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Restrictions making it “impossible” for construction of new Kaiser hospital in Victorville

VICTORVILLE, Calif. ( ) — Providence and Kaiser Permanente officials said they are planning the next steps after conditions set forth by the Attorney General’s Office hinder the planned partnership to build a new hospital in the Victor Valley.

Kaiser Permanente released the following statement:

“After a thorough study of conditions set forth by the state Attorney General’s office, Providence and Kaiser Permanente are disappointed the restrictions fundamentally alter the structure of their partnership and make it impossible to move forward with planned construction of a new hospital to serve the High Desert. We have shared our concerns with the Attorney General’s office and remain hopeful that we can find a path forward.”

According to the news release the partnership was intended to achieve benefits for all involved: 

  • The underserved High Desert community would have access to a new, world-class medical facility, providing significantly more access to higher quality health care. 
  • Kaiser Permanente members would have access to a high-quality hospital much closer to home. 
  • The new hospital would be a replacement hospital for an aging Providence St. Mary Medical Center, which will not meet 2030 state-mandated seismic requirements. 

“We are disappointed the Attorney General’s office has made our vision difficult to pursue under the current restrictions, which put at risk the future operation,” said Kevin P. Manemann, chief executive, Providence Southern California. “We are strongly committed to the High Desert community and are currently evaluating next steps.” 

Both organizations have determined the changes mandated by the Office of Attorney General, many of which are unprecedented, limit the ability of Providence and Kaiser Permanente to effectuate their partnership. The changes mandated by the Office of the Attorney General would hinder the hospital’s operations by, for example, imposing many open-ended, uncertain future obligations and would also place the hospital at a distinct disadvantage compared to other hospitals. 

“We remain dedicated to ensuring our members have access to great hospital care in the High Desert,” said Julie Miller-Phipps, president, Kaiser Permanente Southern California and Hawaii Health Plan and Hospitals. “We have jointly reached out to the Attorney General’s office to explain that the conditions placed on this hospital partnership would make it impossible to go forward, and we are now considering next steps.” 

In June, the two organizations announced plans to create a joint venture to rebuild Providence St. Mary Medical Center in Victorville, approximately 10 miles from its existing site in Apple Valley. Providence, faced with very costly seismic upgrades and modernization at Providence St. Mary, sought a partner to build a technologically advanced hospital. Kaiser Permanente, with 100,000 members in the High Desert communities, agreed, seeking convenience for patients who now drive some 40 miles to the nearest Kaiser Permanente acute care hospital. 

Providence and Kaiser Permanente remain committed to the High Desert community and are evaluating next steps on a path forward to serve the community, together. 

According to a press release dated December 21, 2021, California Attorney General Rob Bonta conditionally approved a change in control of St. Mary Medical Center. The approval will allow Kaiser and SMMC to form a new company, St. Mary Medical Center, LLC. SMMC will own 70% while Kaiser will own 30% and have substantial joint control of the company’s operations.

MMC and Kaiser would construct a new hospital in Victorville that will add 47 new beds, increasing SMMC’s capacity from 213 beds to 260 beds. 

An investigation by the California Department of Justice’s Healthcare Rights and Access (HRA) Section as well as expert analysis determined that while the increased capacity would be a benefit to the community, the change in control could also have a negative impact on healthcare market competition and access to services in the High Desert region.

According to Attorney General Bonta, the approval seek to improve healthcare access and maintain healthy competition. 

“When we review transactions between corporations and hospitals, our duty is to the people of California,” said Attorney General Bonta. “The addition of a new hospital in the High Desert will be a benefit to the community, and with the conditions we’ve imposed, individuals and families who rely on public programs like Medi-Cal will have uninterrupted local access to affordable, essential care.”

Under California law, any transaction involving the sale or transfer of control of a nonprofit hospital must secure the approval of the Attorney General. The statutory charge of the California Attorney General is to determine whether the transaction is in the public interest and whether the transaction may impact the accessibility and availability of healthcare services (Corporations Code section 5914 et seq., and California Code of Regulations, title 11, section 999.5).

While evaluating the proposed transaction between Kaiser and SMMC, the Attorney General’s Office received hundreds of comments from members of the High Desert community regarding the impact the change of control could have on their ability to access healthcare at SMMC.

Taking the public’s concerns into account, HRA conducted a thorough investigation that revealed that SMMC’s affiliation with Kaiser could lead to a preference for beds for Kaiser’s patients, which might cause Medi-Cal patients to lose access to acute care, emergency, maternity, pediatric, and cardiology services. Additionally, Kaiser’s dominance as a health insurer and SMMC’s as a main provider of hospital services in the area could lead to anticompetitive effects in the region’s healthcare market.

To address these issues, Attorney General Bonta’s approval imposes multiple competitive and health impact conditions, including: 

Competitive impact conditions

  • Caps on price increases for current SMMC contracts, including absolute price caps for managed Medi-Cal, and managed Medicare contracts, to ensure their rates do not rise significantly above those of Kaiser;
  • A reduction in profit sharing between SMMC and Kaiser, and a reduction in the discount Kaiser receives for its reimbursement rates at SMMC to balance competitive harms to non-Kaiser payors and incentives for SMMC and Kaiser; 
  • Terms that require SMMC and Kaiser to continue to run as independent entities, and prohibit sharing of non-public competitively sensitive information; and
  • A monitor to ensure compliance with these conditions.

Health impact conditions

  • Continued participation in Medi-Cal and Medicare;
  • Prohibition on discrimination on the basis of protected personal characteristics;
  • Within one year, Kaiser will prepare a plan to ensure full and equal access to healthcare for all Kaiser patients in the High Desert region;
  • A comprehensive study of the feasibility of opening a trauma center at the new hospital will be completed within three years;
  • A comprehensive plan for reusing the existing hospital site and facilities as either a freestanding emergency department, a freestanding mental health facility, or sale of the hospital to a new general acute care hospital operator will be completed within five years; and
  • For the next five years, $750,000 will be allocated annually to the St. Joseph Health Community Partnership Fund to support low income and underserved populations in SMMC’s and the new Victorville hospital’s primary and secondary service areas. 

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Related Article: New Victorville hospital will replace St. Mary Medical Center in Apple Valley

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