CHA Chief Defends Consolidation Amid Investigation by State AG

In response to an investigation into health system consolidation by California Attorney General Kamala Harris (D), Duane Dauner -- president and CEO of the California Hospital Association â€" released a statement on Friday defending the practice, Modern Healthcare reports (Carlson, Modern Healthcare, 9/17).

Background

A 2010 study published in the journal Health Affairs found that health care consolidation in California led to "a definite shift in negotiating strength toward providers, resulting in higher payment rates in premiums."

However, an AHA-funded evaluation of the study concluded that the research was flawed because it relied on "anecdotal observations" and did not adequately look into factors such as consumer preference that might have contributed to variations in hospital reimbursement.

California's investigation, which has been under way for several months, is focusing on whether consolidation deals have given health systems enough market power to increase prices in a way that violates antitrust laws, according to individuals familiar with the matter.

As part of the investigation, Harris has issued subpoenas to several large hospital systems in California, including:

• Cottage Health System in Santa Barbara;
• Dignity Health, based in San Francisco;
• Scripps Health in San Diego;
• Sharp HealthCare in San Diego; and
• Sutter Health in Northern California.

Large health insurers in the state also have received subpoenas, according to the sources (California Healthline, 9/14).

Dauner's Response

In the statement, Dauner said, "The ability for hospitals, physicians and other providers to work more closely together is essential."

According to Dauner, provisions in the Affordable Care Act and other regulations -- such as California's seismic safety requirements -- encourage health systems to become larger. He said, "Criticism of hospitals that are responding to the demands of federal and state laws is unwarranted. Those who manufacture such allegations fail to look at the demands being placed on hospitals or the expectations being created by federal and state laws" (Modern Healthcare, 9/15).

Other Responses

Ryan McAteer -- a health care attorney in Los Angeles -- said that hospitals are choosing to expand their physician networks because of ACA provisions that reduce hospitals' profit margins, noting that adding physician groups can increase hospital revenues.

McAteer also said that other ACA provisions encourage hospitals and physicians to work together to boost care efficiency (Kasler, Sacramento Bee, 9/15).

Micah Weinberg -- a California health care consultant and senior policy adviser at the Bay Area Council -- said that he is worried that Harris' investigation "could undermine some of the really positive things going on in the market," such as accountable care organizations (Ross, San Francisco Chronicle, 9/14).