AG Becerra wants written notice,and the ability to deny any sale that doesn't deliver betteraccess, cost or quality health care to Californians.

California's health care industry has a consolidationproblem.

Independent physician practices, outpatient clinics andhospitals are merging or getting gobbled up by private equity firmsor large health care systems. A single company can dominate anentire community, and in some cases, vast swaths of the state.

Such dominance can inflate prices, and consumers end up facinghigher insurance premiums, more expensive outpatient services andbigger out-of-pocket costs to see specialists.

Related: Health system consolidation: Can employer groups,brokers survive it?

Now that COVID-19 has slammed the health care industry,especially the small practices that are barely seeing patients, thetrend is likely to accelerate.

"I don't see anything that's going to stop this wave ofconsolidations amongst docs," said Glenn Melnick, a health careeconomist at the University of Southern California.

"If this thing goes on a long time," he said of the coronavirus,"then it becomes a tsunami."

California Attorney General Xavier Becerra has made battlinghealth care consolidation a signature issue since he took office in2017. With the additional pressure that COVID-19 is putting onvulnerable practices and facilities, Becerra is now pressing thestate legislature to expand his authority to slow health caremergers.

"We find that in these times of crisis, economic and healthcrisis, that the smaller health care players and stakeholders areoftentimes most at risk of being swallowed up by the big fish,"Becerra told California Healthline.

His success would fundamentally change how the health careindustry merges and grows in California.

When a health care system, private equity firm or hedge fundplans to merge with or acquire another practice or facility —whether that means buying a small practice or joining a multistatehospital chain — Becerra wants to know about it. He wants writtennotice, and the ability to deny any sale that doesn't deliverbetter access, cost or quality health care to Californians.

Becerra already can regulate mergers among nonprofit health carefacilities. Under SB-977, a collaboration between Becerra's office and thelegislature, he would get the ability to regulate the for-profitsector as well.

"Certainly it would put California where it's accustomed tobeing," Becerra said. "At the head of the pack."

The bill has support from organized labor and consumer advocacygroups. Gov. Gavin Newsom has come out against health careconsolidation in the past but hasn't taken an official stance onthe bill.

Yet Becerra isn't convinced passage will be smooth.

"The biggest concern I have is the legislation will be killed bythe industry," he said. "We'll end up seeing over-consolidationbecause decent practices that got on the edge could not swim withsharks."

Indeed, health care industry players are already lining upagainst the bill. Alex Hawthorne, a lobbyist for the CaliforniaHospital Association, said that hospitals are stretched thinbecause of the pandemic, and that now isn't the time for Becerra tobe meddling in routine agreements between practices.

"It bestows absolute and arbitrary discretion on the office ofthe attorney general," Hawthorne said at a budget hearing inMay.

In 2010, about 25% of California physicians worked in a practiceowned by a hospital. By 2016, more than 40% of doctors worked inhospital-owned practices, according to research published in thejournalHealth Affairs in 2018.

There's evidence that consolidation can hurt consumers. A separate 2018 study found that the cost of medical proceduresin highly consolidated Northern California was 20% to 30% higherthan in Southern California.

Since 2018, California's attorney general has had the authorityto regulate mergers among nonprofit health care systems, whichBecerra exercised the same year when considering a merger betweentwo health care giants: Dignity Health and Catholic HealthInitiatives. He said he would approve the deal only if the systems agreed to certainrequirements, such as starting a homelessness program.

Later that year, Becerra joined a suit against Sutter Health forusing its market power to drive up health care costs in NorthernCalifornia.

The lawsuit alleged that Sutter, which has 24 hospitals and 34surgery centers, had spent years buying up practices andfacilities, giving insurers little choice but to include them intheir networks and agree to higher rates for services.

In October 2019, Becerra secured a $575 million settlement against Sutter, which has yet to befinalized or paid out, that requires Sutter to change how itcharges insurance companies and give patients more informationabout prices.

Sutter Health opposes SB-977, which was introduced in Februaryby state Sen. Bill Monning (D-Carmel). The measure is intended toaddress some of the challenges Becerra encountered with the Suttercase, Becerra said.

"The best way to prevent problems from occurring in a merger isjust to prevent the merger altogether," said Jaime King, associatedean at UC Hastings College of the Law in San Francisco. "It'sreally hard to unwind a merger after you've already done it."

Under the measure, the attorney general must be notified beforea system, hedge fund or private equity firm attempts to enter intoa merger, acquisition or another kind of affiliation change withanother practice or facility. The bill defines a health care systemas one with two or more hospitals in multiple counties, or three ormore hospitals within one county.

That would trigger a public review process allowing supportersand opponents to make their cases to a review board. The boardwould assess the transaction, using criteria to determine whetherit would improve access, quality and price.

The bill also would make it illegal for systems to actanti-competitively and give the attorney general the power to bringa civil suit against monopolistic systems.

The Senate Health Committee approved the bill, which is expectedto be heard in another committee this week.

"Maybe it does mean consolidation should occur, but only becausewe've done the oversight to make sure it's because of quality andaccess," Becerra said. "Not because a big fish wants to make biggerprofit."

The measure includes waivers for rural practices and afast-track review process for transactions under $500,000.

The California Chamber of Commerce opposes the bill, as does theCalifornia Medical Association, which represents doctors. While theCalifornia Medical Association is concerned about the survival ofsmall physician practices, it believes the bill is too broad andshould focus more tightly on hospital consolidation, saidspokesperson Anthony York.

"This approach will only further force smaller providers out ofbusiness," especially as the health systems respond to the COVID-19emergency, the group's legislative advocate, Amy Durbin, wrotein a letter of opposition.

For many independent practices struggling for survival, thedebate over Becerra's powers is academic.

Dr. Sarah Azad, who owns a women's health practice in MountainView, California, said at least three independent practices in herarea have started the process to merge or sell since March becauseof dramatically lower patient volume.

Her practice is fine for now, despite the fact that her patientvolume was only about 30% of normal in March and 60% of normal inApril. Azad received a loan from the federal Paycheck ProtectionProgram for small businesses so she could pay her five doctors inMay.

"If you catch me on a bad month, I feel like we're one disasteraway from bankruptcy," Azad said.

Kaiser Health News isa nonprofit news service covering health issues. It is aneditorially independent program of the Kaiser Family Foundation,which is not affiliated with Kaiser Permanente.

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