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Hospitals' challenge to Oregon merger reviews nears key ruling

Judge will decide whether the Hospital Association of Oregon has the legal standing it needs to knock out the high-profile state program
May 2, 2024

A year and a half after Oregon’s hospital trade group sued to scrap the state’s new health care merger review program, a key question remains unanswered: does the trade group even have the legal standing needed to pursue a lawsuit?

A federal judge has ordered lawyers for the hospitals and the state to address at a hearing this month whether the trade group can show it was harmed. That will determine whether the case moves forward.

While the legal question is obscure, the court clash has high stakes. It will determine the fate of an increasingly high profile state program that is the toughest of its kind in the nation. The Legislature created the Health Care Market Oversight office in 2021 to protect consumers and patients from mergers’ potential harmful effects and protect abortion access. 

Since then, the program has been swamped with major health care deals to evaluate, drawing a deluge of comments from the public around the state. 

In U.S. District Court in Portland, attorneys for the Hospital Association of Oregon have been arguing that regulations written for the program by the Oregon Health Authority are excessively vague and violate companies’ right to due process granted by the U.S. Constitution.

A question of harm

While defending its regulations, the state’s lawyers also argue that the association doesn’t have legal standing to pursue the lawsuit because it has not offered up any examples of hospitals that have been harmed by the program.

The association “speculates in the abstract about the application of (the law) to hypothetical transactions,” the state said in a filing last month.

The hospital group’s counter? That as the representative of Oregon’s 61 community hospitals, it has had to spend staff time understanding the program and explaining it to its members.

“Rather than address the many health policy issues affecting its members and Oregon communities, the association has had to divert its resources — including money, staff time, and other resources — to address (the program),” wrote Rebecca Hultberg, the association’s CEO, in a filing last month with the court. “That diversion of resources was necessary given (the law’s) broad and uncertain scope, and the significant impacts of the law and its enforcement on the association’s members, who have expressed substantial concerns about the impact and meaning of (the law).”

On May 7 the lawyers will argue their cases in more detail before federal District Judge Michael Simon. After that, the judge might take a month or more to decide whether to toss the case.

Public awareness grows

To win state approval, health care entities that want to carry out mergers or other major deals in Oregon must submit filings showing that their transactions won’t cut crucial services, excessively drive up costs or otherwise run counter to the public interest.

The program provides the public with alerts and details about big health care business deals that in the past often only became publicly known after they were completed. On controversial proposals, Oregonians are increasingly filing comments and criticisms.

The program’s recent review and approval of UnitedHealth Group’s purchase of The Corvallis Clinic physician group drew comments from hundreds of people across the state. Earlier this year, the Portland health insurer CareOregon’s high-profile proposed merger with California-based health insurer SCAN Group was scrapped h following a scathing critique by program staff.

So far, there’s been scant controversy over hospital deals. Of the 15 completed transaction reviews, only three have involved hospitals, and all were approved. They were Vancouver, Wash.-based PeaceHealth buying a small surgery practice in Lane County; the Corvallis-based Samaritan Health hospital system selling its medical supply business; and the California-based non-profit Adventist hospital chain acquiring the financially ailing non-profit Mid-Columbia Medical Center in The Dalles, and promising to spend $100 million to upgrade the facility.

Still, a major hospital merger looms.

OSHU-Legacy merger cited

In its arguments, the association cites the potential merger of Oregon Health & Science University and the Legacy Health hospital chain – a deal the sides are working on but have not yet formally proposed.

One it’s proposed, the hospital systems “will have to expend resources to determine whether and how the (merger review) law may apply, to assess their compliance obligations, and to avoid potential penalties,” the association wrote.

The association’s lawsuit is a so-called “facial” challenge. That’s a legal term for a lawsuit that seeks to scrap a law and accompanying regulations in their entirety because they are so clearly deficient on their face.

The association admits its “facial” argument is unusual – but blames that on flaws in the law creating the state program. “It is the rare civil statute that must be invalidated as unconstitutionally vague,” the association said in a filing.

To show it has standing, the association’s argument that it has been harmed because it has had to spend time and money evaluating the program may be crucial.

 If Judge Simon lets the lawsuit proceed, the sides can get to the meat of the case: the alleged vagueness of the law and the state’s regulations that the program oversees.   

You can reach Christian Wihtol at [email protected].