Hospitals see ‘chilling effect’ in A.G.’s power over mergers

State Attorney General Kamala Harris wants unprecedented authority over contracts dealing with nonprofit hospitals, after a deal in Southern California caused abortion-rights activists to cry foul.

A bill that recently cleared the Legislature and now awaits action from Gov. Brown allows Harris to reopen already approved contracts involving nonprofit health facilities after five years, if they are deemed to have involved significant misrepresentations.

“It’s important so that we protect access to healthcare for individuals for not only their reproductive healthcare, but all of the healthcare services they receive in their hospital in the event there is a merger,” President and CEO of Planned Parenthood Affiliates of California Kathy Kneer said.

It was the October 2012 contract between St. Joseph Health and Hoag Memorial Hospital Presbyterian in Southern California that spurred Harris to pursue an expansion of her office’s authority.

The bill would also give the attorney general’s office more time, from 60 to 90 days, to review such proposed transactions “because they have become more complex and numerous” in recent year due to changes in the healthcare marketplace, according to a legislative analysis.

But opponents argue the bill, SB 1094 By Sen. Ricardo Lara, D-Bell Gardens, will have a chilling effect on these deals in the future.

“In the mode that we’re in today we need, more than ever, more collaboration, more affiliations, more alliances and more coordination of Healthcare. And that occurs through partnerships and arrangements, and in some cases mergers,” said Joe Wilkins, Chairman at St. Joseph Hoag Health.

It was the October 2012 contract between St. Joseph Health and Hoag Memorial Hospital Presbyterian in Southern California that spurred Harris to pursue an expansion of her office’s authority.

Harris’ office argues that a failure to adequately disclose details to the public regarding Hoag’s service changes compromises the integrity of the agreement.

After the agreement went into effect, Harris said community members raised concerns of alleged “material misrepresentation” over the change in abortion services at Hoag.

Conditions of the agreement, approved by Harris, state that Hoag would perform all other reproductive health services other than “direct abortions,” a departure from the hospital’s past operations, according to critics of the agreement.

Harris’ office argues that a failure to adequately disclose details to the public regarding Hoag’s service changes compromises the integrity of the agreement and approval process.

But expanding Harris’ authority to retroactively quash contracts drew fire from the state’s largest hospital group, which noted that Harris already has authority over mergers.

“And she has enforcement authority if the hospitals violate those decisions,” said Jan Emerson-Shea of the California Hospital Association. “The part of the bill we are opposing is that it gives her unilateral authority to go forth and reopen the deal and undo it.”

“I would definitely say with the thirty-day meet and confer process, that’s a lot more certainty because this is an even more drawn out process,” Sumner said.

Emerson-Shea said bill opponents are concerned over what they consider to be an elimination of certainty in mergers. “We oppose it on the philosophy that once a deal is a deal you shouldn’t be able to reopen it,” she said.

CHA had sought an amendment that would no longer give Harris authority to retroactively alter an agreed-upon contract, but Harris’ office called this request an obvious “nonstarter” that would defeat the bill’s purpose.

Instead, a condition was added providing 30 days written notice that would give them an opportunity to come to the negotiating table with concerns.

“And that also gives them a thirty days heads-up in case they want to… essentially challenge an act of a government agency,” said Deputy Attorney General Robert Sumner, who serves as the subject matter expert on charitable trusts and health care policy.

“I would definitely say with the thirty-day meet and confer process, that’s a lot more certainty because this is an even more drawn out process,” Sumner said. “The hospitals have time to react, there’s a better chance of them coming to the table and negotiating something on their own rather than it just be unilateral.”

Another late amendment Lara’s bill took was a reduction in the amount of time during which the AG may go back and revisit contracts of nonprofit hospitals, from 10 years down to five.

The bill failed an initial Assembly floor vote, but gained 11 Democrats’ approval upon reconsideration. It passed out of its house of origin on a 21-13 vote.

“SB 1094 is about good public health policy that ensures choice and access to quality, affordable healthcare for underserved communities,” Harris said in a statement after its approval.

But smaller, rural hospitals that serve these communities need the relationships of these larger networks in order to be able to survive, according to Wilkins.

“This change in the law will make that next to impossible,” he said. “It would be very difficult, if not close to impossible for any Board to approve anything with a “look back” that could change the terms of the deal, even if it’s one day later. Governing Boards are not going to approve transactions that can be reversed without due process or at the whim of state regulators.”