BG C.S.H.B. 1331 75(R)BILL ANALYSIS PUBLIC HEALTH C.S.H.B. 1331 By: Maxey 4-25-97 Committee Report (Substituted) BACKGROUND The Texas health care landscape is slowly transforming from a community-focused nonprofit system to a corporate controlled for-profit system as nonprofit health care institutions, including hospitals, health maintenance organizations (HMOs), and health insurers, are converting to forprofit or mutual corporations. When these conversions occur, the resulting assets are publicly traded on the stock market and are typically worth hundreds of millions, and sometimes, billions of dollars. Some Texas insurance companies, HMOs and most Texas hospitals were originally founded as nonprofit corporations in order to take advantage of federal grants and loans, tax-free bonds, exemptions from state and federal taxes, and tax-exempt donations from people in their community who support their charitable mission. When a nonprofit is formed, it agrees to irrevocably dedicate its assets to charitable purposes or purposes that serve the public. In essence, the public becomes the shareholder of the nonprofit corporation -- the owner of it's assets. When the corporation becomes for-profit, it is obligated by common law to turn over its assets to a nonprofit organization dedicated to similar purposes. Without careful monitoring, the for-profit corporation may seek instead to hold on to these public assets and devote them to ventures that clearly do not serve the public, but serve the corporation's individual stockholders. Collectively, billions of charitable health care dollars could be at stake. With public attention focused on these transactions, the nonprofit charitable assets held by converting health care corporations can be used to meet critical health care needs of millions of uninsured Texans. Without intense public scrutiny, the funds may be lost forever, going instead to the new for-profit company and its stockholders. The Attorney General (AG) is responsible for protecting charitable trusts, gifts and entities in Texas. It is the duty of AG to ensure that the assets of nonprofits are used for their dedicated purpose and not used for individual gain. However, nonprofits are not required to notify the AG when they are considering to sell, or otherwise transact with another entity in a way that will change their nonprofit status. PURPOSE C.S.H.B. 1331 establishes mechanisms to guide transactions between nonprofit health care providers/insurers and for-profit or mutual corporations. The bill requires nonprofit health care providers considering a a conversion to for-profit status to notify the Attorney General and provide public notice. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. PURPOSE AND FINDINGS. Sets out the purpose of the legislation and findings leading to its development. SECTION 2. SHORT TITLE. Establishes the title as the Charitable Health Care Trust Act. SECTION 3. DEFINITIONS. Defines the following terms: for-profit entity, health benefit plan provider, health care provider, mutual plan provider, nonprofit provider. SECTION 4. DUTIES OF NONPROFIT PROVIDER. Requires a nonprofit provider to comply with this Act with respect to any direct or indirect agreements or transactions, as specified. Clarifies specific circumstances involving fair market values or associated gross revenues to which this section would be applicable. Establishes that if a nonprofit provider owns or operates more than one licensed hospital, each separately licensed hospital is considered a nonprofit provider as specified and requires that only the assets, business, or operations of the separately licensed hospital be considered. SECTION 5. NOTICE OF AGREEMENT OR TRANSACTION. Subsection (a) requires a nonprofit that intends to enter into an agreement or transaction described in Section 4 of this Act to notify the Attorney General and publish a notice of such an agreement. Subsection (b) establishes that the notice to the Attorney General must be made and sent as specified, and must disclose the conditions of the transaction. Subsection (c) specifies the information that must be included in the notice to the AG. Subsection (d) requires the nonprofit provider to notify the AG of any material change in the agreement or transaction as specified. Allows the AG to waive the time requirement if found that a waiver is appropriate. Subsection (e) establishes that the notice to the AG and any materials submitted with the notice are public information. Requires the nonprofit provider to make the information available upon request of any person, in its business office in each affected service area. Subsection (f) establishes that publication of notice under this section must be made at least 90 days before the agreement or transaction becomes effective and must state the nonprofit provider's business office address and more detailed information as specified. SECTION 6. PUBLICATION OF NOTICE. Establishes that a nonprofit provider is required to publish notice as provided under this Act as specified. SECTION 7. EFFECTIVE DATE. Effective date is September 1, 1997. SECTION 8. TRANSITION. Subsection (a) establishes that this Act applies only to agreements or transactions as described in Section 4, that are entered into on or after September 1, 1997. Subsection (b) establishes that any agreements or transactions as specified that are entered into before September 1, 1997, are governed by the law as it existed immediately before September 1, 1997, and that law is continued in effect for that purpose. SECTION 9. EMERGENCY. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE SECTION 3 of the substitute bill removes the definitions of "charitable health care assets," "charitable health care organization," "designated charitable health care organization," and "service area" which were all in the original bill. CSHB 1331 revises the original bill's SECTION 4. The format is changed to create subsections. In subsection (a), the substitute bill removes language from subdivision (2) concerning the stipulation that a material portion of assets being involved in the restructuring or conversion. It makes some nonsubstantive language changes in subdivision (3), and adds subdivision (4) regarding a nonprofit provider dissolving or closing a facility. CSHB 1331 also adds new subsections (b) through (f) to clarify how to measure and apply the various circumstances of the provisions of this section. Whole sections of the original bill have been omitted by the substitute bill. CSHB 1331 deletes SECTION 5. REQUIREMENTS FOR AGREEMENT OR TRANSACTION, SECTION 6. AGREEMENT IN PUBLIC INTEREST, SECTION 7. DUE DILIGENCE REQUIRED, SECTION 8. CHARITABLE HEALTH CARE ASSETS and SECTION 9. DESIGNATED CHARITABLE HEALTH CARE ORGANIZATION. The substitute bill has the original's SECTION 10 as its SECTION 5. NOTICE OF AGREEMENT OR TRANSACTION. The substitute bill, however, removes subsection (c)(7) concerning the identity and credentials of the assessor or proposed assessor and then renumbers the subsequent subsection to conform. Also removed by CSHB 1331 is the original subsection (d) concerning the report of the assessor, and again subsequent subsections are relettered to conform. The substitute bill deletes HB 1331's SECTION 11. PUBLIC HEARING. It revises the original SECTION 12, which is the substitute's SECTION 6, in subsections (a) and (d) by the removal of the phrase, "or a designated charitable health care organization." CSHB 1331 omits SECTIONS 13 and 14 of the original bill, and then renumbers sections regarding the effective date, transition, and the emergency clause to conform.