Arizona and Georgia are poised to become the first states in the country to pass specific laws opening up to public scrutiny the sale of any not-for-profit hospital regardless of the buyer's ownership status.
That means the terms of deals between not-for-profit hospitals that historically have been kept from the public will be open to public scrutiny for the first time.
To date, the only similar laws passed have applied to for-profit companies that buy not-for-profits.
But despite the broad scope of the new laws in Arizona and Georgia, intense lobbying by a number of hospitals in those states will keep their pending transactions secret.
In Arizona, Gov. Fife Symington is expected to sign into law a bill that would require not-for-profit hospitals to hold a public hearing on any proposed merger or sale regardless of whether the buyer is another not-for-profit or a for-profit corporation.
At the hearing, the parties involved in the transaction will present a description and terms of the proposed deal and other related information. The bill also requires the parties to submit the same information to the state health department and state attorney general's office, which will make all the records of the transaction public.
The bill passed the Arizona Senate on March 3 by a 29-1 vote. It passed the state House on March 24 by a 57-0 vote. It's expected to reach Symington's desk this week, and a spokesman said the governor is expected to sign it.
Assuming Symington signs the bill, the new hospital disclosure statute would take effect on July 16.
In Georgia, a bill passed by the state Legislature late last week also promises to shed more light on the sales of not-for-profit hospitals in that state.
The Georgia bill requires county-owned and private not-for-profit hospitals selling to or merging with a for-profit or not-for-profit company to disclose their plans to the state attorney general's office for review. Under current state law, the attorney general does not have the authority to oversee such deals.
The bill has been sent to Gov. Zell Miller, who is expected to sign it within the next 40 days. The House passed its version of the bill on March 14 by a vote of 153-17, and the Senate passed its version on March 25 by a vote of 51-0.
Assuming Miller signs the bill, it would take effect on Oct. 31.
In Arizona and Georgia, several proposed transactions that triggered interest in passing such legislation would be exempt from the laws.
In Arizona, the bill's sponsor, state Sen. Ann Day (R-Tucson), said she was inspired to draft the bill after not-for-profit Samaritan Health System in Phoenix and HealthPartners of Southern Arizona, the parent of 511-bed Tucson Medical Center, discussed deals with for-profit Columbia/HCA Healthcare Corp.
However, those talks didn't result in any transactions. Samaritan subsequently announced a proposed merger with Catholic Healthcare West, which operates 493-bed St. Joseph's Hospital and Medical Center in Phoenix.
When Day introduced the bill in January, she agreed to exempt any transactions reported to the state health department, corporations commission and attorney general's office on or before Dec. 31, 1996. That clause will exempt the Samaritan-St. Joseph deal from public scrutiny.
In Georgia, Monty Veazey, president of the Georgia Alliance of Community Hospitals, said two recent high-profile deals triggered the introduction of the legislation.
Veazey said concerns grew last year when Columbia signed a letter of intent to form a 50-50 joint venture with 253-bed Newnan (Ga.) Hospital, and Santa Barbara, Calif.-based Tenet Healthcare Corp. then announced plans to acquire 460-bed Georgia Baptist Medical Center in Atlanta.
"The law does not prevent a sale from being done," Veazey said. "It's about public disclosure. If a deal is being done, then the public can make up its own mind."
As the bill moved through the state Legislature, it was expanded to include not-for-profit buyers, and it was amended to include provisions that effectively excluded the pending Columbia and Tenet deals.
The bill exempts deals completed before its Oct. 31 effective date. Frank Upchurch, president of Georgia Baptist Health Care Foundation, which operates the medical center, said the deal with Tenet is expected to close in July.
The bill also exempts transactions that are subject to a pending judicial proceeding as of April 1. Glenn Flake, administrator of Newnan Hospital, said his facility's transaction is the subject of litigation pending in Coweta County (Ga.) Superior Court.
