A lawsuit filed by Huntington Hospital and Cedars-Sinai Health System on March 30 in Los Angeles County Superior Court against the California Department of Justice and the office of the attorney general will challenge the “unprecedented conditions” imposed on them as a result of their proposed affiliation.
The conditions imposed by the attorney general would jeopardize Huntington’s and Cedars-Sinai’s ability to meet the community’s need for access to coordinated, specialized healthcare; lower costs; and provide resources needed for Huntington Hospital to continue critical clinical programs and services for its patients, the two entities said in a joint statement.
The proposed affiliation was announced in March 2020.
“We are shocked at the unprecedented over-reach of the conditions being imposed,” said Huntington Hospital President/CEO Dr. Lori Morgan. “Rather than benefitting our community, the conditions primarily benefit health insurance companies.”
Essentially, Morgan told the South Pasadena Review, the attorney general’s requirements boil down to economic antitrust conditions she believes are meant to deter health care consolidation, and which “they have never required before in the state of California, or quite frankly, in the United States.”
“I think their academic analysis is flawed,” Morgan said. “We believe that healthcare consolidation is a good thing, or we never would have considered it for our hospital. This will expand access to coordinated and specialized care, provide resources for capital expenditures and outpatient services and lower our healthcare costs through shared savings, which then we believe lowers the cost of care for patients.”
Affiliations between hospitals have become more common in recent years in response to increased demand for coordinated healthcare and access to specialized services. They also enable cost savings due to shared resources. Without affiliation, standalone hospitals such as Huntington face significant obstacles to their long-term ability to serve the community.
Huntington Hospital is one of only about 15 independently operated hospitals across the nation of similar size and services, partly due to the exorbitant costs required to maintain high-quality services. A larger affiliation would be advantageous across the board, from expanding the wealth of knowledge as a teaching hospital to negotiating pharmaceutical and technological contracts to the price of brownies in the cafeteria, Morgan noted.
The attorney general approved Huntington’s affiliation with Cedars-Sinai in December 2020 — but only if Huntington and Cedars-Sinai accept so-called “competitive impact” conditions. The lawsuit emphasized that these unprecedented conditions would put Huntington and its patients at a distinct disadvantage compared to any other hospital in the region.
One of the conditions puts price caps on Huntington’s rates to insurance companies for at least 10 years, without any requirement that the insurance companies pass their savings on to consumers. Another condition forces Huntington and Cedars-Sinai to submit to insurance companies’ demands for “winner-take-all” arbitration in contract negotiations any time that an insurance company wants to do so. No other hospital in California is subject to such conditions.
“This unlevel playing field jeopardizes Huntington’s and Cedars-Sinai’s future ability to provide access to quality care for the many communities we serve — and those who rely on us for life-saving care when it’s needed most,” Morgan said.
Under California law, proposed affiliations of nonprofit hospitals are subject to approval by the California attorney general’s office, which may impose conditions to protect the availability or accessibility of health care services in affected communities. Huntington and Cedars-Sinai worked cooperatively with the attorney general to identify appropriate conditions to ensure the provision of continued, high-quality care to their respective patient communities. These include commitments to maintain operations and services, make major investments in capital improvements, maintain access to care for reproductive health services, and ensure that there is no discrimination against LGBTQ individuals.
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 attorney general’s office has never imposed such conditions on any previous nonprofit hospital affiliation.
In a statement, Huntington Hospital and Cedars-Sinai said that the attorney general’s office relied on an unvalidated academic theory called “cross-market effects.” This theory assumes that, following an affiliation, Huntington and Cedars-Sinai might engage in “all-or-nothing” negotiations with health insurance companies, forcing an insurance company to accept the same terms for both Cedars-Sinai and Huntington.
But Cedars-Sinai and Huntington do not engage in “all-or-nothing” negotiations and they proposed to the attorney general’s office that they would agree not to engage in such negotiations with insurance companies for at least 10 years. The attorney general’s office rejected this proposal even though its own expert’s “cross-market effect” analysis confirmed that such a commitment would remove any concerns regarding competition.
“I will simply say that this is not a generally held belief by healthcare economists,” Morgan added.
The proposed affiliation is intended to strengthen and maintain Huntington’s 128-year legacy, and to preserve its unique culture as a community institution governed by a local board, with its own employees and medical staff. In addition, philanthropy and volunteer support will remain locally controlled, serving Huntington Hospital and its existing community.
The timeline to close the affiliation has been extended for the time being, and the potential partnership will likely now depend on the courts, she said, adding “We think we can do a lot of really great, high quality work together and we are anxious to move on with this.”