First-of-its-kind state legislation moving toward approval in Arizona would open up hospital sales to greater public scrutiny regardless of the ownership status of the buyers.
Legislation already passed in California and Nebraska and under consideration elsewhere applies only to transactions involving a for-profit buyer and a not-for-profit seller.
When an effort surfaced to expand a hospital sales bill in Washington state to both for-profit and not-for-profit hospital buyers, it was quietly pulled after lobbying by the state hospital association (March 3, p. 2).
In Arizona, vigorous lobbying by the Arizona Hospital and Healthcare Association dramatically narrowed the scope of legislation intended to give more public scrutiny to the transfer of hospitals and other healthcare-related assets.
Senate Bill 1288 would require public hearings in advance of any healthcare facility lease or sale-whether to a for-profit or not-for-profit entity-with the transacting parties liable for the cost.
In addition, the bill would require the parties to a transaction to submit sales documents to various state agencies, which in turn would make them publicly available.
The bill passed the Arizona Senate March 3 by a 29-1 vote. Observers say it will win approval in the House, and Gov. Fife Symington is expected to sign it into law.
However, the version that gained approval is less stringent than the original, which would have given the Arizona attorney general power to block a deal that was determined to have a negative impact on the surrounding community. The attorney general also would have been allowed to preside over the public hearings.
Under the current version, the attorney general is only allowed to present information at the public hearings. Hearings would be presided over by a neutral third party, mutually agreed upon by the attorney general and the parties to the transaction. The hospital lobby had complained that costs of hearings would have been prohibitive under the attorney general's guidance.
Among the provisions that remained intact:
The party transferring assets must reveal the extent of due diligence exercised during negotiations and the setting of a sales price.
The buyer will have to disclose the purpose of the assets after the transaction is completed and to what extent they will benefit the community.
Current or potential trustees also would have to reveal whether they benefited financially from the deal and whether they live in the region served by the facilities.
"The hospital association really came unglued by the bill. It was difficult for members to understand the need for the bill and the concern over community assets. When you run up against a wall, you regroup. I decided I had to work for the industry," said Sen. Ann Day, the Tucson Republican who authored the legislation. Day chairs the state Senate Health Committee.
Day added that her original legislation, based on laws drafted in other states, "was never intended to regulate or block mergers . . . It was a pure disclosure bill."
Previous deals involving the transfer of millions of dollars of healthcare assets with little public scrutiny demonstrate a need for the bill, she noted.
A law took effect in California at the beginning of the year that gives the attorney general power to veto any transfer of hospital assets from not-for-profit to for-profit entities and the conversion of hospitals to for-profit operation (Oct. 7, 1996, p. 18). It passed with little resistance from the state hospital lobby.
But Laurie Lange, vice president of governmental relations for the Arizona Hospital and Healthcare Association, said the Arizona bill in its original form was overly broad.
"It gave the attorney general authority far beyond what is vested in him to investigate antitrust violations," Lange said. "We don't think it's appropriate for the attorney general to also sit in judgment on whether transactions are in the community interest. We think the community needs to determine that itself."
Yet despite their differences, both the hospital lobby and Day proclaimed satisfaction with the compromises.