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AN ACT Relating to nonprofit hospital sales; 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 any acquisition by a person of an ownership or controlling interest in a hospital, whether by purchase, merger, lease, gift, or otherwise, that results in a change of ownership or control of twenty percent or greater of either the voting rights or the assets of a hospital, or that results in the acquiring person holding a fifty percent or greater interest in the ownership or control of a hospital, but acquisition does not include the acquisition of an ownership or controlling interest in a hospital owned by a nonprofit corporation if the transferee: (a) Is a nonprofit corporation having a substantially similar charitable health care purpose as the transferor or is a governmental entity; (b) is exempt from federal income tax under section 501(c)(3) of the internal revenue code or as a governmental entity; and (c) will maintain representation from the affected community on the local board of the hospital.

(4) "Person" means an individual, a trust or estate, a partnership, a corporation including associations, limited liability companies, joint stock companies, and insurance companies, the state, a political subdivision or instrumentality of the state including a municipal corporation, or a hospital district.

(5) "Secretary" means the secretary of health or the secretary's designee.

NEW SECTION. Sec. 3. (1) No person shall engage in the acquisition of a hospital owned by a nonprofit corporation without first having applied for and received the approval of the department and the attorney general under this chapter. No person shall engage in the acquisition of a hospital not owned by a nonprofit corporation without first having applied for and received the approval of the department under this chapter unless the acquiring person is a nonprofit corporation exempt from federal income tax under section 501(c)(3) of the internal revenue code or is a governmental entity. For purposes of this chapter, approval of the department and the attorney general is not required if the acquisition is the result or product of a consolidation of two or more hospital districts under chapter 70.44 RCW.

(2) Any person not required to obtain the approval of the department or the attorney general under this chapter shall give the attorney general at least thirty days' notice of an impending acquisition, during which time the attorney general may take any necessary and appropriate action consistent with his or her general duties of oversight with regard to the conduct of charities. The notice must briefly describe the impending acquisition, including any change in ownership of tangible or intangible assets.

(3) An application must be submitted to the department and the attorney general on forms provided by the department and must include the name of the seller, the name of the purchaser or other parties to an acquisition, the terms of the proposed agreement, the sale 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 set forth in section 7 of this act, and all other related documents. A copy of the application and copies of all additional related materials must be submitted to the department and to the attorney general at the same time. The applications and all related documents are considered public records for purposes of chapter 42.17 RCW.

NEW SECTION. Sec. 4. (1) Within five working days after receipt of an application under section 3 of this act, 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 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.

(2) The department and the attorney general shall, within fifteen days after the date an application is received, determine if the application is complete for the purposes of review. The department or the attorney general 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 or the attorney general determines that an application is incomplete, it shall notify the applicant within fifteen 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.

(3) Within sixty days after receiving a completed application, the department and the attorney general shall review the application in accordance with the standards set forth in this chapter and approve or disapprove the acquisition pursuant to this chapter.

(4) For acquisitions that require approval from the department under this chapter and a certificate of need under chapter 70.38 RCW, the applicant shall submit a single application for both purposes and the application must be reviewed under a single, unified review process by the department. Following the single, unified review process, the department shall simultaneously issue: (a) Its decision for purposes of chapter 70.38 RCW; and (b) its decision for purposes of this chapter.

NEW SECTION. Sec. 5. The department or the attorney general shall, during the course of review under section 4 of this act, hold a public hearing in which any person may file written comments and exhibits or appear and make a statement. The department or the attorney general 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.

The hearing must be held not later than thirty days after receipt of a completed application. The hearing must be held upon ten working days' notice, not including days the application is deemed to be incomplete.

NEW SECTION. Sec. 6. (1) The attorney general shall review the completed application in accordance with the standards enumerated in section 7 of this act. Within sixty days after receipt of a completed application, the attorney general shall:

(a) Approve the acquisition, with or without specific modifications; or

(b) Disapprove the acquisition.

If the attorney general does not act within ninety days after receipt of an application, the application is deemed approved. If the attorney general approves or disapproves the acquisition, the applicant, or any person who has submitted comments under section 5 of this act if the person has a legal interest in the hospital being acquired or in another hospital that has contracted with the acquired hospital for the provision of essential health services, may bring an action for declaratory judgment under chapter 7.24 RCW, the uniform declaratory judgments act, for a determination that the acquisition is or is not in the public interest as provided in section 7 of this act.

(2) The department shall review the completed application in accordance with the standards enumerated in section 8 of this act. Within sixty days after receipt of a completed application, the department shall:

(a) Approve the acquisition, with or without any specific modifications; or

(b) Disapprove the acquisition.

The department shall not make its decision subject to any condition not directly related to criteria enumerated in section 8 of this act, and any condition or modification must bear a direct and rational relationship to the application under review.

Any 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 administrative procedure act.

NEW SECTION. Sec. 7. The attorney general shall approve the application unless he or she finds that the acquisition is not in the public interest. An acquisition is not in the public interest unless appropriate steps have been taken to safeguard the value of charitable assets and ensure that any proceeds of the transaction are used for appropriate charitable health care purposes as provided in subsection (8) of this section. In determining whether the acquisition meets such criteria under this chapter, the attorney general shall consider:

(1) Whether the acquisition is permitted under chapter 24.03 RCW, the Washington nonprofit corporation act, and other laws governing nonprofit entities, trusts, or charities;

(2) Whether the nonprofit hospital exercised due diligence in deciding to sell, selecting the purchaser, and negotiating the terms and conditions of the sale;

(3) The procedures used by the seller in making its decision, including whether appropriate expert assistance was used;

(4) Whether conflict of interest was disclosed, including, but not limited to, conflicts of interest related to board members of, executives of, and experts retained by the seller, purchaser, or parties to the acquisition;

(5) Whether the seller will receive fair value for its assets. The attorney general may employ, at the seller's expense, reasonably necessary expert assistance in making this determination;

(6) Whether charitable funds are placed at unreasonable risk, if the acquisition is financed in part by the seller;

(7) Whether any management contract under the acquisition is for fair value;

(8) Whether the sale proceeds will be used for appropriate charitable health care purposes consistent with the seller's original purpose or for the support and promotion of health care in the affected community and whether the proceeds will be controlled as charitable funds independently of the purchaser or parties to the acquisition;

(9) Whether any charitable corporation established to hold the proceeds of the sale will be broadly based in the community and be representative of the affected community, taking into consideration the structure and governance of such corporation; and

(10) Whether 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. In making a decision whether to approve or disapprove an application, the department shall determine whether the acquisition affects the continued existence of accessible, affordable health care facilities that are responsive to the needs of the community. In making this determination, the department shall consider:

(1) Whether sufficient safeguards are included to assure the affected community continued access to affordable care;

(2) Whether the purchaser and parties to the acquisition have made a commitment to provide health care to the disadvantaged, the uninsured, and the underinsured and to provide benefits to the affected community to promote improved health care. Activities and funding provided by the seller or its successor nonprofit corporation or foundation to provide such health care may be considered in evaluating compliance with this commitment; and

(3) If health care providers will be offered the opportunity to invest or own an interest in the purchaser or a related entity to the purchaser, whether procedures or safeguards are in place to avoid conflict of interest in patient referral and the nature of such procedures or safeguards.

NEW SECTION. Sec. 9. The department shall require periodic reports from the seller or its successor nonprofit corporation or foundation and from the purchaser 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 purchaser's expense.

If the department receives information indicating that the acquiring person is not fulfilling the commitment 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 institute proceedings to revoke the license issued to the purchaser.

NEW SECTION. Sec. 10. The attorney general has the authority to ensure compliance with commitments that inure to the public interest.

NEW SECTION. Sec. 11. No license to operate a hospital may be issued or renewed by the department pursuant to any other state statute, and a license that has been issued is subject to revocation or suspension, if:

(1) There is an acquisition of a hospital without first having received the approval of the department and the attorney general under this chapter;

(2) There is an acquisition of a hospital and the attorney general disapproves the acquisition and there is a judicial determination under chapter 7.24 RCW, the uniform declaratory judgments act, that the acquisition is not in the public interest; or

(3) The hospital is not fulfilling its commitment under section 8(2) of this act or is not following procedures of safeguards committed to under section 8(3) of this act.

Nothing in this section limits the rights of a hospital to an adjudicative proceeding in connection with the denial, suspension, or revocation of a license under the provisions of RCW 70.41.130.

NEW SECTION. Sec. 12. Any acquisition of a hospital before the effective date of this act and any 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 secretary and the attorney general have authority to adopt rules to implement this chapter and to contract with and provide reasonable reimbursement to qualified persons to assist in determining criteria under sections 7 and 8 of this act.

NEW SECTION. Sec. 15. 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. 16. Sections 1 through 15 of this act constitute a new chapter in Title 70 RCW.

NEW SECTION. Sec. 17. 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.