in Worcester about a joint venture that would have shared patients and financial risk. Those talks unraveled last year, mostly because the parties could not agree on financial matters, people familiar with the discussions said.

Since then, Fallon Clinic has headed in a new direction, leading to the discussions with Atrius beginning about a year ago, according to a person who was briefed on the negotiations.

Steven Syre can be reached at syre@globe.com.

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