Examining the Authority of California’s Attorney General in Health Care Mergers APRIL 2020 AUTHORS Samuel M. Chang, Katherine L. Gudiksen, Thomas L. Greaney, and Jaime S. King Contents About the Authors 3Introduction Samuel M. Chang, JD, is a health policy researcher 3Existing Oversight Authority in California and Katherine L. Gudiksen, PhD, MS, is a senior health policy researcher at The Source on Healthcare Attorney General Oversight of Health Care Price and Competition, a project of the University of Provider Transactions California Hastings College of the Law. The Source CDI and DMHC Oversight of Transactions provides up-to-date and easily accessible information Involving Domestic Health Insurers and about health care price and competition in the US. For Health Care Service Plans more information, visit www.sourceonhealthcare.org. 6Potential Shortcomings of Existing Thomas (Tim) Greaney, JD, is a visiting professor of Oversight law at the University of California Hastings College Lack of Notification Requirements of Law and distinguished senior fellow with the UC Hastings/UCSF Consortium on Law, Science, and Difficulty of Challenging a Transaction Health Policy. He is also Chester A. Myers emeritus Post-Transaction Review and Compliance professor of law at Saint Louis University School of Law where he served as director of the Center for 8Consolidation Review in Other States: Health Law Studies. Three Approaches Notification and Approval of Provider Consolidation Jaime S. King, JD, PhD, is the Bion M. Gregory chair of business law and a professor of law at the University of Adoption of Specific Standards Relating to California Hastings College of the Law and the execu- Competition and/or Adoption of State tive editor of The Source. She is also the associate Clayton Act Analog dean and co-faculty director of the UCSF/UC Hastings Comprehensive Post-Consolidation Consortium on Law, Science, and Health Policy, and Oversight Authority the co-founder and co-director of the UCSF/UC Hastings Masters in Health Law and Policy Program. 11A Framework for Improving the California AG’s Oversight About the Foundation Require AG Notification/Approval of All Health Care The California Health Care Foundation is dedicated to Consolidation Activity advancing meaningful, measurable improvements in Implement Tiered Levels of Notice and Approval the way the health care delivery system provides care Strengthen Post-Transaction Review Authority to the people of California, particularly those with low incomes and those whose needs are not well served 14 Conclusion by the status quo. We work to ensure that people have access to the care they need, when they need it, 15 Endnotes at a price they can afford. CHCF informs policymakers and industry leaders, invests in ideas and innovations, and connects with changemakers to create a more responsive, patient- centered health care system. For more information, visit www.chcf.org. California Health Care Foundation www.chcf.org 2 This report examines the California AG’s existing Introduction merger oversight authority, compares that to the The health care industry has recently experienced authority held by other state AGs, and then offers a horizontal, vertical, and cross-market consolidation series of considerations for policymakers interested in unprecedented in scale and scope. While certain types ensuring that California’s health care markets operate of industry consolidation1 have been associated with in a more consumer-friendly manner. marginal increases in the adoption of evidence-based care processes and health information technology, it has not been linked to conclusive increases in clinical integration, better patient experience, or improve- Existing Oversight ments in patient outcomes.2 In short, consolidation in the health care industry has not improved the quality Authority in California of care. Three California state agencies have the legal author- ity to oversee mergers and acquisitions involving However, consolidation within and across the indus- health care entities.7 For this report, the use of the try has been found to generate market power and to word “merger” includes both mergers and acquisi- drive price growth.3 For example, economic research tions. “Consolidation” is used to include mergers demonstrates that both horizontal consolidation and acquisitions as well as affiliations, joint negotiat- of hospitals and vertical consolidation of physician ing agreements, joint ventures, and other exclusive practices with hospitals contribute to health care contracting arrangements. Specifically, the California price increases throughout the nation, especially AG (i.e., the California Department of Justice) must in California.4 Recent evidence finds an association approve most mergers8 of nonprofit hospitals and between hospital mergers and price increases even may file suit to challenge any potentially anticompeti- when the merger occurs across geographic markets.5 tive mergers for violation of Section 7 of the federal Despite this evidence, many consolidation efforts, in Clayton Act in its parens patriae capacity. The doc- particular vertical and cross-market mergers, continue trine of parens patriae allows the state, specifically to proceed unchallenged.6 its attorney general, to represent the interests of its constituents for claims of harm based on state or fed- eral law.9 In addition, the California Department of Insurance (CDI) must approve any mergers involving Consolidation in the health care industry domestic insurers, while the California Department of has not improved the quality of care, yet Managed Health Care (DMHC) must approve of any it has been found to generate market mergers involving health plans. power and drive price growth. Attorney General Oversight of Health Care Provider Transactions State antitrust enforcement can provide a robust The scope of AG review of a transaction depends on alternative to federal antitrust enforcement agencies. the types of entities that attempt to merge. Mergers However, as described below, current constraints limit involving only for-profit organizations, which often the ability of California’s attorney general (AG) both to include physician practices and for-profit hospitals, do pursue all possible antitrust violations in California and not require notice or AG approval. Mergers involving to address the escalating scope and negative impacts a nonprofit corporation require written notice to the of health care industry consolidation. As a result, some AG for any sale or for a transaction that leads to the policymakers have begun considering expanding the disposition of “substantially all of [a nonprofit corpora- AG’s oversight of health care mergers. tion’s] assets.”10 Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 3 Most important, mergers involving nonprofit health For example, in 1999, the California attorney gen- facilities, like nonprofit hospitals, require consolidat- eral filed a challenge, “in its parens patriae capacity ing entities to provide written notice to — and obtain for injunctive relief under Section 7 of the Clayton the approval of — the AG for any transaction involv- Act,” 19 to the merger of Sutter Health’s Alta Bates ing a “material amount of assets.”11 When reviewing Medical Center with Summit Medical Center.20 The these transactions, the AG must examine whether the merger made Sutter the largest provider of hospi- terms are fair and reasonable, including whether the tal services in the East Bay.21 The court found that transaction improperly benefits any private entity, is at Summit Medical Center had successfully established fair market value, and is consistent with the purposes the “failing company defense” because it faced a of the charitable trust in which the assets are held.12 “grave risk of business failure” and lacked “any alter- Additionally, the AG reviews the merger based on a native purchaser.”22 Additionally, the court noted that, variety of factors, such as whether the transaction will despite the merger, health plans could “discipline” affect access to health care services, raise antitrust hospitals by steering patients to lower-cost health concerns, or is in the public interest.13 After review, the providers.23 The court also observed that if anticom- AG may choose to approve, conditionally approve, or petitive price increases did occur because of the disapprove the merger.14 merger, patients could choose to join Kaiser.24 Finally, the court noted that the AG’s claim that “patients are In a conditional approval, the AG may demand condi- unwilling to travel to hospitals located in San Francisco tions related to the public’s interest, including requiring or Contra Costa County for acute inpatient services” that the merged system maintain adequate charity seemed to come mostly from “pure conjecture,” care and preserve access. For example, in 2018, when which allowed the court to broaden the geographic the AG conditionally approved the Dignity Health market sufficiently to permit the merger.25 merger with Catholic Healthcare Initiatives, the AG required the new health system to offer discounts to Over a decade later, a Federal Trade Commission uninsured patients earning up to 250% of the federal (FTC) retrospective study found that Summit’s post- poverty level and to maintain emergency and wom- merger price increase was among the largest of any en’s health care services for 10 years.15 Similarly, in comparable hospital in California, being between the 2015, when the AG conditionally approved the acqui- 95th and 99th percentile of price changes.26 Summit’s sition of the Daughters of Charity Health System by prices before the merger were significantly lower than Prime Healthcare Foundation, the AG required Prime those of Sutter Alta Bates, but increased to align with Healthcare to maintain certain medical centers as Alta Bates’ within a few years of the merger.27 Steven acute care hospitals and to preserve emergency and Tenn, the author of this FTC study, concluded that the reproductive health care services.16 presence of other hospitals, which patients and health plans can turn to, was an “insufficient constraint” to Regardless of the level of notice and approval prevent an anticompetitive price increase.28 required, the AG retains the authority to review and challenge any merger and acquisition in court, even if By 2018, growing evidence of Sutter Health’s higher another state agency already approved the merger.17 prices led the AG to sue the health system for viola- Specifically, the AG can use federal antitrust law to tion of the Cartwright Act, alleging that its contracting challenge any anticompetitive merger or acquisition, practices, such as “all-or-nothing” contracting, anti- on its own behalf as a purchaser of health services tiering/anti-steering prohibitions, high out-of-network or as parens patriae on behalf of the interests of its prices, and restrictions on price transparency harmed citizens, to prevent or repair harm from actions like competition in Northern California.29 In December anticompetitive mergers.18 2019, the AG and Sutter Health reached a settlement agreement that requires Sutter Health to, among other California Health Care Foundation www.chcf.org 4 things, pay $575 million to compensate those covered States Department of Justice (DOJ) and California AG under the class action and legal fees, limit out-of-net- settlement with CVS and Aetna 42 in requiring Aetna work pricing, and stop all-or-nothing contracting.30 As to divest its Medicare Part D business in California of publication time of this paper, court approval for when merging with CVS.43 When conditionally the settlement remains pending. approving the Cigna-Express Scripts merger, DMHC also required Express Scripts to contract with unaffili- CDI and DMHC Oversight of ated health plans at arm’s length (i.e., contracting as if Express Scripts were not merged with Cigna) for at Transactions Involving Domestic least five years.44 Express Scripts additionally agreed Health Insurers and Health Care to maintain firewalls to insure that Cigna would not Service Plans have access to Express Scripts’ competitively sensitive Mergers involving domestic31 insurers32 must receive information.45 Finally, when conditionally approv- prior approval from CDI, while mergers involving ing the Optum-DaVita merger, DMHC required that health care service plans33 must receive prior approval Optum’s medical groups, risk-bearing organizations, from DMHC.34 After receiving the required notice from and individual providers must continue to contract at the entities seeking to merge, CDI or DMHC exam- arm’s length with unaffiliated California health plans ines whether the transaction may “substantially lessen for at least three years.46 In requiring arm’s-length competition” or “create a monopoly.”35 While the contracting and firewall protection for competitively standard for review parallels federal antitrust review, sensitive information, DMHC has tried, for a limited the specific review at each agency differs. For mergers time, to preserve competition and mitigate the effects involving domestic insurers, CDI must consider com- of potential monopolization. petition in addition to other factors including financial solvency, fair and reasonable terms, and adverse In sum, three California agencies have a role in review- effects on policyholders’ interests.36 Similarly, for ing proposed mergers in the health care industry as mergers involving a health care service plan, DMHC summarized in Table 1 (see page 6). The type of entity must determine whether the resulting entity would still merging or being acquired (e.g., nonprofit health facil- meet all requirements of the Knox-Keene Act,37 such ities, domestic insurers, or health care service plans) as whether the transaction will result in a “stable health determines which agency receives the notice and/or care delivery system.”38 A new law, effective January 1, administers the review. Nonetheless, the AG must be 2019, granted DMHC the authority to review whether notified of all mergers involving a nonprofit entity to the transaction may “substantially lessen competition” ensure compliance with the mission of the organiza- or “create a monopoly.”39 DMHC has not yet reviewed tion. While the AG cannot require prior approval for any transaction for competitive concerns under the some nonprofit entity mergers, the AG, after deeming new law, but in some recent approvals, DMHC suc- any transaction to be anticompetitive under federal cessfully conditioned approval of the mergers with antitrust laws, can sue to block or unwind a transaction. terms related to pricing and competition. For example, in the three approvals DMHC condi- tionally granted in 2018 (CVS-Aetna, Cigna-Express Scripts, and Optum-DaVita), it required all three insur- ers to not increase premiums due to the acquisition and to keep premiums at a minimum.40 When approv- ing these mergers, DMHC also demanded other terms to preserve competition, including divestiture or fire- walls.41 Specifically, DMHC aligned with the United Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 5 Table 1. Current Oversight Authority over Health Care Transactions in California PREMERGER CONDITIONAL STATE NOTICE AND APPROVAL REVIEW OF AGENCY STATUTORY AUTHORITY TYPE OF ENTITY REGULATED APPROVAL ALLOWED COMPETITION AG Cal. Corp. Code § 5914 et seq. Nonprofit hospitals 4 4 — AG Clayton Act, Section 7 (15 U.S.C. § 18) All mergers and acquisitions — —† —† CDI Cal. Ins. Code §§ 1215.1 et seq. Domestic insurers 4 4 4 DMHC Cal. Health & Safety Code §§ 1399.70 Health care service plans 4 4 4 et seq.; 1339.70 et seq.* *This section of the Knox-Keene Act regulates conversions and restricting of nonprofit health plans, which may include mergers and acquisitions. †The AG can sue to enjoin (i.e., prevent) or unwind a merger only after such a merger is proposed or completed, respectively. (See, for example, California v. Sutter Health Sys., 130 F. Supp. 2d 1109, 1117 [N.D. Cal. 2001] [suing to enjoin a proposed merger]; and California v. Am. Stores Co., 495 U.S. 271, 276 [1990] [California filing in federal court to prevent merger after FTC-approved merger].) However, after filing suit, an AG may conditionally approve such a merger via a court-approved settlement. Since the primary cusp of the Clayton Act is to prohibit any mergers or acquisitions that may substantially lessen competi- tion or tend to create a monopoly, the AG’s review of the merger must include competition. Note: The state agency does (4 ) or does not (—) have explicit statutory authority for the action described to the entity it regulates. Potential Shortcomings already occurred increases the importance of pre- merger review by the AG.47 Furthermore, the lack of of Existing Oversight oversight may inhibit the AG’s ability to become aware The potential shortcomings of existing oversight in of and thus challenge small, but potentially anticom- California stem from (1) the absence of notice and petitive, transactions. approval procedures encompassing all health care consolidation activities, (2) the absence of a state law governing all forms of consolidation, and (3) limited The AG must rely on news reports and personnel and financial resources available to conduct other sources to track consolidation effective post-merger review. The difficulties caused by these shortcomings are discussed below. of for-profit hospitals and physician practices. As a result, the AG may be Lack of Notification Requirements unaware of a transaction, and therefore While the AG retains the authority to challenge any unable to challenge it, until after its anticompetitive health care merger, stronger and more effective antitrust enforcement authority would completion. require that the AG receive prior notice of all relevant health care mergers with sufficient time to review and For example, mergers involving ambulatory surgery approve them. While nonprofit entities must notify centers, which are typically for-profit entities; physician the AG prior to a sale or transfer of their assets, the practices; and outpatient clinics rarely reach the Hart- AG must rely on news reports and other sources to Scott-Rodino minimum threshold for review by federal track consolidation of for-profit hospitals and physi- regulators,48 so consolidation of similar entities may cian practices. As a result, the AG may be unaware occur without federal or state oversight. As a result, of a transaction, and therefore unable to challenge this “stealth consolidation” can escape regulatory it, until after its completion. The historical reluctance scrutiny while still affecting market power and health of courts to unwind health care mergers that have care prices.49 Finally, some forms of consolidation, California Health Care Foundation www.chcf.org 6 such as cross-market mergers and contractual affili- conditions, the AG and the merged entity agree to ations, also avoid regulatory scrutiny because they specific terms in a consent decree. Oversight of that escape reporting requirements specified in the statute consent decree, however, can require substantial time (see Table 1) despite potentially having similar anti- and resources to monitor consistently for many years. competitive effects as other mergers. Further, post-transaction oversight lasts only for a lim- ited time, while the market power obtained from a transaction will remain.52 Difficulty of Challenging a Transaction Additionally, post-transaction oversight can easily be Another potential shortcoming of existing oversight undone by other events such as hospital closure or is the difficulty the AG faces in opposing a poten- sale to public entities. For example, the US Bankruptcy tially anticompetitive transaction. Specifically, even Court for the Central District of California, Los Angeles when the AG learns of a proposed transaction, other Division held, in one case, that the AG could not than one involving nonprofit health facilities,50 the review a sale after the closure of a hospital and, in AG cannot demand a waiting period to allow time another case, that a consent decree negotiated by the for review or additional documentation to inform its AG regarding an acute care facility no longer applied decisionmaking. Additionally, unlike mergers involv- after that facility was sold to a public entity.53 These ing nonprofit health facilities, the AG cannot require decisions demonstrate the need to amend California premerger approval and unilaterally impose condi- Corporation Code to include closed facilities in the tions for mergers that may involve only for-profit definition of health care facilities and to allow the AG entities, like physician practices. As such, to prevent to review sales to any entities to prevent such entities a potentially anticompetitive transaction involving, for from skirting enforcement of consent decrees through example, physician practices, the AG can only chal- bankruptcy proceedings. lenge the merger in court. However, unlike some other state competition laws, Consent decrees require substantial California’s Cartwright Act does not allow the AG to challenge a potentially anticompetitive merger resources to oversee and are only transaction under state law, so California merger chal- effective with proper monitoring. lenges are subject to federal law precedents under the Clayton Act.51 In addition, although the AG, as parens patriae, retains the authority to challenge any These three potential shortcomings in the California anticompetitive merger for violation of Section 7 of merger review process inhibit the ability of the AG to the federal Clayton Act or other antitrust laws, the AG effectively oversee mergers and other forms of con- may be hesitant to challenge some transactions, espe- solidation in the state, especially stealth vertical or cially smaller ones, because such challenges can be cross-market consolidation. Hence, California could resource intensive and time-consuming. benefit from an enhanced consolidation review pro- cess that allows the AG to (1) systematically prioritize the review of proposed transactions with appropriate Post-Transaction Review time for that review, (2) block or conditionally approve and Compliance consolidation with likely anticompetitive effects with- A third potential shortcoming of existing oversight out a lengthy and expensive court challenge, and is the substantial time and resources required to (3) streamline the monitoring of consent decree conduct effective post-merger review and to ensure compliance. compliance with the terms of any conditional approv- als. Specifically, when a transaction is approved with Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 7 Consolidation Review provider organizations (Table 2). Furthermore, Rhode Island and Hawaii require state agencies to approve in Other States: Three all mergers involving hospitals over a certain thresh- old, which may be based on percentage of assets or Approaches control interest.54 To bolster their ability to ensure that health care consolidation serves the public interest, other states Connecticut, Washington, and Massachusetts also have taken a number of steps to increase consolida- require notice of proposed mergers involving all tion oversight, including (1) required notification and/ provider organizations, including dentists and or approval of health care provider consolidation, (2) other licensed health professionals (Washington required review of a proposed transaction’s impact and Massachusetts) or physician group practices on competition or an outright prohibition of cer- (Connecticut). Including all provider organizations in tain anticompetitive transactions, and (3) mandated the consolidation review process allows these states post-transaction monitoring and approval before a to more effectively review all forms of consolidation. reduction or elimination of medical services. These Additionally, these three states require notice for any approaches, described below, offer some poten- transaction that will result in a “material change” for a tial avenues for enhancing California’s consolidation provider organization (Washington and Massachusetts) oversight. or a physician group practice, which includes two or more physicians (Connecticut).55 In all three states, the definition of “material change” includes a merger, APPROACH 1 acquisition, and contracting affiliation between hospi- Notification and Approval of tals or group practices or a combination of the two.56 Provider Consolidation Defining “material change” broadly allows these To better understand and control health care con- states to review transactions that do not qualify as a solidation, some states have expanded notice and traditional merger but can have similar anticompeti- approval requirements to include consolidation activ- tive effects. ity involving both for-profit and nonprofit hospitals and Table 2. State Requirements for Notice or Approval of Provider Consolidation* HOSPITAL M&As NOTICE OF CONSOLIDATION NOTICE OF APPROVAL OF PHYSICIAN GROUP PROVIDER Colorado 4 Rhode Island 4 4 Hawaii 4 4 Connecticut 4 † 4 Washington 4 4 4 Massachusetts 4 4 4 *This table includes all state agency notice and approvals, including the state’s departments of health and the state’s department of justice (AG). Additionally, states like Colorado, Rhode Island, and Hawaii require notice and approval for all mergers that exceed a certain threshold of a specified percentage of assets or control interest. †Connecticut approves all hospital mergers and acquisitions via its certificate of need program. California Health Care Foundation www.chcf.org 8 APPROACH 2 Post-transaction oversight lasts only for Adoption of Specific Standards a limited time, while the market power Relating to Competition and/ obtained from a transaction will remain. or Adoption of State Clayton Act Analog While consolidation review currently allows the state Further, Washington and Massachusetts define the AGs to consider the effect of competition, some states term “provider organization” to encompass not only have articulated specific and explicit considerations hospitals and physician organizations, but also orga- regarding competition for inclusion in the review. nizations of other health care professionals, such as Furthermore, some states have enhanced merger dentists and midwives.57 This broad scope provides a review by passing an analog to the federal Clayton comprehensive overview of health care consolidation. Act that allows the state AG to challenge potentially While Connecticut does not have the same scope as anticompetitive consolidation in court. These two pol- Washington and Massachusetts, it reviews mergers icy options, described below, are complementary and and acquisitions involving large physician organiza- can be done in conjunction or separately. tions and/or hospitals as part of its certificate of need review.58 Requirement to assess competitive effects. Some states specify what the AG must consider when Considerations for California reviewing competitive effects by adopting consolida- To adopt a level of oversight similar to that of these tion review criteria spelling out conditions potentially six states, California could consider including for- harmful to competition. Specifically, in Maryland, the profit hospitals and provider organizations in the list AG can find that a nonprofit health entity has not prop- of entities that must provide notice and get approval erly exercised due diligence in considering the impact from the AG before a merger or acquisition. The state of consolidation, thus violating its fiduciary duty. The could additionally adopt a “material change” notice AG can prevent a merger if “the nonprofit health standard, similar to Washington, Connecticut, and entity [has not] considered the risks of an acquisition, Massachusetts, so that the California AG can monitor including whether an acquisition: (i) would result in dis- all forms of health care consolidation. This definition economies of scale; or (ii) would violate federal or state could include affiliation agreements for joint negotia- antitrust laws.”59 On the other hand, both Connecticut tion, whole-firm acquisitions, and activities by a wider and Massachusetts mandate completion of a cost and array of providers, such as dentists, air ambulance pro- market-impact review, which examines how the trans- viders, pharmacies, and dialysis clinics. To minimize action would affect health care prices and the health the burden of this approval on the AG, policymak- care market.60 ers could design a tiered notification and approval framework that aligns the level of AG involvement Adoption of state analog of Clayton Act. At least with the level of market concentration, market power, 10 states allow the AG to challenge a potentially anti- and potential competitive harm. Such a framework competitive merger or acquisition in state court by is described in the box “Categories of Risk and AG adopting a state analog of the federal Clayton Act.61 Oversight: A Three-Tier Architecture” on page 12. These state statutes make unlawful any merger or acquisition that may “substantially . . . lessen competi- tion or . . . tend to create a monopoly.” While state AGs can sue under the federal Clayton Act, those with state analogs of the Clayton Act have effectively used these laws to challenge mergers in federal or state Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 9 court.62 Further, cases brought under a state analog of Alternatively, California’s policymakers could amend the Clayton Act are not bound by federal court deci- the state’s antitrust law — the Cartwright Act — or sions interpreting the federal Clayton Act as long as pass new legislation to include language similar to the the state’s analog does not have a harmonization pro- Clayton Act that would allow the AG to challenge all vision that requires that the state’s antitrust laws be anticompetitive transactions, including affiliations and read in harmony with federal antitrust laws. mergers. By empowering the AG to challenge an anti- competitive merger in a state court, the state could Considerations for California develop its own jurisprudence governing health care California policymakers have two options to increase consolidation.64 As a result, the California AG could consolidation oversight by the state AG: (1) explic- file suit to block problematic cross-market and verti- itly require review of competition during approval of cal consolidation that may not be fully addressed by a transaction, and/or (2) implement a state analog of federal antitrust law.65 the Clayton Act by amending the Cartwright Act or by passing new legislation. Implementation of both options would ensure that the AG can stop a proposed transaction due to competi- First, California policymakers could consider requir- tive concerns and also sue to enjoin or unwind a merger ing the AG to weigh any transaction’s impact on later on if the transaction proves anticompetitive. competition, market power, price, and quality when considering approval for a transaction. This authority would mirror that granted to DMHC in AB  595 that APPROACH 3 allows DMHC to disapprove a transaction if it would Comprehensive Post-Consolidation “substantially lessen competition in health care ser- Oversight Authority vice plan products or create a monopoly in this state.” In many states, including California, the AG can condi- Currently, the state’s AG may consider any factors it tion approval of a transaction through use of consent deems relevant, but the statutes only require consid- decrees that aim to mitigate competitive harm and, eration of factors related to charitable trust doctrine, sometimes, retain or promote community benefits. and whether the transaction would affect health care However, oversight of consent decrees requires access, be in the public interest, and affect cultural substantial resources and consistent monitoring.66 interests in the community.63 Because limited post-consolidation enforcement may cause significant harm that cannot be easily rem- edied, some states enacted statutes to strengthen “Stealth consolidation” can escape or standardize consent decrees by (1) requiring post-transaction disclosures by the merged entity regulatory scrutiny while still affecting (Colorado);67 (2) allowing the AG to appoint an inde- market power and health care prices. pendent monitor, paid for by the merging entities, to assess whether the merged entity complies with the consent decree and the impact of the merger on com- Expanding the list of factors would explicitly require petition, price, and access (Massachusetts and New the AG to consider the impact of a particular trans- Jersey);68 and (3) prohibiting a reduction or elimination action on market-based factors like price, quality, and of health care services without prior approval (Rhode competition. These factors could enable the AG to Island and Hawaii).69 Additionally, Massachusetts more effectively oversee and oppose anticompetitive has a Health Policy Commission (HPC), an indepen- vertical and cross-market consolidation that federal dent agency that engages in many activities related antitrust enforcement officials have neglected. to health care consolidation, including commenting on proposed consent decrees like the one between California Health Care Foundation www.chcf.org 10 Partners Healthcare System and the Massachusetts AG and assisting in consent decree oversight.70 A Framework for Improving the California Considerations for California Despite the AG’s ability to implement a wide array of AG’s Oversight conditions in consent decrees and the necessity of Building on other states’ oversight of health care con- case-specific conditions, policymakers in California solidation with consideration of California’s unique could aim to establish norms and guidelines around health care market conditions, a framework for poten- certain consent decree conditions to help promote tial policymaker actions is described below. The goal of consumer welfare and to limit administrative burdens this framework is to minimize anticompetitive consoli- and expenses. For instance, policymakers could con- dation through enhanced oversight in three areas: (1) sider adopting express statutory authority, similar to increased pre-consolidation notification and approval Corporation Code section 5917 and 5923, to require requirements, (2) a tiered review process that allows the AG to consider consent decree conditions that may the AG to challenge anticompetitive consolidation in include requiring the consolidated entity to (1) take on state courts, and (3) strong post-transaction authority. the burden of reporting compliance with the consent In proposing this framework, structural remedies, such decree, (2) hire an independent monitor to conduct as blocking or unwinding an anticompetitive trans- periodic compliance reviews, (3) maintain access to action, remain the preferred approach to potentially certain health care services post-consolidation, and/ anticompetitive mergers, as post-transaction over- or (4) establish limits on prices, costs, or margins.71 sight, such as consent decrees and conduct remedies, Alternatively, the AG could promulgate publicly avail- only targets the effects of an anticompetitive merger able guidelines or policies regarding consent decrees for a limited period of time and require continuing, and include similar provisions. Normalization of cer- resource-intensive oversight. tain consent decree conditions could help maintain important consumer protections despite any changes AREA 1 in attorneys general ideologies or enforcement Require AG Notification/Approval priorities. of All Health Care Consolidation Additionally, if California successfully implements Activity the proposed Office of Health Care Affordability, California could consider requiring consolidating that office, like the Massachusetts’s HPC, could pro- entities to notify the attorney general 90 days before vide further oversight over compliance with consent making any “material change” to the operation of a decrees and report on consent decree effectiveness. health insurance company, health care service plan, Furthermore, policymakers could consider incorpo- or health care provider; this definition would apply rating strict conflict of interest laws for the proposed to all licensed health care professionals and facilities, Office of Health Care Affordability and any other including hospitals, physicians, dentists, and pharma- entity providing reports to the AG, mirroring those of cists. All entities would be required to provide the AG Massachusetts’s HPC,72 to best ensure the effective- with, at a minimum, justification of the consolidation ness of those agencies and the impartiality of their (e.g., improving health care access or necessity for reports. clinical integration); size of the transaction (e.g., num- ber of providers in the consolidation entities, number Together, these three approaches, properly and of patients affected, or a dollar amount of the assets thoughtfully implemented, could provide a foundation involved in the transaction); proposed market defi- for California to promote competition in its health care nition; and market share (or sufficient data to allow market by serving as the basis for important improve- the AG to determine market share). Such require- ments to the AG’s existing consolidation oversight. ments could enable the AG to more accurately track Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 11 consolidation in the state and more effectively chal- transactions (see an example three-tier architecture in lenge consolidation before it occurs. the box below). The categorization process should be as minimally burdensome as possible to limit the resources required for transactions with minimal AREA 2 impact on consolidation. Pre-consolidation notifica- Implement Tiered Levels of Notice tion could include a suggested tier placement, market and Approval share, and market definition, but the AG should thor- California could institute tiers for approval based on oughly review the notification to ensure proper tier the size, scope, and potential impact of the transac- placement to identify potentially anticompetitive con- tion. Such an approach could help the AG focus time solidation. Criteria for determining the tier placement and resources on transactions that have a higher risk could include the Herfindahl-Hirschman Index (HHI),73 of impacting competition, market power, price, or other indicia of the creation or exercise of market quality. Policymakers could create specific, distinct cri- power in key markets, and the size of the transac- teria for each tier to allow categorization of health care tion. These criteria should extend beyond traditional Categories of Risk and AG Oversight: A Three-Tier Architecture Tier I — De Minimis Risk. Transactions are likely to area with a competitive market. For Tier II determina- have a low impact on competition, market power, price, tions, the AG must affirmatively waive or approve the or quality. They may occur in unconcentrated markets transaction within 60 days, subject to stays related to (e.g., HHI < 1,500), in cases where the merged entity information requests. will not have significant market share in any health Tier III — High Risk. Transactions are likely to have a care market, or when the acquisition is too small to considerable impact on competition, market power, have a significant impact. For example, a small primary price, or quality. Inclusion in this category may be physician practice group acquiring a solo practitioner demonstrated by evidence showing the transaction or a hospital contracting exclusively with special- occurs in product or geographic markets that are highly ists in an unconcentrated market would come within concentrated (e.g., HHI > 3,600); the merged entity this category. For Tier I determinations, the AG must would have a market share that exceeds 60% in any decide within 30 days whether to approve the merger health care market; or that the addition of the acquired or request additional information. If the AG takes no or merged entity would increase the market power of action during that time, the transaction is automatically the resulting entity by a significant amount. A transac- approved. tion involving a major health system would likely be Tier Tier II — Moderate Risk. Transactions are likely to have III, even if the system were acquiring a small physi- a moderate impact on competition, market power, cian practice or a hospital in another geographic area. price, or quality. Inclusion in this category may be Transactions involving “must have” facilities or the only demonstrated by evidence showing that the transaction hospital in a region could also require Tier III review. occurs in product or geographic markets with moderate For Tier III determinations, the AG would have 90 concentration (e.g., an HHI between 1,500 and 3,600*); days, subject to stays related to information requests, the merged entity would have a market share in any to review the transaction and approve or deny the health care market that exceeds 40%; or the transaction transaction. Tier III transactions carry a presumption of would increase the market power of the resulting entity illegality. While the AG maintains the ability to chal- by a significant amount. Tier II would likely include lenge any merger or conditionally approve any merger a transaction between two intermediate physician with a consent decree, approval of Tier III transactions practice groups, a hospital merger in a moderately con- should, in nearly all cases, include a consent decree centrated county, or a large hospital system acquiring with post-market oversight. an important specialty group in a different geographic *This number acknowledges many health care markets already exceed HHI of 2,500. This range is a suggestion, and policymakers should adjust this range as needed. California Health Care Foundation www.chcf.org 12 factors used in evaluating horizontal mergers to incor- including vertical and cross-market consolidation as porate factors relevant to potentially anticompetitive well as affiliations that federal antitrust regulators have vertical or cross-market consolidation as well. Upon not typically enforced. determining the appropriate tier placement, the AG would notify the parties of the tier determination and AREA 3 the facts relevant to that decision. Strengthen Post-Transaction In determining whether to approve a particular trans- Review Authority action at any tier, the AG would weigh the potential The AG’s post-transaction review authority could be impact of the material change on competition, strengthened to improve the monitoring of consoli- market power, price, and quality. Any applicable dation’s impact. To ensure the efficacy of conditional waiting period for approval could be stayed pend- approvals, policymakers could consider standardizing ing receipt of the requested information. To further and strengthening the AG’s post-transaction review facilitate the review, the AG could be empowered to authority by enacting a statute that requires the AG to request reports from the proposed Office of Health consider the use of certain specific, effective consent Care Affordability, or alternatively or additionally, the decree conditions. Alternatively, the AG could con- California Department of Public Health (CDPH) and sider releasing publicly available guidelines or policies Office of Statewide Health Planning and Development to ensure transparency and standardization of post- (OSHPD) to assist in providing an in-depth analysis on transaction authority. potential impacts and relevant data. Additionally, to ensure effective post-transaction mon- In addition to a new statute that would implement itoring, policymakers could grant the AG authority the tiered framework described above, policymakers to request assistance from agencies that either col- could also consider supplementing, but not substi- lect data or monitor some aspect of health care, such tuting, the tiered framework by increasing the AG’s as the proposed Office of Health Care Affordability, ability to challenge anticompetitive consolidation in OSHPD, or CDPH. Additional levels of monitoring or state court, thereby creating an additional backstop review could help ensure compliance with consent should new information or changes in the market lead decrees, consumer-friendly practices, health access, to the transaction resulting in being anticompetitive. and competitive markets. Specifically, California could pass new legislation or amend the state’s antitrust law, the Cartwright Act Finally, policymakers could consider expanding the (California Business and Professions Code §  16720 California Corporations Code § 5914 et seq. to grant et seq.) to resolve the issue in State of California ex the AG the ability to approve of the sale of assets of rel. Van de Kamp v. Texaco, Inc, which prevents the any nonprofit health facility, regardless of its operat- AG from using the Cartwright Act to challenge merg- ing status, and require AG approval of any proposed ers or acquisitions in state court. This new legislation modification to a consent decree resulting from a sale or amendment would provide an additional cause of of nonprofit health facility assets to any entity, includ- action outside of the federal Clayton Act to review all ing a public entity. Such an amendment would fully forms of consolidation, including affiliations and joint resolve the challenges created by prior court decisions ventures. Policymakers should be sure to exclude a holding that existing law did not require AG consent harmonization provision to allow state jurisprudence for the sale of closed nonprofit hospitals and that pre- to develop outside of federal jurisprudence and viously imposed consent decrees did not apply to the antitrust laws. Amending the Cartwright Act in this sale of nonprofit hospitals to a public entity. Should manner could allow a statutory basis for broadened policymakers seek to implement the tiered framework review of anticompetitive health care consolidation, suggested above, they should include the provisions Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 13 described in this paragraph to ensure that any con- sent decrees imposed remain in effect regardless of any events or the status of the organization (public, nonprofit, operating, etc.) unless otherwise indicated or waived in writing by the AG. Conclusion Rampant consolidation in California’s health care provider markets over the past two decades has proceeded without significant intervention or enforce- ment by federal antitrust authorities. Consolidation of various kinds — vertical, horizontal, and cross-market — and among various sectors of the health care sup- ply chain — including hospitals and physician groups — have resulted in higher health care prices. Robust oversight authority at the state level could limit potentially harmful transactions both before and after the fact. A number of states have undertaken such efforts to protect the competitiveness of their health care markets and the public interest. In California, con- straints on the AG’s ability to pursue antitrust violations and to address the negative impacts of consolidation — including higher prices and curtailed access to care — could be remedied through policy initiatives to enhance the AG’s oversight authority. Policymakers could accomplish this by (1) expand- ing the scope of AG review to include all providers and provider organizations, including sole physician practices; (2) creating a tiered notice and approval framework that aligns the level of AG involvement with the level of market concentration, market power, and potential competitive harm; and (3) enhancing its post- consolidation review process. Vesting prior approval authority in the AG would constitute a major change in the way transactions are reviewed and could lay the groundwork for effective competition in the multiple, diverse markets around the state. In the end, because consolidation leads to higher health care prices, an AG with a broader scope and clear holistic process of review could help improve the affordability of health care in California. California Health Care Foundation www.chcf.org 14 Endnotes 1.The word “consolidation” is used here to acknowledge 6. See Thomas L. Greaney, “The New Health Care Merger that today’s health care markets reduce competition not Wave: Does the ‘Vertical, Good’ Maxim Apply?,” Journal simply via traditional mergers and acquisitions but also of Law, Medicine & Ethics 46, no. 4 (Dec. 1, 2018): 918–26, through affiliations, such as joint negotiating agreements. doi:10.1177/1073110518821990. Here, “merger review” is used to acknowledge that 7.Here, the use of “mergers” for current oversight authority in California’s existing oversight is limited to traditional forms of California would include both mergers and acquisitions. The consolidation, such as mergers and acquisitions. To enhance later use of “consolidation” would include joint ventures and California’s oversight on health care market consolidation, contracting affiliation, unless otherwise indicated. policymakers should consider “consolidation review” to encompass all forms. As such, “consolidation review” is used 8.The AG’s review of a transaction is limited to assets when discussing other states’ approaches and California’s transferred, sold, or otherwise disposed to a for-profit, mutual framework to improving state oversight over market benefit, or another nonprofit corporation or entity. This scope consolidation. does not include public entities as discussed in the federal bankruptcy case In re Verity Heath System of California, Inc., 2. See Nancy D. Beaulieu et al., “Changes in Quality of Care which is referenced later in this paper. After Hospital Mergers and Acquisitions,” New England Journal of Medicine 382, no. 1 (2020); Marah Noel 9. See Alfred L. Snapp & Son, Inc. v. Puerto Rico, 458 U.S. 592, Short and Vivian Ho, “Weighing the Effects of Vertical 607 (1982) (noting that to exercise parens patriae powers, Integration Versus Market Concentration on Hospital the state has a “quasi-sovereign interest in the health and Quality,” Medical Care Research and Review (Feb. 9, 2019), wellbeing — both physical and economic — of its residents doi:10.1177/1077558719828938; and Thomas Koch, in general”). Brett Wendling, and Nathan E. Wilson, “Physician Market 10.See Cal. Corp. Code § 5913 (for nonprofit public benefit Structure, Patient Outcomes, and Spending: An Examination corporations), Cal. Corp. Code § 7913 (for nonprofit mutual of Medicare Beneficiaries,” Health Services Research 53, no. benefit corporations). 5 (Oct. 2018): 3549–68, doi:10.1111/1475-6773.12825. 11.Specifically, the scope of the statute covers all nonprofit 3. See, for example, Richard M. Scheffler, Daniel R. Arnold, and public benefit corporations, nonprofit mutual benefit Christopher M. Whaley, “Consolidation Trends in California’s corporations, and nonprofit religious corporations either (a) Health Care System: Impacts on ACA Premiums and operating or controlling a health facility such as general acute Outpatient Visit Prices,” Health Affairs 37, no. 9 (Sept. 2018): care hospitals, acute psychiatric hospitals, skilled nursing 1409–16, doi:10.1377/hlthaff.2018.0472; and Claire E. facilities, intermediate care facilities, and others described O’Hanlon, “What Can State Regulators and Lawmakers Do in Cal. Health & Safety Code § 1250 or (b) operating or When Federal Antitrust Enforcement Fails to Prevent Health controlling a facility that provides similar health care currently Care Consolidation?,” Health Affairs Blog, March 26, 2019, or with a suspended license. Cal. Corp. Code §§ 5914, 5920. www.healthaffairs.org. Hanlon writes that consolidation can also “reduce . . . the number of outside options for employers 12.See Cal. Corp. Code §§ 5917, 5923. that purchase insurance, patients who seek care, and employees who work in these health systems. Furthermore, 13.See Cal. Corp. Code §§ 5917, 5923 and Questions consolidated health entities have increased leverage over the for Kathleen Foote, Senior Asst. Attorney General at the communities in which they operate.” California Dept. of Justice, AHLA PG Spotlight: Antitrust Practice Group Interview Series, March 2016 (discussing that 4.Richard M. Scheffler, Daniel R. Arnold, and Brent D. the attorney general reviews for antitrust). Fulton, “The Sky’s the Limit: Health Care Prices and Market Consolidation in California,” California Health 14.Cal. Corp. Code §§ 5917, 5923 (listing factors the Care Foundation, October 2019, www.chcf.org. See also attorney general should consider). This list does not include Consolidation in California’s Health Care Market 2010 – 2016: antitrust concerns, but the attorney general may review any Impact on Prices and ACA Premiums, Nicholas C. Petris relevant factors. Center on Health Care Markets and Consumer Welfare, 15.Attorney General’s Conditions to Change in Control March 26, 2018, petris.org (PDF); and Scheffler, Arnold, and and Governance of California Hospital Medical Center and Whaley, “Consolidation Trends,” 1409, 1411, and 1414. Approval of Ministry Alignment Agreement by and between 5.Leemore Dafny, Kate Ho, and Robin S. Lee, “The Price Effects Dignity Health and Catholic Health Initiatives, California of Cross-Market Mergers: Theory and Evidence from the Office of the Attorney General, November 21, 2018: 6, Hospital Industry,” RAND Journal of Economics 50, no. 2 oag.ca.gov (PDF). (Summer 2019): 286–325, doi:10.1111/1756-2171.12270. Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 15 16.Conditions to Change in Control and Governance of 30.Notice of Motion and Motion for Preliminary Approval St. Francis Medical Center and Approval of the Definitive of Settlement; Memorandum of Points and Authorities Agreement by and Among Daughters of Charity Ministry (Redacted), UFCW & Employers Benefit Trust, et al. v. Sutter Services Corporation, Daughters of Charity Health System, Health, et al., No. CGC 14-538451 (consolidated with. Case Prime Healthcare Services, Inc., and Prime Healthcare No. CGC-18-565398) (Cal. Super. Ct. S.F. City and Cnty.), Foundation, Inc., California Office of the Attorney General, California Office of the Attorney General, February 25, 2020, February 20, 2015, oag.ca.gov (PDF). oag.ca.gov (PDF). 17.This review and challenge authority is separate and 31.“Domestic insurer” is not defined for this section of the distinct from the prior approval requirements listed above. statute. However, Cal. Ins. Code § 739(c), the only statute that defines domestic insurer, defines it as “any . . . health 18.Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 258 insurer . . . organized in this state.” While this definition is not (1972). applicable to the statute relating to domestic mergers, such 19.California v. Sutter Health Sys., 130 F. Supp. 2d 1109, definition may be persuasive. Additionally, 22 states defined 1117 (N.D. Cal. 2001). a domestic insurer as an insurer formed under the laws of that particular state. As such, the authors assume this definition 20.The recent 2018 lawsuit and pending settlement holds here. Cf. Cal. Const. art. XIII, § 28 (repealing in 1976 the involving Sutter Health (i.e., UFCW & Employers Benefit definition of “domestic insurer,” which would have defined a Trust v. Sutter Health) is an example of the attorney general domestic insurer as an “insurer organized under the laws of acting in a parens patriae capacity. However, the 2018 lawsuit this state and licensed to transact insurance in this state on or is not an example of challenging mergers but challenging before December 31, 1966”). anticompetitive behavior. 32.Cal. Ins. Code §§ 826, 1215. An “insurer” for this section 21.See “Attorney General Lockyer Files Antitrust Suit to of the statute is defined as “an organization organized for Block Merger of Summit-Sutter/Alta Bates Medical Centers,” the purpose of assuming the risk of loss under contracts of press release, California Office of the Attorney General, insurance or reinsurance.” August 10, 1999, oag.ca.gov; and Tom Abate, Ken Hoover, and Chronicle staff writers, “Alta Bates, Summit Merge / East 33.Cal. Health & Safety Code §§ 1345(f)(1–2). A “health Bay Hospitals Close Deal Within Hours of Judge’s Ruling,” San care service plan,” as regulated by DMHC, is defined as Francisco Chronicle, December 28, 1999, www.sfgate.com. either “(1) Any person who undertakes to arrange for the provision of health care services to subscribers or enrollees, 22.California v. Sutter Health Sys., 130 F. Supp. 2d 1109, or to pay for or to reimburse any part of the cost for those 1137 (N.D. Cal. 2001). services, in return for a prepaid or periodic charge paid by or 23.Id. at 1130. But, as evidenced in the 2018 lawsuit filed on behalf of the subscribers or enrollees” or “(2) Any person, by the California AG (i.e., UFCW & Employers Benefit Trust whether located within or outside of this state, who solicits v. Sutter Health, No. CGC 14-538451 [consolidated with or contracts with a subscriber or enrollee in this state to pay No. CGC-18-565398]), Sutter Health allegedly prohibited for or reimburse any part of the cost of, or who undertakes to any steering for plans contracting with the health system. arrange or arranges for, the provision of health care services that are to be provided wholly or in part in a foreign country 24.Id. at 1119. This claim was contrary to a 1999 San in return for a prepaid or periodic charge paid by or on behalf Francisco Chronicle article reporting that “Kaiser has of the subscriber or enrollee.” proposed shutting down its Oakland hospital and diverting Kaiser patients to Summit.” Tom Abate et al., “Alta Bates.” 34.Cal. Health & Safety Code § 1399.65(a)(1) (merger, purchase, or acquisition of a health care service plan requires 25.California v. Sutter Health Sys., 130 F. Supp. 2d 1109, “prior approval from the director”); and Cal. Ins. Code 1131 (N.D. Cal. 2001). § 1215.2(d) (acquisition cannot be made “until the [insurance] 26.Steven Tenn, “The Price Effects of Hospital Mergers: commissioner approves”). A Case Study of the Sutter–Summit Transaction,” Intl. 35.Cal. Health & Safety Code § 1399.65(b); and Cal. Ins. Journal of the Economics of Business 18, no. 1 (2011): 76. Code § 1215.2(d)(2). DMHC has clarified that the scope of The post-merger period was between January 2001 and review is limited to “transactions where a California-licensed December 2001. health plan is being purchased or where the plan is merging 27.Tenn, “Price Effects,” 75. or consolidating with another California-licensed health plan or insurer.” See Delta Dental Purchase of Interest in Moda, 28.Tenn, “Price Effects,” 79. California Dept. of Managed Health Care (DMHC), January 3, 2019, www.dmhc.ca.gov (PDF). 29.People of the State of California, ex. rel. Xavier Becerra, No. CGC 18-565398 (Cal. Super. Ct. S.F. City and Cnty. 2018) 36.Cal. Ins. Code § 1215.2(d)(1–5) (providing the criteria for (consolidated with. Case No. CGC 14-538451). which the insurance commissioner can disapprove a merger or acquisition). California Health Care Foundation www.chcf.org 16 37.Cal. Health & Safety Code § 1341. The Knox-Keene 51.The Cartwright Act cannot be used to challenge Health Care Service Plan Act of 1975 (Cal. Health & Safety mergers or acquisitions because of a California Supreme Code § 1340 et seq.) regulates health care service plans, Court case, State of California ex rel. Van de Kamp v. Texaco, including health maintenance organizations (HMOs), within Inc., where the court held that “the Attorney General’s view California. DMHC is charged with enforcing the Knox-Keene that the Cartwright Act applies to mergers is not supported.” Act. 46 Cal. 3d 1147, 1168 (1988). 38.Cal. Health & Safety Code §§ 1399.65(a)(3), (a)(4). 52.See Berenson, “Addressing Health Care,” 31. 39.Cal. Health & Safety Code § 1399.65. 53.Memorandum of Decision Finding That the Debtor Is Not Required to Obtain the Consent of the California 40.CVS-Aetna Acquisition Undertakings, DMHC, 2018: 6, 8, Attorney General to Sell the Assets of a Closed Hospital, www.dmhc.ca.gov (PDF); Optum-DaVita Undertakings, DMHC, In re Gardens Regional Hospital and Medical Center, Inc., 2018: 4, www.dmhc.ca.gov (PDF); Cigna-Express Scripts Debtor, No. 2:16-bk-17463-ER at *1 (Bankr. C.D. Cal. May 15, Undertakings, DMHC, 2018: 5, www.dmhc.ca.gov (PDF); and 2017), www.govinfo.gov (PDF); Memorandum of Decision “DMHC Approves Optum’s Acquisition of DaVita​,” press Overruling Objections of the California Attorney General to release, DMHC, November 28, 2018, www.dmhc.ca.gov. the Debtors’ Sale Motion, No. 2:18-bk-20151-ER (Bankr. C.D. 41.See CVS-Aetna, DMHC; Optum-DaVita, DMHC; and Cal. Dec. 26, 2018), www.leagle.com. Policymakers have Cigna-Express Scripts, DMHC. made some piecemeal. But note, in 2017, AB 651 and SB 687 amended the code to include “a facility that provides similar 42.United States of America, et. al. v. CVS Health health care, regardless of whether it is currently operating or Corporation and Aetna Inc., Civil Case No. 18-2340 (RJL) providing health care services or has a suspended license” (D.C. Cir. 2019) (ordering Aetna to divest from its individual (emphasis added). It’s unclear if the court in In re Gardens standalone prescription drug plan, available to Medicare would have differed in its analysis, as the court’s analysis beneficiaries under Medicare Part D). hinged on the definition of “health facilities” as defined in 43.CVS-Aetna, DMHC, 10–11. Section 1250 of California Health & Safety Code rather than “a facility that provides similar health care.” Furthermore, 44.Cigna-Express Scripts, DMHC, 7. the bill analyses for either bill do not indicate the Gardens 45.Cigna-Express Scripts, DMHC, 8. case as a reason for the amendment. However, it may be possible the inclusion of this language, which came in bill 46.Optum-DaVita, DMHC, 6. amendments after the Gardens decision, was in response to the Gardens court’s decision. Additionally, as of publication, 47.Robert A. Berenson et al., Addressing Health Care AB 2036 (2019), as introduced, seeks to ensure the longevity Market Consolidation and High Prices: The Role of the States, of the AG’s consent decree by requiring that the “condition Urban Institute, January 2020: 30, www.urban.org (PDF); and shall remain in effect for the entire period of time specified by Opinion of the Commission by Deborah Platt Majoras, In the the Attorney General” and that “an additional or subsequent Matter of Evanston Northwestern Healthcare Corporation, sale, transfer [. . .], or other disposition of assets” would not Docket No. 9315, Federal Trade Commission (FTC), n.d.,: 90, affect the longevity of the conditions. In doing so, AB 2036 www.ftc.gov (PDF) (“Divesting Highland Park after seven years would directly answer the court’s reasoning in In re Verity, of integration would be a complex, lengthy, and expensive which stated that there was no statute that allowed the AG to process”). continually enforce. 48.“HSR Threshold Adjustments and Reportability for 54.Colo. Rev. Stat. Ann. § 6-19-102; R.I. Health and 2019,” FTC, March 7, 2019, www.ftc.gov. For 2019, the HSR Safety § 23-17.14-4; and Haw. Rev. Stat. Ann. § 323D-71. threshold requires reporting for deals valued over $90 million. For Colorado, the threshold for notice is “any transaction 49.See also Thomas G. Wollmann, “Stealth Consolidation: that would result in the sale, transfer, lease, exchange, or Evidence from an Amendment to the Hart-Scott-Rodino Act,” other disposition of fifty percent or more of the assets of a American Economic Review: Insights 1, no. 1 (June 2019): hospital,” which would also include a “series of transactions 90–91, doi:10.1257/aeri.20180137; and Reed Abelson, taking place in any five-year period, which would result in “Small, Piecemeal Mergers in Health Care Fly Under the aggregate of the transfer of fifty percent or more of a Regulators’ Radars,” New York Times, April 8, 2016, hospital’s assets” (emphasis added). For Rhode Island, the www.nytimes.com (one official called it “creeping threshold for notice or approval is “any transfer by a person consolidation”). or persons of an ownership or membership interest or authority in a hospital, or the assets of a hospital [including 50.See Cal. Corp. Code §§ 5915; 5921 (allowing 90 days joint venture] [. . .] which results in a change of ownership or for the AG to review, with an option to increase by another control or possession of twenty percent (20%) or greater of 45-day period. See also Cal. Corp. Code §§ 5917(g); 5923(g) the members or voting rights or interests of the hospital or (requiring that the AG has been provided with “sufficient of the assets of the hospital or pursuant to which, by virtue information”); and 5250 (stating that a “corporation is subject of the transfer, a person, together with all persons affiliated at all times to examination by the Attorney General”). with the person, holds or owns, in the aggregate, twenty Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 17 percent (20%) or greater of the membership or voting rights 64.The current iteration of the Cartwright Act cannot be used or interests of the hospital or of the assets of the hospital” to challenge mergers or acquisitions because of a California (emphasis added). Finally, for Hawaii, the threshold for notice Supreme Court case, State of California ex rel. Van de Kamp or approval is an acquisition that “results in a change of v. Texaco, Inc., where the court held that “the Attorney ownership or control of twenty per cent or greater or which General’s view that the Cartwright Act applies to mergers is results in the acquiring person or persons holding a fifty per not supported.” 46 Cal. 3d 1147, 1168 (1988). See also David cent or greater interest in the ownership or control of that A. Upah, “State Anti-Merger Policy: Divesting the Federal hospital.” Government of Exclusive Regulation,” Loyola Univ. Chicago Law Journal 12 (1981): 531 (pointing out that an “effective 55.See Conn. Gen. Stat. Ann. § 19a-486i; Wash. Rev. Code Ann. state antitrust statute incorporating a provision similar to § 19.390.030; and Mass. Gen. Laws Ann. ch. 6D, § 13. section 7 of the Clayton Act would be a means of assuring 56.Conn. Gen. Stat. Ann. § 19a-486i(c); Wash. Rev. Code Ann. § national policy at the state level”); Thomas M. Wilson et 19.390.030(2); and Mass. Gen. Laws Ann. ch. 6D, § 13(a). al., State Merger Enforcement, ABA Antitrust Section, Monograph 21, 1995: 42 (explaining how state law can 57.See Wash. Rev. Code Ann. § 19.390.020(12); and Mass. Gen. designate a merger to be anticompetitive even if federal law Laws Ann. ch. 6D, § 13(a). Washington defines “provider” as does not without being preempted); and Thomas M. Wilson, any licensed health care professional under Wash. Rev. Code Antitrust Federalism: The Role of State Law, ABA Antitrust Ann. § 18.130.040, which ranges from midwives and dental Section, Monograph 15, 1988: 64 (noting that “purely hygienists to veterinarians and physical therapists. Wash. intrastate” conduct may push the “jurisdictional limits of the Rev. Code Ann. § 19.390.020(11) (defining provider as “a federal court”). natural person who practices a profession identified in RCW 18.130.040”). Similarly, Massachusetts defines a provider as 65.See also Clark C. Havighurst and Barak D. Richman, “The any entity “qualified . . . to perform or provide health care Provider Monopoly Problem in Health Care,” Oregon Law services.” Mass. Gen. Laws Ann. ch. 6D, § 1. Review 89, no. 3 (2011): 854, http://scholarship.law.duke. edu/faculty_scholarship/2281 (noting that “too many judges 58.Conn. Gen. Stat. Ann. § 19a-486i. Connecticut supplements and commentators have chosen to deem competition as its notice requirements by also requiring notice of (a) a Hart- inappropriate in health care or to view nonprofit hospitals as Scott-Rodino Act filing where a hospital, hospital system, benign servers of the public interest rather than as potential or other health care provider is a party to the merger or monopolists against whom consumers need antitrust acquisition or (b) a transaction that results in an affiliation protection”). between hospitals, hospital systems, or a combination thereof. Conn. Gen. Stat. Ann. § 19a-630(9); and Conn. 66.See Berenson, “Addressing Health Care,” 31. Gen. Stat. Ann. § 19a-638(a)(2); (a)(3). On top of the notices 67.Colo. Rev. Stat. Ann. § 6-19-405. In Colorado, for any required, Connecticut also requires a certificate of need for nonprofit to for-profit transaction, the parties must annually (a) any transfer of health facility ownership or (b) any transfer report “grant-making and other charitable activities related to of large group practice, defined as having eight or more full- its use of the proceeds of the covered transaction received” time physicians, ownership to an entity that is not a physician and detail activities to show the merged entity complied with group. the merger review criteria for five years. 59.Md. Code Ann., State Gov’t § 6.5-301(e)(2). 68.Mass. Gen. Laws Ann. ch. 180, § 8A(d)(5); and N.J. Stat. 60.Mass. Gen. Laws Ann. ch. 6D, § 13; and Conn. Gen. Stat. Ann. § 26:2H-7.11(i)(1). For more in-depth monitoring, Ann. § 19a-639f. Massachusetts and New Jersey allow the hiring of an “independent health care access monitor,” funded by 61.Alaska Stat. Ann. § 45.50.568; Colo. Rev. Stat. Ann. § 6-4- the acquiring entity, to monitor and report quarterly on 107; Haw. Rev. Stat. Ann. § 480-7; Idaho Code Ann. § 48-106; community health care access for three years. La. Stat. Ann. § 51:125; Me. Rev. Stat. tit. 10, § 1102-A; Neb. Rev. Stat. Ann. § 59-1606; N.J. Stat. Ann. § 14:3-10; N.J. Stat. 69.23 R.I. Gen. Laws Ann. § 23-17.14-18; and Haw. Rev. Stat. Ann. § 56:9-4; Okla. Stat. Ann. tit. 79, § 208; and Wash. Rev. Ann. § 323D-82. In Rhode Island, a hospital cannot eliminate Code Ann. § 19.86.060. or significantly reduce emergency or primary care services without the department of health’s approval. Similarly, 62.Examples in state court include Maine v. Connors Bros and in Hawaii, an acquirer would need agency approval to in federal court include Saint Alphonsus Med. Ctr. – Nampa, “substantially reduce or eliminate direct patient care services Inc. v. St. Luke’s Health Sys., Ltd., where the Idaho AG at the hospital below the levels at” the time of acquisition. alleged both a violation of the Clayton Act and the Idaho Competition Act, and Washington v. Franciscan Health Sys., 70.See Berenson “Addressing Health Care” 52; and where the Washington AG alleged a violation of both the Memorandum of Decision and Order on Joint Motion Clayton Act and the state analog of the Clayton Act (Wash. for Entry of Amended Final Judgment by Consent, Rev. Code § 19.86.060). Commonwealth v. Partners Healthcare System, Inc. & Others, SUCV 2014-02033-BLS2 (Mass. Super. Ct. 2015) 63.See Cal. Corp. Code §§ 5917, 5923. California Health Care Foundation www.chcf.org 18 71.See Thomas L. Greaney, “Coping with Consolidation,” Health Affairs 36, no. 9 (September 2017): 1564–71, doi:10.1377/ hlthaff.2017.0558. 72.Mass. Gen. Laws ch. 6D § 2(c). 73.In developing this criterion, policymakers should not substantially rely on, but could consider, the Herfindahl- Hirschman Index (HHI) as the federal antitrust regulators do. HHI, as an indication for market concentration, does not account for a variety of health care consolidation including cross-market consolidation, vertical consolidation, or affiliation. Examining the Authority of California’s Attorney General in Health Care Mergers www.chcf.org 19