Adventist, St. Joseph Hospital Merger Denied Due to Care Concerns

November 04, 2019 - California’s Department of Justice of Health recently denied the hospital merger request of Adventist Health System/West and St. Joseph Health System over concerns that the transaction would not be in the public interest, according to an official letter.

The state’s Chief Assistant Attorney General Matthew Rodriguez explained in the letter that the hospital merger deal, which includes a non-profit organization, has the potential to limit access and availability of care and increase healthcare costs.

“The California Department of Justice is responsible for ensuring that any proposed sale or transfer of a non-profit health facility protects the health and safety interests of the surrounding community. After careful review we found this proposal falls short of protecting consumers,” Sean McCluskie, Chief Deputy to the Attorney General, said in an official announcement.

Adventist and St. Joseph announced their intentions to merger last April. The health systems intended for the partnership to integrate clinical activities and services through a joint operating company that would extend across clinics and facilities in Humboldt, Mendocino, Sonoma, Lake, Napa, and Solano counties. 

Health system leaders felt the hospital merger was “the right thing to do for the community,” Jeff Eller, Adventist Health President of the Northern California region, said at the time. “Patients will benefit from more access points, better health outcomes, and controlled costs by coordinating their care across the spectrum of their health needs,” he added. 

In June of this year, however, California Attorney General Xavier Becerra held public meetings about the partnership between St. Joseph Health System and Adventist Health System/West, with the intention of receiving feedback from those in the community.

Healthcare stakeholders have raised concerns that hospital mergers increase prices while decreasing access to high-quality care. An analysis published in the National Bureau of Economic Research last year, for example, showed that prices at monopoly hospitals were 12 percent higher than those in markets with four or more rivals, and monopoly hospitals negotiated more favorable terms with hospitals. 

Additionally, Leemore Dafny, a professor of business administration at the Harvard Business School, found that prices increased seven to ten percent if merging hospitals are 30 to 90 minutes apart. 

A recent report from the American Hospital Association (AHA) countered that evidence, uncovering significant cost savings stemming from hospital mergers. Hospitals are able to save money if the scale increases, the association explained. For example, the report showed that total savings were $6.2 million in annual operating and $9.2 million in net patient revenue per adjustment admission per year after acquisition. 

“These results suggest that savings that accrue to merging hospitals are passed on to patients and their health plans,” the report stated. 

However, California’s Department of Justice did not feel the joint operating company formed by Adventist and St. Joseph could achieve those cost savings. With the responsibility of ensuring that partnerships have the health and safety of the community at the forefront, the state’s attorney general believed the proposal proved inadequate. 

“After considering California law and regulation, as well as feedback from the public, today the CA DOJ denied the transaction due to concerns that it is not in the public interest, has the potential to increase health costs, and potentially limits access and availability of healthcare services,” the letter said.

State and federal officials are cracking down on hospital mergers, which have been occurring at a rapid rate recently.  

Most recently, the Federal Trade Commission (FTC) announced plans to conduct a retrospective analysis on COPAs, which immunize hospital mergers from antitrust scrutiny. This could have a major impact on how health systems move forward with their mergers. 

“Vigorous enforcement of the antitrust law is more important than ever,” Edith Ramirez, former FTC Chairwoman, said in 2016. “Most provider mergers are not anti-competitive, but the few that are could cause significant competitive harm.”