Federal Court Dismisses Case Challenging Oregon’s Merger Review Law
On May 16, 2024, a Federal District Court Judge dismissed a case filed in 2022 by the Oregon Association of Hospitals and Health Systems (OAHHS, the trade group representing hospitals in Oregon) against the State of Oregon and the Oregon Health Authority (OHA). The suit challenged the law created by Oregon HB 2362, 2021 legislation that required health care entities that meet minimum thresholds to obtain state approval before any mergers or acquisitions. The new law created the Health Care Market Oversight (HCMO) program, housed within the Oregon Health Authority (OHA), to review business deals involving healthcare entities, including hospitals, insurers, and provider groups. The case filed by OAHHS claimed that the basis for denying or dictating conditions on a proposed transaction was too undefined and vague, violating the Due Process Clause of the Fourteenth Amendment. This included a perceived failure to legislatively establish the standards or criteria that OHA must use to either identify or evaluate healthcare entity transactions The suit also claimed that the law improperly delegates authority to OHA, violating the nondelegation doctrine of the Oregon Constitution, which prevents the legislature from delegating legislative authority to executive agencies. In the 2024 ruling, the Court stated that OAHHS had failed to show that the law creating the program and subsequent rules were so vague that they unfairly deprived affected entities of Constitutional due process rights, and that questions about the law violating the Oregon constitution should be left to Oregon state courts.
The Oregon Law in Question
The 2021 legislation created the Health Care Market Oversight Program, to prevent anticompetitive consolidation in health care and maintain affordability of care. The law, codified at Or. Rev. Stat. §§ 415.500 et seq., requires healthcare entities to provide prior notice and obtain approval from the OHA before a material change transaction, defined in the statute as a merger, acquisition, or affiliation of an entity with an average of $25 million or more in net patient revenue in each of the preceding three fiscal years with an entity with an average of $10 million or more in net patient revenue in each of the preceding three fiscal years. Notably, the new statutory authority provided OHA with the authority to develop and establish the review criteria by adopting rules necessary to carry out the provisions under the statute.
The Oregon healthcare merger and acquisition review law is considered one of the strongest state merger review programs. It applies to all healthcare entities, including hospitals and physician organizations that meet the material change revenue threshold and gives OHA the authority to approve, conditionally approve, or disapprove the transaction based on whether the transaction has the potential to have a negative impact on cost, access, quality, and equity of health care services in Oregon.
This law also made Oregon the first state to give a health care market oversight agency the authority to block or place conditions on any healthcare entity transaction. Oregon's oversight program is significantly different from other state healthcare market oversight programs, such as the Office of Health Care Affordability (OHCA) in California and the Health Policy Commission (HPC) in Massachusetts, which do not have any authority to block or place conditions on transactions. OHCA and the HPC may hold public hearings and publish reports, but they must rely on the attorney general or other state agency to block or condition the transaction under other state or federal laws.
The Claims Against the Oregon Law
The 2022 lawsuit filed by OAHHS claimed that the law "gives OHA the unprecedented authority to approve, deny, and dictate the terms of a broad array of transactions and relationships involving health care entities" in violation of the 14th Amendment and the Oregon Constitution, and "threatens to deter or delay transactions that would benefit Oregon communities... and will add costs to [the] already strained health care system." Specifically, Plaintiffs argue that the law lacks sufficient standards to evaluate transactions, improperly expands the power of OHA, and imposes unnecessary delays that impede access to care.
The primary claim was that the law was unconstitutionally vague, violating the Due Process Clause of the 14th Amendment, giving OHA a blank check to impose costs on Oregon health care providers, without providing sufficient notice concerning how the costs are calculated. The second claim made was that the new law improperly delegates to OHA, an administrative agency, the legislative authority to define on an ad hoc basis most of the operative terms of the law, such as "health equity," “corporate affiliation,” and “essential services.” Plaintiffs argued that the legislature impermissibly gave OHA the power to make law by leaving it to OHA to decide the entities covered by the statute and the type of transactions regulated and allowing the agency to determine the criteria used to approve, deny, or impose conditions on the transactions, which would violate the nondelegation doctrine of the Oregon Constitution, which prevents the legislature from delegating legislative authority to executive agencies to preserve the constitutional separation of powers. The complaint concludes that due to the legislation's lack of meaningful or applicable standards, OHA has unilaterally created its own legislative criteria through rulemaking and sub-regulatory guidance in a vague and arbitrary way. This approach fails to give parties fair notice and risks arbitrary and unfair decision-making.
Basis for the Decision to Dismiss the Case
In May 2024, the Court granted OHA's request for summary judgment by dismissing OAHHS's claim that the law was unconstitutionally vague and declined to exercise jurisdiction over the claim alleging a violation of Oregon’s nondelegation doctrine under the Oregon Constitution.
The Court held that OAHHS did not meet its burden for a facial vagueness challenge to HB 2362, noting that, in general, facial challenges (challenging a law as written and not as applied) are disfavored because they often rest on speculation. The Court added that "a challenger seeking to invalidate a statute for vagueness carries a heavy burden” and that “OAHHS has not shown that the law is unconstitutionally vague.” The ruling also noted that some statutory vagueness is permissible (and even necessary), and that hospitals were free to use the state’s administrative process to resolve ambiguities.
As for the claim that the law violated the Oregon Constitution, the Court decided that the federal Court should decline jurisdiction, and that questions about whether a state law violates the state constitution should be the domain of state courts.
Next Steps
The Federal Judge’s order dismisses the lawsuit to challenge the new Oregon healthcare merger review law. The Hospital Association of Oregon has stated that they are considering whether to appeal this ruling. Given that the Court's dismissal of the Oregon constitution claim was due to the federal Court not wanting to exercise jurisdiction over questions about the Oregon constitution, OAHHS could consider refiling the case in state court.