SB 424

84(R) - 2015
Senate Health & Human Services
Senate Health & Human Services
Health & Human Services
Licensing & Administrative Procedures

Vote Recommendation

  • Neutral
  • Neutral
  • Neutral
  • Neutral
  • Neutral


Charles Schwertner


Jane Nelson

Bill Caption

Relating to the licensing and regulation of hospitals in this state; increasing the amount of administrative penalties assessed or imposed against certain hospitals.

Fiscal Notes

Estimated Two-year Net Impact to General Revenue Related Funds for SB 424, Committee Report 1st House, Substituted: an impact of $0 through the biennium ending August 31, 2017.

Costs associated with the bill would be charged to the balances of the General Revenue-Dedicated Hospital Licensing Account 129, negatively impacting General Revenue Related Funds.  A General Revenue Related certification gain would occur with the transfer of funds into the new General Revenue Dedicated Hospital Perpetual Care Account.  Future costs could be charged to the new General Revenue Dedicated account, which could negatively impact General Revenue Related Funds.

The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.

OAG indicates there would be technology costs associated with implementing provisions of the bill. It is assumed the cost to OAG could be absorbed.

At the local government level, there may be increased costs for hospital staffing due to inspections, surveys, and investigations.

Bill Analysis

5/22/15 Update:
This bill is substantively the same as when we reported on it in its original chamber. We continue to remain neutral on SB 424. The second chamber sponsor is Representative Zerwas.

Original chamber analysis below:

The Texas Department of Health Services is charged with regulating and inspecting certain licensed private hospitals in the state of Texas. This bill makes some changes to hospital ownership reporting requirements, changes some inspection requirements, provides for emergency license suspension in some extreme circumstances, raises the penalty for violations, and provides for a trustee to run a hospital whose license has been revoked.

Current law requires that licensed private hospitals report to the department certain information pertaining to anyone who has an ownership interest of 25% or greater. This bill extends those reporting requirements to anyone who has an ownership stake of at least 5%.

Current law permits the department to conduct periodic inspections of licensed hospitals. This legislation would require such inspections of at least 10% of the hospitals annually. It further provides that any licensed hospital that is not accredited by an accrediting organization approved by the Centers for Medicare and Medicaid Services (such as the Joint Accreditation Commission) must be inspected at least once every three years. The bill sets risk-based criteria to prioritize which hospitals should be inspected.

The bill also grants new authority for the department to suspend a hospital’s license if the department has “reasonable cause to believe that the conduct of a license holder creates an immediate danger to public health and safety”. The committee substitute added further language to require the department to notify the licensee and gives an opportunity for the license holder to dispute the findings. The bill further requires that the State Office of Administrative Hearings conduct a hearing at the license holder’s request in order to determine if the suspension was valid.

The law currently provides for hospitals to be fined up to $1,000 per violation per day. This legislation would increase that to $10,000 per violation per day for rural hospitals with 75 beds or fewer and up to $25,000 per violation per day for all other licensed hospitals.

Finally, the bill provides for a trustee regime to be put in place to operate a hospital after its license has been revoked or which is in the process of closing. 

Vote Recommendation Notes

This bill appears designed to serve as a “preventative maintenance” bill primarily for private hospitals that do not participate in an approved accreditation program or do not meet the standards required for certification. It appears that the goal is to set up an inspection regimen, coupled with a penalty structure to incentivize quick fixes to any violations, to keep hospitals operating within required health and safety standards rather than have those hospitals fall into such a state of neglect that they are required to be closed.

The intentions of the bill are sound, and the state clearly has existing authority to regulate these hospitals. The likely result of this legislation is that hospitals which otherwise would have been closed due to noncompliance will be put on a correction course through more frequent inspections.

This legislation essentially tinkers with existing regulatory authority rather than creating new authority, except for the emergency suspension provision which is new. Had the committee substitute not added the notification, rebuttal, and hearing requirements we would likely have opposed the bill on due process grounds.

The increase in the amount of fines seems steep – perhaps too steep – but does bring the penalty structure more in line with other licensed healthcare providers such as nursing homes.

By giving new authority to suspend licenses, and by substantively increasing penalties for violations, this legislation can rightly be said to increase the scope of government. On the other hand, the result of this bill would likely keep open rural hospitals that would otherwise be closed; thereby preserving choice and competition in the market place.

Due to these conflicting principles, we are neutral on SB 424.