California regulators have rejected a proposed merger between Adventist Health System/West and St. Joseph Health System that would have created a joint operating company to manage nine hospitals in six largely rural counties in Northern California.
The California Justice Department issued a denial letter Thursday citing concerns that the transaction is not in the public interest, has the potential to increase healthcare costs, and could limit access and availability of healthcare services.
In June of last year, the two religious-based not-for-profit systems submitted a proposal to create the ST Network to operate Adventist Health Clear Lake, Adventist Health Howard Memorial, Adventist Health St. Helena, Adventist Health Ukiah Valley, Queen of the Valley Medical Center, Redwood Memorial Hospital, St. Joseph Hospital-Eureka, Santa Rosa Memorial Hospital and Petaluma Valley Hospital.
The health systems said the merger would boost access to quality care throughout Northern California, with a focus on vulnerable and underserved populations. They also said the merger would enable their facilities to compete more effectively against Kaiser Permanente, which has a large market share in those six counties even though it has no hospital there.
But the state Justice Department did not agree.
"After careful review, we found this proposal falls short of protecting consumers," said Sean McCluskie, chief deputy to Attorney General Xavier Becerra.
The health systems indicated they were blindsided by the decision.
"Both Adventist Health and St. Joseph Health are very disappointed in the outcome of this decision," the systems said in a joint written statement. "Our intent has always been to better serve our communities, increase access to services, and create a stronger safety net for families in northern California. At this time, our organizations will need to take a step back and determine implications of this decision. The well-being of our communities remains our top priority."
Consumer advocacy groups had objected to the merger, warning that it would raise prices and could limit access to certain services that are prohibited by the Ethical and Religious Directives for Catholic Health Care Services, such as tubal ligations, contraception, gender transition care and physician aid-in-dying.
A transgender patient has a lawsuit pending against St. Joseph, claiming he was discharged from the St. Joseph Hospital in Eureka minutes before a scheduled hysterectomy in 2017, after hospital officials learned he was transgender.
In its response to the suit, St. Joseph said it has a constitutional right to refuse to perform procedures barred by Catholic religious doctrine.
The American Civil Liberties Union of Northern California applauded the state's decision to bar the merger.
"This is a strong statement by the attorney general that healthcare should be available and accessible to patients," said Phyllida Burlingame, the group's reproductive justice and gender equity director. "More than one in six hospital beds in California are already in hospitals like those in the St. Joseph network that deny patients needed reproductive healthcare and gender-affirming care based on doctrine established by Catholic bishops. Californians, particularly those in the rural areas where these hospitals are primarily located, need more access to these essential healthcare services, not less. This decision helps move our state in a positive direction."
The merger denial contrasts with the same agency's decision last November to approve the much larger merger of CHI and Dignity Health, two Catholic-affiliated systems which formed CommonSpirit Health earlier this year. That deal also was opposed by the ACLU and a number of other advocacy groups on the grounds that it would raise costs and limit access to certain types of care.
Adventist and St. Joseph had sought to reassure regulators and their religious sponsors that the merger would not change either organization's mission or religious operating rules. Under the deal, each partner would retain management and control over its own facilities. Neither would be allowed to cause the other to violate its religious rules.
Unlike Catholic-sponsored St. Joseph, Adventist permits contraception, sterilization, in vitro fertilization, and calls itself LGBTQ-friendly. But Adventist, like St. Joseph, does not offer gender transition surgery or participate in physician aid-in-dying.
Anthony Wright, executive director of Health Access California said the proposed merger raised other concerns as well, including potentially higher costs in the already highly concentrated California market.
"Bigger is not often better with hospital chains and health care in general, as consolidation is closely correlated with much higher costs for consumers," he said.
Correction: The proposed merger involved only nine hospitals. The attorney general's statement listed one hospital under two names.