By: Darby, Lambert, Clardy H.B. No. 3301
(Senate Sponsor - Perry, Nichols)
(In the Senate - Received from the House May 9, 2019;
May 10, 2019, read first time and referred to Committee on Business &
Commerce; May 17, 2019, reported adversely, with favorable
Committee Substitute by the following vote: Yeas 7, Nays 0;
May 17, 2019, sent to printer.)
Click here to see the committee vote
COMMITTEE SUBSTITUTE FOR H.B. No. 3301 By: Nichols
A BILL TO BE ENTITLED
AN ACT
relating to merger agreements among certain hospitals; authorizing
fees.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle F, Title 4, Health and Safety Code, is
amended by adding Chapter 314A to read as follows:
CHAPTER 314A. MERGER AGREEMENTS AMONG CERTAIN HOSPITALS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 314A.001. DEFINITIONS. In this chapter:
(1) "Attorney general" means the attorney general of
Texas or any assistant attorney general acting under the direction
of the attorney general of Texas.
(2) "Designated agency" means the state agency
designated by the governor under Section 314A.004.
(3) "Hospital" means a nonpublic general hospital that
is licensed under Chapter 241 and is not maintained or operated by a
political subdivision of this state.
(4) "Merger agreement" or "merger" means an agreement
among two or more hospitals for the consolidation by merger or other
acquisition or transfer of assets by which ownership or control
over substantially all of the stock, assets, or activities of one or
more previously licensed and operating hospitals is placed under
the control of another licensed hospital or hospitals or another
entity that controls the hospitals.
(5) "State agency" means a department, commission,
board, office, or other agency in the executive branch of state
government that is created by the constitution or a statute of this
state.
Sec. 314A.002. APPLICABILITY. This chapter applies only to
a merger agreement among hospitals each of which is located within a
county that:
(1) contains two or more hospitals; and
(2) has a population of:
(A) less than 100,000 and is not adjacent to a
county with a population of 250,000 or more; or
(B) more than 100,000 and less than 150,000 and
is not adjacent to a county with a population of 100,000 or more.
Sec. 314A.003. LEGISLATIVE FINDINGS AND PURPOSES; GRANT OF
ANTITRUST IMMUNITY. (a) The legislature finds that:
(1) a merger among hospitals may benefit the public by
maintaining or improving the quality, efficiency, and
accessibility of health care services offered to the public; and
(2) the benefits described by Subdivision (1)
resulting from the merger may outweigh any anticompetitive effects
of joining together competitors to address unique challenges in
providing health care services in rural areas.
(b) The legislature believes it is in the state's best
interest to supplant state and federal antitrust laws with a
process for regulatory approval and active supervision by the
designated agency as provided by this chapter. It is the intent of
the legislature that this chapter immunize from all federal and
state antitrust laws the execution of merger agreements approved
under this chapter and post-merger activities supervised under this
chapter.
(c) Nothing in this chapter affects antitrust immunity that
may be provided through another provision of state law.
Sec. 314A.004. DESIGNATION OF SUPERVISING STATE AGENCY.
(a) The governor shall designate an appropriate state agency,
other than the office of the attorney general, to:
(1) review and approve or deny applications submitted
under this chapter for certificates of public advantage; and
(2) supervise as provided by Subchapter C the
activities for which a certificate of public advantage is issued.
(b) After the governor designates a state agency under
Subsection (a), the governor may designate another appropriate
state agency under that subsection at any time.
(c) A change in the designation of a state agency made under
this section does not affect the validity of any action taken under
this chapter by a predecessor designated agency.
Sec. 314A.005. RULEMAKING. The designated agency shall
adopt rules for the administration and implementation of this
chapter.
SUBCHAPTER B. CERTIFICATE OF PUBLIC ADVANTAGE
Sec. 314A.051. REVIEW AND CERTIFICATION OF MERGER
AGREEMENTS REQUIRED. (a) Two or more hospitals may negotiate and
enter into a merger agreement, subject to approval by the
designated agency as provided by this subchapter.
(b) No merger agreement shall receive immunity under this
chapter unless the designated agency issues a certificate of public
advantage governing the merger agreement.
Sec. 314A.052. APPLICATION. (a) One or more parties to a
merger agreement may submit an application to the designated agency
for a certificate of public advantage governing the merger
agreement. The application must include a written copy of the
merger agreement and describe the nature and scope of the merger.
(b) If an applicant believes the documents or other
information required to be submitted with an application under
Subsection (a) contains proprietary information that is required to
remain confidential, the applicant shall:
(1) clearly identify the information; and
(2) submit duplicate applications, one application
that has complete information for the designated agency's use and
one redacted application that will be made available for public
release.
(c) A copy of the application and copies of all additional
related materials must be submitted to the attorney general and to
the designated agency at the same time.
Sec. 314A.053. APPLICATION FEE. (a) The designated agency
may assess a fee for filing an application under Section 314A.052 in
an amount not to exceed $75,000. The amount of the fee must be
sufficient to cover the reasonable costs of the designated agency
and attorney general in reviewing and approving or denying
applications under this subchapter.
(b) Fees collected under this section may be appropriated to
the designated agency for purposes of covering costs relating to
the implementation and administration of this chapter, including
the supervision of hospitals under this chapter.
Sec. 314A.054. REVIEW OF APPLICATION BY DESIGNATED AGENCY;
GRANT OR DENIAL OF APPLICATION. (a) The designated agency shall
review an application for a certificate of public advantage in
accordance with the standard prescribed by Section 314A.056(a)(1).
(b) The designated agency shall grant or deny the
application not later than the 120th day after the date of the
filing of the application. The designated agency's decision must:
(1) be in writing;
(2) specify the basis for the decision; and
(3) provide a copy of the decision to the applicants on
the date of the decision.
Sec. 314A.055. REVIEW OF APPLICATION BY ATTORNEY GENERAL.
(a) The attorney general shall review an application for a
certificate of public advantage and all supporting documents and
information provided by the applicants. On completion of the
review and subject to Subsection (b), the attorney general shall
advise the designated agency whether:
(1) the proposed merger agreement would likely benefit
the public by maintaining or improving the quality, efficiency, and
accessibility of health care services offered to the public; and
(2) the likely benefits resulting from the proposed
merger agreement outweigh any disadvantages attributable to a
reduction in competition that may result from the proposed merger.
(b) The attorney general shall review an application for a
certificate of public advantage as soon as practicable, taking into
consideration the deadline prescribed by Section 314A.054.
(c) If the attorney general advises the designated agency to
deny an application, the attorney general shall state the basis and
reasons for the recommended denial.
Sec. 314A.056. ISSUANCE OF CERTIFICATE OF PUBLIC ADVANTAGE.
(a) The designated agency, after reviewing the application and
consulting with the attorney general in accordance with Section
314A.055, shall issue a certificate of public advantage for a
merger agreement if:
(1) the designated agency determines under the
totality of the circumstances that:
(A) the proposed merger would likely benefit the
public by maintaining or improving the quality, efficiency, and
accessibility of health care services offered to the public; and
(B) the likely benefits resulting from the
proposed merger agreement described by Paragraph (A) outweigh any
disadvantages attributable to a reduction in competition that may
result from the proposed merger; and
(2) the application:
(A) provides specific evidence showing that the
proposed merger would likely benefit the public as described by
Subdivision (1)(A);
(B) explains in detail how the likely benefits
resulting from the proposed merger agreement outweigh any
disadvantages attributable to a reduction in competition as
described by Subdivision (1)(B); and
(C) sufficiently addresses the factors listed in
Subsection (b) and any other factor the designated agency may
require based on the circumstances specific to the application.
(b) In making the determination under Subsection (a)(1),
the designated agency shall consider the effect of the merger
agreement on the following nonexclusive list of factors:
(1) the quality and price of hospital and health care
services provided to citizens of this state;
(2) the preservation of sufficient hospitals within a
geographic area to ensure public access to acute care;
(3) the cost efficiency of services, resources, and
equipment provided or used by the hospitals that are a party to the
merger agreement;
(4) the ability of health care payors to negotiate
payment and service arrangements with hospitals proposed to be
merged under the agreement; and
(5) the extent of any reduction in competition among
physicians, allied health professionals, other health care
providers, or other persons providing goods or services to, or in
competition with, hospitals.
(c) The designated agency may include terms or conditions of
compliance in connection with a certificate of public advantage
issued under this subchapter if necessary to ensure that the
proposed merger likely benefits the public as specified in
Subsection (a)(1).
Sec. 314A.057. RECORDS. The designated agency shall
maintain records of all merger agreements the designated agency has
approved under this chapter, including any terms or conditions of
issuing a certificate of public advantage that are imposed by the
designated agency.
Sec. 314A.058. TERMINATION OF CERTIFICATE OF PUBLIC
ADVANTAGE BY HOSPITAL. A hospital resulting from a merger
agreement approved under this chapter may voluntarily terminate its
certificate of public advantage by giving the designated agency
notice at least 30 days before the date of the termination.
Sec. 314A.059. ANNUAL REVIEW OF CERTIFICATE. (a) The
designated agency shall annually review an approved certificate of
public advantage.
(b) The attorney general may annually review an approved
certificate of public advantage.
(c) The designated agency may not complete its annual review
of an approved certificate of public advantage under this section
until:
(1) the attorney general informs the designated agency
whether the attorney general intends to conduct any review of the
certificate of public advantage as authorized under this section;
and
(2) if the attorney general informs the designated
agency of the attorney general's intent to conduct a review of an
entity's approved certificate of public advantage, the attorney
general has had the opportunity to conduct the review.
SUBCHAPTER C. SUPERVISION OF MERGED HOSPITALS UNDER APPROVED
MERGER AGREEMENT
Sec. 314A.101. SUPERVISION OF MERGED HOSPITALS. The
designated agency shall supervise in the manner provided by this
subchapter each hospital operating under a certificate of public
advantage issued under this chapter to ensure that the immunized
conduct of a merged entity furthers the purposes of this chapter.
Sec. 314A.102. RATE REVIEW. (a) A change in rates for
hospital services by a hospital operating under a certificate of
public advantage issued under this chapter may not take effect
without prior approval of the designated agency as provided by this
section.
(b) At least 90 days before the implementation of any
proposed change in rates for inpatient or outpatient hospital
services and, if applicable, at least 60 days before the execution
of a reimbursement agreement with a third party payor, a hospital
operating under a certificate of public advantage shall submit to
the designated agency:
(1) any proposed change in rates for inpatient and
outpatient hospital services;
(2) if applicable, any change in reimbursement rates
under a reimbursement agreement with a third party payor;
(3) for an agreement with a third party payor, other
than an agreement described by Subdivision (4) or in which rates are
set under the Medicare or Medicaid program, information showing:
(A) that the hospital and the third party payor
have agreed to the proposed rates;
(B) whether the proposed rates are less than the
corresponding amounts in the producer price index published by the
Bureau of Labor Statistics of the United States Department of Labor
relating to the hospital services for which the rates are proposed
or a comparable price index chosen by the designated agency if the
producer price index described by this paragraph is abolished; and
(C) if the proposed rates are above the
corresponding amounts in the producer price index as described by
Paragraph (B), a justification for proposing rates above the
corresponding amounts in the producer price index;
(4) to the extent allowed by federal law, for an
agreement with a managed care organization that provides or
arranges for the provision of health care services under the
Medicare or Medicaid program, information showing:
(A) whether the proposed rates are different from
rates under an agreement that was in effect before the date the
applicable merger agreement took effect;
(B) whether the proposed rates are different from
the rates most recently approved by the designated agency for the
applicable hospital, if the designated agency has previously
approved rates for the applicable hospital following the issuance
of the certificate of public advantage under this chapter that
governs the hospital; and
(C) if the proposed rates exceed rates described
by Paragraph (A) or (B), a justification for proposing rates in
excess of those rates; and
(5) any information concerning costs, patient volume,
acuity, payor mix, and other information requested by the
designated agency.
(c) After reviewing the proposed change in rates submitted
under Subsection (b), the designated agency shall approve or deny
the proposed rate change. The designated agency shall approve the
proposed rate change if the designated agency determines that:
(1) the proposed rate change likely benefits the
public by maintaining or improving the quality, efficiency, and
accessibility of health care services offered to the public; and
(2) the proposed rate does not inappropriately exceed
competitive rates for comparable services in the hospital's market
area.
(d) If the designated agency determines that the proposed
rate change does not satisfy Subsection (c)(1) or (2), the
designated agency shall deny or modify the proposed rate change.
(e) The designated agency shall notify the hospital in
writing of the agency's decision to approve, deny, or modify the
proposed rate change not later than the 30th day before the
implementation date of the proposed change.
Sec. 314A.103. ANNUAL REPORT. Each hospital operating
under a certificate of public advantage shall submit an annual
report to the designated agency. The report must include:
(1) information about the extent of the benefits
attributable to the issuance of the certificate of public
advantage;
(2) if applicable, information about the hospital's
actions taken:
(A) in furtherance of any commitments made by the
parties to the merger; or
(B) to comply with terms imposed by the
designated agency as a condition for approval of the merger
agreement;
(3) a description of the activities conducted by the
hospital under the merger agreement;
(4) information relating to the price, cost, and
quality of and access to health care for the population served by
the hospital; and
(5) any other information required by the designated
agency to ensure compliance with this chapter, including
information relating to compliance with any terms or conditions for
issuance of the certificate of public advantage.
Sec. 314A.104. CORRECTIVE ACTION PLAN. (a) The designated
agency shall require a hospital operating under a certificate of
public advantage to adopt a plan to correct a deficiency in the
hospital's activities if the designated agency determines that an
activity of the hospital:
(1) does not benefit the public as described by
Section 314A.056(a)(1)(A); or
(2) no longer meets the standard prescribed by Section
314A.056(a)(1).
(b) The corrective action plan must include each provision
required by the designated agency and must be submitted at the
agency's direction.
Sec. 314A.105. SUPERVISION FEE. (a) The designated agency
may assess an annual supervision fee in an amount that is at least
$75,000 but not more than $200,000 against each hospital operating
under a certificate of public advantage under this chapter. The
amount of the fee imposed on hospitals under this subsection must be
based on the assessment by the designated agency of the amount
needed to cover the reasonable costs incurred by the designated
agency in supervising hospitals under this subchapter and in
implementing and administering this chapter.
(b) Fees collected under this section may be appropriated to
the designated agency for purposes of covering costs relating to
the implementation and administration of this chapter, including
the supervision of hospitals under this chapter.
SUBCHAPTER D. ENFORCEMENT AUTHORITY BY DESIGNATED AGENCY
Sec. 314A.151. INVESTIGATION; REVOCATION OF CERTIFICATE.
With respect to each hospital resulting from a merger agreement for
which the designated agency issued a certificate of public
advantage under this chapter, and to ensure that the hospital's
activities continue to benefit the public under the standard
prescribed by Section 314A.056(a)(1) and the purposes of this
chapter, the designated agency may:
(1) investigate the hospital's activities; and
(2) require the hospital to perform a certain action
or refrain from a certain action or revoke the hospital's
certificate of public advantage, if the designated agency
determines that:
(A) the hospital is not complying with this
chapter or a term or condition of compliance with the certificate of
public advantage governing the hospital's immunized activities;
(B) the designated agency's approval and
issuance of the certificate of public advantage was obtained as a
result of material misrepresentation;
(C) the hospital has failed to pay any fee
required under this chapter; or
(D) the benefits resulting from the approved
merger no longer outweigh the disadvantages attributable to the
reduction in competition resulting from the approved merger.
Sec. 314A.152. JUDICIAL REVIEW OF DESIGNATED AGENCY ACTION.
(a) A person aggrieved by a decision of the designated agency in
granting, denying, or refusing to act on an application for a
certificate of public advantage submitted under Subchapter B or
revoking a certificate of public advantage issued under this
chapter may appeal the final order by filing a petition for judicial
review in a district court of Travis County.
(b) The filing of a petition for judicial review of a
decision by the designated agency to revoke a certificate of public
advantage stays enforcement of the agency's decision.
(c) Not later than the 45th day after the date a person files
a petition for judicial review under this section, the designated
agency shall submit to the district court the original copy or a
certified copy of the entirety of the agency's record regarding the
decision under review. By stipulation of all parties, the record
may be shortened. The district court may require or permit later
corrections or additions to the record. The district court may
extend the period prescribed by this subsection for submitting the
agency's record to the court.
(d) The district court shall conduct the review sitting
without a jury.
(e) The district court may reverse a decision by the
designated agency regarding revocation of a certificate of public
advantage if the court finds that the decision is:
(1) in violation of a constitutional or statutory
provision;
(2) in excess of the agency's statutory authority;
(3) made through unlawful procedure;
(4) arbitrary or capricious or characterized by abuse
of discretion or clearly unwarranted exercise of discretion; or
(5) unsupported by substantial and material evidence
in light of the record as a whole.
(f) Under Subsection (e)(5), in determining the
substantiality of the evidence, the district court:
(1) shall consider other evidence that detracts from
the substantiality; and
(2) may not substitute its judgment for the judgment
of the designated agency on the weight of the evidence as to a
question of fact.
(g) The district court shall issue a written decision
setting forth the court's findings of fact and conclusions of law.
The designated agency shall add the court's decision to the agency's
record.
SUBCHAPTER E. ATTORNEY GENERAL INVESTIGATION AND ENFORCEMENT
AUTHORITY
Sec. 314A.201. CIVIL INVESTIGATIVE DEMAND. (a) The
attorney general, at any time after an application is filed under
Section 314A.052 and before the designated agency makes a
determination on the application, or in connection with the
agency's annual review of a certificate of public advantage under
Section 314A.059, may require by civil investigative demand the
attendance and testimony of witnesses and the production of
documents in Travis County or the county in which the applicants are
located for the purpose of investigating whether the merger
agreement satisfies or, after issuance of the certificate of public
advantage, continues to satisfy the standard prescribed by Section
314A.056(a)(1).
(b) All nonpublic documents produced for and testimony
given to the attorney general under Subsection (a) are subject to
the prohibitions on disclosure and use under Section 15.10(i),
Business & Commerce Code.
(c) The attorney general may seek an order from the district
court compelling compliance with a civil investigative demand
issued under this section.
Sec. 314A.202. ACTION TO REVOKE CERTIFICATE OF PUBLIC
ADVANTAGE FOLLOWING CHANGED CIRCUMSTANCES. (a) If, following an
annual review of a certificate of public advantage, the attorney
general determines that as a result of changed circumstances the
benefits resulting from a certified merger agreement as described
by Section 314A.056(a)(1)(A) no longer outweigh any disadvantages
attributable to a reduction in competition resulting from the
merger agreement, the attorney general may bring an action in a
district court in Travis County seeking to revoke the certificate
of public advantage in accordance with the procedures prescribed by
this section.
(b) Except as provided by Subsection (c), in an action
brought under this section, the attorney general has the burden of
establishing by clear and convincing evidence that as a result of
changed circumstances the benefits resulting from the certified
merger agreement and the unavoidable costs of revoking the
certificate of public advantage are outweighed by disadvantages
attributable to a reduction in competition resulting from the
merger agreement.
(c) In any action brought under this section, if the
attorney general first establishes by clear and convincing evidence
that the designated agency's certification was obtained as a result
of material misrepresentation to the designated agency or the
attorney general or as the result of coercion, threats, or
intimidation directed toward any party to the merger agreement,
then the parties to the merger agreement bear the burden of
establishing by clear and convincing evidence that despite changed
circumstances the benefits resulting from the certified merger
agreement and the unavoidable costs of revoking the certificate of
public advantage are not outweighed by disadvantages attributable
to a reduction in competition resulting from the merger agreement.
SECTION 2. As soon as practicable after the effective date
of this Act, the governor shall designate a state agency under
Section 314A.004, Health and Safety Code, as added by this Act.
SECTION 3. This Act takes effect September 1, 2019.
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