Calif. Senate Advances Health Care Competition Bill

By Julia Arciga
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Law360 (June 29, 2020, 2:33 PM EDT) -- A California bill that aims to crack down on anti-competitive behavior and over-consolidation within the state's health care system cleared the state's Senate on Friday, earning praise from California Attorney General Xavier Becerra.

The bill, SB 977, would require health care systems — or entities that own multiple hospitals — to get approval from the attorney general before going forward with affiliation agreements or acquisitions of health care facilities or providers.

According to the attorney general's office, the AG would approve or deny affiliations or acquisitions based on whether the transaction would increase access, affordability or coordination of care to an underserved population.

The AG would also determine whether the proposed moves would likely result in anti-competitive effects that outweigh their potential benefits.

"With our communities battling the coronavirus pandemic, our healthcare system must operate at peak performance," Becerra said in a statement. "Communities deserve to know that their local hospital won't be treated like a commodity that's up for sale but, instead, like the provider of critical health services that families in the area depend on."

The bill would also bar health care systems that have substantial market power from raising prices, diminishing care quality, reducing choice, increasing total care cost, and decreasing access or availability of health care services.

If the systems abuse their existing market power by engaging in such activities, the AG's office could file civil actions to recover damages and obtain penalties.

In addition, the bill proposes the establishment of a Health Policy Advisory Board, which would be tasked with evaluating and analyzing health care markets and producing an annual report.

"The COVID-19 pandemic has exposed the disproportionate access to healthcare in California," State Sen. Bill Monning said in a statement. "SB 977 will hold unscrupulous healthcare systems accountable to ensure existing services are protected and patient health is the top priority of providers."

SB 977 was first introduced in February, and was moved to the California State Assembly after Friday's passage in the Senate. Monning told Law360 on Monday that lawmakers were "cautiously optimistic" about the bill's prospects in the state assembly.

Jan Emerson-Shea, vice president of external affairs at the California Hospital Association, who came out in opposition of SB 977, told Law360 the association remains "strongly opposed" to the bill.

"We believe that this bill will create significant harm when hospitals are trying to recover from the coronavirus," she said, adding that hospitals are estimated to have lost billions during the crisis. "All hospitals may not be able to survive that."

On the other hand, Monning said in a Monday phone call that the CHA's representation of the bill could not be "further from the truth" and said the bill would protect health care access provided by smaller hospitals.

"The COVID crisis is making smaller hospitals more susceptible to offers from larger [health care] networks and hedge funds looking to get a bargain," he said, adding that the potential buyers were "preying upon people in distress."

Becerra did not immediately respond to requests for comment Monday.

The passage of the bill comes as hospitals' financial footing has been destabilized to some degree due to the coronavirus pandemic. To conserve resources for COVID-19 cases, widespread cancelations of nonemergency procedures have taken place, bringing to a halt activities that generate much of the industry's income.

Hospitals that find federal government funds to be insufficient, or health care providers who see the changing landscape of health care due to COVID-19, may look at mergers and acquisitions to help their financial situation, David Dahlquist, health group co-chair at Winston & Strawn LLP, previously told Law360.

While few hospital deals have been announced amid the pandemic, lawmakers in California and on the national stage are warning that organizations could use the health crisis to justify deals that have negative effects for health care customers.

In May, Democrats in U.S. Congress wrote to both Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, urging them to restrict all recipients of bailout funds from participating in "potentially harmful" mergers and acquisitions.

--Additional reporting by Jeff Overley. Editing by Kelly Duncan.

Update: This article has been updated with comment from Sen. Bill Monning.

For a reprint of this article, please contact reprints@law360.com.

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