[First Reprint]

ASSEMBLY, No. 2368

STATE OF NEW JERSEY

INTRODUCED SEPTEMBER 26, 1996

By Assemblywoman VANDERVALK

An Act concerning the sale of nonprofit hospitals ¹and other entities¹ and supplementing ¹[Title] Titles¹ 26 ¹and 52¹ of the Revised Statutes.

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

    1. In addition to the requirements of P.L.1971, c.136 (C.26:2H-1 et seq.) concerning certificate of need and licensure requirements, a nonprofit acute care hospital licensed pursuant to P.L.1971, c.136 (C.26:2H-1 et seq.) shall give at least 90-days written notice to the Attorney General prior to entering into a sale, lease, exchange or other disposition of a substantial amount of its assets or operations with a person or entity other than a corporation organized in this State for charitable purposes under Title 15A of the New Jersey Statutes.     a. The Attorney General shall conduct a review of the proposed transaction and assess the entity proposing to receive the assets or operations of the nonprofit hospital for reasonable costs related to the review of the proposed transaction, as determined by the Attorney General to be necessary. Reasonable costs may include expert review of the transaction and a process for educating the public about the transaction and obtaining public input.

    b. ¹The Attorney General may subpoena additional information or witnesses, require and administer oaths, and require sworn statements at any time prior to completing his review of the proposed transaction.

    c. The Attorney General shall make a determination as to whether the nonprofit hospital has assets which accrued as the result of beneficial treatment resulting from its nonprofit status, including, but not limited to, financial subsidies or favorable tax or regulatory treatment, and the amount which the nonprofit hospital shall compensate the State, which amount the State shall be entitled to receive upon the execution of the proposed transaction. The compensation may be in the form of cash or securities, or a combination thereof. If the assets are not readily liquid, the nonprofit hospital may provide for a plan of compensation subject to the Attorney General's approval. The amount received by the State pursuant to this subsection shall be placed in a charitable fund.

    d.¹ If a charitable fund results from the transaction and if the nonprofit entity making the disposition does not continue its operation of the nonprofit hospital, the governance of the resulting charitable fund shall be subject to review ¹and approval¹ by the Attorney General, in consultation with the Commissioner of Health and Senior Services¹[, and approval by a court of competent jurisdiction]¹. The governance of the resulting charitable fund shall be broadly based in the community historically served by the predecessor nonprofit hospital. The Attorney General¹, after making a determination regarding the nonprofit hospital's assets pursuant to subsection b. of this section but prior to approving the governance of a charitable fund ,¹ shall conduct a public hearing in connection with his review of the ¹proposed transaction and the¹ plan for the governance of the resulting charitable fund. An appropriate portion of any resulting proceeds, if determined to be necessary by the Attorney General, shall be used for assistance in the development of a community-based plan for the use of the resulting charitable fund.

    ¹[c.]e.¹ The entity receiving the assets or operation of the nonprofit hospital shall, if determined to be necessary by the Attorney General, in consultation with the Commissioner of Health and Senior Services, provide funds, in an amount determined by the Commissioner of Health and Senior Services, for the hiring by the Department of Health and Senior Services of an independent health care access monitor to monitor and report quarterly to the Attorney General and the Department of Health and Senior Services on community health care access by the entity, including levels of uncompensated care for indigent persons provided by the entity. The funding shall be provided for three years after the date of the transaction. The entity receiving the assets or operations shall provide the monitor with appropriate access to the entity's records in order to enable the monitor to fulfill this function.

    To prevent the duplication of any information already reported by the entity, the monitor shall, to the extent possible, utilize data already provided by the entity to the Department of Health and Senior Services.

    No personal identifiers shall be attached to any of the records obtained by the monitor, and all such records shall be subject to the privacy and confidentiality provisions of medical records provided by law.

    ¹[d.] f.¹ The trustees and senior managers of the nonprofit hospital making the disposition are prohibited from investing in the for profit entity for a period of three years following the disposition of assets or operations.

    ¹g. No director, officer, agent or employee of the nonprofit hospital shall benefit directly or indirectly from the disposition of assets or operations.¹

    2. Notwithstanding the provisions of any law to the contrary, the Commissioner of Health and Senior Services shall not issue a certificate of need or license to operate an acute care hospital to the resulting entity of a disposition of assets or operations under section 1 of this act, unless:

    a. there is a determination by the commissioner of the suitability and responsibility of the prospective licensee, as determined by regulations adopted by the commissioner. For the purposes of this section, the determination of suitability and responsibility shall include, but not be limited to, the following factors:

    (1) the financial capacity of the prospective licensee to operate the hospital in accordance with applicable laws;

    (2) the history of the prospective licensee in providing acute care, including in states other than New Jersey, if any, measured by compliance with the applicable statutes and regulations governing the operation of hospitals in those states;

    (3) the participation of persons residing in the nonprofit entity's primary service area in oversight of the resulting hospital; and

    (4) whether the transaction will have a significant effect on the availability or accessibility of health care services to the affected communities¹[;].¹

      b. the applicant agrees to maintain or increase the percentage of income from operations allocated to uncompensated care for indigent persons, as compared to the average of the annual percentage reported in the previous three years by the predecessor nonprofit hospital; except that the commissioner may permit the applicant to reduce the percentage if the commissioner determines that demographic or other changes in the hospital's service area justify a reduction in the percentage. The commissioner shall, by regulation, provide for the enforcement of this subsection and any agreement made by an applicant concerning uncompensated care; and

    c. the applicant submits a plan, for approval by the commissioner, for the provision of community benefits. In determining whether to approve the plan, the commissioner may take into account the applicant's existing commitment to primary and preventive health care services and community contributions, as well as the primary and preventive health care services and community contributions of the predecessor nonprofit hospital. The commissioner may waive the plan requirement of this subsection, in whole or in part, at the request of the applicant, if the applicant has provided or at the time the application is filed, is providing, substantial primary and preventive health care services and community contributions in its service area.

    ¹3. a. A health maintenance organization, health service corporation or other health care provider incorporated as a nonprofit corporation in this State which intends to convert its activities in conjunction with for-profit activities shall be required to obtain written approval from the Attorney General, and to provide the Attorney General with such information as he requires for this purpose, prior to entering into any agreement or transaction to:

    (1) Dispose of a material amount of its assets, as established by regulation of the Attorney General, to a for-profit corporation or entity or to a mutual insurance corporation or entity; or

    (2) Transfer control, responsibility, or governance of a material amount of the assets, operations, or business of the nonprofit corporation to a for-profit corporation or entity or a mutual insurance corporation or entity.

    b. The Attorney General may subpoena additional information or witnesses, require and administer oaths, and require sworn statements at any time prior to making a decision whether to approve the proposed agreement or transaction.

    c. The Attorney General, prior to providing written approval of the proposed agreement or transaction, shall make a determination as to whether the nonprofit corporation has assets which accrued as the result of beneficial treatment resulting from its nonprofit status, including, but not limited to, financial subsidies or favorable tax or regulatory treatment, and the amount which the nonprofit corporation shall compensate the State, which amount the State shall be entitled to receive upon the conversion to a for-profit corporation or entity or to a mutual insurance corporation or entity. The compensation may be in the form of cash or securities, or a combination thereof. If the assets are not readily liquid, the nonprofit corporation may provide for a plan of compensation subject to the Attorney General's approval. The amount received by the State pursuant to this subsection shall be placed in a charitable fund, and the monies in that fund shall be expended for health-related purposes in accordance with such requirements as shall be enacted into law.

    d. Subsequent to making a determination regarding the nonprofit corporation's assets pursuant to subsection c. of this section but prior to approving a proposed agreement or transaction pursuant to subsection a. of this section, the Attorney General shall conduct a public hearing in connection with his review of the proposed agreement or transaction and developing a plan for the governance of the charitable fund.

    e. No director, officer, agent or employee of the nonprofit corporation shall benefit directly or indirectly from the proposed agreement or transaction.¹

    ¹4. a. Notwithstanding the provisions of P.L.1995, c.196 (C.17:48E-45 et seq.) to the contrary, a nonprofit corporation which converts to a mutual insurance corporation shall retain charitable trust obligations to preserve its assets for charitable purposes. This obligation shall be paid at such time as the mutual insurance corporation enters into an agreement or transaction with a for profit corporation or otherwise generates sufficient funds to fulfill its charitable trust obligation. The fair market value of the health service corporation on the date of conversion to a mutual insurance corporation, augmented by any increase in the value of the mutual insurance corporation attributable to the use of the charitable trust assets or to its prior status as a nonprofit corporation, shall be the basis for the valuation of the trust obligation, as determined by the Attorney General.¹

    ¹[3.] 5.¹ Nothing in this act shall be construed to limit the existing authority of the Attorney General, the Commissioner of Health and Senior Services or any other government official or entity, or the court to review, approve or disapprove conditions related to a transaction or disposition under current law.

    ¹[4.] 6.¹ The Commissioner of Health and Senior Services, in consultation with the Attorney General, shall, in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), adopt regulations to carry out the purposes of ¹sections 1 and 2 of¹ this act.

    ¹7. The Attorney General, in consultation with the Commissioner of Banking and Insurance, shall, in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), adopt regulations to carry out the purposes of sections 3 and 4 of this act.¹

    ¹[5.] 8.¹ This act shall take effect immediately.

Provides for Attorney General and Department of Health and Senior Services review of conversion of nonprofit hospitals and other entities to for profit entities.