Legislation in Pennsylvania's General Assembly that would regulate conversions of charities to for-profit status isn't sitting well with consumer advocates, who say the bill would keep too many details hidden from the public.
Some provisions of the bill are raising eyebrows amid talk that the state's two dominant insurers are exploring a merger at the same time capital-starved Blues plans throughout the country are moving to convert to for-profit companies (Dec. 17, p. 10). Meanwhile, hospitals remain realtively quiet, even though the need for legislation was prompted by the rise in hospital conversions throughout the state (Jan. 22, p. 4).
The bill, which could be up for a vote as soon as January, was introduced earlier this year by more than two dozen Pennsylvania House members. Provisions that have sparked concern with consumer groups were added by state Rep. Dennis O'Brien, a Republican from Philadelphia who heads the state's House Health and Human Services Committee. O'Brien's office did not respond to a request for an interview.
The legislation requires that not-for-profits give advance notice to the state attorney general's office before conversion; the office could review the transaction to ensure that charitable assets are protected. The bill is meant to bolster oversight procedures that were implemented by the office after the bankruptcy in 1998 of Allegheny Health, Education and Research Foundation, a Pittsburgh-based hospital system, said Sean Connolly, a spokesman for Pennsylvania Attorney General Mike Fisher. AHERF's failure served as a national warning about the potential mismanagement of charitable assets.
The pending legislation has no provisions "for taking care of subscribers and policyholders whose premiums built up their surpluses," said Gregg Mackuse, a lawyer with Miller, Alfano & Raspanti in Philadelphia, who has filed class-action lawsuits against the state's three Blues plans, charging that the plans amassed huge surpluses, contrary to their tax-exempt status. His other complaint about the bill is that it doesn't shield against "sweetheart deals" that would benefit the management of not-for-profits in the event of for-profit conversions. Charitable assets could be endangered if part of the purchase price were paid in stock.
"Much of the process of converting what will be hundreds of millions if not billions (of dollars) would take place in the dark with very little public scrutiny," he said.
Since taking office in 1997, Fisher has implemented a protocol in which his office reviews "every fundamental change" in charitable status, Connolly said.
But Fisher's office hasn't had a chance to review the changes added in October. One addition gives the attorney general as little as 90 days to review insider transactions. "This amendment would drastically change (the bill), and we need to review those changes before we give an opinion," Connolly said.
Roger Baumgarten, a spokesman for the Hospital and Healthsystem Association of Pennsylvania, declined to comment on specifics of the legislation, but said hospitals generally support attorney general oversight, particularly legislation that "establishes a fair process of public accountability, provides confidentiality and limits costs and time incurred in the review process."
Insurers are not commenting openly. Highmark Blue Cross and Blue Shield in Pittsburgh has other issues on its plate and hasn't had time to take a position, Michael Weinstein, a Highmark spokesman, said. He said the legislation is "primarily directed at health systems," and that Highmark currently has "no intention" of changing its tax status.