SACRAMENTO, May 13, 2020 – California Attorney General Xavier Becerra and Senator Bill Monning today announced Senate Bill 977 (SB 977), legislation that would make healthcare more affordable and accessible by cracking down on anticompetitive behavior and consolidation in the healthcare market, passed out of Senate Health Committee. The bill would require the Attorney General’s Office to review and approve affiliations or acquisitions between healthcare systems, facilities, or provider groups to ensure transactions either improve care coordination or increase healthcare access for underserved populations. The bill also provides new enforcement tools to reduce anticompetitive behavior in the market that leads to higher costs.
“The coronavirus pandemic has shone a light on the crucial importance of our healthcare system and ensuring that everyone has access to affordable, quality healthcare. When giant companies strangle competition in the healthcare market, patients and employers are left paying the price,” said Attorney General Becerra. “I’m grateful to be working with Senator Monning to champion SB 977, a bill that provides our office with new tools to combat anticompetitive behavior in the healthcare market. We must all work together to protect consumers and make healthcare more affordable for all Californians.”
“As our state continues to face the devastating impacts COVID-19 has on our healthcare system, it is important to ensure costs remain affordable for patients,” said Senator Monning. “Physicians are facing severe financial pressures because of the current pandemic and data shows that prices skyrocket when providers consolidate and reduce competition in the marketplace. SB 977 will protect existing services for patients and address the issue of unfair business practices that increase healthcare costs for all Californians.”
Anticompetitive behavior in the healthcare sector is a growing concern because large healthcare systems can flex their market power to raise prices for patients, employers, and insurers while limiting services and decreasing the quality of care offered to Californians. For example, average prices for hospital care are 35 percent higher in Northern California, where healthcare systems are more consolidated, than in Southern California. The impact of consolidation on prices was reinforced by a 2018 study by professor Richard Scheffler and the Petris Institute at the University of California, Berkeley, which found the percentage of physicians in practices owned by hospitals increased from about 25 percent in 2010 to more than 40 percent in 2016. This increased hospital ownership resulted in an estimated 12 percent increase in premiums from 2014 to 2016 and has led these physician groups to be less flexible and adaptable during the pandemic.
SB 977 would work to improve healthcare affordability and limit anticompetitive behavior by requiring healthcare systems to gain approval from the Attorney General’s Office before moving forward with any planned affiliation agreement or acquisition. The Attorney General’s determination to approve or deny a transaction will rely on two factors:
- Whether the transaction would truly increase care coordination and/or increase access and affordability of care to an underserved population; and
- Whether the transaction is substantially likely to result in anticompetitive effects that outweigh any benefits.
In addition, SB 977 would declare that healthcare systems that exercise substantial market power may not engage in behavior that has a significant likelihood of anticompetitive effects. These behaviors include: raising market prices, diminishing the quality of care, reducing choice, increasing the total cost of care, and diminishing access or availability of healthcare services. Under SB 977, the Attorney General’s Office would have the ability to file civil actions to recover damages and obtain civil penalties against those that abuse market power.
This legislation is another step in Attorney General Becerra’s fight to keep California markets fair and competitive to protect patient choice and affordable care. In December 2019, Attorney General Becerra announced a landmark $575 million settlement against Sutter Health, the largest hospital system in Northern California. When approved, the settlement will resolve allegations that Sutter’s anticompetitive practices led to higher healthcare costs for patients in Northern California compared to other places in the state. In July 2019, Attorney General Becerra announced four settlement agreements totaling nearly $70 million against pharmaceutical companies for entering into collusive “pay-for-delay” agreements that illegally delay affordable prescription drugs from entering the market. The Attorney General also sponsored a bill, enacted in 2019, deterring collusive pay-for-delay agreements that keep cheaper generic medications off the market and raise costs for consumers.