Connecticut Seal

Substitute House Bill No. 6464

Public Act No. 03-73

AN ACT CONCERNING THE SALE OF NONPROFIT HOSPITALS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 19a-486 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

For purposes of sections 19a-486 to 19a-486h, inclusive:

(1) "Nonprofit hospital" means a nonprofit entity licensed as a hospital pursuant to this chapter and any entity affiliated with such a hospital through governance or membership, including, but not limited to, a holding company or subsidiary.

(2) "Purchaser" means a person acquiring any assets of a nonprofit hospital through a transfer.

(3) "Person" means any individual, firm, partnership, corporation, limited liability company, association or other entity.

(4) "Transfer" means to sell, transfer, lease, exchange, option, convey, give or otherwise dispose of or transfer control over, including, but not limited to, transfer by way of merger or joint venture not in the ordinary course of business.

(5) "Control" has the meaning assigned to it in section 36b-41.

(6) "Commissioner" means the Commissioner of Health Care Access.

Sec. 2. Section 19a-486a of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) No nonprofit hospital shall enter into an agreement to transfer a material amount of its assets or operations or a change in control of operations to a person that is organized or operated for profit without first having [notified and, if applicable,] received approval of the agreement by the [Commissioner of Health Care Access] commissioner and the Attorney General pursuant to sections 19a-486 to 19a-486h, inclusive, as amended by this act, and [his] pursuant to the Attorney General's authority under section 3-125. Any such agreement without the approval required by sections 19a-486 to 19a-486h, inclusive, as amended by this act, shall be void.

(b) Prior to any transaction described in subsection (a) of this section, the nonprofit hospital and the purchaser shall [give notice] concurrently submit a letter of intent to the commissioner and the Attorney General by serving it on them by certified mail, return receipt requested, or delivering it by hand to each office. Such [notice] letter of intent shall contain: (1) The name and address of the nonprofit hospital; (2) the name and address of the purchaser; (3) a brief description of the terms of the proposed agreement; [(4) copies of all contracts, agreements and memoranda of understanding relating to the proposed agreement; and (5) a fairness evaluation by an independent person who is an expert in such agreements, that includes an analysis of each of the criteria set forth in section 19a-486c] and (4) the estimated capital expenditure, cost or value associated with the proposed agreement. The [notice] letter of intent shall be subject to disclosure pursuant to section 1-210.

[(c) Not later than ten days after receipt of a notice under this section, the commissioner shall publish a summary of such agreement in a newspaper of general circulation where the nonprofit hospital is located.

(d) Any person may seek to intervene in the proceedings under sections 19a-486 to 19a-486h, inclusive, pursuant to section 4-177a. ]

(c) The commissioner and the Attorney General shall review the letter of intent. The Attorney General shall determine whether the agreement requires approval pursuant to this chapter. If such approval is required, the commissioner and the Attorney General shall transmit to the purchaser and the nonprofit hospital an application form for approval pursuant to this chapter, unless the commissioner refuses to accept a filed or submitted letter of intent as provided in section 19a-639e. Such application form shall require the following information: (1) The name and address of the nonprofit hospital; (2) the name and address of the purchaser; (3) a description of the terms of the proposed agreement; (4) copies of all contracts, agreements and memoranda of understanding relating to the proposed agreement; (5) a fairness evaluation by an independent person who is an expert in such agreements, that includes an analysis of each of the criteria set forth in section 19a-486c, as amended by this act; (6) documentation that the nonprofit hospital exercised the due diligence required by subdivision (2) of subsection (a) of section 19a-486c, as amended by this act, including disclosure of the terms of any other offers to transfer assets or operations or change control of operations received by the nonprofit hospital and the reason for rejection of such offers; and (7) such other information as the commissioner or the Attorney General deem necessary to their review pursuant to the provisions of sections 19a-486 to 19a-486f, inclusive, as amended by this act, and sections 19a-637 to 19a-639, inclusive. The application shall be subject to disclosure pursuant to section 1-210.

(d) No later than sixty days after the date of mailing of the application form, the nonprofit hospital and the purchaser shall concurrently file an application with the commissioner and the Attorney General containing all the required information. The commissioner and the Attorney General shall review the application and determine whether the application is complete. The commissioner and the Attorney General shall, no later than twenty days after the date of their receipt of the application, provide written notice to the nonprofit hospital and the purchaser of any deficiencies in the application. Such application shall not be deemed complete until such deficiencies are corrected.

(e) No later than twenty-five days after the date of their receipt of the completed application under this section, the commissioner and the Attorney General shall jointly publish a summary of such agreement in a newspaper of general circulation where the nonprofit hospital is located.

(f) Any person may seek to intervene in the proceedings under section 19a-486e, as amended by this act, in the same manner as provided in section 4-177a.

Sec. 3. Section 19a-486b of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

[(a) Not later than twenty days after receipt of a notice of a proposed agreement under section 19a-486a, the Attorney General shall determine whether the agreement involves a material amount of the assets or operations or a change in control of operations of the nonprofit hospital and shall notify the Commissioner of Health Care Access of such determination. If he determines that the agreement involves a change in control of operations or the amount of assets or operations involved is material, then he shall conduct a review of the proposed agreement.

(b) Not later than one hundred twenty days after receipt of the notice required by section 19a-486a, the Attorney General shall review the agreement and shall approve the agreement, with or without modifications, or disapprove the agreement. The one hundred twenty days may be extended by agreement of the Attorney General, the nonprofit hospital and the purchaser. If the Attorney General initiates a proceeding pursuant to section 19a-486c to enforce a subpoena, the one hundred twenty days shall be tolled until the final court decision on the enforcement proceeding, including any appeal or time for the filing of such appeal. Unless extended pursuant to this subsection, failure to take action on an agreement within one hundred twenty days shall be deemed approval. ]

Not later than one hundred twenty days after the date of receipt of the completed application pursuant to subsection (d) of section 19a-486a, as amended by this act, the Attorney General and the commissioner shall approve the application, with or without modification, or deny the application. The commissioner shall also determine, in accordance with the provisions of chapter 368z, whether to approve, with or without modification, or deny the application for a certificate of need that is part of the completed application. Notwithstanding the provisions of sections 19a-638 and 19a-639, the commissioner shall complete the decision on the application for a certificate of need within the same time period as the completed application. Such one-hundred-twenty day period may be extended by agreement of the Attorney General, the commissioner, the nonprofit hospital and the purchaser. If the Attorney General initiates a proceeding to enforce a subpoena pursuant to section 19a-486c or 19a-486d, as amended by this act, the one-hundred-twenty-day period shall be tolled until the final court decision on the last pending enforcement proceeding, including any appeal or time for the filing of such appeal. Unless the one-hundred-twenty-day period is extended pursuant to this section, if the commissioner and Attorney General fail to take action on an agreement prior to the one hundred twenty-first day after the date of the filing of the completed application, the application shall be deemed approved.

Sec. 4. Section 19a-486c of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) The Attorney General shall [disapprove a proposed agreement requiring notice under section 19a-486a] deny an application as not in the public interest if the Attorney General determines that one or more of the following conditions exist: (1) The transaction is prohibited by Connecticut statutory or common law governing nonprofit entities, trusts or charities; (2) the nonprofit hospital failed to exercise due diligence in (A) deciding to transfer, (B) selecting the purchaser, (C) obtaining a fairness evaluation from an independent person expert in such agreements, or (D) negotiating the terms and conditions of the transfer; (3) the nonprofit hospital failed to disclose any conflict of interest, including, but not limited to, conflicts of interest pertaining to board members, officers, key employees and experts of the hospital, the purchaser or any other party to the transaction; (4) the nonprofit hospital will not receive fair market value for its assets, which, for purposes of this subsection, means the most likely price that the assets would bring in a sale in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably and in their own best interest, and with a reasonable time being allowed for exposure in the open market; (5) the fair market value of the assets has been manipulated by any person in a manner that causes the value of the assets to decrease; (6) the financing of the transaction by the nonprofit hospital will place the nonprofit hospital's assets at an unreasonable risk; (7) any management contract contemplated under the transaction is not for reasonable fair value; (8) a sum equal to the fair market value of the nonprofit hospital's assets (A) is not being transferred to one or more persons to be selected by the superior court for the judicial district where the nonprofit hospital is located who are not affiliated through corporate structure, governance or membership with either the nonprofit hospital or the purchaser, and (B) is not being used for one of the following purposes: (i) For appropriate charitable health care purposes consistent with the nonprofit hospital's original purpose, (ii) for the support and promotion of health care generally in the affected community, or (iii) with respect to any assets held by the nonprofit hospital that are subject to a use restriction imposed by a donor, for a purpose consistent with the intent of said donor; or (9) the nonprofit hospital or the purchaser has failed to provide the Attorney General with information and data sufficient to evaluate the proposed agreement adequately, provided the Attorney General has notified the nonprofit hospital or the purchaser of the inadequacy of the information or data and has provided a reasonable opportunity to remedy such inadequacy.

(b) The Attorney General may, during the course of a review required by section 19a-486b: (1) Issue in writing and cause to be served upon any person, by subpoena, a demand that such person appear before [him] the Attorney General and give testimony or produce documents as to any matters relevant to the scope of the review; or (2) issue written interrogatories, to be answered under oath, as to any matters relevant to the scope of the review and prescribing a return date that would allow a reasonable time to respond. If any person fails to comply with the provisions of this subsection, the Attorney General may apply to the superior court for the judicial district of Hartford seeking enforcement of the subpoena. The [Superior Court] superior court may, upon notice to such person, issue and cause to be served an order requiring compliance. Service of subpoenas ad testificandum, subpoenas duces tecum, notices of deposition and written interrogatories as provided in this subsection may be made by personal service at the usual place of abode or by certified mail, return receipt requested, addressed to the person to be served at [his] such person's principal place of business within or without this state or [his] such person's residence.

(c) The Attorney General may contract with experts or consultants to assist in reviewing the proposed agreement, including, but not limited to, assistance in independently determining the fair market value of the nonprofit hospital's assets. The Attorney General may appoint, or contract with, another person to conduct the review required by this section and make recommendations to the Attorney General. The Attorney General shall submit any bills for such contracts to the purchaser. The purchaser shall pay such bills within thirty days of receipt. Such bills shall not exceed [one hundred fifty] three hundred thousand dollars.

Sec. 5. Section 19a-486d of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

[(a) If the Attorney General determines, pursuant to section 19a-486b, that the proposed agreement involves a material amount of the assets or operations or a change in control of operations of the nonprofit hospital, then not later than one hundred twenty days after receipt of a notice of a proposed agreement under section 19a-486a, the Commissioner of Health Care Access shall review the agreement and shall approve the agreement, with or without modifications, or disapprove the agreement. The one-hundred-twenty-day period may be extended by agreement of the commissioner, the nonprofit hospital and the purchaser. If the Attorney General, on behalf of the commissioner, initiates a proceeding pursuant to subsection (c) of this section to enforce a subpoena, the one-hundred-twenty-day period shall be tolled until the final court decision on the proceeding, including any appeal or any time for filing such appeal. Unless extended pursuant to this subsection, failure to take action on an agreement within one hundred twenty days shall be deemed approval.

(b) The commissioner shall not approve the agreement unless he finds that: (1) The affected community will be assured of continued access to affordable health care; (2) the purchaser has made a commitment to provide health care to the uninsured and the underinsured; and (3) safeguard procedures are in place to avoid a conflict of interest in patient referral if health care providers or insurers will be offered the opportunity to invest or own an interest in the purchaser or an entity related to the purchaser. ]

(a) The commissioner shall deny an application filed pursuant to subsection (d) of section 19a-486a, as amended by this act, unless the commissioner finds that: (1) The affected community will be assured of continued access to affordable health care; (2) the purchaser has made a commitment to provide health care to the uninsured and the underinsured; (3) in a situation where health care providers or insurers will be offered the opportunity to invest or own an interest in the purchaser or an entity related to the purchaser safeguard procedures are in place to avoid a conflict of interest in patient referral; and (4) certificate of need authorization is justified in accordance with sections 19a-637 to 19a-639, inclusive. The commissioner may contract with any person, including, but not limited to, financial or actuarial experts or consultants, or legal experts with the approval of the Attorney General, to assist in reviewing the completed application. The commissioner shall submit any bills for such contracts to the purchaser. Such bills shall not exceed one hundred fifty thousand dollars. The purchaser shall pay such bills no later than thirty days after the date of receipt of such bills.

[(c)] (b) The commissioner may, during the course of a review required by this section: (1) Issue in writing and cause to be served upon any person, by subpoena, a demand that such person appear before [him] the commissioner and give testimony or produce documents as to any matters relevant to the scope of the review; and (2) issue written interrogatories, to be answered under oath, as to any matters relevant to the scope of the review and prescribing a return date that would allow a reasonable time to respond. If any person fails to comply with the provisions of this subsection, the commissioner, through the Attorney General, may apply to the superior court for the judicial district of Hartford seeking enforcement of such subpoena. The Superior Court may, upon notice to such person, issue and cause to be served an order requiring compliance. Service of subpoenas ad testificandum, subpoenas duces tecum, notices of deposition and written interrogatories as provided in this subsection may be made by personal service at the usual place of abode or by certified mail, return receipt requested, addressed to the person to be served at [his] such person's principal place of business within or without this state or [his] such person's residence.

Sec. 6. Section 19a-486e of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

Prior to making any decision to approve, [or disapprove a proposed agreement requiring notice under section 19a-486a] with or without modification, or deny any application filed pursuant to subsection (d) of section 19a-486a, as amended by this act, the Attorney General and the [Commissioner of Health Care Access] commissioner shall jointly conduct one or more public hearings, one of which shall be in the primary service area of the nonprofit hospital. At least [ten] fourteen days before conducting the public hearing, the Attorney General and the commissioner shall provide notice of the time and place of the hearing through publication in one or more newspapers of general circulation in the affected community.

Sec. 7. Section 19a-486f of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

[If the Commissioner of Health Care Access or the Attorney General disapproves a proposed agreement requiring notice under section 19a-486a, or approves it with modifications, the nonprofit hospital or the purchaser may appeal such decision pursuant to chapter 54. ]

If the commissioner or the Attorney General denies an application filed pursuant to subsection (d) of section 19a-486a, as amended by this act, or approves it with modification, the nonprofit hospital or the purchaser may appeal such decision in the same manner as provided in section 4-183, provided that nothing in sections 19a-486 to 19a-486f, inclusive, as amended by this act, shall be construed to apply the provisions of chapter 54 to the proceedings of the Attorney General.

Approved June 3, 2003