BILL ANALYSIS �
SB 804
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Date of Hearing: June 12, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 804 (Corbett) - As Amended: June 6, 2012
SENATE VOTE : 22-13
SUBJECT : Health care districts: transfers of assets.
SUMMARY : Requires health care districts to include, in an
agreement transferring more than 50% of the health care
district's assets, the appraised fair market value of any asset
transferred to a nonprofit corporation, as defined. Further
requires the appraisal of the fair market value to be performed
within the six months preceding the date on which the district
approves the transfer agreement. Specifically, this bill :
1)Requires health care districts to include, in an agreement
transferring more than 50% of the health care district's
assets, the appraised fair market value of any asset
transferred to a nonprofit corporation.
2)Requires the fair market value to be appraised 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 be performed within the six months
preceding the date on which the district approves the transfer
agreement.
4)Requires the public to be provided with the following
information when the public is asked to approve the transfer
by vote:
a) Assets proposed to be transferred;
b) The appraised fair market value; and,
c) The full consideration that the district is to receive
in exchange for the transfer.
EXISTING LAW :
1)Establishes the Local Health Care District Law which
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authorizes communities to form special districts to construct
and operate hospitals and other health care facilities to meet
local needs.
2)Authorizes a health care district to transfer, for the benefit
of the communities served by the district, any part of its
assets of the district to one or more nonprofit corporations
to operate and maintain the assets. Prior to the district
transfer, requires the district board to submit a measure to
the voters of the district proposing the transfer.
3)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;
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.
4)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 :
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1)PURPOSE OF THIS BILL . 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 argues that unfortunately, in too
many cases, these transfer agreements 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 entering into contracts that reduce the
district's assets and financial security.
2)DISTRICTS . Districts were formed under state law to meet
local health needs not satisfied by other health care
resources or government programs in a given geographical area.
Districts formed pursuant to state law are financed by
assessments on real and personal property within the district.
A 2006 report published by the California HealthCare
Foundation found that 85 health care and hospital districts
have been formed in California since the first hospital
district enabling legislation was passed in 1946.
Districts operate medical facilities, including hospitals,
public health clinics, and skilled nursing facilities. Some
also provide community-based education programs to the
residents of their districts. Given the volatile health care
market in recent decades, districts have contemplated service
changes, leasing arrangements, and affiliations with both
nonprofit and for-profit health care corporations as means or
providing health care services to residents.
Responding to changes in health care delivery, districts explore
economic and organizational alternatives, including leasing or
selling their assets to nonprofit corporations or even to
for-profit companies. If a district wants to transfer 50% or
more of its assets to any corporation, the transfer needs
majority-voter approval from the district board.
3)SUPPORT . The California Nurses Association (CNA) writes in
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support that this bill gives the public important information
about the value of health care district assets that are
proposed to be transferred to an outside entity for less than
market value. CNA maintains that this information is crucial
because health care district assets are public and are owned
by the residents of the health care district.
4)PREVIOUS LEGISLATION .
a) SB 134 (Corbett) of 2011, was substantially similar to
the provisions of this bill. SB 134 was amended to delete
these provisions in the Assembly.
b) SB 1240 (Corbett) of 2010, would have imposed conditions
on contracts between districts and other entities to
operate one or more health facilities owned by the
district. SB 1240 was vetoed by Governor Arnold
Schwarzenegger, who stated that SB 1240 would have limited
the discretion of a district when entering into a contract
with another operating entity and would have created the
unintended consequence of reducing the incentive for such
arrangements when hospitals are struggling to remain open.
c) SB 1351 (Corbett) of 2008, would have required voter
approval before a district can transfer, for the benefit of
the communities served by the district and in the absence
of adequate consideration, any part of the assets of the
district to one or more nonprofit corporations to operate
and maintain the assets, as opposed to 50% or more of the
district's assets. SB 1351 would have also expanded the
AG's ability to review and comment on proposed transfers
and prohibited a district from relinquishing its membership
on the board of a nonprofit corporation to which the
district has transferred or leased its assets without a
vote of the district electorate. SB 1351 was vetoed by
Governor Arnold Schwarzenegger, who stated that he could
not support placing additional restrictions on a district,
especially when they are elected by, and accountable to,
their local community.
d) SB 460 (Kelley), Chapter 18, Statutes of 1998,
permitted, until 2001, a district to transfer at fair
market value its assets to for-profit corporations, as
specified.
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e) SB 1508 (Figueroa), Chapter 169, Statutes of 2000,
extended the authority for districts to transfer or lease
assets to a for-profit until January 1, 2006.
f) AB 1131 (Torrico), Chapter 194, Statutes of 2005,
extends the January 1, 2006 sunset date to 2011, permitting
districts to transfer or lease assets to for-profit
corporations, as specified.
g) SB 1771 (Russell and Kopp), Chapter 1359, Statutes of
1992, defines the terms and conditions under which a
district may transfer, without adequate consideration, any
part of its assets to one or more nonprofit corporations,
including that the transfer must be for the benefit of the
community served by the district, provide for the transfer
back to the district of the assets at the end of the lease,
and be approved by a majority of the voters in the district
if the transfer is of 50% or more of the district's assets.
5)DOUBLE REFERRAL . This bill is double referred. Should it
pass out of this committee, it will be referred to the
Assembly Committee on Local Government.
REGISTERED SUPPORT / OPPOSITION :
Support
California Nurses Association
Opposition
None on file.
Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916)
319-2097