In Minnesota, where all but one of the state's 139 hospitals are not-for-profit, Gov. Arne Carlson vetoed a bill that would have discouraged the sale of not-for-profits to for-profit chains.
It's only the second time such state legislation has been vetoed, making Carlson's move unusual given the volume and popularity of hospital conversion legislation.
This year at least 84 such bills were pending in 31 state legislatures, according to the Washington office of the National Conference of State Legislatures (March 2, p. 37). At deadline, it wasn't known how many are likely to be enacted this year, as many states legislatures are still in session. Since 1990, 48 conversion laws have been enacted in 33 states and the District of Columbia.
In his veto message, Carlson, a Republican, accused the legislation of setting up "a litigious, adversarial process for conducting business transactions, which I find unnecessary." He said he couldn't support the "wholesale lockout of noncharitable business entities in the marketplace."
In fact, Carlson said a for-profit deal might sometimes be the best thing for a hospital.
"Particularly in the case of a financially struggling rural community hospital, the public may be best served by the noncharitable acquisition of the hospital, especially when the only alternative is closure of that facility," Carlson wrote.
The bill would have required a not-for-profit hospital to notify the state attorney general of any deal to sell, transfer, lease or otherwise dispose of 50% or more of its assets to a for-profit company.
The attorney general could review the deal and stop it if it didn't meet the fiduciary obligations of the not-for-profit.
The failed bill was sponsored by Rep. Lee Greenfield and Sen. Linda Berglin, both Democrats from Minneapolis.
Three groups worked closely with the authors on the bill. They were: the state hospital association, which is called the Minnesota Hospital and Healthcare Partnership, the Minnesota Nurses Association and the state attorney general's office, said Richard Korman, assistant general counsel for MHHP.
But Carlson's harsh veto of the bill doesn't worry another attorney at the hospital association. "You're not going to see people running in here and stealing away into the night with our not-for-profit assets," said David Feinwachs, general counsel. "They can't do that under the existing law."
While the hospital association hoped to see the issue put to rest, Feinwachs said, safeguards exist under current state statutes.
Feinwachs said Minnesota has strong charitable trust laws, which allow the state attorney general to undo a bad deal.
Bad deals can involve improper handling of charitable assets or result in private inurement or other illegal activity, Korman said.
Feinwachs said the now-failed bill would have added to the attorney general's power. For example, the attorney general would have been able to hire experts to review a deal and make the not-for-profit hospital pay for it. Also, the bill would have let the attorney general stop a deal before it was consummated.
Carlson cited current protections already afforded under the law when he vetoed the bill. Feinwachs said there isn't a move to override the veto.
Last year, the Rhode Island General Assembly overrode Gov. Lincoln Almond's veto of a controversial bill that makes for-profit companies wait three years before buying a second hospital in the state (July 28, 1997, p. 6).
If a Minnesota conversion bill is reintroduced next year, it might have a better chance of becoming law.
Minnesota will elect a new governor in November because Carlson isn't running for re-election.