2017 -- S 0924

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LC002741

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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 -- THE HOSPITAL CONVERSIONS ACT

     Introduced By: Senators Picard, and Cote

     Date Introduced: May 30, 2017

     Referred To: Senate Health & Human Services

     It is enacted by the General Assembly as follows:

     SECTION 1. Sections 23-17.14-6, 23-17.14-11, 23-17.14-12, 23-17.14-12.1, 23-17.14-28

and 23-17.14-34 of the General Laws in Chapter 23-17.14 entitled "The Hospital Conversions

Act" are hereby amended to read as follows:

     23-17.14-6. Initial application -- Conversions involving for-profit corporations or

not-for-profit as acquirors.

     (a) No person shall engage in a conversion with a for-profit or not-for-profit corporation

as the acquiror and a not-for-profit corporation as the acquiree involving the establishment,

maintenance, or operation of a hospital or a conversion subject to § 23-17.14-9 without prior

approval of both the department of attorney general and the department of health. The review of

the two (2) departments shall occur concurrently, and neither department shall delay its review or

determination because the other department has not completed its review or issued its

determination. The applicant may request that the review by the departments occur concurrently

with the review of any relevant federal regulatory authority. The transacting parties shall file an

initial application in accordance with subsection (b) of this section that shall, at minimum, include

the following information with respect to each transacting party and to the proposed new hospital:

     (1) A detailed summary of the proposed conversion;

     (2) Names, addresses and phone numbers of the transacting parties;

     (3) Name, address, phone number, occupation, and tenure of all officers, members of the

board of directors, trustees, executives, and senior managers, including for each position, current

persons and persons holding such position during the past two (2) years;

     (4) 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, phone number, occupation, and

tenure of each member;

     (5) Agenda and minutes of all meetings of the board of directors or trustees and any of its

committees, subcommittees, task forces related to the conversion, or similar entities excluding

those focused on peer review and confidential medical matters, that occurred within the two (2)

year period prior to submission of the application, including, upon the request of the department

or attorney general, any meeting packages;

     (6) Articles of incorporation and certificate of incorporation;

     (7) Bylaws and organizational charts;

     (8) Organizational structure for existing transacting parties and each partner, affiliate,

parent, subsidiary or related corporate entity in which the acquiror has a twenty percent (20%) or

greater ownership interest;

     (9) Conflict of interest statements, policies and procedures;

     (10) Names, addresses and phone numbers of professional consultants engaged in

connection with the proposed conversion;

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

management letters for the past three (3) years and to the extent they have been made public,

audited interim financial statements and income statements together with detailed description of

the financing structure of the proposed conversion including equity contribution, debt

restructuring, stock issuance, partnership interests, stock offerings and the like;

     (12) A detailed description of real estate issues including title reports for land owned and

lease agreements concerning the proposed conversion;

     (13) A detailed description as each relates to the proposed transaction for equipment

leases, insurance, regulatory compliance, tax status, pending litigation or pending regulatory

citations, pension plan descriptions and employee benefits, environmental reports, assessments

and organizational goals;

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

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

other experts;

     (15) Copies of any opinions or memoranda addressing the state and federal tax

consequences of the proposed conversion prepared for a transacting party by an attorney,

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accountant, or other expert;

     (16) A description of the manner in which the price was determined including which

methods of valuation and what data were used, and the names and addresses of persons preparing

the documents, and this information is deemed to be proprietary;

     (17) Patient statistics for the past three (3) years and patient projections for the next one

year including patient visits, admissions, emergency room visits, clinical visits, and visits to each

department of the hospital, admissions to nursing care or visits by affiliated home health care

entities;

     (18) The name and mailing address of all licensed facilities in which the for-profit

corporation maintains an ownership interest or controlling interest or operating authority;

     (19) A list of pending or adjudicated citations, violations or charges against the facilities

listed in subdivision (a)(18) brought by any governmental agency or accrediting agency within

the past three (3) years and the status or disposition of each matter with regard to patient care and

charitable asset matters;

     (20) A list of uncompensated care provided over the past three (3) years by each facility

listed in subdivision (a)(18) and detail as to how that amount was calculated;

     (21) Copies of all documents related to:

     (i) Identification of all charitable assets

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

     (iii) Distribution of the charitable assets including, but not limited to, endowments,

restricted, unrestricted and specific purpose funds as each relates to the proposed transaction;

     (22) A description of charity care and uncompensated care provided by the existing

hospital for the previous three (3) year period to the present including a dollar amount and a

description of services provided to patients;

     (23) A description of bad debt incurred by the existing hospital for the previous three (3)

years for which payment was anticipated but not received;

     (24) A description of the plan as to how the new hospital will provide community benefit

and charity care during the first three (3) years of operation;

     (25) A description of how the new hospital will monitor and value charity care services

and community benefit;

     (26) The names of persons currently holding a position as an officer, director, board

member, or senior manager who will or will not maintain any position with the new hospital and

whether any said person will receive any salary, severance stock offering or any financial gain,

current or deferred, as a result of or in relation to the proposed conversion;

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     (27) Copies of capital and operating budgets or other financial projections for the new

hospital during the first three (3) years of operation;

     (28) Copies of plans relative to staffing during the first three (3) years at the new hospital;

     (29) A list of all medical services, departments and clinical services, and administrative

services which will be maintained at the new hospital;

     (30) A description of criteria established by the board of directors of the existing hospital

for pursuing a proposed conversion with one or more health care providers;

     (31) Copies of reports of any due diligence review performed by each transacting party in

relation to the proposed conversion. These reports are to be held by the attorney general and

department of health as confidential and not released to the public regardless of any determination

made pursuant to § 23-17.14-32 and not withstanding any other provision of the general laws;

     (32) A description of request for proposals issued by the existing hospital relating to

pursuing a proposed conversion;

     (33) Copies of reports analyzing affiliations, mergers, or other similar transactions

considered by any of the transacting parties during the past three (3) years, including, but not

limited to, reports by appraisers, accountants, investment bankers, actuaries and other experts;

     (34) A copy of proposed contracts or description of proposed contracts or arrangements

with senior managers, board members, officers, or directors of the existing hospital for severance

consulting services or covenants not to compete following completion of the proposed

conversion;

     (35) A copy or description of all agreements or proposed agreements reflecting any

current and/or future employment or compensated relationship between the acquiror (or any

related entity) and any officer, director, board member, or senior manager of the acquiree (or any

related entity);

     (36) A copy or description of all agreements executed or anticipated to be executed by

any of the transacting parties in connection with the proposed conversion;

     (37) Copies of documents or description of any proposed plan for any entity to be created

for charitable assets, including but not limited to, endowments, restricted, unrestricted and

specific purpose funds, the proposed articles of incorporation, by-laws, mission statement,

program agenda, method of appointment of board members, qualifications of board members,

duties of board members, and conflict of interest policies;

     (38) Description of all departments, clinical, social, or other services or medical services

that will be eliminated or significantly reduced at the new hospital;

     (39) Description of staffing levels of all categories of employees, including full-time,

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part-time, and contract employees currently working at or providing services to the existing

hospital and description of any anticipated or proposed changes in current staffing levels;

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

officers, members of the boards of directors or trustees and senior managers, including the

medical directors, of the transacting parties on a form acceptable to the attorney general;

"incumbent or recently incumbent" means those individuals holding the position at the time the

application is submitted and any individual who held a similar position within one year prior to

the application's acceptance;

     (41) If the acquiror is a for profit corporation that has acquired a not for profit hospital

under the provisions of this chapter, the application shall also include a complete statement of

performance during the preceding one year with regard to the terms and conditions of approval of

conversion and each projection, plan, or description submitted as part of the application for any

conversion completed under an application submitted pursuant to this section and made a part of

an approval for the conversion pursuant to § 23-17.14-7, 23-17.14-8 or 23-14.14-19;

     (42) Copies of IRS Form 990 for any transacting party required by federal law to file

such a form for each of the three (3) years prior to the submission of the application.

     (b) Two (2) copies of the initial application shall be provided to each of the department of

health and department of the attorney general simultaneously by United States mail, certified,

return receipt requested. Filings may be submitted electronically if acceptable to the department

of health and/or attorney general.

     (c) Except for information determined by the attorney general in accordance with § 23-

17.14-32 to be confidential and/or proprietary, or otherwise required by law to be maintained as

confidential, the initial application and supporting documentation shall be considered public

records and shall be available for inspection upon request.

     23-17.14-11. Criteria for the department of health -- Conversions limited to not-for-

profit corporations. Criteria for the department of health -- Conversions limited to not-for-

profit corporations and for-profit acquirees.

     In reviewing an application of a conversion involving a hospital in which the transacting

parties are limited to not-for-profit corporations or in which the acquiree is a for-profit hospital,

the department shall consider the following criteria:

     (1) Whether the character, commitment, competence, and standing in the community, or

any other communities served by the proposed transacting parties are satisfactory;

     (2) Whether sufficient safeguards are included to assure the affected community

continued access to affordable care;

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     (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 affected community;

     (4) Whether procedures or safeguards are assured to insure that 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 assure 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 facility and addressed workforce retraining needed as a consequence of any proposed

restructuring;

     (7) Whether the conversion demonstrates that the public interest will be served

considering the essential medical services needed to provide safe and adequate treatment,

appropriate access and balanced health care delivery to the residents of the state.

     23-17.14-12. Review process by department of health for conversions involving for-

profit hospital as the acquiree. Review process by department of health and the attorney

general for conversions involving for-profit hospital as the acquiree.

     The department of health shall review all proposed conversions involving a for-profit

hospital as the acquiree and either a for-profit corporation or a not-for-profit hospital or

corporation as the acquiror in accordance with the provisions for change of effective control

pursuant to §§ 23-17-14.3 and 23-17-14.4.

     (a) The department of health and the attorney general shall review all proposed

conversions involving a for-profit acquiree and either a for-profit corporation or a not-for-profit

hospital or corporation as the acquirer in accordance with the requirements for submission of an

initial application pursuant to §23-17.14-6 and the review process established in §§23-17.14-7(a)

and 23-17.14-7(b).

     (b) In reviewing an application pursuant to this section, the department shall consider the

criteria in §23-17.14-11.

     (c) In reviewing an application pursuant to this section, the attorney general shall perform

a review as it deems necessary and shall consider the proposed transactions impact on:

     (1) Access to quality and affordable health care;

     (2) Public health and welfare; and

     (3) The public trust and charitable assets.

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

     (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

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

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

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

system parent corporation, such conversion will be reviewed under an expedited review process

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

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

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

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

provisions, and:

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

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

years; and

     (2) The acquiree operates a distressed Rhode Island hospital 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 director of health based upon whether

the hospital meets one or more of the following criteria:

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

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

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

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

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

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

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

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

conversion:

     (1) A detailed summary of the proposed conversion;

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

parties and their affiliated hospitals, including amendments thereto;

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

hospitals;

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

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

greater ownership interest or control;

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

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

     (6) Conflict of interest policies and procedures;

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

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

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

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

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

partnership interests;

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

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

other experts;

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

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

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

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

prior to the application's acceptance;

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

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

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

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

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

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

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

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

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

first three (3) years following the conversion.

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

consider the criteria in § 23-17.14-11.

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

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

public an opportunity to comment on the application.

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

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

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

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

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

statements are available.

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

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

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

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

department of attorney general shall perform a review of the proposed transaction as it deems

necessary, including, at a minimum, its impact upon the charitable assets of the transacting

parties. The attorney general's review shall be done concurrently cooperatively with the

department of health review and shall not extend the length of the review process. For this

review, the department of attorney general shall be entitled to costs in accordance with § 23-

17.14-13 and subsection 23-17.14-12.1(f).

     23-17.14-28. Concurrent approval -- License.

     (a) The director may consider the requirement of this chapter and the requirements of §§

23-17-1 -- 23-17-45 together upon completion of the initial application. The director may

approve, approve with conditions, or disapprove one or both requests filed pursuant to this

chapter, including expedited review under section 12.1, and §§ 23-17-1 -- 23-17-45. The

approvals of the director required by this chapter shall be subject to chapter 35 of title 42. For any

conversion subject to this chapter, the director may combine any hearings required by this chapter

with any hearings on similar or related matters required by §§ 23-17-1 -- 23-17-45 and shall

consider issues of market share especially as they affect quality, access, and affordability of

services.

     (b) Any approval of a conversion involving a for-profit corporation as an acquiror shall

be subject to any conditions as determined by the director of health, provided those conditions

relate to the purpose of this chapter. Said conditions may include, but not be limited to, the

conditions contained in this subsection. In the event the director determines that one or more of

the conditions contained in this subsection are not appropriate or desirable in a particular

conversion, the director shall include the rationale for not including such condition(s) in any

approval.

     (1) Maintain a governing body for each converted hospital whose membership shall

include uncompensated, independent individuals who reside in Rhode Island;

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     (2) Make a financially reasonable contribution to support the state's coordinated health

planning process;

     (3) Adhere to reasonable restrictions on financial incentives to patient or health plan

enrollees to receive hospital services outside of the state of Rhode Island;

     (4) Keep the new hospital open and operational for a reasonable minimum period of time;

     (5) Make a reasonable minimum investment to support primary care in the Rhode Island

communities served by the new hospital;

     (6) Not enter into any contract or other service or purchasing arrangements with an

affiliated legal entity except for contracts or arrangements to provide services or products that are

reasonably necessary to accomplish the health care purposes of the relevant hospital and for

compensation that is consistent with fair market value for the services actually rendered, or the

products actually provided;

     (7) Report to the director on annual distributions of profit to owners; and

     (8) Require that any corporate allocation, or equivalent charge, to any affiliated

organization(s) in any hospital fiscal year not exceed reasonable fair market value for the services

rendered or the assets purchased or leased from such affiliate.

     (c) Any approval of a conversion involving a for-profit corporation as an acquiror shall

be subject to any conditions as determined by the attorney general, provided those conditions

relate to the purpose of this chapter. Said conditions may include, but not be limited to, the

acquiror's adherence to a minimum investment to protect the assets, financial health, and well-

being of the new hospital and for community benefit. In the event the attorney general determines

that the conditions contained in this subsection are not appropriate or desirable in a particular

conversion, the attorney general shall include the rationale for not including such condition(s) in

any approval.

     (d) For a period of three (3) years following the effective date of the conversion, when

approval of a conversion involves either a not-for-profit or a for-profit corporation as an acquiror:

     (1) The acquiror shall file reports with the department and the attorney general on or

before March 1st of each calendar year detailing compliance with the conditions in subsection (b)

and any other conditions on the conversion approval or license of the new hospital. Failure to

comply with any of such conditions or the charity care requirements contained in § 23-17.14-15

shall be cause for penalties to be applied in accordance with § 23-17.14-30;

     (2) The department of health and the department of attorney general shall monitor, assess

and evaluate the acquiror's compliance with all of the conditions of approval, as well as annually

review the impact of the conversion on health care costs and services within the communities

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served; and

     (3) The acquiror shall pay for the costs of the department of health and the department of

attorney general in performing such monitoring, evaluation and assessment in an amount to be

determined by the attorney general or the director as they deem appropriate, which should be

placed in escrow during the term of the monitoring period. No application for a conversion made

pursuant to the requirements of this chapter shall be approved unless an agreement has been

executed with the attorney general and the director for the payment of reasonable costs in

accordance with this section.

     (4) The department and/or the attorney general may seek immediate relief in the superior

court to enforce any conditions of approval of a conversion, and may impose penalties for

noncompliance pursuant to §23-17.14-30.

     23-17.14-34. Judicial review.

     (a) Notwithstanding any other provision of the general laws, any Any transacting party

aggrieved by a final order of the department of health or the attorney general under this chapter

may seek judicial review by original action filed in the superior court in accordance with §42-35-

12. Any preliminary, procedural, or intermediate agency act or ruling with respect to the filing of

an application for conversion, including the completeness of the application, confidentiality of

any information or documents produced in connection with a conversion, approval or disapproval

of a conversion and conditions or restrictions proposed or determined with the respect to the

approval of a proposed conversion, is immediately reviewable.

     (b) Any action brought under this section shall be given priority by the superior court.

     (c) In performing such review the superior court shall consider and balance the

reasonable interests of the transacting parties and the reasonable interest of the citizens of the

state in a safe, accessible, and affordable healthcare system.

     (d) The court may affirm the decision of the agency or remand the case for further

proceedings, or it may reverse or modify the decision if substantial rights of the appellant have

been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

     (1) Unreasonable;

     (2) In violation of constitutional or statutory provisions;

     (3) In excess of the statutory authority of the agency;

     (4) Made upon unlawful procedure;

     (5) Affected by other error or law;

     (6) Clearly erroneous in view of the reliable, probative, and substantial evidence on the

whole record; or

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     (7) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted

exercise of discretion.

     SECTION 2. Chapter 23-17.14 of the General Laws entitled "The Hospital Conversions

Act" is hereby amended by adding thereto the following sections:

     23-17.14-2.1. Additional findings.

     The general assembly further finds and declares that:

     (1) The landscape of the state’s hospitals continues to evolve in response to challenges in

the health care industry;

     (2) As hospitals and health care systems strive to provide quality care to their patients and

communities, mergers, acquisitions and partnerships have resulted; and

     (3) Rhode Island now has several for-profit hospitals and health care systems inspiring

revisions to this chapter.

     23-17.14-3.1. Additional purpose.

     The purpose of this chapter is also to:

     (1) Protect the public interest in ensuring quality and affordable health care is delivered

by for-profit and not-for-profit hospitals in the state; and

     (2) Require that all transactions involving any hospital, for-profit or not-for-profit, are

reviewed by the department of health and the attorney general pursuant to the provisions of this

chapter.

     SECTION 3. 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 -- THE HOSPITAL CONVERSIONS ACT

***

     This act would subject for-profit hospitals seeking approval of an acquisition pursuant to

the hospital conversion act, to the review conducted by the attorney general and the department of

health. The act would also make some technical amendments to the chapter.

     This act would take effect upon passage.

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