Bill not drafted by TLC or Senate E&E.
Line and page numbers may not match official copy.
By Driver H.B. No. 2746
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to certain nonprofit hospitals that provide health or
1-3 long-term care providing a penalty.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. PURPOSE AND FINDINGS. Nonprofit hospitals have
1-6 historically served the needs of their community, including the
1-7 needs of uninsured individuals in the community. Access to high
1-8 quality, affordable health care is a continuing need in a state
1-9 with over four million uninsured individuals and millions more
1-10 individuals who do not have adequate insurance. Changes in the
1-11 health care market have caused a substantial number of nonprofit
1-12 hospitals to consider transactions with for-profit ventures,
1-13 affecting hundreds of millions of charitable dollars. As these
1-14 changes in the health care system occur, it is in the best interest
1-15 of this state to ensure that these health care assets, which are
1-16 impressed with a constructive charitable trust for health care
1-17 purposes, continue to serve the public and the unmet health care
1-18 needs in this state.
1-19 SECTION 2. SHORT TITLE. This Act may be cited as the
1-20 Charitable Hospital 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 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, including the health care needs of low-income uninsured
2-6 and underserved populations; or
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 hospital trust" means a charitable
2-11 hospital 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 hospital trust under Section 9 of this Act.
2-15 (4) "Hospital system" means a system of local
2-16 nonprofit hospitals under the common governance of a single
2-17 corporate parent that are located within a radius of not more than
2-18 125 linear miles of the corporate parent.
2-19 (5) "Nonprofit hospital" means any entity exempt from
2-20 tax under Section 501(c)(3) of the Internal Revenue Code of 1986
2-21 that is:
2-22 (A) a general or special hospital licensed under
2-23 Chapter 241;
2-24 (B) a private mental hospital licensed under
2-25 Chapter 577; or
2-26 (C) a treatment facility licensed under Chapter
2-27 464.
2-28 (6) "Service area" means a geographical area of this
2-29 state served by a nonprofit hospital or a charitable health care
2-30 organization.
3-1 SECTION 4. DUTIES OF A NONPROFIT HOSPITAL. (a) A nonprofit
3-2 hospital shall comply with this Act before entering into any
3-3 agreement or transaction under which the nonprofit hospital
3-4 directly or indirectly:
3-5 (1) sells, transfers, leases, exchanges, provides an
3-6 option with respect to, or otherwise disposes of a material portion
3-7 of its assets in favor of an entity organized to generate a profit;
3-8 (2) restructures as or converts to an entity organized
3-9 to generate a profit, if a material portion of the assets of the
3-10 nonprofit hospital are involved in the restructuring or conversion;
3-11 or
3-12 (3) transfers control, responsibility, or governance
3-13 of a material amount of the assets, operations, or business of the
3-14 hospital in favor of an entity organized to generate a profit.
3-15 (b) In the case of a hospital system, this Act applies to
3-16 any transaction described in Subsections (1) through (3) above
3-17 which involves a nonprofit hospital that is a member of the
3-18 hospital system.
3-19 SECTION 5. REQUIREMENTS FOR AGREEMENT OR TRANSACTION. A
3-20 nonprofit hospital may not enter into an agreement or transaction
3-21 described by Section 4 of this Act unless the agreement or
3-22 transaction:
3-23 (1) is in the public interest;
3-24 (2) does not directly or indirectly benefit an
3-25 officer, director, or employee of the nonprofit hospital or another
3-26 private person or entity;
3-27 (3) is not likely to adversely affect the availability
3-28 of health care services to uninsured or underinsured individuals,
3-29 particularly uninsured or underinsured individuals with low
3-30 incomes, in the service area of the nonprofit hospital,
4-1 (4) includes sufficient safeguards to ensure that
4-2 uninsured and underinsured individuals have continued access to
4-3 affordable care in the service area; and,
4-4 (5) will not reduce the amount of charity care
4-5 historically provided by the nonprofit hospital as required by
4-6 Chapter 311, Health and Safety Code.
4-7 SECTION 6. AGREEMENT IN PUBLIC INTEREST. (a) An agreement
4-8 or transaction is not in the public interest for purposes of
4-9 Section 5(a) of this Act unless the nonprofit hospital has taken
4-10 appropriate steps to:
4-11 (1) safeguard the value of assets held by the
4-12 nonprofit hospital for a charitable health care purpose; and
4-13 (2) ensure that the proceeds of any transaction are
4-14 dedicated to a charitable health care purpose in the nonprofit
4-15 hospital's service area.
4-16 (b) For purposes of this section, "charitable health care
4-17 purpose" means those activities described as community benefits in
4-18 Section 311.042, Health and Safety Code.
4-19 SECTION 7. DUE DILIGENCE REQUIRED. In entering into an
4-20 agreement or transaction described by Section 4 of this Act, a
4-21 nonprofit hospital shall use due diligence in:
4-22 (1) selecting the entity with which the agreement or
4-23 transaction is being made; and
4-24 (2) negotiating the terms of the agreement or
4-25 transaction.
4-26 SECTION 8. CHARITABLE HOSPITAL TRUST. (a) A nonprofit
4-27 hospital that enters into an agreement or transaction described by
4-28 Section 4 of this Act may be required by the Attorney General to
4-29 establish a charitable hospital trust equal to the fair market
4-30 value of the assets of the nonprofit hospital where such a trust is
5-1 necessary to ensure that the requirements of Section 6 are
5-2 fulfilled. Hospital systems shall be deemed to satisfy the
5-3 requirements of Section 6 where the fair market value of assets
5-4 received from a transaction are contributed to a related nonprofit
5-5 hospital that provides hospital services in the same service area.
5-6 Distributions from the charitable hospital trust must be dedicated
5-7 to an existing or newly created charitable health care organization
5-8 that will operate in the service area of the nonprofit hospital.
5-9 (b) An assessor who is not an employee of the nonprofit
5-10 hospital and who is otherwise independent of the nonprofit provider
5-11 and of the entity with which the agreement of transaction is being
5-12 made shall determine the fair market value of the assets of the
5-13 nonprofit hospital. In determining the fair market value, the
5-14 assessor shall consider market value, investment or earnings value,
5-15 net asset value, and a control premium, if any. The nonprofit
5-16 hospital shall pay for the assessment conducted under this
5-17 subsection. The nonprofit hospital and the entity with which the
5-18 agreement or transaction is being made shall make the report of the
5-19 assessor available to any person on request.
5-20 (c) A portion of the consideration conveyed to the
5-21 charitable hospital trust may consist of stock of an entity
5-22 organized for profit. Stock conveyed to the charitable trust in
5-23 accordance with this subsection may not be subject to unreasonable
5-24 restrictions prohibiting the sale of the stock by the charitable
5-25 hospital trust or a charitable health care organization for a
5-26 period of time. In addition, the agreement or transaction may not
5-27 otherwise place unreasonable restrictions on the transfer of the
5-28 stock.
5-29 SECTION 9. DESIGNATED CHARITABLE HEALTH CARE ORGANIZATION.
5-30 (a) A designated charitable health care organization that receives
6-1 distributions from the charitable hospital trust under Section 8 of
6-2 this Act, and each director, officer, and employee of the
6-3 charitable health care organization, must be independent of the
6-4 entity with which the agreement or transaction described by Section
6-5 4 of this Act is made and any affiliate of that entity. A person
6-6 who is an officer, director, or employee of the nonprofit provider
6-7 at the time of an agreement or transaction described by Section 4
6-8 of this Act is under consideration may not serve as an officer,
6-9 director, or employee of the charitable health care organization
6-10 for a period of three years.
6-11 (b) A designated charitable health care organization shall
6-12 implement procedures to:
6-13 (1) avoid conflicts of interest;
6-14 (2) prohibit grants benefiting an officer, director,
6-15 or employee of the charitable health care organization or
6-16 benefiting the entity with which the agreement or transaction
6-17 described by Section 4 of this Act is made; and
6-18 (3) ensure that the members of the governing body of
6-19 the charitable health care organization are representative of the
6-20 service area.
6-21 (c) The charitable health care organization shall:
6-22 (1) publish notice of:
6-23 (A) the designation of the charitable health
6-24 care organization to receive the assets and the amount of assets to
6-25 be received;
6-26 (B) the proposed mission and purpose of the
6-27 charitable health care organization;
6-28 (C) the governing structure of the charitable
6-29 health care organization; and
6-30 (D) the time, date, and place of the public
7-1 hearing to be held under Subdivision (2) of this subsection; and
7-2 (2) hold at least one public hearing to obtain public
7-3 comment in the service area relating to the mission and purpose.
7-4 (d) The notice required under Subsection (c)(1) of this
7-5 section must be published not later than the fifth day after the
7-6 date the charitable health care organization is designated to
7-7 receive the assets from the charitable health care trust under
7-8 Section 8 of this Act. The hearing required under Subsection
7-9 (c)(2) of this section must be held not later than the 30th day
7-10 after the date the charitable health care organization is
7-11 designated to receive the assets from the charitable hospital trust
7-12 under Section 8 of this Act.
7-13 (e) A designated charitable health care organization shall
7-14 publish an annual report of its activities related to the use of
7-15 the assets received from the charitable hospital trust. The report
7-16 must include, at minimum, a statement of the amount of money
7-17 distributed by the charitable health care organization, the
7-18 identity of each entity that received the money and a statement of
7-19 the purpose for which the money was distributed to each entity, and
7-20 any report required to be filed with the Internal Revenue Service
7-21 that is a public document under state or federal law. The report
7-22 shall be made available to the public at the office of the
7-23 organization. The organization shall publish notice of the
7-24 availability of the report.
7-25 SECTION 10. NOTICE OF AGREEMENT. (a) A nonprofit hospital
7-26 that intends to enter into an agreement or transaction described by
7-27 Section 4 of this Act shall notify the attorney general and shall
7-28 publish notice of that fact.
7-29 (b) The notice to the attorney general must:
7-30 (1) be made in writing as soon as practicable after
8-1 the nonprofit hospital becomes aware that it intends to consider
8-2 the agreement or transaction and in any event not later than the
8-3 90th day before the date on which the agreement or transaction is
8-4 to become effective; and
8-5 (2) disclose the conditions under which the agreement
8-6 or transaction will be made according to the best information
8-7 available to the nonprofit hospital.
8-8 (c) The notice provided to the attorney general under
8-9 Subsection (b) of this section must state:
8-10 (1) the identity of the nonprofit hospital and any
8-11 nonprofit entity that owns or controls the nonprofit hospital;
8-12 (2) the identity of the entity with which the proposed
8-13 agreement or transaction is to be made;
8-14 (3) the identity of any other party to the proposed
8-15 agreement or transaction;
8-16 (4) the terms of the proposed agreement or
8-17 transaction;
8-18 (5) the value of consideration to be provided in
8-19 connection with the proposed agreement or transaction and the basis
8-20 on which this valuation is made;
8-21 (6) the identity of any individual or entity who is an
8-22 officer, director, or affiliate of the nonprofit hospital and a
8-23 statement as to whether each named individual or entity:
8-24 (A) has been promised future employment as a
8-25 result of the proposed agreement or transaction;
8-26 (B) has been a party to discussions relating to
8-27 future employment as a result of the proposed agreement or
8-28 transaction; or
8-29 (C) has any other direct or indirect economic
8-30 interest in the proposed agreement or transaction;
9-1 (7) the identity and credentials of the assessor or
9-2 proposed assessor to be appointed under Section 8(b) of this Act
9-3 and a statement as to whether the assessor has contracted with or
9-4 performed services for the entity with which the proposed agreement
9-5 or transaction is to be made; and
9-6 (8) the date on which the proposed agreement or
9-7 transaction is to be become effective.
9-8 (d) In addition to the information provided to the attorney
9-9 general under Subsections (b) and (c) of this section, the
9-10 nonprofit hospital shall provide to the attorney general a copy of
9-11 the report of the assessor appointed under Section 8(b) of this
9-12 Act. The report must be provided to the attorney general not later
9-13 than the later of:
9-14 (1) the date notice is made to the attorney general
9-15 under Subsection (b) of this section; or
9-16 (2) the fifth day after the date the assessor
9-17 completes the report.
9-18 (e) In addition to the notice required under Subsection (b)
9-19 of this section, the nonprofit hospital shall notify the attorney
9-20 general of any material change in the agreement or transaction or
9-21 any of the information required by Subsection (b) of this section
9-22 not later than the 45th day before the date the agreement or
9-23 transaction becomes effective.
9-24 (f) The notice submitted to the attorney general under this
9-25 section and any materials submitted with the notice are public
9-26 information. On the request of any person, the nonprofit hospital
9-27 shall make the information available at the business office of the
9-28 nonprofit provider in each affected service area.
9-29 (g) The first publication of notice under this section must
9-30 be made not later than the 90th day before the date the agreement
10-1 or transaction would become effective and must state the address of
10-2 the business office of the nonprofit hospital in each affected
10-3 service area and state that more detailed information concerning
10-4 the proposed agreement or transaction is available at the business
10-5 office.
10-6 SECTION 11. PUBLIC HEARING. (a) Not later than the 45th
10-7 day after the date the attorney general receives the notice under
10-8 Section 10 of this Act, the nonprofit hospital shall:
10-9 (1) solicit written public comment; and
10-10 (2) hold at least one public hearing to obtain public
10-11 comment in the service area of the nonprofit hospital.
10-12 (b) Not later than the 21st day before the date of the
10-13 public hearing, the nonprofit hospital shall:
10-14 (1) publish notice of the request for written comment
10-15 and of the time and place of the hearing; and
10-16 (2) notify the county commissioners in each county in
10-17 the service area of the nonprofit hospital of the request for
10-18 written comment and of the time and place of the hearing.
10-19 (c) The notice provided under Subsection (b)(1) of this
10-20 section must state the address of the business office of the
10-21 nonprofit hospital in the service area and must state that more
10-22 detailed information concerning the proposed agreement or
10-23 transaction is available at the business office.
10-24 SECTION 12. PUBLICATION OF NOTICE. (a) In any case in
10-25 which a nonprofit hospital or a designated charitable health care
10-26 organization is required to publish notice under this Act, notice
10-27 must be published in:
10-28 (1) the Texas Register; and
10-29 (2) one or more newspapers in accordance with
10-30 Subsection (b) of this section.
11-1 (b) Notice published under Subsection (a)(2) of this section
11-2 must be published in a newspaper of general circulation in the
11-3 service area. The notice must be published at least once each week
11-4 for at least three weeks. If the service area includes more than
11-5 one county, the notice must be published in a newspaper of general
11-6 circulation in each county included in the service area.
11-7 (c) If a newspaper of general circulation does not exist in
11-8 a county in the service area, the nonprofit provider or charitable
11-9 health care organization shall post the notice at the courthouse
11-10 door and at five other public places in the county. Notice posted
11-11 under this subsection must be posted on the date publication of the
11-12 notice is required under this Act and must remain posted for at
11-13 least 30 days.
11-14 SECTION 13. ENFORCEMENT BY ATTORNEY GENERAL'S OFFICE. (a)
11-15 The attorney general may bring an action in a district court of
11-16 Travis County for:
11-17 (1) a temporary restraining order, a temporary
11-18 injunction, or a permanent injunction to prevent a nonprofit
11-19 hospital from entering into an agreement or transaction described
11-20 by Section 4 of this Act;
11-21 (2) a civil penalty in an amount not to exceed $10,000
11-22 for each day of a continuing violation of this Act; or
11-23 (3) any other relief authorized under a statute or the
11-24 common law for conduct that violates this Act.
11-25 (b) In an action brought under this section in which the
11-26 attorney general prevails, the court may aware to the attorney
11-27 general the costs of the suit and attorney's fees.
11-28 SECTION 14. PENALTIES UNDER LICENSING LAW. A nonprofit
11-29 hospital who fails to comply with this Act, the successor in
11-30 interest of a nonprofit hospital who fails to comply with this Act,
12-1 or a designated charitable health care organization that fails to
12-2 comply with this Act is subject to:
12-3 (1) revocation or suspension of the license or
12-4 certificate of authority of the hospital, successor in interest, or
12-5 organization, in accordance with the law regulating the entity; or
12-6 (2) administrative or civil penalties, to the extent
12-7 that the law regulating the entity authorizes those penalties for a
12-8 violation of that regulatory law.
12-9 SECTION 15. EFFECTIVE DATE. This Act takes effect September
12-10 1, 1997.
12-11 SECTION 16. TRANSITION. (a) This Act applies only to:
12-12 (1) an agreement described by Section 4 of this Act
12-13 that is entered into on or after September 1, 1997; or
12-14 (2) a transaction described by Section 4 of this Act
12-15 that is made pursuant to an agreement entered into on or after
12-16 September 1, 1997.
12-17 (b) An agreement described by Section 4 of this Act that is
12-18 entered into before September 1, 1997, and a transaction described
12-19 by Section 4 of this Act that is made pursuant to an agreement
12-20 entered into before September 1, 1997, are governed by the law as
12-21 it existed immediately before the effective date of this Act and
12-22 that law is continued in effect for that purpose.
12-23 SECTION 17. EMERGENCY. The importance of this legislation
12-24 and the crowded condition of the calendars in both houses create an
12-25 emergency and an imperative public necessity that the
12-26 constitutional rule requiring bills to be read on three several
12-27 days in each house be suspended, and this rule is hereby suspended.