SB 0523 - Fiscal Note

Fiscal Note - SB 0523 - Regulates the acquisition of nonprofit hospitals

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 1945-06

BILL NO. SCS for SB 523 with HCA 1 and HCA 2

SUBJECT: Acquisition of Nonprofit Hospitals

TYPE: Original

DATE: May 7, 1998

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
General Revenue	($71,155)	($65,131)	($66,789)
Total Estimated Net Effect on All State Funds	($71,155)	($65,131)	($66,789)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
None
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 1999	FY 2000	FY 2001
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Mental Health assume this proposal would not fiscally impact their agency.

Officials from the Department of Social Services (DOS) anticipate no fiscal impact associated with the proposal. DOS states if the requirements set forth in this proposal were not followed in an acquisition, a license would not be issued to the newly acquired hospital. Without a license, the hospital could not be enrolled as a Medicaid provider. DOS states that in certain areas of the state, access to proper health care could be impeded and costs could be increased. DOS further states the increased costs would be due to transportation costs to other hospitals and possibly increased hospital costs if the rates are different between the unlicensed facility and the hospital that receives the transferred patients. In addition, DOS states the proposal would require DOS to update its contracts with providers and MC+ health plans to include this provision.

Officials from the Department of Health (DOH) state this proposal would require a person wishing to purchase a non-profit hospital to obtain DOH approval for the transaction. DOH also states the proposal would require the department to make public the application to purchase the hospital and receive comments about the sale. DOH would review the application and make a recommendation to the Attorney General within thirty days on whether to approve or deny the sale. DOH assumes a Health Program Representative III ($32,964) would be needed to conduct public hearings, track the sales of hospitals, and fulfill the mandates of this proposal. DOH estimates they would receive five applications per year. Equipment ($3,730) would include office furniture and a personal computer for one FTE. Expenses ($12,165) would include rental space, office and communication expenses, and travel expenses for one FTE.

Oversight assumes no additional FTE or expense and equipment would be needed as five applications would result in only five months of scheduled work per year. This additional work would be absorbed within current resources.

Officials from the Office of Attorney General (AGO) anticipates four to five applications per year. The AGO assumes these transactions would be highly complex involving often in excess $100 million. One Attorney General IV ($45,000) would be needed to receive and review the applications. Equipment totaling $8,625 would include office furniture and a personal computer for the additional FTE. Expenses totaling $12,050 would include office and communication expenses and travel expenses for one FTE. Oversight notes that one provision of this proposal (Section 355.906) requires the AGO to determine if the AGO should review each application for acquisition. The proposal does not require the AGO to review any acquisition applications. However, Oversight assumes the AGO would review some acquisitions and would require the additional FTE and the related expenses noted above.

FISCAL IMPACT - State Government	FY 1999	FY 2000	FY 2001
GENERAL REVENUE FUND
Costs - Office of Attorney General
Personal service (1 FTE)	($45,000)	($46,125)	($47,278)
Fringe benefits	($12,613)	($12,929)	($13,252)
Expense and equipment	($13,542)	($6,077)	($6,259)
Total Costs - Office of Attorney General	($71,155)	($65,131)	($66,789)
ESTIMATED NET EFFECT ON
GENERAL REVENUE FUND	($71,155)	($65,131)	($66,789)
FISCAL IMPACT - Local Government	FY 1999	FY 2000	FY 2001
	$0	$0	$0

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal is known as the Nonprofit Hospital Sale Act. It gives the Attorney General supervision over an acquisition of 20% or more of the assets of a nonprofit hospital, and any acquisition resulting in a 50% or greater interest in a nonprofit hospital. The proposal does not apply to hospitals which are under common ownership or control. Specific rules are established for mergers and changes in governance structure so that hospitals will not discontinue

health care services in a community.

Any person or corporation making such an acquisition in a nonprofit hospital must first apply to the Attorney General (AG) and the Department of Health (DOH). The application shall include a copy of the acquisition agreement, a financial and economic analysis and any other documents requested by the AG relevant to the transaction.

The DOH must publish notice of the application within 5 days in a local newspaper and shall notify individuals who have requested such notice. The DOH shall review the application with respect to: (1) continued access to health care in the community; (2) commitments to health care for the disadvantaged and uninsured; and (3) conflict of interest safeguards for patient referral. The DOH shall make a recommendation to the AG within 30 days after the AG decides to make a

review.

DESCRIPTION (continued)

The AG has 15 days to decide whether to review the application and must approve or disapprove within 75 days after deciding to review. The AG shall hold at least one public hearing. The AG shall not approve the acquisition unless the value of the charitable assets are safeguarded and the proceeds are used for appropriate charitable health care purposes. Various factors are described for consideration by the AG. The AG may conditionally approve an application. A person with a legal interest in an involved hospital may obtain judicial review of the AG's decision. Any action for judicial review shall be conducted as an appeal of a contested administrative decision as provided by Chapter 536 RSMo.

The AG shall not create a barrier to an acquisition unless it is to promote the purposes explicitly

stated in the hospital's charter.

The proposal limits conflicts of interest between the buyer and the hospital and between the buyer and any nonprofit charitable institution which may receive assets.

Conditions are established, such as failure to get approval under this proposal or failure to follow conflict of interest rules, for revocation or suspension of a hospital's license.

The proposal also applies to mergers with a county hospital or an acquisition of a county hospital or its assets. County hospitals are defined by hospitals established, organized and maintained according to Sections 205.160 to 205.379 RSMo.

The proposal has an emergency clause.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Health

Office of Attorney General

Department of Social Services

Department of Mental Health

Jeanne Jarrett, CPA

Director

May 7, 1998