California is one of 10 states that have a review system in which attorneys general can impose conditions or block a merger of nonprofit hospitals. But rigorous review processes — designed to maintain key healthcare services — can collapse mergers, with hospitals having to close, according to The Wall Street Journal.
California is the first state where hospitals are using the federal bankruptcy system to challenge the state's review process, according to the report. More hospitals may follow suit in the coming years as they aim to improve their financial standing and keep their doors open.
Montebello, Calif.-based Beverly Community Hospital had tried to find a buyer for years. It filed for Chapter 11 bankruptcy in April, and Los Angeles-based American Healthcare Systems submitted an application to acquire the hospital shortly afterwards.
On July 7, less than two months after the bankruptcy filing, the California attorney general conditionally approved the sale.
According to the Journal, the Chapter 11 filing provided AHS leverage over the state's attorney general, who can require prospective buyers to maintain costly services — including emergency and charity care — and to accept patients covered by government-funded programs. Such requirements had collapsed prior sale attempts for Beverly, which had 75 percent of its patients on Medicare or Medi-Cal, according to the state attorney general.
Because of the bankruptcy filing, AHS was able to quickly negotiate terms with the attorney general and it purchased the 202-bed hospital for $100 million.
California has had multiple hospital sales fall through in recent years that were at least partly due to its stringent review process, according to the Journal.
Madera (Calif.) Community Hospital shuttered in January after a proposed acquisition by Livonia, Mich.-based Trinity Health collapsed. The hospital filed for Chapter 11 bankruptcy in March and reached an initial agreement in July for Roseville, Calif.-based Adventist Health to take over operations.