Health care system consolidation bill expected to be heard in late July

California’s bill expanding the attorney general’s oversight of healthcare acquisitions and affiliations passed off the senate floor at the end of June. The bill, SB 977, is supported by AG Xavier Becerra and was introduced by Sen. Bill Monning.

SB 977 would require a health care system, private equity group, or hedge fund to provide notice and obtain the consent of the attorney general prior to an affiliation or acquisition with a health care facility or provider. This requirement applies to transactions over $500,000 in value.

 

 

The AG would be required to deny consent unless the health care system, private equity group, or hedge fund can demonstrate that the proposed transaction would result in a “substantial likelihood” of clinical integration, of increasing access to services to an underserved population, or both.

The bill would also permit the AG to deny consent if the transaction is likely to result in anticompetitive effects that outweigh the benefits of likely clinical integration or increased services and access. Anticompetitive effects, as described in the bill, include increased market prices, diminished quality, or a reduction in choice. The bill also makes it unlawful conduct for a health system with “substantial market power” to cause anticompetitive effects.

SB 977 would also establish the Health Policy Advisory Board to analyze health care markets, produce a related annual report, and advise the attorney general.

Sen. Monning says this legislation is particularly important amidst the COVID-19 pandemic.

“As our state continues to face the devastating impacts COVID-19 has on our healthcare system, it is important to ensure costs remain affordable for patients,” said Monning. “Physicians are facing severe financial pressures because of the current pandemic and data shows that prices skyrocket when providers consolidate and reduce competition in the marketplace. SB 977 will protect existing services for patients and address the issue of unfair business practices that increase healthcare costs for all Californians.”

The bill is supported by American Civil Liberties Union of California, California Labor Federation, AFL-CIO, Health Access California, and Pacific Business Group on Health, among others (verified 6/23) .

A long list of groups is listed in opposition (verified 6/19) including: America’s Physicians Groups, California Association of Hospitals and Health Systems, California Medical Association, Dignity Health, and the California Hospital Association.

An opposition template letter from the California Hospital Association states:

“Senate Bill (SB) 977 (Monning) would strain access to the health care system by creating an extreme and burdensome process for transactions like mergers and affiliations. This comes at a time when hospitals are already fighting to be there for their communities and it would result in hospital closures and the loss of health care services throughout California.

Although financial distress is a common reason for hospitals to merge or affiliate, these arrangements also occur for myriad other reasons — financial efficiency, expanded access to services, clinical integration, better-coordinated patient care, and bolstered support for nurses and physicians.”

The letter reasons that the bill would create a presumption that acquisitions and affiliations are anticompetitive and establish a “guilty until proven innocent” system.

This legislation follows the $575 million settlement agreement with Sutter Health related to allegations of anticompetitive behavior by the health system. Sutter also opposes SB 977.

SB 977 was referred to the Assembly Health Committee on June 29 and is expected to be heard by the end of July.