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.