Chapter 259
2012 -- H 7283 SUBSTITUTE A
Enacted 06/19/12
A N A C T
RELATING TO
HEALTH AND SAFETY - THE HOSPITAL CONVERSIONS ACT
Introduced By: Representatives Mattiello, Azzinaro, Brien, Marcello, and McLaughlin
Date Introduced: January 31, 2012
It is enacted by the
General Assembly as follows:
SECTION 1. Sections 23-17.14-2, 23-17.14-3, 23-17.14-4,
23-17.14-5, 23-17.14-6, 23-
17.14-7, 23-17.14-9,
23-17.14-10, 23-17.14-11, 23-17.14-13, 23-17.14-19, 23-17.14-28, 23-
17.14-31 and 23-17.14-34 of
the General Laws in Chapter 23-17.14 entitled "The Hospital
Conversions Act" are hereby amended to read as follows:
23-17.14-2.
Findings. -- The general assembly finds and
declares that:
(1)
medical services, education and research;
(2) Hospitals in
(3) Hospitals in during the 1990's substantial declines in
occupancy as the healthcare system has changed.
(4) Hospitals required
require capital to maintain operations and to modernize facilities
and services;
(5) Nationally and
regionally private investment is being made that results in the
conversion of not-for-profit and public hospitals into
for-profit hospitals;
(6) There are hospitals
in
important services to communities that submit that their
survival may depend on the ability to
enter into agreements that result in the investment of
private capital and their conversion to for-
profit status;
(7) Hospitals both
not-for-profit and for-profit are merging and forming networks to
achieve integration, stability and efficiency and the
presence of these networks affects
competition;
(8) There are concerns
that hospital networks may engage in practices that affect the
quality medical services in the community as a whole and for
more vulnerable members of
society in particular;
(9) In order to protect
public health and welfare and public and charitable assets, it is
necessary to establish standards and procedures for hospital
conversions.
23-17.14-3.
Purpose of provisions. -- The purpose of this
chapter is to:
(1) Assure the
viability of a safe, accessible and affordable healthcare system that is
available to all of the citizens of the state;
(2) To establish a
process to evaluate, monitor and review whether the new phenomenon
of for-profit corporations gaining an interest in
hospitals will maintain, enhance, or disrupt the
delivery of healthcare in the state and to monitor hospital
performance to assure that standards for
community benefits continue to be met;
(3) To establish a
review process and criteria for review of hospital conversions that
involve for-profit corporations;
(4) To establish a
review process and criteria for review of hospital conversions that
involve only not-for-profit corporations;
(5)(4) To
clarify the jurisdiction and the authority of the department of health to
protect
public health and welfare and the department of attorney
general to preserve and protect public
and charitable assets in reviewing both hospital
conversions which involve for-profit corporations
and hospital conversions which include only
not-for-profit corporations; and
(6)(5) To
provide for independent foundations to hold and distribute proceeds of hospital
conversions consistent with the acquiree's
original purpose or for the support and promotion of
health care and social needs in the affected community.
23-17.14-4.
Definitions. -- For purposes of this chapter:
(1) "Acquiree" means the person or persons that lose(s) any
ownership or control in the
new hospital as a result of a conversion, as the
terms “conversion,” "new hospital," and
"person(s)" are
defined within this chapter;
(2) "Acquiror" means the person or persons which gain(s) an
ownership or control in the
new hospital as a result of a conversion, as the
terms “conversion,” "new hospital," and
"person(s)" are
defined within this chapter;
(3) "Affected
community" means any city or town within the state wherein an existing
hospital is physically located and/or those cities and towns
whose inhabitants are regularly served
by the existing hospital;
(4) "Charity
care" is defined as health care services provided by a hospital without
charge to a patient and for which the hospital does not and
has not expected payment;
(5) "Community
benefit" means the provision of hospital services that meet the ongoing
needs of the community for primary and emergency care in a
manner that enables families and
members of the community to maintain relationships with
person who are hospitalized or are
receiving hospital services, and shall also include, but not be
limited to charity care and
uncompensated care;
(6)
"Conversion" means any transfer by a person or persons of an
ownership or
membership interest or authority in a hospital, or the assets of
a hospital, whether by purchase,
merger, consolidation, lease, gift, joint venture, sale, or
other disposition which results in a
change of ownership or control or possession of twenty
percent (20%) or greater of the members
or voting rights or interests of the hospital or of the
assets of the hospital or pursuant to which, by
virtue of the transfer, a person, together with all persons
affiliated with the person, holds or owns,
in the aggregate, twenty percent (20%) or greater of the
membership or voting rights or interests
of the hospital or of the assets of the hospital, or the
removal, addition or substitution of a partner
which results in a new partner gaining or acquiring a
controlling interest in the hospital, or any
change in membership which results in a new person gaining
or acquiring a controlling vote in
the hospital;
(7) “Current conflict
of interest forms” means conflict of interest forms signed within one
year prior to the date the application is submitted in the
same form as submitted to auditors for the
transacting parties in connection with the preparation of
financial statements, or in such other
form as is acceptable to the attorney general, together
with a description of any conflicts of
interest that have been discovered by or disclosed to a
transacting party since the date of such
conflict of interest forms;
(7)(8)
"Department" means the department of health. However “departments”
shall mean
the department of health and the department of the
attorney general;
(8)(9)
"Director" means the director of the department of health;
(9)(10)
"Existing hospital" means the acquiree
hospital as it exists prior to the
acquisition;
(10)(11)
"For-profit corporation" means a legal entity formed for the purpose
of
transacting business which has as any one of its purposes
pecuniary profit;
(11)(12)
"Hospital" means a person or governmental entity licensed in
accordance with
chapter 17 of this title to establish, maintain and operate a
hospital;
(12)(13)
"New hospital" means the acquiree
hospital as it exists after the completion of a
conversion;
(13)(14)
"Not-for-profit corporation means a legal entity formed for some
charitable or
benevolent purpose and not-for-profit which has been exempted
from taxation pursuant to
Internal Revenue Code section 501(c)(3),
26 U.S.C. section 501(c)(3);
(14)(15)
"Person" means any individual, trust or estate, partnership,
corporation
(including associations,
joint stock companies and insurance companies), state or political
subdivision or instrumentality of the state;
(16) “Senior managers” or “senior management” means executives and
senior level
managers of a transacting party;
(15)(17)
"Transacting parties" means the acquiree
and the acquiror any person or persons
who seeks either to transfer or acquire ownership or a
controlling interest or controlling authority
in a hospital which would result in a change of
ownership, control or authority of twenty percent
(20%) or greater;
(16)(18)
"Uncompensated care" means a combination of free care, which the
hospital
provides at no cost to the patient, bad debt, which the
hospital bills for but does not collect, and
less than full Medicaid reimbursement amounts.
23-17.14-5. Prior
approval required -- Department of attorney general and
department of health. -- (a) A conversion shall require review and approval from the department
of attorney general and from the department of health in
accordance with the provisions of this
chapter; except as provided for under section 23-17.14-12.1
hereof, but shall remain subject to the
authority of the attorney general pursuant to section
23-17.14-21 hereof.
(b) The review by the
departments shall occur concurrently, and neither department shall
delay its review or determination because the other
department has not completed its review or
issued its determination. The applicant may request that
the review by the department occur
concurrently with the review of any relevant federal regulatory
authority.
23-17.14-6.
Initial application -- Conversions involving for-profit corporations or
not-for-profit as acquirors. -- (a) No person shall engage in a conversion with a for
profit
corporation as the acquiror and a
not-for-profit corporation as the acquiree involving
the
establishment, maintenance, or operation of a hospital or a conversion
subject to section 23-
17.14-9 without prior approval of both the department
of attorney general and the department of
health. The review of the two (2) departments shall occur
concurrently, and neither department
shall delay its review or determination because the other
department has not completed its review
or issued its determination. The applicant may request
that the review by the departments occur
concurrently with the review of any relevant federal regulatory
authority. The transacting parties
shall file an initial application in accordance with
subsection (b) of this section that shall, at
minimum, include the following information with respect to
each transacting party and to the
proposed new hospital:
(1) A detailed summary
of the proposed conversion;
(2) Names, addresses
and phone numbers of the transacting parties;
(3) Name, address,
phone number, occupation, and tenure of all officers, members of the
board of directors, trustees, executives, and senior level
managers, including for each position,
current persons and persons holding such position
during the past three (3) two (2) years;
(4) A list of all
committees, subcommittees, task forces, or similar entities of the board
of directors or trustees, including a short description
of the purpose of each committee,
subcommittee, task force, or similar entity and the name, address,
phone number, occupation, and
tenure of each member;
(5) Agenda, meeting
packages, and minutes of all meetings of the board of directors or
trustees and any of its committees, subcommittees, task forces
related to the conversion, or
similar entities excluding those focused on peer review
and confidential medical matters, that
occurred within the two (2) year period prior to submission of
the application, including, upon the
request of the department or attorney general, any meeting
packages;
(6) Articles of
incorporation and certificate of incorporation;
(7) Bylaws and organizational
charts;
(8) Organizational
structure for existing transacting parties and each partner, affiliate,
parent, subsidiary or related corporate entity in which the acquiror has a twenty percent (20%) or
greater ownership interest;
(9) Conflict of
interest statements, policies and procedures;
(10) Names, addresses
and phone numbers of professional consultants engaged in
connection with the proposed conversion;
(11) Copies of audited
income statements, balance sheets, other financial statements, and
management letters for the past three (3) years and to the
extent they have been made public,
audited interim financial statements and income statements
together with detailed description of
the financing structure of the proposed conversion
including equity contribution, debt
restructuring, stock issuance, partnership interests, stock
offerings and the like;
(12) A detailed
description of real estate issues including title reports for land owned and
lease agreements concerning the proposed conversion;
(13) A detailed
description as each relates to the proposed transaction for equipment
leases, insurance, regulatory compliance, tax status,
pending litigation or pending regulatory
citations, pension plan descriptions and employee benefits,
environmental reports, assessments
and organizational goals;
(14) Copies of reports
analyzing the proposed conversion during the past three (3) years
including, but not limited to, reports by appraisers,
accountants, investment bankers, actuaries and
other experts;
(15) Copies of any
opinions or memoranda addressing the state and federal tax
consequences of the proposed conversion prepared for a transacting
party by an attorney,
accountant, or other expert;
(16) A description of
the manner in which the price was determined including which
methods of valuation and what data were used, and the names
and addresses of persons preparing
the documents, and this information is deemed to be
proprietary;
(17) Patient statistics
for the past three (3) years and patient projections for the next one
year including patient visits, admissions, emergency room
visits, clinical visits, and visits to each
department of the hospital, admissions to nursing care or visits
by affiliated home health care
entities;
(18) The name and
mailing address of all licensed facilities in which the for-profit
corporation maintains an ownership interest or controlling
interest or operating authority;
(19) A list of pending
or adjudicated citations, violations or charges against the facilities
listed in subdivision (a)(18) brought by any governmental
agency or accrediting agency within
the past three (3) years and the status or disposition of
each matter with regard to patient care and
charitable asset matters;
(20) A list of
uncompensated care provided over the past three (3) years by each facility
listed in subdivision (a)(18) and detail as to how that
amount was calculated;
(21) Copies of all
documents related to:
(i)
Identification of all charitable assets
(ii) Accounting of all
charitable assets for the past three (3) years; and
(iii) Distribution of
the charitable assets including, but not limited to, endowments,
restricted, unrestricted and specific purpose funds as each
relates to the proposed transaction;
(22) A description of
charity care and uncompensated care provided by the existing
hospital for the previous five (5) three (3) year
period to the present including a dollar amount
and a description of services provided to patients;
(23) A description of
bad debt incurred by the existing hospital for the previous five (5)
three (3) for
which payment was anticipated but not received;
(24) A description of
the plan as to how the new hospital will provide community benefit
and charity care during the first five (5) three
(3) years of operation;
(25) A description of
how the new hospital will monitor and value charity care services
and community benefit;
(26) The names of
persons currently holding a position as an officer, director, board
member, or senior level management manager who
will or will not maintain any position with the
new hospital and whether any said person will receive any
salary, severance stock offering or any
financial gain, current or deferred, as a result of or in
relation to the proposed conversion;
(27) Copies of capital
and operating budgets or other financial projections for the new
hospital during the first three (3) years of operation;
(28) Copies of plans
relative to staffing during the first three (3) years at the new
hospital;
(29) A list of all
medical services, departments and clinical services, and administrative
services which will be maintained at the new hospital;
(30) A description of
criteria established by the board of directors of the existing hospital
for pursuing a proposed conversion with one or more
health care providers;
(31) Copies of reports
of any due diligence review performed by each transacting party
in relation to the proposed conversion. These reports
are to be held by the attorney general and
department of health as confidential and not released to the
public regardless of any determination
made pursuant to section 23-17.14-32 and not withstanding
any other provision of the general
laws;
(32) A description of
request for proposals issued by the existing hospital relating to
pursuing a proposed conversion;
(33) Copies of reports
analyzing affiliations, mergers, or other similar transactions
considered by any of the transacting parties during the past
three (3) years, including, but not
limited to, reports by appraisers, accountants, investment
bankers, actuaries and other experts;
(34) A copy of proposed
contracts or description of proposed contracts or arrangements
with management senior managers, board
members, officers, or directors of the existing hospital
for severance consulting services or covenants not to
compete following completion of the
proposed conversion;
(35) A copy or
description of all agreements or proposed agreements reflecting any
current and/or future employment or compensated relationship
between the acquiror (or any
related entity) and any officer, director, board member, or
senior level manager of the acquiree
(or any related entity);
(36) A copy or
description of all agreements executed or anticipated to be executed by
any of the transacting parties in connection with the
proposed conversion;
(37) Copies of
documents or description of any proposed plan for any entity to be
created for charitable assets, including but not limited to,
endowments, restricted, unrestricted and
specific purpose funds, the proposed articles of
incorporation, by-laws, mission statement,
program agenda, method of appointment of board members,
qualifications of board members,
duties of board members, and conflict of interest policies;
(38) Description of all
departments, clinical, social, or other services or medical services
that will be eliminated or significantly reduced at the
new hospital;
(39) Description of
staffing levels of all categories of employees, including full-time,
part-time, and contract employees currently working at or
providing services to the existing
hospital and description of any anticipated or proposed
changes in current staffing levels;
(40) Current, signed
original Copies of current conflict of interest forms from all
incumbent or recently incumbent officers, directors,
members of the board, boards of directors or
trustees, and
senior management, managers, including the medical directors, of the
transacting
parties chairpersons or department chairpersons and
medical directors on a form acceptable to the
attorney general; "incumbent or recently incumbent"
means those individuals holding the position
at the time the application is submitted and any
individual who held a similar position within one
year prior to the application's acceptance;
(41) If the acquiror is a for profit corporation that has acquired a
not for profit hospital
under the provisions of this chapter, the application shall
also include a complete statement of
performance during the preceding one year with regard to the
terms and conditions of approval of
conversion and each projection, plan, or description submitted
as part of the application for any
conversion completed under an application submitted pursuant to
this section and made a part of
an approval for the conversion pursuant to section
23-17.14-7, or 23-17.14-8 or 23-14.14-19;
(42) Copies of IRS Form
990 for any transacting party required by federal law to file
such a form for each of the five (5) three (3)
years prior to the submission of the application.
(b)
Two (2) copies of the initial application shall be provided to each of the
department
of health and department of the attorney general
simultaneously by
return receipt requested. Filings may be submitted
electronically if acceptable to the department
of health and/or attorney general.
(c) Except for
information determined by the attorney general in accordance with section
23-17.14-32 to be confidential and/or proprietary, or
otherwise required by law to be maintained
as confidential, the initial application and supporting
documentation shall be considered public
records and shall be available for inspection upon request.
23-17.14-7. Review
process of the department of attorney general and the
department of health and review criteria by department of
attorney general. -- (a) The
department of attorney general shall review all conversions
involving a hospital in which one or
more of the transacting parties involves a for profit
corporation as the acquiror and a not for profit
corporation as the acquiree.
(b) In reviewing
proposed conversions in accordance with this section and section 23-
17.14-10, the department of attorney general and
department of health shall adhere to the
following process:
(1) Within thirty (30)
days after receipt of an initial application, the department of
attorney general and department of health shall jointly advise
the applicant, in writing, whether
the application is complete, and, if not, shall specify
all additional information the applicant is
required to provide;
(2) The applicant will
submit the additional information within thirty (30) working days.
If the additional information is submitted within the
thirty (30) day period, the department of
attorney general and department of health will have ten (10)
working days within which to
determine acceptability of the additional information. If the
additional information is not
submitted by the applicant within the thirty (30) day period or
if either agency determines the
additional information submitted by the applicant is
insufficient, the application will be rejected
without prejudice to the applicant's right to resubmit, the
rejection to be accompanied by a
detailed written explanation of the reasons for rejection. If
the department of attorney general and
department of health determine the additional information to be
as requested, the applicant will be
notified, in writing, of the date of acceptance of the
application;
(3) Within thirty (30)
working days after acceptance of the initial application, the
department of attorney general shall render its determination on
confidentiality pursuant to
section 23-17.14-32 and the department of attorney general
and department of health shall publish
notice of the application in a newspaper of general
circulation in the state and shall notify by
United States mail any person who has requested notice
of the filing of the application. The
notice shall:
(i)
State that an initial application has been received and accepted for review,
(ii) State the names of
the transacting parties,
(iii) State the date by
which a person may submit written comments to the department of
attorney general or department of health, and
(iv)
Provide notice of the date, time and place of informational meeting open
to the
public which shall be conducted within sixty (60) days of
the date of the notice;
(4) The department of
attorney general and department of health shall each approve,
approve with conditions directly related to the proposed
conversion, or disapprove the application
within one hundred and eighty (180) one hundred
twenty (120) days of the date of acceptance of
the application.
(c) In reviewing an
application pursuant to subsection (a) the department of the attorney
general shall consider the following criteria:
(1) Whether the
proposed conversion will harm the public's interest in trust property
given, devised, or bequeathed to the existing hospital for
charitable, educational or religious
purposes located or administered in this state;
(2) Whether a trustee
or trustees of any charitable trust located or administered in this
state will be deemed to have exercised reasonable care,
diligence, and prudence in performing as
a fiduciary in connection with the proposed conversion;
(3) Whether the board
established appropriate criteria in deciding to pursue a conversion
in relation to carrying out its mission and purposes;
(4) Whether the board
formulated and issued appropriate requests for proposals in
pursuing a conversion;
(5) Whether the board
considered the proposed conversion as the only alternative or as
the best alternative in carrying out its mission and
purposes;
(6) Whether any
conflict of interest exists concerning the proposed conversion relative to
members of the board, officers, directors, senior management,
experts or consultants engaged in
connection with the proposed conversion including, but not
limited to, attorneys, accountants,
investment bankers, actuaries, health care experts, or industry
analysts;
(7) Whether individuals
described in subdivision (c)(6) were provided with contracts
or
consulting agreements or arrangements which included pecuniary
rewards based in whole, or in
part on the contingency of the completion of the
conversion;
(8) Whether the board
exercised due care in engaging consultants with the appropriate
level of independence, education, and experience in similar
conversions;
(9) Whether the board
exercised due care in accepting assumptions and conclusions
provided by consultants engaged to assist in the proposed
conversion;
(10) Whether the board
exercised due care in assigning a value to the existing hospital
and its charitable assets in proceeding to negotiate the
proposed conversion;
(11) Whether the board
exposed an inappropriate amount of assets by accepting in
exchange for the proposed conversion future or contingent
value based upon success of the new
hospital;
(12) Whether officers,
directors, board members or senior management will receive
future contracts in existing, new, or affiliated hospital or
foundations;
(13) Whether any
members of the board will retain any authority in the new hospital;
(14) Whether the board
accepted fair consideration and value for any management
contracts made part of the proposed conversion;
(15) Whether individual
officers, directors, board members or senior management
engaged legal counsel to consider their individual rights or
duties in acting in their capacity as a
fiduciary in connection with the proposed conversion;
(16) Whether the
proposed conversion results in an abandonment of the original
purposes of the existing hospital or whether a resulting
entity will depart from the traditional
purposes and mission of the existing hospital such that a cy
pres proceeding would be necessary;
(17) Whether the
proposed conversion contemplates the appropriate and reasonable fair
market value;
(18) Whether the
proposed conversion was based upon appropriate valuation methods
including, but not limited to, market approach, third party
report or fairness opinion;
(19) Whether the
conversion is proper under the Rhode Island Nonprofit Corporation
Act;
(20) Whether the
conversion is proper under applicable state tax code provisions;
(21) Whether the
proposed conversion jeopardizes the tax status of the existing hospital;
(22) Whether the
individuals who represented the existing hospital in negotiations
avoided conflicts of interest;
(23) Whether officers,
board members, directors, or senior management deliberately
acted or failed to act in a manner that impacted negatively
on the value or purchase price;
(24) Whether the
formula used in determining the value of the existing hospital was
appropriate and reasonable which may include, but not be limited
to factors such as: the multiple
factor applied to the "EBITDA" -- earnings before
interest, taxes, depreciation, and amortization;
the time period of the evaluation; price/earnings
multiples; the projected efficiency differences
between the existing hospital and the new hospital; and the
historic value of any tax exemptions
granted to the existing hospital;
(25) Whether the
proposed conversion appropriately provides for the disposition of
proceeds of the conversion that may include, but not be
limited to:
(i)
Whether an existing entity or a new entity will receive the proceeds;
(ii) Whether
appropriate tax status implications of the entity receiving the proceeds have
been considered;
(iii) Whether the
mission statement and program agenda will be or should be closely
related with the purposes of the mission of the existing
hospital;
(iv) Whether any
conflicts of interest arise in the proposed handling of the conversion's
proceeds;
(v) Whether the bylaws
and articles of incorporation have been prepared for the new
entity;
(vi)
Whether the board of any new or continuing entity will be independent
from the new
hospital;
(vii) Whether the
method for selecting board members, staff, and consultants is
appropriate;
(viii) Whether the
board will comprise an appropriate number of individuals with
experience in pertinent areas such as foundations, health care,
business, labor, community
programs, financial management, legal, accounting, grant
making and public members
representing diverse ethnic populations and the interests
of the affected community;
(ix) Whether the size
of the board and proposed length of board terms are sufficient;
(26) Whether the
transacting parties are in compliance with the Charitable Trust Act,
chapter 9 of title 18; and
(27) Whether a right of
first refusal to repurchase the assets has been retained;
.
(28) Whether the
character, commitment, competence and standing in the community, or
any other communities served by the transacting parties
are satisfactory;
(29) Whether a control
premium is an appropriate component of the proposed
conversion; and
(30) Whether the value
of assets factored in the conversion is based on past performance
or future potential performance.
23-17.14-9.
Initial application -- Conversions limited to not-for-profit corporations. -
- All
conversions which are limited to not-for-profit corporations which involve the
establishment, maintenance, or operation of a hospital require
prior approval of both the
department of attorney general and the department of health or,
if eligible for expedited review
under section 23-17.14-12.1, prior approval of the
department of health and subject to the
authority of the attorney general pursuant to section
23-17.14-21 hereof. The review by the
two
(2) departments shall occur
concurrently and neither department shall delay its review or
determination because the other department has not completed its
review or issued its
determination. The applicant may request that the review by the
departments occur concurrently
with the review of any relevant federal regulatory
authority. The transacting parties
shall file an
initial application pursuant to the provisions set forth in section
23-17.14-6 or section 23-17.14-
12.1.
23-17.14-10.
Review process of department of attorney general and department of
health and criteria by department of attorney general --
Conversions limited to not-for-
profit corporations. -- (a) In reviewing an
application of a conversion involving a hospital in
which the transacting parties are limited to not-for-profit
corporations, except as provided in
section 23-17.14-12.1,
the department of attorney general and department of health shall adhere
to the following process:
(1) Within thirty (30)
days after receipt of an initial application, the department of
attorney general and department of health shall jointly advise
the applicant, in writing, whether
the application is complete, and, if not, shall specify
all additional information the applicant is
required to provide;
(2) The applicant will
submit the additional information within thirty (30) working days.
If the additional information is submitted within the
thirty (30) day period, the department of
attorney general and department of health will have ten (10)
working days within which to
determine acceptability of the additional information. If the
additional information is not
submitted by the applicant within the thirty (30) day period or
if either agency determines the
additional information submitted by the applicant is
insufficient, the application will be rejected
without prejudice to the applicant's right to resubmit, the
rejection to be accompanied by a
detailed written explanation of the reasons for rejection. If
the department of attorney general and
department of health determine the additional information to be
as requested, the applicant will be
notified, in writing, of the date of acceptance of the application;
(3) Within thirty (30)
working days after acceptance of the initial application, the
department of attorney general shall render its determination on
confidentiality pursuant to
section 23-17.14-32 and the department of attorney general
and department of health shall publish
notice of the application in a newspaper of general
circulation in the state and shall notify by
United States mail any person who has requested notice
of the filing of the application. The
notice shall:
(i)
State that an initial application has been received and accepted for review,
(ii) State the names of
the transacting parties,
(iii) State the date by
which a person may submit written comments to the department of
attorney general or department of health, and
(iv)
Provide notice of the date, time and place of informational meeting open
to the
public which shall be conducted within sixty (60) days of
the date of the notice;
(4) The department of
attorney general and department of health shall each approve,
approve with conditions directly related to the proposed
conversion, or disapprove the application
within one hundred and eighty (180) one hundred
twenty (120) days of the date of acceptance of
the application.
(b) In reviewing an
application of a conversion involving a hospital in which the
transacting parties are limited to not-for-profit corporations,
the department of attorney general
may consider the following criteria:
(1) Whether the
proposed conversion will harm the public's interest in trust property
given, devised, or bequeathed to the existing hospital for
charitable, educational or religious
purposes located or administered in this state;
(2) Whether a trustee
or trustees of any charitable trust located or administered in this
state will be deemed to have exercised reasonable care,
diligence, and prudence in performing as
a fiduciary in connection with the proposed conversion;
(3) Whether the board
established appropriate criteria in deciding to pursue a conversion
in relation to carrying out its mission and purposes;
(4) Whether the board
considered the proposed conversion as the only alternative or as
the best alternative in carrying out its mission and
purposes;
(5) Whether any
conflict of interest exists concerning the proposed conversion relative to
members of the board, officers, directors, senior management,
experts or consultants engaged in
connection with the proposed conversion including, but not
limited to, attorneys, accountants,
investment bankers, actuaries, health care experts, or industry
analysts;
(6) Whether individuals
described in subdivision (b)(5) were provided with
contracts or
consulting agreements or arrangements which included pecuniary
rewards based in whole, or in
part on the contingency of the completion of the
conversion;
(7) Whether the board
exercised due care in engaging consultants with the appropriate
level of independence, education, and experience in similar
conversions;
(8) Whether the board
exercised due care in accepting assumptions and conclusions
provided by consultants engaged to assist in the proposed
conversion;
(9) Whether officers,
directors, board members or senior management will receive future
contracts;
(10) Whether any
members of the board will retain any authority in the new hospital;
(11) Whether the board
accepted fair consideration and value for any management
contracts made part of the proposed conversion;
(12) Whether individual
officers, directors, board members or senior management
engaged legal counsel to consider their individual rights or
duties in acting in their capacity as a
fiduciary in connection with the proposed conversion;
(13) Whether the
proposed conversion results in an abandonment of the original
purposes of the existing hospital or whether a resulting
entity will depart from the traditional
purposes and mission of the existing hospital such that a cy
pres proceeding would be necessary;
(14) Whether the
proposed conversion contemplates the appropriate and reasonable fair
market value;
(15) Whether the
proposed conversion was based upon appropriate valuation methods
including, but not limited to, market approach, third-party
report or fairness opinion;
(16) Whether the
conversion is proper under the Rhode Island Nonprofit Corporation
Act;
(17) Whether the
conversion is proper under applicable state tax code provisions;
(18) Whether the
proposed conversion jeopardizes the tax status of the existing hospital;
(19) Whether the
individuals who represented the existing hospital in negotiations
avoided conflicts of interest;
(20) Whether officers,
board members, directors, or senior management deliberately
acted or failed to act in a manner that impacted negatively
on the value or purchase price;
(21) Whether the
transacting parties are in compliance with the Charitable Trust Act,
chapter 9 of title 18.
23-17.14-11. Criteria
for the department of health -- Conversions limited to not-for-
profit corporations. -- In reviewing an application of a conversion involving
a hospital in which
the transacting parties are limited to not-for-profit
corporations, the department shall consider the
following criteria:
(1) Whether the
character, commitment, competence, and standing in the community, or
any other communities served by the proposed transacting
parties are satisfactory;
(2) Whether sufficient
safeguards are included to assure the affected community
continued access to affordable care;
(3) Whether the
transacting parties have provided satisfactory evidence that the new
hospital will provide health care and appropriate access with
respect to traditionally underserved
populations in the affected community;
(4) Whether procedures
or safeguards are assured to insure that ownership interests will
not be used as incentives for hospital employees or
physicians to refer patients to the hospital;
(5) Whether the
transacting parties have made a commitment to assure the continuation
of collective bargaining rights, if applicable, and
retention of the workplace workforce;
(6) Whether the
transacting parties have appropriately accounted for employment needs
at the facility and addressed workforce retraining
needed as a consequence of any proposed
restructuring;
(7) Whether the
conversion demonstrates that the public interest will be served
considering the essential medical services needed to provide safe
and adequate treatment,
appropriate access and balanced health care delivery to the
residents of the state.
23-17.14-13.
Reports, use of experts, costs. -- The department
of health or the
department of attorney general may in effectuating the purposes
of this chapter engage experts or
consultants including, but not limited to, actuaries, investment
bankers, accountants, attorneys, or
industry analysts. All copies of reports prepared by experts
and consultants, and costs associated
with the reports, shall be made available to the
transacting parties and to the public. All costs
incurred under this provision shall be the responsibility of
one or more transacting parties in an
amount to be determined by the attorney general or the
director as they deem appropriate and
consistent with 23-17.14-12.1, if applicable. No application for a conversion made pursuant to the
requirements of this chapter shall be considered complete unless
an agreement has been executed
with the attorney general or the director for the payment
of costs in accordance with this section.
23-17.14-19.
Limits to acquisitions -- Community benefits requirements -- Filings
prohibited. -- (a)
In effectuating the purposes of this chapter
to evaluate, review and monitor the
new phenomenon of for-profit corporations gaining an
interest in hospitals and the resulting
impact on the delivery of healthcare in the state,
limitations on for-profit corporations involved in
hospital conversions are necessary Notwithstanding any other provisions in this
chapter, nothing
herein shall be construed to prohibit a for-profit hospital,
its subsidiaries or affiliates, from
applying for and receiving approval of a conversion of more
than one hospital in the same year,
or any subsequent year, and each such application shall
require review and approval from the
attorney general and the department of health in accordance
with the provisions of this chapter.
(b) No for-profit corporation,
or its subsidiaries or affiliates, which applies for and
receives approval of a conversion of a hospital in accordance
with the provisions of this chapter
shall be permitted to apply for approval of a conversion of
a second hospital in this state for a
period of at least three (3) years after the initial
conversion is finalized and implemented. This
subsection shall not be deemed to prohibit a for-profit
corporation, together with its subsidiaries
and affiliates, from applying for or receiving approval
of a conversion of two (2) affiliated
hospitals in this state provided that: (1) one of the two (2)
hospital licenses involved in the
conversion was issued prior to July 22, 1997; and (2) this
license involves a specialty
rehabilitation hospital that has a maximum of ninety (90) beds. A
conversion undertaken pursuant
to this provision shall be considered one conversion and
a for-profit corporation which receives
approval for the conversion shall be subject to the three (3)
year period between the finalization
and implementation of a first conversion and the
application for a second conversion as set forth
in this subsection.
(c)(b) In
the event that a for-profit corporation applies to hold, own, or acquire an
ownership or controlling interest greater than twenty percent
(20%) in more than one for
conversion of an additional hospital one year subsequent to the finalization and implementation
of a prior license, all provisions of this chapter must be met. and,
in In addition to the review
process and criteria set forth in this chapter, the
department shall have the sole authority and
discretion to determine:
(1) Whether the
for-profit corporation provided community benefits as required or
promised in connection with obtaining and holding a license or
interest therein during the
previous license period;
(2) Whether all terms
and conditions of the prior license have been met, including but
not limited to, the conditions in sections 23-17.14-19(b)
and section 23-17.14-15;
(3) Whether all
federal, state and local laws, ordinances and regulations have been
complied with relative to any prior license;
(4) Whether the
for-profit corporation planned, implemented, monitored and reviewed a
community benefit program during the prior license period;
(5) Whether the
for-profit corporation maintained, enhanced or disrupted the essential
medical services in the affected community or the state;
(6) Whether the
for-profit corporation provided an appropriate amount of charity care
necessary to maintain or enhance a safe and accessible
healthcare delivery system in the affected
community and the state; and
(7) Whether the
for-profit corporation demonstrated a substantial linkage between the
hospital and the affected community by providing one or more
of the following benefits;
uncompensated care, charity care, cash or in kind donations to
community programs, education
and training of professionals in community health issues,
relevant research initiatives or essential
but unprofitable medical services if needed in the
affected community.
(d)(c)
The director may hold a public hearing to solicit input to assess the
performance of
a for-profit corporation or its affiliates or subsidiaries
in providing community benefits in the
affected community or the state.
(e) The director
shall have the sole authority to deny a for-profit corporation, its affiliates
or subsidiaries, or successors, permission for one or
more than one license and, for good cause,
may prohibit a for-profit corporation or its affiliates
or subsidiaries from filing an application
pursuant to this chapter for a period not to exceed ten (10)
years.
23-17.14-28.
Concurrent approval -- License. – (a) The director may consider the
requirement of this chapter and the requirements of sections
23-17-1 -- 23-17-45 together upon
completion of the initial application. The director may approve,
approve with conditions, or
disapprove one or both requests filed pursuant to this chapter,
including expedited review under
section 12.1, and
sections 23-17-1 -- 23-17-45. The approvals of the director required by this
chapter shall be subject to chapter 35 of title 42. For any
conversion subject to this chapter, the
director may combine any hearings required by this chapter
with any hearings on similar or
related matters required by sections 23-17-1 -- 23-17-45 and
shall consider issues of market share
especially as they affect quality, access, and affordability of services.
(b) Any approval of a
conversion involving a for-profit corporation as an acquiror
shall
be subject to any conditions as determined by the
director of health, provided those conditions
relate to the purpose of this chapter. Said conditions may
include, but not be limited to, the
conditions contained in this subsection. In the event the
director determines that one or more of
the conditions contained in this subsection are not
appropriate or desirable in a particular
conversion, the director shall include the rationale for not
including such condition(s) in any
approval.
(1) Maintain a
governing body for each converted hospital whose membership shall
include uncompensated, independent individuals who reside in
(2) Make a
financially reasonable contribution to support the state’s coordinated health
planning process;
(3) Adhere to
reasonable restrictions on financial incentives to patient or health plan
enrollees to receive hospital services outside of the state of
(4) Keep the new hospital open and operational for a reasonable
minimum period of time;
(5) Make a reasonable
minimum investment to support primary care in the
communities served by the new hospital;
(6) Not enter into
any contract or other service or purchasing arrangements with an
affiliated legal entity except for contracts or arrangements to
provide services or products that are
reasonably necessary to accomplish the health care purposes of the
relevant hospital and for
compensation that is consistent with fair market value for the
services actually rendered, or the
products actually provided;
(7) Report to the
director on annual distributions of profit to owners; and
(8) Require that any corporate allocation, or equivalent charge,
to any affiliated
organization(s) in any hospital fiscal year not exceed reasonable
fair market value for the services
rendered or the assets purchased or leased from such
affiliate.
(c) Any approval of a
conversion involving a for-profit corporation as an acquiror
shall
be subject to any conditions as determined by the
attorney general, provided those conditions
relate to the purpose of this chapter. Said conditions may
include, but not be limited to, the
acquiror’s adherence to a minimum investment to protect the
assets, financial health, and well-
being of the new hospital and for community benefit. In the
event the attorney general determines
that the conditions contained in this subsection are not
appropriate or desirable in a particular
conversion, the attorney general shall include the rationale for
not including such condition(s) in
any approval.
(d) For a period of three
(3) years following the effective date of the conversion, when
approval of a conversion involves a for-profit corporation as
an acquiror:
(1) The acquiror shall file reports with the department and the
attorney general on or
before March 1st of each calendar year detailing compliance
with the conditions in subsection (b)
and any other conditions on the conversion approval or
license of the new hospital. Failure to
comply with any of such conditions or the charity care
requirements contained in section 23-
17.14-15 shall be cause for penalties to be applied in
accordance with section 23-17.14-30;
(2) The department of
health and the department of attorney general shall monitor, assess
and evaluate the acquiror’s
compliance with all of the conditions of approval, as well as annually
review the impact of the conversion on health care costs and
services within the communities
served; and
(3) The acquiror shall pay for the costs of the department of
health and the department of
attorney general in performing such monitoring, evaluation and
assessment in an amount to be
determined by the attorney general or the director as they deem
appropriate, which should be
placed in escrow during the term of the monitoring period. No
application for a conversion made
pursuant to the requirements of this chapter shall be approved
unless an agreement has been
executed with the attorney general and the director for the
payment of reasonable costs in
accordance with this section.
23-17.14-31.
Powers of the department of health. -- The department may adopt rules,
including measurable standards, as may be necessary to
accomplish the purpose of this chapter. In
doing so, the department shall review other departmental
regulations that may have duplicative
requirements, including change of effective control regulations
and processes, determination of
need requirements and application requirements under
section 23-17.14-18, if applicable, and
may streamline the process by eliminating duplicative
requirements and providing for concurrent
regulatory review and combined hearings to the maximum extent
possible to promote efficiency
and avoid duplication of effort and resources.
23-17.14-34. Judicial review. -- Any transacting party
aggrieved by a final order of the
department of health under this chapter may seek judicial review
in the superior court in
accordance with section 42-35-15. Any transacting party
aggrieved by a final order of the
attorney general under this chapter may seek judicial review
by original action filed in the
superior court.
(a) Notwithstanding
any other provision of the general laws, any transacting party aggrieved
by a final order of the department of health or the attorney
general under this chapter may seek
judicial review by original action filed in the superior
court. Any preliminary, procedural, or
intermediate agency act or ruling with respect to the filing of an
application for conversion,
including the completeness of the application, confidentiality
of any information or documents
produced in connection with a conversion, approval or
disapproval of a conversion and conditions
or restrictions proposed or determined with the respect
to the approval of a proposed conversion,
is immediately reviewable.
(b) Any action
brought under this section shall be given priority by the superior court.
(c) In performing
such review the superior court shall consider and balance the
reasonable interests of the transacting parties and the
reasonable interest of the citizens of the
state in a safe, accessible, and affordable healthcare
system.
(d) The court may
affirm the decision of the agency or remand the case for further
proceedings, or it may reverse or modify the decision if
substantial rights of the appellant have
been prejudiced because the administrative findings,
inferences, conclusions, or decisions are:
(1) Unreasonable;
(2) In violation of
constitutional or statutory provisions;
(3) In excess of the
statutory authority of the agency;
(4) Made upon
unlawful procedure;
(5) Affected by other
error or law;
(6) Clearly erroneous
in view of the reliable, probative, and substantial evidence on the
whole record; or
(7) Arbitrary or
capricious or characterized by abuse of discretion or clearly unwarranted
exercise of discretion.
SECTION 2. Chapter 23-17.14 of the General Laws entitled
"The Hospital Conversions
Act" is hereby amended
by adding thereto the following section:
23-17.14-12.1.
Expedited review for unaffiliated community hospitals. –
(a)
Notwithstanding subsection 23-17.14-6(a) and section
23-17.14-10 of this chapter if a proposed
conversion involves: (1) Two (2) or more hospitals that are not
in common control with another
hospital; or (2) One hospital not under common control with
another hospital and a hospital
system parent corporation; or (3) Two (2) affiliated
hospitals the conversion of which was
previously approved in accordance with chapter 23-17.14 and
another hospital or hospital system
parent corporation, such conversion will be reviewed under
an expedited review process
conducted solely by the department of health (without
derogation of the authority of the attorney
general in accordance with section 23-17.14-21), only if the acquiree and acquiror are both
nonprofit corporations exempt from taxation under section
501(a) of the
Revenue Service Code as organizations described in
section 501(c)(3) of such code, or any
successor provisions, and:
(1) The acquiree and acquiror are both
nonprofit corporations that have directly or
indirectly continuously operated at least one licensed hospital
for at least the preceding three (3)
years; and
(2) The acquiree operates a distressed
hardship that may impair its ability to continue to operate
effectively without the proposed
conversion and has been determined to be distressed by the
director of health based upon whether
the hospital meets one or more of the following criteria:
(i)
Operating loss for the two (2) most recently completed fiscal years;
(ii) Less than fifty
(50) days cash-on-hand;
(iii) Current asset
to liability ratio of less than one point five (1.5);
(iv)
Long-term debt to capitalization greater than seventy-five
percent (75%);
(v) Inpatient
occupancy rate of less than fifty percent (50%);
(vi)
Would be classified as below investment grade by a major rating
agency.
(b) The transacting
parties shall file an initial application pursuant to this section which
shall include the following information with respect to
each transacting party and the proposed
conversion:
(1) A detailed
summary of the proposed conversion;
(2) Charter, articles
of incorporation or certificate of incorporation for the transacting
parties and their affiliated hospitals, including amendments
thereto;
(3) Bylaws and organizational
charts for the transacting parties and their affiliated
hospitals;
(4) Organizational
structure for the transacting parties and each partner, affiliate, parent,
subsidiary or related legal entity in which either transacting
party has a twenty percent (20%) or
greater ownership interest or control;
(5) All documents,
reports, meeting minutes and presentations relevant to the transacting
parties’ board of directors' decision to propose the
conversion;
(6) Conflict of interest
policies and procedures;
(7) Copies of audited
income statements, balance sheets, and other financial statements
for the past three (3) years for the transacting parties
and their affiliated hospitals where
appropriate and to the extent they have been made public, audited
interim financial statements
and income statements together with detailed descriptions
of the financing structure of the
proposed conversion including equity contribution, debt
restructuring, stock issuance and
partnership interests;
(8) Copies of reports
analyzing the proposed conversion during the past three (3) years
including, but not limited to, reports by appraisers,
accountants, investment bankers, actuaries and
other experts;
(9) Copies of current
conflict of interest forms from all incumbent or recently incumbent
officers, members of the board of directors or trustees and
senior managers of the transacting
parties; "incumbent or recently incumbent" means
those individuals holding the position at the
time the application is submitted and any individual who
held a similar position within one year
prior to the application's acceptance;
(10) Copies of all
documents related to: (i) Identification of all
current charitable assets;
(ii) Accounting of all charitable assets for the past
three (3) years; and (iii) Distribution of
charitable assets for the past three (3) years including, but
not limited to, endowments, restricted,
unrestricted and specific purpose funds as each relates to the
proposed conversion;
(11) A description of
the plan as to how the affiliated hospitals will provide consolidated
healthcare services during the first three (3) years following
the conversion;
(12) Copies of plans
for all hospital departments and services that will be eliminated or
significantly reduced during the first three (3) years following
the conversion; and
(13) Copies of plans
relative to staffing levels for all categories of employees during the
first three (3) years following the conversion.
(c) In reviewing an
application under an expedited review process, the department shall
consider the criteria in section 23-17.14-11.
(d) Within twenty
(20) working days of receipt by the department of an application
satisfying the requirements of subsection (b) above, the
department will notify and afford the
public an opportunity to comment on the application.
(e) The decision of
the department shall be rendered within ninety (90) days of
acceptance of the application under this section.
(f) Costs payable by
the transacting parties under section 23-17.14-13 in connection with
an expedited review by the department under this section
shall not exceed twenty-five thousand
dollars ($25,000) per one hundred million dollars
($100,000,000) of total net patient service
revenue of the acquiree and acquiror in the most recent fiscal year for which audited
financial
statements are available.
(g) Following a
conversion, the new hospital shall provide on or before March 1 of each
calendar year a report in a form acceptable to the director
containing all updated financial
information required to be disclosed pursuant to subdivision
23-17.14-12.1(b)(7).
(h) If an expedited
review is performed by the department pursuant to this section, the
department of attorney general shall perform a review of the
proposed transaction as it deems
necessary, including, at a minimum, its impact upon the
charitable assets of the transacting
parties. The attorney general’s review shall be done
concurrently with the department of health
review and shall not extend the length of the review
process. For this review, the department of
attorney general shall be entitled to costs in accordance with
section 23-17.14-13 and subsection
23-17.14-12.1(f).
SECTION 3. Section 23-81-4 of the General Laws in Chapter
23-81 entitled "Rhode
Island Coordinated Health
Planning Act of 2006" is hereby amended to read as follows:
23-81-4. Powers of
the health care planning and accountability advisory council. --
Powers of the council shall include, but not be
limited to the following:
(a) The authority to
develop and promote studies, advisory opinions and to recommend a
unified health plan on the state's health care delivery and
financing system, including but not
limited to:
(1) Ongoing assessments
of the state's health care needs and health care system capacity
that are used to determine the most appropriate capacity of
and allocation of health care
providers, services, including transportation services, and
equipment and other resources, to meet
advise the "determination of need for new health care
equipment and new institutional health
services" or "certificate of need" process
through the health services council;
(2) The establishment
of
recommendation of innovative models of health care delivery, that
should be encouraged in
(3) Health care payment
models that reward improved health outcomes;
(4) Measurements of
quality and appropriate use of health care services that are designed
to evaluate the impact of the health planning process;
(5) Plans for promoting
the appropriate role of technology in improving the availability
of health information across the health care system,
while promoting practices that ensure the
confidentiality and security of health records; and
(6) Recommendations of
legislation and other actions that achieve accountability and
adherence in the health care community to the council's plans
and recommendations.
(b) Convene meetings of
the council no less than every sixty (60) days, which shall be
subject to the open meetings laws and public records laws of
the state, and shall include a process
for the public to place items on the council's agenda.
(c) Appoint advisory
committees as needed for technical assistance throughout the
process.
(d) Modify
recommendations in order to reflect changing health care systems needs.
(e) Promote
responsiveness to recommendations among all state agencies that provide
health service programs, not limited to the five (5) state
agencies coordinated by the executive
office of the health and human services.
(f) Coordinate the
review of existing data sources from state agencies and the private
sector that are useful to developing a unified health plan.
(g) Formulating,
testing, and selecting policies and standards that will achieve desired
objectives.
(h) Provide an annual
report each July, after the convening of the council, to the
governor and general assembly on implementation of the plan
adopted by the council. This
annual report shall:
(1) Present the
strategic recommendations, updated annually;
(2) Assess
the implementation of strategic recommendations in the health care market;
(3) Compare and analyze
the difference between the guidance and the reality;
(4)
Recommend to the governor and general assembly legislative or regulatory
revisions necessary to achieve the long term long-term
goals and values adopted by the council as
part of its strategic recommendations, and assess the
powers needed by the council or
governmental entities of the state deemed necessary and
appropriate to carry out the
responsibilities of the council. The initial priority of the council
shall be an assessment of the
needs of the state with regard to hospital services and to
present recommendations, if any, for
modifications to the Hospital Conversion Act and the Certificate of
Need Program to execute the
strategic recommendations of the council. The council shall
provide an initial report and
recommendations to the governor and general assembly on or before
March 1, 2013.
(5) Include the request
for a hearing before the appropriate committees of the general
assembly.
(6) Include a response
letter from each state agency that is affected by the state health
plan describing the actions taken and planned to implement
the plans recommendations.
SECTION 4. This act shall take effect upon passage.
=======
LC00326/SUB A/3
=======