BILL ANALYSIS
SB 364
Page 1
Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 364 (Florez) - As Amended: April 22, 2010
SENATE VOTE : Not relevant
SUBJECT : Health facilities: patient impact report.
SUMMARY : Requires the Office of the Attorney General (AG) to
conduct a patient impact report when a nonprofit hospital
converts to a for-profit hospital or a nonprofit hospital seeks
to establish a medical foundation. Specifically, this bill :
1)Makes legislative findings and declarations regarding the need
to understand the potential impacts on health services when a
nonprofit hospital converts to a for-profit hospital or a
nonprofit hospital seeks to establish a medical foundation.
2)Establishes the California Patient Impact Report Act.
Provides that the basic purpose of patient impact reports are
to do the following:
a) Inform governmental decision makers and the public about
the potential, significant health service effects of
proposed activities;
b) Identify the ways that declines in health services can
be avoided or significantly reduced;
c) Prevent significant, avoidable damages to health
services by requiring changes in conversions through the
use of alternatives or mitigation measures when the AG
finds the changes to be feasible; and,
d) Disclose to the public the reasons why the AG approved
the conversion in the manner the AG chose if significant
health services effects are involved.
3)Makes definitions, including the following:
a) "Conversion" means a change in the management structure
of a general acute care hospital, including, either
changing from nonprofit to for-profit structure or a
nonprofit general acute care hospital establishing a
medical foundation, that either will cause a change to
health services or is reasonably foreseeable to cause a
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change to health services and that is any of the following:
i) An activity undertaken by a person or entity that is
supported, in whole or in part, through contracts,
grants, subsidies, loans, or other form of assistance
from one or more public agencies; and,
ii) An activity that involves the issuance to a person
of a lease, permit, license, certificate, or other
entitlement for use by one or more public agencies.
b) "Discretionary conversion" means a conversion subject to
the judgmental controls of the AG;
c) "Negative Declaration" means the statement by the AG
that a patient impact report does not need to be done for a
specified conversion; and,
d) "Responsible agency" means a public agency, other than
the AG that has responsibility for carrying out or
approving a conversion.
4)Requires that provisions in this bill apply only to
discretionary conversions proposed to be carried out or
approved by the AG.
5)Requires applications for conversion to be considered for
approval only after the AG publishes either a patient impact
report or a negative declaration.
6)Requires that a patient impact report be prepared if there is
substantial evidence, in light of the whole record before the
AG, that conversion may have a significant effect on health
services.
7)Requires the patient impact report to be an informational
document that will inform the AG decision makers and the
public generally of the significant health services effect of
a conversion, identify possible ways to minimize the
significant effects, and describe reasonable alternatives to
the conversion.
8)Requires the patient impact report to identify any significant
effect on the level of service and patient care provided by
the general acute care hospital after the conversion, identify
alternatives to the conversion, and indicate the manner in
which that significant effect can be mitigated or avoided.
9)Clarifies that substantial evidence includes facts, a
reasonable assumption predicated upon facts, or expert opinion
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supported by facts.
10)Clarifies that substantial evidence is not argument,
speculation, unsubstantiated opinion or narrative, evidence
that is clearly inaccurate or erroneous, or evidence of social
or economic impacts that do not contribute to, or are not
caused by, impacts on health services.
11)Requires the AG to adopt regulations setting forth
objectives, criteria, and procedures for the evaluation of
conversions and the preparation of a patient impact report and
negative declarations. Requires the AG to be responsible for
determining whether a patient impact report is to be required
for conversion. Requires the determination to be final and
conclusive.
12)Requires that if the AG determines that a patient impact
report is required for a conversion, the AG is to immediately
send notice of that determination by certified mail or an
equivalent procedure to each responsible agency, the Office of
Planning and Research, and all trustee agencies.
13)Requires that the existence of public controversy over the
health services effects of a conversion not require
preparation of a patient impact report if there is no
substantial evidence.
14)Requires that the determination that a patient impact report
is needed to be made within 30 days from the date on which an
application for a conversion has been received and accepted as
complete by the AG. Permits this period to be extended 15
days upon consent of the AG and the conversion applicant.
Provides that patient impact reports and negative declarations
be prepared as early as feasible in the planning process.
Provides the patient impact report preparation and review to
be coordinated in a timely fashion with other existing
planning, review, and conversion approval processes and to the
maximum extent feasible, run concurrently, not consecutively,
with those processes.
15)Requires the AG, if the AG determines that a patient impact
report is necessary, to begin investigation and drafting of a
preliminary patient impact report to determine whether the
conversion has a significant effect on health services based
on substantial evidence in light of the whole record.
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16)Requires a draft patient impact report to be prepared
directly by, or under contract to, the AG.
17)Requires the AG, when drafting a patient impact report, to
solicit and respond to comments from the public and other
agencies concerned with conversions.
18)Requires the AG to include provisions in its patient impact
report procedures for wide public involvement, formal and
informal, consistent with existing activities and procedures,
in order to receive and evaluate public reaction to health
service issues. Provide these procedures to include, whenever
possible, making public health service information available
in electronic format on the Internet, on an Internet Web site
maintained or utilized by the AG.
19)Requires the AG to provide public notice and disclosures as
specified.
20) Requires copies of the draft patient impact report to
be made available by the AG to public library systems serving
the area involved. Requires copies to also be available in
offices of the AG.
21) Requires the AG to use the State Clearinghouse to
distribute draft patient impact reports to state agencies for
review and should use area clearinghouses to distribute the
documents to regional and local agencies.
22) Requires the State Clearinghouse, if the submittal of a
patient impact report is determined by the State Clearinghouse
to be complete, to distribute the document within three
working days from the date of receipt. Requires the State
Clearinghouse to specify the information that will be required
in order to determine the completeness of the submittal of a
patient impact report.
23) Requires the AG to provide adequate time for other
public agencies and members of the public to review and
comment on a draft patient impact report or negative
declaration.
24) Permits the AG to establish time periods for review in
their implementing procedures and to notify the public and
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reviewing agencies of the time for receipt of comments on
patient impact reports.
25) Requires the public review period for a draft patient
impact report to be not be less than 30 days nor longer than
60 days except under unusual circumstances. Requires, when a
draft patient impact report is submitted to the State
Clearinghouse for review by state agencies, the public review
period to be not be less than 45 days, unless a shorter
period, not less than 30 days, is approved by the State
Clearinghouse.
26) Requires the public review period, if a draft patient
impact report has been submitted to the State Clearinghouse
for review by state agencies, to be at least as long as the
review period established by the State Clearinghouse. Permit
the public review period and the state agency review period to
begin and end at the same time. Require day one of the state
review period to be the date that the State Clearinghouse
distributes the document to state agencies.
27) Requires criteria for shorter review periods by the
State Clearinghouse for documents that must be submitted to
the State Clearinghouse to be set forth in written guidelines.
28) Permits shortened review periods to not be less than 30
days for a draft patient impact report and 20 days for a
negative declaration.
29) Requires a request for a shortened review period to be
made only in writing by the decision making body of the AG.
30) Requires a request approved by the State Clearinghouse
to be consistent with the criteria set forth in the written
guidelines.
31) Provides a shortened review period to not be approved
for a proposed conversion of statewide, regional, or area wide
health service significance.
32) Requires an approval of a shortened review period to be
given prior to, and reflected in, the public notice.
33) Requires a review period for a patient impact report to
not require a halt in other planning or evaluation activities
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related to a conversion. Provides planning should continue in
conjunction with public health service evaluation.
34) Requires the AG to evaluate comments on health service
issues received from persons who reviewed the draft patient
impact report and to prepare a written response. Requires the
AG to respond to comments received during the noticed comment
period and any extensions, and permits the AG to respond to
late comments.
35) Requires that there must be good faith, reasoned
analysis in response. Provides that conclusory statements
unsupported by factual information will not suffice.
36) Requires, with respect to the consideration of comments
received on a draft patient impact report, the AG to accept
comments via e-mail and shall treat e-mail comments as
equivalent to written comments.
37) Permits the response to comments to take the form of a
revision to the draft patient impact report or to be a
separate section in the final patient impact report. Requires
the AG, where the response to comments makes important changes
in the information contained in the text of the draft patient
impact report, to do either of the following:
a) Revise the text in the body of the patient impact
report; and,
b) Include marginal notes showing that the information is
revised in the response to comments.
38) Requires the written response to describe the
disposition of each significant health service issue that is
raised by the comments. Requires the responses to be prepared
consistent with specified existing law.
39) Requires that if any public agency or person who is
consulted with regard to a patient impact report fails to
comment within a reasonable time as specified by the AG, to be
assumed, without a request for a specific extension of time,
that the public agency or person has no comment to make.
Although the AG need not respond to late comments, permits the
AG to choose to respond to them.
40) Requires comments received through the consultation
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process to be retained for a reasonable period and available
for public inspection at an address given in the final patient
impact report. Requires comments which may be received on a
draft patient impact report or negative declaration under
preparation to also be considered and kept on file.
41) Permits every public agency to comment on patient
impact report documents dealing with conversions that affect
resources with which the agency has special expertise
regardless of whether its comments were solicited or whether
the effects fall within the legal jurisdiction of the lead
agency.
42) Requires that a draft patient impact report does not
require formal hearings at any stage of the review process.
43) Requires that if the AG provides a public hearing on
its decision to carry out or approve a conversion, the AG to
include patient impact report review as one of the subjects
for the hearing.
44) Provides a public hearing on the health service impact
of a conversion should usually be held when the lead agency
determines it would facilitate the purposes and goals of
patient impact report to do so. Permits the hearing to be
held in conjunction with and as a part of normal planning
activities.
45) Requires a draft patient impact report or negative
declaration to be used as a basis for discussion at a public
hearing. Permits the hearing to be held at a place where
public hearings are regularly conducted by the AG or at
another location expected to be convenient to the public.
46) Requires notice of all public hearings to be given in a
timely manner. Permits this notice to be given in the same
form and time as notice for other regularly conducted public
hearings of the AG. Requires, to the extent that the AG
maintains an Internet Web site, notice of all public hearings
to be made available in electronic format on that site.
47) Permits the AG to include, in its implementing
procedures, procedures for the conducting of public hearings.
Permit the procedures to adopt existing notice and hearing
requirements of the AG for regularly conducted legislative,
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planning, and other activities.
48) Permits the AG, prior to completing the draft patient
impact report, to also consult directly with any person or
organization it believes will be concerned with the health
service effects of the conversion. Provides this early
consultation is called scoping.
49) Requires the AG to call at least one scoping meeting
for a conversion of statewide, regional, or area wide
significance and notice to be provided to specified entities:
50) Permits, for an entity, organization, or individual
that is required to be provided notice of an AG public
meeting, the requirement for notice of a scoping meeting may
be met by including the notice of a scoping meeting in the
public meeting notice.
51) Requires specified reasons for the AG to not approve a
conversion for which a patient impact report has been
certified where the report identifies one or more significant
effects on health services.
52) Requires, whenever the AG has completed a patient
impact report, to provide notice of that completion, the
notice of completion to briefly identify the general acute
care hospital at which the conversion is proposed and to
indicate that a final patient impact report has been prepared.
Provides that failure to provide the notice to not affect the
validity of a conversion.
53) Requires, in addition to other notice required, notice
of completion of a patient impact report on a conversion to be
provided to any legislator in whose district the conversion
has a public health service, if the legislator requests the
notice.
54) Requires that nothing in this bill preclude a
conversion applicant or other person from challenging, in an
administrative or judicial proceeding, the legality of a
condition of conversion approval imposed by the AG. Requires,
if any condition of conversion approval set aside by either an
administrative body or court was necessary to avoid or lessen
the likelihood of the occurrence of a significant effect on
health services, the AG's approval of the conversion to be
invalid and a new patient impact report review process to be
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conducted before the conversion can be reapproved, unless the
AG substitutes a new condition that the AG finds, after
holding a public hearing on the matter, is equivalent to, or
more effective in, lessening or avoiding significant effects
on health services and that does not cause any potentially
significant effect on health services.
55) Permits the AG to charge and collect a reasonable fee
from a person proposing a conversion in order to recover the
estimated costs incurred by the AG in preparing a negative
declaration or a patient impact report for the conversion and
for procedures necessary to comply with the conversion.
Provides that litigation expenses, costs, and fees incurred in
actions alleging noncompliance are not recoverable.
EXISTING LAW :
1)Requires any nonprofit corporation that operates or controls a
health facility, as defined, or operates or controls a
facility that provides similar health care, to provide written
notice to, and to obtain the written consent of, the AG prior
to: a) entering into any agreement or transaction to sell,
transfer, lease, exchange, option, convey, or otherwise
dispose of, its assets to a for-profit corporation or entity
or to a mutual benefit corporation or entity when a material
amount of the assets of the nonprofit corporation are involved
in the agreement or transaction; or, b) transferring control,
responsibility, or governance of a material amount of the
assets or operations of the nonprofit corporation to any
for-profit corporation or entity or to any mutual benefit
corporation or entity.
2)Requires the AG, within 60 days of the receipt of the required
written notice, to notify the public benefit corporation in
writing of the decision to consent to, give conditional
consent to, or not consent to the agreement or transaction.
Authorizes the AG to extend this period, as specified.
3)Requires the AG, prior to issuing any decision, as required in
2) above, to conduct one or more public meetings, at least one
in the county in which the facility is located, to hear
comments from interested parties. Authorizes the AG to
conduct additional hearings if there are any changes to the
proposed agreement or transaction.
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4)Allows the AG, in making its decision as required in 2) above,
to consider any factors that it deems relevant including, but
not limited to, whether:
a) The terms and conditions of the agreement or transaction
are fair and reasonable to the nonprofit corporation;
b) The agreement or transaction will result in inurement to
any private person or entity;
c) The agreement or transaction is at fair market value;
d) The proposed use of the proceeds from the agreement or
transaction is consistent with the charitable trust;
e) The agreement or transaction may create a significant
effect on health care services to the affected community;
and,
f) Whether the proposed agreement or transaction is in the
public interest.
5)Prohibits the AG from consenting to a health facility
agreement or transaction in which the seller restricts the
type or level of medical services that may be provided at the
health facility that is the subject of the agreement or
transaction.
FISCAL EFFECT : The current version of this bill has not yet
been analyzed by a fiscal committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
designed to assess the impact on both the quality and
cost-effectiveness of patient care when a hospital seeks a
change in its ownership or re-organizes in a manner that
potentially changes how patient care is delivered. The author
maintains that this bill will allow the state an opportunity
to determine if the re-organization or re-classification might
have an economic impact on state budgets and if so, at what
cost and for what public benefit. The author argues that
local governments and developers are required to issue
environmental impact reports when there are land-use changes
and that it only makes sense that the same is asked of
hospitals to inform patients when there are changes in
providing health services.
2)BACKGROUND . Nonprofit hospital conversions typically occur
when a nonprofit hospital comes under the control of a
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for-profit company, through either an acquisition or a
joint-venture arrangement. Conversions take on many forms and
include outright sales of the facility and other assets (or a
portion of them), transfers of leases, joint ventures,
mergers, affiliations, acquisitions, the creation of
for-profit subsidiaries and holding companies, or other deals
that effectively change the mission of the nonprofit hospital
or transform it into a for-profit corporation. Policy makers
and community leaders have raised concerns over whether these
conversions lead to reductions in the type of community
benefits that nonprofit hospitals have traditionally provided,
particularly charity care. This concern has contributed to
state legislative initiatives to regulate nonprofit
conversions.
Under California law, AB 3101 (Isenberg), Chapter 1105, Statutes
of 1996, requires the AG to review and consent to any sale or
transfer of a health facility owned or operated by a nonprofit
corporation whose assets are held in public trust. This
requirement covers health facilities that are licensed to
provide 24-hour care such as hospitals and skilled nursing
facilities.
The current AG review process includes public meetings and, when
necessary, preparation of expert reports. The AG's decision
often requires the continuation of existing levels of charity
care, continued operation of emergency rooms and other actions
necessary to avoid adverse effects on healthcare in the local
community.
The AG, through various adminsitrations, has excercised its
authority over hosital conversions. In 2007, the AG rejected
the sale of Anaheim Memorial Medical Center, finding that the
sale was not in the best interest of the community. The AG
has also required a buyer to maintain specified levels of
patient care, charity care, community benefit programs and
investment in infrastructure improvements. For example, in
2005, the AG approved the sale of Sherman Oaks Hospital on the
condition that the new buyer maintain a burn center and a
Specialty Ambulatory Geriatric Evaluation Program and in 2009,
the sale of South Coast Medical Center was approved with
numerous detailed conditions, such as maintaing services at a
Women's Wellness Center and to fund cancer services through a
seperate foundation.
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3)MEDICAL FOUNDATION MODEL . A medical foundation is a model
commonly used in California to allow hospitals and physicians
to partner in the development of an integrated health care
delivery system. Specifically, a medical foundation is a
tax-exempt 501 (c) (3) nonprofit corporation that provides
health care to its patients through a group of 40 or more
physicians, representing 10 board-certified specialists, not
less than two-thirds of whom practice on a full-time basis
with the medical foundation. A medical foundation cannot
directly employ physicians in California, but instead must
contract with one or more medical groups. There are a number
of medical foundation models currently operating in the state.
The medical foundation was formally recognized by the
California Legislature by the adoption of California Health
and Safety Code Section 1206 (l), which exempts from licensure
clinics operated by medical foundations that satisfy the
requirements of Section 1206 (l).
According to recent news articles, there are a growing number of
California hospitals that are contemplating moving towards a
foundation model as the new health reform law starts to take
effect. The health reform law reflects a growing push towards
"integrated health care" models, which encourage physicians
and facilities to work together to reduce unnecessary hospital
tests and admissions. A May 14, 2010, Wall Street Journal
article reported that the Hospital Association of Southern
California (HASC) has proposed a plan to create a single
foundation of multiple facilities to contract with physician
groups. Under the proposal, a joint medical foundation would
contract with physician groups that each would be affiliated
with and retain privileges at an individual hospital.
According to the article, the HASC Foundation also would
operate clinics and centralize billing and electronic health
records. HASC maintains that this partnership between
hospitals and physicians would increase care coordination,
reduce costs, and improve quality and outcomes. The Los
Angeles Daily Journal also reported in a recent article that
officials at City of Hope Medical Center in Duarte, California
are considering a similar model in which physicians would work
for a not-for-profit foundation partly controlled by the
hospital.
Some physicians have criticized such models over concern that
they could lead to financial decisions overriding medical
assessments. However, HASC claims in the Wall Street Journal
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article that their proposal does not call for one centralized
contracting structure and that hospitals and physicians would
negotiate deals individually.
4)OPPOSITION . The Alliance of Catholic Health Care, Adventist
Health, Loma Linda University Medical Center, St. Joseph's
Health Systems, California Healthcare Institute and the San
Gabriel Valley Economic Partnership all state in opposition to
this bill that existing law already grants the AG broad
authority to review and approve non-profit hospital
conversions and that this bill layers onto the AG's existing
authority a complicated, burdensome and inefficient notice and
review process which is unnecessary. The California Hospital
Association (CHA) asserts that many of this bill's provisions
are ambiguous and could lead to nonsensical results. As an
example, CHA cites the definition of "conversion" in this bill
as "a change in the management structure of a general acute
care hospital..." which could be interpreted to mean that the
AG has the authority to make decisions regarding a hospital's
executive personnel, management contracts, lease agreements,
or other normal business transactions. Similarly, CHA states
that the definition of "conversion" refers to "medical
foundation" and that the conversion of a nonprofit hospital to
an investor owned hospital is not relevant to, and has no
connection whatsoever, to "medical foundation." CHA argues
that combining these unrelated and undefined terms creates
confusion and ambiguity without any stated purpose.
The City of Hope argues in opposition that this bill would
interfere with the creation of new medical foundations by
imposing an unnecessary review process under the AG's
auspices. City of Hope maintains that medical foundations,
which are far from uncommon in California and elsewhere, allow
nonprofit hospitals and physicians to share goals while also
requiring significant community benefits, such as charity care
and Medi-Cal services. In addition to providing a public
benefit, according to City of Hope, medical foundations can
lower the cost of providing health care services by
consolidating billing and other administrative duties,
unifying information technology and quality assurance, and
reducing the costs of capital for investment in equipment and
other resources. City of Hope also points out that, while
this bill purports to be about governing structures of medical
facilities in general, the history of this bill proves
otherwise. City of Hope maintains that this bill's initial
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form in 2009 was clearly aimed specifically at City of Hope
and that even though the original language has been gutted and
replaced with an entirely different approach, this bill is
still targeting primarily City of Hope. City of Hope asserts
that the reasons for this apparent vendetta by the bill's
author against a single medical facility with such a sterling
national and international reputation and a critical health
care mission are unclear.
Opponents also cite the federal health care reform laws recently
enacted which authorize the creation of accountable care
organizations, medical homes and other delivery models.
Opponents maintain that physicians and hospitals likely will
collaborate to develop such entities to provide health care
services. According to the opponents, medical foundations and
other mechanisms are options to fulfill the federal law and
that State legislative restrictions that impede implementation
of health care reform are counter to the public interest.
5)PREVIOUS LEGISLATION .
a) AB 2276 (Cedillo), Chapter 801, Statutes of 2000,
requires the AG to prepare a plan for an evaluation of
whether additional standards for charitable care and
community benefits should be established for private,
not-for profit corporations that operate or control a
general acute care hospital, as specified, to be submitted
to the appropriate policy and fiscal committees of the
Legislature by March 1, 2001. This report was submitted in
April 2001.
b) AB 254 (Cedillo), Chapter 850, Statutes of 1999,
requires nonprofit health facilities to obtain the consent
of the AG prior to the sale, transfer or lease of a
material amount of assets to another nonprofit corporation.
c) AB 3101 requires a public benefit corporation, that is a
non-health maintenance organization health facility, to
obtain the approval of the AG before selling or
transferring the control of a material portion of its
charitable assets to a for-profit business or mutual
benefit entity.
6)POLICY CONCERNS . There is an entire body of law currently
established under AB 3101, codified in Corporations Code
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Section 5914 et seq. and implemented through regulations under
11 CCR 15 Section 999.5 et seq., which sets forth requirements
for the AG to review and consent to any sale or transfer of a
health facility, owned or operated by a nonprofit corporation
whose assets are held in a public trust, to a for profit
entity. The author may wish to provide the rational for
proposing in this bill, a parallel and, at times overlapping,
body of law in the Health and Safety Code.
REGISTERED SUPPORT / OPPOSITION :
Support
None on File
Opposition
Adventist Health
Alliance of Catholic Health Care
California Children's Hospital Association
California Healthcare Institute
Catholic Healthcare West
California Hospital Association
City of Hope
Community Hospital of the Monterey Peninsula
Loma Linda University Medical Center
Long Beach Memorial Medical Center
Miller Children's Hospital Long Beach
San Gabriel Valley Economic Partnership
St. Joseph Health System
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097