On August 4, 2020, the California State Assembly referred SB-977 to the Committee on Appropriations, ahead of an August 31 deadline to send bills to Governor Gavin Newsom. SB-977, titled “Health care system consolidation: Attorney General approval and enforcement,” would grant the California Attorney General (AG) expansive authority to review, and approve or deny, changes of control and acquisitions of health care facilities and providers.
The bill would require health care systems, private equity groups, and hedge funds to provide notice to, and obtain written consent of, the AG prior to any change of control or acquisition of or with a healthcare facility or provider. The term “acquisition” is broadly defined as the “direct or indirect purchase in any manner . . . of all, or any part of, the assets of a health care facility or provider,” and includes, but is not limited to, a “lease, transfer, exchange, option, receipt of a conveyance, creation of a joint venture, or any other manner of purchase.”
For acquisitions or changes in control that are subject to review, the bill would permit the AG to deny consent unless the change of control or acquisition will result in a “substantial likelihood of clinical integration, a substantial likelihood of increasing or maintaining the availability and access of services to an underserved population, or both.” The AG may also deny consent to a change of control or an acquisition “if there is a substantial likelihood of anticompetitive effects that outweigh the benefits of a substantial likelihood of clinical integration, a substantial likelihood of an increase in, or maintenance of, services to an underserved population, or both.” Notably, the bill defines “clinical integration” as “a showing . . . that there will likely be a reduction in costs to the benefit of consumer care and outcomes or an increase in the quality of care as a result of the acquisition or change of control.” The bill also specifies that a “substantial likelihood of anticompetitive effects in providing hospital or health care services” includes, but is not limited to, “a substantial likelihood of raising market prices, diminishing quality, reducing choice, or diminishing availability of, or diminishing access to, hospital or health care services.”
The bill includes an abbreviated process for changes of control and acquisitions by a health care system of any of the following providers, groups of providers, or health facilities: (i) a provider, group of providers, or health facility for a transactional value of $1,000,000 or less; (ii) a county health facility; or (iii) an academic medical center that is acquiring or making a change of control with a provider, group of providers, or health care facility for any transactional value.
If passed, SB-977 would apply to transactions entered on or after January 1, 2021. The bill and its legislative history can be found here.
