California Attorney General Rob Bonta has approved merger of Rady Children’s Hospital and Children’s Hospital of Orange County, paving the way for the pair to work together under the name Rady Children’s Health, an organization that, by pooling resources in San Diego and Orange County, would span a region of more than 1.3 million children.

When the two hospitals jointly announced the pact in decemberleaders from both organizations said they would retain their existing boards of directors, which would operate under the umbrella of a new “parent company” that celebrates the hundreds of millions of dollars that Ernest and Evelyn Rady have contributed to San Diego.

For two years after the agreement went into effect, Dr. Patrick Frias, Rady’s CEO, and Kimberly Chavalas Cripe, CHOC’s current president and CEO, would co-lead Rady Children’s Health. Cripe would then retire after more than three decades with CHOC.

But the merger of these two nonprofits requires approval from the state’s top attorney 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 terms nail down technicalities, requiring continued pursuit of issues — such as hospital licensure and Medi-Cal participation — that neither organization could reasonably change without significant concern. But others, such as specifying the minimum amount of charity care that must be provided to the communities served by the hospitals over the 10-year period, appear designed to ensure that the merged organization stays true to the mission of serving all residents of San Diego and Orange County, not just those with excellent medical coverage.

The joint venture is required to spend at least $147 million in “community benefit services” per year, with annual increases to that baseline set at 3.55 percent for Rady and 4 percent for CHOC’s hospitals in Orange and Mission Viejo. That amount includes a total of $20 million in annual charity care, defined as medical expenses for which the organizations were not reimbursed.

All organizations are required to maintain financial aid policies that are “no less favorable” than those currently employed at Rady Children’s for the next 10 years.

Community benefits, which can include expenses for a range of activities, such as education, research and in-kind contributions to other charities, are a cornerstone of federal requirements for nonprofit health care organizations to maintain their tax-exempt status.

Long-term investments in both organizations’ physical facilities are also listed, including $711 million and $571 million in spending on 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 Rady’s Serra Mesa campus. Another $175 million is specified for a new Rady mental health building.

Bonta also gets quite specific about services, namely those that will continue to be provided at each of the three hospitals involved in the merger.

The agreement’s softest requirements state how many beds must remain in each unit. There are 52 in intensive care, 139 in intensive care for newborns, 249 in general emergency care and 67 in emergency psychiatry and skilled nursing at Rady and a total of 388 at CHOC hospitals. Both organizations also operate the neonatal intensive care units at affiliated hospitals, and these locations are also listed, complete with street addresses and existing bed capacity.

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 that must 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 over the next 10 years. Any “discontinuation, relocation or diversion” of this core set requires prior legal approval.

In a statement Thursday, Rady said the terms are “now being reviewed by the leadership and boards of both organizations.”

“If the terms are deemed acceptable, CHOC and Rady Children’s will begin the process to complete the merger of their parent companies.”

The Attorney General’s conditional approval document includes the full affiliation agreement between Rady and CHOC attached as an exhibit. Many times longer than Bonta’s list of terms, this document contains more than 300 additional pages detailing the details of the merger, noting, for example, that the two organizations’ medical staffs will remain independent and will continue to operate under their existing charters.

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 organization’s new name, Rady Children’s Health, but also “preserves the recognition, affinity and brand value” of “the legal names of CHOC, CHOC at Mission and (Rady Children’s Hospital San Diego).”

The agreement also covers how this merger would end. If all parties agree in writing to “dissolve the merger,” they would work together to divide assets “in a manner intended to permit the parties to operate after termination as independent businesses consistent with their respective missions and purposes.”

Originally published: November 7, 2024 at 11:27 AM PST