By Maxey H.B. No. 1331 75R881 DLF-D A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to certain nonprofit entities that provide health or 1-3 long-term care or health benefit plans; providing a penalty. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. PURPOSE AND FINDINGS. Nonprofit health care 1-6 providers have historically served the needs of their community, 1-7 including the needs of uninsured individuals in the community. 1-8 Access to high quality, affordable health care is a continuing need 1-9 in a state with over four million uninsured individuals and 1-10 millions more individuals who do not have adequate insurance. 1-11 Changes in the health care market have caused a substantial number 1-12 of nonprofit health care providers and nonprofit health benefit 1-13 plan providers to establish for-profit ventures, affecting hundreds 1-14 of millions of charitable dollars. As these changes in the health 1-15 care system occur, it is in the best interest of this state to 1-16 ensure that these health care assets, which are impressed with a 1-17 constructive charitable trust for health care purposes, continue 1-18 to serve the public and the unmet health care needs in this state. 1-19 SECTION 2. SHORT TITLE. This Act may be cited as the 1-20 Charitable Health Care Trust Act. 1-21 SECTION 3. DEFINITIONS. In this Act: 1-22 (1) "Charitable health care organization" means an 1-23 organization that is: 1-24 (A) exempt from federal income tax under Section 2-1 501(a) of the Internal Revenue Code of 1986 by being listed as an 2-2 exempt organization in Section 501(c)(3) of the code; and 2-3 (B) dedicated to: 2-4 (i) serving unmet health care needs in 2-5 this state, particularly the health care needs of low-income 2-6 uninsured and underserved populations; and 2-7 (ii) promoting access to health care and 2-8 improving the quality of health care for the populations described 2-9 by Subparagraph (i) of this paragraph. 2-10 (2) "Charitable health care trust" means a charitable 2-11 health care trust established under Section 8 of this Act. 2-12 (3) "Designated charitable health care organization" 2-13 means a charitable health care organization receiving disbursements 2-14 from a charitable health care trust under Section 9 of this Act. 2-15 (4) "Health benefit plan provider" means an insurer, 2-16 group hospital service corporation, health maintenance 2-17 organization, or other entity that issues: 2-18 (A) an individual, group, blanket, or franchise 2-19 insurance policy, insurance agreement, or group hospital service 2-20 contract that provides benefits for medical or surgical expenses 2-21 incurred as a result of an accident or sickness; 2-22 (B) an evidence of coverage or group subscriber 2-23 contract issued by a health maintenance organization; or 2-24 (C) a long-term care insurance policy. 2-25 (5) "Health care provider" means any entity that 2-26 provides health or long-term care. The term includes any facility 2-27 licensed under Subtitle B, Title 4, Health and Safety Code. 3-1 (6) "Mutual plan provider" means any mutual or mutual 3-2 assessment association subject to Chapter 11, 12, 13, or 14, 3-3 Insurance Code, that provides health and accident insurance, 3-4 including any entity exempt under Article 14.17, Insurance Code. 3-5 (7) "Nonprofit provider" means a health benefit plan 3-6 provider or a health care provider that is: 3-7 (A) exempt from federal income tax under Section 3-8 501(a) of the Internal Revenue Code of 1986 by being listed as an 3-9 exempt organization in Section 501(c)(3) or 501(c)(4) of the code; 3-10 (B) incorporated under the Texas Non-Profit 3-11 Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil 3-12 Statutes) or a similar law of another state; 3-13 (C) exempt from state franchise, property, and 3-14 sales taxes; or 3-15 (D) organized and operated exclusively for the 3-16 promotion of social welfare and that normally receives more than 3-17 one-third of its support in any year from private or public gifts, 3-18 grants, contributions, or membership fees. 3-19 (8) "Service area" means a geographical area of this 3-20 state served by a nonprofit provider or a charitable health care 3-21 organization. 3-22 SECTION 4. DUTIES OF NONPROFIT PROVIDER. A nonprofit 3-23 provider shall comply with this Act before entering into any 3-24 agreement or transaction under which the nonprofit provider: 3-25 (1) sells, transfers, leases, exchanges, provides an 3-26 option with respect to, or otherwise disposes of a material portion 3-27 of the assets of the nonprofit provider in favor of an entity 4-1 organized to generate a profit or a mutual plan provider; 4-2 (2) restructures as or converts to an entity organized 4-3 to generate a profit or a mutual plan provider, if a material 4-4 portion of the assets of the nonprofit provider are involved in the 4-5 restructuring or conversion; or 4-6 (3) transfers control, responsibility, or governance 4-7 of a material amount of the assets, operations, or business of the 4-8 nonprofit provider in favor of an entity organized to generate a 4-9 profit or a mutual plan provider. 4-10 SECTION 5. REQUIREMENTS FOR AGREEMENT OR TRANSACTION. A 4-11 nonprofit provider may not enter into an agreement or transaction 4-12 described by Section 4 of this Act unless the agreement or 4-13 transaction: 4-14 (1) is in the public interest; 4-15 (2) does not directly or indirectly benefit an 4-16 officer, director, or employee of the nonprofit provider or another 4-17 private person or entity, such as through the granting of a stock 4-18 option to or an agreement not to compete with a private person or 4-19 entity; 4-20 (3) is not likely to adversely affect the availability 4-21 of health care services to uninsured or underinsured individuals, 4-22 particularly uninsured or underinsured individuals with low 4-23 incomes, in the service area of the nonprofit provider and includes 4-24 sufficient safeguards to ensure that uninsured and underinsured 4-25 individuals have continued access to affordable care in the service 4-26 area; and 4-27 (4) for a nonprofit provider that is a hospital, will 5-1 not reduce the amount of charity care provided by the nonprofit 5-2 provider as required by Chapter 311, Health and Safety Code. 5-3 SECTION 6. AGREEMENT IN PUBLIC INTEREST. (a) An agreement 5-4 or transaction is not in the public interest for purposes of 5-5 Section 5(1) of this Act unless the nonprofit provider has taken 5-6 appropriate steps to: 5-7 (1) safeguard the value of assets held by the 5-8 nonprofit provider for a charitable health care purpose; and 5-9 (2) ensure that the proceeds of any transaction are 5-10 irrevocably dedicated to a charitable health care purpose in the 5-11 nonprofit provider's service area. 5-12 (b) For purposes of this section, "charitable health care 5-13 purpose" means a purpose serving uninsured or underinsured 5-14 individuals, particularly individuals who are financially or 5-15 medically indigent as defined in Section 311.031, Health and Safety 5-16 Code. 5-17 SECTION 7. DUE DILIGENCE REQUIRED. In entering into an 5-18 agreement or transaction described by Section 4 of this Act, a 5-19 nonprofit provider shall use due diligence in: 5-20 (1) selecting the entity with which the agreement or 5-21 transaction is being made; and 5-22 (2) negotiating the terms of the agreement or 5-23 transaction. 5-24 SECTION 8. CHARITABLE HEALTH CARE TRUST. (a) A nonprofit 5-25 provider that enters into an agreement or transaction described by 5-26 Section 4 of this Act shall establish a charitable health care 5-27 trust equal to the fair market value of the assets of the nonprofit 6-1 provider. Distributions from the charitable health care trust must 6-2 be dedicated to an existing or newly created charitable health care 6-3 organization that will operate in the service area of the nonprofit 6-4 provider and that is designated to receive the distributions. 6-5 (b) An assessor who is not an employee of the nonprofit 6-6 provider and who is otherwise independent of the nonprofit provider 6-7 and of the entity with which the agreement or transaction is being 6-8 made shall determine the fair market value of the assets of the 6-9 nonprofit provider. In determining the fair market value, the 6-10 assessor shall consider market value, investment or earnings value, 6-11 net asset value, and a control premium, if any. The nonprofit 6-12 provider shall pay for the assessment conducted under this 6-13 subsection. The nonprofit provider, the entity with which the 6-14 agreement or transaction is being made, and the designated 6-15 charitable health care organization shall make the report of the 6-16 assessor available to any person on request. 6-17 (c) A portion of the consideration conveyed to the 6-18 charitable health care trust may consist of stock of an entity 6-19 organized for profit. Stock conveyed to the charitable trust in 6-20 accordance with this subsection may not be subject to any 6-21 restriction prohibiting the sale of the stock by the charitable 6-22 health care trust or a charitable health care organization for a 6-23 period of time. In addition, the agreement or transaction may not 6-24 otherwise place unreasonable restrictions on the transfer of the 6-25 stock. 6-26 SECTION 9. DESIGNATED CHARITABLE HEALTH CARE ORGANIZATION. 6-27 (a) A designated charitable health care organization that receives 7-1 assets from the charitable health care trust under Section 8 of 7-2 this Act, and each director, officer, and employee of the 7-3 organization, must be independent of the entity with which the 7-4 agreement or transaction described by Section 4 of this Act is made 7-5 and any affiliate of that entity. A person who is an officer, 7-6 director, or employee of the nonprofit provider at the time an 7-7 agreement or transaction described by Section 4 of this Act is 7-8 under consideration may not serve as an officer, director, or 7-9 employee of the organization. 7-10 (b) A designated charitable health care organization shall 7-11 implement procedures to: 7-12 (1) avoid conflicts of interest; 7-13 (2) prohibit grants benefiting an officer, director, 7-14 or employee of the charitable health care organization or 7-15 benefiting the entity with which the agreement or transaction 7-16 described by Section 4 of this Act is made; and 7-17 (3) ensure that the members of the governing body of 7-18 the charitable health care organization are representative of and 7-19 reflect the diversity of the service area. 7-20 (c) The charitable health care organization shall: 7-21 (1) publish notice of: 7-22 (A) the designation of the charitable health 7-23 care organization to receive the assets and the amount of assets to 7-24 be received; 7-25 (B) the proposed mission and purpose of the 7-26 charitable health care organization; 7-27 (C) the governing structure of the charitable 8-1 health care organization; and 8-2 (D) the time, date, and place of the public 8-3 hearing to be held under Subdivision (2) of this subsection; and 8-4 (2) hold at least one public hearing to obtain public 8-5 comment in the service area relating to the mission and purpose. 8-6 (d) The notice required under Subsection (c)(1) of this 8-7 section must be published not later than the fifth day after the 8-8 date the charitable health care organization is designated to 8-9 receive the assets from the charitable health care trust under 8-10 Section 8 of this Act. The hearing required under Subsection 8-11 (c)(2) of this section must be held not later than the 30th day 8-12 after the date the charitable health care organization is 8-13 designated to receive the assets from the charitable health care 8-14 trust under Section 8 of this Act. 8-15 (e) A designated charitable health care organization shall 8-16 publish an annual report of its activities related to the use of 8-17 the assets received from the charitable health care trust. The 8-18 report must include, at minimum, a statement of the amount of money 8-19 distributed by the charitable health care organization, the 8-20 identity of each entity that received the money and a statement of 8-21 the purpose for which the money was distributed to each entity, and 8-22 any report required to be filed with the Internal Revenue Service 8-23 that is a public document under state or federal law. The report 8-24 shall be made available to the public at the office of the 8-25 organization and in each public library in the service area. The 8-26 organization shall publish notice of the availability of the 8-27 report. In this subsection, "public library" has the meaning 9-1 assigned by Section 441.122, Government Code, but does not include 9-2 a library operated by a public school district or an institution of 9-3 higher education. 9-4 SECTION 10. NOTICE OF AGREEMENT OR TRANSACTION. (a) A 9-5 nonprofit provider that intends to enter into an agreement or 9-6 transaction described by Section 4 of this Act shall notify the 9-7 attorney general and shall publish notice of that fact. 9-8 (b) The notice to the attorney general must: 9-9 (1) be made in writing as soon as practicable after 9-10 the nonprofit provider becomes aware that it intends to consider 9-11 the agreement or transaction and in any event not later than the 9-12 90th day before the date on which the agreement or transaction is 9-13 to become effective; and 9-14 (2) disclose the conditions under which the agreement 9-15 or transaction will be made according to the best information 9-16 available to the nonprofit provider. 9-17 (c) The notice provided to the attorney general under 9-18 Subsection (b) of this section must state: 9-19 (1) the identity of the nonprofit provider and any 9-20 nonprofit entity that owns or controls the nonprofit provider; 9-21 (2) the identity of the entity with which the proposed 9-22 agreement or transaction is to be made; 9-23 (3) the identity of any other party to the proposed 9-24 agreement or transaction; 9-25 (4) the terms of the proposed agreement or 9-26 transaction; 9-27 (5) the value of consideration to be provided in 10-1 connection with the proposed agreement or transaction and the basis 10-2 on which this valuation is made; 10-3 (6) the identity of any individual or entity who is an 10-4 officer, director, or affiliate of the nonprofit provider and a 10-5 statement as to whether each named individual or entity: 10-6 (A) has been promised future employment as a 10-7 result of the proposed agreement or transaction; 10-8 (B) has been a party to discussions relating to 10-9 future employment as a result of the proposed agreement or 10-10 transaction; or 10-11 (C) has any other direct or indirect economic 10-12 interest in the proposed agreement or transaction; 10-13 (7) the identity and credentials of the assessor or 10-14 proposed assessor to be appointed under Section 8(b) of this Act 10-15 and a statement as to whether the assessor has contracted with or 10-16 performed services for the entity with which the proposed agreement 10-17 or transaction is to be made; and 10-18 (8) the date on which the proposed agreement or 10-19 transaction is to become effective. 10-20 (d) In addition to the information provided to the attorney 10-21 general under Subsections (b) and (c) of this section, the 10-22 nonprofit provider shall provide to the attorney general a copy of 10-23 the report of the assessor appointed under Section 8(b) of this 10-24 Act. The report must be provided to the attorney general not later 10-25 than the later of: 10-26 (1) the date notice is made to the attorney general 10-27 under Subsection (b) of this section; or 11-1 (2) the fifth day after the date the assessor 11-2 completes the report. 11-3 (e) In addition to the notice required under Subsection (b) 11-4 of this section, the nonprofit provider shall notify the attorney 11-5 general of any material change in the agreement or transaction or 11-6 any of the information required by Subsection (c) of this section 11-7 not later than the 45th day before the date the agreement or 11-8 transaction becomes effective. 11-9 (f) The notice submitted to the attorney general under this 11-10 section and any materials submitted with the notice are public 11-11 information. On the request of any person, the nonprofit provider 11-12 shall make the information available at the business office of the 11-13 nonprofit provider in each affected service area. 11-14 (g) The first publication of notice under this section must 11-15 be made not later than the 90th day before the date the agreement 11-16 or transaction would become effective and must state the address of 11-17 the business office of the nonprofit provider in each affected 11-18 service area and state that more detailed information concerning 11-19 the proposed agreement or transaction is available at the business 11-20 office. 11-21 SECTION 11. PUBLIC HEARING. (a) Not later than the 45th 11-22 day after the date the attorney general receives the notice under 11-23 Section 10 of this Act, the nonprofit provider shall: 11-24 (1) solicit written public comment; and 11-25 (2) hold at least one public hearing to obtain public 11-26 comment in the service area of the nonprofit provider. 11-27 (b) Not later than the 21st day before the date of the 12-1 public hearing, the nonprofit provider shall: 12-2 (1) publish notice of the request for written comment 12-3 and of the time and place of the hearing; and 12-4 (2) notify the county commissioners in each county in 12-5 the service area of the nonprofit provider of the request for 12-6 written comment and of the time and place of the hearing. 12-7 (c) The notice provided under Subsection (b)(1) of this 12-8 section must state the address of the business office of the 12-9 nonprofit provider in the service area and must state that more 12-10 detailed information concerning the proposed agreement or 12-11 transaction is available at the business office. 12-12 SECTION 12. PUBLICATION OF NOTICE. (a) In any case in 12-13 which a nonprofit provider or a designated charitable health care 12-14 organization is required to publish notice under this Act, notice 12-15 must be published in: 12-16 (1) the Texas Register; and 12-17 (2) one or more newspapers in accordance with 12-18 Subsection (b) of this section. 12-19 (b) Notice published under Subsection (a)(2) of this section 12-20 must be published in a newspaper of general circulation in the 12-21 service area. The notice must be published at least once each week 12-22 for at least three weeks. If the service area includes more than 12-23 one county, the notice must be published in a newspaper of general 12-24 circulation in each county included in the service area. 12-25 (c) If a newspaper of general circulation does not exist in 12-26 a county in the service area, the nonprofit provider or charitable 12-27 health care organization shall post the notice at the courthouse 13-1 door and at five other public places in the county. Notice posted 13-2 under this subsection must be posted on the date publication of the 13-3 notice is required under this Act and must remain posted for at 13-4 least 30 days. 13-5 SECTION 13. ENFORCEMENT BY ATTORNEY GENERAL'S OFFICE. (a) 13-6 The attorney general may bring an action in a district court of 13-7 Travis County for: 13-8 (1) a temporary restraining order, a temporary 13-9 injunction, or a permanent injunction to prevent a nonprofit 13-10 provider from entering into an agreement or transaction described 13-11 by Section 4 of this Act; 13-12 (2) a civil penalty in an amount not to exceed $10,000 13-13 for each day of a continuing violation of this Act; or 13-14 (3) any other relief authorized under a statute or the 13-15 common law for conduct that violates this Act. 13-16 (b) In an action brought under this section in which the 13-17 attorney general prevails, the court may award to the attorney 13-18 general the costs of the suit and attorney's fees. 13-19 SECTION 14. PENALTIES UNDER LICENSING LAW. A nonprofit 13-20 provider who fails to comply with this Act, the successor in 13-21 interest of a nonprofit provider who fails to comply with this Act, 13-22 or a designated charitable health care organization that fails to 13-23 comply with this Act is subject to: 13-24 (1) revocation or suspension of the license or 13-25 certificate of authority of the provider, successor in interest, or 13-26 organization, in accordance with the law regulating the entity; or 13-27 (2) administrative or civil penalties, to the extent 14-1 that the law regulating the entity authorizes those penalties for a 14-2 violation of that regulatory law. 14-3 SECTION 15. EFFECTIVE DATE. This Act takes effect September 14-4 1, 1997. 14-5 SECTION 16. TRANSITION. (a) This Act applies only to: 14-6 (1) an agreement described by Section 4 of this Act 14-7 that is entered into on or after September 1, 1997; or 14-8 (2) a transaction described by Section 4 of this Act 14-9 that is made pursuant to an agreement entered into on or after 14-10 September 1, 1997. 14-11 (b) An agreement described by Section 4 of this Act that is 14-12 entered into before September 1, 1997, and a transaction described 14-13 by Section 4 of this Act that is made pursuant to an agreement 14-14 entered into before September 1, 1997, are governed by the law as 14-15 it existed immediately before the effective date of this Act and 14-16 that law is continued in effect for that purpose. 14-17 SECTION 17. EMERGENCY. The importance of this legislation 14-18 and the crowded condition of the calendars in both houses create an 14-19 emergency and an imperative public necessity that the 14-20 constitutional rule requiring bills to be read on three several 14-21 days in each house be suspended, and this rule is hereby suspended.