BILL ANALYSIS



S.B. 1190
By: Ellis (Maxey)
05-02-95
Committee Report (Unamended)


BACKGROUND

During the 73rd Session, S.B. 427 passed, establishing that non-profit hospitals are required to perform a certain amount of
charity care. Chapter 311 of the Health and Safety Code sets up the
definitions and public policy for the delivery of charity care. As
the legislation was implemented, several difficulties arose, and
this bill corrects those difficulties.

PURPOSE

S.B. 1190 would clarify several definitions in the previous
legislation, eliminate confusion regarding the implementation dates
of increased charity care in Chapter 311, Health and Safety Code,
define the exemptions from Chapter 311, and recognize a universal
standard of accounting to be used by hospitals in the calculation
of charity care costs and services.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Sec. 311.031, Health and Safety Code, as follows:

     Amends Sec. 311.031(2)(B), by changing a reference from
"patients" to "persons" for   continuity with previous sections,
                              and adds health care services
                              provided to an elementary or
                              secondary school in which at least
                              50 percent or more of the students
                              qualify under the federal program
                              for free or reduced-price school
                              lunches or meet an equivalent
                              economic index to the definition of
                              "charity care."

     Amends Sec. 311.031(5), by adding an elementary or secondary
school in which at least      50 percent or more of the students
                              qualify under the federal program
                              for free or reduced-price school
                              lunches or meet an equivalent
                              economic index to the definition of
                              "donation."

     Amends Sec. 311.031(9), by adding a definition of "health care
organization," and  renumbering the subsequent sections
                    accordingly.

     Amends Sec. 311.031 (12), by adding the definition of
     "hospital system," and renumbers the subsequent sections
     accordingly.

     Amends Sec. 311.031(16), by establishing that generally
accepted accounting principles     (GAAP), a universally
                                   recognized industry standard,
                                   may be used in calculating the
                                   cost to charge ratios used in
                                   the determination of "costs."
                                   Requires the cost to charge
                                   ratios  to be based on the most
                                   recently completed and audited
                                   prior fiscal year of the
                                   hospital.

SECTION 2. Adds Sec. 311.042(15), Health and Safety Code, to define
"hospital system."

SECTION 3. Amends Sec. 311.045, Health and Safety Code, as follows:

     (a) Adds "or hospital system" to the statement that a
     nonprofit hospital or hospital system shall satisfy the
     charity care requirements of this subchapter and specified
     sections of the Tax Code, and adds the reference to "hospital
     system" accordingly to the subsequent text of this section.
     Deletes the references to a single parent corporation that
     controls a hospital, to conform with the addition of the
     references to a hospital system.
     
     (b)(1) Adds references to a hospital system to conform with
previous changes. 

     (b)(2) Prohibits a hospital or a hospital system from changing
     its existing fiscal year, unless changing ownership or
     corporate structure as a result of a sale or merger. The
     remaining subsection is renumbered to reflect this added
     provision.

     (b)(3) Clarifies that a hospital that receives
     disproportionate share funding shall be deemed in compliance
     with the standards of this subsection if the fiscal year
     corresponds to the receipt of the disproportionate share
     funds. The exemption of a nonprofit hospital in a county with
     a population under 100,000 from the standards of this
     subsection, is deleted.

     (c) Adds consideration of a hospital's volume of Medicaid and
     Medicare patients to the prudent business judgment used as
     guidelines for the provision of charity care by the hospital.

     (d) States that for the purpose of this section, a hospital
     that satisfies Subsection (b)(1)(A) or (b)(3) shall be
     excluded in determining a hospital system's compliance with
     the standards provided by Subsection (b)(1)(B), (b)(1)(C),
     (b)(1)(D), or (b)(1)(E).

     (e) Adds references to a hospital system to conform with
     previous changes. 

SECTION 4. Amends Sec. 11.18(d), Tax Code, to include a reference
to hospital system in all applicable sections, and the following:

     (d)(1)(D) Amends the reference to the provision of reasonable
     charity care of a nonprofit hospital designated as a
     disproportionate share hospital to include the current year or
     in either of the two previous fiscal years.  

     (d)(1)(F) Amends one of the definitions of a charitable
     organization to clarify that a charitably organization is one
     in which charity care and community benefits are provided in
     a combined amount equal to at least 5 percent of the hospital
     or hospital system's net patient revenue (with a
     qualification), beginning with the entity's tax year starting
     after 1995, instead of "for tax years" after 1995.
 
     (d)(1)(G) Exempts small rural hospitals already in Chapter
     311, Health and Safety Code, into the Tax Code for clarity and
     reference.

     (d)(1)(H) Provides language being removed from Section
     11.18(d)(18) to bring all of the exemptions together in the
     Code. This language exempts hospitals that do not receive
     payment for any of their services. 

     (d)(18) Deletes language that a charitable organization is one
     that provides health care services (in the case of a nonprofit
     hospital) without receiving any payment for those services
     from any source, as specified. Adds language that prohibits a
     hospital from changing its existing fiscal year to delay
     implementation of Section 11.18(d)(1)(F), unless in the case
     of a sale or merger of the hospital. Adds language that
     prevents an entire system of hospitals from becoming exempt
     from this section if one hospital is exempt due to the
     provisions of (d)(1)(A), (d)(1)(D), (d)(1)(G), or (d)(1)(H).

SECTION 5. Amends Sections 151.310(a) and (e), Tax Code, as
follows:

     (a)(1) Strikes language that exempts hospitals that do not
     collect payments for services, and places the language in
     151.310(e)(8) for clarity in the Tax Code.

     (e) Adds the appropriate references to hospital system
     throughout this section and adding references to new Sections
     (7) and (8).

     (e)(4) Strikes language exempting hospitals that receive
     disproportionate share funds from  this section and places
                                        the language in
                                        151.310(e)(6) for clarity
                                        in the Tax Code. (e)(4)
                                        and (e)(5) allow the
                                        increased charity care
                                        requirement to be
                                        effective in the fiscal
                                        year after the increased
                                        charity requirement is
                                        implemented.

     (e)(6) Adds the language removed from 151.310(e)(4) to provide
     clarity in the Tax Code.

     (e)(7) Adds an exemption for rural hospitals, as it already
     exits in Chapter 311 of the Health and Safety Code, to the Tax
     Code.

     (e)(8) Adds the language removed from 151.310(a)(1) to provide
     clarity in the Tax Code.

SECTION 6. Amends Sec. 171.063(a), Tax Code, by adding the
reference to hospital system throughout this section, and the
following:

     (a)(1) Adds the reference to a new subsection (G).

     (a)(1)(D) Strikes the language that refers to a hospital that
     receives disproportionate share funds and moves this section
     to Section 171.063(a)(1)(F), and reletters the remaining
     subsections to reflect the deletion.

     (a)(1)(D) and (a)(1)(F) are amended to allow the increased
     charity care requirement to be effective in the fiscal year
     after the increased charity requirement is implemented.

     (a)(1)(F) Adds the language removed from 151.310(a)(1)(D) to
     provide clarity in the Tax Code.

     (a)(1)(G) Adds an exemption for rural hospitals, as it already
     exits in Chapter 311 of the Health and Safety Code, to the Tax
     Code.

     (a)(4) Removes a reference to a nonprofit hospital that is
     superfluous to that section. Adds transitional language that
     prohibits a hospital from changing its existing fiscal year to
     delay implementation of Section 311.045(b)(1)(e), Health and
     Safety Code, unless in the case of a sale or merger of the
     hospital; and by adding language that prevents an entire
     system of hospitals from becoming exempt from this section if
     one hospital is exempt due to the provisions of (a)(1)(A),
     (a)(1)(F), (a)(1)(G). Adds references to health care
     organization and hospital system, as defined in Chapter 311 of
     the Health and Safety Code, to the transitional language on
     this section, and adds the volume of Medicare and Medicaid to
     the criteria that a hospital may use to determine prudent
     business judgment.

SECTION 7. Effective date: September 1, 1995.

SECTION 8. Emergency clause.

SUMMARY OF COMMITTEE ACTION

S.B. 1190 was considered by the Public Health Committee in a public
hearing on May 2, 1995. The bill was reported favorably without
amendment, with the recommendation that it do pass and printed, by
a record vote of 6 ayes, 0 nays, 0 pnv, and 3 absent.