Attorney General’s Office: Sale of Keiro to Ensign ‘Not in the Public Interest’

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Exact reasons for denial of deal remain unclear.

Rafu Staff Report

SACRAMENTO — A letter from a representative of California Attorney General Kamala Harris to a representative of The Ensign Group states that the proposed sale of Keiro’s facilities in the Los Angeles area is “not in the public interest.”

In a Sept. 26 letter to Neal Brockmeyer of Los Angeles-based Locke Lord LLP, who represents public and private companies in corporate and securities matters, including mergers and acquisitions, Senior Assistant Attorney General Tania Ibanez wrote:

“The Office of the Attorney General hereby denies the waiver request and consent to the sale of Keiro Nursing Home, South Bay Keiro Nursing Home, Keiro Intermediate Care Facility, and Keiro Retirement Home to the following subsidiaries of The Ensign Group, a for-profit Delaware corporation: Lincoln Heights Health Holdings LLC, a Nevada limited liability company, Boyle Health Holdings LLC, a Nevada limited liability company, and the South Bay Health Holdings LLC, a Nevada limited liability company, as described in the notice submitted on July 8, 2014.

“It does so under the authority set forth in Corporations Code Section 5914 et seq.

“In coming to this decision, we have carefully considered the factors set forth in Corporations Code Section 5917. We have concluded that this proposed sale is not in the public interest.

“Our decision is based on the material contained in the notice, the information and documents subsequently submitted by the applicant and The Ensign Group Inc., and the results of our investigation.

“Our decision is based in part on the 2013 Settlement Agreement and ‘Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and The Ensign Group Inc.’”

A copy of the letter was provided to The Rafu Shimpo by California Department of Justice Press Secretary Nick Pacilio, who said he could not elaborate on why the sale is not in the public interest.

In a statement issued Oct. 13, Ensign said that the attorney general “did not provide a detailed explanation” for the decision and noted that “Ensign has successfully received approval of the state attorney general in several transactions involving non-profit sellers across several states, including California.”

Corporations Code Section 5914 states, in part, that: “Any non-profit corporation that … operates or controls a health facility … or operates or controls a facility that provides similar health care, shall be required to provide written notice to, and to obtain the written consent of, the attorney general prior to entering into any agreement or transaction to do … sell, transfer, lease, exchange, option, convey, or otherwise dispose of, its assets to a for-profit corporation or entity or to a mutual benefit corporation or entity when a material amount of the assets of the nonprofit corporation are involved in the agreement or transaction.”

Section 5917 states that the attorney general has the discretion to consent to, give conditional consent to, or not consent to any such agreement or transaction. Factors that are considered include the following:

“ (a) The terms and conditions of the agreement or transaction are fair and reasonable to the nonprofit corporation.

“(b) The agreement or transaction will result in inurement to any private person or entity [This means that a nonprofit organization with tax-exempt status cannot provide employees with private benefits]

“(c) Any agreement or transaction that is subject to this article is at fair market value …

“(d) The market value has been manipulated by the actions of the parties in a manner that causes the value of the assets to decrease.

“(e) The proposed use of the proceeds from the agreement or transaction is consistent with the charitable trust on which the assets are held by the health facility or by the affiliated non-profit health system.

“(f) The agreement or transaction involves or constitutes any breach of trust.

“(g) The attorney general has been provided … with sufficient information and data by the non-profit corporation to evaluate adequately the agreement or transaction or the effects thereof on the public.

“(h) The agreement or transaction may create a significant effect on the availability or accessibility of health care services to the affected community.

“(i) The proposed agreement or transaction is in the public interest.”

Section 5917.5 states that the attorney general will not consent “to a health facility agreement or transaction … in which the seller restricts the type or level of medical services that may be provided at the health facility that is the subject of the agreement or transaction.”

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