BILL ANALYSIS �
SB 134
Page 1
SENATE THIRD READING
SB 134 (Corbett)
As Amended March 31, 2011
Majority vote
SENATE VOTE :23-14
HEALTH 13-5 LOCAL GOVERNMENT 5-3
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|Ayes:|Monning, Ammiano, Atkins, |Ayes:|Alejo, Bradford, Campos, |
| |Bonilla, Eng, Gordon, | |Gordon, Hueso |
| |Hayashi, | | |
| |Roger Hern�ndez, Bonnie | | |
| |Lowenthal, Mitchell, Pan, | | |
| |V. Manuel P�rez, Williams | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Garrick, Mansoor, |Nays:|Smyth, Knight, Norby |
| |Silva, Smyth | | |
| | | | |
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SUMMARY : Imposes conditions on transfer agreements, when a
health care district (district) transfers more than 50% of the
district's assets at less than fair market value to other
entities to operate one or more health facilities owned by the
district. Specifically, this bill :
1)Provides that, when a district transfers more than 50% of the
district's assets at less than fair market value to other
entities to operate one or more health facilities owned by the
district, the transfer is deemed to be for the benefit of the
communities served by the district only if the transfer
agreement includes the appraised fair market value of any
asset transferred.
2)Requires the appraisal for fair market value, referenced in 1)
above to be conducted 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 referenced in 1) above is
performed within the six months preceding the date on which
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the district approves the transfer agreement.
4)Requires the district board, before the district transfers 50%
or more of the district's assets to other entities, to submit
a resolution to the district's voters that identifies the
asset proposed to be transferred, its appraised fair market
value, and the amount under consideration that the district is
to receive in exchange for the transfer.
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, until January 1, 2011, a district to transfer
ownership, at fair market value, of any part of its assets to
one or more corporations to operate and maintain the assets.
Prior to the district transfer of 50% or more of the
district's assets to one or more corporations, requires the
elected district board to submit to the voters of the district
a measure proposing the transfer.
3)Requires, after January 1, 2011, the provisions in 2) above to
restrict these transfers to only nonprofit corporations.
4)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% 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
must approve all initial board members of the nonprofit
corporation and any subsequent board members as may be
specified in the transfer agreement;
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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.
5)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.
FISCAL EFFECT : None
COMMENTS : According to the author, this bill is intended to
provide the public with more information about the value of
district assets that are proposed to be sold or transferred to
one or more corporations for less than fair market value. The
author maintains that current law authorizes a district to
transfer its assets, for the benefit of the communities it
serves, to one or more nonprofit corporations at less than fair
market value. However, under current law, according to the
author, for a transfer of 50% or more of a district's assets to
be deemed to benefit a district's communities, a district must
meet specified conditions, including approval of the transfer
agreement by district voters, but does not require an
independent appraisal of the fair market value of the assets
that are proposed to be transferred. The author argues that
unfortunately, in too many cases, these relationships end with
assets being transferred out of the district to the benefit of
the contracting private corporation and to the detriment of the
local community. The author maintains that of the 85 districts
that have formed since 1945, almost a third have closed, leased,
or sold their hospitals. Some, according to the author, have
declared bankruptcy and many have changed or expanded their
historic role as providers of acute care. This bill, the author
asserts, addresses the growing concern that some districts are
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entering into contracts that reduce the district's assets and
financial security. The author states that this bill intends to
protect district assets when district hospitals are operated by
an outside entity and cites the following incidents as examples
of the need for this bill:
1)Eden Township Health Care District. The Eden Township Health
Care District was formed in 1948 to serve the Alameda County
communities of San Leandro, San Lorenzo, Hayward, and Castro
Valley. In 1954, the Eden District opened Eden Township
Hospital. In 1997, the Eden District's voters approved a
merger agreement between the Eden District and Sutter Health.
Under the 1997 agreement, the Eden District created a
nonprofit, in conjunction with Sutter Health, known as the
Eden Medical Center (EMC), to operate the hospital.
In 2004, the Eden District purchased San Leandro Hospital and
leased it to EMC to operate. The amended hospital lease and
operating agreement stated that Sutter Health could assign its
interests, or any portion of its interest, in the purchase
option without the landlord's consent.
In 2008, the Eden District entered into an agreement with Sutter
Health to replace EMC with a newly-constructed hospital that
would comply with the state's seismic safety law. The 2008
agreement also gave Sutter Health the option to purchase San
Leandro Hospital. The purchase option allowed Sutter Health
to deduct specified losses and capital expenditures from the
hospital's net book value and, if the deductions exceeded the
net book value, allowed Sutter Health to exercise its purchase
option with no balance due. The Eden District and Sutter
Health are currently litigating the terms of the 2008
agreement.
2)Marin Healthcare District. The Marin Healthcare District
built Marin General Hospital (MGH), which opened in 1952. In
1985, the Marin District entered into a 30-year lease for the
operation of the hospital by the MGH Corporation, a nonprofit
corporation created in conjunction with Sutter Health of which
Sutter Health was the sole corporate member. According to an
August 2010 article in the North Bay Business Journal, it is
alleged that between 2006 and June 2010 Sutter Health
transferred more than $120 million out of MGH jeopardizing the
hospital's financial stability and hindering MGH's operations.
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A settlement and transfer agreement returned control of MGH
to the Marin District on June 30, 2010. The Marin District is
currently the sole corporate member of the nonprofit
corporation.
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097
FN: 0001461