Pending Senate Bill Would Mandate Hospitals’ Adoption and Public Disclosure of Conflict of Interest Policy

February 17, 2010

On February 4, 2010, the Senate Health, Human Services and Senior Citizens Committee approved Senate Bill No. 369, sponsored by Senators Loretta Weinberg and Robert Gordon, which, if passed, would require all general hospital boards of trustees to adopt written policies and procedures governing conflicts of interest on the part of board members as a condition of hospital licensure.  According to its sponsors, the bill is intended to implement a recommendation of the January 24, 2008 Final Report by the New Jersey Commission on Rationalizing Healthcare (“Commission”) that hospitals adopt stronger measures to foster transparency, which the Commission found to be essential to a hospital’s successful governance and service to the community. Senate Bill No. 369 would require all hospitals, whether tax-exempt or not, to have a written conflict of interest policy in place.  For most of New Jersey’s hospitals, this requirement alone is unlikely to create much of a stir because these hospitals already have adopted written conflict of interest policies in response to the expanded corporate governance reporting obligations adopted in the 2008 revisions to the Internal Revenue Service (“IRS”) Form 990.  As part of their Form 990 reporting, tax exempt organizations are required to disclose whether they have a conflict of interest policy and, if so, the measures used to make this policy available to the public. Under S-369, the written conflict of interest policy would be required to include language requiring the disclosure of any perceived or actual conflicts of interest by board members with respect to any matter pending before the board, as well as a prohibition on board members voting on or discussing any contracts from which they would directly benefit.  The bill also would require hospitals to solicit a minimum of three (3) bids or proposals when dealing with any contract of $25,000 or more, when the contract concerns an issue that would be perceived as a conflict of interest for any board member. Hospital conflict of interest policies and procedures would need to be updated annually and be available to the public and the Department of Health and Senior Services on the hospital’s website and by request.  In addition, hospitals would be required to maintain a record of any perceived or actual conflicts of interest involving board members and of any matter involving the awarding of a contract between a general hospital and a board member. This bill has been forwarded to the full Senate for consideration and is similar to Assembly Bill No. 1354 sponsored by Assemblypersons Mary Pat Angelini, Valerie Vainieri Huttle, and Paul Moriarty, which is currently pending in the Assembly Health and Senior Services Committee.  We will continue to monitor and update you on all significant developments pertaining to this legislation. For more information, please contact Celia S. Bosco and Christina B. Murphy.