California DOJ greenlights CHI-Dignity merger, with conditions

(Story updated at 4:30 p.m. ET)

The California Justice Department gave its conditional approval Wednesday of the merger between Dignity Health and Catholic Health Initiatives, marking an important—but not final—step toward finalizing the merger.

The department's green light follows a rigorous review process. The combined entity, which will be called CommonSpirit Health, has already received approval from the Federal Trade Commission and the Catholic Church, and is on track to close by Dec. 31 to create a not-for-profit health system with 140 hospitals and more than 700 care sites across 21 states, including 30 hospitals in California.

The California Justice Department's approval means the deal has met all necessary state, federal and Catholic regulatory approvals, including from regulators in Arizona and Colorado, Michael Romano, a spokesman for Catholic Health Initiatives, wrote in an email. However, both CHI and Dignity stopped short of calling the merger a done deal.

The California review was particularly rigorous. It included 17 public meetings statewide and over 500 written comments, including from not-for-profit organizations, business groups, governmental entities, elected officials and religious groups. But the deal also drew scrutiny from the Catholic Church before being cleared by the Vatican.

CommonSpirit Health must maintain emergency services and women's healthcare services for 10 years after the deal closes, under the California Justice Department's approval. The system must notify the department if it plans to change those services between years six and 10 so the DOJ can assess community impact.

The conditions also require Dignity, CHI and CommonSpirit to create a so-called Homeless Health Initiative in California to support hospitalized individuals experiencing homelessness and co-locate, coordinate and integrate medical, behavioral health, safety and wellness services with housing and other social services across the 30 areas served by Dignity hospitals in California.

The organizations will need to allocate $20 million over six fiscal years to implement the program in partnership with local governments and not-for-profit organizations, with at least half of that spent within the first three fiscal years.

The department is also demanding specific protections for patients who need financial help paying their bills. Beginning in 2019, all of the former Dignity hospitals in California that are part of CommonSpirit will be required to offer a 100% discount to patients earning up to 250% of the federal poverty level through its financial assistance policy. In addition, those hospitals will have to post financial assistance policies on their websites and in prominent locations such as emergency rooms, admissions areas and waiting rooms.

Former Dignity hospitals that are part of CommonSpirit will also need to engage with affiliated organizations, community clinics, healthcare providers, houses of worship and other community-based organizations on the availability of financial assistance at each California hospital. The department said Dignity also must train its staff to interact with patients and families concerning their bills and Dignity's financial assistance policy, including charity care.

In a statement. Dignity CEO Lloyd Dean called the California DOJ's consent an "important step forward."

"Dignity Health has a proud legacy of providing quality health care to Californians and cares for more Medi-Cal patients than any other private provider," he said. "Some of our hospitals have been delivering care for more than 100 years. This review process offered a chance to hear directly from people in our communities, and we heard over and over how important our services are to the areas we serve. Our alignment and the Attorney General's consent will help ensure we can continue providing care for many years to come."

In a news release, Dignity pledged to honor the commitments it made when it submitted its merger application to California Attorney General Xavier Becerra's office. Becerra recused himself from the CHI-Dignity merger approval decision, but his office did not say why. Romano did not offer further comment, instead referring Modern Healthcare to Dignity's news release.

The California Justice Department wrote that it will closely monitor compliance with the conditions.

"The California Department of Justice is committed to improving the well-being and health of families across the state by increasing accessibility and availability of care in our communities," Sean McCluskie, chief deputy to the attorney general, said in a statement.