BILL ANALYSIS �
SB 1094
Page 1
Date of Hearing: June 24, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
SB 1094 (Lara) - As Amended: April 21, 2014
SENATE VOTE : 21-15
SUBJECT : Health facilities: sale of assets: approval.
SUMMARY : Provides an additional 30 days for the Attorney
General (AG) to review proposed transactions involving
non-profit health facilities, and allows the AG to amend the
conditions of an agreement or transaction involving a non-profit
health facility if a party to the transaction or agreement made
material misrepresentations to the AG, or violated the
conditions set forth by the AG. Requires the amended conditions
to be substantially related to the material misrepresentation.
Specifically, this bill :
1)Extends the time in which the AG must notify a non-profit
corporation in writing of the decision to consent or not
consent to a proposed transaction from 60 days, to 90 days.
2)Permits the AG to enforce conditions imposed on the AG's
approval of an agreement or transaction involving a nonprofit
health facility and to require the transferee to fulfill all
representations made during the application process, including
those regarding levels of care.
3)Allows the AG to amend the conditions of an agreement after
the AG's decision has been issued if either of the following
occur:
a) A party to the transaction or agreement made material
misrepresentations to the AG; or,
b) A party to the transaction or agreement violated the
conditions set forth in the AG's decision.
4)Specifies that amended conditions imposed by the AG pursuant
to 3) above must be substantially related to the material
misrepresentation or the violation made by the party to the
transaction.
5)Specifies that once an agreement or transaction is approved by
the AG, the parties are deemed to have explicitly and
implicitly consented to the conditions set forth in the AG's
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consent and to have waived any right to seek judicial relief.
6)Clarifies that the parties' waiver of their rights to judicial
relief does not apply to an amended condition imposed by the
AG.
EXISTING LAW :
1)Requires a nonprofit 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 mutual benefit corporation; or,
b) Transfer control, responsibility, or governance of a
material amount of the assets or operations of the
nonprofit corporation to any for-profit corporation or
entity, or mutual benefit corporation.
2)Requires the AG, within 60 days of receipt of a written notice
of a proposed transaction involving a non-profit health
facility, to notify the nonprofit corporation of their
decision to consent to, give conditional consent to, or not
consent to the agreement or transaction.
3)Allows the AG to extend this period for one additional 45 day
period if necessary to obtain additional information.
4)Grants the AG the discretion to consent to, give conditional
consent 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 whether or not the terms and
conditions of the agreement or transaction are fair and
reasonable to the nonprofit corporation, the agreement or
transaction is at fair market value, or the agreement or
transaction may create a significant effect on the
availability or accessibility of health care services to the
affected community.
5)Requires the AG, prior to issuing a decision regarding the
proposed transaction, to conduct one or more public meetings,
one of which must be in the county in which the facility is
located.
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6)Prohibits the AG from consenting to an agreement in which the
seller restricts the type or level of medical services that
may be provided.
7)Allows the AG to adopt regulations to implement these
provisions.
8)Allows the AG to contract with experts or consultants to
assist in reviewing the proposed agreement or transaction, and
requires the nonprofit corporation to pay for all contract
costs.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate 28.8, negligible state costs.
COMMENTS :
1)PURPOSE OF THIS BILL . 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
author further states that the process for reviewing proposed
transactions is complex and time intensive. Finally, the
author notes that the AG is currently prevented from amending
conditions or imposing new conditions related to proposed
nonprofit hospital transaction agreements that would be in the
public's interest, even if the parties to the transaction
withheld material information from the AG during the review
process, or acted against the conditions set forth by the AG
when the transaction was approved.
2)BACKGROUND .
a) AG enforcement of conditions of approval. Under current
law, the AG's decision to consent to a non-profit health
care facility transaction is final. The AG cites the
following case as an example of conditions that have been
imposed on transaction approvals in cases where the AG had
to exercise existing enforcement authority when the
facility subsequently violated approval terms.
b) Tien v. Tenet Healthcare Corp. , (2012) 209 Cal. App. 4th
1077. The AG gave conditional approval to Tenet Healthcare
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Corporation (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 (DOJ) obtained an injunction
prohibiting the closure and ultimately a settlement was
reached, which resulted in the hospital staying open
following eight months of litigation.
c) The need to amend conditions. The AG has no explicit
authority to amend the conditions of an approved
transaction unless the selling or acquiring entity requests
an amendment. The AG cites the following case as an
example of the need to change current law to allow
amendments to approved transactions when there have been
material misrepresentations made by parties during the
approval process.
d) St. Joseph's and Hoag Memorial. 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
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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 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.
e) Pending DOJ regulations. The AG's office is currently
promulgating regulations related to health facility
transactions. The public comment period recently closed
and they are now in the process of reviewing stakeholders'
comments in support or opposition to the regulations. The
AG's office will consider the comments, draft changes, if
any, and provide a statement of reasons as to why the
changes were accepted or not. If indeed amendments are
made to the regulations based on public comments, there
will be an additional 15 day public notice period. There
is no definitive timeline for when the regulations will be
approved.
The proposed regulations contain provisions similar to this
bill, including a regulation that would allow the AG to
amend the conditions or add new condition to address the
circumstances in three specific cases: 1) subsequent to
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the issuance of the AG's decision, the AG receives
information indicating that the parities to the transaction
or agreement made material misrepresentations to the AG's
office; 2) a change in circumstances has occurred that
could not have reasonably been foreseen at the time of the
AG's action; and 3) the parties to the transaction or
agreement violated the conditions set forth in the AG's
decision. A provision almost identical to 2) was amended
out of this bill.
3)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 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.
The California State Council of the Service Employees
International Union writes that this bill will hold hospital
facilities accountable, further protecting communities by
ensuring that access to crucial healthcare services remain
available while upholding the public's trust in providing tax
benefit to nonprofit health facilities through greater
oversight by the AG. The American Federation of State, County
and Municipal Employees supports this bill because it would
extend the nonprofit health facility merger review period from
60 days to 90 days, giving the AG more time to review the
complex details of an agreement to better ensure the
transaction will continue to provide the public with access to
crucial health care services.
4)OPPOSITION . The California Hospital Association (CHA) opposes
this bill because it eliminates certainty in transactions
involving the sale or transfer of nonprofit hospitals by
allowing the AG to unilaterally impose post-transaction
conditions. CHA contends that any allegation by a
third-party, justified or otherwise, that certain
representations were made that contradict the actual terms of
the agreement, even if it was made by an unauthorized
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representative or outside of the formal proceedings and
record, would allow the AG to unilaterally change the terms of
a deal. Finally, CHA concludes that this bill would have a
chilling effect on these transactions because it eliminates
any certainty at the end of this negotiation and approval
process and hospitals will be unable to obtain financing
because of the lack of finality.
The Alliance of Catholic Health Care writes that by granting
the AG unspecified open-ended authority to retroactively
change the terms of a deal that it had previously approved,
this bill will create significant uncertainty for the
underwriters, bond counsel and potential investors who must
assess the viability of the securities issued to finance a
nonprofit affiliation or acquisition.
Tenet Healthcare opposes this bill because it would grant the
AG virtually unlimited discretion to impose post-transaction
conditions and re-open approved transactions. Tenet asserts
that this bill contains provisions altering the most basic
rules of law by requiring parities to such transactions to
waive their constitutional rights and due process protections.
5)PREVIOUS LEGISLATION .
a) 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.
b) 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. AB 890 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.
c) AB 254 (Cedillo), Chapter 850, Statutes of 1999,
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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.
d) AB 3101 (Isenberg), Chapter 1105, Statutes of 1996,
requires nonprofit health facilities that are subject to
public benefit corporation law to obtain written consent
from the AG prior to entering into an agreement to: i)
sell, transfer, lease, exchange, option, convey, or
otherwise dispose of assets; or; ii) 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.
6)POLICY COMMENTS . This bill gives the AG authority to not only
to enforce the conditions of a transaction without litigation,
but the ability to go back and amend the conditions of the
transaction if the terms were violated, or if there were
material misrepresentations made to the AG prior to the AG's
final decision/approval. Although an amended condition
imposed by the AG under those circumstances must be
substantially related to the material misrepresentation or
violation, as currently drafted there is no limit on the
amount of time the AG has to go back and make an amendment.
Given that the unlimited timeframe for possible changes to the
terms of an agreement will create uncertainty, it is possible
that some organizations would avoid participating in a
transaction all-together, and that the cost of financing a
transaction will significantly increase. The potential
conflict between the proposed regulations discussed in 2) c)
above and the provisions of this bill also serves to add to
the uncertainty regarding potential changes to the terms of a
transaction.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Justice, Kamala D. Harris, Attorney
General (sponsor)
American Civil Liberties Union of California
American Federation of state, County and Municipal Employees
California Nurses Association
California State Council of the Service Employees International
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Union
Consumers Union
Health Access California
Latino Coalition for a Health California
NARAL Pro-Choice California
Planned Parenthood Affiliates of California
United Nurses Associations of California/Union of Health Care
Professionals
Opposition
Adventist Health
Dignity Health
Providence Health & Services Southern California
California Hospital Association
California Catholic Conference, Inc.
Hospital Corporation of America
Scripps
Sharp
St. Joseph Health
Sutter Health
United Hospital Association
Los Angeles Area Chamber of Commerce
Loma Linda University Medical Center
Alliance of Catholic Health Care
California Children's Hospital Association
Tenet
Analysis Prepared by : Lara Flynn / HEALTH / (916) 319-2097