Newly tapped Democratic vice presidential nominee Sen. Kamala Harris' history of cracking down on hospital mergers as California's attorney general indicate a Biden administration could set a new precedent for the healthcare industry.
Democrats' draft party platform for 2020 calls for tighter federal regulation of healthcare mergers. Harris wouldn't have direct control over federal antitrust enforcement if she were elected vice president, but she could have sway over who presumptive Democratic presidential nominee Joe Biden would choose as attorney general, said Joel Goldstein, a professor at St. Louis University School of Law and a leading expert on the vice presidency. Goldstein noted that Biden was given a seat at the table to help select administration officials during the Obama White House transition.
"Whether a VP is given a significant portfolio and if so what depends on the way the president organizes the administration, its needs and the VP's strengths and interests," Goldstein said.
In her six years as California's chief antitrust enforcement official, Harris effectively blocked a big-time merger between Prime Healthcare and a safety-net health system, refused to relax charity care requirements, pursued more power to upend settled mergers, and opposed the union of two insurance industry giants.
The Biden campaign did not respond to a request for comment on Harris' record on healthcare acquisitions as attorney general.
Harris vs. Prime Healthcare
Harris' most high-profile and controversial merger fight came in 2015 as she stood between Prime Healthcare Services, a for-profit hospital chain that owned more than two dozen facilities, and the financially distressed, six-facility safety-net Daughters of Charity Health System.
Harris' stance opposed Prime Healthcare's chairman, president, founder and CEO, Dr. Prem Reddy who would become one of President Donald Trump's biggest healthcare industry supporters in 2020. On March 27, Reddy contributed $41,100 to Trump's re-election effort, according to federal campaign finance filings. A Prime spokesperson said Reddy contributes to candidates from both parties who are part of shaping health policy. Reddy has not contributed to Biden's campaign this election cycle.
Prime Healthcare in 2014 announced its intention to buy the Daughters of Charity system, but powerful labor unions opposed the deal and launched a lobbying campaign to try to stop it. Harris ultimately approved the sale, but Prime walked away after Harris placed more than 300 conditions on the transaction. The stipulations included a commitment to keep hospitals open as full-service facilities for as long as 10 years.
"Prime's decision to walk away, and this lawsuit, reaffirms the concerns voiced at multiple community meetings, that Prime never intended to prioritize the continuity of vital health services," a spokesperson for Harris said in September 2015.
Things got messy after Harris' decision. Prime sued the Service Employees International Union-United Healthcare Workers West, accusing them of using illegal tactics and extortion to thwart the deal. A federal judge largely dismissed the suit.
SEIU-UHW spokesperson Steve Trossman said the union presented their concerns about the Daughters of Charity deal to Harris, and she evaluated them in a way he found fair and impartial.
"We wholeheartedly support Sen. Harris. We believe her decision in the Prime case was based on what was best for those hospitals," Trossman said.
Prime Healthcare also sued Harris herself, accusing her of blocking the merger to mollify unions and advance her political interests ahead of her U.S. Senate race, and said attorneys general in other states had allowed similar mergers to go forward.
"The only difference is that these attorney generals were not named Kamala Harris and they did not abuse the acquisition approval process in exchange for political campaign contributions to support their ambition to expand their political careers to the national stage," the complaint said.
California Democratic strategist Steven Maviglio said the union's influence likely was a significant factor in Harris' decision, and it would be "foolish to think it was not a consideration." But a federal judge dismissed Prime's case against her.
Hedge fund BlueMountain Capital Management bought the Daughters of Charity system with Harris' blessing and named it Verity Health System. Harris maintained the hefty conditions on the deal. Verity filed for bankruptcy in 2018, and sold one of its hospitals to Prime Healthcare.
When asked for comment on Harris' selection for the Democratic ticket, Prime Healthcare spokesperson Elizabeth Nikels said the system extended its congratulations and that her selection is a historic moment that "reflects the best our diverse nation has to offer during this important inflection point in history."
"Prime Healthcare is hopeful that Senator Harris will be a strong advocate for healthcare providers, patients and health systems while strengthening and expanding the Affordable Care Act to ensure care for all," Nikels said in an email.
Charity care casualty
Harris' reputation for being tough on hospital mergers didn't end once the agreements were signed.
In 2016, her office shot down requests from four hospitals to ease up on the amount of free or discounted care they were required to provide low-income patients.
Most hospitals aren't held to a specific amount of charity care spending. However, California law allows the attorney general to put conditions on merger and acquisition approvals of not-for-profit hospitals to ensure they continue to serve indigent populations and don't cut off certain specialties. Harris was one of the first attorneys general to implement 10-year conditions, which was important to consumer advocates, said Jen Flory, policy advocate with the Western Center on Law & Poverty.
"It was something the purchasers did not like," she said. "They were like, 'Why is this going on for so long?' But her staff was really attentive to all the details and the things that are going to matter to the community, whether it's charity care or Medicaid managed care."
Harris wasn't convinced by the requests. She made one hospital, St. Agnes Medical Center in Fresno, give its $2 million charity care spending deficit to a local not-for-profit organization.
In 2017, four hospitals repeated their request to California's current Attorney General, Xavier Becerra. He also declined.
"They investigated and continued with her precedent," Flory said.
In one instance, Strategic Global Management dropped its plans to buy Gardens Regional Hospital & Medical Center, a bankrupt hospital in Hawaiian Gardens, Calif, alleging the deal failed over Harris' charity care requirement. Harris refused to approve SGM's $19.5 million offer unless the company agreed to provide almost $2.3 million per year in charity care for six years, among other requirements. Gardens ultimately closed in January 2017. SGM declined to comment.
Anthony Wright, executive director of Health Access California, said he would be "stunned" if the charity care requirement was the true dealbreaker, since it's typically a small part of hospital spending.
"We live in a state that even after the ACA has 3 million uninsured," he said. "It's not like there isn't need out there, especially for the uninsured."
Hospitals that wanted to cut charity care spending argued that fewer patients qualified ever since the Affordable Care Act covered more people under expanded Medicaid and subsidized plans. Meanwhile, charity care spending had already plummeted among hospitals that weren't subject to AG conditions—from $6 billion in 2011—7.9% of operating revenue—to $2.5 billion in 2016—2.4% of operating revenue, according to state data.
Push for more power
Following the 2012 merger between St. Joseph Health and Hoag Memorial Hospital Presbyterian in Orange County, consumer advocates aired concerns about Hoag no longer performing abortions.
Harris' office had approved that merger, but afterward argued the parties hadn't been forthcoming about future service changes. In response, her office sponsored a state bill that would give the attorney general more time to review such transactions and power to amend approved transactions if parties involved misrepresented aspects of the deals.
Several unions and consumer advocacy groups supported the measure. The California Hospital Association and a handful of health systems opposed it, arguing existing law already provided "vigorous protection" for consumers and that the measure would give broad regulatory discretion to keep changing the terms of deals after they've been agreed upon.
Lawmakers approved the bill, but it was vetoed by the governor. However, regulations later implemented by the state's justice department accomplished the bill's goals.
California's Insurance Commissioner, Ricardo Lara, introduced the bill as a state senator.
"I saw what a tough and determined consumer champion she is," Lara said of Harris in a statement. "I was proud to work with her on this important issue of consumer protection."
Joe Wilkins, who was at the time chair for St. Joseph Hoag Health, said in a statement he felt Harris' review of the transaction was "rigorous, balanced, consistent and fair."
"She was committed to protecting our community health assets and services and detailed conditions to ensure this reality for all citizens of Orange County, California," he said.
Harris' successor Becerra has similarly pushed for more power to regulate healthcare transactions. California's Legislature is currently considering a measure that would require for-profit healthcare transactions, including acquisitions by private equity groups or hedge funds, to get AG approval. Today, that requirement only exists for not-for-profit operators.
Hoag has since sued Providence, St. Joseph's parent, to unwind that merger, claiming that the population health initiative behind the deal never met its goals and the organizations have different philosophies. In its complaint, Hoag said it originally felt that the tradeoffs of affiliating with a Catholic system—namely, restrictions on providing women's services—made sense because the deal would "transform the delivery of care with a population health model."
On top of other issues, Hoag said it became "increasingly clear" that its values had been compromised by Catholic healthcare rules that prohibit services like abortions.
Targets go beyond hospitals
Harris also joined the Department of Justice and 11 attorneys general to block a $54 billion merger agreement between insurance giants Anthem and Cigna in July 2016. One of Harris' arguments against the Anthem-Cigna deal was that it would drive down reimbursement rates for healthcare providers, including in six California markets.
"This proposed merger would result in higher premiums and administrative costs and would depress reimbursement rates for doctors and other healthcare providers, likely leading to lower efficiencies, more medical providers leaving the provider network market and overall an inferior quality of care for patients," Harris said in a written statement.
Provider lobbying powerhouses the American Hospital Association and American Medical Association backed the enforcement officials' case against Anthem and Cigna, arguing that the merger would raise healthcare insurance costs, disincentivize innovation and lead to fewer provider choices.
The deal fell apart in April 2017 after a string of court losses.
"Both the court and DOJ agreed that access to and the quality of health care would be jeopardized by Anthem's use of market power against providers," AHA CEO and President Rick Pollack said in a written statement after a federal judge blocked the proposed deal in February 2017.
Early in her tenure as attorney general, Harris built a reputation as a champion of whistleblower lawsuits, landing one of the largest False Claims Act settlements in California's history, a $241 million settlement in May 2011 against lab testing company Quest Diagnostics.
Harris' office accused Quest of systematically overcharging the state's Medicaid program, known as Medi-Cal, for more than 15 years and giving illegal kickbacks to doctors, hospitals and clinics that referred Medicaid patients to its labs.
"In a time of shrinking budgets, this historic settlement affirms that Medi-Cal exists to help the state's neediest families rather than to illicitly line private pockets," Harris said in a written statement at the time. "Medi-Cal providers and others who try to cheat the state through false claims and illegal kickbacks should know that my office is watching and will prosecute."
Harris' background with whistleblower lawsuits would bring to the executive branch "much needed" insight about the positive role they can play, said Stephen Kohn, a partner with Kohn, Kohn and Colapinto.
"To have someone at the presidential level knowledgeable and supportive of whistleblowing is unprecedented," he said, "and could be a game-changer in making the U.S. government more responsive to the problems that whistleblowers face and the contributions they can make."
During her time in office, Harris also settled or initiated whistleblower cases against McKesson Corp., GlaxoSmithKline and Abbott Laboratories.
