A2368 AS 1R

[First Reprint]

ASSEMBLY SUBSTITUTE FOR

ASSEMBLY, No. 2368

STATE OF NEW JERSEY

ADOPTED MAY 22, 1997

Sponsored by Assemblywoman VANDERVALK and Assemblyman COHEN

An Act concerning nonprofit hospitals and health service corporations and supplementing Title 15A of the New Jersey Statutes and Titles 26 and 17 of the Revised Statutes.

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

1. This act shall be known and may be cited as the "Community Health Care Assets Protection Act."

2. 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 hospital licensed pursuant to P.L.1971, c.136 (C.26:2H-1 et seq.) shall apply to the Attorney General for approval prior to entering into a transaction that results in the acquisition of the hospital by a person or entity other than a corporation organized in this State for charitable purposes under Title 15A of the New Jersey Statutes. The proposed acquisition shall be subject to the written approval of the Attorney General, in consultation with the Commissioner of Health and Senior Services, pursuant to the provisions of this section.

For the purposes of sections 2 and 3 of this act, "acquisition" means any acquisition by a person of an ownership or controlling interest in a nonprofit hospital, whether by purchase, merger, lease, joint venture, transfer, gift or otherwise.

a. Within five working days of submitting an application pursuant to this section, the nonprofit hospital shall publish notice of the proposed acquisition, in a form approved by the Attorney General, in a newspaper of general circulation in the service area of the hospital once per week for three weeks. The notice shall state the names of the parties to the agreement, describe the contents of the application to the Attorney General and state the date by which a person may submit written comments about the application to the Attorney General.

b. The Attorney General, in consultation with the Commissioner of Health and Senior Services, shall review the application and approve the proposed acquisition, with or without any specific modifications, or, if he finds that it is not in the public interest, disapprove the proposed acquisition.

The proposed acquisition shall not be considered to be in the public interest unless the Attorney General determines that appropriate steps have been taken to safeguard the value of the charitable assets of the hospital and to ensure that any proceeds from the proposed acquisition are irrevocably dedicated for appropriate charitable health care purposes; and that the proposed transaction is not likely to result in the deterioration of the quality, availability or accessibility of health care services in the affected communities.

In determining whether the acquisition meets the criteria of this subsection, the Attorney General shall consider:

(1) Whether the acquisition is permitted under the "New Jersey Nonprofit Corporation Act," Title 15A of the New Jersey Statutes, and other applicable State statutes 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 other parties to the acquisition;

(5) Whether the seller will receive full and fair market 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 reasonable 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; and

(9) Whether a right of first refusal to repurchase the assets by a successor nonprofit corporation or foundation if the hospital is subsequently sold to, acquired by or merged with another entity has been retained.

c. In his review of the proposed acquisition, the Attorney General may assess the entity proposing to acquire the nonprofit hospital for reasonable costs related to the review, as determined by the Attorney General to be necessary. Reasonable costs may include expert review of the acquisition and a process for educating the public about the acquisition and obtaining public input.

d. The Attorney General and the Commissioner of Health and Senior Services shall, during the course of the review pursuant to this section, hold at least one public hearing in which any person may file written comments and exhibits or appear and make a statement. The Attorney General or the commissioner may subpoena additional information or witnesses, including, but not limited to, information about any transaction that is collateral to the proposed acquisition and any related documents, 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 completing the review of the proposed acquisition.

The Attorney General shall make the information received pursuant to this section, and the Department of Health and Senior Services shall make any information in its records relating to the proposed acquisition, available at no cost to the public.

The public hearing shall be held no later than 60 days after receipt of an application from a nonprofit hospital that is deemed complete by the Attorney General. Public notice of the hearing shall be provided at least two weeks in advance of the date of the hearing.

e. The Attorney General shall make a determination as to the amount of assets which the nonprofit hospital shall set aside as a charitable obligation, based on the full and fair market value of the hospital as determined by the Attorney General at the time of the proposed acquisition.

f. The amount determined by the Attorney General to be set aside as a charitable obligation shall be placed in a nonprofit charitable trust, and the monies in that trust shall be expended for health-related purposes in accordance with such requirements as shall be established by the Attorney General, in consultation with the Commissioner of Health and Senior Services. An appropriate portion of the charitable obligation, 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 charitable trust.

(1) The governance of the charitable trust that results from the acquisition shall be subject to review and approval by the Attorney General, in consultation with the commissioner. The governance of the charitable trust shall be broadly based in the community historically served by the predecessor nonprofit hospital, and neither the trust nor any officer, director or senior manager of the trust shall be affiliated with the for-profit entity and no officer, director or senior manager of the trust shall be or a fulltime employee of State government. No officer, director or senior manager of the trust shall have been a director, officer, agent, trustee or employee of the nonprofit hospital during the three years immediately preceding the effective date of the acquisition.

(2) The governing body of the charitable trust shall establish a mechanism to avoid conflicts of interest and to prohibit grants that benefit the board of directors and management of the for-profit entity. (3) The governing body of the charitable trust shall provide the Attorney General with an annual report of its grant-making and other charitable activities related to its use of the charitable assets received pursuant to this act. The annual report shall be made available to the public at both the Attorney General's office and the office of the charitable trust.

g. (1) The entity acquiring the nonprofit hospital, if determined to be necessary by the Attorney General, in consultation with the Commissioner of Health and Senior Services, shall 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 acquisition. The entity acquiring the hospital 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.

(2) Following the monitoring period, or in the event that no monitoring period is established, if the Attorney General receives information indicating that the for-profit entity is not fulfilling its commitment to the affected service area pursuant to this act, the Attorney General, or his designee, shall hold a public hearing upon 10 days notice to the affected parties. If, after the hearing, the Attorney General determines that the information is true, he shall institute proceedings to require a corrective action plan from the for-profit entity. The Attorney General shall retain oversight of the for-profit's obligations under the corrective action plan for as long as necessary to ensure compliance with this act.

h. The trustees and senior managers of the nonprofit hospital are prohibited from investing in the acquiring for-profit entity for a period of three years following the acquisition.

i. No director, officer, agent, trustee or employee of the nonprofit hospital shall benefit directly or indirectly from the acquisition, including the receipt of any compensation directly related to the proposed acquisition.

j. Any final action by the Attorney General pursuant to this act shall be subject to judicial review by the Superior Court at the initiation of the nonprofit hospital or any person that was a party to the proceeding. Any person adversely affected by the final decision of the Attorney General shall be considered a party to the proceeding, including consumers or community groups representing the citizens of the State.

k. The Attorney General, in consultation with the Commissioner of Health and Senior Services, shall adopt regulations pursuant to the "Administrative Procedure Act," P.L.1968, c.410, (C.52:14B-1 et seq.) to carry out the purposes of this section.

3. 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 a hospital to the resulting entity of an acquisition, 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, or other health care services as appropriate, 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 acquisition will have a significant effect on the quality, availability or accessibility of health care services in the affected communities.

b. The applicant agrees to maintain or increase the percentage of income from operations allocated to 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 care for indigent persons; 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, and not to the exclusion of other factors, 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 demonstrates to the commissioner's satisfaction that its service area will not be deprived of health care services as a result of the acquisition.

d. The Commissioner of Health and Senior Services shall, pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), adopt regulations to carry out the purposes of this section.

¹4. A hospital owned and operated by a county is exempt from the provisions of this act, except that a transaction that results in the acquisition of the hospital by a person or entity other than a corporation organized in this State for charitable purposes under Title 15A of the New Jersey Statutes shall be subject to review and approval by the Attorney General based upon his finding that the transaction would not adversely affect the quality, availability or accessibility of health care services in the affected communities and would otherwise be in the public interest.¹

¹[4.] 5.¹ A health service corporation that intends to enter into a transaction to transfer, restructure or convert its activities in conjunction with for-profit activities shall apply to the Attorney General for approval prior to entering into the transaction. The proposed transaction shall be subject to the written approval of the Attorney General, in consultation with the Commissioner of Banking and Insurance, pursuant to the provisions of this section.

a. Within five working days of submitting an application pursuant to this section, the health service corporation shall publish notice of the proposed transaction, in a form approved by the Attorney General, in a newspaper of general circulation in the State once per week for three weeks. The notice shall state the names of the parties to the agreement, describe the contents of the application to the Attorney General and state the date by which a person may submit written comments about the application to the Attorney General.

b. The Attorney General, in consultation with the Commissioner of Banking and Insurance, shall review the application and approve the proposed transaction, with or without any specific modifications, or, if he finds that it is not in the public interest, disapprove the proposed transaction.

The proposed transaction shall not be considered to be in the public interest unless the Attorney General determines that appropriate steps have been taken to safeguard the value of the charitable assets of the health service corporation and to ensure that any proceeds from the proposed transaction are irrevocably dedicated for appropriate charitable health care purposes, and that the proposed transaction is permitted under the "New Jersey Nonprofit Corporation Act," Title 15A of the New Jersey Statutes, and other applicable State statutes governing nonprofit entities, trusts or charities.

c. In his review of the proposed transaction, the Attorney General may assess the entity proposing to receive the business operations of the health service corporation for reasonable costs related to the review, 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.

d. The Attorney General and the Commissioner of Banking and Insurance shall, during the course of the review pursuant to this section, hold at least one public hearing in which any person may file written comments and exhibits or appear and make a statement. The Attorney General or the commissioner may subpoena additional information or witnesses, including, but not limited to, information about any transaction that is collateral to the proposed transaction and any related documents, 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 completing the review of the proposed transaction.

The Attorney General shall make the information received pursuant to this section, and the Department of Banking and Insurance shall make any information in its records relating to the proposed transaction, available at no cost to the public.

The public hearing shall be held no later than 60 days after receipt of an application from a health service corporation that is deemed complete by the Attorney General. Public notice of the hearing shall be provided at least two weeks in advance of the date of the hearing.

e. The Attorney General shall make a determination as to the amount of assets which the health service corporation shall set aside as a charitable obligation, based on the full and fair market value of the health service corporation as determined by the Attorney General at the time of the proposed transaction.

f. The amount determined by the Attorney General to be set aside as a charitable obligation shall be placed in a nonprofit charitable trust, and the monies in that trust shall be expended for health-related purposes in accordance with such requirements as shall be established by the Attorney General, in consultation with the Commissioners of Banking and Insurance and Health and Senior Services. An appropriate portion of the charitable obligation, 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 charitable trust.

(1) The governance of the charitable trust that results from the transaction shall be subject to review and approval by the Attorney General, in consultation with the Commissioner of Banking and Insurance. The governance of the charitable trust shall be broadly based, and neither the trust nor any officer, director or senior manager of the trust shall be affiliated with the for-profit entity and no officer, director or senior manager of the trust shall be or a fulltime employee of State government. No officer, director or senior manager of the trust shall have been a director, officer, agent, trustee or employee of the health service corporation during the three years immediately preceding the effective date of the transaction.

g. The trustees and senior managers of the health service corporation are prohibited from investing in the acquiring for-profit entity for a period of three years following the transaction.

h. No director, officer, agent, trustee or employee of the health service corporation shall benefit directly or indirectly from the transaction, including the receipt of any compensation directly related to the proposed transaction.

i. Any final action by the Attorney General pursuant to this act shall be subject to judicial review by the Superior Court at the initiation of the health service corporation or any person that was a party to the proceeding. Any person adversely affected by the final decision of the Attorney General shall be considered a party to the proceeding, including consumers or community groups representing the citizens of the State.

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

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

¹[6.] 7.¹ Nothing in this act shall be construed to limit the existing authority of the Attorney General, the Commissioner of Banking and Insurance, 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 an acquisition, transaction or disposition under current law.

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

Designated the "Community Health Care Assets Protection Act."