Providence Merger Notes

Sent via email to: [email protected] January 8, 2016 Attorney General Ellen F. Rosenblum Oregon Department of Justice Attention: Kate Denison 1515 SW Fifth Avenue, Suite 410 Portland, Oregon 97201 Re: St. Joseph and Providence Request for a Waiver from the Attorney General Standard Review Process Dear Attorney General Ellen F. Rosenblum, The undersigned organizations appreciate this opportunity to comment on the request by St. Joseph Health (St. Joseph) and Providence Health and Services (Providence) (collectively, the Parties) for a waiver from the Attorney General’s standard process for reviewing merger transactions. We urge the Attorney General to reject the waiver request made by the Parties and to proceed with the standard review process laid out in Or. Rev. Stat. § 65.800 et seq. In

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particular, we highlight the need for an independent health care impact statement to fully assess the current level of reproductive, end-of-life, and other health services available in the hospitals involved. Additionally, given the population covered by these hospitals, it is important that this transaction have adequate public input from all affected communities. The Proposed Transaction is Subject to Or. Rev. Stat. § 65.800 et seq In their waiver request, the Parties assert that “the literal wording of the statute does not cover the proposed transaction,” and that the “intent of the statute is fulfilled without the notice requirement.” This narrow reading of the statute leads to its misapplication. While it is true that no transfer of assets occurs as a result of this proposed transaction, the Attorney General’s review process is critical to determining that the public will not be harmed as a result of the transaction. The intent of the statute is to not only ensure fair and reasonable terms for the non-profit hospital, but also to make certain that the transaction will not diminish availability or accessibility of health care services, and that the transaction is in the public interest.1 Prior to the proposed transaction, Providence was already the sixth largest nonprofit hospital system in the U.S.2 This transaction will result in a very large health care system, covering six states. It also involves the creation of a new parent corporation which will control overall mission, vision, strategic, financial, and operational direction for the Parties. Even absent the transfer of assets, significant changes in health care delivery are likely to occur, and it behooves the Attorney General to undertake the full review process to ensure that this transaction preserves existing health care services and benefits the public interest. Need for an Independent Health Care Impact Statement While the statute does not specifically require one, the Attorney General should prepare an independent health care impact statement which, among other things, specifically assesses the effect of the transaction on reproductive health services. Or. Rev. Stat. §§ 65.811(7-8) require the Attorney General to deny transactions if they are not in the public interest, or if the proposed transaction “significantly diminishes” the availability of health care services. Preparing an independent health care impact statement is in the spirit of the statute as it allows a full review of the health care services currently offered at the Parties’ hospitals. Gathering this baseline information will allow the Attorney General to make certain the proposed transaction is in the public interest by not hampering the availability of health care services. St. Joseph and Providence are both Catholic health systems. Catholic hospitals must typically follow the Ethical and Religious Directives (ERDs) promulgated by the United

1 Or. Rev. Stat. §§ 65.811(7-8). 2 Erin Marshall, 10 Largest Nonprofit Hospital Systems: 2015, BECKER’S HOSPITAL REVIEW (Dec. 23, 2015, 11:48 AM), http://www.beckershospitalreview.com/lists/10-largest-nonprofit-hospital-systems-2015.html

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States Conference of Catholic Bishops. The ERDs forbid all reproductive health services, including all birth control methods, sterilization, miscarriage management, abortion, the least invasive treatments for ectopic pregnancies, and some infertility treatments. The ERDs provide no exceptions for risks to a patient’s health or even life. In addition, the ERDs limit medical end-of-life decision making of patients by specifically subjecting advanced directives, surrogate decision-making, and withdrawal of life sustaining procedures to Catholic moral principles. Every patient who enters a hospital, clinic, doctor’s office, or any other medical setting expects that she or he will receive treatment information and services that meet the standard of care. Yet, the restrictions the ERDs place on Catholic hospitals are severe limitations that violate basic evidence-based standards of care – accepted medical practice and as adopted by the major professional medical associations. The restrictions prevent willing providers from providing the standard of care to their patients. For example, even when a pregnant woman is miscarrying, treatment options to protect the woman’s health are limited if the non-viable fetus has a heartbeat. See, for example, the research of Drs. Lori Freedman and Deborah Stulberg documenting practices that endanger the lives of pregnant women, and the ways in which Catholic hospital requirements prohibit physicians from practicing medicine in accordance with their training.3 Further, the Parties assert that this proposed transaction will “provide a platform for clinical integration and the sharing of ‘best practices.”4 Given the Parties’ Catholic affiliation and the requirement they follow the ERDs, a full review is necessary to ensure that true “best practices” are employed and that the Parties adhere to the basic, evidence-based standards of care. We know that some St. Joseph and Providence hospitals are non-Catholic, and do currently provide some reproductive health services. Swedish Medical Center is a secular group of hospitals in Washington that affiliated with Providence in 2012. Even after their affiliation, the Swedish hospitals continue to provide birth control services such as tubal ligations and vasectomies. Their written policy also allows for terminations of pregnancy “[w]hen necessary, on an emergency basis.”5 They also continue to allow physicians to prescribe medication pursuant to state death with dignity statutes, but are barred from allowing patients to self-administer such medication on premises. We also know that there are some reproductive health services being provided even among the St. Joseph and Providence Catholic hospitals. For example Providence Portland Medical Center provides postpartum tubal ligations on a case by case basis,

3 Lori Freedman et. al., When there’s a heartbeat: miscarriage management in Catholic-owned hospitals, Am J Public Health (Oct. 2008), Deborah Stulberg et. al., Tubal ligation in Catholic hospitals: a qualitative study of ob–gyns' experiences, Contraception (May 2014). 4 Letter from Robert Schuchard, Attorney, Davis, Wright, Tremaine LLP to Ellen F. Rosenblum, Attorney General, State of Oregon (Nov. 30, 2015). 5 Swedish News, FAQ: Swedish Reproductive and End-of-Life Care, April 9, 2014, http://www.swedish.org/about/swedish-news-blog/2014/04/faq-swedish-reproductive-and-end-of-life-care

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based on medical necessity,6 while other St. Joseph and Providence Hospitals do not provide tubal ligations under any circumstances. Outside of Oregon, Alaska Women’s Health, Providence Campus, is affiliated with Providence Alaska Medical Center, and provides infertility care and family planning, including emergency contraception, vasectomies, tubal ligations, and various types of birth control.7 As is evident from the above examples, the fact that St. Joseph and Providence are both Catholic health institutions is not dispositive as to the provision of reproductive health services within their hospitals. Here, we simply do not have a complete understanding of the health services being provided at each of the Oregon hospitals involved in this transaction. The Attorney General is charged with protecting the public interest, and one aspect of this duty is ensuring that health services currently being provided are not diminished or eliminated as a result of this transaction. Yet before the Attorney General can adequately guarantee that reproductive health services not be diminished or eliminated as a result of this transaction, we first need an independent assessment of precisely what those reproductive health services are. While we acknowledge that the Parties state in their request for a waiver that “there will be no impact from the transaction on the service offerings in the Oregon communities and populations served by the 8 hospitals owned and operated by Providence,” such a guarantee means little in the absence of a baseline to establish what current reproductive health services are actually available. An independent health care impact statement would provide the Attorney General with an up to date evaluation of the reproductive health services currently being provided at each of the hospitals involved in this transaction. This in turn would help ensure that any decision made about the proposed transaction take into full account the protection and maintenance of critical reproductive health services in each of the hospitals involved. Public Meetings and Community Input Or. Rev. Stat. 65.807(1) requires that the Attorney General conduct a public hearing on the proposed transaction. The purpose of the public meeting is to receive input and comments from the immediate community to be directly affected. This critical step in the review process should not be waived. This proposed transaction involves eight hospitals across Oregon, and a total of almost 50 hospitals across six states. The sheer reach of the two health entities involved is massive and thus has a potential impact on health services for a significant population.

6 Conversation with physicians who previously worked at Providence Portland Medical Center. Medical necessity is determined by the treating physician, who submits a letter to the nuns, who either approve or deny the request. 7 Alaska Women’s Health, PC, Family Planning/Birth Control Services, http://www.akwomenshealth.com/family-planning-and-contraceptive-counseling.html

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Paramount in the Attorney General’s considerations of whether to deny a waiver is impact to the public and affected community, including that the proposed transaction is “in the public interest,” as per the requirements of Or. Rev. Stat. 65.811(8). Public testimony, input, and comment, is vital to ensuring that the Attorney General can make a fully informed decision about this transaction in a way that best protects the availability of health services and the public interest. Given the number of hospitals involved, granting a waiver would simply not allow all the affected communities adequate input to voice their health care services needs and any concerns about the transaction. Thank you for considering these comments. If you have any questions or need further information, please contact Susan Berke Fogel at [email protected] or 310-736-1658, or Amy Chen at [email protected] or 310-736-1782. Sincerely, Susan Berke Fogel Director, Reproductive Health, National Health Law Program ACLU of Oregon Asian Pacific American Network of Oregon Catholics for Choice Compassion & Choices Lambda Legal Defense and Education Fund Legal Voice Lois Uttley Director MergerWatch Michele Stranger Hunt Executive Director NARAL Pro Choice Oregon Northwest Health Law Advocates Physicians for Reproductive Health Pride Foundation Western States Center

January 8, 2016

VIA E-MAIL AND FIRST CLASS MAIL

Attorney General Ellen Rosenblum Oregon Department of Justice Attn: Kate Denison 1515 SE 5th Ave, #410 Portland, OR 97201 Re: Denial of the request for written waiver concerning proposed merger of Providence Health & Services and St. Joseph Health System

Dear Attorney General Rosenblum:

I am writing to you on behalf of the Service Employees International Union, Local 49 in Oregon to articulate our concerns surrounding the proposed merger of Providence Health & Services (Providence) and St. Joseph Health System (St. Joseph), both non-profit Catholic hospital systems. SEIU Local 49 is an over 12,000 member union, representing healthcare and property service workers. When combined with our sister SEIU local in Oregon, SEIU is the largest union in the state representing over 65,000 public and private sector workers throughout Oregon and Southwest Washington. Not only do we represent many hospital and healthcare workers in the state, SEIU is also a major purchaser of health benefits.

We believe that a full review of the proposed transaction is necessary, in accordance with ORS 65.807. The resulting entity from this merger will continue to be charitable, but we believe that there are exceptional facts here that warrant Attorney General review. We request your consideration of the following concerns and urge you to deny the requested waiver. Providence plays a large role in Oregon; therefore any changes are significant to Oregonians.

Foundational to our concerns is the significant role that Providence plays in the Oregon health system market. Due to its size and market dominance we believe that any change to the governance or operation of Providence Health System, even at high levels, could potentially have significant impact on health care in Oregon.

Providence is a major provider of health care: Providence Health & Services-Oregon owns and operates more hospitals than any other organization in the state. They are the major healthcare provider in Oregon- serving 19% of all discharges across the state and managing nearly 20% of available, acute-care hospital beds. 1 Additionally, Providence operates a substantial network of clinic services and is expanding their integrated network within Oregon.

1 Oregon Health Authority, Office for Oregon Health Policy and Research, Databank (count of discharges, available beds, 2014.)

Providence is a major insurer: In addition to operating hospitals across the state, Providence offers a state-wide insurance plan. While some health systems are taking steps to integrate and grow, Providence has few competitors that can match Providence’s size and geographic breadth in our state. In 2014 Providence insured over 300,000 people in the state, or over 12% of the covered lives in Oregon.2 Providence is a major employer: With Providence offering so many services in Oregon, it has grown into a major employer and economic driver. Twenty-five years ago Providence employed just over 4,000 people. Today, Providence employs over 15,000 people in Oregon and is the second largest employer in the state.3

Providence is a major healthcare provider, insurer and employer in the state of Oregon and as such the proposed merger with St. Joseph warrants careful consideration. Accordingly, it is crucial to ensure that the Attorney General has been provided with adequate information to evaluate the transaction, that the transaction will not diminish availability or accessibility of healthcare services, and that the proposed transaction is the in the public interest.

I. Concern over insufficient disclosure by Providence

The letter submitted by Providence to the Attorney General dated November 30, 2015 includes disclosure that:

The authority of the Newco Board will be subject to certain reserved powers of a new “Co-Sponsors Council,” a joint council to be created by Providence Ministries and St. Joseph Health Ministry and to which each will vest certain rights and authority with respect to the government and operation of its health system.

The rights of the Co-Sponsors Council are set forth in Exhibit 2.2(a), one of the exhibits excluded and classified by Providence as containing confidential trade secrets. As such, the applicant did not include the exhibit in the initial submission to the Attorney General dated November 30, 2015. If certain governance and operational rights are retained by the new “Co-Sponsors Council” then those rights must be fully disclosed and reviewed.

II. Concern over access to services due to cost and religious order directives

As a merged hospital system, we are concerned that market concentration and reduced healthcare services due to religious restrictions may create barriers to access. We urge your Office to investigate the access presented by the merged system, especially as it becomes a market dominator.

2 Oregon Department of Consumer and Business Affairs, Quarterly Health Enrollment, 2015, Q3. 3 “Oregon’s Biggest Employers are Getting a Lot Bigger - 25 Year Pattern” Go Local PDX July 8, 2015. http://www.golocalpdx.com/business/oregons-biggest-employers-are-getting-a-lot-bigger-25-year-pattern

Consolidation can lead to higher prices, reducing affordability The accessibility of health care in the United States is a function not only of capacity, but increasingly of cost. Health care that is not affordable is not, for any practical purpose, accessible. We have serious concerns that the proposed merger will result in higher costs for Oregon patients. Mapping the combined portfolios of Providence and St. Joseph Health Systems shows a constellation of hospitals, belonging to a single system, dotting the entire Western seaboard of the United States. The applicant stated that through the Providence and St. Joseph merger, “they will gain the geographic presence required to adapt to today’s evolving healthcare landscape.” While the hospital footprint will not change in Oregon, the negotiating power of the combined entity is likely to increase across the West. Yet it is unclear how the benefits of such power and any achieved efficiencies will be distributed.

There have been numerous academic studies linking hospital consolidation to increased prices.4 The latest report, released in December 2015, found that hospital prices are positively associated with indicators of hospital market power.5 The paper’s lead author Zack Cooper, an assistant professor of economics and health policy at Yale University, stated that “the reason why health insurance for the privately insured is expensive is because the prices from hospitals with a lot of market power are higher.”6

Not only are we unsure where the benefits of the consolidation will be reaped, we are concerned that St. Joseph’s higher prices could creep into Oregon hospital operations. Providence’s hospitals in Oregon are generally on par with other hospitals in the state, both in terms of Cost to Charge Ratios and Medicare Spending per Beneficiary. However, St. Joseph hospitals consistently have lower Cost to Charge Ratios than Providence hospitals in Oregon, possibly indicating higher prices.7 While Oregon hospitals operated by Providence have a Medicare Spending per Beneficiary (MSPB) that averages ten points below the national average, St. Joseph hospitals average only two points below the national average.8,9 These combined statistics lead us to be concerned about the operational efficiency and prices of the combined system and its impact on Oregon hospitals. (Please see table on following page.)

4 Gaynor, Martin Ph.D. and Robert Town, Ph.D., “The Impact of Hospital Consolidation- Update” Robert Wood Johnson Foundation, Research Synthesis Report No. 9, June 2012. http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2012/rwjf73261 5 Cooper, Zack, Stuart Craig, Martin Gaynor and John Van Reenen, “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured” National Bureau of Economic Research, Working Paper No. 21815, December 2015. http://www.healthcarepricingproject.org/sites/default/files/pricing_variation_manuscript_0.pdf 6 Quealy, Kevin and Margot Sanger-Katz, “The Experts Were Wrong About the Best Places for Better and Cheaper Health Care” New York Times, December 15, 2015. http://www.nytimes.com/interactive/2015/12/15/upshot/the-best-places-for-better-cheaper-health-care-arent-what-experts-thought.html 7 Data used to calculate Cost to Charge Ratios comes from Medicare Cost Reports. Analysis was limited to short-term general acute care hospitals and critical access hospitals. Further methodology available upon request. 8 Medicare Spending per Beneficiary as reported by the Centers for Medicaid and Medicare Services. Reporting period January 1, 2014 through December 31, 2014. https://www.medicare.gov/HospitalCompare/data/efficiency-domain.html 9 According to CMS, the Medicare Spending per Beneficiary is a measure of efficiency based on an assessment of payment for services provided to a beneficiary during a spending-per-beneficiary episode that spans from 3 days prior to an inpatient hospital admission through 30 days after discharge. The payments included in the measure are standardized and adjusted so that variation in geographic costs are removed, as well as variation in patient health status.

Hospital Cost to Charge Ratio

Medicare Spending per Beneficiary

displayed in ratio - national average: 0.984 St Joseph Hospitals, California Average: 0.962 Santa Rosa Memorial Hospital 16% 0.950 Queen of the Valley Medical Center 18% 0.911 Petaluma Valley Hospital 19% 0.918 Saint Joseph Health Saint Mary 19% 0.979 Saint Joseph Hospital Eureka 21% 0.917 Saint Jude Medical Center 21% 1.042 Mission Hospital Mission Viejo 21% 0.953 Saint Joseph Hospital Orange 23% 1.011 Hoag Orthopedic Institute 24% 0.949 Hoag Hospital Newport Beach 30% 0.993 Providence Hospitals, Oregon Average: 0.881 Providence Medford Medical Center 32% 0.892 Providence Milwaukie Hospital 37% 0.902 Providence Saint Vincent Medical Center 39% 0.917 Providence Portland Medical Center 39% 0.916 Providence Newberg Medical Center 40% 0.816 Providence Willamette Falls Medical Center 40% 0.843 Providence Seaside Hospital 54% n/a

As Oregon sees an increased number of hospital mergers and transactions, we believe that the Attorney General should help ensure that purported efficiencies result in actual benefits accruing to the public and Oregonians broadly. To help protect healthcare services in Oregon, the Attorney General should consider, after a full review of the transaction, a condition that would bar Providence from unreasonably raising prices for services at Oregon hospitals. For example, the Attorney General could require Providence to enter into an agreement committing to raise prices at a rate no greater than the increase in the hospital operating market basket or input price index, which is a forecast used by the Centers for Medicaid and Medicare Services in the federal Department of Human Services to adjust rates in the prospective payment system used by the Medicare program.10 We also urge you to consider how excess earnings generated by hospitals in Oregon could be dedicated to benefitting Oregon patients and communities, rather than being sent out-of-state and used to pursue further expansion of a consolidated heath system.

Restrictions on women’s health, reproductive health, LGBT health, and end of life care The entity resulting from the merger will control a significant portion of the healthcare market in Western states and patients may have a difficult time accessing certain lines of care including women’s health services such as tubal ligations, reproductive health services, LGBT health services, and end of life care services due to the merged entity’s adherence to Catholic doctrine. We therefore urge that the Attorney General, after completing a full review, consider a conditional approval where the merged system donates 10 Information regarding the Market Basket data can be found here: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketData.html

significant funds to Planned Parenthood or an equivalent health care provider to supplement the services not provided within the combined system.

To illustrate our concern we look to Providence’s take-over of Swedish Medical in Seattle. Swedish claimed to remain a secular facility following their affiliation with Providence, yet medical terminations of pregnancies, once performed at Swedish facilities, were no longer allowed. Swedish patients with high-risk or non-viable pregnancies found their medical options severely limited when Swedish, under Providence’s direction, began adhering to Catholic doctrine.11 A recent partnership between Providence and Walgreens further highlights our fear that this merger could lead to restrictions on certain services. By early 2016, six Walgreens location will house clinics operated by Providence in Washington and Oregon, with an expansion plan of opening nineteen additional clinics in Walgreen stores over the next two years.12 This expansion has sparked criticism from activist groups over the partnership, as Providence has a well-established reputation for impeding access to reproductive and end of life services.

The American Civil Liberties Union, joined by nineteen groups including Planned Parenthood and NARAL, is raising concerns that the Providence-affiliated Walgreens clinics will follow Catholic ethical guidelines and potentially impact access to contraception, abortion drugs, and prescriptions to help terminally ill patients end their own lives. The groups are worried that the Walgreens-Providence clinics will follow in the footsteps of Swedish Medical Center in restricting access to vital health services eschewed by religious parent-company Providence. Several gay rights organizations have voiced further opposition to the new business model because complying with religious doctrine will inevitably result in unfair treatment of the LGBT community and prevent transgender patients from receiving hormone therapy prescriptions at these clinics. 13,14

III. Review Required To Ensure Transaction Is In The Public Interest

As previously stated, the combined portfolios of Providence and St. Joseph Health System will result in a massive, consolidated market force spanning from California to Alaska. While perhaps this merger could possibly see some gains in efficiency, Oregon should put in place assurances that our health centers and patients will share in the benefits.

11 Ostrom, Carol “Under pressure on abortion, Swedish backs new Planned Parenthood clinic” Seattle Times, October 14, 2011. http://www.seattletimes.com/seattle-news/under-pressure-on-abortion-swedish-backs-new-planned-parenthood-clinic / 12 “Walgreens and Providence form clinical collaboration” Providence press release, http://www2.providence.org/phs/news/Pages/walgreens-collaboration.aspx 13 “Should Catholic hospital run Walgreens clinics? ACLU has concerns” Oregonian (Associated Press) December 14, 2015. http://www.oregonlive.com/pacific-northwest-news/index.ssf/2015/12/should_catholic_hospital_run_w.html 14 “Groups concerned about Walgreens' ties to Catholic hospital” Chicago Tribune, December 14, 2015. http://www.chicagotribune.com/business/ct-walgreens-aclu-providence-health-20151214-story.html

Workers’ rights, compliant pension plans Providence employees allege that Providence has underfunded their pension by up to $819 million and evaded federal pension law by improperly classifying its employees’ pension under a Church Plan.15 This lawsuit raises a question about how the merged employees’ pensions will be classified. To address this concern we urge the Attorney General to require the merged pension funds be ERISA compliant, including those plans that sit outside of Oregon. Such a condition would help avoid unfair competition. For example, major market competitors such as Kaiser, Legacy, and OHSU don’t use this questionable exemption and therefore derive no unfair benefit. Without this condition, the risk to the marketplace is significant.

Protecting and building for the future in Oregon’s healthcare industry The transaction between Providence and St. Joseph is not the only healthcare consolidation occurring within the state. We are concerned that the impact of the whole may become greater than the sum of the parts. While a difficult task, we believe the Attorney General’s office is empowered to review and defend against adverse impacts from these changes.

Considering the points above, we urge you to deny the request for a waiver and complete a full review of the proposed transaction. Only through a full review can Oregonians be assured that conditions protecting the public interest are met. Specifically, we want to make sure that the Attorney General has been provided with sufficient information, that access to health care services will not be diminished, and that the transaction is in the public interest.

Thank you for your consideration.

Sincerely,

Meg Niemi President, SEIU Local 49

15 Zak, Annie, “Providence workers file lawsuit alleging health system uses religious tax exemption to skirt pension law” Seattle Business Journal, December 3, 2014. http://www.bizjournals.com/seattle/blog/health-care-inc/2014/12/providence-workers-file-lawsuit-alleging-health.html Kutscher, Beth “Providence expects more revenue after costly improvements” Modern Healthcare, June 14, 2014. http://www.modernhealthcare.com/article/20140614/MAGAZINE/306149764