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California attorney general stymies proposed joint venture by St. Joseph Health, Adventist Health

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The California Department of Justice Thursday denied a proposed transaction between Adventist Health System and St. Joseph Health System that would have formed a joint operating company to manage their facilities across Northern California, including a number in the North Bay.

Attorney General Xavier Becerra’s office turned down the request saying it fails to protect consumers. Late Thursday, the facilities released a statement that they were “very disappointed” in the decision.

In June, the companies asked for approval to manage and have authority over each health system’s facilities in Humboldt, Lake, Mendocino, Napa, Solano and Sonoma counties. Adventist Health and St. Joseph Health’s operations include St. Helena hospital, Queen of the Valley and Santa Rosa Memorial. “The California Department of Justice is responsible for ensuring that any proposed sale or transfer of a non-profit health facility protects the health and safety interests of the surrounding community. After careful review we found this proposal falls short of protecting consumers,” said Sean McCluskie, chief deputy to the attorney general, in a news release.

Becerra’s office did not immediately respond to emailed questions on how the proposed move would not be in the public interest, potentially increase health costs and potentially limit access and availability of health care services, as the announcement claims.

The state DOJ supervises all charitable organizations in the state and referred to the California Corporations Code in its letter denying the transaction.

In a joint statement, both companies wrote, “Today, the Office of the Attorney General within the California Department of Justice (CA DOJ) issued a letter denying the proposed joint operating company between Adventist Health System and St. Joseph Health System, a proposed agreement that would have integrated clinical activities and services through a new joint operating company. Our proposed venture would have combined our services across clinics and facilities in Humboldt, Mendocino, Sonoma, Lake, Napa and Solano counties to lower the cost of healthcare and improve quality and access to care. The agreement has been under the regulatory review process since Spring, 2018.”

The statement continued, “Our intent has always been to better serve our communities, increase access to services, and create a stronger safety net for families in Northern California...At this time, our organizations will need to take a step back and determine implications of this decision. The well-being of our communities remains our top priority.”

The California Nurses Association has spoken out against what they refer to as a merger and doubled down on that position Thursday.

“The California Nurses Association opposed this proposed merger from day one, as we were very concerned the merger would mean a loss of services, particularly women’s health services and services for our LGBTQI patients. We know all too well that mergers most often result in service cuts and higher prices, both of which clearly have a negative impact on our patients and their health,” said Lesley Ester, an RN at St. Joseph’s Eureka hospital in an emailed statement.

“During a number of public hearings, nurses expressed these concerns and called on the attorney general to put the public’s needs before corporate profits. We are very pleased to see Attorney General Becerra shared our concerns and decided to deny the merger of Adventist Health and St. Joseph Health Systems and we thank him for this decision.”

Under the proposed deal, Kevin Klockenga, executive vice president and CEO of St. Joseph Health System-Northern California Region, would have been president and CEO of the joint operating company, the Business Journal previously reported, quoting St. Joseph Health. St. Joseph Health employees would have remained employees of their St. Joseph Health ministry, and Adventist Health employees would have still worked for Adventist Health.

The joint operation would have been governed by a 10-member board - five appointed by Adventist Health and five by St. Joseph Health - chaired by Bill Wing, president of Adventist Health.

JD Healthcare Inc. was retained to prepare health care impact statements for Becerra's office to assess the potential impact of the proposed master formation agreement. It released a 120-page report in June.

That assessment found that based on the Adventist Health’s commitments outlined in the agreement with St. Joseph’s, it would likely continue the availability and accessibility of health care services to the communities served for at least five years.

“It is anticipated that access for MediCal, Medicare, uninsured and other classes of patients will either remain unchanged or be improved,” the assessment also said.

However, JD Healthcare also found that after five years, Adventist Health St. Helena is expected to restructure and discontinue some services including obstetrics and behavioral health.

“Unless otherwise provided for, reducing the complement of licensed beds and discontinuing these services will have a significant negative impact on the availability and accessibility for patients requiring these services,” the report added, proposing conditions that should be met if Becerra’s office were to approve the move.

The two companies initially announced in April 2018 their intent to become a joint operating company. The anticipated deadline from Becerra’s was initially Sept. 30, but that date was pushed back to Oct. 31.

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