Connecticut Seal

General Assembly

 

Substitute Bill No. 460

    February Session, 2014

 

*_____SB00460PH____032514____*

AN ACT CONCERNING HOSPITAL CONVERSIONS AND OTHER MATTERS AFFECTING HOSPITALS.

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

Section 1. (NEW) (Effective from passage) (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, except as provided in subsection (b) of this section.

(b) The provisions of this section shall not apply to (1) a for-profit hospital that was operating in the state as such on May 12, 2004, or (2) any agreement for which an application has been filed with the Commissioner of Public Health and the Attorney General pursuant to section 19a-486a of the general statutes, as amended by this act, prior to October 1, 2014.

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 Section 19a-486 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

For purposes of sections 19a-486 to 19a-486h, inclusive, as amended by this act, and sections 1 and 9 to 13, inclusive, of this act:

(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 Public Health or the commissioner's designee.

(7) "Department" means the Department of Public Health.

(8) "Affected community" means a municipality where the hospital is physically located or a municipality whose inhabitants are regularly served by the hospital.

(9) "Community benefit" means the provision of hospital services that meet the ongoing needs of the community for primary and emergency care in a manner that enables members of the community to maintain a relationship with a family member or other person who is hospitalized or receiving hospital services and includes, but is not limited to, uncompensated care.

(10) "Conversion" means any transfer by a person or persons of the assets or operation of a hospital to another person, that results in (A) a change in the ownership, control or possession of not less than twenty per cent of (i) the voting rights or interests in a nonprofit hospital, or (ii) the assets of a nonprofit hospital; (B) a person previously unaffiliated with a nonprofit hospital possessing not less than ten per cent of (i) the voting rights or interests in a nonprofit hospital, or (ii) the assets of the nonprofit hospital; or (C) the removal, addition or substitution of a person holding an ownership or membership interest in a nonprofit hospital that results in a previously unaffiliated person gaining or acquiring a controlling interest or controlling vote in a nonprofit hospital.

(11) "Transacting party" means a person that is a party to a proposed agreement for a conversion who submits an application to the commissioner and the Attorney General pursuant to section 19a-486a, as amended by this act, or section 10 of this act.

(12) "New hospital" means a hospital as it exists after the approval of an agreement pursuant to section 19a-486b, as amended by this act, or section 10 of this act and the completion of a conversion.

(13) "Uncompensated care" has the same meaning as in section 19a-659.

Sec. 3. Section 19a-486a of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(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: (1) Unless an application was filed with the Attorney General and the commissioner in accordance with the provisions of this section prior to October 1, 2014; and (2) without first having received approval of the agreement by the commissioner and the Attorney General pursuant to sections 19a-486 to 19a-486h, inclusive, as amended by this act, and pursuant to the Attorney General's authority under section 3-125. On and after October 1, 2014, 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 another nonprofit hospital without first having received approval of the agreement by the commissioner and the Attorney General pursuant to sections 19a-486 to 19a-486h, inclusive, as amended by this act, and sections 9 to 13, inclusive, of this act. Any such agreement without the approval required by sections 19a-486 to 19a-486h, inclusive, as amended by this act, or sections 9 to 13, inclusive, of this act shall be void.

(b) Prior to any transaction described in subsection (a) of this section, the [nonprofit hospital and the purchaser] transacting parties shall concurrently submit a certificate of need determination letter as described in subsection (c) of section 19a-638 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 department or office. The certificate of need determination letter shall contain: (1) The name and address of the nonprofit hospital that is proposed to be acquired; (2) the name and address of the purchaser; (3) a brief description of the terms of the proposed agreement; and (4) the estimated capital expenditure, cost or value associated with the proposed agreement. The certificate of need determination letter shall be subject to disclosure pursuant to section 1-210.

(c) The commissioner and the Attorney General shall review the certificate of need determination letter. 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] transacting parties an application form for approval pursuant to this chapter or sections 9 to 13, inclusive, of this act, unless the commissioner refuses to accept a filed or submitted certificate of need determination letter.

[Such] (d) Except as provided in section 10 of this act, such application form shall require the following information, as applicable: (1) The name, [and] address and telephone number of the nonprofit hospital that is proposed to be acquired; (2) the name, [and] address and telephone number 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 that is proposed to be acquired 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] such nonprofit hospital and the reason for rejection of such offers; [and] (7) the name, address, telephone number, occupation and tenure of each officer, member of the board of directors, trustee, executive and senior manager during the five-year period prior to the submission of the certificate of need determination letter; (8) a list of all committees, subcommittees, task forces or similar entities of the board of directors or trustees, including a short description of the purpose of each committee, subcommittee, task force or similar entity and the name, address, telephone number, occupation and tenure of each member; (9) the agenda and minutes for each meeting of the board of directors or trustees and any of its committees, subcommittees, task forces or similar entities related to the conversion, excluding those focused on peer review or concerning confidential medical matters, that occurred in the five-year period prior to the submission of the certificate of need determination letter and, upon the request of the Attorney General or the commissioner, any documents distributed at such meeting; (10) the articles of incorporation and certificates of incorporation; (11) the bylaws and organizational charts; (12) a description of the organizational structure for existing transacting parties and each partner, affiliate, parent subsidiary or related corporate entity in which the purchaser has a ten per cent or greater ownership interest; (13) any current conflict of interest statement, policies or procedures; (14) the names, addresses and telephone numbers of professional consultants engaged in connection with the proposed conversion; (15) copies of audited income statements, balance sheets, other financial statements and management letters issued during the five years prior to submission of the certificate of need determination letter and, to the extent they have been made public, audited interim financial statements and income statements with a detailed description of the financing structure of the proposed conversion including equity contribution, debt restructuring, stock issuance, partnership interest, stock offerings and other information of a similar nature; (16) a detailed description of real estate issues including title reports for property owned and lease agreements between the transacting parties and any entity owned or controlled by the purchaser and any proposed sale or proposed leaseback that concerns the proposed conversion; (17) a detailed description of any proposed transaction concerning any equipment lease, insurance, regulatory compliance, tax status, pending litigation or pending regulatory citations, pension plan descriptions and employee benefits, environmental reports, assessments and organizational goals; (18) a copy of any report analyzing the proposed conversion during the five-year period prior to submission of the certificate of need determination letter, including, but not limited to, reports by appraisers, accountants, investment bankers, actuaries and other experts; (19) a copy of any opinion or memorandum addressing the state and federal tax consequences of the proposed conversion prepared for a transacting party by an attorney, accountant or other expert; (20) a description of the manner in which the price was determined including the methods of valuation and the data that was used, and the names and addresses of any person who prepared such documents; (21) patient statistics for the five-year period prior to the submission of the certificate of need determination letter and patient projection for one year after the submission of the certificate of need determination letter, including the number of patient visits, admissions, emergency room visits, clinical visits and visits to each hospital unit and admissions to in-hospital nursing care or visits by affiliated home health care entities; (22) the name and mailing address of each facility licensed in accordance with chapter 368v in which a transacting party maintains an ownership interest or controlling interest or operating authority; (23) a list and description of any (A) pending or adjudicated citation, violation or charge against a transacting party or any facility under the ownership or control of a transacting party, or (B) any pending or adjudicated investigation involving a transacting party that was brought by a governmental agency or accrediting agency in the five-year period prior to submission of the certificate of need determination letter and the status or disposition of each investigation; (24) a list of costs for uncompensated care provided by each facility owned or controlled by a transacting party in the five-year period prior to the submission of the certificate of need determination letter and a detailed description of the manner in which the amount was calculated; (25) copies of all documents relating to: (A) Identification of charitable assets; (B) accounting of all charitable assets for the five-year period prior to the submission of the certificate of need determination letter; and (C) the distribution of charitable assets, including, but not limited to, endowments and restricted, unrestricted and specific purpose funds as each relates to the proposed transaction; (26) a description of uncompensated care provided by the existing hospital for the five-year period prior to submission of the certificate of need determination letter including a dollar amount and a description of services provided to patients; (27) a description of bad debt incurred by the transacting party that is being purchased for the five-year period prior to the submission of the certificate of need determination letter for which payment was anticipated but not received; (28) a description of the plan for the new hospital's provision of community benefit and uncompensated care during the first five years of operation; (29) a description of the new hospital's plan to monitor and value uncompensated care and community benefits; (30) the names of persons currently holding a position with a transacting party as an officer, director, board member or senior manager, whether or not such person is expected to maintain a position with the new hospital and whether or not such person is expected to receive any salary, severance stock offering or any financial gain, current or deferred, as a result of, or in relation to, the proposed conversion; (31) copies of capital and operating budgets or other financial projections for the new hospital during the first five years of operation; (32) copies of plans relating to staffing during the new hospital's first five years of operation; (33) a list of medical services, hospital units and clinical and administrative services to be maintained at the new hospital; (34) a description of criteria established by the board of directors of the nonprofit hospital that is proposed to be acquired to pursue a proposed conversion; (35) copies of reports of any due diligence review performed by a transacting party in relation to the proposed conversion; (36) a description of any request for proposal issued by the nonprofit hospital that is proposed to be acquired relating to pursuit of any proposed conversion; (37) a copy of any report analyzing an affiliation, merger or other similar transaction considered by a transacting party during the five-year period prior to the submission of the certificate of need determination letter, including, but not limited to, any such report prepared by an appraiser, accountant, investment banker, actuary or other expert; (38) a copy of a proposed contract or description of a proposed contract or arrangement with a senior manager, board member, officer or director of the existing hospital for severance consulting services or covenant not-to-compete after completion of the proposed conversion; (39) a copy or description of any agreement or proposed agreement reflecting any current or future employment or compensated relationship between the purchaser, or any related entity, and any officer, director, board member or senior manager of the nonprofit hospital that is proposed to be acquired, or any related entity; (40) a copy or description of any agreement that has been executed or that the transacting parties anticipate shall be executed by any of the transacting parties in connection with the proposed conversion; (41) a copy of any document or description of any proposed plan for the creation of an entity for charitable assets, including, but not limited to, endowments, restricted, unrestricted and specific purpose funds, the proposed articles of incorporation, bylaws, mission statement, program agenda, method of appointing board members, qualifications of board members, duties of board members and policies concerning conflicts of interest; (42) a description of any unit and clinical, social, medical or other service that is anticipated to be eliminated or significantly reduced at the new hospital; (43) a description of staffing levels for each category of employees, including full-time, part-time and contract employees who are employed by or provide services to the nonprofit hospital that is proposed to be acquired and a description of any anticipated change in current staffing levels; (44) a copy of each current notice of a conflict of interest form submitted to auditors for a transacting party in connection with the preparation of financial statements in the one-year period prior to submission of the certificate of need determination letter involving an officer, member of the board of directors or trustees or senior manager, including the medical director, of a transacting party, that shall be submitted in a form acceptable to the Attorney General; (45) copies of Internal Revenue Service Form 990 for any transacting party that is required by federal law to file such form for the five-year period prior to the submission of the certificate of need determination letter; and (46) 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, section 9 of this act and chapter 368z. The application shall be subject to disclosure pursuant to section 1-210.

[(d) No] (e) Except as provided in section 10 of this act, not later than sixty days after the date of mailing of the application form, the nonprofit hospital that is proposed to be acquired 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] not later than [twenty] sixty days after the date of their receipt of the application, provide written notice to the nonprofit hospital that is proposed to be acquired and the purchaser of any deficiencies in the application. Such application shall not be deemed complete until such deficiencies are corrected.

[(e) No] (f) Except as provided in section 10 of this act, not 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 that is proposed to be acquired is located.

[(f)] (g) 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. 4. Section 19a-486b of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

[Not] (a) Except as provided in section 10 of this act, 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, or section 9 of 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 section 19a-639a, 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] and the transacting parties. If the Attorney General initiates a proceeding to enforce a subpoena pursuant to section 19a-486c, as amended by this act, 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. If, in the opinion of the Attorney General, reasonable cause exists for such one-hundred-twenty-day period to be extended, including, but not limited to, a pending investigation by a federal agency involving a transacting party, the Attorney General may extend such period. 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.

(b) The commissioner and the Attorney General may place any conditions on the approval of an application that relate to the purposes of sections 19a-486a to 19a-486h, inclusive, as amended by this act, or sections 9 to 13, inclusive, of this act.

(c) After approval of an application pursuant to sections 19a-486a to 19a-486h, as amended by this act, and sections 9 to 13, inclusive, of this act, the Attorney General may halt or place specific conditions on the new hospital's sale, lease or acquisition of any real property if the real property is sold for more than the purchase price, after deducting the value of any capital improvements, or may require any moneys resulting from a sale of such real property to be deposited in a charitable trust closely related to the purpose of the nonprofit hospital that was acquired. The Attorney General may recover any proceeds of a previous sale or lease in which the new hospital's real property was sold for more than the purchase price, after deducting the value of any capital improvements, and may order the proceeds of the sale or lease of the real property be used for capital improvements to the new hospital or be deposited in a charitable trust closely related to the purpose of the nonprofit hospital that was acquired.

Sec. 5. Section 19a-486c of the 2014 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(a) [The] Except as provided in sections 9 and 10 of this act, the Attorney General shall 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 that is proposed to be acquired 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 that is proposed to be acquired 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] transacting party; (4) the nonprofit hospital that is proposed to be acquired 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 that is proposed to be acquired will place [the] such 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] such 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] such nonprofit hospital is located who are not affiliated through corporate structure, governance or membership with either [the] such nonprofit hospital or the purchaser, unless [the] such nonprofit hospital continues to operate on a nonprofit basis after the transaction and such sum is transferred to [the] such nonprofit hospital to provide health care services, and (B) is not being used for one of the following purposes: (i) For appropriate charitable health care purposes consistent with [the] such 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] such 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] such 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] such 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, as amended by this act, or sections 9 and 10 of this act: (1) Issue in writing and cause to be served upon any person, by subpoena, a demand that such person appear before 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 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 such person's principal place of business within or without this state or 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 of the nonprofit hospital that is proposed to be acquired. 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 not later than thirty days after receipt. Such bills shall not exceed five hundred thousand dollars.

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

Prior to making any decision to approve, with or without modification, or deny any application filed pursuant to subsection (d) of section 19a-486a, as amended by this act, or section 9 or 10 of this act, the Attorney General and the commissioner shall jointly conduct one or more public hearings, one of which shall be in the [primary service area] affected community of the nonprofit hospital that is proposed to be acquired. At least 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 from passage):

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 section 9 or 10 of this act or approves it with modification, the nonprofit hospital that is proposed to be acquired 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, or sections 9 to 13, inclusive, of this act shall be construed to apply the provisions of chapter 54 to the proceedings of the Attorney General.

Sec. 8. Section 19a-486g of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

The Commissioner of Public Health shall refuse to issue a license to [, or if issued shall suspend or revoke the license of,] a hospital if the commissioner finds, after a hearing and opportunity to be heard, that:

(1) There was a transaction described in section 19a-486a, as amended by this act, or section 9 or 10 of this act that occurred without the approval of the commissioner, if such approval was required by sections 19a-486 to 19a-486h, inclusive, [;] as amended by this act, section 1 or sections 9 to 13, inclusive, of this act; or

(2) There was a transaction described in section 19a-486a, as amended by this act, or section 9 or 10 of this act without the approval of the Attorney General, if such approval was required by sections 19a-486 to 19a-486h, inclusive, as amended by this act, or sections 9 to 13 of this act, inclusive, of this act and the Attorney General certifies to the Commissioner of Public Health that such transaction involved a material amount of [the] a nonprofit hospital's assets or operations or a change in control of operations. [; or]

[(3) The hospital is not complying with the terms of an agreement approved by the Attorney General and commissioner pursuant to sections 19a-486 to 19a-486h, inclusive.]

Sec. 9. (NEW) (Effective October 1, 2014) (a) The Attorney General and the Commissioner of Public Health shall process an application for conversion where all of the transacting parties are nonprofit hospitals in accordance with the provisions of this section, sections 19a-486a to 19a-486h, inclusive, of the general statutes, as amended by this act, and, as applicable, section 10 of this act.

(b) The Attorney General may consider the following criteria in making a determination on an application for conversion involving only transacting parties that are nonprofit hospitals: (1) Whether the proposed conversion will harm the public's interest in trust property given, devised or bequeathed to the transacting parties for charitable, educational or religious purposes located or administered in the state; (2) whether any trustee of any charitable trust located or administered in the state is likely to be deemed to have exercised reasonable care, diligence and prudence in performing as a fiduciary in connection with the proposed conversion; (3) whether the transacting parties established appropriate criteria in deciding to pursue a conversion in relation to carrying out their missions and purposes; (4) whether the transacting parties considered the proposed conversion as the only alternative or as the best alternative in carrying out their missions and purposes; (5) whether any conflict of interest exists concerning the proposed conversion relative to members of the transacting parties, boards of directors, officers, directors, senior managers, experts or consultants engaged in connection with the proposed conversion, including, but not limited to, attorneys, accountants, investment bankers, actuaries, health care experts or industry analysts; (6) whether individuals described in subdivision (5) of this subsection were provided with contracts or consulting agreements or arrangements that included pecuniary rewards based in whole, or in part, on the contingency of the completion of the conversion; (7) whether the transacting parties exercised due care in engaging consultants with the appropriate level of independence, education and experience in similar conversions; (8) whether the transacting parties exercised due care in accepting assumptions and conclusions provided by consultants engaged to assist in the proposed conversion; (9) whether the transacting parties' officers, directors, board members or senior managers are expected to receive future contracts; (10) whether any member of the transacting parties' boards of directors are expected to retain any authority in the new hospital; (11) whether the members of the transacting parties' boards of directors accepted fair consideration and value for any management contract made part of the proposed conversion; (12) whether any of the transacting parties' individual officers, directors, board members or senior managers engaged legal counsel to consider their individual rights or duties in acting in their capacity as a fiduciary in connection with the proposed conversion; (13) whether the proposed conversion is likely to result in an abandonment of a transacting party's original purposes or whether the new hospital is expected to depart from the traditional purposes and missions of a transacting party such that a cy pres proceeding is likely to be necessary; (14) whether the proposed conversion is based upon the appropriate and reasonable fair market value; (15) whether the proposed conversion is based upon appropriate valuation methods, including, but not limited to, market approach, third-party report or fairness opinion; (16) whether the conversion is proper under state laws and regulations concerning nonprofit status; (17) whether the conversion is proper under applicable state tax code provisions; (18) whether the proposed conversion jeopardizes the tax status of a transacting party; (19) whether the persons who represent a transacting party in negotiations avoided conflicts of interest; (20) whether the transacting parties' officers, board members, directors or senior managers deliberately acted or failed to act in a manner that impacted negatively on the value or purchase price; and (21) whether the transacting parties are in compliance with state laws and regulations concerning charitable trusts.

(c) The commissioner shall consider the following criteria in making a determination on an application for conversion involving only transacting parties that are nonprofit hospitals: (1) Whether the character, commitment, competence and standing in the communities served by the transacting parties are satisfactory; (2) whether sufficient safeguards are included to ensure the affected community has continued access to affordable health care; (3) whether the transacting parties have provided satisfactory evidence that the new hospital will provide health care and appropriate access with respect to traditionally underserved populations in the community it will serve; (4) whether procedures or safeguards are likely to ensure ownership interests will not be used as incentives for hospital employees or physicians to refer patients to the hospital; (5) whether the transacting parties have made a commitment to ensure the continuation of collective bargaining rights, if applicable, and retention of the workforce; (6) whether the transacting parties have appropriately accounted for employment needs at the new hospital and addressed workforce retraining that may be needed as a result of any proposed restructuring; and (7) whether the conversion demonstrates that the public interest is likely to be served considering the essential medical services necessary to provide safe and adequate treatment, appropriate access to health care and balanced health care delivery to residents of the state.

Sec. 10. (NEW) (Effective October 1, 2014) (a) An application for conversion that meets the requirements of this subsection shall be reviewed by the Attorney General and the Commissioner of Public Health using an expedited review process. Such application shall involve: (1) Two or more hospitals that are not in common control with another hospital; (2) one hospital not under common control with another hospital and a hospital or hospital system parent corporation; or (3) two affiliated hospitals, the conversion of which has been previously approved and another hospital or hospital system parent corporation. Additionally: (A) Each transacting party shall be a nonprofit Connecticut corporation that has directly or indirectly continuously operated one or more hospitals licensed in the state for a period of three years; and (B) the nonprofit hospital that is proposed to be acquired shall operate a distressed hospital in the state facing significant financial hardship that may impair its ability to continue to operate effectively without the proposed conversion and has been determined to be distressed by the commissioner based upon consideration of any of the following criteria: (i) Such hospital has operated at a loss for the two most recent fiscal years; (ii) such hospital has less than fifty days of cash-on-hand; (iii) such hospital's current asset-to-liability ratio is less than one and one-half; (iv) such hospital's long-term debt to capitalization is greater than seventy-five per cent; (v) such hospital has an inpatient occupancy rate of less than fifty per cent; or (vi) such hospital is or is likely to be classified as below investment grade by a major rating agency.

(b) Prior to any transaction described in subsection (a) of this section, the transacting parties shall concurrently submit a certificate of need determination letter as described in subsection (c) of section 19a-638 of the general statutes 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 department or office. The certificate of need determination letter shall contain: (1) The name and address of the nonprofit hospital that is proposed to be acquired; (2) the name and address of the purchaser; (3) a brief description of the terms of the proposed agreement; and (4) the estimated capital expenditure, cost or value associated with the proposed agreement. The certificate of need determination letter shall be subject to disclosure pursuant to section 1-210 of the general statutes.

(c) The commissioner and the Attorney General shall review the certificate of need determination letter. The Attorney General shall determine whether the agreement requires approval pursuant to this section. If such approval is required, the commissioner and the Attorney General shall transmit to the transacting parties an application form for approval pursuant to this section, unless the commissioner refuses to accept a filed or submitted certificate of need determination letter.

(d) The transacting parties that meet the requirements for expedited review in accordance with subsection (a) of this section shall submit an application to the commissioner and the Attorney General along with the following information: (1) A detailed summary of the proposed conversion; (2) the charter, articles of incorporation or certificate of incorporation for each transacting party and its affiliated hospitals, including any attachments to such documents; (3) the bylaws and organizational charts for each transacting party and its affiliated hospitals; (4) a description of the organizational structure for each transacting party and each partner, affiliate, parent, subsidiary or related legal entity in which a transacting party has a ten per cent or greater ownership interest or control; (5) all documents, including reports, meeting minutes and documents used for presentations, that are relevant to each transacting party's board of directors' decision to propose the conversion; (6) a description of each transacting party's conflict-of-interest policies and procedures; (7) copies of each of the transacting party's audited income statements, balance sheets and other financial statements for the three-year period prior to submission of the certificate of need determination letter and audited interim financial statements and income statement with detailed descriptions of the financing structure of the proposed conversion, including equity contribution, debt restructuring, stock issuance and partnership interests; (8) a copy of each report analyzing the proposed conversion, including, but not limited to, any such report by any appraiser, accountant, investment banker, actuary or other expert, during the three-year period prior to the submission of the certificate of need determination letter; (9) a copy of each current conflict of interest form submitted to auditors for a transacting party in connection with the preparation of financial statements in the one-year period prior to submission of the certificate of need determination letter involving an officer, member of the board of directors or trustees or senior manager, including the medical director, of a transacting party, that shall be submitted in a form acceptable to the commissioner and the Attorney General; (10) a copy of each document related to a transacting party's (A) identification of current charitable assets, (B) accounting of charitable assets for the three-year period prior to submission of the certificate of need determination letter, and (C) distribution of charitable assets, including, but not limited to, endowments and restricted, unrestricted and specific purpose funds as each relates to the proposed conversion for the three-year period prior to submission of the certificate of need determination letter; (11) a description of the transacting parties' plan as to the manner in which any affiliated hospitals intend to provide consolidated health care services during the first three years after the conversion; (12) a description of hospital units and services that the transacting parties expect will be eliminated or significantly reduced during the first three years after the conversion; and (13) a description of anticipated staffing levels for each category of employee during the first three years after the conversion.

(e) (1) In reviewing an application under an expedited review, as described in this section, the commissioner and the Attorney General shall consider the criteria described in section 9 of this act.

(2) Not later than twenty business days after acceptance of an application under the provisions of this section, the commissioner and the Attorney General shall notify the public of submission of the application and present members of the public an opportunity to comment on the application.

(3) The commissioner and the Attorney General shall render a decision on such application not later than ninety days after acceptance of the application.

(f) The Attorney General shall review an application for conversion submitted under this section to determine its impact upon the charitable assets of each transacting party and may review any other aspect of such application as the Attorney General deems appropriate. The Attorney General shall conduct such review concurrently with the commissioner's review of such application. The Attorney General shall be entitled to costs incurred for such review in accordance with section 19a-486c of the general statutes, as amended by this act, and subsection (g) of this section.

(g) The costs payable to the Attorney General and the commissioner by the transacting parties for expedited review of an application for conversion under this section shall not exceed twenty-five thousand dollars for each one hundred million dollars of total net patient services revenue of the transacting parties in the most recent fiscal year for which audited financial statements are available.

Sec. 11. (NEW) (Effective October 1, 2014) Not later than sixty days after the approval of a conversion pursuant to sections 19a-486a to 19a-486h, inclusive, of the general statutes, as amended by this act, in which the purchaser is a for-profit hospital, such purchaser shall provide funds, in an amount determined by the Commissioner of Public Health, for the hiring of an independent health care access monitor for the new hospital. The independent health care access monitor shall, for a period of five years after completion of the conversion: (1) Meet with representatives of the new hospital and members of the community served by the new hospital not less than quarterly; (2) report to the Attorney General and the commissioner not less than quarterly concerning (A) the new hospital's compliance with applicable state laws and regulations, (B) community benefits provided by the new hospital, (C) uncompensated care provided by the new hospital, (D) identification of any sale, lease or acquisition of real property by the new hospital, and (E) a description of efforts the new hospital has taken to comply with any conditions of the approval of the application for conversion; and (3) report to the Attorney General any reasonable belief that the new hospital has breached, or intends to breach, a condition of the approval of the application for conversion.

Sec. 12. (NEW) (Effective October 1, 2014) When a for-profit corporation and a nonprofit hospital are transacting parties to a conversion that is approved by the Attorney General and the Commissioner of Public Health pursuant to sections 19a-486a to 19a-486h, inclusive, of the general statutes, as amended by this act, and the Attorney General and the commissioner approve the conversion during a municipality's assessment year, the purchaser that is a for-profit corporation shall reimburse the municipality in which the new hospital is located for grants in lieu of taxes, as provided in section 12-20a of the general statutes that the municipality would have received for real property formerly owned by the nonprofit hospital except for such conversion for the portion of the year that the hospital conversion has been completed.

Sec. 13. (NEW) (Effective October 1, 2014) The Commissioner of Public Health, in consultation with the Attorney General, may adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, to carry out the purposes of sections 19a-486a to 19a-486h, inclusive, of the general statutes, as amended by this act, section 1 and sections 9 to 12, inclusive, of this act.

Sec. 14. Subsection (a) of section 19a-638 of the 2014 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2014):

(a) A certificate of need issued by the office shall be required for:

(1) The establishment of a new health care facility;

(2) A transfer of ownership of a health care facility;

(3) The establishment of a freestanding emergency department;

(4) The termination of inpatient or outpatient services offered by a hospital, including, but not limited to, the termination by a short-term acute care general hospital or children's hospital of inpatient and outpatient mental health and substance abuse services;

(5) The establishment of an outpatient surgical facility, as defined in section 19a-493b, or as established by a short-term acute care general hospital;

(6) The termination of surgical services by an outpatient surgical facility, as defined in section 19a-493b, or a facility that provides outpatient surgical services as part of the outpatient surgery department of a short-term acute care general hospital, provided termination of outpatient surgical services due to (A) insufficient patient volume, or (B) the termination of any subspecialty surgical service, shall not require certificate of need approval;

(7) The termination of an emergency department by a short-term acute care general hospital;

(8) The establishment of cardiac services, including inpatient and outpatient cardiac catheterization, interventional cardiology and cardiovascular surgery;

(9) The acquisition of computed tomography scanners, magnetic resonance imaging scanners, positron emission tomography scanners or positron emission tomography-computed tomography scanners, by any person, physician, provider, short-term acute care general hospital or children's hospital, except as provided for in subdivision (22) of subsection (b) of this section;

(10) The acquisition of nonhospital based linear accelerators;

(11) An increase in the licensed bed capacity of a health care facility;

(12) The acquisition of equipment utilizing technology that has not previously been utilized in the state;

(13) An increase of two or more operating rooms within any three-year period, commencing on and after October 1, 2010, by an outpatient surgical facility, as defined in section 19a-493b, or by a short-term acute care general hospital; [and]

(14) The termination of inpatient or outpatient services offered by a hospital or other facility or institution operated by the state that provides services that are eligible for reimbursement under Title XVIII or XIX of the federal Social Security Act, 42 USC 301, as amended; and

(15) The termination of inpatient or outpatient reproductive services offered by a hospital operated in the state.

Sec. 15. Section 19a-644 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2014):

(a) On or before February twenty-eighth annually, for the fiscal year ending on September thirtieth of the immediately preceding year, each short-term acute care general or children's hospital shall report to the office with respect to its operations in such fiscal year, in such form as the office may by regulation require. Such report shall include: (1) Salaries and fringe benefits for the ten highest paid positions; (2) the name of each joint venture, partnership, subsidiary and corporation related to the hospital; and (3) the salaries paid to hospital employees by each such joint venture, partnership, subsidiary and related corporation and by the hospital to the employees of related corporations.

(b) The Department of Public Health shall adopt regulations in accordance with chapter 54 to provide for the collection of data and information in addition to the annual report required in subsection (a) of this section. Such regulations shall provide for the submission of information about the operations of the following entities: Persons or parent corporations that own or control the health care facility, institution or provider; corporations, including limited liability corporations, in which the health care facility, institution, provider, its parent, any type of affiliate or any combination thereof, owns more than an aggregate of fifty per cent of the stock or, in the case of nonstock corporations, is the sole member; and any partnerships in which the person, health care facility, institution, provider, its parent or an affiliate or any combination thereof, or any combination of health care providers or related persons, owns a greater than fifty per cent interest. For purposes of this section, "affiliate" means any person that directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with any health care facility, institution, provider or person that is regulated in any way under this chapter. A person is deemed controlled by another person if the other person, or one of that other person's affiliates, officers, agents or management employees, acts as a general partner or manager of the person in question.

(c) Each [nonprofit] short-term acute care general or children's hospital shall include in the annual report required pursuant to subsection (a) of this section a report of all transfers of assets, transfers of operations or changes of control involving its clinical or nonclinical services or functions from [such] the hospital to a person or entity organized or operated for profit.

(d) The office shall require each hospital licensed by the Department of Public Health, that is not subject to the provisions of subsection (a) of this section, to report to said office on its operations in the preceding fiscal year by filing copies of the hospital's audited financial statements. Such report shall be due at the office on or before the close of business on the last business day of the fifth month following the month in which a hospital's fiscal year ends.

Sec. 16. (Effective July 1, 2014) (a) For the purposes described in subsection (b) of this section, the State Bond Commission shall have the power from time to time to authorize the issuance of bonds of the state in one or more series and in principal amounts not exceeding in the aggregate ____ dollars.

(b) The proceeds of the sale of said bonds, to the extent of the amount stated in subsection (a) of this section, shall be used by the Department of Public Health for the purpose of grants-in-aid to nonprofit hospitals for capital improvements.

(c) All provisions of section 3-20 of the general statutes, or the exercise of any right or power granted thereby, which are not inconsistent with the provisions of this section are hereby adopted and shall apply to all bonds authorized by the State Bond Commission pursuant to this section, and temporary notes in anticipation of the money to be derived from the sale of any such bonds so authorized may be issued in accordance with said section 3-20 and from time to time renewed. Such bonds shall mature at such time or times not exceeding twenty years from their respective dates as may be provided in or pursuant to the resolution or resolutions of the State Bond Commission authorizing such bonds. None of said bonds shall be authorized except upon a finding by the State Bond Commission that there has been filed with it a request for such authorization which is signed by or on behalf of the Secretary of the Office of Policy and Management and states such terms and conditions as said commission, in its discretion, may require. Said bonds issued pursuant to this section shall be general obligations of the state and the full faith and credit of the state of Connecticut are pledged for the payment of the principal of and interest on said bonds as the same become due, and accordingly and as part of the contract of the state with the holders of said bonds, appropriation of all amounts necessary for punctual payment of such principal and interest is hereby made, and the State Treasurer shall pay such principal and interest as the same become due.

Sec. 17. (Effective from passage) The Commissioners of Public Health and Social Services shall jointly review regulations of the Departments of Public Health and Social Services relating to hospitals to determine whether any such regulations should be amended or repealed to ensure that the profitability of such hospitals does not outweigh patient health and safety. Said commissioners shall, not later than July 1, 2015, jointly report, in accordance with section 11-4a of the general statutes, to the joint standing committees of the General Assembly having cognizance of matters relating to public health and human services concerning the results of such review.

This act shall take effect as follows and shall amend the following sections:

Section 1

from passage

New section

Sec. 2

from passage

19a-486

Sec. 3

from passage

19a-486a

Sec. 4

from passage

19a-486b

Sec. 5

from passage

19a-486c

Sec. 6

from passage

19a-486e

Sec. 7

from passage

19a-486f

Sec. 8

from passage

19a-486g

Sec. 9

October 1, 2014

New section

Sec. 10

October 1, 2014

New section

Sec. 11

October 1, 2014

New section

Sec. 12

October 1, 2014

New section

Sec. 13

October 1, 2014

New section

Sec. 14

October 1, 2014

19a-638(a)

Sec. 15

October 1, 2014

19a-644

Sec. 16

July 1, 2014

New section

Sec. 17

from passage

New section

Statement of Legislative Commissioners:

The effective date of section 2 was changed from "October 1, 2014" to "from passage" for internal consistency; in section 2(10), the phrase "or persons" was deleted, for internal consistency; in section 4(a), the phrase "which shall include" was changed to "including, but not limited to," for conformity with the drafting conventions of the general statutes; in section 9(b), the word "applicants" was changed to "transacting parties", for consistency; in section 10(c), the phrase "pursuant to this chapter" was changed to "pursuant to this section", for accuracy, and the phrase "pursuant to this chapter or sections 9 to 13, inclusive, of this act" was changed to "pursuant to this section", for accuracy.

PH

Joint Favorable Subst.