Health Reform WK-EDGE Charity Care Condition in purchase agreement not preempted merely due to compliance difficulties
Friday, February 15, 2019

Charity Care Condition in purchase agreement not preempted merely due to compliance difficulties

By Jeffrey H. Brochin, J.D.

Healthcare company failed to show how California’s Charity Care Condition served as an obstacle to Congress’s objectives when it enacted the ACA.

A federal district court in California has granted the state’s motion to dismiss a lawsuit filed by a healthcare company which acquired a community hospital but then claimed that it could not fulfill its Charity Care Condition requirements because the Patient Protection and Affordable Care Act (ACA) (P. L. 111-148) reduced the number of uninsured, needy patients. The court rejected the federal preemption arguments as to express preemption, conflict preemption, and field preemption (Deanco Healthcare, LLC v. BecerraFebruary 6, 2019, Wright, O.).

Condition of purchase. In September 2010, California’s Office of the Attorney General (OAG) approved Deanco Healthcare, LLC’s (Deanco) purchase of Mission Community Hospital from a nonprofit organization, on condition that Deanco either provide a minimum amount of charity care to indigent and uninsured individuals or provide financial support to nonprofit organizations in the area that provided such charity care. Deanco subsequently claimed that, as a consequence of the ACA, from 2013 to 2017, the number of uninsured individuals in California dropped from 17.2 percent to 7.2 percent. In turn this decreased the demand for charity care Mission Hospital, which resulted in Deanco’s inability to comply with the terms of the purchase agreement.

Deanco’s request for modification of the threshold for the charity care condition was denied by the OAG. In May 2018, Deanco filed suit seeking to invalidate the Charity Care Condition on the basis that it was preempted by federal law. The state and the OAG moved to dismiss on the basis that they were immune from suit under the Eleventh Amendment.

State and OAG both immune. Deanco did not dispute the fact that the state of California was immune from suit under the Eleventh Amendment, but rather requested that the dismissal be without prejudice. As to the OAG, Deanco argued that it should be stripped of its immunity because it operated independently from the state, and it identified three factors for the court to consider: (1) whether the agency performs "essentially governmental" functions, (2) whether the agency has the right to sue on its own behalf and (3) whether the agency has power to take and hold property in its own name. The court found that Deanco had not met its burden under the cited factors, and accordingly, ruled that the state and the OAG were entitled to immunity under the Eleventh Amendment and they were dismissed from the lawsuit with prejudice.

Three types of preemption. The court noted that there are three classes of preemption: express preemption, conflict preemption, and field preemption. Under the Supremacy Clause, federal law preempts state law when (1) Congress enacts a statute that explicitly preempts state law; (2) state law actually conflicts with federal law; or (3) federal law occupies a legislative field to such an extent that it is reasonable to conclude that Congress left no room for state regulation in that field. Deanco argued that the purchase agreement’s Charity Care Condition was invalid because of: (1) field preemption based on the Emergency Medical Treatment and Active Labor Act (EMTALA), and (2) conflict preemption as to five federal laws.

Partial field preemption. Viewing the complaint in the light most favorable to Deanco, the court construed the EMTALA claim as partially based on field preemption, which occurs when states are precluded from regulating conduct in a field that Congress has reserved for exclusive federal governance. However, Deanco did not identify the field that Congress intended to occupy through EMTALA. Furthermore, EMTALA contains an explicit statement indicating a general congressional intent not to preempt state law. Accordingly, Deanco’s claim for field preemption pursuant to EMTALA was dismissed without leave to amend.

Conflict preemption. Deanco did not allege any facts regarding how the Charity Care Condition made it impossible for them to comply with federal law or how it stood as an obstacle to the purposes and objectives of the ACA, only that the Charity Care Condition made it less lucrative to comply with Medicaid law. Furthermore, they made no claim that the Charity Care Condition hindered Congress’s intent behind Medicaid and Medicaid expansion or that the Charity Care Condition negatively affected Congress’s ability to subsidize medical services to needy individuals.

The state’s motion to dismiss was granted, without leave to amend, because the court considered that amendment would be futile.

The case is No. 2:18-cv-03934-ODW-PJW.

Attorneys: Craig B. Garner (Garner Health Law Corp.) for Deanco Healthcare, LLC d/b/a Mission Community Hospital. Seth E. Goldstein, Office of Attorney General, for Xavier Becerra.

Companies: Deanco Healthcare, LLC d/b/a Mission Community Hospital

MainStory: TopStory CaseDecisions AccessNews AgencyNews CaliforniaNews NewsFeed

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