By: Cain S.B. No. 1264
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
A BILL TO BE ENTITLED
AN ACT
1-1 relating to certain nonprofit hospitals that provide health or
1-2 long-term care providing a penalty.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. PURPOSE AND FINDINGS. Nonprofit hospitals have
1-5 historically served the needs of their community, including the
1-6 needs of uninsured individuals in the community. Access to high
1-7 quality, affordable health care is a continuing need in a state
1-8 with over four million uninsured individuals and millions more
1-9 individuals who do not have adequate insurance. Changes in the
1-10 health care market have caused a substantial number of nonprofit
1-11 hospitals to consider transactions with for-profit ventures,
1-12 affecting hundreds of millions of charitable dollars. As these
1-13 changes in the health care system occur, it is in the best interest
1-14 of this state to ensure that these health care assets, which are
1-15 impressed with a constructive charitable trust for health care
1-16 purposes, continue to serve the public and the unmet health care
1-17 needs in this state.
1-18 SECTION 2. SHORT TITLE. This Act may be cited as the
1-19 Charitable Hospital Trust Act.
1-20 SECTION 3. DEFINITIONS. In this act:
1-21 (1) "Charitable health care organization" means an
2-1 organization that is:
2-2 (A) exempt from federal income tax under
2-3 Section 501(a) of the Internal Revenue Code of 1986 being listed as
2-4 an exempt organization in Section 501(c)(3) of the code; and
2-5 (B) dedicated to:
2-6 (i) serving unmet health care needs in
2-7 this state, including the health care needs of low-income uninsured
2-8 and underserved populations; or
2-9 (ii) promoting access to health care and
2-10 improving the quality of health care for the populations described
2-11 by Subparagraph (i) of this paragraph.
2-12 (2) "Charitable hospital trust" means a charitable
2-13 hospital trust established under Section 8 of this Act.
2-14 (3) "Designated charitable health care organization"
2-15 means a charitable health care organization receiving disbursements
2-16 from a charitable hospital trust under Section 9 of this Act.
2-17 (4) "Hospital system" means a system of local
2-18 nonprofit hospitals under the common governance of a single
2-19 corporate parent that are located within a radius of not more than
2-20 125 linear miles of the corporate parent.
2-21 (5) "Nonprofit hospital" means any entity exempt from
2-22 tax under Section 501(c)(3) of the Internal Revenue Code of 1986
2-23 that is:
2-24 (A) a general or special hospital licensed under
2-25 Chapter 241;
3-1 (B) a private mental hospital licensed under
3-2 Chapter 577; or
3-3 (C) a treatment facility licensed under Chapter
3-4 464.
3-5 (6) "Service area" means a geographical area of this
3-6 state served by a nonprofit hospital or a charitable health care
3-7 organization.
3-8 SECTION 4. DUTIES OF A NONPROFIT HOSPITAL. (a) A nonprofit
3-9 hospital shall comply with this Act before entering into any
3-10 agreement or transaction under which the nonprofit hospital
3-11 directly or indirectly:
3-12 (1) sells, transfers, leases, exchanges, provides an
3-13 option with respect to, or otherwise disposes of a material portion
3-14 of its assets in favor of an entity organized to generate a profit;
3-15 (2) restructures as or converts to an entity organized
3-16 to generate a profit, if a material portion of the assets of the
3-17 nonprofit hospital are involved in the restructuring or conversion;
3-18 or
3-19 (3) transfers control, responsibility, or governance
3-20 of a material amount of the assets, operations, or business of the
3-21 hospital in favor of an entity organized to generate a profit.
3-22 (b) In the case of a hospital system, this Act applies to
3-23 any transaction described in Subsections (1) through (3) above
3-24 which involves a nonprofit hospital that is a member of the
3-25 hospital system.
4-1 SECTION 5. REQUIREMENTS FOR AGREEMENT OR TRANSACTION. A
4-2 nonprofit hospital may not enter into an agreement or transaction
4-3 described by Section 4 of this Act unless the agreement or
4-4 transaction:
4-5 (1) is in the public interest;
4-6 (2) does not directly or indirectly benefit an
4-7 officer, director, or employee of the nonprofit hospital or another
4-8 private person or entity;
4-9 (3) is not likely to adversely affect the availability
4-10 of health care services to uninsured or underinsured individuals,
4-11 particularly uninsured or underinsured individuals with low
4-12 incomes, in the service area of the nonprofit hospital;
4-13 (4) includes sufficient safeguards to ensure that
4-14 uninsured and underinsured individuals have continued access to
4-15 affordable care in the service area; and
4-16 (5) will not reduce the amount of charity care
4-17 historically provided by the nonprofit hospital as required by
4-18 Chapter 311, Health and Safety Code.
4-19 SECTION 6. AGREEMENT IN PUBLIC INTEREST. (a) An agreement
4-20 or transaction is not in the public interest for purposes of
4-21 Section 5(a) of this Act unless the nonprofit hospital has taken
4-22 appropriate steps to:
4-23 (1) safeguard the value of assets held by the
4-24 nonprofit hospital for a charitable health care purpose; and
4-25 (2) ensure that the proceeds of any transaction are
5-1 dedicated to a charitable health care purpose in the nonprofit
5-2 hospital's service area.
5-3 (b) For purposes of this section, "charitable health care
5-4 purpose" means those activities described as community benefits in
5-5 Section 311.042, Health and Safety Code.
5-6 SECTION 7. DUE DILIGENCE REQUIRED. In entering into an
5-7 agreement or transaction described by Section 4 of this Act, a
5-8 nonprofit hospital shall use due diligence in:
5-9 (1) selecting the entity with which the agreement or
5-10 transaction is being made; and
5-11 (2) negotiating the terms of the agreement or
5-12 transaction.
5-13 SECTION 8. CHARITABLE HOSPITAL TRUST. (a) A nonprofit
5-14 hospital that enters into an agreement or transaction described by
5-15 Section 4 of this Act may be required by the Attorney General to
5-16 establish a charitable hospital trust equal to the fair market
5-17 value of the assets of the nonprofit hospital where such a trust is
5-18 necessary to ensure that the requirements of Section 6 are
5-19 fulfilled. Hospital systems shall be deemed to satisfy the
5-20 requirements of Section 6 where the fair market value of assets
5-21 received from a transaction are contributed to a related nonprofit
5-22 hospital that provides hospital services in the same service area.
5-23 Distributions from the charitable hospital trust must be dedicated
5-24 to an existing or newly created charitable health care organization
5-25 that will operate in the service area of the nonprofit hospital.
6-1 (b) An assessor who is not an employee of the nonprofit
6-2 hospital and who is otherwise independent of the nonprofit provider
6-3 and of the entity with which the agreement of transaction is being
6-4 made shall determine the fair market value of the assets of the
6-5 nonprofit hospital. In determining the fair market value, the
6-6 assessor shall consider market value, investment or earnings value,
6-7 net asset value, and a control premium, if any. The nonprofit
6-8 hospital shall pay for the assessment conducted under this
6-9 subsection. The nonprofit hospital and the entity with which the
6-10 agreement or transaction is being made shall make the report of the
6-11 assessor available to any person on request.
6-12 (c) A portion of the consideration conveyed to the
6-13 charitable hospital trust may consist of stock of an entity
6-14 organized for profit. Stock conveyed to the charitable trust in
6-15 accordance with this subsection may not be subject to unreasonable
6-16 restrictions prohibiting the sale of the stock by the charitable
6-17 hospital trust or a charitable health care organization for a
6-18 period of time. In addition, the agreement or transaction may not
6-19 otherwise place unreasonable restrictions on the transfer of the
6-20 stock.
6-21 SECTION 9. DESIGNATED CHARITABLE HEALTH CARE ORGANIZATION.
6-22 (a) A designated charitable health care organization that receives
6-23 distributions from the charitable hospital trust under Section 8 of
6-24 this Act, and each director, officer, and employee of the
6-25 charitable health care organization, must be independent of the
7-1 entity with which the agreement or transaction described by Section
7-2 4 of this Act is made and any affiliate of that entity. A person
7-3 who is an officer, director, or employee of the nonprofit provider
7-4 at the time of an agreement or transaction described by Section 4
7-5 of this Act is under consideration may not serve as an officer,
7-6 director, or employee of the charitable health care organization
7-7 for a period of three years.
7-8 (b) A designated charitable health care organization shall
7-9 implement procedures to:
7-10 (1) avoid conflicts of interest;
7-11 (2) prohibit grants benefiting an officer, director,
7-12 or employee of the charitable health care organization or
7-13 benefiting the entity with which the agreement or transaction
7-14 described by Section 4 of this Act is made; and
7-15 (3) ensure that the members of the governing body of
7-16 the charitable health care organization are representative of the
7-17 service area.
7-18 (c) The charitable health care organization shall:
7-19 (1) publish notice of:
7-20 (A) the designation of the charitable health
7-21 care organization to receive the assets and the amount of assets to
7-22 be received;
7-23 (B) the proposed mission and purpose of the
7-24 charitable health care organization;
7-25 (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 hospital trust
8-14 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 hospital trust. The report
8-18 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. The organization shall publish notice of the
9-1 availability of the report.
9-2 SECTION 10. NOTICE OF AGREEMENT. (a) A nonprofit hospital
9-3 that intends to enter into an agreement or transaction described by
9-4 Section 4 of this Act shall notify the attorney general and shall
9-5 publish notice of that fact.
9-6 (b) The notice to the attorney general must:
9-7 (1) be made in writing as soon as practicable after
9-8 the nonprofit hospital becomes aware that it intends to consider
9-9 the agreement or transaction and in any event not later than the
9-10 90th day before the date on which the agreement or transaction is
9-11 to become effective; and
9-12 (2) disclose the conditions under which the agreement
9-13 or transaction will be made according to the best information
9-14 available to the nonprofit hospital.
9-15 (c) The notice provided to the attorney general under
9-16 Subsection (b) of this section must state:
9-17 (1) the identity of the nonprofit hospital and any
9-18 nonprofit entity that owns or controls the nonprofit hospital;
9-19 (2) the identity of the entity with which the proposed
9-20 agreement or transaction is to be made;
9-21 (3) the identity of any other party to the proposed
9-22 agreement or transaction;
9-23 (4) the terms of the proposed agreement or
9-24 transaction;
9-25 (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 hospital 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 identify 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 hospital 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:
11-1 (1) the date notice is made to the attorney general
11-2 under Subsection (b) of this section; or
11-3 (2) the fifth day after the date the assessor
11-4 completes the report.
11-5 (e) In addition to the notice required under Subsection (b)
11-6 of this section, the nonprofit hospital shall notify the attorney
11-7 general of any material change in the agreement or transaction or
11-8 any of the information required by Subsection (c) of this section
11-9 not later than the 45th day before the date the agreement or
11-10 transaction becomes effective.
11-11 (f) The notice submitted to the attorney general under this
11-12 section and any materials submitted with the notice are public
11-13 information. On the request of any person, the nonprofit hospital
11-14 shall make the information available at the business office of the
11-15 nonprofit provider in each affected service area.
11-16 (g) The first publication of notice under this section must
11-17 be made not later than the 90th day before the date the agreement
11-18 or transaction would become effective and must state the address of
11-19 the business office of the nonprofit hospital in each affected
11-20 service area and state that more detailed information concerning
11-21 the proposed agreement or transaction is available at the business
11-22 office.
11-23 SECTION 11. PUBLIC HEARING. (a) Not later than the 45th
11-24 day after the date the attorney general receives the notice under
11-25 Section 10 of this Act, the nonprofit hospital shall:
12-1 (1) solicit written public comment; and
12-2 (2) hold at least one public hearing to obtain public
12-3 comment in the service area of the nonprofit hospital.
12-4 (b) Not later than the 21st day before the date of the
12-5 public hearing, the nonprofit hospital shall:
12-6 (1) publish notice of the request for written comment
12-7 and of the time and place of the hearing; and
12-8 (2) notify the county commissioners in each county in
12-9 the service area of the nonprofit hospital of the request for
12-10 written comment and of the time and place of the hearing.
12-11 (c) The notice provided under Subsection (b)(1) of this
12-12 section must state the address of the business office of the
12-13 nonprofit hospital in the service area and must state that more
12-14 detailed information concerning the proposed agreement or
12-15 transaction is available at the business office.
12-16 SECTION 12. PUBLICATION OF NOTICE. (a) In any case in
12-17 which a nonprofit hospital or a designated charitable health care
12-18 organization is required to publish notice under this Act, notice
12-19 must be published in:
12-20 (1) the Texas Register; and
12-21 (2) one or more newspapers in accordance with
12-22 Subsection (b) of this section.
12-23 (b) Notice published under Subsection (a)(2) of this section
12-24 must be published in a newspaper of general circulation in the
12-25 service area. The notice must be published at least once each week
13-1 for at least three weeks. If the service area includes more than
13-2 one county, the notice must be published in a newspaper of general
13-3 circulation in each county included in the service area.
13-4 (c) If a newspaper of general circulation does not exist in
13-5 a county in the service area, the nonprofit provider or charitable
13-6 health care organization shall post the notice at the courthouse
13-7 door and at five other public places in the county. Notice posted
13-8 under this subsection must be posted on the date publication of the
13-9 notice is required under this Act and must remain posted for at
13-10 least 30 days.
13-11 SECTION 13. ENFORCEMENT BY ATTORNEY GENERAL'S OFFICE.
13-12 (a) The attorney general may bring an action in a district court
13-13 of Travis County for:
13-14 (1) a temporary restraining order, a temporary
13-15 injunction, or a permanent injunction to prevent a nonprofit
13-16 hospital from entering into an agreement or transaction described
13-17 by Section 4 of this Act;
13-18 (2) a civil penalty in a amount not to exceed $10,000
13-19 for each day of a continuing violation of this Act; or
13-20 (3) any other relief authorized under a statute or the
13-21 common law for conduct that violates this Act.
13-22 (b) In an action brought under this section in which the
13-23 attorney general prevails, the court may aware to the attorney
13-24 general the costs of the suit and attorney's fees.
13-25 SECTION 14. PENALTIES UNDER LICENSING LAW. A nonprofit
14-1 hospital who fails to comply with this Act, the successor in
14-2 interest of a nonprofit hospital who fails to comply with this Act,
14-3 or a designated charitable health care organization that fails to
14-4 comply with this Act is subject to:
14-5 (1) revocation or suspension of the license or
14-6 certificate of authority of the hospital, successor in interest, or
14-7 organization, in accordance with the law regulating the entity; or
14-8 (2) administrative or civil penalties, to the extent
14-9 that the law regulating the entity authorizes those penalties for a
14-10 violation of that regulatory law.
14-11 SECTION 15. EFFECTIVE DATE. This Act takes effect
14-12 September 1, 1997.
14-13 SECTION 16. TRANSITION. (a) This Act applies only to:
14-14 (1) an agreement described by Section 4 of this Act
14-15 that is entered into on or after September 1, 1997; or
14-16 (2) a transaction described by Section 4 of this Act
14-17 that is made pursuant to an agreement entered into on or after
14-18 September 1, 1997.
14-19 (b) An agreement described by Section 4 of this Act that is
14-20 entered into before September 1, 1997, and a transaction described
14-21 by Section 4 of this Act that is made pursuant to an agreement
14-22 entered into before September 1, 1997, are governed by the law as
14-23 it existed immediately before the effective date of this Act and
14-24 that law is continued in effect for that purpose.
14-25 SECTION 17. EMERGENCY. The importance of this legislation
15-1 and the crowded condition of the calendars in both houses create an
15-2 emergency and an imperative public necessity that the
15-3 constitutional rule requiring bills to be read on three several
15-4 days in each house be suspended, and this rule is hereby suspended.