A series of alternative proposed Initiative Petitions were filed Thursday, August 7, with the Office of the Attorney General of Massachusetts (the “AGO”) seeking primarily to establish specified limits on operating margins achieved by many Massachusetts hospitals and on the compensation of the CEOs of such hospitals. The proposed cap on operating margins is 5% in some versions and 8% in others. The term “operating margin” is not defined. The proposed cap on CEO compensation is 100 times the amount of the compensation of the lowest-paid full time employee of the hospital. In addition, two versions of the proposed Initiatives would require certain disclosure of all financial assets held by such hospitals, including assets held outside the US.

These proposed Initiative Petitions were filed by representatives of the Massachusetts Nurses Association under the Massachusetts law which allows groups of citizens to place new statutes on the ballot at general elections to be voted on by the public. If approved, the petitions become law as voted unless repealed by the Legislature. Prior to being placed on the ballot, the petitions must be certified by the AGO. The recently filed petitions are open to comment from the general public prior to action by the AGO until August 16. If one or more is certified, the petitioners will need to solicit two rounds of certified signatures (68,911 and then an additional 11,485) from the voting public to get their preferred, certified version on the ballot in November, 2014.

As drafted, the new restrictions would apply to certain health care facilities which accept funds from the Commonwealth and are licensed hospitals under the primary licensing statute in Massachusetts as well as to any state general acute care hospital, acute care psychiatric and specialty hospitals and certain units within state facilities, but not to rehabilitation or long-term care facilities. Some versions of the petitions would only apply to such hospitals if their patient mix is less than 60% government payer.

The sanctions for violations would be civil penalties equal to the amounts by which operating margins or CEO compensation exceed permitted levels in any year, which penalties are to be paid into a new Commonwealth Medicaid Reimbursement Enhancement Fund established to “improve” Medicaid reimbursement. The petitions provide the legislation is to go into effect July 1, 2015, and expressly state it is “not to be construed to impair any contract or agreement in effect as of July 1, 2015.” The petitions contemplate that the Commonwealth’s Health Policy Commission will promulgate governing rules and regulations.

The petitions raise interesting legal and policy issues at various levels. An immediate question will arise with respect to impact, if any, on financial standing and credit of hospitals in the Commonwealth. Future Client Alerts and Advisories will provide additional information as it emerges.