SUBSTITUTE SENATE BILL 5227
State of Washington 55th Legislature 1997 Regular Session
By Senate Committee on Health & Long‑Term Care (originally sponsored by Senators Deccio, Franklin, Patterson, Prentice, Benton, Wojahn and Long)
Read first time 02/27/97.
AN ACT Relating to nonprofit hospital sales; adding a new section to chapter 70.44 RCW; adding a new chapter to Title 70 RCW; and declaring an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1. The health of the people of our state is a most important public concern. The state has an interest in assuring the continued existence of accessible, affordable health care facilities that are responsive to the needs of the communities in which they exist. The state also has a responsibility to protect the public interest in nonprofit hospitals by making certain that the charitable assets of those hospitals are managed prudently and in accordance with the requirements of chapter 24.03 RCW.
NEW SECTION. Sec. 2. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
(1) "Department" means the Washington state department of health.
(2) "Hospital" means any entity that is: (a) Defined as a hospital in RCW 70.41.020 and is required to obtain a license under RCW 70.41.090; or (b) a psychiatric hospital required to obtain a license under chapter 71.12 RCW.
(3) "Acquisition" means an acquisition by a person of an interest in a nonprofit hospital, whether by purchase, merger, lease, gift, joint venture, or otherwise, that results in a change of ownership or control of twenty percent or more of the assets of the hospital, or that results in the acquiring person holding or controlling fifty percent or more of the assets of the hospital, but acquisition does not include an acquisition if the acquiring person: (a) Is a nonprofit corporation having a substantially similar charitable health care purpose as the nonprofit corporation from whom the hospital is being acquired, or is a government entity; (b) is exempt from federal income tax under section 501(c)(3) of the internal revenue code or as a government entity; and (c) will maintain representation from the affected community on the local board of the hospital.
(4) "Nonprofit hospital" means a hospital owned by a nonprofit corporation organized under Title 24 RCW.
(5) "Person" means an individual, a trust or estate, a partnership, a corporation including associations, limited liability companies, joint stock companies, and insurance companies.
NEW SECTION. Sec. 3. (1) A person may not engage in the acquisition of a nonprofit hospital without first having applied for and received the approval of the department under this chapter.
(2) An application must be submitted to the department on forms provided by the department, and at a minimum must include: The name of the hospital being acquired, the name of the acquiring person or other parties to the acquisition, the acquisition price, a copy of the acquisition agreement, a financial and economic analysis and report from an independent expert or consultant of the effect of the acquisition under the criteria in section 7 of this act, and all other related documents. The applications and all related documents are considered public records for purposes of chapter 42.17 RCW.
(3) The department shall charge an applicant fees sufficient to cover the costs of implementing this chapter. The fees must include the cost of the attorney general's opinion under section 6 of this act. The department shall transfer this portion of the fee, upon receipt, to the attorney general.
NEW SECTION. Sec. 4. (1) The department, in consultation with the attorney general, shall determine if the application is complete for the purposes of review. The department may find that an application is incomplete if a question on the application form has not been answered in whole or in part, or has been answered in a manner that does not fairly meet the question addressed, or if the application does not include attachments of supporting documents as required by section 3 of this act. If the department determines that an application is incomplete, it shall notify the applicant within fifteen working days after the date the application was received stating the reasons for its determination of incompleteness, with reference to the particular questions for which a deficiency is noted.
(2) Within five working days after receipt of a completed application, the department shall publish notice of the application in a newspaper of general circulation in the county or counties where the hospital is located and shall notify by first class United States mail, electronic mail, or facsimile transmission, any person who has requested notice of the filing of such applications. The notice must state that an application has been received, state the names of the parties to the agreement, describe the contents of the application, and state the date by which a person may submit written comments about the application to the department.
NEW SECTION. Sec. 5. During the course of review under this chapter, the department shall conduct one or more public hearings, at least one of which must be in the county where the hospital to be acquired is located. At the hearings, anyone may file written comments and exhibits or appear and make a statement. The department may subpoena additional information or witnesses, require and administer oaths, require sworn statements, take depositions, and use related discovery procedures for purposes of the hearing and at any time prior to making a decision on the application.
A hearing must be held not later than forty-five days after receipt of a completed application. At least ten days' public notice must be given before the holding of a hearing.
NEW SECTION. Sec. 6. (1) The department shall provide the attorney general with a copy of a completed application upon receiving it. The attorney general shall review the completed application, and within forty-five days of the first public hearing held under section 5 of this act shall provide a written opinion to the department as to whether or not the acquisition meets the requirements for approval in section 7 of this act.
(2) The department shall review the completed application to determine whether or not the acquisition meets the requirements for approval in sections 7 and 8 of this act. Within thirty days after receiving the written opinion of the attorney general under subsection (1) of this section, the department shall:
(a) Approve the acquisition, with or without any specific modifications or conditions; or
(b) Disapprove the acquisition.
(3) The department may not make its decision subject to any condition not directly related to requirements in section 7 or 8 of this act, and any condition or modification must bear a direct and rational relationship to the application under review.
(4) A person engaged in an acquisition and affected by a final decision of the department has the right to an adjudicative proceeding under chapter 34.05 RCW. The opinion of the attorney general provided under subsection (1) of this section may not constitute a final decision for purposes of review.
(5) The department or the attorney general may extend, by not more than thirty days, any deadline established under this chapter one time during consideration of any application, for good cause.
NEW SECTION. Sec. 7. The department shall only approve an application if the parties to the acquisition have taken the proper steps to safeguard the value of charitable assets and ensure that any proceeds from the acquisition are used for appropriate charitable health purposes. To this end, the department may not approve an application unless, at a minimum, it determines that:
(1) The acquisition is permitted under chapter 24.03 RCW, the Washington nonprofit corporation act, and other laws governing nonprofit entities, trusts, or charities;
(2) The nonprofit corporation that owns the hospital being acquired has exercised due diligence in authorizing the acquisition, selecting the acquiring person, and negotiating the terms and conditions of the acquisition;
(3) The procedures used by the nonprofit corporation's board of trustees and officers in making its decision fulfilled their fiduciary duties, that the board and officers were sufficiently informed about the proposed acquisition and possible alternatives, and that they used appropriate expert assistance;
(4) No conflict of interest exists related to the acquisition, including, but not limited to, conflicts of interest related to board members of, executives of, and experts retained by the nonprofit corporation, acquiring person, or other parties to the acquisition;
(5) The nonprofit corporation will receive fair market value for its assets. The attorney general or the department may employ, at the expense of the acquiring person, reasonably necessary expert assistance in making this determination. This expense must be in addition to the fees charged under section 3 of this act;
(6) Charitable funds will not be placed at unreasonable risk, if the acquisition is financed in part by the nonprofit corporation;
(7) Any management contract under the acquisition will be for fair market value;
(8) The proceeds from the acquisition will be controlled as charitable funds independently of the acquiring person or parties to the acquisition, and will be used for charitable health purposes consistent with the nonprofit corporation's original purpose, including providing health care to the disadvantaged, the uninsured, and the underinsured and providing benefits to promote improved health in the affected community;
(9) Any charitable entity established to hold the proceeds of the acquisition will be broadly based in and representative of the community where the hospital to be acquired is located, taking into consideration the structure and governance of such entity; and
(10) A right of first refusal to repurchase the assets by a successor nonprofit corporation or foundation has been retained if the hospital is subsequently sold to, acquired by, or merged with another entity.
NEW SECTION. Sec. 8. The department shall only approve an application if the acquisition in question will not detrimentally affect the continued existence of accessible, affordable health care that is responsive to the needs of the community in which the hospital to be acquired is located. To this end, the department shall not approve an application unless, at a minimum, it determines that:
(1) Sufficient safeguards are included to assure the affected community continued access to affordable care;
(2) The acquiring person and parties to the acquisition are committed to providing health care to the disadvantaged, the uninsured, and the underinsured and to providing benefits to promote improved health in the affected community. Activities and funding provided under section 7(8) of this act may be considered in evaluating compliance with this commitment; and
(3) Sufficient safeguards are included to avoid conflict of interest in patient referral if health care providers will be offered the opportunity to invest or own an interest in the acquiring person or an entity related to the person.
NEW SECTION. Sec. 9. (1) The secretary of state may not accept any forms or documents in connection with any acquisition of a nonprofit hospital until the acquisition has been approved by the department under this chapter.
(2) The attorney general may seek an injunction to prevent any acquisition not approved by the department under this chapter.
NEW SECTION. Sec. 10. The department shall require periodic reports from the nonprofit corporation or its successor nonprofit corporation or foundation and from the acquiring person or other parties to the acquisition to ensure compliance with commitments made. The department may subpoena information and documents and may conduct onsite compliance audits at the acquiring person's expense.
If the department receives information indicating that the acquiring person is not fulfilling commitments to the affected community under section 8 of this act, the department shall hold a hearing upon ten days' notice to the affected parties. If after the hearing the department determines that the information is true, it may revoke or suspend the hospital license issued to the acquiring person pursuant to the procedure established under RCW 70.41.130, refer the matter to the attorney general for appropriate action, or both. The attorney general may seek a court order compelling the acquiring person to fulfill its commitments under section 8 of this act.
NEW SECTION. Sec. 11. The attorney general has the authority to ensure compliance with commitments that inure to the public interest.
NEW SECTION. Sec. 12. An acquisition of a hospital completed before the effective date of this act and an acquisition in which an application for a certificate of need under chapter 70.38 RCW has been granted by the department before the effective date of this act is not subject to this chapter.
NEW SECTION. Sec. 13. No provision of this chapter derogates from the common law or statutory authority of the attorney general.
NEW SECTION. Sec. 14. The department may adopt rules necessary to implement this chapter and may contract with and provide reasonable reimbursement to qualified persons to assist in determining whether the requirements of sections 7 and 8 have been met.
NEW SECTION. Sec. 15. A new section is added to chapter 70.44 RCW to read as follows:
(1) The board of commissioners of any public hospital district may authorize the acquisition of district real or personal property only upon the approval of a majority of the voters in the district at any general or special election called for that purpose.
(2)(a) Prior to the election held under subsection (1) of this section, the board of commissioners of the hospital district shall request a written opinion from the Washington state department of health as to whether or not the acquisition meets the standards set forth in section 8 of this act.
(b) Upon request, the hospital district and the party seeking to acquire its property shall provide the department with any needed information and documents. The department may charge the party seeking to acquire the district property a fee equal to the cost of preparing the opinion. The opinion shall be delivered to the board of commissioners no later than ninety days after it is requested.
(c) Within five working days after the opinion is received, the board of commissioners shall publish notice of the opinion in at least one newspaper of general circulation in the hospital district, stating how a person may obtain a copy. A copy of the opinion shall be made available to anyone upon request. An election under subsection (1) of this section may be held no earlier than thirty days after notice of the opinion is published.
(3) For purposes of this section, "acquisition" means the acquisition by anyone of district real or personal property, whether by purchase, merger, lease, gift, joint venture, or otherwise, that results in a change of ownership or control of twenty percent or more of the assets of the district, or that results in the acquiring person holding or controlling fifty percent or more of the assets of the district.
NEW SECTION. Sec. 16. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.
NEW SECTION. Sec. 17. Sections 1 through 14 of this act constitute a new chapter in Title 70 RCW.
NEW SECTION. Sec. 18. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.
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