BILL ANALYSIS
SB 364
Page 1
Date of Hearing: July 1, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 364 (Florez) - As Amended: June 30, 2010
SENATE VOTE : Not relevant
SUBJECT : Health facilities: patient impact report.
SUMMARY : Establishes the Joint Task Force on Hospital
Conversion and Patient Care (Task Force) to study the governance
structure of medical foundations and the current oversight of
hospital conversions. Specifically, this bill :
1)Requires the Task Force to conduct a study that will do the
following:
a) Study the governance structure of medical foundations
and changes in the corporate status of health care entities
that may result in light of the federal health care reform;
b) Gather information on models of care that produce
cost-effective outcomes as well as the impact of statutory
changes on physicians and hospitals;
c) Review current oversight of corporate conversions, the
fiscal consequences of conversions on the state, and issues
of access for financially vulnerable communities in order
to preserve and improve health care delivery; and,
d) Consider establishing additional mechanisms of oversight
that are consistent with federal health care reform in
order to maintain patient protection in health care
delivery and to ensure responsible corporate conversions of
health care entities in the state.
2)Requires the Task Force to include the following membership:
a) The Chair of the Assembly Committee on Health;
b) The Chair of the Senate Committee on Health;
c) The President pro Tempore of the Senate or his or her
designee; and,
d) The Speaker of the Assembly or his or her designee.
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3)Permits the Task Force to seek input from the appropriate
stakeholders, including but not limited to, hospitals, patient
advocates, and organized labor.
4)Permits the Task Force to use existing legislative funds or
funds the Task Force has solicited from public and private
foundations to support its activities.
5)Prohibits the Task Force from beginning the study until it has
certified that sufficient funds are available to conduct the
study.
6)Requires the Task Force to complete and submit the study to
the Legislature within 12 months after the date the Task Force
provides the certification of sufficient funding.
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
California State Attorney General (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)NONPROFIT HOSPITAL CONVERSIONS . Nonprofit hospital
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conversions typically occur when a nonprofit hospital comes
under the control of a 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
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assessments. However, HASC claims in the Wall Street Journal
article that their proposal does not call for one centralized
contracting structure and that hospitals and physicians would
negotiate deals individually.
4)OPPOSE UNLESS AMENDED . The California Hospital Association
(CHA) is opposed unless amended to this bill. CHA states that
the Legislature already has the authority to conduct
informational hearings on matters such as those covered in
this bill and that this bill is unnecessary. CHA further
argues that California already has a rigorous nonprofit
hospital conversion review process that was enacted by AB 3101
(Isenberg) and that AB 3101 received bi-partisan support and
created a robust and public review process that has given the
AG effective powers to protect the public interest. CHA
maintains that if the Legislature concludes a study bill is
necessary, it would be more meaningful to focus on various
options for clinical integration of health care delivery in
light of federal health care reform. CHA's suggested amends
are to focus the proposed study by the Task Force on state
laws that affect access to physicians and hospitals and
clinical integration.
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
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benefit entity.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
California Hospital Association
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097