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Huntington Hospital, Cedars-Sinai, Sue California AG Over Affiliation Requirements

Analysis  |  By John Commins  
   March 31, 2021

At issue is the so-called 'competitive impact' conditions attached to the affiliation by the AG's office that state regulators said would ensure that the consolidation does not raise prices for consumers in the affected service areas.

Cedars-Sinai and Huntington Hospital have filed a lawsuit against the California Attorney General's Office, claiming that state regulators have slapped burdensome and unprecedented conditions on their proposed affiliation.

At issue is the so-called "competitive impact" conditions attached to the affiliation by the AG's office that state regulators said would ensure that the consolidation does not raise prices for consumers in the affected service areas.

Notably, the deal would require price caps on Huntington's negotiated rates with insurance companies for at least 10 years, without any requirement that the insurance companies pass their savings on to consumers, the suit alleges.

Huntington and Cedars-Sinai would also be required to submit to insurance companies' demands for "winner-take-all" arbitration in contract negotiations any time that a payer wanted to do so. No other hospital in California is subject to such conditions, the hospitals claim.

"We are shocked at the unprecedented over-reach of the conditions being imposed," Lori J. Morgan, MD, MBA, president and CEO of the not-for-profit Huntington Hospital, said in a media release.

"Rather than benefitting our community, the conditions primarily benefit health insurance companies," Morgan said.

The California AG's office issued a statement defending the requirements.

"The priority of the California Department of Justice is to ensure the proposed affiliation of Huntington Memorial Hospital with Cedars-Sinai Health System safeguards the availability and accessibility of healthcare for the people of Greater Los Angeles, and protects public funds," the AG's office said. "The conditions we attached to this affiliation will keep the healthcare market competitive for the consumers served by these hospitals."

Under the proposed deal, which was announced in March 2020, the 619-bed, Pasadena-based Huntington Hospital would continue to operate independently from the three-hospital Los Angeles-based Cedars-Sinai. As part of the affiliation, the Cedar-Sinai would invest in the Huntington's information technology infrastructure, along with its "ambulatory services and physician development."

The suit, filed in Los Angeles County Superior Court, claims the two hospitals worked in good faith with state regulators to resolve issues around provisions of care for their respective patient communities that included maintenance of operations and services and capital improvements, maintaining access to reproductive health services, and ensuring there is no discrimination against LGBTQ patients.

"However, the Attorney General added the unprecedented "competitive impact" conditions, despite the fact that the Federal Trade Commission's analysis of the proposed affiliation did not find any concern that the affiliation would lessen competition," the suit alleges. "The Attorney General's office has never imposed such conditions on any previous nonprofit hospital affiliation."

Cedar-Sinai President and CEO Thomas M. Priselac said the common measure of market competition used by the Federal Trade Commission shows that the Huntington affiliation would not lessen competition, because there is little overlap between Huntington's service area and Cedars-Sinai's.

Instead, the suit alleges that the AG's office used an "unvalidated academic theory" called "cross-market effects" that assumes that Huntington and Cedars-Sinai would engage in "all-or-nothing" negotiations with health insurers to accept the same terms for both Cedars-Sinai and Huntington.

The two health systems said they had agreed to not engage in such negotiations with payers for 10 years, but the AG rejected the proposal "even though its own expert's 'cross-market effect' analysis confirmed that such a commitment would remove any concerns regarding competition," the suit alleges.

“We are shocked at the unprecedented over-reach of the conditions being imposed.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The deal would require price caps on Huntington's negotiated rates with insurance companies for at least 10 years, without any requirement that the insurance companies pass their savings on to consumers.

Huntington and Cedars-Sinai would also be required to submit to insurance companies' demands for "winner-take-all" arbitration in contract negotiations any time that a payer wanted to do so. No other hospital in California is subject to such conditions.


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