September 26, 2003

Mark Urban
Deputy Attorney General
Office of the Attorney General
1300 I Street
Suite 1101
Sacramento, CA 95814

Tricia Wynne
Special Assistant Attorney General
Office of the Attorney General
1300 I Street
Suite 1101
Sacramento, CA 95814

RE: Proposed Transaction Between Vista Hospital Systems, Inc. and French Hospital Medical Center, Seller and Universal Health Services, Buyer

Dear Deputy Attorney General Urban and Special Assistant Attorney General Wynne,

We appreciate the opportunity to speak at the public hearing in San Luis Obispo on September 15, 2003 regarding the proposed acquisition of Vista Hospital Systems (Vista) by Universal Health Services, Inc. (UHS). At the hearing, many elected officials, medical professionals, community leaders, advocates, and residents expressed their concerns that this transaction will destabilize an already fragile health care system. We strongly recommend that the Attorney General’s investigation of this transaction and the health impact statement include all concerns raised at the public hearing.

I. Attorney General Investigation.

A. Incomplete Transaction Filing.
Vista’s filing of this proposed sale did not contain all of the information mandated by law.(1) We request that all information that was not provided in the filing be obtained by the Attorney General and made public as soon as possible.(2) Namely:

1) the two most recent community needs assessments(3) ; 2) a breakdown of inpatient, outpatient, emergency room charity care spending and the annual number of such visits for the past 5 years(4) ; 3) all services to Medi-Cal patients, county indigent patients and other class of patients and the type of services provided, the payor and the cost of services provided for the past 5 years(5) ; 4) all material effects that this proposed sale may have on the delivery of health care services to the surrounding communities and a statement on how this sale will affect the availability and accessibility of health care in these communities(6); 5) a description of each measure proposed by the applicant to mitigate or eliminate any significant adverse effect on the availability or accessibility of health care services to these communities(7); 6) any board minutes or other documents relating or referring to consideration by the Board of Directors of the applicant involving any of the health facilities that are the subject of the transaction(8); 7) the estimated market value of each health facility.(9)

We urge the Attorney General to find that the application is incomplete and until all of the necessary information is received, the Attorney General is not required to commence the 60 day review period.(10) We also urge the Attorney General to extend the period of review for this transaction by 45 days. The 45 day extension is appropriate because this transaction involves “a multifacility health system serving multiple communities, rather than a single facility.”(11)

B. Additional Information.
The Attorney General is permitted to require the applicant to “provide such additional information as the Attorney General deems reasonably necessary to decide whether to consent to, give conditional consent to or not to consent to a proposed agreement or transaction under Corporations Code sections 5915 and 5921.”(12) As there are significant issues involved in this transaction, it is appropriate for additional information to be obtained from the applicant in order that the Attorney General may conduct a thorough evaluation of this proposed transaction.

1) Property Restrictions. It is imperative that the Attorney General investigates whether there are constraints on the property that prohibit its sale to a for-profit entity. We strongly urge the Attorney General to request all deed documents to the property now and investigate all conditions on the use of the property.

2) Breach of Fiduciary Duty. Given the Attorney General’s authority over all nonprofit organizations it is appropriate to investigate whether actions taken relating to the causes of the accumulation of $230 million in debt amounts to a breach of fiduciary duty and whether actions of the parties has caused the value of the assets to decrease.(13)

3) Antitrust. Tenet Healthcare Corporation (Tenet) is the owner of two nearby hospitals, Sierra Vista Medical Center and Twin Cities Community Hospital. If French Hospital is closed, Tenet will own 81% of the beds in San Luis Obispo County and all of the beds in the city of San Luis Obispo.(14) It is unknown whether Tenet would increase prices on health care if French Hospital closes, but that is an important question to address. We request that Camden review the prices Tenet charges at its hospitals in San Luis Obispo County and compare them to the prices at French Hospital and Arroyo Grande. In addition, the Federal Trade Commission should be contacted to review this transaction for potential detrimental effects on marketplace competition, leaving the potential for increased prices and reduced quality of care in their wake.(15)

II. Health Impact Statement.
The information provided by the public should be integrated into the development and production of the health impact statement so that the Attorney General may adequately evaluate the availability and accessibility of health care services.(16) In particular, the health impact statement produced by the Camden Group (Camden) should, at a minimum, include all pertinent health care resource issues and address the full range of concerns that were presented at the public hearing. In addition, it should include all of the information the Attorney General needs to make an appropriate decision under the law. By means of example, Camden should evaluate:

* All potential effects of the closure of San Luis Obispo General Hospital as that has direct bearing on the health care delivery system.
* All potential effects of the closure of French Hospital and Consolidation with Arroyo Grande, as that has been proposed by UHS.

These issues will be addressed in turn.

A. The Effects of the Closure of San Luis Obispo General Hospital.
Vista’s filing fails to acknowledge that San Luis Obispo recently lost a significant provider of Medi-Cal, CMSP, charity care and outpatient services. The closure of San Luis Obispo General Hospital (General Hospital) and this conversion leaving only for-profit facilities in the county may have far-reaching effects on the access to health care for low-income and uninsured or underinsured residents. As such, it is appropriate to obtain the answers to these questions:

* Where will Medi-Cal patients receive services? * Where will CMSP patients receive services? * Where will people who are uninsured or underinsured receive charity care?

Significant testimony was provided relating to where indigent residents will receive services in San Luis Obispo with the closure of General Hospital and the proposed conversion of the last remaining nonprofit hospitals in the county. Camden should identify the void that has been left by the closure of General Hospital and how this transaction may exacerbate those deficiencies. Camden should investigate the impact on other counties where the county hospital has been closed and the local hospital market had subsequently become predominantly for-profit. Camden should also evaluate the impact of this proposed transaction on all populations that do not speak English as their primary language.

B. The Effects of the Closure of French Hospital or Consolidation with Arroyo Grande Community Hospital.
Vista has provided very limited information about the plan to consolidate or close French Hospital but has asked the Attorney General for approval to do so. Camden should, therefore, identify the health care impact if UHS is permitted to consolidate or close French Hospital in the following areas:

1) Services. Vista’s filing fails to address the question of whether there will be material effects on the delivery of health care services to the communities served by each facility.

a) French Hospital is the only facility in San Luis Obispo providing a number of critical services in the county such as:

(i) Medical care for mental health inpatients with acute illnesses
(ii) Oral surgery for developmentally disabled adults and children
(iii) Trained emergency response to emergencies related to the Diablo Canyon Nuclear Power Plant

b) French Hospital provides necessary capacity in the county, as it currently offers:

(i) Emergency Room services
(ii) Obstetrics/Gynecological unit for deliveries
(iii) Helipad for emergency transport
c) French Hospital provides a significant number of hospital beds including:

(i) Emergency
(ii) Intensive Care
(iii) Pediatric
(iv) Obstetric

d) French Hospital provides a significant amount of Medi-Cal services. In 2002:
(i) More than 1,600 outpatient visits
(ii) More than 900 patient days.

e) French Hospital provides charity care to all patients whose income is
up to 200% of the Federal Poverty Level.

Testimony provided at the public hearing indicated that French was the only facility geared up to handle a nuclear emergency. Camden should investigate how much better prepared French is in comparison to the other facilities in the county. Camden should also ascertain the length of time and the amount of money required to train hospital staff and to prepare other acute health care facilities for a nuclear emergency.

Medical staff at the public hearing provided testimony indicating that twice in the two weeks leading up to the hearing the Sierra Vista Medical Center Obstetrics unit had to close because there were insufficient beds. It would be appropriate for Camden to monitor the number of times Sierra Vista has had to close its door to new patients because of the lack of beds. In addition, Camden should investigate Sierra Vista’s ability to absorb the rise in patient numbers if French were to close.

In addition, emergency room capacity is limited and expansion of such services is not trivial, and can take many months or years to accomplish. Camden should evaluate each of these issues in detail to determine the effect of the closure or consolidation of French Hospital on the health care services available to all San Luis Obispo County residents.

2) Population Growth. Vista’s filing suggests that San Luis Obispo has sufficient beds to handle the population of the county even if French Hospital is closed.

a) San Luis Obispo County is expected to grow significantly in the
future, having been mandated by the state to build more than 18,000 homes which will bring the county more than 70,000 new residents.

b) The county is home to many students attending Cal Poly, with a student population of over 18,000 and Cuesta Community College with a population of more than 8,600.

Testimony provided at the public hearing indicated that there is no surplus of hospital beds and the loss of the 112 available beds at French Hospital, when Arroyo Grande Community Hospital currently has only 65 available beds will be significant. Camden should evaluate the capacity of the health care system to address these short-term and long-term population changes in the event French Hospital is closed. The effect of the population growth on the number of uninsured and Medi-Cal patients should also be addressed. A review of public transportation alternatives for people who do not have a car should be included.

3) Geography. Vista’s filing does not address the challenges posed by San Luis Obispo’s geography.

a) San Luis Obispo County is currently serviced by four hospitals. With the closure or consolidation of Arroyo Grande and French, this would leave the residents of the city of San Luis Obispo with only one hospital, Sierra Vista. The geography to the north of San Luis Obispo bars many elderly, critically injured, chronically ill or homebound patients from accessing the other hospitals in North County.

b) If Sierra Vista cannot accept additional patients, the patient or the visitor of a patient will have to travel up to an additional 30 minutes north to Twin Cities or south to Arroyo Grande.

Testimony provided at the public hearing indicated that the closure of French Hospital may pose great barriers to some members of the population. It may also have an effect on the ability to deliver life-saving treatment if travel times for emergency vehicles are increased substantially as a result of the closure of French Hospital, particularly if Sierra Vista cannot accept more patients. Camden should evaluate these challenges in relation to the provision of health care services.

C. Public Hearing Transcript.
We support the suggestion made at the hearing that the transcript of the September 15th public hearing be attached to the health impact statement to provide the public with the opportunity to make sure the issues raised at the hearing are adequately addressed.

D. Additional Conditions.
We recommend that Camden articulate conditions that could be placed on the transaction to mitigate the negative effects on the availability and accessibility to health care services in San Luis Obispo as a result of this transaction, as was provided in the health impact statement for Daniel Freeman Hospitals.(17) Such recommendations are necessary to assist the Attorney General in fulfilling his legal mandate to ensure the “transaction is in the public interest.”(18)

These recommendations are provided as additions to a complete and thorough health impact statement, reviewing the transaction in full and addressing all pertinent statistical and health services delivery issues.

We encourage you to carefully evaluate this transaction and its potential negative implications on the delivery of health care to the people of San Luis Obispo and surrounding areas. If you have questions, please do not hesitate to contact us.

Sincerely,
Michelle Jun
Staff Attorney
Consumers Union
1535 Mission Street
San Francisco, CA 94103
(415) 431-6747
(415) 431-0906 fax

And on behalf of:
Pam Heatherington and Vita Miller, Directors of San Luis Obispo County General Hospital and Family Care Clinics Charitable Foundation Inc.
PO Box 14105
San Luis Obispo, CA 93406
(805) 528-5926 or
(805) 544-1777

_____

Notes:

(1) See California Corp. Code § 5915-5920, 11 CCR § 999.5.
(2) See 11 CCR § 999.5(d)(5).
(3) Id. at § 999.5(d)(5)(A).
(4) Id. at § 999.5(d)(5)(B).
(5) Id. at § 999.5(d)(5)(C).
(6) Id. at § 999.5(d)(5)(G).
(7) Id. at § 999.5(d)(5)(H).
(8) Id. at § 999.5(d)(11)(A).
(9) Id. at § 999.5(d)(2)(B).
(10) Id. at § 999.5(e)(B).
(11) Id. at § 5915(c).
(12) 11 CCR § 999.5(c)(2).
(13) See California Corp. Code § 5917(d).
(14) See Office of Statewide Health Planning and Development filings.
(15) The Federal Trade Commission recently commented on the proposed sale of Slidell Memorial Hospital in Slidell, Louisiana to Tenet, leaving Tenet as the owner of all of the hospital beds in the town. See Appendix A. The FTC found that the sale could result in increased prices because health insurance companies could not use competition between the two facilities to keep prices down. See id.
(16) California Corp. Code § 5917(h).
(17) The Lewin Group provided additional mitigation measures based on the findings of its research on the effect of the Daniel Freeman Hospitals sale to Tenet Healthcare Corporation. Among the conditions were recommendations relating to maintaining for at least five years: the types and levels of emergency services; a minimum level of charity care based on a ratio of cost to charges; obstetrical services including high-risk prenatal and neonatal intensive care services. See “Effect of Purchase of Daniel Freeman Hospitals by Tenet Healthcare Corporation on the Availability and accessibility of Health Care Services,” November 1, 2001. In addition, the recommendations included providing for: public input in a comprehensive planning process in the event of a service change; the establishment of an urgent care facility in the event that one of the hospitals was closed; and notice to the Attorney General of the intent to terminate participation in Medicare and Medi-Cal programs. See id.
(18) California Corp. Code § 5917(i).

Appendix A (for a copy please contact Michelle Jun at (415) 431-6747.
Federal Trade Commission April 1, 2003 Letter to Louisiana Attorney General Richard Ieyoub on the Acquisition of Slidell Memorial Hospital by Tenet Healthcare Corporation.