California v. Sutter Health System
| Decision Date | 29 January 2001 |
| Docket Number | No. C99-03803 MMC.,C99-03803 MMC. |
| Citation | 130 F.Supp.2d 1109 |
| Parties | State of CALIFORNIA, Plaintiff, v. SUTTER HEALTH SYSTEM, Alta Bates Medical Center, and Summit Medical Center, Defendants. |
| Court | U.S. District Court — Northern District of California |
Before the Court is the motion of plaintiff State of California for preliminary injunction to enjoin the merger of defendant Alta Bates Medical Center ("Alta Bates"), owned by defendant Sutter Health System ("Sutter"), and defendant Summit Medical Center ("Summit"). The matter came on regularly for hearing on October 25, 26, 27, and November 1, 1999. Appearing for plaintiff State of California were Bill Lockyer, Attorney General of the State of California; John Donhoff, Jr., Deputy Attorney General; Pamela Cole, Special Deputy Attorney General and Charles M. McGay, Special Deputy Attorney General. Appearing for defendants Sutter and Alta Bates were George T. Manning, Robert C. Jones, Adrian Wager-Zito and Toby G. Singer, of Jones, Day, Reavis & Rogue. Appearing for defendant Summit was Maureen McGuirl of Crosby, Heafey, Roach & May. The matter was deemed submitted as of November 10, 1999, upon receipt of final post-hearing filings.1
Having considered the papers filed in support of and in opposition to the motion as well as the evidence and arguments of counsel presented at the hearing, the Court hereby issues the following findings of fact and conclusions of law and rules as follows:
I. BACKGROUND
Defendants Summit and Alta Bates are hospitals located respectively in the cities of Oakland and Berkeley in Alameda County. Alameda County is located in what is commonly referred to as the East Bay, which in turn is part of the San Francisco Bay Area.
The East Bay includes the population centers located along the eastern side of the San Francisco Bay. The San Francisco Bay separates this population from Marin, San Mateo, and San Francisco counties, located to the west of the East Bay. Transportation across the San Francisco Bay in an east-west direction is confined to four bridges, one of which is the San Francisco-Oakland Bay Bridge (the "Bay Bridge"). The other bridges are located either to the north or south of San Francisco and Oakland. The Oakland and Berkeley hills separate the main population of the East Bay from the inland communities of the East Bay such as Walnut Creek and Concord in Contra Costa County. In the immediate Oakland/Berkeley area, transportation across the Oakland and Berkeley hills to these inland cities is limited to the Caldecott Tunnel. The East Bay is separated by the Carquinez Strait from Solano County to the north.
A wide variety of hospitals exist in the San Francisco Bay Area, and range from general acute care hospitals such as John Muir Medical Center ("John Muir") in Walnut Creek, which offers a full range of primary, secondary, and tertiary care,2 to specialized hospitals such as Children's Hospital in Oakland, which offers only pediatric services. The size and capacity of the hospitals in the Bay Area also vary widely, from Alameda Hospital, located on Alameda Island, which maintains 135 licensed beds, to Laguna Honda Hospital & Rehabilitation Center in San Francisco, which maintains 1,457 licensed beds.
At least twenty hospitals, including defendants Summit and Alta Bates, are located in the East Bay. (Defs.' Ex. 1001, Economic Report of Margaret E. Guerin-Calvert (Defendant's Expert) ¶¶ 26, 42 & Tab I.) Alta Bates, the second largest hospital in the East Bay with over 500 licensed beds, is a comprehensive community hospital that enjoys a reputation for quality health care services. Alta Bates is a general acute care hospital that offers a wide range of primary, secondary, and tertiary services, and is the sole provider of high-risk obstetrical services in Alameda County. (PX1082, Langenfeld Report, Ex. 2.)
Sutter, a nonprofit corporation based in Sacramento, California, currently operates twenty-six hospitals in Northern California, and is the largest operator of general acute care hospitals in Northern California. Sutter entered the San Francisco and East Bay health care market through its acquisition of California Healthcare System in 1996 and currently operates six hospitals in the San Francisco Bay Area, including Eden Medical Center ("Eden") in Castro Valley, with over 250 licensed beds, and Alta Bates in Berkeley. (PX1082, Langenfeld Report, Ex. 4, 57.)
Summit, also a nonprofit corporation, was formed in 1992 by the merger of two Oakland hospitals, Providence Hospital and Merritt Peralta Medical Center. Summit is comprised of five separately incorporated entities: Summit Hospital (the "Hospital"); Health Ventures, Inc., which owns Summit Health Clinic, an out-patient clinic; Adolescent Treatment Centers, Inc., a substance abuse program; Samuel Merritt College, a nursing college; and Summit Medical Center Foundation (the "Foundation"), a charitable foundation.
Summit Hospital is a general acute care hospital in an inner-city neighborhood of Oakland, located approximately three miles from Alta Bates. Summit also offers a wide range of inpatient and outpatient services and is currently the third largest hospital in the East Bay with over 500 licensed beds. (PX1082, Langenfeld Report, Ex. 57.) Summit tends to charge lower rates than Alta Bates, and its patient mix includes a large percentage of Medicare and Medi-Cal (the California equivalent of Medicare) patients. (PX1082, Langenfeld Report, Ex. 2.)
The largest hospital in the East Bay is Alameda County Medical Center ("ACMC"). Located in the Berkeley/Oakland area, ACMC maintains over 600 licensed beds and primarily provides medical services to indigent and low-income residents of Alameda County. ACMC offers most primary and secondary services plus some, but not all, tertiary services. (PX1082, Langenfeld Report, Ex. 2; PX15, Decl. of Michael Smart (CEO, ACMC) ¶¶ 2-6, 8.)
Also located in Oakland is Kaiser Hospital-Oakland ("Kaiser-Oakland"), operated by the Kaiser Foundation Health Plan ("Kaiser"). Kaiser-Oakland maintains 394 licensed beds and offers a full range of acute inpatient services comparable to those offered at Alta Bates and Summit. Kaiser-Oakland has been scheduled to close due to the expense of seismic upgrades required under the Alquist Hospital Safety Act of 1983 (the "Alquist Act"). Cal. Health & Safety Code § 130000 et seq. (Deering 1997). (PX20, FTC Transcript of Jerry Fleming (Senior VP, Kaiser Permanente), May 4, 1999, at 56:15-19.) In connection with the scheduled closing, Kaiser has contracted to send its patients to other hospitals under what has been termed the "Alameda Alliance". Kaiser has been sending patients for inpatient obstetrical services, mainly childbirth, to Alta Bates. Kaiser has also executed contracts with Summit for adult non-obstetrical medical/surgical services, and with Children's Hospital for pediatric services. (PX20, Fleming Tr. at 46:9-25.) In April 1999, Kaiser requested a "standstill" agreement to defer implementation of its contracts with Summit, as discussed below. Kaiser also operates two other hospitals in the East Bay: Kaiser-Richmond with 50 licensed beds, and Kaiser-Hayward with 244 licensed beds.
Approximately thirty miles to the south of Alta Bates and Summit at the outer edge of the East Bay lies Washington Township Hospital ("Washington Township") in Fremont, which maintains 308 licensed beds and offers services comparable to Alta Bates and Summit. Washington Township recently opened a new building with expanded cardiac and pulmonary services, and is located in an area with a growing population. (Def.'s Ex. 995, Dep. of Kimberly Hartz at 81-87.)
Eight hospitals are located on the Contra Costa County side of the Caldecott Tunnel, east of Summit and Alta Bates, and within the general East Bay area. (Def.'s Ex. 916.) John Muir in Walnut Creek, for example, maintains 327 licensed beds and is a sophisticated regional medical center that offers, as noted above, a full range of primary, secondary, and tertiary care similar to the services offered at Summit and Alta Bates. (Def.'s Ex. 119 at BLUECR0000025; PX1082 Langenfeld Report, Ex. 3.) John Muir has a stated strategy of expanding "outside of [its] core service area," and has recently received approval for an 833,000 square foot addition to its facilities. (PX57, John Muir/Mt. Diablo Strategic Plan 1998-2001, Nov. 11, 1997, at JMMDH5005283; Def.'s Ex. 1029, City Approves John Muir Master Plan, Walnut Creek Journal, Jan. 22, 1998 at 1.). In 1997, John Muir merged with Mount Diablo Medical Center ("Mount Diablo"), located in Concord, also through the Caldecott Tunnel, which currently maintains 254 licensed beds. Mount Diablo offers a variety of acute inpatient services and its areas of distinction include cardiac care, oncology services, and obstetrics. (PX1082, Langenfeld Report, Ex. 3.)
At least nine hospitals are located in San Francisco, across the Bay Bridge from Summit and Alta Bates. (Def.'s Ex. 916.) Many of these hospitals, such as the University of California San Francisco/ Mount Zion Medical Center, offer a wide variety of high quality health care services at least comparable to those offered at Alta Bates and Summit.
The Bay Area is characterized by strong, sophisticated health care plans. Managed care organizations ("MCOs") in the East Bay cover nearly 60% of the population, one of the highest levels in the country. (Def.'s Ex. 1013, Expert Report of Michael Pugh ¶ 44; Def.'s Ex. 997, Dep. of Warren Foon at 56; Def.'s Ex. 982, Dep. of Richard Scheffler at 67-68.) Managed care, which has increasingly taken the place of traditional indemnity-based insurance, can be defined as a system in which the...
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