March 27, 2023
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California attorney general probe targets region’s hospitals


The California medical industry is pushing back against an antitrust investigation launched by the state’s attorney general, saying the probe into the consolidation of hospitals and doctors’ offices goes against the newly-enacted Affordable Care Act’s coordinated approach to health care.

California’s attorney general’s office sent subpoenas to Santa Barbara-based Cottage Health System and San Francisco-based Dignity Health, which operates several hospitals in the Tri-Counties, along with several other large hospital companies in the state. The subpoenas, known formally as civil investigative demands, are meant to investigate whether the growing integration of doctors and hospitals is leading to higher-priced health care.

As first reported by The Wall Street Journal, the office of Attorney General Kamala Harris is looking specifically at the amount of money health insurers are reimbursing to patients. The question is whether the fact that a growing number of physicians are employed directly by large hospitals gives the health systems an unfair amount of market power and violates antitrust law. A spokeswoman from the attorney general’s office told the Business Times the office does not confirm or deny investigations.

An investigative demand was sent to Cottage Health System, which operates three hospitals in Santa Barbara County and is one of the largest employers in the region. Among the other operators that received subpoenas was Dignity Health, which runs Marian Regional Medical Center in Santa Maria, French Hospital Medical Center in San Luis Obispo, Arroyo Grande Community Hospital and St. John’s Regional Medical Center in Ventura County.

Spokespeople at Cottage Health System and at Dignity Health declined to comment.

The California Hospital Association is an advocacy group that represents the legal and regulatory interests of its 400-plus member hospitals. Duane Duaner, the association’s president, said in a statement that the antitrust investigation is at odds with the Affordable Care Act, President Obama’s overhaul of the health care system that aims to reduce the overall cost of care and increase the number of Americans with insurance.

According to a study from The Advisory Board Company, cited by California Healthline, nearly 40 percent of primary care physicians who see patients at hospitals are employed by those hospitals, a number that has doubled since 2000. The number of specialty physicians who see patients at hospitals has increased fivefold, from 5 percent in 2000 to 25 percent today.

Although the antitrust investigation is concerned about the growing affiliation between doctors and hospitals, the hospital association said hospitals merging and employing more doctors creates a “coordinated approach” to care that has the potential to fix some of the major problems with the current health care system. According to the association’s statement, integrated systems make health care more efficient and less costly by eliminating the need for duplicate tests, redundant paperwork and overlapping facilities and equipment.

“The ability for hospitals, physicians and other providers to work more closely is essential. Criticism of hospitals that are responding to the demands of federal and state laws is unwarranted,” Duaner said in the statement. “Those who manufacture such allegations fail to look at the demands being placed on hospitals or the expectations being created by federal and state laws.”

Adam Biegel, a partner at Alston & Bird in Atlanta who specializes in antitrust and health care law, told the Business Times that many hospital mergers that cross a certain size threshold — but not all — must report them to federal and state agencies. “That’s how a lot of these things catch the attorney general’s eye, but nothing stops an AG from saying, ‘I wonder if something is bad for competition and bad for consumers’,” he said. “They’re saying, ‘Who is perhaps being the big guy and the bad guy? Who is too large and doing things that violate competition?’”

Biegel said it’s too soon to tell whether the California investigation will go anywhere, largely because antitrust statutes are written so broadly that there are very few things that are automatically illegal.

The investigation is garnering national attention, something Biegel said might be due to the highly visible nature of hospitals and health care agencies.

“Things that happen in health care are going to reverberate because they touch so many Americans,” he said. “There’s a lower tripwire for things in the health care industry to get attention.”
The other health systems in the state that received subpoenas were Sutter Health in Northern California, Scripps Health in San Diego and Sharp HealthCare in San Diego.