The hospital ownership debate has resurfaced in California, where several high-profile deals between not-for-profits have fueled a push for greater public scrutiny of healthcare mergers.
State legislators are considering a new law that would subject deals between not-for-profit hospitals to the same level of scrutiny as deals involving for-profit buyers.
The issue has split the two ownership groups. The for-profits, including Tenet Healthcare Corp., support the bill, while some not-for-profits, including a group of Roman Catholic hospitals and Sacramento, Calif.-based Sutter Health, have voiced early opposition. But the not-for-profits' opposition is expected to wane if amendments are made to clarify some of the bill's requirements.
The bill would require not-for-profit healthcare facilities to get consent from the California attorney general before the "sale, transfer or lease" of assets to another not-for-profit corporation.
In turn, the attorney general would have to notify communities about a not-for-profit's intent to make a deal, and then hold one or more public meetings before deciding on the transaction.
"We have a duty to protect the public trust, and that's what the law does," said state Assemblyman Gilbert Cedillo, a Los Angeles Democrat who introduced the bill.
California law already requires not-for-profit facilities to obtain attorney general approval before striking deals with for-profit companies.
That's why Santa Barbara-based Tenet supports Cedillo's bill. "If one hospital sale is going to be reviewed, then they all should be reviewed," said Harry Anderson, a Tenet spokesman.
While no one deal was the impetus behind the bill, several recent transactions involving solely not-for-profits have pushed the ownership issue to the fore.
In December 1998 San Francisco-based Catholic Healthcare West acquired the eight hospitals operated by Burbank, Calif.-based UniHealth, and now CHW is considering selling two of them to a for-profit chain (See story, p. 15).
Sutter, meanwhile, has a pending deal to acquire 420-bed Summit Medical Center in Oakland, Calif.
A Sutter spokesman said the 26-hospital health system would support the bill if some changes are made to it. One of Sutter's concerns is that the bill, as currently written, would force the health system to reveal its competitive strategies, said Bill Gleeson.
At least 11 states already have conversion laws that address mergers between not-for-profit hospitals, according to an October 1998 report by Boston-based Community Catalyst, a not-for-profit healthcare consumer advocacy group.
But Linda Miller, president of the Washington-based Volunteer Trustees of Not-For-Profit Hospitals, said enacting a separate law to regulate deals between not-for-profits is "unnecessary." She pointed out that the California attorney general already has authority to review these deals because the hospitals are charitable organizations.
Another group backing Cedillo's bill is the West Coast regional office of Yonkers, N.Y.-based Consumers Union.
"In this managed-care market, many nonprofits are starting to act as for-profits," said Julio Mateo Jr., a staff attorney at Consumers Union in San Francisco.
The group has urged more stringent oversight of mergers involving not-for-profits because their effect on healthcare services can be as significant as the impact of deals involving for-profit companies.