SECTION 1. In Act 182, Session Laws of Hawaii 2009, the legislature authorized any of the regional systems or individual facilities of the Hawaii health systems corporation to transition into a new legal entity in any form recognized under the laws of the State. With the approval and support of its regional system board, at least one regional system has actively explored the possibilities of a public-private partnership allowed under section 323F-7.6, Hawaii Revised Statutes, including undertaking three formal solicitation efforts to gauge the interest of potential private partners locally and nationally.

In the course of the regional system's exploration of possible ventures with private partners, that regional system has contacted over twenty companies that operate in Hawaii and elsewhere in the United States. In 2012, that regional system submitted confidential information and memoranda describing the operational and financial landscape of its facilities to twelve different companies and contacted an additional eight entities to explore their interest in a possible partnership. Over the course of these explorations, that regional system has undertaken serious and robust discussions with at least six preliminarily interested parties.

During the course of these efforts, the Hawaii health systems corporation has determined that the majority of potential partners are hesitant to evaluate partnership opportunities without enabling legislation that addresses certain structural issues related to such a transaction. In recent years, the only private entity outside Hawaii that was willing to invest resources to evaluate a partnership opportunity concurrently with the pursuit of enabling legislation eventually withdrew its interest when such legislation was not adopted. The regional system in that case has since engaged in discussion with other private entities, including one private entity that has indicated willingness to continue discussions concurrently with pursuit of enabling legislation.

The purpose of this Act is to ensure that the people of the State have continued access to health care services in areas served by regional systems of the Hawaii health systems corporation. Accordingly, this Act authorizes the Maui regional system of the Hawaii health systems corporation, in collaboration with a private entity, to transition any one or more of its facilities to management and operation by a new nonprofit management entity.

SECTION 2. Chapter 323F, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part . PUBLIC-PRIVATE COLLABORATION and TRANSITION

OF MAUI REGIONAL SYSTEM FACILITIES TO A NEW ENTITY

§323F-A Definitions. As used in this part:

"Nonprofit management entity" means a nonprofit organization duly established under the laws of the State, the sole shareholder or member of which is the private entity, and the principal purpose of which is to manage and operate a transitioned facility.

"Pre-transition facility" means a facility of the Maui regional system prior to its transition into a transitioned facility.

"Private entity" means a business organization duly established under the laws of the State that operates medical care facilities and with which, directly or through a wholly-owned nonprofit management entity, the Maui regional system or the State, as applicable, is authorized to enter into lease agreements and any other agreements contemplated or necessary under this part for the purpose of transferring business ownership interests of a pre-transition facility to a nonprofit management entity.

"Transitioned facility" means a medical facility of the Maui regional system:

(1) For which the ongoing right to conduct business is exclusively transferred to a nonprofit management entity subject to the limitations of this part;

(2) The management and operations of which become the sole responsibility of the nonprofit management entity; and

(3) The real property assets of which remain owned by the corporation or the State and shall be subject to a fixed-term lease agreement between the Maui regional system or the State, as applicable, and the nonprofit management entity, pursuant to section 323F-D.

§323F-B Transition of a facility of the Maui regional system to management and operation by a nonprofit management entity. Notwithstanding any other law to the contrary, including but not limited to section 27-1, section 76-16(b) and other sections of chapter 76, chapters 78, 89, 89A, 89C, and 171, part V of chapter 323D, and section 323F-7.6, the Maui regional system may negotiate an agreement with a private entity to transfer the exclusive right to conduct ongoing business at one or more of its facilities, including Maui memorial medical center, Kula hospital and clinic, and Lanai community hospital, to a nonprofit management entity wholly-owned by the private entity.

§323F-C Approvals required. Transition under this part shall occur only upon approval of the operating lease described in sections 323F-D and 323F-E by the governor and the Maui regional system board. Any documents associated with the transition shall be subject to review by the attorney general and the director of finance in their capacity to advise the governor.

§323F-D Real property; terms and conditions. (a) As a precondition to transfer of the exclusive right to conduct ongoing business at a facility under section 323F-B, the corporation or the Maui regional system board, or both, as applicable, shall enter into a fixed-term operating lease of no less than twenty-five years with the nonprofit management entity for the purpose of leasing the facility's real property, including improvements and physical structures, and for operating the facility as set out in section 323F-E.

(b) The operating lease shall be subject to the following terms and conditions:

(1) Rent for the operating lease shall be a nominal $1.00 per year payable in advance and in full for the term of the lease;

(2) The operating lease shall not be terminated other than for good cause and upon a minimum of three hundred sixty-five days prior notice to ensure that the delivery of health care to the community served will not be disrupted;

(3) The nonprofit management entity shall have exclusive control of all matters related to the management and operation of the leased facilities, except as otherwise set forth in the operating lease;

(4) The responsibility to oversee the performance of the terms of the lease by the nonprofit management entity shall rest with the Maui regional system board or the corporation, as applicable; and

(5) The corporation shall retain ownership of all leased property throughout the term of the operating lease.

§323-E Management terms and other business assets. The operating lease shall include terms and conditions for transfer of ownership or assignment of business operations at the transitioned facility, equipment and furnishings including any leases for the same, accounts receivable, medicare and other provider agreements, business and commercial licenses and registrations, intellectual property and goodwill, and any other current assets. The operating lease shall also include a ten-year business plan for the facility after completion of its transition into a transitioned facility, and the nonprofit management entity shall agree to make reasonable best efforts to achieve the performance goals described in the business plan.

§323F-F Liabilities. (a) The State, the Maui regional system board, the corporation, or one or more of these, shall assume current liabilities associated with accounts payable, accrued paid time off, debt, capital leases, malpractice liabilities, and other liabilities as of the effective date of the operating lease described in section 323F-D. Any and all liabilities of the pre-transition facility that were transferred to the corporation upon its creation by Act 262, Session Laws of Hawaii 1996, all liabilities of the pre-transition facility related to collective bargaining contracts negotiated by the State, and the liability for all current outstanding post-employment benefits, shall remain the responsibility of the State.

(b) All future liabilities arising out of a transitioned facility's management and operation shall be the responsibility of the nonprofit management entity for that transitioned facility.

§323F-G Employment, wages, and benefits. (a) The corporation and the unions representing employees of the corporation shall meet to discuss the impact of the transition of a pre-transition facility on its employees.

(b) The employees working at a transitioned facility shall be subject to laws and regulations that apply to private sector employees. The employees of a nonprofit management entity shall not be governed by state laws that apply to public officers and employees of the State including but not limited to section 76‑16(b) and all other sections of chapter 76, chapters 89 and 89A, and any other laws and regulations that govern public or government employment in the State.

(c) Employees of a pre-transition facility shall be transitioned to employment at a transitioned facility under the terms and conditions of employment established by the nonprofit management entity for that transitioned facility.

(d) The nonprofit management entity shall offer all medical and nonmedical employees of the pre-transition facility, who satisfy the job qualifications for comparable positions and the employment requirements of the private entity, continued employment for an initial period established by the nonprofit management entity for newly hired employees, subject to any rules or policies applicable to employees of the nonprofit management entity. The nonprofit management entity may, at its discretion, continue to employ any or all medical and nonmedical employees at the transitioned facility after the initial period.

(e) No employee of the corporation who is separated from service as a result of implementation of an agreement and transition under this part shall suffer any loss of retirement allowance earned as provided in section 88-74 or any loss of vacation leave earned and accumulated.

(f) Subject to subsection (d), the nonprofit management entity shall take all reasonable steps necessary to provide for a smooth transition of employees from state employment to private employment by the nonprofit management entity at a transitioned facility.

§323F-H Operating support. (a) Without regard to chapter 42F, a nonprofit management entity or the Maui regional system may seek funds from the State for its operating costs, as defined in section 37-62, of a transitioned facility by preparing a budgetary request in accordance with procedures and criteria established by the director of finance. In no event shall the amount requested exceed the amount appropriated for the operating costs of the Maui regional system for the 2014 fiscal year. The director of finance shall review the request and may include some or all of the amount requested in the executive budget of the department of health. Any appropriation made in response to the request shall be subject to the allotment system generally applicable to all appropriations made by the legislature. The department of health shall be responsible for transferring the funds allotted to the nonprofit management entity or the Maui regional system for expenditure.

(b) To qualify to request funds from the State under this section, a nonprofit management entity or the Maui regional system shall satisfy the following standards and conditions:

(1) Be incorporated under the laws of the State, and determined and designated to be a nonprofit organization by the Internal Revenue Service, or, in the case of the Maui regional system, continue to be designated as a regional system pursuant to section 323F-2(b);

(2) Be licensed and accredited, in accordance with federal, state, or county statutes, rules, or ordinances, to conduct the activities for which funding is sought;

(3) Have a governing board whose members have no material conflict of interest and serve without compensation;

(4) Have bylaws or policies that describe the manner in which business is conducted, prohibit nepotism, and provide for the management of potential conflict of interest situations;

(5) Be in compliance with all of the requirements of chapter 323D with respect to the transitioned facility and any other health care facility it operates;

(6) Submit tax clearances from the director of taxation and the Internal Revenue Service to the effect that all tax returns due have been filed, and all taxes, interest, and penalties levied or accrued against have been paid, or, in the case of the Maui regional system, paid as appropriate with respect to the corporation;

(7) Submit to an annual audit, disclose revenue projections, and prepare an annual internal performance audit and itemized financial statements, including reimbursement rates, with respect to a transitioned facility, in the same manner as described in section 323F-22; and

(8) Submit its annual budget with respect to a transitioned facility to the legislature for review at least twenty days prior to the convening of the regular legislative session.

§323F-I Capital project support. (a) Without regard to chapter 42F, a nonprofit management entity or the Maui regional system may seek funds from the State for capital expenditures, as that term is defined in section 37-62, for a transitioned facility for each or all of the first ten years of the operating lease required by section 323F-D, using the ten-year business plan described in section 323F-E for guideline purposes. Each year's request for funds shall be submitted to the director of finance in accordance with procedures and criteria established by the director, and reviewed by the director and comptroller with pertinent capital planning and expenditure documents, and the capital planning procedures supplied by the nonprofit management entity or the Maui regional system. The director of finance may include some or all of the funds requested in the executive budget of the department of health. Any appropriation made in response to a request shall be subject to the allotment system generally applicable to all appropriations made by the legislature. The department of health shall be responsible for transferring the funds allotted to the nonprofit management entity or the Maui regional system for expenditure.

(b) After the first ten years of the operating lease, the nonprofit management entity and the private entity shall be responsible for funding all capital expenditures of the transitioned facility.

(c) To qualify to request funds from the State under this section, a nonprofit management entity or the Maui regional system shall satisfy all of the standards and conditions set out in section 323F-H(b). In addition, the transitioned facility shall demonstrate that the capital projects constructed, operated, and maintained with the requested funds will be in compliance with all federal, state, and county health care planning laws and rules, land use and zoning laws and rules, environmental laws and rules, and building and health codes, rules, and regulations.

§323F-J Strategic commitment during term of lease. (a) The private entity shall be committed to supporting the nonprofit management entity and any transitioned facility to achieve excellence and improve access to services in Maui county.

(b) The private entity and the nonprofit management entity shall establish a governance and management structure for a transitioned entity that seeks to improve its performance. The private entity and the nonprofit management entity shall apply efficiencies of scale, consolidation of shared services, and administrative and technological expertise to improve the health care performance of a transitioned facility.

(1) Expanding primary care access throughout Maui;

(2) Recruiting and rotating specialists to fill current service gaps;

(3) Extending the private entity's service line coordination to Maui, including but not limited to cancer, cardiology, orthopedics, pyschiatry, pediatrics, and women's health services;

(4) Coordinating long-term care patients and reducing wait lists;

(5) Upgrading facilities and equipment as needed to provide high quality care and to enhance patient experience; and

(6) Incorporating the Maui region into the private entity's value-based contracting initiatives to better align quality and cost initiatives."

SECTION 3. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 4. This Act shall take effect on July 1, 2015.

HOUSE OF REPRESENTATIVES	H.B. NO.	1075
TWENTY-EIGHTH LEGISLATURE, 2015		H.D. 2
STATE OF HAWAII		S.D. 2