Insights & Resources

On January 21, 2020, Governor Phil Murphy signed bills A5916 and A5918 into law which are intended to increase the financial transparency of New Jersey hospitals and to ensure that such hospitals do not suddenly shut down, leaving residents without access to adequate health care in their respective communities as a result of a hospital’s financial distress.

A5916: The enactment of A5916 mandates the New Jersey Department of Health (“DOH“) to consider certain additional financial measures in determining whether a hospital is in financial distress, such as the hospital’s: (1) average daily census, (2) operating margin, and (3) operating margin adjusted to account for fees, allocation, and other business interactions with interested persons, as those terms are defined in Internal Revenue Service (“IRS“) Form 990[1]. If the Commissioner of the DOH determines that a hospital is in financial distress, then the Commissioner may provide notice of the hospital’s financial state to the relevant governmental authorities representing the hospital’s municipality.

A5918: The enactment of A5918 mandates that general hospitals will now be required to submit unaudited financial information and financial statements to the DOH on a quarterly basis. All tax-exempt hospitals will now be required to post the most recent copy of their IRS Form 990, Form 990 schedules, and supporting documentation on their website upon annual renewal of their license. Since a Form 990 is not applicable to for-profit entities, for-profit hospitals will instead be required to annually post on their websites all existing governance, financial, and operating information which otherwise would have been required to be submitted in the schedules and supporting documentation for a Form 990.

Further, hospitals will now have to provide the DOH with information regarding certain transactions. Specifically, the DOH must be provided with prior notice of a hospital’s intent to enter into an agreement for the sale or lease of the land or the property on which the hospital is located, along with a copy of the agreement, the names of all parties involved, and the intended use of proceeds from the sale or lease of the land or property. Finally, if a hospital is owned or managed by a for-profit entity, or a for-profit entity has a majority ownership in a hospital, such hospital will be now required to provide the DOH with the following information:

1. A report of each business transaction in the fiscal year with an interested person which exceeds $10,000;
2. A chart identifying all organizations related to the hospital, including the full name, location, and tax-exempt status of each;
3. Whether the owners or managers of the hospital maintain one or more offices, employees, or agents outside of the United States that do business with the hospital;
4. Any revenues and expenses of more than $10,000 transacted outside the United States;
5. A list of investors and joint ventures between the hospital owners and its investors, including the name of the joint venture entity, its tax-exempt status, a description of its primary activity, and percentage of profit or ownership held by each of the officers, directors, physicians, and key employees of the hospital in the joint venture;
6. The name and address of any management company paid to provide services to the hospital, a description of the primary activity of the management company, and the percent of profit or ownership held by each of the officers, directors, physicians, and key employees of the hospital in the management company;
7. The amounts paid to any affiliates for management or consulting services;
8. A description of any trust that holds an interest in the hospital, including the name of any trustees, beneficial owners, grantors, or settlor of the trust, along with a copy of the full trust agreement;
9. A list of any properties for which the hospital has claimed a tax abatement; and
10. Total amount of any surplus revenue used for debt retirement, plant or facility expansion, or a reserve for operating contingencies.

The above information provided to the DOH will be required to be posted on a hospital’s website, with the exception of any information deemed proprietary by the Commissioner.
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[1] Interested persons shall have the same definition as in IRS Form 990 except that “interested persons” shall also include the owners of any for-profit hospital.

Should you have any questions regarding this Alert, please contact the Garfunkel Wild attorney with whom you regularly work.