BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
SB 1094 (Lara)
As Amended April 21, 2014
Hearing Date: April 29, 2014
Fiscal: Yes
Urgency: No
NR
SUBJECT
Health Facilities: Sale of Assets: Approval
DESCRIPTION
Existing law requires nonprofit health facilities, as specified,
to provide written notice to, and obtain consent from, the
Attorney General (AG) prior to selling or transferring a
material amount of its assets to another entity. The AG must
issue its decision within 60 days, which may be extended an
additional 45 days under specified circumstances.
This bill would instead allow the AG to issue its decision
within 90 days, and would authorize the AG to amend conditions
in the decision after a transaction is closed if the nonprofit
health facility made a material representation to the AG or
violated a condition set forth in the AG's decision. This bill
would also provide that once the agreement or transaction is
closed, the parties to the transaction are deemed to have
consented to each condition in the AG's consent, and to have
waived any right to seek judicial relief with respect to the
AG's consent. This bill would provide that the waiver of right
to judicial relief would not apply to conditions amended after
the close of the transaction.
BACKGROUND
When a nonprofit healthcare facility wishes to sell, lease, or
transfer its assets, whether to a for-profit corporation or to
another nonprofit, that nonprofit healthcare facility must seek
the consent of the Attorney General (AG). The AG has 60 days
from the time the hospital provides notice of the intent to sell
to issue a decision and may utilize a 45-day extension under
(more)
SB 1094 (Lara)
Page 2 of ?
certain circumstances. During this approval process, the AG
must hold at least one public hearing in the county where the
facility is located to hear comments from interested parties.
The AG's decision may consent to, give conditional consent to,
or deny consent to the proposed sale, transaction, or agreement.
In evaluating whether or not to consent to the transaction, the
AG may look to any factors it deems relevant, including the fair
market value of the hospital, whether the transaction would
affect the availability of healthcare services to the community,
or whether the transaction is otherwise in the public interest.
In late October of 2012, Hoag Memorial Hospital Presbyterian in
Orange County notified the AG's office of its intent to merge
with St. Joseph Health System, triggering the 60-day approval
process. In early February 2013, the AG's office approved the
transaction with several conditions, including that Hoag
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. 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, after
the approval was issued and the transaction closed, certain
reproductive services ceased. Doctors at Hoag expressed outrage
and claimed they had been repeatedly assured that there would be
no change in certain reproductive services at Hoag.
According to the AG, Hoag's 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. 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 AG argues that had it
known these facts prior to approval, the conditions imposed
would have included more detailed requirements related to
reproductive health services.
In response to the above situation this bill seeks to give the
AG the authority to amend conditions related to the transfer of
the assets of a nonprofit health facility after the agreement
has closed.
SB 1094 (Lara)
Page 3 of ?
CHANGES TO EXISTING LAW
Existing law requires any nonprofit corporation that operates or
controls a health facility to provide written notice to, and
obtain the written consent of the Attorney General (AG) prior to
entering into any agreement or transaction to sell, transfer,
lease, or otherwise dispose of its assets to another entity, as
specified. (Corp. Code Sec. 5914.)
Existing law requires the AG to, within 60 days of the receipt
of a written notice of a proposed transaction involving a
nonprofit health facility, to notify the nonprofit in writing of
the decision to consent to, give conditional consent to, or not
consent to the agreement or transaction. (Corp. Code Secs. 5915,
5921.)
Existing law authorizes the AG to extend the above deadline for
an additional 45 days 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 multi-facility health
system serving multiple communities. (Corp. Code Secs. 5915,
5921.)
Existing law gives the AG discretion to consent to, give
conditional consent to, or not consent to any agreement or
transaction involving a nonprofit health facility based on
consideration of any factors the AG deems relevant, including
but not limited to:
whether the transaction or agreement is at fair market value;
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 nonprofit
system;
whether the transaction would create significant effects on
the availability or accessibility of health care services to
the affected community; or
whether the transaction is in the public interest. (Corp. Code
Sec. 5917.)
Existing law prohibits the AG from consenting to a nonprofit
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. (Corp.
SB 1094 (Lara)
Page 4 of ?
Code Sec. 5917.5.)
This bill would extend the time in which the AG has to inform a
nonprofit health facility of its decision to consent or not
consent to a transaction, as specified, from 60 to 90 days.
This bill would authorize the AG to enforce conditions imposed
on the AG's approval of an agreement or transaction, and
requires the transferee to fulfill all representations made
during the application process, including those regarding levels
of care.
This bill would authorize the AG to amend the conditions of an
agreement or transaction involving a nonprofit health facility
after the decision is issued if either of the following occur:
a party to the transaction made material misrepresentations to
the AG, and the amended condition imposed is substantially
related to the material misrepresentation made; or
a party to the transaction violated the conditions set forth
in the AG's decision, and the amended condition is
substantially related to the violation and necessary to
mitigate the effects of the violation, as specified.
This bill would provide that once an agreement or transaction is
closed, the parties are deemed to have consented to the
conditions set forth in the consent, and have waived the right
to seek judicial relief with respect to those conditions.
This bill would provide that the waiver of judicial relief noted
immediately above, would not apply to an amended condition
imposed by the AG after the close of the transaction.
COMMENT
1.Stated need for the bill
According to the author:
The increased review period provided in SB 1094 reflects a
significant increase in how complex and numerous proposed
transactions are, and complements parallel regulatory changes.
By giving the Attorney General's Charitable Trusts Section
more time to review proposed transactions, SB 1094 assures
that all transactions will be adequately analyzed prior to the
issuance of any condition or decision.
[Additionally,] under current law, the Attorney General's
SB 1094 (Lara)
Page 5 of ?
decision to consent to a nonprofit healthcare facility
transaction is final. The Attorney General has no explicit
authority to amend the conditions unless the selling or
acquiring entity requests an amendment?[The] authority to
revisit conditions imposed upon approval following a completed
transaction is necessary to preserve the health facility's
commitment to public benefit.
2.Increased volume of transactions necessitates a longer
approval process
Existing law allows the Attorney General (AG) 60 days, with a
potential 45-day extension, to consent to the sale or transfer
of the assets of a nonprofit health facility. This bill would
instead allow 90 days for the AG to review the proposed
transaction. The AG reports that not only are the number of
transactions increasing with each passing year, but the
complexity of each transaction is also increasing. In 2012, the
AG spent 280 hours on nonprofit health facility transactions.
In 2013, the AG expended 1,330 hours, and that number is
expected to rise to 1,540 hours by the conclusion of 2014. The
author argues that 90 days are therefore necessary to allow the
AG to deal with the increased workload. The AG writes, "by
giving the Attorney General's Charitable Trusts Section more
time to review proposed transactions, SB 1094 assures that all
transactions will be adequately analyzed prior to the issuance
of any condition or decision."
In support of this bill the Congress of California Seniors
writes that "at present, nonprofit hospitals that seek to
transfer ownership of all or part of their facilities must
obtain written approval from the AG. One the request is made,
the AG is required to hold public hearings with two weeks
advance notice, prepare a healthcare impact statement, and
prepare a summary report along with its decision. ?This complex
and often rushed process does not serve California well. SB
1094 will give the AG more time to review a hospital's request ?
and make hospitals safer and more efficient."
3.Ability to amend conditions arguably necessary to protect
public interest
This bill would authorize the AG to enforce conditions imposed
SB 1094 (Lara)
Page 6 of ?
on the AG's approval of an agreement, and would allow the AG to
require the transferee to fulfill any representations made
during the application process. This bill would also allow the
AG to amend the conditions of an agreement if material
misrepresentations were made to the AG, or in the event that a
party to the agreement violates a condition imposed by the
approval.
A prior version of this bill would have allowed the AG to amend
any condition if there had been a material misrepresentation, a
violation of the agreement, or if an unforeseen circumstance had
arisen. That provision raised a number of concerns. The
California Hospital Association wrote in opposition that the
bill:
Eliminated certainty in transactions involving the sale or
transfer of nonprofit hospitals by giving the Attorney General
virtually unlimited discretion to impose post-transaction
conditions. This authority to unilaterally change the terms
of the transaction will mean that organizations will avoid
many transactions that are in the community's best interest
because there is no certainty regarding the terms of "the
deal."
SB 1094 was subsequently amended in the Senate Health Committee
to limit the AG's ability to amend conditions post-transaction
only where the amendment is substantially related to the
violation or misrepresentation. For example, if a hospital
claimed that it would maintain the same level of services after
a sale but proceeded to significantly reduce the number of
staff, the AG could potentially amend the conditions of the
agreement to require the hospital to maintain a certain level of
staff. Further, amendments to conditions under this bill for
violations of the transaction would be required to be (1)
substantially related to the violation, and (2) necessary to
mitigate and provide appropriate restitution for the effects of
the violation.
Under traditional contract law principles, when a party violates
a condition of an agreement or makes a material
misrepresentation to the other party, the injured party must
seek redress in court. The AG, however, has been entrusted with
overseeing the transfer of nonprofit health facilities for the
public benefit. In situations where, post transaction, a party
violates a condition of the approval, or the AG learns of a
material misrepresentation upon which it based its approval of
SB 1094 (Lara)
Page 7 of ?
the sale, the public benefits from the speedy enforcement of the
transaction agreed to by both parties.
Health Access California, in support, notes that this bill would
"give the AG authority to enforce conditions imposed on such
transactions without litigation [which] is an important
improvement on existing law. We are aware of instances in which
hospitals repeatedly violated the conditions imposed of part of
a transaction; there should be recourse in such instances."
4.Waiver of right to seek judicial relief
This bill would provide that once an agreement or transaction
related to the sale or transfer of a nonprofit health facility
is closed, the parties are deemed to have consented to each
condition in the AG's approval, and to have waived any right to
seek judicial relief.
Many groups raised concerns over this particular provision,
claiming that it gave the AG unlimited power to change
conditions and stripped hospitals of their right to challenge
those conditions in court. The bill was subsequently amended
and now restricts the right to seek judicial relief only as to
the conditions in the original approval. Thus, under the
current version of the bill, parties will retain the ability to
challenge any amended conditions the AG imposes after the close
of the transaction.
Staff notes that if a party does not agree to conditions the AG
plans on imposing pursuant to an approval, that party may walk
away from the transaction. It is when a condition is imposed on
a party with no ability to revoke that judicial relief is
necessary. Thus, allowing a party to seek judicial relief only
for conditions imposed after the close of a transaction arguably
strikes a balance between the AG's obligation to provide for the
public benefit and the rights of nonprofit hospitals to
challenge obligations they did not necessarily agree to.
5.Opposition's concerns
In opposition to this bill a number of groups have raised
concerns that it would create significant uncertainty for
nonprofit hospitals. A coalition of health care providers,
including the California Hospital Association, Loma Linda
University, Adventist Health, Scripps, Alliance of Catholic
Health Care, and Sutter Health writes:
SB 1094 (Lara)
Page 8 of ?
Existing law provides vigorous protection of the public
interest in these types of transaction. However, this bill
grants broad regulatory discretion to keep changing the terms
of the transaction, after these terms have been agreed to by
both parties. It is important to recognize that the Attorney
General already had broad and comprehensive enforcement
authority to monitor and legally compel compliance with all of
the conditions of consent that it imposes in hospital
transactions-and has done so in the past. Thus, the true
essence of this bill is to allow the Attorney General the
ability to change the terms of the deal.
Adventist Health and Loma Linda University Medical Center write
that "there are no limitations in the bill as to the nature,
timing, process, or extent of the permissible changes that the
AG could impose. This would expose the entity buying a
nonprofit hospital to a massive unknown liability that could
appear at any time in the future."
Finally, the California Hospital Association writes "this bill
requires the parties to the transaction to waive their
constitutional rights and due process protections. We believe
the rule of law should continue to apply to these transactions."
Staff notes that a number of the concerns outlined by the
opposition were arguably addressed by the amendments taken in
the Senate Health Committee which limited the AG's ability to
amend conditions after the close of a transaction and allowed
parties to seek judicial relief related to any conditions
imposed after the close of a transaction. However, at this
time, no groups have officially removed their opposition.
Support : American Federation of State, County and Municipal
Employees, AFL-CIO; Congress of California Seniors; Health
Access California; Latino Coalition for a Healthy California;
Planned Parenthood Affiliates of California (Late); Service
Employees International Union, California State Council; United
Nurses Associations of California/Union of Health Care
Professionals
Opposition : Adventist Health, Alliance of Catholic Health Care;
California Hospital Association; Dignity Health; Loma Linda
University Health; Los Angeles Chamber of Commerce; Providence
Health & Services, Southern California; Scripps Health; Sutter
SB 1094 (Lara)
Page 9 of ?
Health; United Hospital Association
HISTORY
Source : California Department of Justice
Related Pending Legislation : None Known
Prior Legislation :
SB 932 (Bowen, Ch. 65, Stats. 2003) See Background.
AB 890 (Cedillo, Ch. 427, Stats. 2002) subjected 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.
AB 254 (Cedillo, Ch. 850, Stats. 1999) required nonprofit health
facilities to obtain the consent of the AG prior to the sale,
transfer or lease of a material amount of assets to another
nonprofit corporation.
AB 3101 (Isenberg, Ch. 1105, Stats. 1996) required for-profit
health facilities subject to public benefit corporation law to
obtain written consent from the AG prior to entering into an
agreement to sell, transfer, lease, exchange, option, convey, or
otherwise dispose of assets, and required the AG to conduct at
least one public meeting in the county where the facility is
located.
Prior Vote : Senate Committee on Health (Ayes 6, Noes 1)
**************