A bill that shifts responsibility for overseeing the sale of hospital assets from the Department of Financial Regulation to the Green Mountain Care Board won preliminary approval Thursday in the House.
The legislation is designed to ensure that if any of Vermont’s 14 nonprofit hospitals sell expensive equipment or facilities to for-profit companies that the price is fair and the money is used in a way that preserves their public benefit.
The bill, H.596, is set for a final House vote Friday.
The current oversight rules were enacted in 2005 in response to the sale of nonprofit hospitals to private companies in several other states, Assistant Attorney General Elliot Berg said.
At the time, there was governmental and public concern that a for-profit company might buy a portion — or the entirety — of one of Vermont’s hospitals, and the value it had accrued overtime as a charitable organization would be realized by the buyer, while the public benefit was lost, Berg said.
For instance, if a nonprofit hospital that operated several satellite clinics that weren’t being run at a profit was sold, the buyer could sell off the clinics and pocket the proceeds, Berg said.
The drive to more stringently monitor hospital asset conversions picked up steam in late 2011, when Fletcher Allen Health Care attempted to sell several outpatient kidney dialysis clinics to a New Hampshire subsidiary of Fresenius, a large dialysis product and service provider.
The now-defunct Department of Banking, Insurance, Securities and Health Care Administration (BISHCA), then charged with issuing a certificate of need that new health care projects needed to obtain prior to implementation, announced it would reject the sale.
The department found that Fresenius would not offer better quality dialysis care or contain costs more effectively than Fletcher Allen. Spending on dialysis services would have increased by more than $6 million under Fresenius ownership, while Fletcher Allen could continue to operate the clinics for less, according to officials.
Current law requires oversight of such sales through an application process with Department of Financial Regulation and the Attorney General’s Office, but only when a sale amounts to $1 million and 40 percent of the hospitals total assets.
Berg said he hasn’t seen a single application filed in the eight years the law has been on the books, because the threshold defeats the purpose of the law.
The key is the “and” in $1 million and 40 percent of total assets, which would likely be far greater than $1 million.
For Fletcher Allen Health Care that would amount to roughly $200 million sale to trigger an application, Berg said. The Fresenius sale was worth $26 million.
Lowering the threshold raised concerns from the hospitals, because the separate applications with the attorney general and the Department of Financial Regulation would become an onerous burden if they had to be filed regularly, said Jill Olson of the Vermont Association of Hospitals and Health Systems.
Legislation tweaking the oversight process fizzled out during the last biennium, and a study committee comprised of the hospital association, the Attorney General’s Office and the Green Mountain Care Board took up the issue up over the summer.
The study committee didn’t release a report, but all three members said they agree with the House bill.
The new legislation would do away with the threshold, and streamline the application process into a report that hospitals would submit to the Green Mountain Care Board.
It takes advantage of the existing certificate of need process — now handled by the board — and also requires hospitals to submit a report showing they’ve met certain criteria, said Michael Donofrio, an attorney with the Green Mountain Care Board.
The cost threshold for a certificate of need is $500,000, meaning the universe of transactions the hospitals need to justify will expand. The hospital will report to the board, and the Attorney General’s Office could access those reports. Should the AG find that the public might be harmed by the sale, it could request more details.
The bill would remove the public hearing requirement on the report submitted by the hospital to the board. A certificate of need requires a public hearing, and Donofrio said few, if any, applications were filed under the old statute, so no public hearings were held on hospital applications.
The criteria set out in the bill requires that a hospitals to show that its governing body gave due diligence to the decision to sell and to selecting a buyer; the hospital will receive “fair market value” for the asset; there are no material conflicts of interest for anyone involved; and no individual reaps a profit from the sale. The law would not apply to sales from one nonprofit to another.
The oversight provided for in H.596 is “at least as extensive a review as current law,” Berg said.
