Lawmakers, industry plan fresh look at hospital bill

On May 1, a law took effect in New Mexico giving an appointed state executive oversight powers over mergers, acquisitions or any change of ownership of hospitals in the state.

Senate Bill 15, passed by the state Legislature during the 2024 session, temporarily authorizes the state Office of the Superintendent of Insurance to oversee changes in hospitals’ ownership, including mergers. Meanwhile, legislators, the superintendent’s office and healthcare representatives plan to craft a permanent measure for next year’s session.

Proponents of the bill said ownership of hospitals by private equity firms and control by entities anchored outside New Mexico have shifted the institutional focus to profit over patients’ welfare and are associated with declines in available services. However, some worry the oversight could exacerbate the latter problem by making New Mexico a less attractive place to invest and sending patients across the state line for some services.

“We just already have so many competitive disadvantages to other states, in terms of our poverty, in terms of our educational ranking, in terms of our crime,” state Sen. Joseph Cervantes, D-Las Cruces, said in an interview shortly after the law took effect. “We have so many things that make New Mexico unattractive to business and economic development.”

Nonetheless, Cervantes supported SB 15 after the New Mexico Hospital Association shifted its position from opposing the bill to contributing to a changed version. Cervantes, an attorney whose practice includes medical malpractice litigation, said industry participation in drafting the rules for oversight was important but he remained wary of potential government overreach.

“Is it constitutional for the state to pass a law that says the superintendent of insurance can decide whether you can buy or sell your hospital, your asset? I wouldn't think that's constitutional, but it's not my area of expertise,” he said.

For now, the Office of the Superintendent of Insurance – a position appointed by a nine-member nominating committee including four members selected by the governor – has the power to review and approve changes in hospitals’ ownership.

Deputy Superintendent Colin Baillio told the Bulletin in an interview that, two months in, no transactions had yet been submitted to the office.

Concerns about private equity

According to the Private Equity Stakeholder Project’s hospital tracker, 17 of New Mexico’s hospitals, or 38 percent, were owned by private equity firms as of last January. That is the highest proportion of any state.

The tally includes Memorial Medical Center in Las Cruces, southern New Mexico’s largest hospital and part of the LifePoint Health chain owned by Apollo Global Management. The hospital was the recent subject of an NBC News investigative report about cancer patients encountering obstacles to care at Memorial over their health insurance or lack thereof. (Memorial did not participate in NBC’s story, but subsequently told the Las Cruces City Council the story contained “a number of inaccuracies and misinformation.” NBC News told the Bulletin it stands by its reporting.)

Moreover, four of the five hospitals in Las Cruces, as well as Peak Behavioral Health Services in Santa Teresa and Mimbres Memorial Hospital in Deming, are owned by private equity firms.

Why the concern about private equity ownership? The PESP states, “Private equity firms often seek to double or triple their investment over 4-7 years. The pursuit of these outsized return expectations over relatively short time horizons can lead to cost-cutting that hurts care. In addition, use of high levels of debt can divert cash from operations to interest payments and dividends paid out to private equity owners.”

Changes in ownership can raise other questions as well. For instance, the 2023 acquisition of Gerald Champion Regional Medical Center in Alamogordo by Texas-based Christus Health, a Catholic health group, raised questions about continuing reproductive healthcare services in the community.

OSI describes process

Baillio said the process of review would begin with a hospital would request a conference with OSI to determine whether a transaction affecting control of the entity was subject to SB 15. If yes, they would provide written notice that a transaction required OSI’s review and submit documentation including agreements, changes in access to healthcare, availability of essential services and how they affect affordability or quality.

“We will … make sure that there's not going to be a reduction in services or some major increase in costs, unless there’s a really important benefit that's going to going to come out of that,” Baillio said.

When the legislation is revisited in Santa Fe, Baillio said OSI would seek “a more comprehensive approach” that also includes public input, though how that would be gathered and incorporated in the process was not yet clear. For the first year, Baillio said the priority was establishing a means of monitoring hospital transactions, with the inclusion of industry advocates.

“One of the most important tools that we’re going to have is conditionally approving a transaction,” Baillio continued. “If there’s something a hospital says it’s going to do under new management, then we want to make sure that that is something they’re held to.”

Warnings of unintended consequences

The New Mexico Hospital Association opposed SB 15 in its original form, which included a broader range of healthcare organizations, more community review and no sunset date. With changes, the industry advocate supported the version that became law - which includes a one-year sunset clause – and took on a role shaping the future legislation.

However, NMHA CEO Troy Clark said in an interview, “I think we’ve got a bigger problem to look at.”

Access to health services throughout the state, in both urban and rural areas, remains a significant challenge for New Mexico, he said, leading to waits of months to a year for some specialist appointments and even for some primary care and hospital services. Unlike some other states, Clark said even New Mexico’s urban hospitals are running over capacity and can’t take on patients from overloaded rural areas.

“We have an access problem across the board,” Clark said. “We’re the fifth largest geographic state and we have 37 acute care hospitals in our state. We only have four communities that have more than hospital in their community. We lose access to any one of those hospitals, we’re going to have a really big crisis in that community.”

Mergers and acquisitions, he pointed out, are often seen by smaller providers as a path to sustaining services over the long term, controlling costs and helping to keep up with complex rules and regulations covering everything from medical practices, maintenance of facilities and date, all the way down to billing procedures.

During the year that SB 15 is in effect in its present form, Clark pledged to work on a new bill that would provide the insights and data the state sought with respect to hospital ownership and measures of quality, without making the environment prohibitive for investment or depressing access further.

“We don’t want to have to take on step back,” he said. “We need to be taking 10 steps forward, 100 steps forward. I think that’s the (industry) perspective: Trying to protect against anything else that would be a deterrent from improving the access to care.”