BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 804
AUTHOR: Corbett
AMENDED: January 4, 2012
HEARING DATE: January 11, 2012
CONSULTANT: Trueworthy
SUBJECT : Health care districts: transfers of assets.
SUMMARY : Requires health care districts to include, in an
agreement transferring more than 50 percent of the health
care district's assets, the appraised fair market value of
any asset transferred to a nonprofit corporation, as
defined. Further requires the appraisal of the fair market
value to be performed within the six months preceding the
date on which the district approves the transfer agreement.
Existing law:
1.Establishes the Local Health Care District Law which
authorizes communities to form special districts to
construct and operate hospitals and other health care
facilities to meet local needs.
2.Authorizes a health care district to transfer, for the
benefit of the communities served by the district, any
part of its assets of the district to one or more
nonprofit corporations to operate and maintain the
assets. Prior to the district transfer, requires the
district board to submit a measure to the voters of the
district proposing the transfer.
3.Authorizes a district to transfer, at less than fair
market value, any part of the assets of the district to
one or more nonprofit corporations to operate and
maintain the assets, if the transfer benefits the
communities served by the district. Requires that for a
transfer of 50 percent or more of a district's assets to
be deemed to benefit a district's communities, a district
must:
a. Fully discuss the transfer agreement in at least
five properly noticed public meetings before the
district board's decision to transfer the assets;
b. Provide, in the transfer agreement, that the
district approve all initial board members of the
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nonprofit corporation and any subsequent board members
as may be specified in the transfer agreement;
c. Provide, in the transfer agreement, that specified
assets are to be transferred back to the district upon
termination of the transfer agreement;
d. Commit the nonprofit corporation, in the transfer
agreement, to operate and maintain the district's
health care facilities and its assets for the benefit
of the communities served by the district; and
e. Require, in the transfer agreement, that any funds
a corporation receives from the district be used only
for specified activities that would further a valid
public purpose if undertaken directly by the district.
4.Requires the district to report to the California
Attorney General (AG), within 30 days of any lease of
district assets to one or more corporations, the type of
transaction and the entity to whom the assets were
leased.
This bill:
1.Requires health care districts to include, in an
agreement transferring more than 50 percent of the health
care district's assets, the appraised fair market value
of any asset transferred to the nonprofit corporation.
2.Requires the fair market value be appraised by an
independent consultant with expertise in methods of
appraisal and valuation and in accordance with applicable
governmental and industry standards for appraisal and
valuation of any asset transfer.
3.Requires that the appraisal be performed within the six
months preceding the date on which the district approves
the transfer agreement.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. According to the author, this bill
is intended to provide the public with more information
about the values of the health care districts assets that
are proposed to be sold or transferred to one or more
corporation. Of the 85 local health care districts that
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have formed since 1945, almost a third have closed,
leased, or sold their hospitals. Some have declared
bankruptcy and many have changed or expanded their
historic role as providers of acute care. There is
growing concern that some health care districts are
entering into contracts that reduce the health care
district's assets and financial security. SB 804
provides the public with additional information about
proposals to sell or transfer health care district assets
to an outside entity.
2.Background. Districts were formed under state law to
meet local health needs not satisfied by other health
care resources or government programs in a given
geographical area. Districts formed pursuant to state
law are financed by assessments on real and personal
property within the district. A 2006 report published by
the California Healthcare Foundation found that 85 health
care and hospital districts have been formed in
California since the first hospital district enabling
legislation was passed in 1946. Districts operate
medical facilities, including hospitals, public health
clinics, and skilled nursing facilities. Some also
provide community-based education programs to the
residents of their districts. Responding to changes in
health care delivery, districts explore economic and
organizational alternatives, including leasing or selling
their assets to nonprofit corporations or even to
for-profit companies.
3.Double referral. This bill is double referred. Should
it pass out of Senate Governance and Finance Committee,
it will be referred to this committee.
4.Prior legislation. SB 134 (Corbett) of 2010 contained
provisions substantially similar to the provisions of
this bill. SB 134 was amended to delete these provisions
in the Assembly.
SB 1240 (Corbett) of 2010 would have imposed conditions
on contracts between districts and other entities to
operate one or more health facilities owned by the
district. SB 1240 was vetoed by Governor Arnold
Schwarzenegger, who stated that the bill would have
limited the discretion of a district when entering into a
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contract with another operating entity and would have
created the unintended consequence of reducing the
incentive for such arrangements when hospitals are
struggling to remain open.
SB 894 (Corbett), Chapter 699, Statutes of 2010, made
permanent the requirement that health care districts get
majority-voter approval before they transfer or lease 50
percent or more of their assets to corporations.
SB 1351 (Corbett) of 2008 would have required voter
approval before a district can transfer, for the benefit
of the communities served by the district and in the
absence of adequate consideration, any part of the assets
of the district to one or more nonprofit corporations to
operate and maintain the assets, as opposed to 50 percent
or more of the district's assets. SB 1351 was vetoed by
Governor Arnold Schwarzenegger.
AB 1131 (Torrico), Chapter 194, Statutes of 2005,
extended the January 1, 2006, sunset date to 2011,
permitting districts to transfer or lease assets to
for-profit corporations, as specified.
SB 1508 (Figueroa), Chapter 169, Statutes of 2000,
extended the authority for districts to transfer or lease
assets to a for-profit until January 1, 2006.
SB 460 (Kelley), Chapter 18, Statutes of 1998, permitted,
until 2001, a district to transfer at fair market value
its assets to for-profit corporations, as specified.
SB 1771 (Russell and Kopp), Chapter 1359, Statutes of
1992, defines the terms and conditions under which a
district may transfer, without adequate consideration,
any part of its assets to one or more nonprofit
corporations, including that the transfer must be for the
benefit of the community served by the district, provide
for the transfer back to the district of the assets at
the end of the lease, and be approved by a majority of
the voters in the district if the transfer is 50 percent
or more of the district's assets.
SUPPORT AND OPPOSITION :
Support: None received.
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Oppose: None received.
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