Title 23
Health and Safety

Chapter 17.14
The Hospital Conversions Act

§ 23-17.14-7. Review process of the department of attorney general and the department 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 and/or a not-for-profit corporation.

(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 eighty (180) days of the date of acceptance of the application.

(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 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;

(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;

(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 existing 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, Pub. L. No. 90-202, 29 U.S.C. §§  621-634, Civil Rights Act of 1964, Pub. L. No. 88-352 (78 Stat. 241), 42 U.S.C. § 2000d et seq. (Title VI);

(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 (“fair employment practices”);

(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 Retirement Income Security Act of 1974 (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 benefits to the community, economic impact, and staffing.