BILL ANALYSIS �
SB 408
Page 1
SENATE THIRD READING
SB 408 (Ed Hernandez)
As Amended August 30, 2011
Majority vote
SENATE VOTE :25-15
HEALTH 13-6 APPROPRIATIONS 12-5
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|Ayes:|Monning, Ammiano, Atkins, |Ayes:|Fuentes, Blumenfield, |
| |Bonilla, Eng, Gordon, | |Bradford, Charles |
| |Hayashi, | |Calderon, Campos, Davis, |
| |Roger Hern�ndez, Bonnie | |Gatto, Hall, Hill, Lara, |
| |Lowenthal, Mitchell, Pan, | |Mitchell, Solorio |
| |V. Manuel P�rez, Williams | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Garrick, Mansoor, |Nays:|Harkey, Donnelly, |
| |Nestande, Silva, Smyth | |Nielsen, Norby, Wagner |
| | | | |
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SUMMARY : Requires a new health facility license application to
be filed for a health facility, as defined, when there is a
change of ownership, as defined, or a major change in ownership
interest, as defined. Requires a prescribed notice to be filed
with the Department of Public Health (DPH) prior to a change of
ownership, major change in ownership interest, or a change in
control interest, as defined, of certain health facilities.
Specifically, this bill :
1)Defines "change of ownership" to mean any of the following:
a) For a partnership, the removal, addition, or
substitution of a partner, unless the partners expressly
agree otherwise, as permitted by state law;
b) For an unincorporated sole proprietorship, the transfer
of title and property to another person;
c) For a corporation, the merger of the licensee's
corporation into another corporation, or the consolidation
of two or more corporations, resulting in the creation of a
new corporation. Specifies that the transfer of corporate
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stock or the merger of another corporation into the
applicant's or provider's corporation does not constitute a
change of ownership; or,
d) For a lease, the lease of all or part of the licensee's
facility constitutes a change in ownership of the leased
portion.
2)Defines "major change in ownership interest" to mean a
transaction where any of the following 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 50% of all ownership interests in a general acute
care hospital, acute psychiatric hospital, or special
hospital or in the current licensee, including the final
transfer or assignment of multiple transfers over a 10-year
period that cumulatively total at least 50% of ownership
interests;
b) The merger of an entity that owns or operates a general
acute care hospital, acute psychiatric hospital, or special
hospital that does not result in a change in the taxpayer
identification number of the licensee;
c) For a limited liability company, the merger of the
applicant's or provider's limited liability company into
another limited liability company, or the consolidation of
two or more limited liability companies, resulting in the
creation of a new limited liability company. Clarifies
that the transfer of limited liability company interest or
the merger of another limited liability company into the
licensee's limited liability company does not constitute a
change of ownership; or,
d) For any unincorporated sole proprietorship, corporation,
limited liability company, partnership, lessee, nonprofit
corporation, or any other entity that operates or controls
a general acute care hospital, acute psychiatric hospital
or special hospital, 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, that general acute
care hospital, acute psychiatric hospital or special
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hospital.
3)Defines "change in control interest" to mean a transaction
where any of the following, except a "change of ownership" or
"major change in ownership interest" occurs:
a) A sale, transfer, lease, exchange, conveyance, or other
disposal of any partnership, limited partnership interest,
corporate shares, or limited liability company interest
representing at least 10% of all ownership interest in a
general acute care hospital, acute psychiatric hospital, or
special hospital, or in the licensee, but that represents
less than 50% of the ownership interests in the health
facility or licensee;
b) A change in any member of the governing body or
principal officers of a general acute care hospital,
psychiatric hospital, or special hospital; or,
c) Any transaction that affects more than 10% of the value
of a general acute care hospital, acute psychiatric
hospital, or special hospital that are operated or
controlled by the licensee.
4)Requires a new license application for a general acute care
hospital, psychiatric hospital, skilled nursing facility,
intermediate care facility, or special hospital to be filed
before there is an anticipated change of ownership. Prohibits
a change of ownership from occurring until DPH approves the
license application and issues a new license.
5)Requires a new license application for general acute care
hospital, psychiatric hospital, or special hospital be filed
before there is a major change in ownership interest in the
health facility. Prohibits a major change in ownership
interest until DPH approves the license application and issues
a new license.
6)Requires a notice of change to be filed with DPH, at least 90
days prior to an anticipated change of ownership, a major
change in ownership interest or change in control interest in
a general acute care hospital, psychiatric hospital, or
special hospital. Requires that a new license application be
filed with the notice if the transaction is a change in
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ownership or a major change in ownership interest. Requires
the licensee to notify DPH of the change on a form provided by
DPH, if the transaction is a change in control interest.
7)Requires DPH, within 10 days of the receipt of notice
referenced in 6) above, to post receipt of the notice on DPH's
Web site.
8)Permits DPH, with regard to a transaction that is a change in
control interest, within 90 days of the notice referenced in
6) above, to require a new license application to be filed, or
withhold approval of the transaction, if DPH has a reason to
believe, based on past compliance history, that any person or
entity whose control interests in the facility or facilities
operated or controlled by the licensee are affected by the
transaction, has not complied with state or federal laws or
regulations, or is under investigation for any alleged
violation of state or federal laws or regulations.
9)Permits DPH, if a licensee of a specified health facility
fails to comply with in this bill, to assess the licensee an
administrative penalty in an amount not to exceed $25,000 per
violation. Permits the licensee, if the licensee disputes a
determination by DPH regarding the alleged violation, within
10 days of receipt of the penalty assessment, request a
hearing pursuant to existing law. Requires administrative
penalties to be paid when appeals have been exhausted and the
penalty has been upheld. Requires all administrative
penalties collected by DPH to be deposited in the Internal
Department Quality Improvement Account of the Special Deposit
Fund created under existing law.
10)Requires DPH, in enforcing the provisions of this bill, to
take into consideration the special circumstances of small and
rural hospitals in order to protect access to quality care in
those hospitals.
11)Permits DPH to implement the provisions of this bill by means
of all facility letters, or similar instructions, without
taking further regulatory action.
EXISTING LAW :
1)Provides for the licensing and regulation of health
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facilities, including general acute care hospitals, acute
psychiatric hospitals, and special hospitals by DPH.
2)Requires any person desiring a license for a health facility,
or approval to manage a health facility, to file an
application with DPH, and to provide evidence that they are of
reputable and responsible character and have the ability to
comply with statutory and regulatory requirements applicable
to health facilities.
3)Requires, under DPH regulations, a new owner of a health
facility to submit a license application and pay an
application fee when a change of ownership occurs. Although
the term "change of ownership" is not defined in regulations
governing general acute care hospitals, it is interpreted by
DPH to mean when a new legal entity assumes responsibility for
the operation of the hospital.
4)Requires, under the Attorney General's (AG's) administration
of charitable trust laws, a nonprofit corporation that
operates or controls a health facility to obtain the consent
of the AG prior to entering into any agreement or transaction
to:
a) Sell, transfer, lease, exchange, option, convey, or
otherwise dispose of, a material amount of its assets to
either a for-profit or nonprofit entity; or,
b) Transfer control, responsibility, or governance of a
material amount of the assets or operations of the
nonprofit corporation to a for-profit or nonprofit entity.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill would trigger an unknown number of
additional new hospital licensure applications. Assuming a new
hospital licensure application is required in 10% of the cases
of licensure-related changes that are reported to the DPH, this
bill would result in increased costs to DPH of approximately
$150,000 (special fund) annually to process the applications.
According to the Assembly Appropriations Committee, this bill
will all result in potential unknown increases in penalty
revenue to DPH from administrative penalties assessed for
failure to comply with this bill's provisions.
COMMENTS : According to the author, this bill closes a loophole
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in hospital licensing laws to ensure that when a hospital
changes ownership or when day-to-day operations of a health
facility are handed over to a new individual or entity, the new
owner must obtain a license to operate the facility. The author
asserts that the licensing process through DPH is designed to
ensure that those operating a health facility in the state are
decent and have a history of complying with the law. According
to the author, a recent example of where the loophole was
employed to avoid the licensing process was Prime's acquisition
of Alvarado Hospital from Plymouth Health, LLC (Plymouth) in
November 2010. The author is concerned that the acquisition of
Alvarado Hospital by Prime, the largest for-profit hospital
system in California, could serve as a blueprint for other
operators to acquire hospitals and avoid California's licensing
process. The author 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.
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097
FN: 0002309