BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 1094
AUTHOR: Lara
AMENDED: April 21, 2014
HEARING DATE: April 24, 2014
CONSULTANT: Marchand
SUBJECT : Health facilities: sale of assets: approval.
SUMMARY : Permits the Attorney General (AG) to amend the
conditions of an agreement or transaction involving a non-profit
health facility after a decision is issued under specified
circumstances, provides an additional 30 days for the AG to
review proposed transactions involving a non-profit health
facility, and provides the AG with the authority to enforce the
conditions of a transaction or agreement.
Existing law:
1.Requires any non-profit corporation that operates or controls
a health facility, as defined, to provide written notice to,
and obtain the written consent of, the AG prior to entering
into any agreement or transaction to do either of the
following:
a. Sell, transfer, lease, exchange, option,
convey, or otherwise dispose of, its assets to a
for-profit corporation or entity, or another
non-profit corporation; or,
b. Transfer control, responsibility, or
governance of a material amount of the assets or
operations of the non-profit corporation to any
for-profit corporation or entity, or another
non-profit corporation.
2.Requires the AG, within 60 days of the receipt of a written
notice of a proposed transaction involving a non-profit health
facility, to notify the non-profit corporation in writing of
the decision to consent to, give conditional consent to, or
not consent to the agreement or transaction.
3.Permits the AG to extend the 60-day deadline described above
for one additional 45-day period if any of the following
conditions are satisfied: the extension is necessary to obtain
specified information, the proposed transaction is
substantially modified after the first public meeting
conducted by the AG, or the proposed transaction involves a
multifacility health system serving multiple communities.
4.Provides the AG with the discretion to consent to, give
conditional extent to, or not consent to any agreement or
transaction involving a non-profit health facility based on
the consideration of any factors that the AG deems relevant,
including but not limited to:
a. Whether the agreement or transaction is at
fair market value;
b. Whether the proposed use of the proceeds from
the transaction is consistent with the charitable
trust on which the assets are held by the health
facility or by the affiliated non-profit health
system;
c. Whether the transaction would create
significant effects on the availability or
accessibility of health care services to the affected
community; or,
d. Whether the transaction is in the public
interest.
5.Prohibits the AG from consenting to a health facility
transaction in which the seller restricts the type or level of
medical services that may be provided at the health facility
that is the subject of the transaction.
6.Permits the AG to contract with experts when deciding whether
to give consent to a transaction, or to monitor ongoing
compliance with the terms and conditions of any transaction,
and requires the non-profit corporation to reimburse the AG
for all reasonable and necessary costs to conduct the review
or monitoring ongoing compliance.
This bill:
1.Extends, from 60 days to 90 days from the receipt of a notice
of a proposed transaction, the time in which the AG must
notify a non-profit corporation in writing of the decision to
consent or not consent to a transaction of health facility
assets from a non-profit corporation to a for-profit
corporation or between two non-profit corporations.
2.Permits the AG to enforce conditions imposed on the AG's
approval of an agreement or transaction involving a non-profit
health facility, and to require the transferee to fulfill all
representations made during the application process, including
those regarding levels of care.
3.Permits the AG to amend the conditions of an agreement or
transaction involving a non-profit health facility after the
decision is issued, if either of the following occur:
a. A party to the transaction or agreement made
material misrepresentations to the AG. Requires any
amended condition imposed pursuant to this provision
to be substantially related to the material
misrepresentation; or
b. A party to the transaction or agreement
violated the conditions set forth in the AG's
decision. Requires any amended condition imposed
pursuant to this provision to be substantially related
to the violation, and be necessary to mitigate, and
provide appropriate restitution for, the effects of
the violation.
4.Specifies that once the agreement or transaction involving a
non-profit health facility is closed, the parties are deemed
to have explicitly and implicitly consented to the
applicability and compliance with each condition set forth in
the AG's consent, and to have waived any right to seek
judicial relief with respect to each condition set forth in
the AG's consent. Specifies that this waiver of the right to
seek judicial relief does not apply to any amended condition
imposed pursuant to 3) above.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. According to the author, this bill seeks
to further protect the interests and welfare of communities by
maintaining access to crucial hospital services and holding
health facilities accountable for agreements made when
transferring control or operation of the facility. The process
for reviewing proposed transactions is complex and time
intensive. Over the past two years, California has also seen
an increase in the number of these hospital transactions
resulting in an increase in staff time to review the requests.
The AG's decision to consent to a non-profit health care
facility transaction is final. Under existing law, the AG may
not amend the conditions unless the selling or acquiring
entity requests an amendment. The AG is prevented from
amending conditions or imposing new conditions that would be
in the public's interest even if the parties withheld material
information from the AG during the transaction review.
Ultimately, this bill will hold hospital facilities
accountable, further protecting communities by ensuring that
access to crucial health care services remain available.
2.Examples of AG enforcement of conditions of approval. In
support of this bill, the AG provided several examples of
where it has had to utilize existing authority to enforce
conditions that were imposed as part of approved hospital
transactions.
People v. Tenet HealthSystems DFH, Inc. (2002)
The AG gave conditional approval to Tenet HealthSystems (a
for-profit corporation) to purchase two acute care hospitals
from Daniel Freeman Hospitals, Inc., (a non-profit entity).
Two of the conditions required Tenet to engage in a
"comprehensive assessment and planning process" and to consult
with the governing authority prior to eliminating or
transferring any significant medical service. Tenet attempted
to close Daniel Freeman Marina Hospital, the emergency room,
and the Psychiatric and Rehabilitation Units without
conducting the comprehensive assessment. The Department of
Justice obtained an injunction prohibiting the closure and
ultimately a settlement was reached, which resulted in the
hospital staying open following eight months of litigation.
People v. Daniel Freeman Hospitals, Inc. (2003)
Prior to their sale to Tenet HealthSystems, the two hospitals
were affiliated with the Catholic Church. As part of the
transfer, a covenant running with the land was inserted into
the deeds for each of the hospitals, purporting to restrict
any future operator from violating the Catholic Ethical and
Religious Directives. The AG conditionally approved the
transaction but informed the parties that the covenants were
not enforceable and reserved the right to bring an action to
limit their scope and duration. Ultimately, the AG filed an
action and the parties stipulated to the entry of a judgment
confirming that the covenant was unenforceable, but only after
an estimated 690 staff hours were expended over the course of
over a year.
Sherman Oaks Health System (2006)
The AG conditionally approved the sale of Sherman Oaks Hospital
to Prime. One of the conditions required Prime to conduct an
evaluation of the geropsychiatric unit and provide it to the
Department of Justice before making a final decision about the
continuation of this service. Prime was required to operate
the unit until it submitted the evaluation to the AG. Prime
attempted to close the unit before preparing the report. The
AG filed an action which resulted in a settlement including
the preparation of the required report and payment by Prime of
$200,000 to the Sherman Oaks Hospital Foundation to supplement
the Foundation's work with seniors and caregivers with regard
to Alzheimer's Disease and other disabilities affecting the
elderly. This settlement came over a year following the filing
of complaint.
3.St. Joseph's and Hoag Memorial and the need to amend
conditions. The AG points to a recent case as exemplifying the
need for the authority granted by this bill for the AG to
subsequently amend conditions due to material
misrepresentations made by parties during the approval
process. According to the AG, in late October 2012, Hoag
Memorial Hospital Presbyterian in Orange County notified the
AG's office of its intent to affiliate with St. Joseph Health
System, initiating the approval process. In early February
2013, the AG's office approved the transaction with several
conditions, including that Hoag continue to maintain levels of
care in various services. The approval terms also included
conditions related to women's reproductive health services,
including a requirement that levels of care for women's health
services would be preserved for a minimum of ten years. This
condition excluded "direct abortions," which Hoag had informed
the AG it would no longer perform following its notice of
intent to affiliate. In light of this, the approval included a
condition that Hoag continue to perform all other reproductive
health services that were not "direct abortions," and that it
would "take steps to insure that alternative providers are
available and accessible to all women, especially low-income
women, for direct abortions in the Hoag Memorial Hospital
Presbyterian's service area." According to the AG, during the
public notice portion of the approval process, the proposed
transaction was only met with a few concerns from members of
the community, all of which the AG attempted to address
through its conditions. However, following approval of the
affiliation, community members raised concerns to the AG's
office that Hoag had made alleged material misrepresentations
to Hoag medical professionals, health advocates, and the
community at large. Specifically, doctors expressed outrage
that they had been "repeatedly assured that there would be no
change in [abortion] services at Hoag."
According to the AG, this failure to adequately disclose details
of the proposed affiliation's potential impact on access to
health for women compromised the integrity of the approval
process, during which time the AG's office relies on
communities' ability to review and comment on potentially
significant reductions of services provided by entities held
in public trust. Additionally, there were allegations that
Hoag was in violation of the conditions of the approval,
particularly related to preserving alternative access to
reproductive health services for members of the community. The
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allegations necessitated a ten-month investigation that only
recently concluded. The AG states that had it known these
facts prior to issuing its approval, the conditions imposed
likely would have included more detailed requirements related
to reproductive health services. The AG states that the
broadened authorities provided for under this bill would
enable the AG's office to do so.
4.Double referral. This bill is double referred. Should it pass
out of this committee, it will be referred to Judiciary
Committee.
5.Prior legislation. SB 932 (Bowen), Chapter 65, Statutes of
2003, prohibits the AG from consenting to an agreement or
transaction involving the sale, transfer, lease or other
disposition of a health facility owned by a non-profit
corporation to a for-profit corporation, a mutual benefit
corporation or another non-profit corporation, if the seller
restricts the type or level of medical services that may be
provided at the facility.
AB 890 (Cedillo), Chapter 427, Statutes of 2002, subjects health
facilities owned by religious corporations to the same
requirements as other non-profit hospitals with regard to
obtaining the consent of the AG prior to transferring hospital
ownership. The bill also adds to the factors that may be
considered by the AG when considering transfers of a health
facility from one non-profit to another non-profit, and
clarifies that the AG may collect the costs of the review from
either the transferring or receiving entity.
AB 254 (Cedillo), Chapter 850, Statutes of 1999, requires
non-profit health facilities to obtain the consent of the AG
prior to the sale, transfer or lease of a material amount of
assets to another non-profit corporation.
AB 3101 (Isenberg), Chapter 1105, Statutes of 1996, requires
profit health facilities that are subject to public benefit
corporation law to obtain written consent from the AG prior to
entering into an agreement to (1) sell, transfer, lease,
exchange, option, convey, or otherwise dispose of assets, or
(2) transfer control or governance of assets. AB 3101
requires the AG to conduct at least one public meeting in the
county where the facility is located, to contract with
experts, and to obtain reimbursement for the costs from health
facilities being reviewed.
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6.Support. This bill is sponsored by the AG, which states that
since the AG's role in overseeing non-profit health facility
transactions was first conceptualized, the proposed
transactions have become more complex and numerous, including
a notable spike observed in recent years. This has resulted
in an increased amount of time needed both for review by the
AG. In addition, the AG states that recent cases have revealed
scenarios in which the AG's inability to revisit approved
transactions following significant new developments seriously
hinders its ability to preserve the level of access to care
for patients in accordance with the public trust. The AG
states that this bill is designed to provide modest but
crucial updates to the AG's oversight authority to account for
these developments.
This bill is supported by the California State Council of the
Service Employees International Union, which states it would
hold hospital facilities accountable, further protecting
communities by ensuring that access to crucial health care
services remain available. The United Nurses Associations of
California/Union of Health Care Professionals states in
support that the AG will often impose conditions to ensure
that the quality of care in a community is not diminished by
the sale or transfer, and that this bill specifically
authorizes the AG to enforce any conditions of a sale, even
after the sale has occurred. Health Access states in support
that an additional 30 days to review a transaction would be
helpful to those in the community and advocacy organizations,
and that allowing the AG to enforce conditions on a
transaction is an important improvement on existing law. The
Congress of California Seniors notes that the complex, and
often rushed, process regarding non-profit hospital
transactions does not serve California well, and this bill
will give the AG more time to review a hospital's request. The
American Federation of State, County and Municipal Employees,
AFL-CIO, state in support that this bill will give the AG the
authority to amend and enforce the conditions of an agreement
to better reflect the public's interest.
7.Support if amended. Planned Parenthood Affiliates of
California and Planned Parenthood of Orange and San Bernardino
Counties (collectively, Planned Parenthood), support this bill
if it is amended to increase public notice of the merger and
if any changes are made to the merger application, increase
SB 1094 | Page 9
ongoing reporting of the merger, provide the AG authority to
rescind approval of the merger if conditions are not met, and
allow a private cause of action if the AG declines to enforce
merger conditions after the fact. Planned Parenthood states
that the increasing number of Catholic hospitals merging with
religious hospitals is reducing access to reproductive health
care as hospitals that previously offered comprehensive
reproductive health care adopt policies eliminating their
provision of services like emergency contraception in cases of
rape, vasectomies, and abortion services. Planned Parenthood
states that current law does not provide the community with
enough information to give the AG meaningful input on the
proposed merger, and that lack of any enforcement authority or
repercussions for failure to provide complete or accurate
information results in no assurance that the new entity will
meet the conditions the AG imposes as a prerequisite for
approving the merger.
8.Opposition (prior version). The prior version of this bill
was opposed by a number of hospitals and organizations
representing hospitals, including the California Hospital
Association, Adventist Health, the Alliance of Catholic Health
Care, and the United Hospital Association. It is unclear
whether recent amendments have addressed opponents concerns.
Opponents state that this bill eliminates certainty in
transactions involving the sale or transfer of profit
hospitals by giving the AG virtually unlimited discretion to
impose post-transaction conditions. Opponents state that this
authority to unilaterally change the terms of the transaction
will mean that organizations will avoid many transaction that
are in the community's interest because there is no certainty
regarding the terms of the deal. Opponents state that
hospitals would be unable to obtain financing for these
transactions because of a lack of finality. Finally, this
bill requires parties to the transaction to waive their
constitutional rights and due process protections, and that
the rule of law should continue to apply to these
transactions.
The prior version of this bill was also opposed by the Los
Angeles Area Chamber of Commerce, which states that it
supports and has engaged in the AG's thorough review process
for non-profit hospital transactions to ensure maintenance of
essential health services for affected communities. However,
it believes it is detrimental to the business decision-making
process and financial underpinnings of health care providers
SB 1094 | Page
10
to allow one office to unilaterally amend conditions of
consent after approval of a transaction has been made.
SUPPORT AND OPPOSITION :
Support: California Department of Justice (sponsor)
American Federation of State, County and Municipal
Employees, AFL-CIO
Congress of California Seniors
Health Access California
Service Employees International Union, California State Council
United Nurses Associations of California/Union of Health Care
Professionals
Oppose: Adventist Health (prior version)
Alliance of Catholic Health Care (prior version)
California Hospital Association (prior version)
Dignity Health (prior version)
Loma Linda University Health (prior version)
Los Angeles Area Chamber of Commerce (prior version)
Providence Health & Services, Southern California
(prior version)
Scripps Health (prior version)
Sutter Health (prior version)
United Hospital Association (prior version)
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