2018 -- S 2794

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LC005102

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2018

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A N   A C T

RELATING TO HEALTH AND SAFETY - THE HOSPITAL CONVERSIONS ACT

     

     Introduced By: Senators DiPalma, Miller, Calkin, Sosnowski, and Satchell

     Date Introduced: April 05, 2018

     Referred To: Senate Judiciary

     It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 23-17.14-4, 23-17.14-8, 23-17.14-11 and 23-17.14-12.1 of the

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General Laws in Chapter 23-17.14 entitled "The Hospital Conversions Act" are hereby amended

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to read as follows:

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     23-17.14-4. Definitions.

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     For purposes of this chapter:

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     (1) "Acquiree" means the person or persons that lose(s) any ownership or control in the

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new hospital as a result of a conversion, as the terms "conversion," "new hospital," and

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"person(s)" are defined within this chapter;

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     (2) "Acquiror" means the person or persons which gain(s) an ownership or control in the

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new hospital as a result of a conversion, as the terms "conversion," "new hospital," and

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"person(s)" are defined within this chapter;

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     (3) "Affected community" means any city or town within the state wherein an existing

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hospital is physically located and/or those cities and towns whose inhabitants are regularly served

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by the existing hospital;

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     (4) "Affiliate" means, as to any hospital or health system, any other individual,

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corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated

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association, any governmental authority, and any fiduciary acting in such capacity on behalf of

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any of the foregoing, that, directly or indirectly, is in control of, is controlled by or is under

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common control with such hospital or health system or is a director, or officer of such hospital or

 

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health system or of an affiliate of such hospital or health system.

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     (4)(5) "Charity care" is defined as health care services provided by a hospital without

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charge to a patient and for which the hospital does not and has not expected payment;

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     (5)(6) "Community benefit" means the provision of hospital services that meet the

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ongoing needs of the community for primary and emergency care in a manner that enables

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families and members of the community to maintain relationships with person who are

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hospitalized or are receiving hospital services, and shall also include, but not be limited to charity

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care and uncompensated care;

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     (6)(7) "Conversion" means any transfer by a person or persons of an ownership or

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membership interest or authority in a hospital, or the assets of a hospital, whether by purchase,

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merger, consolidation, lease, gift, joint venture, sale, or other disposition which results in a

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change of ownership or control or possession of twenty percent (20%) or greater of the members

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or voting rights or interests of the hospital or of the assets of the hospital or pursuant to which, by

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virtue of the transfer, a person, together with all persons affiliated with the person, holds or owns,

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in the aggregate, twenty percent (20%) or greater of the membership or voting rights or interests

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of the hospital or of the assets of the hospital, or the removal, addition or substitution of a partner

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which results in a new partner gaining or acquiring a controlling interest in the hospital, or any

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change in membership which results in a new person gaining or acquiring a controlling vote in

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the hospital;

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     (7)(8) "Current conflict of interest forms" means conflict of interest forms signed within

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one year prior to the date the application is submitted in the same form as submitted to auditors

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for the transacting parties in connection with the preparation of financial statements, or in such

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other form as is acceptable to the attorney general, together with a description of any conflicts of

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interest that have been discovered by or disclosed to a transacting party since the date of such

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conflict of interest forms;

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     (8)(9) "Department" means the department of health. However "departments" shall mean

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the department of health and the department of the attorney general;

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     (9)(10) "Director" means the director of the department of health;

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     (10)(11) "Existing hospital" means the acquiree hospital as it exists prior to the

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acquisition;

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     (11)(12) "For-profit corporation" means a legal entity formed for the purpose of

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transacting business which has as any one of its purposes pecuniary profit;

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     (12)(13) "Hospital" means a person or governmental entity licensed in accordance with

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chapter 17 of this title to establish, maintain and operate a hospital;

 

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     (13)(14) "New hospital" means the acquiree hospital as it exists after the completion of a

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conversion;

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     (14)(15) "Not-for-profit corporation means a legal entity formed for some charitable or

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benevolent purpose and not-for-profit which has been exempted from taxation pursuant to

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Internal Revenue Code § 501(c)(3), 26 U.S.C. § 501(c)(3);

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     (15)(16) "Person" means any individual, trust or estate, partnership, corporation

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(including associations, joint stock companies and insurance companies), state or political

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subdivision or instrumentality of the state;

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     (16)(17) "Senior managers" or "senior management" means executives and senior level

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managers of a transacting party;

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     (17)(18) "Transacting parties" means the acquiree and the acquiror;

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     (18)(19) "Uncompensated care" means a combination of free care, which the hospital

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provides at no cost to the patient, bad debt, which the hospital bills for but does not collect, and

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less than full Medicaid reimbursement amounts.

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     23-17.14-8. Review process and review criteria by department of health for

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conversions involving for-profit corporation as acquiror.

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     (a) The department shall review all proposed conversions involving a hospital in which

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one or more of the transacting parties involves a for-profit corporation as the acquiror and a not-

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for-profit corporation as the acquiree.

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     (b) In reviewing an application for a conversion involving hospitals in which one or more

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of the transacting parties is a for-profit corporation as the acquiror the department shall consider

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the following criteria:

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

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

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

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continued access to affordable care;

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     (3) Whether the transacting parties have provided clear and convincing evidence that the

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new hospital will provide health care and appropriate access with respect to traditionally

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underserved populations in the affected community;

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     (4) Whether procedures or safeguards are assured to insure that ownership interests will

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not be used as incentives for hospital employees or physicians to refer patients to the hospital;

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     (5) Whether the transacting parties have made a commitment to assure the continuation

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of collective bargaining rights, if applicable, and retention of the workforce;

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     (6) Whether the transacting parties have appropriately accounted for employment needs

 

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at the facility and addressed workforce retraining needed as a consequence of any proposed

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restructuring;

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

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

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

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     (8) Whether the acquiror has demonstrated that it has satisfactorily met the terms and

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conditions of approval for any previous conversion pursuant to an application submitted under §

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23-17.14-6.

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     (c) If the acquiror is a hospital or hospital system or is an affiliate of a hospital or hospital

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system that is incorporated in, operates a hospital in, or is located within a state immediately

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adjacent to the state which does not own or operate a licensed hospital within the state at the time

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of the filing of the application, then the department shall also consider the following criteria:

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     (1) Whether the conversion will result in the increase or decrease of primary and

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specialty services at the acquiree and the extent of such increase or decrease;

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     (2) Whether the conversion will result in the migration of patients from the acquiree to

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out-of-state hospitals and the extent of such migration, if any;

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     (3) Whether the conversion will result in the increase or decrease of the number of jobs at

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the acquiree and the extent of such increase or decrease;

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     (4) Whether the conversion will result in an increase in cost to the state's medicaid

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program;

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     (5) Whether the conversion will result in an increase or decrease of local health insurance

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premiums and the extent of such increase or decrease;

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     (6) Whether the conversion will result in an increase or decrease of funds available for

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medical research, medical innovation, academic medical programs, and other research- and

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academic-based activities identified by the department and the extent of such increase or

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decrease; and

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     (7) Whether the conversion will affect any other aspect of patient care in the state as

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identified by the department in its discretion.

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     (d) To effectuate the review of the criteria set forth in subsection (c) of this section, the

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department shall duly engage an expert and/or consultant to prepare a report or reports analyzing

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the criteria set forth in subsection (c) of this section for the department's review.

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     (e) The report or reports identified in subsection (d) of this section shall be made publicly

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available within ninety (90) days of the department's retention of the expert and/or consultant.

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     (f) The department shall hold a public hearing on the report identified in subsection (d) of

 

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this section within thirty (30) days of such report being publicly released and allow for public

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comment on the report. Such public hearing shall be held upon notice of no less than forty-eight

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(48) hours at a time and place determined in the discretion of the department.

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     (g) The transacting parties shall fully reimburse the department for any fees, costs, or

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expenses incurred by the department in connection with subsection (d) of this section. No

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application for a conversion made pursuant to the requirements of this chapter shall be complete

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unless an agreement has been executed with the department for the payment of costs in

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accordance with this subsection.

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

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profit corporations.

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

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transacting parties are limited to not-for-profit corporations, the department shall consider the

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following criteria:

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

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

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

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continued access to affordable care;

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     (3) Whether the transacting parties have provided satisfactory evidence that the new

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hospital will provide health care and appropriate access with respect to traditionally underserved

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populations in the affected community;

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     (4) Whether procedures or safeguards are assured to insure that ownership interests will

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not be used as incentives for hospital employees or physicians to refer patients to the hospital;

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     (5) Whether the transacting parties have made a commitment to assure the continuation

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of collective bargaining rights, if applicable, and retention of the workforce;

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     (6) Whether the transacting parties have appropriately accounted for employment needs

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at the facility and addressed workforce retraining needed as a consequence of any proposed

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restructuring;

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

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

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

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     (b) If the acquiror is a hospital or hospital system or is an affiliate of a hospital or hospital

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system that is incorporated in, operates a hospital in, or located within a state immediately

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adjacent to the state which does not own or operate a licensed hospital within the state at the time

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of the filing of the application, then the department shall also consider the following criteria:

 

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     (1) Whether the conversion will result in the increase or decrease of primary and

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specialty services at the acquiree and the extent of such increase or decrease;

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     (2) Whether the conversion will result in the migration of patients from the acquiree to

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out-of-state hospitals and the extent of such migration, if any;

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     (3) Whether the conversion will result in the increase or decrease of the number of jobs at

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the acquiree and the extent of such increase or decrease;

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     (4) Whether the conversion will result in an increase in cost to the state's medicaid

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program;

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     (5) Whether the conversion will result in an increase or decrease of local health insurance

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premiums and the extent of such increase or decrease;

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     (6) Whether the conversion will result in an increase or decrease of funds available for

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medical research, medical innovation, academic medical programs, and other research- and

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academic-based activities identified by the department and the extent of such increase or

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decrease; and

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     (7) Whether the conversion will affect any other aspect of patient care in the state as

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identified by the department in its discretion.

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     (c) To effectuate the review of the criteria set forth in subsection (b) of this section, the

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department shall duly engage an expert and/or consultant to prepare a report or reports analyzing

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the criteria set forth in subsection (b) of this section for the department's review.

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     (d) The report or reports identified in subsection (c) of this section shall be made publicly

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available within ninety (90) days of the department's retention of the expert and/or consultant.

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     (e) The department shall hold a public hearing on the report identified in subsection (c) of

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this section within thirty (30) days of such report being publicly released and allow for public

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comment on the report. Such public hearing shall be held upon notice of no less than forty-eight

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(48) hours at a time and place determined in the discretion of the department.

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     (f) The transacting parties shall fully reimburse the department for any fees, costs, or

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expenses incurred by the department in connection with subsection (c) of this section. No

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application for a conversion made pursuant to the requirements of this chapter shall be complete

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unless an agreement has been executed with the department for the payment of costs in

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accordance with this subsection.

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     23-17.14-12.1. Expedited review for unaffiliated community hospitals or not-for-

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profit hospitals.

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

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

 

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

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

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previously approved in accordance with chapter 17.14 of title 23 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 subsection (a)(2) of this section, including hospitals that are part of a not-for-profit hospital

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

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

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

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

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

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any 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 either in Rhode Island or in another

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jurisdiction either on its own or it is part of a health care system that has operated for at least the

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preceding three (3) years; and

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     (2) The acquiree operates one or more distressed Rhode Island 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 have been determined to be distressed by the director of

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health based upon whether the 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 that

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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 subsection (b)(7) of this section.

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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. The attorney general's

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review shall be done concurrently with the department of health review and shall not extend the

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length of the review process. For this review, the department of attorney general shall be entitled

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to costs in accordance with § 23-17.14-13 and subsection (f) of this section.

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     (i) Notwithstanding any provision of this chapter to the contrary, expedited review under

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this chapter shall not be available for a proposed conversion involving a distressed hospital if the

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acquiring hospital or hospital system or affiliate of a hospital or hospital system is incorporated

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in, operates a hospital in, or is located within a state immediately adjacent to the state and does

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not own or operate a licensed hospital within the state at the time of the filing of the application.

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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 - THE HOSPITAL CONVERSIONS ACT

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     This act would revise the hospital conversions act and would set additional guidelines for

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the department of health to consider when considering conversions of either for profit or

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nonprofit hospitals or their affiliates which is defined within this act.

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     This act would take effect upon passage.

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