Hospitals: Pending merger bill would hurt public’s access

Senate Bill 1094 hasn’t received the attention given to bills that would ban plastic bags, mandate paid sick leave, or require regulation of groundwater pumping. But at a time when Californians need more access to hospital services, SB 1094 should be equipped with flashing lights and sirens.

The bill politicizes transactions involving the sale or transfer of non-profit hospitals, and deserves to be vetoed by the Governor. SB 1094 turns the idea of contractual agreements on its head by giving the Attorney General the ability to unilaterally change the terms of a deal after that deal has been closed. The bill allows the Attorney General to impose new conditions, years after the fact, by calling it an “enforcement” tool. That makes no sense, since it undermines the very idea of a negotiated transaction between buyer and seller.

The consequence of this poorly-conceived bill will be to reduce the public’s access to health care, at a time when implementation of the federal Affordable Care Act is greatly boosting demand for services. According to the Kaiser Family Foundation, approximately 3.4 million previously uninsured adults in California were able to gain insurance coverage during the initial open enrollment period. Several million more remain without coverage. More coverage means increased demand for hospital services.

There are many reasons that lead to hospitals being sold or transferred, including the need to align with a more financially stable partner in the face of economic pressures and reduced federal reimbursements. The uncertainty created by SB 1094 means that hospital organizations will simply avoid many of these transactions, including the purchase of struggling hospitals. Facing the possibility of new conditions that could be imposed by the Attorney General, potential buyers will face not just a lack of confidence in negotiations, but also will encounter an increase in the cost of borrowing capital. Those types of unknowns are toxic to financial transactions. Instead of finding a buyer, for example, a financially-troubled hospital may be forced to close.

Even more confounding, SB 1094 is not necessary. The Attorney General already has the authority and discretion under existing state law to approve or deny the sale or transfer of non-profit hospitals. Those powers are broad and wide-ranging, and include the ability to place conditions on the parties of a proposed transaction. The Attorney General also has the ability to hire consultants, at hospital expense, to review the impact on health care services and make recommendations before a deal reaches its conclusion. And the Attorney General has the power, under existing law, to require that agreements be monitored for compliance, again at the hospital’s expense.

Backers of SB 1094 say it is needed to ensure that conditions of a hospital sale are being followed in order to protect the public interest. The Attorney General already has the legal authority to take immediate action, by seeking a temporary restraining order and a court injunction, if a hospital is not following the conditions outlined in the agreement. In other words, the tools are already in place to enforce the terms, and these tools have been used by the Attorney General in the past. Simply giving the Attorney General the right to impose new and different conditions on the new owners of a hospital, after they’ve closed on a deal, is an overreach of authority that smacks of a power grab. It also is a violation of meaningful due process rights. Under the bill’s provisions, the Attorney General would only have to provide 30 days notice before imposing new conditions and terms.

The backers of SB 1094 say it is necessary to protect women’s health services. But this bill overreaches, and would have broad implications on access to essential hospital services that millions of Californians depend upon.
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Ed’s Note: C. Duane Dauner is the president and chief executive officer of the California Hospital Association.