law22441

Chapter 441

2022 -- S 2349
Enacted 06/30/2022

A N A C T

RELATING TO HEALTH AND SAFETY -- THE HOSPITAL CONVERSIONS ACT

Introduced By: Senators McCaffrey, Goodwin, Coyne, Miller, DiPalma, and Euer

Date Introduced: February 15, 2022

It is enacted by the General Assembly as follows:

SECTION 1. Sections 23-17.14-4, 23-17.14-6, 23-17.14-7, 23-17.14-8, 23-17.14-10, 23-

17.14-12.1 and 23-17.14-31 of the General Laws in Chapter 23-17.14 entitled "The Hospital

Conversions Act" are hereby amended to read as follows:

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 that 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 healthcare 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 persons 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 that 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

that results in a new partner gaining or acquiring a controlling interest in the hospital, or any change

in membership which that 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 on a

form as is acceptable to the department of 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 setting forth any possible conflict of interest for all officers,

directors, members of the board, trustees, senior management, chairpersons or department

chairpersons and medical directors, or the transacting parties and their families;.

(8) "Department" means the department of health. However "departments" shall mean the

department of health and the department of the attorney general;.

(9) "Director" means the director of the department of health;.

(10) "Existing hospital" means the acquiree hospital as it exists prior to the acquisition;.

(11) "For-profit corporation" means a legal entity formed for the purpose of transacting

business which that has as any one of its purposes pecuniary profit;.

(12) "Hospital" means a person or governmental entity licensed in accordance with chapter

17 of this title to establish, maintain, and operate a hospital;.

(13) “Incumbent or recently incumbent” means those individuals holding the position at

the time the application was submitted and any individual who held a similar position within one

year prior to the application’s acceptance;.

(13)(14) "New hospital" means the acquiree hospital as it exists after the completion of a

conversion;.

(14)(15) "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 § 501(c)(3), 26 U.S.C. § 501(c)(3);.

(15)(16) "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)(17) "Senior managers" or "senior management" means executives and senior level

managers of a transacting party;.

(17)(18) "Transacting parties" means the acquiree and the acquiror; and.

(18)(19) "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.

23-17.14-6. Initial application -- Conversions involving for-profit corporations or not-

for-profit as acquirors. Initial application -- Conversions involving for-profit corporations or

not-for-profit corporations as acquirors or acquirees.

(a) No person shall engage in a conversion with a for profit for-profit corporation as the

acquiror and or a not-for-profit corporation as the acquiror or acquiree involving the establishment,

maintenance, or operation of a hospital or a conversion subject to § 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 managers, including for each position, current

persons and persons holding such position during the past 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 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 (2) 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 healthcare

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 access and

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

hospital(s) for the previous three-(3) year (3) 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 three (3)

years 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 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 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 that will be maintained at the new hospital, including staffing levels;

(30) A description of criteria established by the board of directors of the existing hospital

transacting parties for pursuing a proposed conversion with one or more healthcare 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 § 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 transacting

parties 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 senior managers, board members, officers, or directors of the existing hospital transacting

parties 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 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, bylaws, 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 by transacting parties at either

the new hospital(s) or the existing hospital(s);

(39) Description of staffing levels for five (5) years 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, including any reduction in staffing, relocation of staffing, or additional staffing affecting the

new hospital and the existing hospital;

(40) Description of retirement plan(s) for all employees, full-time or part-time, including

any supplemental executive retirement plans;

(41) Copies of retirement plans’ accounting; management letters, and reports, including

unfunded liabilities for retirement plans for the last five (5) years;

(42) Copies of plans to fund unfunded liabilities for pension and any retirement plans;

(43) Copies of any impact analysis for the affected communities both before conversion

and after proposed conversion, including benefits to the community, economic impact, and staffing;

(40)(44) Copies of current conflict of interest forms from all incumbent or recently

incumbent officers, directors, members of the boards of directors or trustees, and senior managers,

including management and the medical directors, of the transacting parties on a form acceptable to

the department of 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)(45) 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 § 23-17.14-7, § 23-17.14-8 or 23-14.14-19 § 23-17.14-

19; and

(42)(46) Copies of IRS Form 990 for any transacting party required by federal law to file

such a form for each of the 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 United States mail, certified, return

receipt requested. Filings may be submitted electronically if acceptable to the department of health

and/or attorney general.

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

and/or a not-for-profit corporation as the acquiree.

(b) In reviewing proposed conversions in accordance with this section and § 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-day (30) 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-day (30) 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 § 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 twenty (120) one hundred eighty (180) days of the date of acceptance of the

application.

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, healthcare experts, or industry analysts;

(7) Whether individuals described in subsection (c)(6) of this section were provided with

contracts or consulting agreements or arrangements that 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 press 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; and

(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;

(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;

(30) Whether the value of assets factored in the conversion is based on past performance

or future potential performance; and

(31) Whether the proposed conversion is proper under chapter 36 of title 6 ("Rhode Island

Antitrust Act");

(32) Whether the board established appropriate criteria for staffing levels post conversion,

including any reduction in staffing, relocation of staffing, or additional staffing affecting the new

hospital(s) and the existing hospital(s);

(33) Whether the board exercised due care concerning staffing levels post conversion to

comply with federal employment and labor laws, including the National Labor Relations Act

(NLRA), 29 U.S.C. §§ 151-169, Age Discrimination in Employment Act of 1967, Public Law Pub.

L. No. 90-202, 29 U.S.C. §§ 621-634, Civil Rights Act of 1964, Public Law Pub. L. No. 88-352

(78 Stat. 241), 42 U.S.C. § 2000d et seq. (Title VI);

(34) Whether the board exercised due care concerning staffing levels post conversion to

comply with state employment and labor laws, including chapter 5 of title 28 ("fair employment

practices");

(35) Whether the board exercised due care in funding employee and retirement plans and

pensions, including developing plans to fund unfunded liabilities for retirement plans and pensions

for all employees, full-time or part-time;

(36) Whether the retirement and pensions plans are in compliance with the Employee

Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq.; and

(37) Whether the board established appropriate criteria for any impact analysis for the

affected communities both before conversion and after proposed conversion, including benefits to

the community, economic impact, and staffing.

23-17.14-8. Review process and review criteria by department of health for

conversions involving for-profit corporation as acquiror. Review process and review criteria

by department of health for conversions involving for-profit corporation as acquiror and or

acquiree.

(a) The department of health shall review all proposed 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 an application for a conversion involving hospitals in which one or more

of the transacting parties is a for-profit corporation, as the acquiror the department of health 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 clear and convincing 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 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 healthcare delivery to the residents of the state; and

(8) Whether the acquiror has demonstrated that it has satisfactorily met the terms and

conditions of approval for any previous conversion pursuant to an application submitted under §

23-17.14-6.

health shall adhere to the process in § 23-17.14-7(b).

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 § 23-17.14-12.1, the

department of attorney general and department of health shall adhere to the following process: