Oregon’s Powerful Healthcare Merger Review Law Survives Legal Challenge
On July 3, 2025, a three-judge panel of the 9th U.S. Circuit Court of Appeals upheld an Oregon state law that allows the state to review, approve or deny proposed health care mergers, affirming a lower court ruling from May of last year.
History of the Case
The Oregon Association of Hospitals and Health Systems (OAHHS - a trade association representing Oregon hospitals and health systems) originally filed suit in Federal District Court October 2022 challenging the constitutionality of an Oregon law enacted in 2021, that required health care entities meeting minimum thresholds to obtain state approval before concluding 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 Oregon healthcare merger and acquisition review law is considered one of the strongest state merger review programs, and 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.
As we reported in June 2024 when the lower court ruled, the case filed by OAHHS claimed that the basis for denying or dictating conditions on a proposed transaction was too undefined and vague and therefore violated the Due Process Clause of the Fourteenth Amendment. This alleged violation 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.
The Lower Court Ruling
In May 2024, the Federal District Court for the District of Oregon granted OHA's request for summary judgment and dismissed OAHHS's claim that the law was unconstitutionally vague. The Court declined to exercise jurisdiction over the claim alleging a violation of Oregon’s nondelegation doctrine under the Oregon Constitution. 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 Court held that OAHHS did not meet its burden for a facial vagueness challenge to the Oregon law, 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.
The Appeals Court Ruling
The Appeals Court stated that since the District Court declined to exercise supplemental jurisdiction over the state nondelegation claim, the Appeals Court would not examine that claim on appeal. Instead, the appeals court focused on the claim that the law was unconstitutionally vague.
Legal concerns with vague statutory language often focus on the potential of arbitrary and ad hoc enforcement. The Appellate Court noted that letting OHA define key terms administratively (rather than defining them in statute) does not trigger “the arbitrary and ad hoc enforcement with which the void-for-vagueness doctrine is concerned.” The Court added that laws regulating purely economic activity are “subject to a less strict vagueness test” since “the regulated enterprise may have the ability to clarify the meaning of the regulation by its own inquiry, or by resort to an administrative process.” In affirming the lower court’s ruling, the Appellate Court also noted that “OHA’s administrative process is comprehensive and transparent, as it provides opportunities for pre-submission clarifications, submissions of proposed transactions, preliminary and comprehensive reviews of those transactions, public comment periods for OHA’s proposed decisions, periods for review of those comments before issuing a public order, and challenges to OHA’s final orders in Oregon state court by administrative appeal” thereby showing that “enforcement of the review criteria does not enable the arbitrary and ad hoc enforcement with which the void-for-vagueness doctrine is concerned.”
Next Steps
The Oregon Hospital Association has stated that it will not appeal this ruling, which would appear to end this challenge for now. Others could potentially file suit, or there could be a challenge on different grounds in the future, but for the moment, Oregon’s law appears to have survived unscathed.