By Wolens H.B. No. 1884 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to cooperative agreements among hospitals. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Subtitle F, Title 4, Health and Safety Code, is 1-5 amended by adding Chapter 313 to read as follows: 1-6 CHAPTER 313. COOPERATIVE AGREEMENTS AMONG HOSPITALS 1-7 Sec. 313.001. DEFINITIONS. In this chapter: 1-8 (1) "Attorney general" means the attorney general of 1-9 Texas or any assistant attorney general acting under the direction 1-10 of the attorney general of Texas. 1-11 (2) "Cooperative agreement" means an agreement among 1-12 two or more hospitals for the allocation or sharing of health care 1-13 equipment, facilities, personnel, or services. 1-14 (3) "Department" means the Texas Department of Health. 1-15 (4) "Hospital" means a general or special hospital 1-16 licensed under Chapter 241 or a private mental hospital licensed 1-17 under Chapter 577. 1-18 Sec. 313.002. REVIEW AND CERTIFICATION OF COOPERATIVE 1-19 AGREEMENTS. (a) A hospital may negotiate and enter into 1-20 cooperative agreements with other hospitals in the state if the 1-21 likely benefits resulting from the agreement outweigh any 1-22 disadvantages attributable to a reduction in competition that may 1-23 result from the agreements. Acting through their boards of 2-1 directors, a group of hospitals may conduct discussions or 2-2 negotiations concerning cooperative agreements, provided that the 2-3 discussions or negotiations do not involve price fixing or 2-4 predatory pricing. 2-5 (b) Parties to a cooperative agreement may apply to the 2-6 department for a certification of public advantage governing the 2-7 cooperative agreement. The application must include a written copy 2-8 of the cooperative agreement and describe the nature and scope of 2-9 the cooperation in the agreement and any consideration passing to 2-10 any party under the agreement. A copy of the application and 2-11 copies of all additional related materials must be submitted to the 2-12 attorney general and to the department at the same time. The 2-13 department shall charge an application fee in an amount not to 2-14 exceed $10,000 per application. 2-15 (c) The department shall review the application in 2-16 accordance with the standards set forth in Subsections (e) and (f) 2-17 and shall, if requested, hold a public hearing in accordance with 2-18 rules adopted by the department. The department shall grant or 2-19 deny the application within 120 days of the date of filing of the 2-20 application and that decision must be in writing and set forth the 2-21 basis for the decision. The department shall furnish a copy of 2-22 the decision to the applicants, the attorney general, and any 2-23 intervenor within 10 days of its issuance. 2-24 (d) The department shall issue a certificate of public 2-25 advantage for a cooperative agreement if it determines that the 3-1 applicants have demonstrated by clear and convincing evidence that 3-2 the likely benefits resulting from the agreement outweigh any 3-3 disadvantages attributable to a reduction in competition that may 3-4 result from the agreement. 3-5 (e) In evaluating the potential benefits of a cooperative 3-6 agreement, the department shall consider whether one or more of the 3-7 following benefits may result from the cooperative agreement: 3-8 (1) enhancement of the quality of hospital and 3-9 hospital-related care provided to Texas citizens; 3-10 (2) preservation of hospital facilities in 3-11 geographical proximity to the communities traditionally served by 3-12 those facilities; 3-13 (3) gains in the cost efficiency of services provided 3-14 by the hospitals involved; 3-15 (4) improvements in the utilization of hospital 3-16 resources and equipment; and 3-17 (5) avoidance of duplication of hospital resources. 3-18 (f) The department's evaluation of any disadvantages 3-19 attributable to any reduction in competition likely to result from 3-20 the agreement may include, but need not be limited to, the 3-21 following factors: 3-22 (1) the extent of any likely adverse impact on the 3-23 ability of health maintenance organizations, preferred provider 3-24 organizations, or other health care payors to negotiate optimal 3-25 payment and service arrangements with hospitals, physicians, allied 4-1 health care professionals, or other health care providers; 4-2 (2) the extent of any reduction in competition among 4-3 physicians, allied health professionals, other health care 4-4 providers, or other persons furnishing goods or services to, or in 4-5 competition with, hospitals; 4-6 (3) the extent of any adverse impact on patients in 4-7 the quality, availability, and price of health care services; and 4-8 (4) the availability of arrangements that are less 4-9 restrictive to competition and achieve similar benefits. 4-10 (g) The department shall consult with the attorney general 4-11 regarding any potential reduction in competition that may result 4-12 from a cooperative agreement. The attorney general shall review 4-13 the application and all supporting documents provided by the 4-14 applicants, any documents or other information provided by any 4-15 intervenors, and any documents or testimony provided at a public 4-16 hearing, if any, on the application and shall advise the department 4-17 whether the proposed cooperative agreement would have inappropriate 4-18 impact on competition. If the attorney general advises the 4-19 department to deny an application, the attorney general shall state 4-20 the basis and reasons for the recommended denial. 4-21 Sec. 313.003. ATTORNEY GENERAL AUTHORITY. (a) The attorney 4-22 general, at any time after an application is filed under Section 4-23 313.002(b), may require by civil investigative demand the 4-24 attendance and testimony of witnesses and the production of 4-25 documents in Travis County or the county in which the applicants 5-1 are located for the purpose of investigating whether the 5-2 cooperative agreement satisfies the standards set forth in Section 5-3 313.002. All nonpublic documents produced and testimony given to 5-4 the attorney general are subject to the prohibitions on disclosure 5-5 and use of Section 15.10(i), Business & Commerce Code. The 5-6 attorney general may seek an order from the district court 5-7 compelling compliance with a civil investigative demand issued 5-8 under this section. 5-9 (b) The attorney general may seek to enjoin the operation of 5-10 a cooperative agreement for which an application for certificate of 5-11 public advantage has been filed by filing suit against the parties 5-12 to the cooperative agreement in district court. The attorney 5-13 general may file an action before or after the department acts on 5-14 the application for a certificate but, except as provided in 5-15 Subsection (e), the action must be brought not later than 20 days 5-16 following the attorney general's receipt of a copy of the final and 5-17 appealable decision of the department. 5-18 (c) Upon the filing of the complaint in an action under 5-19 Subsection (b), the department's certification, if previously 5-20 issued, must be stayed and the cooperative agreement is of no 5-21 further force unless the court orders otherwise or until the action 5-22 is concluded. The attorney general may apply to the court for any 5-23 ancillary temporary or preliminary relief necessary to stay the 5-24 cooperative agreement pending final disposition of the case. 5-25 (d) In any action brought under Subsection (b), the 6-1 applicants for a certificate bear the burden of establishing by 6-2 clear and convincing evidence that in accordance with Sections 6-3 313.002(e) and (f), the likely benefits resulting from the 6-4 cooperative agreement outweigh any disadvantages attributable to a 6-5 reduction in competition that may result from the agreement. In 6-6 assessing disadvantages attributable to a reduction in competition 6-7 likely to result from the agreement, the court may draw upon the 6-8 determinations of federal and Texas courts concerning unreasonable 6-9 restraint of trade under 15 U.S.C. Sections 1 and 2, and Chapter 6-10 15, Business & Commerce Code. 6-11 (e) If, at any time following the 20-day period specified in 6-12 Subsection (b), the attorney general determines that as a result of 6-13 changed circumstances the benefits resulting from a certified 6-14 agreement no longer outweigh any disadvantages attributable to a 6-15 reduction in competition resulting from the agreement, the attorney 6-16 general may file suit in the district court seeking to cancel the 6-17 certificate of public advantage. The standard for adjudication for 6-18 an action brought under this subsection is as follows: 6-19 (1) except as provided in Subdivision (2), in any 6-20 action brought under this subsection the attorney general has the 6-21 burden of establishing by a preponderance of the evidence that as a 6-22 result of changed circumstances the benefits resulting from the 6-23 agreement and the unavoidable costs of canceling the agreement are 6-24 outweighed by disadvantages attributable to a reduction in 6-25 competition resulting from the agreement; 7-1 (2) in any action under this subsection, if the 7-2 attorney general first establishes by a preponderance of evidence 7-3 that the department's certification was obtained as a result of 7-4 material misrepresentation to the department or the attorney 7-5 general or as the result of coercion, threats, or intimidation 7-6 toward any party to the cooperative agreement, then the parties to 7-7 the agreement bear the burden of establishing by clear and 7-8 convincing evidence that the benefits resulting from the agreement 7-9 and the unavoidable costs of canceling the agreement are outweighed 7-10 by disadvantages attributable to any reduction in competition 7-11 resulting from the agreement. 7-12 Sec. 313.004. MONITORING OF APPROVED COOPERATIVE AGREEMENTS. 7-13 (a) If, at any time following the approval of a cooperative 7-14 agreement by the department, the department determines that as a 7-15 result of changed circumstances the benefits resulting from an 7-16 approved agreement no longer outweigh any disadvantages 7-17 attributable to a reduction in competition resulting from the 7-18 agreement, the department may initiate proceedings to terminate the 7-19 certificate of public advantage. 7-20 (b) The department may request documents from the parties to 7-21 the cooperative agreement regarding the current status of the 7-22 agreement, including information relative to the continued benefits 7-23 and any disadvantages of the agreement and shall, if requested, 7-24 hold a public hearing to solicit additional information concerning 7-25 the effects of the cooperative agreement. 8-1 (c) If the department determines that the likely benefits 8-2 resulting from an approved cooperative agreement no longer outweigh 8-3 any disadvantages attributable to any potential reduction in 8-4 competition resulting from the agreement, the department may 8-5 terminate the certificate of public advantage. 8-6 Sec. 313.005. JUDICIAL REVIEW OF DEPARTMENT ACTION. Any 8-7 party aggrieved by a decision of the department in granting or 8-8 denying an application, refusing to act on an application, or 8-9 terminating a certificate is entitled to judicial review of the 8-10 decision in accordance with the Administrative Procedure and Texas 8-11 Register Act (Article 6252-13a, Vernon's Texas Civil Statutes). 8-12 Sec. 313.006. VALIDITY OF CERTIFIED COOPERATIVE AGREEMENTS. 8-13 (a) Notwithstanding Section 15.05(a), Business & Commerce Code, or 8-14 any other provision of law, a cooperative agreement for which a 8-15 certificate of public advantage has been issued is a lawful 8-16 agreement. Notwithstanding Section 15.05(a), Business & Commerce 8-17 Code, or any other provision of law, if the parties to a 8-18 cooperative agreement file an application for a certificate of 8-19 public advantage governing the agreement with the department, the 8-20 conduct of the parties in negotiating and entering into a 8-21 cooperative agreement is lawful conduct. 8-22 (b) If the department, or in any action by the attorney 8-23 general the district court, determines that the applicants have not 8-24 established by clear and convincing evidence that the likely 8-25 benefits resulting from a cooperative agreement outweigh any 9-1 disadvantages attributable to any potential reduction in 9-2 competition resulting from the agreement, the agreement is invalid 9-3 and has no further force or effect. 9-4 (c) Nothing in this chapter exempts hospitals from 9-5 compliance with the requirements of Chapters 241 or 577 of this 9-6 code. 9-7 Sec. 313.007. MERGERS AND CONSOLIDATIONS INVOLVING 9-8 HOSPITALS. The provisions of this chapter do not apply to any 9-9 agreement among hospitals by which ownership or control over 9-10 substantially all of the stock, assets of activities of one or more 9-11 previously licensed and operating hospitals is placed under the 9-12 control of another licensed hospital or hospitals. 9-13 Sec. 313.008. AUTHORITY TO ADOPT RULES; EFFECTIVE DATE. The 9-14 department shall have the authority to adopt rules to implement the 9-15 requirements of this chapter. Such rules shall be adopted by March 9-16 1, 1994, at which time hospitals may file an application with the 9-17 department for a certification of public advantage. 9-18 SECTION 2. This Act takes effect September 1, 1993. 9-19 SECTION 3. The importance of this legislation and the 9-20 crowded condition of the calendars in both houses create an 9-21 emergency and an imperative public necessity that the 9-22 constitutional rule requiring bills to be read on three several 9-23 days in each house be suspended, and this rule is hereby suspended.