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Oregon hospitals, state near crucial stage in lawsuit over health care mergers program

Case bears implications for abortion access, health care transparency
October 19, 2023

One year after a group representing Oregon’s hospitals sued the state to overturn its toughest-in-the-nation health care mergers review program, the closely watched case is nearing a key turning point in federal court.

At stake is Oregon’s novel and sweeping program that many lawmakers viewed as a tool to preserve abortion access by curbing the spread of Catholic health care systems. It  reviews large health care mergers and acquisitions and provides the public with unprecedented transparency and the opportunity to comment. The state has the power to block transactions if they reduce crucial health care services or otherwise run counter to the public interest.

Filed in U.S. District Court in Portland, the suit by the Hospital Association of Oregon calling the program unconstitutional is nearing a crucial stage. Both sides have filed briefs sharply arguing why the other’s case has no merit — and if the judge sides with the hospitals’ motion for summary judgment, the new program could suddenly go away. 

And even if the judge doesn’t knock out the state program, the ruling could provide significant insights into how the judge views the case.

The Legislature in 2021 approved a bill to establish program, arguing it was urgently needed because mergers in the fast-changing health care industry were threatening the quality of health care. Inside the Democratic caucus, the bill was framed as a pro-choice vote.

The Oregon Health Authority approved regulations in March 2022.

The deals can involve hospitals, health insurance companies, medical groups, pharmacy chains and the like. One deal now under review is the proposed absorption of Portland-based Medicaid insurer CareOregon into California-based Medicare insurer SCAN Group. Other deals approved by the program have included the absorption of financially ailing Mid-Columbia Medical Center in The Dalles into the California-based Adventist Health hospital chain.

The program so far has reviewed and approved 10 transactions. It has not rejected any, but it has imposed conditions on some. It has two applications pending: including the high-profile merger of major Oregon Health Plan insurer CareOregon with a California-based nonprofit insuring Medicare patients.

But the health care industry has been deeply unhappy with the program since legislators floated House Bill 2362. During the health authority’s lengthy rule-making process, hospital executives and others repeatedly complained that the regulations were unfairly vague and needlessly restrictive on an industry already hemmed in by heavy regulation and under financial strain.

In October 2022, the hospital association filed the lawsuit against the state and the health authority. The hospital trade group didn’t allege that any particular health care entity had been hurt or unfairly treated by the program. Rather, it said the language of the law and rules is so vague that hospitals can’t figure out what it means. 

That vagueness violates the guarantee of due process under the 14th Amendment of the United States Constitution, the association said. The group also alleged the Legislature, with HB 2362, delegated so much power to the health authority that it amounted to a delegation of legislative decision making in violation of the Oregon Constitution.

The judge is expected in the next month or so to set a date for oral arguments that would take place within several months, after which the judge would issue a decision. Because the dispute centers on legal interpretations, no trial is anticipated. It’s possible the judge may rule on the federal allegation of vague wording, but may decide that the allegation of delegation of legislative power does not belong in federal court. That would leave it up to the hospital association to decide whether to sue over that in state court.

The state, in its responses to the association, argues the law, regulations and so-called “sub-regulatory guidance” documents are copiously detailed and don’t violate due process rights. The state also argues that the issue of alleged excessive legislative delegation belongs not in federal court, but in Oregon court, because the matter is governed by the Oregon constitution. Besides, the state argues, the Legislature’s delegation of work to the health authority to create the program was not so extensive as to violate the Oregon Constitution. 

Key phrases debated 

The arguments over vague language center on key phrases in the law and regulations. The program is set up to scrutinize “material change transactions” made by “health care entities.” The deals are not allowed to make a “significant” reduction in “services that are essential to achieve health equity,” and they must “promote the public interest.” The program also sets different levels of review, including a “preliminary review” on most deals, and a more sweeping “comprehensive review” on larger and more complex deals.

The association says the state has left those and many other terms so poorly defined that the state’s application of them is arbitrary. The state hasn’t carefully defined when a deal is subject to a comprehensive review, for example, the association alleged. The law, regulations and sub-regulatory guidance provide some clarifying details about what some of those phrases mean – including examples of the types of entities covered by the program and the kinds of transactions. But the lawsuit says even the clarifications are so vague that they violate federal due process requirements. Plus, the law and regulations barely define at all terms such as “health equity” and “public interest,” the association alleges.

“When faced with the question, ‘What do I need to do to ensure that my conduct conforms to the law?,’ HB 2362’s answer is, effectively, ‘Whatever the agency tells you to do,’” the association said in its complaint.  “The statute supplies no standard or policy that, even on the most general level, informs a party what is or is not prohibited. Equally important, the statute does not give the agency any direction as to which conditions would advance the “public interest,” or even what considerations would inform the imposition of conditions to advance that goal.”

The health authority held many meetings and hearings over a number of months in order to create regulations that implemented the law. But the hospital association says many of those rules ended up using vague language and setting arbitrary constraints or hurdles.

Many details, state insists

But the state counters that the law and regulations – along with the “sub-regulatory guidance” -- provide enough detail to ensure that they are not “arbitrary or discriminatory,” and therefore don’t run afoul of the 14th Amendment.

The sub-regulatory guidance includes, for example, a detailed list of the kinds of organizations the health authority considers covered by the program. The guidance documents also include a 10-page paper titled “defining essential services & significant reduction,” which details the types of crucial services the state does not want to see cut, the state argues.

The hospital association “does not argue that its own members cannot determine whether they are considered ‘health care entities’ under the statute,” the state said. “Instead, (the association) proffers hypothetical business entities and questions whether each would fit within the definition of a health care entity.” Such hypothetical criticisms are insufficient to overturn the rules, the state argued.

The hospital association dislikes the rules because they cover such a wide array of entities and transactions, the state’s lawyers argued. But, they added, “breadth is not the same thing as vagueness.”  

You can reach Christian Wihtol at [email protected].