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SPONSOR: Sen. Mantzavinos & Rep. K. Johnson
Sen. Hoffner; Reps. Burns, Romer, Ross Levin
DELAWARE STATE SENATE
153rd GENERAL ASSEMBLY
SENATE BILL NO. 313
AN ACT TO AMEND TITLES 16 AND 29 OF THE DELAWARE CODE RELATING TO THE PROTECTION OF
NONPROFIT ACUTE CARE HOSPITALS.
1 WHEREAS, acute care hospitals are essential public resources that provide emergency, surgical, obstetric, and
2 other life-sustaining services to Delaware residents; and
3 WHEREAS, the availability of acute care hospital services is critical to the health, safety, and welfare of all
4 Delawareans, particularly those in rural and medically underserved communities; and
5 WHEREAS, Delaware’s acute care hospitals include facilities serving populations that are disproportionately
6 dependent on publicly funded programs; and
7 WHEREAS, the continued operation and financial stability of these hospitals is necessary to maintain access to
8 emergency and essential medical services across the State; and
9 WHEREAS, the acquisition of acute care hospitals by entities owned or controlled by private equity firms, has
10 been associated nationally with increased financial extraction, workforce reductions, service line eliminations, and, in some
11 cases, hospital closure; and
12 WHEREAS, among the mechanisms used to extract value from acquired hospitals is the sale of hospital real estate
13 to for-profit investment vehicles, such as real estate investment trusts, and the simultaneous leasing back of those
14 properties; and
15 WHEREAS, such transactions convert hospital real estate from a charitable asset to a source of perpetual rental
16 obligation, encumber facilities with lease burdens that survive bankruptcy, and leave communities without recourse when
17 hospital operators subsequently fail; and
18 WHEREAS, private equity firms may seek to obtain influence over nonprofit acute care hospitals incrementally —
19 including through the acquisition of minority ownership or membership interests, sub-majority governance rights, the right
20 to appoint or approve executive officers, or the right to appoint or designate board members or observers — without
21 completing a full conversion transaction; and
22 WHEREAS, such incremental acquisition of interests and rights poses risks to the charitable mission and
23 community accountability of nonprofit acute care hospitals equivalent to those posed by outright acquisition; and
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24 WHEREAS, a moratorium on such transactions by private equity firms is necessary to allow the State time to
25 develop permanent statutory safeguards appropriate to Delaware’s healthcare market and the characteristics of its hospital
26 systems.
27 NOW, THEREFORE:
28 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:
29 Section 1. Amend § 2531, Chapter 25, Subchapter III, Title 29 of the Delaware Code by making deletions as
30 shown by strike through and insertions as shown by underline as follows and redesignating accordingly:
31 § 2531. Definitions.
32 As used in this subchapter:
33 (1) “Not-for-profit healthcare conversion transaction” includes: includes any of the following, whether
34 undertaken directly or indirectly through one or more affiliates:
35 a. The sale, transfer, lease, exchange, optioning, conveyance, affiliation, merger, joint venture, or
36 other disposition of a material amount of the assets or operations of a not-for-profit healthcare entity,
37 made other than in the normal course of business, to an entity or person other than a charity or not-for-
38 profit entity;
39 b. The transfer of control or governance of a material amount of the assets or operations of a not-
40 for-profit healthcare entity to an entity or person other than a charity or not-for-profit entity;
41 c. A substantial change or amendment to a certificate of incorporation which materially affects a
42 not-for-profit healthcare entity’s charitable or public benefit intent, or the disposition of reserves or
43 control of a not-for-profit healthcare entity to an entity or a person other than a charity or not-for-profit
44 entity;
45 d. A change in the composition of the Board of Directors such that, upon the effective date of
46 such change, a majority of directors of the not-for-profit healthcare entity are affiliated with (or have been
47 elected by directors a majority of whom were or are affiliated with) any single entity or person other than
48 a charity or not-for-profit entity. For purposes of this paragraph, a director shall be deemed to be affiliated
49 with such entity or person if such director:
50 1. Receives or has received, directly or indirectly, compensation, including income, in
51 any form from such person or entity (or parent, subsidiary or affiliate of such entity);
52 2. Serves or has served as a director, officer, employee, partner, member or agent of
53 such entity (or of a parent, subsidiary or affiliate of such entity);
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54 3. Is a close family member of such person or is a close family member of any person
55 who serves as an officer or director of such entity (or parent, subsidiary or affiliate of such
56 entity); or
57 4. Is, directly or indirectly, controlled by such person or entity.
58 e. With respect to a nonprofit acute care hospital, the sale, transfer, conveyance, or granting of a
59 leasehold or other arrangement that transfers possession or operational control of primary facility real
60 estate to an entity or person other than a charity or not-for-profit entity.
61 (2) “Not-for-profit healthcare entity” includes a not-for-profit hospital, including a corporation or a
62 hospital created under a trust or will, a not-for-profit healthcare service provider, a not-for-profit nursing home or
63 long term care facility, a not-for-profit healthcare insurer, a mutual corporation holding assets in charitable trust
64 for the public benefit, an entity maintaining plans to provide healthcare services or indemnity thereof, and an
65 entity, other than a for-profit entity, affiliated with any of these through ownership, governance, or membership,
66 such as a holding company or subsidiary.
67 (3) “Not-for-profit healthcare insurer” includes a not-for-profit provider of healthcare insurance,
68 including service associations, health service corporations, and physician service organizations or their affiliates.
69 (4) “Person” means an individual, partnership, trust, estate, corporation, association, organization, joint
70 venture, joint stock company, limited liability company, or other legal or commercial entity.
71 (5) “Public benefit asset” means, as to a not-for-profit healthcare entity that is seeking to engage in a not-
72 for-profit healthcare conversion transaction, that part of the fair market value of the converting entity impressed
73 with a public trust for the public benefit as initially determined by the Attorney General and subject to the approval
74 of the Court of Chancery.
75 ( ) “Acute care hospital” means a hospital as defined in § 1001 of Title 16, excluding any facility that
76 exclusively provides psychiatric services, rehabilitative services, or long-term care services.
77 ( ) “Primary facility real estate” means the land and buildings in which a nonprofit acute care hospital’s
78 licensed inpatient and emergency services are located.
79 Section 2. Amend § 2532, Chapter 25, Subchapter III, Title 29 of the Delaware Code by making deletions as
80 shown by strike through and insertions as shown by underline as follows:
81 § 2532. Notice to the Attorney General.
82 A not-for-profit health-care entity seeking to engage in a not-for-profit healthcare conversion transaction is
83 required to provide written notice of its intent to enter into the transaction to the Attorney General of the State at least 180
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84 days prior to the closing date of the proposed transaction. The Attorney General shall transmit a copy of any notice received
85 under this section that involves an acute care hospital to the Governor and to the Secretary of the Department of Health and
86 Social Services within 10 days of receipt.
87 Section 3. Amend Chapter 25, Subchapter III, Title 29 of the Delaware Code by making deletions as shown by
88 strike through and insertions as shown by underline as follows:
89 § 2534. Moratorium on conversion transactions involving acute care hospitals.
90 (a) For purposes of this section, a “change of control transaction” means to acquire, directly, indirectly, or acting
91 through 1 or more affiliates, the power to direct the management, policies, or clinical practices of a nonprofit acute care
92 hospital, whether through ownership of voting securities, by effecting a change in the composition of the board of directors,
93 by contract or otherwise.
94 (b) A person, other than a charity or not-for-profit entity, may not enter into a change of control transaction or a
95 not-for-profit healthcare conversion transaction involving a nonprofit acute care hospital. A transaction that violates this
96 subsection is void and of no legal effect.
97 (c) A change of control transaction is presumed if any of the following apply to a person or entity, directly,
98 indirectly, or acting through 1 or more affiliates:
99 (1) The person or entity owns, controls, or holds with the power to vote, or holds proxies representing
100 25% or more of any class of voting securities or membership interests in the hospital or in any entity through
101 which the hospital's licensed inpatient or emergency services are conducted.
102 (2) The person or entity has the contractual or governance right to appoint, remove, or approve one or
103 more members of the hospital's board of directors or governing body, or one or more officers with executive
104 authority over hospital operations, finances, or clinical services.
105 (3) The person or entity has the contractual right to withhold consent or exercise a veto over material
106 operational, financial, or strategic decisions of the hospital, including changes in service lines, capital
107 expenditures, or executive compensation.
108 (d) This section applies to a transaction that has not closed before [the effective date of this Act]. A transaction is
109 closed when it is fully executed and effective.
110 (e) The Attorney General may seek injunctive relief and pursue any other remedy available under this subchapter
111 or at common law to enforce this section. Any remedy available under this section is cumulative with, and not in
112 substitution for, any other remedy available under this subchapter or any other provision of law.
113 (f) The expiration of this section does not limit any enforcement action commenced prior to the expiration.
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114 Section 4. Amend § 9304, Chapter 93, Title 16 of the Delaware Code by making deletions as shown by strike
115 through and insertions as shown by underline as follows:
116 § 9304. Activities subject to review.
117 (a) Any person must obtain a Certificate of Public Review prior to undertaking any of the following activities:
118 (1) The construction, development or other establishment of a health-care facility or the acquisition of a
119 nonprofit health-care facility;
120 (2) Any expenditure by or on behalf of a health-care facility in excess of $5,800,000, or some greater
121 amount which has been designated by the Board following an annual adjustment for inflation using an annual
122 inflation index determined by the United States Department of Labor, Bureau of Labor Statistics, is a capital
123 expenditure. A capital expenditure for purposes of constructing, developing or otherwise establishing a medical
124 office building shall not be subject to review under this chapter. When a person makes an acquisition by or on
125 behalf of a health-care facility under lease or comparable arrangement, or through donation which would have
126 required review if the acquisition had been by purchase, such acquisition shall be deemed a capital expenditure
127 subject to review;
128 (3) A change in bed capacity of a health-care facility which increases the total number of beds (or
129 distributes beds among various categories, or relocates such beds from 1 physical facility or site to another) by
130 more than 10 beds or more than 10 percent of total licensed bed capacity, whichever is less, over a 2-year period;
131 (4) The acquisition of major medical equipment, whether or not by a health-care facility and whether or
132 not the acquisition is through a capital expenditure, an operating expense or a donation. The replacement of major
133 medical equipment with similar equipment shall not be subject to review under this chapter. In the case of major
134 medical equipment acquired by an entity outside of Delaware, the use of that major medical equipment within
135 Delaware, whether or not on a mobile basis, is subject to review under this chapter. Major medical equipment
136 which is acquired for use in a freestanding acute inpatient rehabilitation hospital, as defined in § 9302(4) of this
137 title, a dispensary or first aid station located within a business or industrial establishment maintained solely for the
138 use of employees or in a first aid station, dispensary or infirmary offering services exclusively for use by students
139 and employees of a school or university or by inmates and employees of a prison is not subject to review.
140 (b) A person, other than a charity or not-for-profit entity under § 2531 of Title 29, may not submit, and the Board
141 may not accept, process, review, or act upon, an application for a Certificate of Public Review for the construction,
142 development, establishment, or acquisition of an acute care hospital, as defined in § 2531 of Title 29. Any application
143 submitted in violation of this subsection is void and of no legal effect.
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144 Section 5. Sections 2 through 4 expire on July 1, 2028, unless terminated sooner or extended by the General
145 Assembly.
SYNOPSIS
This Act protects Delaware’s nonprofit acute care hospitals from acquisition by entities other than charities or not-
for-profit entities during a moratorium period. It also permanently subjects the sale or encumbrance of primary facility real
estate of a nonprofit acute care hospital to the Attorney General notice and review requirements of the Conversion Act.
Section 1 makes two primary changes to the definitions in § 2531 of Title 29. First, it clarifies that a "not-for-profit
healthcare conversion transaction" includes those undertaken "directly or indirectly through one or more affiliates." This
ensures that the Attorney General’s oversight cannot be circumvented by structuring transactions through shell entities or
intermediaries. It provides a new, permanent category of conversion transaction: the sale, transfer, conveyance or lease of a
hospital's "primary facility real estate" to a for-profit entity. This change ensures that arrangements involving the land and
buildings of an acute care hospital are subject to the same notice and review requirements as a change in corporate control.
Finally, Section 1 defines for "acute care hospital" and "primary facility real estate.”
Section 2 requires the Attorney General to transmit copies of any Conversion Act notice involving an acute care
hospital to the Governor and the Secretary of the Department of Health and Social Services within 10 days of receipt.
Section 3 prohibits any person or entity, other than a charity or not-for-profit entity, from entering into a "change
of control transaction" involving acquisition of a nonprofit acute care hospital. It defines a "change of control transaction"
as the acquisition of the power to direct the hospital's management, policies, or clinical practices, whether through
ownership of voting securities, changes in board composition, or by contract. Any transaction of this nature is void and has
no legal effect. The prohibition expressly captures incremental acquisition scenarios, including minority stakes, sub-
majority governance rights, board appointment rights, and executive officer appointment rights.
Section 4 amends § 9304 of Title 16 to prohibit any entity or person other than a charity or not-for-profit entity
from submitting, and the Health Resources Board from accepting or processing, an application for a Certificate of Public
Review for the construction, development, establishment, or acquisition of an acute care hospital. Any such application is
void and of no legal effect.
Section 5 provides that Sections 2 through 4 are effective until July 1, 2028, unless terminated sooner or extended
by the General Assembly.
Author: Senator Mantzavinos
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