DIVISION 1.7. HEALTH CARE SYSTEM CONSOLIDATION
1190.
(a) For purposes of this division, the following definitions shall apply:(1) “Academic medical center” means either of the following:
(A) A health system that is operating with a medical school that is fully accredited by the Liaison Committee on Medical Education as of June 9, 2017, and that is either of the following:
(i) A public university system, as defined in subdivision (f) of Section 99250 of the Education Code.
(ii) Governed by a four-year university accredited by the Western
Association of State and Colleges Senior College and University Commission.
(B) A comprehensive cancer center and hospital that is so designated by the National Cancer Institute and that is located in the City of Duarte.
(2) “Acquisition” means the direct or indirect purchase in any manner, including, but not limited to, lease, transfer, exchange, option, receipt of a conveyance, creation of a joint venture, or any other manner of purchase, by a health care system, private equity group, or hedge fund of all, or any part of, the assets a material amount of the assets or operations, as used in Sections 5914 and 5920 of the Corporations Code,
of a health care facility or provider. A transfer includes, but is not limited to, any arrangement, written or oral, that alters voting control of, responsibility for, or control of the governing body of the health care facility or provider.
(3) “Change of control” means an arrangement in which a health care system establishes a change in governance or sharing of control over health care services provided by that health care facility or provider, or in which a health care system otherwise acquires direct or indirect control over the operations of a health care facility or provider in whole or in substantial part, as consistent with subdivision (a) of Section 5914 of, and subdivision (a) of Section 5920 of the Corporations
Code. For purposes of this division, an “arrangement” shall include any agreement, association, partnership, joint venture, or other arrangement that results in a change of governance or control. A change of control does not exist where a health care system only extends an offer of employment to, or hires, a provider.
(4) “Board” means the Health Policy Advisory Board established
pursuant to Section 1190.05.
(5) “Clinical integration” means a showing by the health care system, private equity group, or hedge fund making a change of control with or acquiring the health care facility that there will likely be a reduction in costs to the benefit of consumer care and outcomes or an increase in the quality of care as a result of the acquisition or change of control. An increase or improvement in quality of care shall include a showing of a reduction in morbidity or mortality, better population health care management, improvement in nationally recognized quality measures, including, but not limited to, measures used or endorsed by the National Committee for Quality Assurance, the National Quality Forum, the Physician Consortium for Performance Improvement, the Agency for Healthcare Research and Quality,
others recognized or used by the federal Centers for Medicare and Medicaid Services, or any other commonly accepted metric or standard for improving consumer health and patient outcomes.
(6) “Health care facility” means a facility, nonprofit or for-profit corporation, institution, clinic, place, or building where health-related physician, surgery, or laboratory services are provided, including, but not limited to, a hospital, clinic, ambulatory surgery center, treatment center, or laboratory or physician office located outside of a hospital.
(7) “Health care system” means an entity or system of entities that includes or owns three or more hospitals within the state of which at least one is a general acute care hospital, as defined in subdivision (a) of Section 1250.
(8) “Hedge fund” means a pool of funds by investors, including a pool of funds managed or controlled by private limited partnerships, if those investors or the management of that pool or private limited partnership employ investment strategies of any kind to earn a return on that pool of funds.
(9) “Hospital” means a general acute care hospital, acute psychiatric hospital, or special hospital, as those terms are defined in subdivision (a), (b), or (f) of Section 1250, respectively.
(10) “Nonphysician Provider” means an individual or group of individuals that are licensed as defined under Division 2 (commencing with Section 500) of the Business and Professions Code that does
not provide health-related physician, surgery, or laboratory services to consumers.
(10)
(11) “Private equity group” means an investor or group of investors who engages in the raising or returning of capital and who invests, develops, or disposes of specified assets.
(11)
(12) “Provider” means an individual or group of individuals that provides health-related physician, surgery, or laboratory services to consumers, including, but not limited to, licensees as defined under Division 2 (commencing with Section 500) of the Business and Professions Code. consumers.
(12)
(13) “Rural area” means a medical service study area with a
population density of fewer than 250 persons per square mile and no population center in excess of 50,000 within the area, as determined by the Office of Statewide Health Planning and Development.
(13)
(14) “Underserved population” means a population with an income threshold below 138 percent of the United States Department of Health and Human Services federal poverty guidelines, a population served by the Medi-Cal program, an uninsured population, a rural area, or a combination thereof.
(b) These definitions shall
not apply to acquisitions or changes of control entered into prior to January 1, 2021, including subsequent renewals, as long as those acquisitions or changes of control do not involve a material change in the corporate relationship between a health care system and a health care facility or provider, or a material change in the corporate relationship between the private equity group or hedge fund and a health care facility or provider, on or after January 1, 2021.
1190.05.
(a) Beginning July 1, 2021, the Attorney General shall establish the Health Policy Advisory Board for the purpose of evaluating and analyzing health care markets in California and providing recommendations to the Attorney General’s office, for purposes of this division.(b) The board shall be comprised of all of the following members:
(1) The Attorney General, or the Attorney General’s designee.
(2) All of the following, who are appointed by and serve at the pleasure of the Attorney General:
(A) A university professor that specializes in health care systems, economics, and antitrust law.
(B) A representative from a health care system.
(C) A representative from a health care provider.
(D) A representative of health plans.
(E) A representative of employers as purchasers of health care services.
(F) A representative of organizations that represent union trustees of health care trusts.
(3) One member who is appointed by and serves at the pleasure of the Governor.
(4) Two members who are appointed by and serve at the pleasure of the Senate Committee on Rules, one of whom shall be a representative of a consumer group.
(5) Two members who are appointed by and serve at the pleasure of the Speaker of the Assembly, one of whom shall be a representative of a consumer group.
(c) (1) The board shall annually produce or commission a report on the conditions in health care markets in California relating to acquisitions and changes of control, including, but not limited to, cost and quality analysis.
(2) The Department of Justice shall make the report publicly available on its internet website.
(d) The
board shall meet quarterly.
(e) (1) The board shall comply with the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code).
(2) The board shall comply with the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code).
(f) This section shall remain in effect only until January 1, 2027, and as of that date is repealed.
1190.10.
(a) Except as provided in subdivision (g), a health care system, private equity group, or hedge fund shall provide written notice to, and obtain the written consent of, the Attorney General prior to a change of control or an acquisition between the health care system and a health care facility or provider, or between the private equity group or hedge fund and a health care facility or provider. The notice shall contain information sufficient to evaluate the nature of the acquisition or change of control and information sufficient for the Attorney General to determine that the criteria set forth in paragraph (1) of subdivision (b) of Section 1190.25 have been met or that a waiver may be granted pursuant to paragraph (2) of
subdivision (d) of Section 1190.25.(b) Within 60 days of receipt of the written notice required by subdivision (a), the Attorney General shall do one of the following:
(1) Notify the health care system, private equity group, or hedge fund whether the Attorney General has cleared the transaction as meeting the requirements of paragraph (1) of subdivision (b) of Section 1190.25.
(2) Grant the health care system, private equity group, or hedge fund a waiver pursuant to paragraph (2) of subdivision (d) of Section 1190.25.
(3) Issue a request for additional information from the parties to the acquisition or change of control.
(c) Notwithstanding subdivision (e), if, after 60 days, a health care system, private equity group, or hedge fund does not receive notice pursuant to subdivision (b), the health care system, private equity group, or hedge fund may proceed with the transaction.
(d) Within 45 days of certification by the Attorney General that the parties to the acquisition or change of control have substantially complied with the request for additional information pursuant to paragraph (3) of subdivision (b), the Attorney General shall grant or deny consent pursuant to paragraph (1) of subdivision (b).
(e) The Attorney General may extend any time period set forth in subdivision (b) or (d) by 14 days if the Attorney General decides to hold a public meeting under subdivision (b) of Section 1190.30.
(f) The parties and the Attorney General may consent to extend the time period in subdivision (d) by an additional 45 days if the acquisition or change of control is substantially changed or modified by the parties prior to the expiration of the period in subdivision (d) or the acquisition involves health care facilities, or providers, servicing multiple communities.
(g) (1) A health care system that is acquiring or making a change of control with any of the following providers, groups of providers, or health care facilities shall provide written notice to the Attorney General:
(A) A provider, group of providers, or health care facility for a transactional value of one million dollars ($1,000,000) or less.
(B) A county health facility.
(C) An academic medical center that is acquiring or making a change of control with a provider, group of providers, or health care facility for any transactional value.
(2) For notices provided pursuant to paragraph (1), the Attorney General shall do either of the following within 30 days:
(A) Notify the health
care system that the Attorney General does not object to the transaction.
(B) Notify the health care system that the Attorney General has found the transaction to raise substantial competitive concerns that may impact competition in the market such that the health care system, private equity group, or hedge fund is required to comply with subdivision (a) of Section 1190.10.
(3) If, after 30 days, a health care system does not receive notice pursuant to paragraph (2), the health care system may proceed as if it received the notice of no objection pursuant to subparagraph (A) of paragraph (2).
(h) The standard of review for the Attorney General to make determinations pursuant to subdivision (g) is whether the transaction
presents substantial competitive concerns based on an analysis of market shares of the provider, group of providers, or health care facility in any relevant market, as set out in subparagraph (A) of paragraph (2) of subdivision (b) of Section 1191.
(i) A health care system, private equity group, or hedge fund shall provide advance written notice to the Attorney General prior to a change of control or acquisition between a health care system, private equity group, or hedge fund and a nonphysician provider. Transactions between a health care system, private equity group, or hedge fund and a nonphysician provider shall not be subject to consent by the Attorney General.
(i)
(j) (1) A notice shall not be required pursuant to this section for any transaction initiated on or after January 1, 2026.
(2) This section shall remain in effect for any transaction initiated, completed, or pending on or before December 31, 2025.
1190.15.
(a) The Health Policy Advisory Board, upon request by the Attorney General, may review a written notification submitted by a health care system pursuant to Section 1190.10 and provide the Attorney General with written information with regard to whether to grant or deny consent to the change of control or acquisition. The Attorney General may consider the recommendation of the board.(b) A board member shall not receive compensation for service on the board, but may receive a per diem and reimbursement for travel and other necessary expenses, as provided in Section 103 of the Business and Professions Code, while engaged in the performance of official duties of
the board.
(c) A board member shall not make, participate in making, or in any way attempt to use their official position to influence the making of a decision that the member knows or has reason to know will have a reasonably foreseeable material financial effect, distinguishable from its effect on the public generally, on the member or a member of their immediate family, pursuant to Section 87103 of the Government Code.
(d) A board member shall file a statement of economic interest pursuant to Chapter 7 (commencing with Section 87100) of Title 9 of the Government Code.
(e) This section shall remain in effect only until January 1, 2027, and as of that date is repealed.
1190.20.
(a) The Attorney General may adopt regulations to implement this division, including, but not limited to, regulations that extend the time periods in Section 1190.10, or regulations to provide a process for requesting a waiver pursuant to Section 1190.25.(b) This section shall remain in effect only until January 1, 2027, and as of that date is repealed.
1190.25.
(a) Except as provided in subdivision (b), the Attorney General may deny consent to a change of control or an acquisition between a health care system, private equity group, or hedge fund and a health care facility, provider, or both, unless the health care system, private equity group, or hedge fund demonstrates that the change of control or acquisition will result in a substantial likelihood of clinical integration, a substantial likelihood of increasing or maintaining the availability and access of services to an underserved population, or both.(b) (1) The Attorney General may deny consent to a change of control or an acquisition between a
health care system, private equity group, or hedge fund and a health care facility, provider, or both, if there is a substantial likelihood of anticompetitive effects that outweigh the benefits of a substantial likelihood of clinical integration, a substantial likelihood of an increase in, or maintenance of, services to an underserved population, or both.
(2) A substantial likelihood of anticompetitive effects in providing hospital or health care services shall include, but not be limited to, a substantial likelihood of raising market prices, diminishing quality, reducing choice, or diminishing availability of, or diminishing access to, hospital or health care services.
(c) The Attorney General, in making a determination to grant or deny consent pursuant to this section, shall apply the
public interest standard. The term “public interest” is defined as being in the interests of the public in protecting competitive and accessible
health care markets for prices, quality, choice, accessibility, and availability of all health care services for local communities, regions, or the state as a whole. Acquisitions or changes of control shall not be presumed to be efficient for the purpose of assessing compliance with the public interest standard.
(d) (1) A health care system, private equity group, or hedge fund located in a rural area may request, in writing, a waiver of the prohibition in subdivision (a).
(2) The Attorney General may grant a waiver if either of the following conditions exist:
(A) The change of control or acquisition would directly benefit consumers of health care services in rural areas by improving or maintaining
the access or availability of those services.
(B) The change of control or acquisition is needed to improve or maintain the health, safety, and well-being of consumers of health care services in rural areas.
(3) The Attorney General may adopt regulations regarding the process of requesting a waiver and the conditions the health care system, private equity group, or hedge fund must meet to obtain that waiver.
(e) (1) This section shall only apply to a transaction that occurs, is pending, or is submitted for review to the Attorney General pursuant to Section 1190.10 on or before December 31, 2025.
(2) This section shall remain in effect for any
transactions completed, pending, or submitted for review on or before December 31, 2025.
1190.30.
(a) The Attorney General shall make the determination required by Section 1190.25 in writing that provides the basis for the determination.(b) Prior to issuing a written determination pursuant to subdivision (a), the Attorney General may hold a public meeting, which may be held in any of the counties in which the acquisition or change of control will take place, to hear comments from interested parties. Prior to holding a public meeting, the Attorney General shall provide notice of the time and place of any meetings by electronic publication, or publication in newspapers of general circulation, to consumers that may be affected by the acquisition or change of
control. If a substantive change or modification to the acquisition or change of control is submitted to the Attorney General after a public meeting, the Attorney General may conduct an additional public meeting to hear from interested parties with respect to the change or modification. To the extent that a public meeting has already occurred under Sections 5916 and 5922 of the Corporations Code, the Attorney General may waive a subsequent meeting requirement under this section.
(c) Any of the parties to the acquisition or change of control may appeal the Attorney General’s final determination by a writ of mandate to the superior court pursuant to Section 1094.5 of the Code of Civil Procedure.
(d) The Attorney General’s determination in subdivision (a) shall be based on an
administrative record that shall be provided to the court and to the parties to the acquisition or change of control in the event that the parties notify the Attorney General of their intent to appeal the Attorney General’s final determination pursuant to subdivision (c). The administrative record shall consist of any evidence submitted by the parties to the acquisition or change of control, any comments offered by interested parties at a public meeting held pursuant to subdivision (b), any official reports by any experts hired by the Attorney General to review the transaction, any evidence obtained by the Attorney General from the parties to the acquisition or change of control or third parties, and any other evidence or information relied on by the Attorney General in making the determination required by subdivision (a), including information required to be submitted as part of the notice required
by subdivision (a) of Section 1190.10. To the extent that any evidence or other information is confidential, the Attorney General may take reasonable measures to ensure the confidentiality of that evidence or other information in the administrative record.
(e) The Attorney General may adopt regulations for the purpose of implementing this section.
(f) (1) This section shall only apply to a transaction that occurs, is pending, or is submitted for review to the Attorney General pursuant to Section 1190.10 on or before December 31, 2025.
(2) This section shall remain in effect for any transaction completed, pending, or submitted for review on or before December 31,
2025.
1190.35.
(a) This division does not operate to alter, amend, modify, invalidate, impair, or supersede any other law.(b) (1) This section shall only apply to a transaction that occurs, is pending, or is submitted for review to the Attorney General pursuant to Section 1190.10 on or before December 31, 2025.
(2) This section shall remain in effect for any transaction completed, pending or submitted for review on or before December 31, 2025.
1190.40.
(a) If a health care facility is subject to Section 5914 or 5920 of the Corporations Code, the review under those sections shall be concurrent with the review under this division, to the extent practicable.(b) (1) This section shall only apply to a transaction that occurs, is pending, or is submitted for review to the Attorney General pursuant to Section 1190.10 on or before December 31, 2025.
(2) This section shall remain in effect for any transaction
completed, pending, or submitted for review on or before December 31, 2025.
1191.
(a) It is unlawful for one or more health care systems, either independently or dependently, to use their market power as set forth in this section.(b) The conduct of a health care system shall be unlawful pursuant to subdivision (a) under any of the following conditions:
(1) The health care system has substantial market power in any market for hospitals or nonhospital health care services and the health care system’s conduct has a substantial tendency to cause anticompetitive effects. A substantial likelihood of anticompetitive effects in providing hospital or nonhospital health care services shall
include a substantial likelihood of raising market prices, diminishing quality, reducing choice, increasing the total cost of care, or diminishing availability of, or diminishing access to, hospital or nonhospital health care services.
(2) The health care system shall be presumed to be acting unlawfully if it has substantial market power in any market for any service in trade or commerce and the health care system’s conduct involves tying or exclusive dealing.
(A) A market for any service in trade or commerce may be the state itself, northern California as comprised of the 48 northernmost counties, southern California as comprised of all other counties in the state, a county, a metropolitan statistical area as defined under the United States Census, a micropolitan statistical area as
defined under the United States Census, a region in which insurance is offered under Covered California pursuant to paragraph (2) of subdivision (a) of Section 10753.14 of, or paragraph (2) of subdivision (a) of Section 10965.9 of, the Insurance Code, or paragraph (2) of subdivision (a) of Section 1357.512 or paragraph (2) of subdivision (a) of Section 1399.855, or any other market supported by the evidence.
(B) For purposes of this section, “tying” is defined as the seller coercively conditioning the sale of one or more services on the sale of a second distinct service or services if the arrangement affects a more than trivial amount of sales of the second distinct service or services. The conditioning can be explicit, implicit, or as an economic imperative based on the pricing of those services.
(C) For purposes of this section, “exclusive dealing” means an agreement in which a health plan or employer who buys health care services agrees implicitly or explicitly, whether coerced or voluntarily, to buy services exclusively from a health care system for a period of time. Exclusive dealing is presumed to be anticompetitive for purposes of this section whether or not pricing practices are a component of that conduct.
(c) Substantial market power can be shown in one of the following two ways:
(1) The conduct had an actual substantial anticompetitive effect, including, but not limited to, prices, quality, access, or availability of services, choice, or total cost of care. For purposes of this paragraph, “total cost of care” means the measurement of direct and
indirect costs, including, but not limited to, price and utilization, associated with an episode of care for a period of health care coverage.
(2) The health care system has a sufficiently substantial market share in one or more markets for any service in trade or commerce after accounting for barriers to entry to exercise substantial market power in those markets. The health care system shall be presumed to have substantial market power if, accounting for barriers to entry, it has greater than a 60 percent market share. That presumption shall not be rebuttable if it has greater than a 75 percent market share.
(d) Notwithstanding the other provisions of this section, a health care system is not acting unlawfully if its conduct directly and significantly benefits consumers of any
services in that same market in which the conduct is taking place, or the health care system, and the conduct that it is committing, are located entirely within a rural area as defined by paragraph (13) of subdivision (a) of Section 1190, and if it otherwise meets the criteria of this section and all of the following conditions exist:
(1) Any benefits are not achievable by less restrictive alternatives.
(2) Any benefits substantially outweigh any actual or likely anticompetitive effects of the conduct.
(3) No benefit is based on the need to meet a public federal, state, or local requirement or mandate of any kind.
(e) The Attorney General may bring a civil
action on behalf of the state or of any of its political subdivisions or public agencies or in the name of the people of the State of California, as parens patriae on behalf of natural persons residing in the state, in the superior court of any county that has jurisdiction over a defendant for any violation of this section.
(f) A civil action to enforce a cause of action for a violation of this section shall be commenced within four years after the cause of action accrued.
(g) Civil fines shall be imposed for a violation of this section and those fines may be calculated either as one million dollars
($1,000,000) or as twice the gross gain to the health care system or gross loss to any other party multiplied by two, whichever is greater.
(h) The court shall award the state as monetary relief three times the total damage sustained as described in subdivision (a), the interest on the total damages, and the costs of suit, including a reasonable attorney’s fee.
(i) In any civil action brought by the Attorney General, the court may, in addition to granting those prohibitory injunctions and other restraints as it may deem expedient to deter the defendant from, and insure against, committing a future violation of this section, grant those mandatory injunctions as may be reasonably necessary to restore and preserve fair competition in the trade or commerce affected
by the violation.
(j) Any fees or fines obtained should be deposited in the Attorney General antitrust account within the General Fund.
(k) The Attorney General may adopt regulations further defining provisions in this section.
(l) This section does not operate to alter, amend, modify, invalidate, impair, or supersede any other law.
(m) Notwithstanding any other law, this section does not impose liability for the intracorporate actions of a health care system.