State Oversight of Hospital Conversions: Preserving Trust or Protecting Health?

Abstract

This paper explores the recent trend of hospital conversions from not-for-profit to for-profit corporate organizational form. Hospital conversions implicate the public interest in charitable assets and affect health policy goals. The paper concludes that current and developing oversight regimes do not adequately protect these interests. The paper finds that state attorneys general are frequently the only government actors with authority to review conversions. In some states, there is no effective regulation of conversions, and/or converted assets are not accurately valued. Without adequate oversight and thorough valuations, assets meant for charitable purposes are transferred to for-profit buyers or executives of the not-for-profit sellers. Even when attorneys general are able to oversee conversion, the doctrines upon which their authority is based - trust law and corporations law - hinder the advancement of health policy goals. These doctrinal limitations do not constrain all attorneys general from conducting substantive health policy reviews when they oversee conversions. While conversion statutes and proposed legislation resolve some of the obstacles to oversight, they do not address the conflict between health policy goals and trust and corporations law. The data are drawn primarily from interviews with assistant attorneys general in thirty-two states.