State Senate Advances Legislation to Avert Anticompetitive Health System Consolidation Which Increases Costs for Patients

SACRAMENTO – California State Senator Bill Monning (D-Carmel) and Attorney General Xavier Becerra today applauded the passage in the State Senate of Senate Bill 977 (SB 977), legislation to avert anticompetitive behavior and over-consolidation in the healthcare sector. Decreased competition is a known driver of increased prices for consumers. SB 977 calls for California Department of Justice oversight when large healthcare systems, hedge funds or private equity groups seek to acquire or affiliate with other healthcare facilities or providers. The oversight serves as a check to ensure that these transactions targeting health facilities of critical importance to local communities improve care coordination or increase healthcare access for those communities. The bill provides new enforcement tools to reduce anticompetitive behavior. SB 977 now moves to the State Assembly. 

“With our communities battling the coronavirus pandemic, our healthcare system must operate at peak performance. That means all hands on deck. But we’ve learned the hard way that too often “consolidation” really means higher prices and a reduction of services which the surrounding community relies on,” said Attorney General Becerra. “Communities deserve to know that their local hospital won’t be treated like a commodity that’s up for sale but, instead, like the provider of critical health services that families in the area depend on. Under SB 977, the Department of Justice will provide the independent set of eyes that our communities need for them to know that consolidations targeting local hospitals or providers won’t result in anticompetitive, monopolistic operations that force our families to swallow higher prices and diminished services.” 

“The COVID-19 pandemic has exposed the disproportionate access to healthcare in California,” said Senator Monning. “SB 977 will hold unscrupulous healthcare systems accountable to ensure existing services are protected and patient health is the top priority of providers. We must do everything we can at the state level to guarantee Californians have access to affordable healthcare.”

Anticompetitive behavior in the healthcare sector is a growing concern because large healthcare systems can flex their market power to raise prices for patients, employers, and insurers while limiting services and decreasing the quality of care offered to Californians. For example, average prices for hospital care are 35 percent higher in Northern California, where healthcare systems are more consolidated, than in Southern California. The impact of consolidation on prices was reinforced by a 2018 study by professor Richard Scheffler and the Petris Institute at the University of California, Berkeley, which found the percentage of physicians in practices owned by hospitals increased from about 25 percent in 2010 to more than 40 percent in 2016. This increased hospital ownership resulted in an estimated 12 percent increase in premiums from 2014 to 2016 and has led these physician groups to be less flexible and adaptable during the pandemic.

SB 977 would work to improve healthcare affordability and limit anticompetitive behavior by requiring large healthcare systems to gain approval from the Attorney General’s Office before moving forward with any planned affiliation agreement or acquisition. The Attorney General’s determination to approve or deny a transaction will rely on two factors:

• Whether the transaction would truly increase care coordination and/or increase access and affordability of care to an underserved population; and
• Whether the transaction is substantially likely to result in anticompetitive effects that outweigh any benefits. 

In addition, SB 977 would declare that healthcare systems that exercise substantial market power may not engage in behavior that has a significant likelihood of anticompetitive effects. These behaviors include: raising market prices, diminishing the quality of care, reducing choice, increasing the total cost of care, and diminishing access or availability of healthcare services. Under SB 977, the Attorney General’s Office would have the ability to file civil actions to recover damages and obtain civil penalties against those that abuse market power. 

This legislation is another step in Attorney General Becerra’s fight to keep California markets fair, open and competitive to protect patient choice and affordable care. In December 2019, Attorney General Becerra announced a landmark $575 million settlement against Sutter Health, the largest hospital system in Northern California. When approved, the settlement will resolve allegations that Sutter’s anticompetitive practices led to higher healthcare costs for patients in Northern California compared to other places in the state. In July 2019, Attorney General Becerra announced four settlement agreements totaling nearly $70 million against pharmaceutical companies for entering into collusive “pay-for-delay” agreements that illegally delay affordable prescription drugs from entering the market. The Attorney General also sponsored a bill, enacted in 2019, deterring collusive pay-for-delay agreements that keep cheaper generic medications off the market and raise costs for consumers.