Attorney General Bonta Conditionally Approves Ownership Change of High Desert Hospital

OAKLAND – California Attorney General Rob Bonta today conditionally approved a change in control of St. Mary Medical Center (SMMC), a general acute care hospital in Apple Valley in San Bernardino County. The approval will allow Kaiser and SMMC to form a new company, St. Mary Medical Center, LLC. SMMC will own 70% while Kaiser will own 30% and have substantial joint control of the company’s operations. SMMC and Kaiser will construct a new hospital in Victorville that will add 47 new beds, increasing SMMC’s capacity from 213 beds to 260 beds. An investigation by the California Department of Justice’s Healthcare Rights and Access (HRA) Section as well as expert analysis determined that while the increased capacity would be a benefit to the community, the change in control could also have a negative impact on healthcare market competition and access to services in the High Desert region. The conditions of Attorney General Bonta’s approval seek to improve healthcare access and maintain healthy competition. 

“When we review transactions between corporations and hospitals, our duty is to the people of California,” said Attorney General Bonta. “The addition of a new hospital in the High Desert will be a benefit to the community, and with the conditions we’ve imposed, individuals and families who rely on public programs like Medi-Cal will have uninterrupted local access to affordable, essential care.”

Under California law, any transaction involving the sale or transfer of control of a nonprofit hospital must secure the approval of the Attorney General. The statutory charge of the California Attorney General is to determine whether the transaction is in the public interest and whether the transaction may impact the accessibility and availability of healthcare services (Corporations Code section 5914 et seq., and California Code of Regulations, title 11, section 999.5).

While evaluating the proposed transaction between Kaiser and SMMC, the Attorney General’s Office received hundreds of comments from members of the High Desert community regarding the impact the change of control could have on their ability to access healthcare at SMMC.

Taking the public’s concerns into account, HRA conducted a thorough investigation that revealed that SMMC’s affiliation with Kaiser could lead to a preference for beds for Kaiser’s patients, which might cause Medi-Cal patients to lose access to acute care, emergency, maternity, pediatric, and cardiology services. Additionally, Kaiser’s dominance as a health insurer and SMMC’s as a main provider of hospital services in the area could lead to anticompetitive effects in the region’s healthcare market.

To address these issues, Attorney General Bonta’s approval imposes multiple competitive and health impact conditions, including: 

Competitive impact conditions

• Caps on price increases for current SMMC contracts, including absolute price caps for managed Medi-Cal, and managed Medicare contracts, to ensure their rates do not rise significantly above those of Kaiser;
• A reduction in profit sharing between SMMC and Kaiser, and a reduction in the discount Kaiser receives for its reimbursement rates at SMMC to balance competitive harms to non-Kaiser payors and incentives for SMMC and Kaiser; 
• Terms that require SMMC and Kaiser to continue to run as independent entities, and prohibit sharing of non-public competitively sensitive information; and
• A monitor to ensure compliance with these conditions.

Health impact conditions

• Continued participation in Medi-Cal and Medicare;
• Prohibition on discrimination on the basis of protected personal characteristics;
• Within one year, Kaiser will prepare a plan to ensure full and equal access to healthcare for all Kaiser patients in the High Desert region;
• A comprehensive study of the feasibility of opening a trauma center at the new hospital will be completed within three years;
• A comprehensive plan for reusing the existing hospital site and facilities as either a freestanding emergency department, a freestanding mental health facility, or sale of the hospital to a new general acute care hospital operator will be completed within five years; and
• For the next five years, $750,000 will be allocated annually to the St. Joseph Health Community Partnership Fund to support low income and underserved populations in SMMC’s and the new Victorville hospital’s primary and secondary service areas. 

HRA works proactively to increase and protect the affordability, accessibility, and quality of healthcare in California. HRA’s attorneys monitor and contribute to various areas of the Attorney General’s healthcare work, including nonprofit healthcare transactions; consumer rights; anticompetitive consolidation in the healthcare market; anticompetitive drug pricing; privacy issues; civil rights, such as reproductive rights and LGBTQ healthcare-related rights; and public health work on tobacco, e-cigarettes, and other products. 

A copy of the conditional approval letter is available here.