Would you sign a contract if you knew the terms could be altered after you agreed to the deal?
A bill on the governor’s desk would do just that in the area of nonprofit hospital mergers and acquisitions.
Large hospital groups typically make these transactions to keep smaller, financially distressed nonprofit hospitals open so they can continue to serve their communities. California law requires the attorney general to review and approve all terms of the deal to ensure that community access to certain health care services is maintained. The office often hires consultants to evaluate market conditions, assess availability of those services and make recommendations. The hospitals pay for that, by the way, not taxpayers.
Additionally, public hearings are held so community member or interest group can raise concerns. The entire process, called a Health Impact Assessment, is then posted on the attorney general’s website.
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The problem with Senate Bill 1094: It gives the attorney general power to change the terms of a deal after the merger has been signed, sealed and delivered.
The attorney general’s office calls this a “narrow refinement of existing authority” to be exercised in case of contract breach, fraud or misrepresentation. “The AG needs to be able to act to enforce the original terms,” Special Assistant Attorney General Jill Habig told me.
Why not obtain an injunction to protect community services and then launch an investigation to assess any concerns?
“In the past several years,” Habig explained, “litigation with hospitals has taken months to years to resolve, and in very few cases has an injunction been possible. Do we want to hold a community’s access to critical health care while the litigation process resolves itself?”
Try four cases since 2002. That’s how many the AG’s office presented to lawmakers to make their argument, out of 26 such acquisitions, according to Irving Levin Associates, a research firm that tracks health care transactions.
Months to years to resolve? Dietmar Grellmann of the California Hospital Association tells me that three cases involving breach of contract took a year or less to reconcile “but the AG was able to obtain an immediate injunction to preserve services while the court process played out or the parties negotiated a settlement.”
The fourth case, involving misrepresentation, occurred in Orange County and was spurred by claims from community members. Still, the hospital ultimately agreed to a supplemental condition, “so again, the process worked even in that case,” Grellmann said.
Do we want to hold a community’s access to critical health care while the litigation process resolves itself? No, but apparently, we haven’t.
The real battle here seems to be over reproductive services. One of the bill’s biggest backers, Planned Parenthood, expresses indignation on its website over the Orange County case. A Catholic hospital group purchased a struggling non-religious nonprofit hospital and discontinued certain abortions procedures that had long been available.
According to Grellmann, though, “the AG’s own consultant said there were enough abortion services in the area that the transaction wasn’t going to impact their availability.”
True, it’s California; who can’t get reproductive services? But seriously, does anyone think Attorney General Kamala Harris would jeopardize her political aspirations – say, a 2018 gubernatorial run – by approving any transaction that would reduce a woman’s access to reproductive services? Or would she use this power to improve her female-friendly portfolio?
I strongly support a woman’s right to choose and the need for regulatory oversight, but SB 1094 is an unnecessary overreach. As a Senate Health Committee analysis noted: “When a facility violates a condition of a transaction, the AG has been able to successfully enforce these conditions in judicial proceedings.”
But unlike judicial proceedings where everybody goes to court, presents their arguments and a judge decides, SB 1094 lets the attorney general make allegations and then act as sole judge and jury.
Worried about losing services? If large hospital groups become understandably reluctant to enter into a contract, retain financing, buy equipment and hire staff, knowing that government can change that contract retroactively, the distressed hospital that could’ve been saved doesn’t get bought and perhaps ends up shutting its doors, and you lose your services anyway.
It’s unknown whether Gov. Jerry Brown will sign this bill. He has until month’s end. He should veto it. We don’t need it, and hopefully, his pragmatic sensibilities will guide him.
If he does sign it, though, the day may come when the attorney general with power to rewrite a contract is an anti-abortion advocate. What might Planned Parenthood say then?