OLR Bill Analysis

SB 811

AN ACT CONCERNING PARITY IN HOSPITAL SALES OVERSIGHT.

SUMMARY:

This bill extends to all hospital sales the current approval process that applies to the sale of nonprofit hospitals to for-profit purchasers (often called hospital conversions). Under that process, the hospital and purchaser must apply to the public health (DPH) commissioner and attorney general to approve the transaction, under specified criteria.

Under current law, sales of nonprofit hospitals to nonprofit buyers or for-profit hospitals to for-profit buyers are subject to certificate of need (CON) review (see BACKGROUND), but not to the same process as nonprofit conversions to for-profit status.

The bill requires the commissioner and attorney general to weigh certain factors when deciding whether to place any conditions on their approval of a hospital sale. It adds a definition of “affected community” for purposes of this provision and other existing related provisions.

The bill extends a hospital annual reporting requirement to health systems (generally, hospitals' parent corporations and affiliated entities).

The bill also makes technical and conforming changes.

EFFECTIVE DATE: October 1, 2015

1-7 – HOSPITAL SALE APPROVAL PROCESS

Currently, a nonprofit hospital needs approval of the attorney general and DPH commissioner to sell or otherwise transfer a material amount of its assets or operations or to change the control of its operations to a for-profit entity. Under the bill, this process applies regardless of whether the hospital or purchaser is for-profit or nonprofit.

Under this process, the parties must first submit a CON determination letter to DPH and the attorney general. If the attorney general determines that the agreement meets the criteria to require approval, the commissioner and attorney general then give the parties a more detailed application to complete.

The commissioner and attorney general must each review the proposed agreement. They can approve the agreement, approve it with modifications, or disapprove it. The law sets the factors and time periods for their review. They may subpoena individuals and issue written interrogatories. They may contract with experts or consultants when conducting their reviews and bill the purchaser for these costs, up to certain limits. In addition, DPH must determine whether to approve the request for CON authorization that is part of the application. By law, DPH's Office of Health Care Access (OHCA) conducts CON reviews.

There must be two public hearings: (1) one held by the parties, early in the process, on the contents of the CON determination letter and (2) another held by the attorney general and commissioner later in the process.

A hospital or purchaser can appeal if the attorney general or commissioner denies the application or approves it with modifications.

The DPH commissioner must refuse to issue a hospital's license, or suspend or revoke its license, if she determines after a hearing that (1) a sale occurred without the required approval or (2) the hospital is not complying with the terms of the approval agreement.

Review Factors

When reviewing applications under the current conversion law, the attorney general's inquiry focuses on the fairness of the transaction and related issues (e.g., whether the hospital will receive fair market value for its assets). DPH's inquiry focuses on how the transaction will affect health care in the community. The current factors apply to all hospital sales subject to the bill, except as follows.

One current factor in the attorney general's review concerns the nonprofit hospital's assets after the transaction. The bill specifies that this factor only applies for sales of nonprofit hospitals. Specifically, under this factor, the attorney general must deny the application if he determines that a sum equal to the fair market value of the hospital's assets:

1. is not being transferred to someone selected by the court who is not affiliated with the hospital or purchaser, unless the hospital continues to operate as nonprofit after the transaction and the sum is transferred to the hospital to provide health care and

2. is not being used for any of the following: appropriate charitable health care consistent with the hospital's original purpose, support and promotion of health care in the affected community (see below), or for assets subject to a donor's use restriction, for a purpose consistent with the donor's intent.

Another current factor in the attorney general's review presumably only applies to sales of nonprofits: whether the transaction is prohibited by state statutory or common law on nonprofit entities or charities.

Conditions on Approval

Current law allows the commissioner and attorney general, when approving an application for a nonprofit conversion, to place any conditions on their approval that relate to the purposes of the conversion law. Under the bill, when determining which conditions to place on any hospital sale, the commissioner and attorney general must weigh the conditions' value against their potential negative impact, including the sale not occurring, on the (1) affected community's continued access to high quality and affordable health care after accounting for likely staffing level changes and (2) provision of services to uninsured and underinsured people.

Affected Community

In addition to the provisions described above, other provisions of the current conversion law refer to “affected community.” One factor in the commissioner's review is whether the affected community will be assured of continued access to high quality and affordable health care after accounting for any proposed hospital staffing changes. Also, notice for both required public hearings must be published in newspapers circulated in the hospital's affected community.

The bill defines “affected community” as a municipality (1) where the hospital is located or (2) whose inhabitants are regularly served by the hospital.

8 – HEALTH SYSTEM ANNUAL REPORTING

Under current law, general and children's hospitals must annually report to OHCA certain information about salaries and related entities, with reports due each February 28. The bill extends this requirement to health systems and applies an existing definition of that term. Under that definition, a “health system” is a (1) parent corporation of one or more hospitals and any entity affiliated with that corporation (through ownership, governance, membership, or other means) or (2) hospital and any affiliated entity.

Under existing law, these reports must include:

1. salaries and fringe benefits for the 10 highest paid positions;

2. the name of each hospital-related corporation, joint venture, partnership, and subsidiary; and

3. salaries paid to hospital employees by each such entity and by the hospital to employees of related corporations.

The bill extends these requirements to health systems and specifies that the reports must include salaries paid to health system employees by the related entities.

By law, DPH must adopt regulations providing for the collection of additional data and information about the operations of hospitals' parent corporations or certain entities affiliated with hospitals.

BACKGROUND

Certificate of Need

Under the CON law, health care facilities must generally receive OHCA's approval when (1) establishing new facilities or services, (2) changing ownership, (3) acquiring certain equipment, or (4) terminating certain services. The law sets forth the criteria the office must consider.

Related Bills

SB 954 (File No. 444), reported favorably by the Public Health Committee, adds to the information that the transacting parties must submit when applying to the attorney general and DPH commissioner for approval of a hospital conversion to for-profit status. For approved conversions, it also adds to the information required as part of the hospital's next annual report. The information concerns financial gain certain individuals are expected to realize as a result of the transaction.

COMMITTEE ACTION

Public Health Committee

Joint Favorable

Yea

27

Nay

0

(03/27/2015)