2021 -- H 6337

========

LC002574

========

     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2021

____________

A N   A C T

RELATING TO HEALTH AND SAFETY -- THE HOSPITAL CONVERSIONS ACT

     Introduced By: Representatives Serpa, Kislak, Cassar, Potter, Giraldo, and Speakman

     Date Introduced: May 13, 2021

     Referred To: House Corporations

     It is enacted by the General Assembly as follows:

     SECTION 1. Sections 23-17.14-6, 23-17.14-7, 23-17.14-10 and 23-17.14-12.1 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 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,

LC002574 - Page 2 of 16

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 healthcare

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;

LC002574 - Page 3 of 16

     (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, including staffing levels;

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

transacting parties for pursuing a proposed conversion with one or more healthcare 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 transacting

parties 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 transacting

parties 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, bylaws, 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 by transacting parties at either

the new hospital(s) or the existing hospital(s);

     (39) Description of staffing levels for five (5) years of all categories of employees,

LC002574 - Page 4 of 16

including full-time, 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, including any reduction in staffing, relocation of staffing, or additional staffing affecting the

new hospital and the exiting hospital;

     (40) Describe retirement plan(s) for all employees, full-time or part-time, including any

supplemental executive retirement plans;

     (41) Copies of retirement plans accounting; management letters, and reports, including

unfunded liabilities for retirement plans for the last five (5) years;

     (42) Copies of plans to fund unfunded liabilities for pension and any retirement plans;

     (43) Copies of any impact analysis for the affected communities both before conversion

and after proposed conversion, including community benefits, economic impact, and staffing.

     (40)(44) 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)(45) 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; and

     (42)(46) 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.

     23-17.14-7. Review process of the department of attorney general and the department

LC002574 - Page 5 of 16

of health and review criteria by department of attorney general.

     (a) The department of attorney general shall review all conversions involving a hospital in

which one or more of the transacting parties involves a for-profit corporation as the acquiror and a

not-for-profit corporation as the acquiree.

     (b) In reviewing proposed conversions in accordance with this section and § 23-17.14-10,

the department of attorney general and department of health shall adhere to the following process:

     (1) Within thirty (30) days after receipt of an initial application, the department of attorney

general and department of health shall jointly advise the applicant, in writing, whether the

application is complete, and, if not, shall specify all additional information the applicant is required

to provide;

     (2) The applicant will submit the additional information within thirty (30) working days.

If the additional information is submitted within the thirty-day (30) period, the department of

attorney general and department of health will have ten (10) working days within which to

determine acceptability of the additional information. If the additional information is not submitted

by the applicant within the thirty-day (30) period or if either agency determines the additional

information submitted by the applicant is insufficient, the application will be rejected without

prejudice to the applicant's right to resubmit, the rejection to be accompanied by a detailed written

explanation of the reasons for rejection. If the department of attorney general and department of

health determine the additional information to be as requested, the applicant will be notified, in

writing, of the date of acceptance of the application;

     (3) Within thirty (30) working days after acceptance of the initial application, the

department of attorney general shall render its determination on confidentiality pursuant to § 23-

17.14-32 and the department of attorney general and department of health shall publish notice of

the application in a newspaper of general circulation in the state and shall notify by United States

mail any person who has requested notice of the filing of the application. The notice shall:

     (i) State that an initial application has been received and accepted for review;

     (ii) State the names of the transacting parties;

     (iii) State the date by which a person may submit written comments to the department of

attorney general or department of health; and

     (iv) Provide notice of the date, time, and place of informational meeting open to the public

which shall be conducted within sixty (60) days of the date of the notice;

     (4) The department of attorney general and department of health shall each approve,

approve with conditions directly related to the proposed conversion, or disapprove the application

within one hundred twenty (120) days of the date of acceptance of the application.

LC002574 - Page 6 of 16

     (c) In reviewing an application pursuant to subsection (a) of this section, the department of

the attorney general shall consider the following criteria:

     (1) Whether the proposed conversion will harm the public's interest in trust property given,

devised, or bequeathed to the existing hospital for charitable, educational, or religious purposes

located or administered in this state;

     (2) Whether a trustee or trustees of any charitable trust located or administered in this state

will be deemed to have exercised reasonable care, diligence, and prudence in performing as a

fiduciary in connection with the proposed conversion;

     (3) Whether the board established appropriate criteria in deciding to pursue a conversion

in relation to carrying out its mission and purposes;

     (4) Whether the board formulated and issued appropriate requests for proposals in pursuing

a conversion;

     (5) Whether the board considered the proposed conversion as the only alternative or as the

best alternative in carrying out its mission and purposes;

     (6) Whether any conflict of interest exists concerning the proposed conversion relative to

members of the board, officers, directors, senior management, experts, or consultants engaged in

connection with the proposed conversion including, but not limited to, attorneys, accountants,

investment bankers, actuaries, healthcare experts, or industry analysts;

     (7) Whether individuals described in subsection (c)(6) of this section were provided with

contracts or consulting agreements or arrangements that included pecuniary rewards based in

whole, or in part on the contingency of the completion of the conversion;

     (8) Whether the board exercised due care in engaging consultants with the appropriate level

of independence, education, and experience in similar conversions;

     (9) Whether the board exercised due care in accepting assumptions and conclusions

provided by consultants engaged to assist in the proposed conversion;

     (10) Whether the board exercised due care in assigning a value to the existing hospital and

its charitable assets in proceeding to negotiate the proposed conversion;

     (11) Whether the board exposed an inappropriate amount of assets by accepting in

exchange for the proposed conversion future or contingent value based upon success of the new

hospital;

     (12) Whether officers, directors, board members, or senior management will receive future

contracts in existing, new, or affiliated hospital or foundations;

     (13) Whether any members of the board will retain any authority in the new hospital;

     (14) Whether the board accepted fair consideration and value for any management

LC002574 - Page 7 of 16

contracts made part of the proposed conversion;

     (15) Whether individual officers, directors, board members, or senior management

engaged legal counsel to consider their individual rights or duties in acting in their capacity as a

fiduciary in connection with the proposed conversion;

     (16) Whether the proposed conversion results in an abandonment of the original purposes

of the existing hospital or whether a resulting entity will depart from the traditional purposes and

mission of the existing hospital such that a cy pres proceeding would be necessary;

     (17) Whether the proposed conversion contemplates the appropriate and reasonable fair

market value;

     (18) Whether the proposed conversion was based upon appropriate valuation methods

including, but not limited to, market approach, third-party report, or fairness opinion;

     (19) Whether the conversion is proper under the Rhode Island Nonprofit Corporation Act;

     (20) Whether the conversion is proper under applicable state tax code provisions;

     (21) Whether the proposed conversion jeopardizes the tax status of the existing hospital;

     (22) Whether the individuals who represented the existing hospital in negotiations avoided

conflicts of interest;

     (23) Whether officers, board members, directors, or senior management deliberately acted

or failed to act in a manner that impacted negatively on the value or purchase price;

     (24) Whether the formula used in determining the value of the existing hospital was

appropriate and reasonable which may include, but not be limited to, factors such as: the multiple

factor applied to the "EBITDA" -- earnings before interest, taxes, depreciation, and amortization;

the time period of the evaluation; price/earnings multiples; the projected efficiency differences

between the existing hospital and the new hospital; and the historic value of any tax exemptions

granted to the existing hospital;

     (25) Whether the proposed conversion appropriately provides for the disposition of

proceeds of the conversion that may include, but not be limited to:

     (i) Whether an existing entity or a new entity will receive the proceeds;

     (ii) Whether appropriate tax status implications of the entity receiving the proceeds have

been considered;

     (iii) Whether the mission statement and program agenda will be or should be closely related

with the purposes of the mission of the existing hospital;

     (iv) Whether any conflicts of interest arise in the proposed handling of the conversion's

proceeds;

     (v) Whether the bylaws and articles of incorporation have been prepared for the new entity;

LC002574 - Page 8 of 16

     (vi) Whether the board of any new or continuing entity will be independent from the new

hospital;

     (vii) Whether the method for selecting board members, staff, and consultants is

appropriate;

     (viii) Whether the board will comprise an appropriate number of individuals with

experience in pertinent areas such as foundations, health care, business, labor, community

programs, financial management, legal, accounting, grant making, and public members

representing diverse ethnic populations and the interests of the affected community; and

     (ix) Whether the size of the board and proposed length of board terms are sufficient;

     (26) Whether the transacting parties are in compliance with the Charitable Trust Act,

chapter 9 of title 18;

     (27) Whether a right of first refusal to repurchase the assets has been retained;

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

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

     (29) Whether a control premium is an appropriate component of the proposed conversion;

     (30) Whether the value of assets factored in the conversion is based on past performance

or future potential performance; and

     (31) Whether the proposed conversion is proper under chapter 36 of title 6 ("Rhode Island

Antitrust Act");

     (32) Whether the board established appropriate criteria for staffing levels post conversion,

including any reduction in staffing, relocation of staffing, or additional staffing affecting the new

hospital(s) and the exiting hospital(s);

     (33) Whether the board exercised due care concerning staffing levels post conversion to

comply with federal employment and labor laws, including the National Labor Relations Act

(NLRA) 29 U.S.C. §§ 151-169, Age Discrimination in Employment Act of 1967, Public Law 90-

202 29 U.S.C. § 621 et seq., Civil Rights Act of 1964, Public Law 88-352 (78 Stat. 241) Title VI,

42 U.S.C. § 2000d et seq.;

     (34) Whether the board exercised due care concerning staffing levels post conversion to

comply with state employment and labor laws, including chapter 5 of title 28 (the "fair employment

practices act");

     (35) Whether the board exercised due care in funding employee and retirement plans and

pensions, including developing plans to fund unfunded liabilities for retirement plans and pensions

for all employees, full-time or part-time;

     (36) Whether the retirement and pensions plans are in compliance with the Employee

LC002574 - Page 9 of 16

Retirement Income Security Act (ERISA) 29 U.S.C. §§ 1001 et seq.; and

     (37) Whether the board established appropriate criteria for any impact analysis for the

affected communities both before conversion and after proposed conversion, including community

benefits, economic impact, and staffing.

     23-17.14-10. Review process of department of attorney general and department of

health and criteria by department of attorney general -- Conversions limited to not-for-profit

corporations.

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

parties are limited to not-for-profit corporations, except as provided in § 23-17.14-12.1, the

department of attorney general and department of health shall adhere to the following process:

     (1) Within thirty (30) days after receipt of an initial application, the department of attorney

general and department of health shall jointly advise the applicant, in writing, whether the

application is complete, and, if not, shall specify all additional information the applicant is required

to provide;

     (2) The applicant will submit the additional information within thirty (30) working days.

If the additional information is submitted within the thirty-day (30) period, the department of

attorney general and department of health will have ten (10) working days within which to

determine acceptability of the additional information. If the additional information is not submitted

by the applicant within the thirty-day (30) period or if either agency determines the additional

information submitted by the applicant is insufficient, the application will be rejected without

prejudice to the applicant's right to resubmit, the rejection to be accompanied by a detailed written

explanation of the reasons for rejection. If the department of attorney general and department of

health determine the additional information to be as requested, the applicant will be notified, in

writing, of the date of acceptance of the application;

     (3) Within thirty (30) working days after acceptance of the initial application, the

department of attorney general shall render its determination on confidentiality pursuant to § 23-

17.14-32 and the department of attorney general and department of health shall publish notice of

the application in a newspaper of general circulation in the state and shall notify by United States

mail any person who has requested notice of the filing of the application. The notice shall:

     (i) State that an initial application has been received and accepted for review;

     (ii) State the names of the transacting parties;

     (iii) State the date by which a person may submit written comments to the department of

attorney general or department of health; and

     (iv) Provide notice of the date, time, and place of informational meeting open to the public

LC002574 - Page 10 of 16

which shall be conducted within sixty (60) days of the date of the notice;

     (4) The department of attorney general and department of health shall each approve,

approve with conditions directly related to the proposed conversion, or disapprove the application

within one hundred twenty (120) days of the date of acceptance of the application.

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

parties are limited to not-for-profit corporations, the department of attorney general may consider

the following criteria:

     (1) Whether the proposed conversion will harm the public's interest in trust property given,

devised, or bequeathed to the existing hospital for charitable, educational, or religious purposes

located or administered in this state;

     (2) Whether a trustee or trustees of any charitable trust located or administered in this state

will be deemed to have exercised reasonable care, diligence, and prudence in performing as a

fiduciary in connection with the proposed conversion;

     (3) Whether the board established appropriate criteria in deciding to pursue a conversion

in relation to carrying out its mission and purposes;

     (4) Whether the board formulated and issued appropriate requests for proposals in pursuing

a conversion, including considered the proposed conversion as the only alternative or as the best

alternative in carrying out its mission and purposes;

     (5) Whether any conflict of interest exists concerning the proposed conversion relative to

members of the board, officers, directors, senior management, experts, or consultants engaged in

connection with the proposed conversion including, but not limited to, attorneys, accountants,

investment bankers, actuaries, healthcare experts, or industry analysts;

     (6) Whether individuals described in subsection (b)(5) of this section were provided with

contracts or consulting agreements or arrangements that included pecuniary rewards based in

whole, or in part on the contingency of the completion of the conversion;

     (7) Whether the board exercised due care in engaging consultants with the appropriate level

of independence, education, and experience in similar conversions;

     (8) Whether the board exercised due care in accepting assumptions and conclusions

provided by consultants engaged to assist in the proposed conversion;

     (9) Whether officers, directors, board members, or senior management will receive future

contracts in existing, new, or affiliated hospital or foundations;

     (10) Whether any members of the board will retain any authority in the new hospital;

     (11) Whether the board accepted fair consideration and value for any management

contracts made part of the proposed conversion;

LC002574 - Page 11 of 16

     (12) Whether individual officers, directors, board members, or senior management

engaged legal counsel to consider their individual rights or duties in acting in their capacity as a

fiduciary in connection with the proposed conversion;

     (13) Whether the proposed conversion results in an abandonment of the original purposes

of the existing hospital or whether a resulting entity will depart from the traditional purposes and

mission of the existing hospital such that a cy pres proceeding would be necessary;

     (14) Whether the proposed conversion contemplates the appropriate and reasonable fair

market value;

     (15) Whether the proposed conversion was based upon appropriate valuation methods

including, but not limited to, market approach, third-party report, or fairness opinion;

     (16) Whether the conversion is proper under the Rhode Island Nonprofit Corporation Act;

     (17) Whether the conversion is proper under applicable state tax code provisions;

     (18) Whether the proposed conversion jeopardizes the tax status of the existing hospital;

     (19) Whether the individuals who represented the existing hospital in negotiations avoided

conflicts of interest;

     (20) Whether officers, board members, directors, or senior management deliberately acted

or failed to act in a manner that impacted negatively on the value or purchase price;

     (21) Whether the transacting parties are in compliance with the Charitable Trust Act,

chapter 9 of title 18; and

     (22) Whether the proposed conversion is proper under chapter 36 of title 6 ("Rhode Island

Antitrust Act");

     (23) Whether the board established appropriate criteria for staffing levels post conversion,

including any reduction in staffing, relocation of staffing, or additional staffing affecting the new

hospital(s) and the exiting hospital(s);

     (24) Whether the board exercised due care concerning staffing levels post conversion to

comply with federal employment and labor laws, including the National Labor Relations Act

(NLRA) 29 U.S.C. §§ 151-169, Age Discrimination in Employment Act of 1967, Public Law 90-

202 29 U.S.C. § 621 et seq., and the Civil Rights Act of 1964, Public Law 88-352 (78 Stat. 241)

Title VI, 42 U.S.C. § 2000d et seq.;

     (25) Whether the board exercised due care concerning staffing levels post conversion to

comply with state employment and labor laws, including chapter 5 of title 28 (the "fair employment

practices act");

     (26) Whether the board exercised due care in funding employee and retirement plans and

pensions, including developing plans to fund unfunded liabilities for retirement plans and pensions

LC002574 - Page 12 of 16

for all employees, full-time or part-time;

     (27) Whether the retirement and pensions plans are in compliance with the Employee

Retirement Income Security Act (ERISA) 29 U.S.C. §§ 1001 et seq.; and

     (28) Whether the board established appropriate criteria for any impact analysis for the

affected communities both before conversion and after proposed conversion, including community

benefits, economic impact, and staffing.

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

profit hospitals.

     (a) Notwithstanding §§ 23-17.14-6(a) and 23-17.14-10 of this chapter, if a 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 this chapter and another hospital or hospital system parent

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

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

corporation, as acquiree, 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 either in Rhode Island or in another

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

preceding three (3) years; and

     (2) The combined hospitals of the acquiree and acquiror are licensed for not more than

twenty percent (20%) of licensed hospitals in Rhode Island according to the department of health;

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

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

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

based upon whether the hospital(s) 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);

LC002574 - Page 13 of 16

     (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 that 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;

     (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;

LC002574 - Page 14 of 16

     (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.

     (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 and attorney general containing all

updated financial information required to be disclosed pursuant to subsection (b)(7) of this section.

     (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 pursuant to § 23-

17.14-10(b) and the criteria for conversions limited to not-for-profits. The attorney general's review

shall be done concurrently 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 (f) of this section.

     SECTION 2. This act shall take effect upon passage.

========

LC002574

========

LC002574 - Page 15 of 16

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO HEALTH AND SAFETY -- THE HOSPITAL CONVERSIONS ACT

***

     This act would require the transacting parties and the new hospital seeking conversion to

supply additional information in their application for review by the department of health and the

department of the attorney general relating to staffing levels, pension plans and impact for the

affected communities before and after the proposed conversion.

     This act would take effect upon passage.

========

LC002574

========

LC002574 - Page 16 of 16