Hospital Accountability Bill Passes State Senate

June 1, 2011

Sacramento –Legislation that would close a glaring loophole in state law concerning hospital licensing was passed by the California State Senate today in a 25 to 14 vote and now moves to the Assembly. 

Existing law requires that any individual, company, or corporation that wants to open a health care facility in California must first apply for a license through the State Department of Public Health. The licensing process is designed to ensure that those operating a health care facility, like a hospital, are decent and have a history of complying with the law.

“The hospital transfer of ownership rules we have in place were designed to maintain quality of care for patients”, stated California State Senator Dr. Ed Hernandez, O.D. (D – West Covina), who introduced the bill in February.  “A change of ownership at a hospital can have a real effect on compliance with requirements ranging from seismic retrofitting to minimizing the risk of infections.  The public deserves to know the operators of their local hospitals are reputable.”

Senator Hernandez, who chairs the Senate Committee on Health, was alarmed to learn that under certain circumstances the owner of a health care facility is able to transfer the license to a new owner without that new owner being required to reapply to the Dept. of Public Health.

“This loophole allows these new owners to circumvent the licensing process, which could potentially put patients at risk” said Hernandez.  “Well-respected hospital owners throughout the state have had no issues complying with these licensing requirements in the past, this bill simply ensures the public receives the same licensing protections they currently enjoy regardless of the manner in which the hospital was acquired.”

Hernandez’s legislation which passed the Senate today, Senate Bill 408, would effectively close the loophole by requiring that a new license application be filed when the holder of an existing license changes ownership.  SB 408 makes it clear that a change of ownership would include any sale or transfer of a health facility to a new owner, as well as when an owner hands over responsibility or control of the day to day operations to a new individual or entity.

There are recent examples where the loophole was employed to avoid the licensing process.  Prime Healthcare bought Alvarado Hospital from Plymouth Health Investments in November of 2010.  Since the named license-holder for the hospital, Alvarado Hospital LLC, was unchanged in the sale, Prime was not required to apply for a new license.  This despite being under investigation by the Dept. of Public Health for problems reported at other hospitals Prime operates.

“If the transfer of majority control for a Limited Liability Company like Alvarado Hospital is considered a change of ownership under state and federal law, why shouldn’t the same standard apply when it comes to licensing?” asked Hernandez. “Just because they leave the name unchanged does not mean they are not a new owner,” he added.

Senator Hernandez represents the 24th Senate District, which includes parts of the City of Los Angeles, including East Los Angeles, El Sereno, Lincoln Heights, City Terrace, Montecito Heights, and the Cities of Azusa, Baldwin Park, Covina, Duarte, El Monte, Industry, Irwindale, La Puente, Monterey Park, Rosemead, and West Covina. The district also includes the communities of Avocado Heights, Citrus, Hacienda Heights, Rowland Heights, South San Gabriel, Valinda and Vincent.