A three-hospital swap between Columbia/HCA Healthcare Corp. and a Roman Catholic hospital system has been delayed indefinitely because the state of California threatened to block the deal on antitrust grounds.
California Attorney General Dan Lungren is concerned that Columbia's acquisition of 192-bed not-for-profit Alexian Brothers Hospital in San Jose, Calif., would give the Nashville-based chain too much control over acute-care services in the state's third-largest city.
Columbia already owns two San Jose acute-care hospitals: 388-bed Good Samaritan Hospital and 327-bed San Jose Medical Center. The swap would give Columbia control over half of the city's hospitals and 907, or about 53%, of the city's 1,719 staffed acute-care beds.
"The concerns we have are not minor. The facts as we understand them today is that this transaction is anti-competitive and should not go forward because it would result in higher prices and premiums," said Deputy Attorney General John Donhoff.
Donhoff said his office has investigated the swap almost since it was announced in August. The state threatened legal action if the parties proceeded with their planned Nov. 30 closing date, he said.
Columbia's partner in the proposed deal is Alexian Brothers Health System of Elk Grove Village, Ill. Alexian would give Columbia its San Jose hospital for an undisclosed sum, and it would pay Columbia $281 million for two facilities in Hoffman Estates, Ill.: 195-bed Hoffman Estates Medical Center and 94-bed Woodland Hospital, a psychiatric facility.
The Illinois Health Facilities Planning Board has delayed its approval of the deal at least until its Jan. 6 meeting.
Richard Prebil, Alexian's general counsel, downplayed the California attorney general's position. "We think we can address their concerns in a short period of time," he said, estimating a few weeks.
No party would elaborate on negotiations or possible concessions. In a number of hospital merger cases in recent years, state attorneys general have cleared deals in exchange for promises from hospitals, including limits on price increases and guarantees on cost savings.
When the deal was announced, Columbia discussed transferring inpatients at San Jose Medical to Alexian, saving an estimated $100 million on state-mandated seismic upgrades at San Jose Medical. That scenario would allay monopoly concerns, Prebil said. It would reduce Columbia's share of beds in the city to 580 of 1,392, or 42%.
Donhoff observed that San Jose Medical's closure would cure a market-share problem only if it saved money for consumers. "We've asked for specific and concrete plans from Columbia for dealing with the condition of San Jose, and how those plans would differ if they do not get the Alexian facility," he said.
Diana Bianco, a staff attorney with San Francisco-based advocacy group Consumers Union, said she fears Columbia would exert too much control over the San Jose market even if it closed one hospital. She also worried that Columbia would not preserve the level of charity care Alexian now provides, which Alexian estimates to be $11.1 million a year. "Columbia informally said it would preserve indigent care for three years but would not say what would happen after that," she said.
Like Consumers Union, Columbia's hospital competitors in San Jose are concerned about the swap. "Antitrust is not an issue we've been dealing with. Our real concern is that the community continues to have access to the services it needs," said Wade Rose, a vice president of San Francisco-based Catholic Healthcare West, which owns 257-bed O'Connor Hospital in San Jose.