California Attorney General Rob Bonta has approved the merger of Rady Childrens Hospital and Childrens Hospital of Orange County, clearing the way for the pair to operate jointly under the name Rady Childrens Health, an organization that, pulling resources in San Diego and Orange counties together, would span a region home to more than 1.3 million children.
When the two hospitals jointly announced the pact in December, leaders from both organizations said they would maintain their existing governing boards that would operate under the umbrella of a new parent company that pays homage to the hundreds of millions of dollars that Ernest and Evelyn Rady have contributed in San Diego.
For two years after the agreement takes effect, Dr. Patrick Frias, Radys CEO, and Kimberly Chavalas Cripe, CHOCs current president and chief executive, would co-manage Rady Childrens Health. Cripe would then retire after more than three decades with CHOC.
But the merger of these two nonprofit corporations requires approval from the states top lawyer and law enforcement official, and that sign-off comes with 24 conditions whose details and specifications fill a 24-page document released in final form by the AG this week.
Many of those conditions nail down technical details, requiring continued pursuit of matters — such as hospital licensure and Medi-Cal participation — that both organizations could not reasonably change without significant turmoil. But others, such as specifying the minimum amount of charity care that must be provided to the communities that the hospitals serve over the 10 years, appear designed to make sure that the merged organization remains true to the mission of serving all residents in San Diego and Orange counties, not just those with excellent medical coverage.
The joint organization is required to spend at least $147 million in community benefit services per year, with annual increases of that baseline set at 3.55 percent for Rady and 4 percent for CHOCs hospitals in Orange and Mission Viejo. That amount includes a total of $20 million in annual charity care, defined as medical care costs for which the organizations were not reimbursed.
All organizations are required to maintain financial assistance policies that are no less favorable than those currently employed at Rady Childrens for the next 10 years.
Community benefits, which may include spending on a range of activities, such as education, research and in-kind contributions to other charitable organizations, are a cornerstone of federal requirements for nonprofit health care organizations maintaining their tax-exempt statuses.
Long-term investments in both organizations physical plants is also spelled out, including $711 million and $571 million expenditures for new medical towers at CHOC hospitals and $1.6 billion for a new tower and enabling projects, now breaking ground on the northern edge of Radys Serra Mesa campus. An additional $175 million is specified for a new Rady mental health services building.
Bonta also gets quite specific about services, namely those that must continue to be provided at each of the three hospitals involved in the merger.
The agreements softest requirements specify how many beds must continue to exist at each entity. Thats 52 in intensive care, 139 in the intensive care newborn nursery, 249 in general acute care, and 67 in acute psychiatry and skilled nursing at Rady and 388 total at CHOC hospitals. Both organizations also run the neonatal intensive care units at affiliated hospitals, and those locations are also listed, complete with street addresses and existing bed capacities.
The language services that must be made available to patients and their families are also spelled out, specifying a language hotline with financial assistance program documents required to be made available in English, Spanish, Arabic, Vietnamese, Tagalog, Somali, Farsi, Korean and Mandarin.
A list of 36 medical specialties, from allergy and immunology to urology, are also listed as existing services that must be maintained for the next 10 years. Any suspension, relocation or diversion of this core set requires prior attorney general approval.
In a statement provided Thursday, Rady says that the conditions are now under review by leadership and the Boards of Directors of both organizations.
If the conditions are determined acceptable, CHOC and Rady Childrens will begin the process to finalize the merger of its parent companies.
The attorney generals conditional approval document includes the full affiliation agreement between Rady and CHOC attached as an exhibit. Many times longer than Bontas list of conditions, this document contains more than 300 additional pages of detail on the specifics of the merger, noting, for example, that the two organizations medical staffs will remain independent and will continue to operate under their existing bylaws.
Many will wonder what existing hospitals will be called if the merger takes effect. This question is not directly answered; the affiliation agreement calls for the two organizations to jointly develop a health system branding plan that incorporates the organizations new name, Rady Childrens Health, but that also preserves the recognition, affinity and brand value of the legal names of CHOC, CHOC at Mission and (Rady Childrens Hospital San Diego).
The agreement also covers how this merger would end. If all parties agree in writing to unwind the affiliation, they would work together to split assets in a manner intended to permit the parties to operate after termination as standalone enterprises consistent with their respective missions and purposes.