By: Norris McLaughlin, P.A. Attorneys

On November 2, 2000, Governor Whitman signed into law the “Community Health Care Assets Protection Act.” This Act, which takes effect immediately, requires all proposed “acquisitions” of New Jersey licensed nonprofit hospitals, whether by nonprofits or for-profits, to be reviewed by the New Jersey Attorney General and to be approved by the Superior Court. While other states have adopted similar laws which seek to protect the disposition of charitable assets by nonprofits, New Jersey becomes the first state in the nation to expressly require court approval for proposed “acquisitions” falling within the scope of the Act. Even prior to the adoption of this legislation, the Attorney General’s office had taken the position, in several transactions involving nonprofit hospitals, that both Attorney General approval and court approval were required. This Act, and regulations to be issued, will formalize the process and criteria, and establish time frames, for this review and approval.

The Act defines “acquisition” broadly to include “the purchase, lease, exchange, conversion, restructuring, merger, division, consolidation, transfer of control or other disposition of a substantial amount of assets or operations, whether through a single transaction or series of transactions, with one or more persons or entities.” The Act permits the Attorney General to grant waivers for certain acquisitions in the “usual and regular course” of activities. However, any proposed acquisition which will effect a fundamental corporate change that involves transfer of ownership or control of charitable assets or a change of the nonprofit hospital’s mission or purpose will not be deemed to be in the “usual and regular course.”

The Attorney General’s review will be conducted in consultation with the Commissioner of Health and Senior Services and is contemplated to occur during the 90-day period following the hospital’s submission of a completed application. Upon completion of the review, which shall include a public hearing process, the Attorney General will either support the proposed acquisition, with or without any specific modifications, or if he finds that it is not in the public interest, oppose the proposed acquisition. The Act sets forth specific criteria for the Attorney General to consider during his review. However, the underlying presumption embodied in the Act is that a proposed acquisition will not be deemed in the public interest unless it is determined that appropriate steps have been taken to safeguard the value of the charitable assets of the hospital and to ensure that any proceeds from the proposed transaction are irrevocably dedicated for appropriate charitable health care purposes.

Following the completion of the Attorney General’s review, the hospital is required to apply to the Superior Court for approval of the proposed transaction. During that proceeding, the Attorney General’s office will advise the court as to whether it supports or opposes the proposed acquisition, with or without specific modifications. In addition, any party who filed a written comment or appeared and made a statement in the public hearing held by the Attorney General shall be considered a “party” entitled to notice of the court proceeding. It is contemplated that consumers as well as community groups will have the right to participate throughout the process.

> While the Act will clarify the criteria to be applied and will place some time limits on the process, it will also open all aspects of the process to much greater public involvement and apply this process to a wide range of transactions. Entities contemplating covered transactions should familiarize themselves with this new Law.

November 2000