PORTLAND, Ore. (CN) - A trade group representing Oregon hospitals appeared before the Ninth Circuit on Monday, challenging a state law that requires agency approval for health care mergers and acquisitions as unconstitutionally vague.

"The unique and fundamental flaw in this statute is that it conspicuously avoids setting a comprehensible, normative standard against which the party's conduct and the agency's enforcement authority can be measured," Brad Daniels, attorney with the Portland-based Stoel Rives firm representing the Oregon Association of Hospitals and Health Systems, argued before a three-member panel of the Ninth Circuit Court of Appeals. 

Oregon legislators passed House Bill 2362 in 2021, requiring health care entities that meet specific revenue thresholds to seek approval from the state before proceeding with any mergers or acquisitions. The statute was intended to reduce patient costs and increase access in medically underserved areas.

A trade group representing Oregon hospitals appeared before a three-member Ninth Circuit panel on Monday, challenging a state law that requires agency approval for health care mergers and acquisitions as unconstitutionally vague.

U.S. District Judge Michael Simon, a Barack Obama appointee, ruled in favor of the state, finding that the hospital association failed to show that the statute is "unconstitutionally vague on its face on the asserted grounds that the law fails to provide fair notice or poses a significant risk of arbitrary enforcement."

On appeal, the hospital association renewed its vagueness argument. 

"The standard for vagueness that we think applies here is not that it's vague in the statute requiring someone to adhere to an imprecise, but comprehensible, normative standard, but that there is no standard identified at all," Daniels said. "We think that due process vagueness requires some quantum of specificity at the statutory level."

U.S. Circuit Judge Richard Tallman, a Bill Clinton appointee, questioned how the ambiguity of the statute hadn't been cured through administrative agency regulations, guidance and opportunities to meet with the regulators before any transactions. 

Daniels argued that the legislature can't pass a law that requires a separate agency to then define the law.

"Due process at a minimum fundamental level requires some ascertainable standard by which to measure the agency's enforcement power and to give the party notice," Daniels argued. 

"Believe me, counsel, I'm sympathetic to the crux of your claim here," Tallman remarked, explaining that he understood Daniels might be fielding client questions he can't answer based on the statute. But Tallman also questioned why calling the regulators wasn't a sufficient solution.

"There's nothing in the statute that would even provide the broadest possible standard for us to say that is or is not consistent with what the legislature intended to prohibit here," Daniels responded. 

The state rejected the vagueness argument and clarified that the statute seeks only to ensure that hospital transactions don't undermine equitable access to healthcare.

"The statute here clearly sets forth a standard directing [the Oregon Health Authority] to oversee significant healthcare merger transactions in order to make sure that those transactions are not going to result in a reduction in services to Oregonians," said Jordan Silk, Oregon Department of Justice attorney. "That is an ascertainable legislative standard to give to an agency to then refine the policy through rulemaking."

The state admitted that the statute grants a broad delegation of authority to the Oregon Health Authority, but argued that such delegation is permitted under the law. 

Plus, any order the Oregon Health Authority makes is subject to judicial review in the state courts, and the rules themselves can be challenged under the state's Administrative Procedure Act. 

While the hospital association may disagree with the scope of authority at issue, it didn't establish unconstitutionality warranting federal court intervention, the state argued. 

The panel - which also included U.S. Circuit Judge John Owens, a Barack Obama appointee, and U.S. Circuit Judge Lawrence Van Dyke, a Donald Trump appointee - didn't indicate when it would rule. 

Source: Courthouse News Service