BILL ANALYSIS                                                                                                                                                                                                    


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                              UNFINISHED BUSINESS

          Bill No:  SB 1221
          Author:   Kuehl (D)
          Amended:  8/18/08
          Vote:     21

           SENATE HEALTH COMMITTEE  :  6-2, 4/23/08
          AYES:  Kuehl, Alquist, Cedillo, Negrete McLeod, Steinberg,  
          NOES:  Aanestad, Cox
          NO VOTE RECORDED:  Maldonado, Ridley-Thomas, Wyland

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           SENATE FLOOR  :  25-13, 5/27/08
          AYES:  Alquist, Calderon, Cedillo, Corbett, Correa,  
            Ducheny, Florez, Kehoe, Kuehl, Lowenthal, Machado,  
            Maldonado, Migden, Negrete McLeod, Oropeza, Padilla,  
            Perata, Romero, Scott, Simitian, Steinberg, Torlakson,  
            Vincent, Wiggins, Yee
          NOES:  Aanestad, Ackerman, Ashburn, Cogdill, Cox, Denham,  
            Dutton, Harman, Hollingsworth, Margett, McClintock,  
            Runner, Wyland
          NO VOTE RECORDED:  Battin, Ridley-Thomas

           ASSEMBLY FLOOR  :  47-32, 8/20/08 - See last page for vote

           SUBJECT  :    Health facility financing

           SOURCE  :     California State Treasurer Bill Lockyer



                                                               SB 1221

           DIGEST  :    This bill requires health facilities seeking  
          financing from the California Health Facilities Financing  
          Authority (CHFFA), a local government, or a joint powers  
          authority (JPA), to demonstrate to the satisfaction of  
          CHFFA, the local government, or the JPA, the performance of  
          community service, as specified.

           Assembly Amendments  revised existing legislative intent to  
          state that the Legislature intends for the CHFFA to assist  
          in providing tax-exempt financing based on the  
          creditworthiness of the obligors regarding financing,  
          revises existing legislative intent language to state that  
          the Legislature intends for savings passed on for the  
          benefit of the public is in the form of community services  
          as provided in the bill, required participating health  
          institutions to demonstrate specified actions, and required  
          participating health institutions that are not non-hospital  
          affiliates or hospitals subject to the community benefit  
          requirement to demonstrate to CHFFA the performance of  
          community service by other means, including, but not  
          limited to, certifying that it is a primary care clinic,  
          Indian health clinic, or clinic operated by a primary care  
          community or free clinic that is open for no more than 20  
          hours a week.

           ANALYSIS  :    

           Existing Law
          1. Permits CHFFA to make secured or unsecured loans to, or  
             purchase secured or unsecured loans of, a public or  
             non-profit health institution in connection with the  
             financing of a project or of working capital.

          2. Specifies that, for the purposes of CHFFA's loans, a  
             non-profit health institution includes, but is not  
             limited to, a general acute care hospital; an acute  
             psychiatric hospital; a skilled nursing facility (SNF);  
             an intermediate care facility; a special health care  
             facility that provides medical, nursing, rehabilitation,  
             dental, or maternity services; a clinic; an adult day  
             health center; a county-operated health facility; a  
             residential facility for the elderly that is operated as  
             a part of, or in conjunction with, an intermediate care  


                                                               SB 1221

             facility, a SNF, or a general acute care hospital; a  
             child day care facility operated in conjunction with a  
             health facility; an intermediate care  
             facility/developmentally disabled habilitative, that is  
             a health facility;  a community care facility; an  
             accredited community work-activity program; a community  
             mental health center; and a speech and hearing center,  
             or a blood bank. 

          3. States legislative intent that CHFFA provide financing  
             to health facilities that can demonstrate the financial  
             feasibility of their projects, with specified  

          4. States legislative intent that all or part of any  
             savings realized by a health institution as a result of  
             that tax-exempt revenue bond funding, be passed on to  
             the consuming public either through lower charges or  
             through containment of the rate of increase in hospital  

          5. Requires hospitals to maintain an understandable written  
             policy regarding discounted payments and charity care to  
             financially qualified patients, as specified.

          6. Requires non-profit hospitals to annually adopt and  
             update a community benefits plan for providing community  
             benefits, as specified, and to submit the plan to the  
             Office of Statewide Health Planning and Development.

          This bill:

           1.Requires a participating health institution seeking  
             financing for a project from CHFFA, a local government  
             entity or JPA to demonstrate, for each project location,  
             the performance of community service, by submitting all  
             of the following:

             A.    A copy of its policy of treating all patients  
                without regard to ability to pay, in accordance  
                with existing law.  If the applicant is not subject  
                to that provision of law, they must submit a copy  
                of its policy for providing emergency services  
                without regard to a patient's ability to pay.


                                                               SB 1221

             B.    Confirmation that the applicant maintains a  
                California Medical Assistance Commission contract,  
                otherwise provides for the treatment of Medi-Cal  
                eligible patients, or otherwise provides services  
                to low-income individuals.

             C.    A copy of its charity care policy required  
                pursuant to existing law.

             D.    Confirmation that it maintains a mechanism for  
                tracking and reporting its costs, charges, and  
                clinical quality data, to the extent required by  
                state and federal agencies.

             E.    A copy of the most recent community benefits  
                plan, as defined in existing law, including an  
                implementation schedule and economic valuation of  
                the community benefits.

           2.Exempts from the community service requirement a health  
             facility that operates as a children's hospital. 

           3.Requires a hospital that does not submit the information  
             described in # 1 above to demonstrate the performance of  
             community service by submitting is most recent community  
             benefits plan, to identify its priorities, as determined  
             by the community needs assessment, and demonstrate that  
             it has taken action on most of these priorities. 

           4.Requires a non-hospital affiliate of a participating  
             health institution to demonstrate the performance of  
             community service by submitting any item of information  
             described in # 1 above, or by other means, as described  
             in # 5 below. 

           5.Requires a participating health institution that is  
             neither a hospital subject to the community benefits  
             requirements or a non-hospital affiliate, and does not  
             submit any of the items of information described in # 3  
             above, to demonstrate the performance of community  
             service by other means, including, but not limited to,  
             providing a certification that the participating health  
             institution is a federally qualified health center, a  


                                                               SB 1221

             primary care clinic, free clinic, or a clinic that is  
             open for no more than 20 hours a week.

           6.Prohibits this bill or any enforcement proceeding  
             brought under this bill or the CHFFA statute from  
             affecting the validity or enforceability of any bonds  
             issued by CHFFA, a JPA, or local government under this  

           7.Requires the remedies and sanctions available to the  
             local government or JPA against a borrower for failure  
             to adhere to the assurance given under this bill to  
             include referring the violation to the office of the  
             Attorney General for legal action authorized under  
             existing law or other remedy at law or equity. 

           8.Repeals the existing authority of CHFFA to give special  
             consideration on a case-by-case basis to financing  
             health facility projects that do not meet CHFFA bond  
             rating guidelines.

           9.Modifies existing CHFFA legislative intent language  
             stating that all or part of any savings experienced by  
             CHFFA participating health institutions as a result of  
             tax-exempt financing (instead of tax-exempt revenue bond  
             financing in current law) be passed on to the consuming  
             public by deleting the language that the pass-through be  
             through lower charges or containment of the rate of  
             increase in hospital rates, and instead states  
             legislative intent that the pass-through be passed  
             through for the benefit of the public in the form of  
             community service as provided in this bill. 

          10.Revise existing legislative intent to state the  
             Legislature intends for CHFFA to assist in providing tax  
             exempt financing based on the creditworthiness of the  
             obligors with request to the requested financing,  
             instead of only assisting health facilities that can  
             demonstrate the financial feasibility of their projects.

          11.Applies the legislative intent language (as modified by  
             this bill) to local financing of health facilities by  
             JPAs and local governments.


                                                               SB 1221

          In January of 2008, the Senate Office of Research (SOR)  
          released a report comparing procedures used by authorities  
          issuing state bonds to procedures used by authorities  
          issuing bonds under non-state JPAs.  Both types of entities  
          provide tax-exempt bonds for schools, hospitals, affordable  
          housing, and pollution control facilities.  The SOR  
          analysis highlighted several conditions placed on state  
          bond issuing authorities, such as the CHFFA, that are not  
          placed on JPAs.

          CHFFA commissioned an analysis, released in March 2008, to  
          evaluate the impact of its pass-through public benefit  
          savings requirement.  The report notes that, when it was  
          created in 1979, CHFFA was the primary organization  
          providing non-profit health facilities with access to the  
          tax-exempt bond market.  Through CHFFA, non-profit  
          hospitals were able to obtain lower interest rates than  
          they would by using traditional taxable vehicle bonds.   
          Recognizing the benefit derived by obtaining CHFFA's  
          tax-exempt financing, the Legislature expressed its intent  
          that "all or part of" the resulting savings be "passed on  
          to the consuming public through lower charges or  
          containment of the rate of increase in hospital rates."  In  
          the ensuing 25 years, several JPAs in California began  
          offering non-profit health facilities access to the  
          tax-exempt bond market.  However, these JPAs are not  
          subject to the legislative intent language in current law  
          to pass-on "all or part" of the savings generated from  
          financing through CHFFA.

          The Sjoberg-Evashenk report states that the pass-through  
          requirement has created a chilling effect on CHFFA's tax  
          exempt bond financing activity.  In the 11 months since the  
          Sutter Health transaction, CHFFA has only provided $27  
          million of tax-exempt bond financing, in stark contrast to  
          the $1.1 billion per year it had averaged since 2002.  In a  
          more striking contrast, as bond issuance continued on a  
          declining trend for CHFFA, the volume generated by its  
          primary competitor rose to $2.2 billion in 2007.

          Sjoberg-Evashenk conducted interviews with hospitals,  
          health care associations, underwriters, bond counsel, and  


                                                               SB 1221

          key stakeholders as part of their study.  Through those  
          interviews, it was made clear that hospitals and other  
          health care providers will not return to CHFFA for  
          tax-exempt bond financing unless CHFFA clearly defines the  
          pass-through provision.  The report went on to recommend  
          that a legislative solution, that does not place CHFFA at a  
          competitive disadvantage with alternative issuers, be  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  8/20/08)

          California State Treasurer Bill Lockyer (source)

           ARGUMENTS IN SUPPORT  :    Treasurer Bill Lockyer writes that  
          there have been many changes over the last 29 years since  
          the statutes that created CHFFA were drafted and that the  
          current legislative intent language was crafted before the  
          advent of managed care, capitated rates, and JPA issuance  
          of tax-exempt financing.  The Treasurer further states that  
          there is no single agreed-upon methodology or convention  
          for calculating savings, particularly in the context of  
          recent market fluctuations, and that hospitals have  
          significantly changed their business practices since 1979,  
          providing varied and valuable community benefits, which are  
          funded wholly or in part by the savings which inure them  
          from tax-exempt financing.

          The Treasurer contends that the vague and discretionary  
          intent language currently in statute, unique to CHFFA,  
          raises expectations on the part of consumers and advocates  
          who harbor an unwarranted hope that health care costs can,  
          and should, be controlled by conduit issuers, who otherwise  
          have no statutory or regulatory role to develop or apply  
          policy in this area.  Conversely, the language  
          unnecessarily repels potential borrowers from doing  
          business with the only state-run conduit issuer of  
          tax-exempt status, so much so that CHFFA's borrower base  
          has taken their business to other conduit issuers who are  
          not required to operate under this vague intent language.   
          Borrowers fear that this broad language allows the  


                                                               SB 1221

          authority to impose costly conditions on their transactions  
          that are not required elsewhere.

           ASSEMBLY FLOOR  : 
          AYES:  Arambula, Beall, Berg, Blakeslee, Brownley,  
            Caballero, Charles Calderon, Carter, Coto, Davis, De La  
            Torre, De Leon, DeSaulnier, Dymally, Eng, Evans, Feuer,  
            Fuentes, Furutani, Galgiani, Hancock, Hayashi, Hernandez,  
            Huffman, Jones, Karnette, Krekorian, Laird, Leno, Levine,  
            Lieber, Lieu, Ma, Mendoza, Mullin, Nava, Nunez,  
            Portantino, Price, Ruskin, Salas, Saldana, Solorio,  
            Swanson, Torrico, Wolk, Bass
          NOES:  Adams, Aghazarian, Anderson, Benoit, Berryhill,  
            Cook, DeVore, Duvall, Emmerson, Fuller, Gaines, Garcia,  
            Garrick, Horton, Houston, Huff, Jeffries, Keene, La  
            Malfa, Maze, Nakanishi, Niello, Parra, Plescia, Sharon  
            Runner, Silva, Smyth, Spitzer, Strickland, Tran,  
            Villines, Walters
          NO VOTE RECORDED:  Soto

          CTW:do  8/23/08   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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