2017 -- H 6284 SUBSTITUTE A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2017

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A N   A C T

RELATING TO HEALTH AND SAFETY -- HOSPITAL CONVERSIONS

     

     Introduced By: Representatives Johnston, Tobon, Messier, and Barros

     Date Introduced: June 07, 2017

     Referred To: House Corporations

     It is enacted by the General Assembly as follows:

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     SECTION 1. Section 23-17.14-12.1 of the General Laws in Chapter 23-17.14 entitled

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"The Hospital Conversions Act" is hereby amended to read as follows:

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     23-17.14-12.1. Expedited review for unaffiliated community hospitals. Expedited

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review for unaffiliated community hospitals or not-for-profit hospitals.

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     (a) Notwithstanding subsection 23-17.14-6(a) and § 23-17.14-10 of this chapter if a

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proposed conversion involves: (1) Two (2) or more hospitals that are not in common control with

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another hospital; or (2) One hospital not under common control with another hospital and a

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hospital system parent corporation; or (3) Two (2) affiliated hospitals the conversion of which

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was previously approved in accordance with chapter 23-17.14 and another hospital or hospital

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system parent corporation, or (4) One or more hospital(s) that are determined to be distressed as

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under (a)(2) of this section, including hospitals that are part of a not-for-profit hospital system

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parent corporation, as acquiree, such conversion will be reviewed under an expedited review

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process conducted solely by the department of health (without derogation of the authority of the

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attorney general in accordance with § 23-17.14-21), only if the acquiree and acquiror are both

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nonprofit corporations exempt from taxation under section 501(a) of the United States Internal

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Revenue Service Code as organizations described in section 501(c)(3) of such code, or any

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successor provisions, and:

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     (1) The acquiree and acquiror are both nonprofit corporations that have directly or

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indirectly continuously operated at least one licensed hospital for at least the preceding three (3)

 

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years either in Rhode Island or in another jurisdiction either on its own or it is part of a health

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care system that has operated for at least the preceding three (3) years; and

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     (2) The acquiree operates a one or more distressed Rhode Island hospital hospitals facing

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significant financial hardship that may impair its or their ability to continue to operate effectively

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without the proposed conversion and has have been determined to be distressed by the director of

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health based upon whether the hospital hospital(s) meets one or more of the following criteria:

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     (i) Operating loss for the two (2) most recently completed fiscal years;

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     (ii) Less than fifty (50) days cash-on-hand;

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     (iii) Current asset to liability ratio of less than one point five (1.5);

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     (iv) Long-term debt to capitalization greater than seventy-five percent (75%);

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     (v) Inpatient occupancy rate of less than fifty percent (50%);

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     (vi) Would be classified as below investment grade by a major rating agency.

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     (b) The transacting parties shall file an initial application pursuant to this section which

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shall include the following information with respect to each transacting party and the proposed

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conversion:

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     (1) A detailed summary of the proposed conversion;

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     (2) Charter, articles of incorporation or certificate of incorporation for the transacting

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parties and their affiliated hospitals, including amendments thereto;

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     (3) Bylaws and organizational charts for the transacting parties and their affiliated

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hospitals;

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     (4) Organizational structure for the transacting parties and each partner, affiliate, parent,

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subsidiary or related legal entity in which either transacting party has a twenty percent (20%) or

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greater ownership interest or control;

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     (5) All documents, reports, meeting minutes and presentations relevant to the transacting

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parties' board of directors' decision to propose the conversion;

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     (6) Conflict of interest policies and procedures;

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     (7) Copies of audited income statements, balance sheets, and other financial statements

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for the past three (3) years for the transacting parties and their affiliated hospitals where

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appropriate and to the extent they have been made public, audited interim financial statements

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and income statements together with detailed descriptions of the financing structure of the

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proposed conversion including equity contribution, debt restructuring, stock issuance and

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partnership interests;

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     (8) Copies of reports analyzing the proposed conversion during the past three (3) years

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including, but not limited to, reports by appraisers, accountants, investment bankers, actuaries and

 

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other experts;

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     (9) Copies of current conflict of interest forms from all incumbent or recently incumbent

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officers, members of the board of directors or trustees and senior managers of the transacting

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parties; "incumbent or recently incumbent" means those individuals holding the position at the

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time the application is submitted and any individual who held a similar position within one year

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prior to the application's acceptance;

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     (10) Copies of all documents related to: (i) Identification of all current charitable assets;

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(ii) Accounting of all charitable assets for the past three (3) years; and (iii) Distribution of

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charitable assets for the past three (3) years including, but not limited to, endowments, restricted,

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unrestricted and specific purpose funds as each relates to the proposed conversion;

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     (11) A description of the plan as to how the affiliated hospitals will provide consolidated

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healthcare services during the first three (3) years following the conversion;

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     (12) Copies of plans for all hospital departments and services that will be eliminated or

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significantly reduced during the first three (3) years following the conversion; and

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     (13) Copies of plans relative to staffing levels for all categories of employees during the

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first three (3) years following the conversion.

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     (c) In reviewing an application under an expedited review process, the department shall

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consider the criteria in § 23-17.14-11.

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     (d) Within twenty (20) working days of receipt by the department of an application

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satisfying the requirements of subsection (b) above, the department will notify and afford the

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public an opportunity to comment on the application.

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     (e) The decision of the department shall be rendered within ninety (90) days of

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acceptance of the application under this section.

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     (f) Costs payable by the transacting parties under § 23-17.14-13 in connection with an

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expedited review by the department under this section shall not exceed twenty-five thousand

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dollars ($25,000) per one hundred million dollars ($100,000,000) of total net patient service

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revenue of the acquiree and acquiror in the most recent fiscal year for which audited financial

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statements are available.

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     (g) Following a conversion, the new hospital shall provide on or before March 1 of each

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calendar year a report in a form acceptable to the director containing all updated financial

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information required to be disclosed pursuant to subdivision 23-17.14-12.1(b)(7).

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     (h) If an expedited review is performed by the department pursuant to this section, the

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department of attorney general shall perform a review of the proposed transaction pursuant to

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§23-17.14-10(b) and the criteria for conversions limited to not-for-profits as it deems necessary,

 

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including, at a minimum, its impact upon the charitable assets of the transacting parties. The

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attorney general's review shall be done concurrently with the department of health review and

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shall not extend the length of the review process. For this review, the department of attorney

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general shall be entitled to costs in accordance with § 23-17.14-13 and subsection 23-17.14-

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12.1(f).

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO HEALTH AND SAFETY -- HOSPITAL CONVERSIONS

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     This act would streamline the procedure for the approval of mergers of not-for-profit

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hospitals and unaffiliated community hospitals.

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     This act would take effect upon passage.

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