BILL ANALYSIS �
SB 408
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Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 408 (Hern�ndez) - As Amended: July 12, 2011
Policy Committee: HealthVote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill defines a hospital change of ownership, change in
ownership, and a change in control interest, and modifies
application and reporting requirements to the Department of
Public Health (DPH) related to each of these cases.
Specifically, this bill:
1)Defines a change of ownership based on the type of owner
(partnership, sole proprietorship, corporation, or lease),
mirroring existing definitions in DPH regulations.
2)Defines a change in ownership as:
a) A sale, transfer, lease, exchange, conveyance, or other
disposal of a limited partnership interest, corporate
shares, or limited liability company interest representing
a change of at least 20 % of all ownership interests in a
hospital or in the current licenseholder.
b) The merger of an entity that owns or operates a
hospital, which 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 that happens outside the normal course
of business, as specified.
1)Requires a new license application be submitted in the case of
a change of ownership, as defined, or a change in ownership,
as defined.
2)Defines a change in control interest, and requires a specific
form to be filed in the case of a change in control interest.
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3)Authorizes DPH to implement or make specific this bill through
all-facility letters and without taking regulatory action.
FISCAL EFFECT
This bill would trigger an unknown number of additional new
hospital licensure applications. Assuming a new hospital
licensure application is required in 30% of the cases of
licensure-related changes that are reported to the DPH, this
bill would result in increased costs to DPH of approximately
$500,000 (special fund) annually to process the applications.
COMMENTS
1)Rationale . According to the author, this bill closes a
loophole in hospital licensing laws to ensure that when a
hospital changes ownership or when day to day operations are
handed over to another individual or entity, the new owner
must procure a license to operate the facility. For example,
the author states that under current law, Prime Healthcare, a
for-profit hospital system, was able to acquire a new hospital
without a new license application by taking over hospital
operations while retaining the original license holder. The
author further states this bill is intended to ensure that
individuals or entities acquiring hospitals must adhere to the
state's transfer of ownership laws regardless of the manner in
which the hospital was acquired. This bill is sponsored by
the Service Employees International Union (SEIU).
2)Background . Currently, DPH, through regulation, only requires
a new licensure application package to be submitted when a
facility is to be newly licensed, or a change of ownership
occurs (as it is currently defined by federal law). According
to DPH, this bill would in part codify in state statute the
federal regulations already used by the department for change
of ownership transactions which, largely speaking, require a
new licensing application when the entity that operates the
hospital changes.
Currently, all other licensure-related changes must also be
reported to DPH via an abbreviated application process.
Largely, this consists of completing the "HS 215A" form, but
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the changes do not require submittal of a new application
package. For example, changes in an administrator, material
shareholders, general partner, sole proprietor or other
ownership interest in the entity operating the hospital would
trigger a HS 215A form requirement. This bill defines a
change in control interest, and requires that the HS 215A form
be filed in these cases, largely mirroring current
regulations. Thus, this bill would not change requirements
for a HS 215A filing related to change in control interest.
The HS 215A form is one of the numerous forms that constitute
the full hospital change of ownership application.
This bill would, however, require a new licensure application
in scenarios where it is not currently required, by requiring
new licensure applications when a change in ownership occurs
(a new term created under this bill, and which is
distinguished from a change of ownership). For instance, as
defined in this bill, a change in ownership would include
cases in which the legal entity that is operating the hospital
has not changed, but at least 20 percent of all hospital
ownership interest was transferred. Under this bill, the
change in ownership would trigger a new licensure application,
whereas under current law and regulation only a HS 215A form
would be required.
3)Opposition Concerns . The California Hospital Association (CHA)
writes in opposition that this bill would change existing law
to require a new 800-page license application for a myriad of
transactions that occur in the normal course of business,
adding to the complex administrative burden on hospitals and
the regulators without any demonstrable purpose or gain.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081