BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 408 (Hernandez)
Hearing Date: 5/26/2011 Amended: 4/12/2011
Consultant: Katie Johnson Policy Vote: Health 6-3
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BILL SUMMARY: SB 408 would require the holder of an existing
license of a general acute care, acute psychiatric, and special
hospital, when it has a change of ownership, as specified, to
file a new license application with the California Department of
Public Health (CDPH).
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
CDPH staff to process unknown,
potentially significant, likely in the
Special*
additional applicationshundreds of thousands to millions of
dollars
*State Department of Public Health Licensing and Certification
Program Fund
STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
This bill would require the holder of an existing license of a
general acute care, acute psychiatric, or special hospital to
file an application for a new license from CDPH when there is a
change of ownership. This bill would define a change of
ownership as when the current holder of the license:
1) Sells, transfers, leases, exchanges, options, conveys,
or otherwise disposes of, a material amount of its assets
to another entity;
2) Transfers control, responsibility or governance of a
material amount of the assets or operations to another
entity.
"Material amount" is defined as:
1) When the agreement or transaction directly affects more
than 10 percent of the value of the health facility;
2) When the agreement or transaction involves the sale,
transfer, exchange, change in control, governance, or
otherwise disposes of any health facility that is
controlled, operated, or managed by the current
license-holder and has a fair market value that exceeds $3
million.
This bill would further define that an "agreement or transaction
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will 'transfer control, responsibility, or governance'" if any
of the following occur:
1) There is a transfer, assignment, or disposition of 10
percent or more of the membership or voting rights of a
limited liability company or partnership that operates or
manages the health facility to an entity or person that did
not previously hold that amount of interest;
2) There is a transfer, assignment, or disposition of 10
percent or more of the stock or voting rights of a
corporation which operates or manages the health facility;
3) There is a substitution of a new corporate member that
transfers the control of, responsibility for, or governance
of, the current license-holder; or,
4) There is a substitution of one or more members of the
governing body, or any arrangement, written or oral, that
would transfer voting control of the members of the
governing body.
Effect on CDPH
Existing California regulations require hospitals to inform CDPH
using a Form 215A of every change or corporate reorganization
including individual information on administrators, owners,
directors, board members, corporate officers, LLC
members/managers, a management company, a parent organization,
and individuals having 10 percent or more interest in the
licensee (for-profit) or parent organization.
This bill would cause a hospital to file a change of ownership
application for every Form 215A filing. CDPH receives
approximately 500 annually. Additionally, a hospital would have
to file a change of ownership application for a variety of
everyday hospital operations, such as selling radiology
equipment or an out-sourcing of hospital billing or dietary
services, provided they exceed $3 million.
CDPH currently reviews about 8 change of ownership applications
annually. CDPH would need to increase its licensing fees to
cover the costs of reviewing potentially hundreds of additional
change of ownership applications annually at an estimated cost
of $5,000 per application. Thus, at $5,000 per application with
500 new applications annually CDPH would require staff resources
of about $2.5 million annually in special funds. The department
would increase licensing fees to pay for the additional
workload.
SB 408 (Hernandez)
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Effect on Hospitals
Change of ownership/license applications are approximately 800
pages in length and would require the services of a regulatory
attorney to complete. A hospital would also be required to pay a
licensing fee each time it submitted an application. The
licensing fees for general acute care hospitals, acute
psychiatric, and special hospitals for FY 2010-2011, which a
hospital must pay upon licensure and annually thereafter, are
each $255.10 per bed. Large hospitals may have up to about 500
beds. Thus, a large hospital's licensing fee paid per change of
ownership application would be approximately $127,550. Although
all of this money would be paid to the department, since the
department cannot anticipate how many change of ownership
applications would be filed in a year, the fees are collected
and then distributed back to all hospitals within a facility
category.
Additionally, if this bill significantly increases hospital
administration costs, there could be pressure on hospitals to
increase their rates of reimbursement from health care service
plans and insurance companies with which they contract. This
would include local health plans that serve as Medi-Cal managed
care plans, health plans with contracts to serve Healthy
Families Program enrollees, and plans and insurers that contract
with the California Public Employees Retirement System (CalPERS)
to provide health care coverage for state employees and would
put cost pressure on the General Fund, federal funds, special
funds, and other funds. Medi-Cal costs are shared 50 percent
General Fund, 50 percent federal funds; Healthy Families costs
are shared 35 percent General Fund, 65 percent federal funds;
CalPERS costs are shared 55 percent General Fund, 45 percent
special and other funds.
Specifically, the author's proposed amendments would rewrite the
existing provisions of this bill to:
1) Define "change of ownership" to mean:
a. For a partnership, the removal, addition, or
substitution of a partner.
b. For an unincorporated sole proprietorship, the
transfer of title and property to another person.
c. For a corporation, the merger of the
applicant's or provider's corporation into another
one, the consolidation of two or more corporations;
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the transfer of corporate stock or the merger of
another corporation into the applicant's or provider's
corporation does not constitute a change in ownership.
d. For a lease, the lease of all or part of an
applicant's or provider's facility.
2) Define "change in ownership" to mean a transaction where
there is a change of ownership in a general acute care,
acute psychiatric, or special hospital and any of the
following would occur:
a. A sale, transfer, lease, exchange, conveyance,
or other disposal of a limited partnership interest,
corporate shares, or limited liability company
interest representing at least 20 percent of all
ownership interests in the hospital or in the current
licenseholder.
b. The merger of an entity that owns a hospital
that does not result in a change in the taxpayer
identification number of the licenseholder.
c. A substitution of a new corporate member or
member of the governing body, or any arrangement,
written or oral, that would transfer voting control
of, or responsibility for, or governance of, a
hospital.
3) Define "change in control interest" to mean a
transaction where any of the following, except a change of
ownership, or change in ownership, occurs:
a. A sale, transfer, lease, exchange, conveyance,
or other disposal of a limited partnership interest,
corporate shares, or limited liability company
interest representing at least 10 percent of all
ownership interest in a general acute care, acute
psychiatric, or a special hospital, or in the license
holder, but that represents less than 20 percent of
the ownership interests in the health facility or
licenseholder.
b. A change in any member of the governing body
or principal officers of a hospital that does not
transfer voting control of, or responsibility for, the
health facility.
4) Require that a new license application for a health
facility, including hospitals mentioned above, skilled
nursing facilities, and intermediate care facilities,
should be filed when there is a change of ownership, as
defined, in the health facility.
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5) Require that at least 45 days prior to a change of
ownership, change in ownership, or change in control
interest in a general acute care, acute psychiatric, or a
special hospital, a notice of change be filed with the
department.
a. If the transaction is a change in ownership,
the facility would be required to file a new
application with CDPH.
b. If the transaction is a change of control
interest, a facility would be required to file a CDPH
form HS 215A with the notice.
6) Permit CDPH to implement these provisions by means of
all facility letters.
The author's proposed amendments could reduce the number of
change of ownership applications the department would likely
process when compared with the current version of this bill by
deleting certain provisions that would have required the
submission of additional change of ownership application.
However, there would still be substantial special fund costs
likely in the hundreds of thousands to low millions of dollars
to implement this bill because many of the rewritten provisions
would continue to require the submission of a change of
ownership application. CDPH would no longer need to promulgate
regulations, and an associated cost would no longer exist, since
the amendments would permit these provisions to be implemented
through all-facility letters or other non-rulemaking
instructions.