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AGs Approve Large Hospital Mergers, But with Special Conditions

A hospital merger deal in California faces care access conditions, while a transaction in Massachusetts will have a seven-year price cap.

Hospital mergers

Source: Thinkstock

By Jacqueline LaPointe

- Attorneys General in California and Massachusetts recently approved two separate hospital merger deals. But the approvals came with a set of special conditions the health systems must meet to finalize the mergers.

After 17 public meetings across the state and over 500 written comments from the public, the California Department of Justice approved the proposed hospital merger between Dignity Health and Colorado-based Catholic Health Initiatives (CHI) on Nov. 21, 2018.

However, the California Department of Justice issued a conditional approval for the hospital merger deal, which will create a system of nearly 140 hospitals across 16 states, including 30 hospitals in California. The new health system will be called CommonSpirit Health.

The conditions for CommonSpirit Health include maintaining emergency services and women’s healthcare services for ten years and creating a Homeless Health Initiative in California to improve patient access to care for homeless individuals.

Additionally, the conditions aim to create stronger protections for individuals who have trouble paying for higher healthcare costs. The California Department of Justice will require CommonSpirit Health to offer a 100 percent discount to patients of Dignity Health’s California hospitals who are up to 250 percent of the federal poverty limit.

READ MORE: How Hospital Merger and Acquisition Activity is Changing Healthcare

“The California Department of Justice is committed to improving the well-being and health of families across the state by increasing accessibility and availability of care in our communities,” stated Sean McCluskie, Chief Deputy to the Attorney General. “Our office carefully reviewed this transaction to protect patients and our communities here in California, and our office will monitor compliance with the conditions.”

In response to the conditional approval, Dignity Health’s President and CEO Lloyd Dean stated, “The completion of the Office of the Attorney General’s review and consent is an important step forward in finalizing the ministry alignment between Dignity Health and Catholic Health Initiatives.”

“By joining together, we will strengthen our ability to provide critical health services and support communities throughout California and the other states our new health system will serve,” he continued.

Beth Israel-Lahey merger gets conditional approval

Just days after the hospital merger approval in California, Massachusetts Attorney General Maury Healey also issued a conditional approval for the proposed merger of Beth Israel Deaconess Medical Center and Lahey Health System.

The Massachusetts health systems inked a final hospital merger agreement in July 2017. The systems intend to create Beth Israel Lahey Health system (BILH), a 13-hospital system with over 800 primary care physician and more than 3,500 specialists across the state.

READ MORE: Healthcare Merger and Acquisition Deal Value Dips in Q3 2018

BILH will be the second largest health system in Massachusetts behind Partners HealthCare.

Healey approved the hospital merger deal despite evidence that the new health system would increase healthcare costs. The Attorney General sent a letter to the state’s Health Policy Commission in July 2018 warning the agency that BILH could boost costs and reduce care access in the region.

In light of her concerns, Healey imposed conditions on the hospital merger deal. Notably, the Attorney General imposed a seven-year price cap on BILH and required $71.6 million in financial commitments to support care access for low-income and underserved communities.

Other conditions include BILH strengthening its commitment to the state’s Medicaid program, engaging in joint business planning with safety net hospital affiliates, and improving mental health and substance abuse disorder treatment access.

BILH must also retain a third-party monitor to ensure the health system complies with the conditions.

READ MORE: Care Integration Driving Healthcare Mergers and Acquisitions

“These enforceable conditions, combined with rigorous monitoring and public reporting, create the right incentives to keep care in community settings and ensure all our residents can access the high-quality health care they deserve,” stated Healey.

The recent conditional approvals demonstrate the high level of scrutiny hospital merger deals endure. Federal and state officials have upped their hospital merger investigations to ensure large health systems do not increase healthcare costs and/or decrease patient access to care.

Hospital mergers are on the rise. Consulting firm Kaufman Hall recorded a record number of hospital merger and acquisitions transactions in 2017, and experts expect a similar or higher number of deals in 2018.

Research, however, has shown that these hospital merger and acquisition deals increase costs. For example, PwC’s Health Research Institute (HRI) recently reported that the hospital merger trend is driving a six percent boost in medical costs, and the Federal Trade Commission stated in 2016 that hospital prices increase as the number of competitors in the market decrease.

Hospital mergers and acquisitions also raise care access and patient safety concerns.

States are likely to issue more conditional approvals to prevent negative consequences from hospital merger deals.


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