By Ellis S.B. No. 244
76R3778 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 to
1-18 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 (26 U.S.C. Section
2-2 501), as amended, by being listed as an exempt organization in
2-3 Section 501(c)(3) of the code, as amended; and
2-4 (B) dedicated to:
2-5 (i) serving unmet health care needs in
2-6 this state, particularly the health care needs of low-income
2-7 uninsured and underserved populations; and
2-8 (ii) promoting access to health care and
2-9 improving the quality of health care for the populations described
2-10 by Subparagraph (i) of this paragraph.
2-11 (2) "Charitable health care trust" means a charitable
2-12 health care trust established under Section 8 of this Act.
2-13 (3) "Designated charitable health care organization"
2-14 means a charitable health care organization receiving disbursements
2-15 from a charitable health care trust under Section 9 of this Act.
2-16 (4) "Health benefit plan provider" means an insurer,
2-17 group hospital service corporation, health maintenance
2-18 organization, or other entity that issues:
2-19 (A) an individual, group, blanket, or franchise
2-20 insurance policy, insurance agreement, or group hospital service
2-21 contract that provides benefits for medical or surgical expenses
2-22 incurred as a result of an accident or sickness;
2-23 (B) an evidence of coverage or group subscriber
2-24 contract; or
2-25 (C) a long-term care insurance policy.
2-26 (5) "Health care provider" means an entity that
2-27 provides health or long-term care. The term includes a facility
3-1 licensed under Subtitle B, Title 4, Health and Safety Code.
3-2 (6) "Mutual plan provider" means a mutual or mutual
3-3 assessment association subject to Chapter 11, 12, 13, or 14,
3-4 Insurance Code, that provides health and accident insurance,
3-5 including an entity exempt under Article 14.17, Insurance Code.
3-6 (7) "Nonprofit provider" means a health benefit plan
3-7 provider or a health care provider that is:
3-8 (A) exempt from federal income tax under Section
3-9 501(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section
3-10 501), as amended, by being listed as an exempt organization in
3-11 Section 501(c)(3) or 501(c)(4) of the code, as amended;
3-12 (B) incorporated under the Texas Non-Profit
3-13 Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil
3-14 Statutes) or a similar law of another state;
3-15 (C) exempt from state franchise, property, and
3-16 sales taxes; or
3-17 (D) organized and operated exclusively for the
3-18 promotion of social welfare and that normally receives more than
3-19 one-third of its support in a year from private or public gifts,
3-20 grants, contributions, or membership fees.
3-21 (8) "Service area" means a geographical area of this
3-22 state served by a nonprofit provider or a charitable health care
3-23 organization.
3-24 SECTION 4. DUTIES OF NONPROFIT PROVIDER. A nonprofit
3-25 provider shall comply with this Act before entering into an
3-26 agreement or transaction under which the nonprofit provider:
3-27 (1) sells, transfers, leases, exchanges, provides an
4-1 option with respect to, or otherwise disposes of a material portion
4-2 of the assets of the nonprofit provider in favor of an entity
4-3 organized to generate a profit or a mutual plan provider;
4-4 (2) restructures as or converts to an entity organized
4-5 to generate a profit or a mutual plan provider, if a material
4-6 portion of the assets of the nonprofit provider are involved in the
4-7 restructuring or conversion; or
4-8 (3) transfers control, responsibility, or governance
4-9 of a material amount of the assets, operations, or business of the
4-10 nonprofit provider in favor of an entity organized to generate a
4-11 profit or a mutual plan provider.
4-12 SECTION 5. REQUIREMENTS FOR AGREEMENT OR TRANSACTION. A
4-13 nonprofit provider may not enter into an agreement or transaction
4-14 described by Section 4 of this Act unless the agreement or
4-15 transaction:
4-16 (1) is in the public interest;
4-17 (2) does not directly or indirectly benefit an
4-18 officer, director, or employee of the nonprofit provider or another
4-19 private person or entity, such as through the granting of a stock
4-20 option to or an agreement not to compete with a private person or
4-21 entity;
4-22 (3) is not likely to adversely affect the availability
4-23 of health care services to uninsured or underinsured individuals,
4-24 particularly uninsured or underinsured individuals with low
4-25 incomes, in the service area of the nonprofit provider and includes
4-26 sufficient safeguards to ensure that uninsured and underinsured
4-27 individuals have continued access to affordable care in the service
5-1 area; and
5-2 (4) for a nonprofit provider that is a hospital, will
5-3 not reduce the amount of charity care provided by the nonprofit
5-4 provider as required by Chapter 311, Health and Safety Code.
5-5 SECTION 6. AGREEMENT IN PUBLIC INTEREST. (a) In this
5-6 section, "charitable health care purpose" means a purpose serving
5-7 uninsured or underinsured individuals, particularly individuals who
5-8 are financially or medically indigent as defined in Section
5-9 311.031, Health and Safety Code.
5-10 (b) An agreement or transaction is not in the public
5-11 interest for purposes of Section 5(1) of this Act unless the
5-12 nonprofit provider has taken appropriate steps to:
5-13 (1) safeguard the value of assets held by the
5-14 nonprofit provider for a charitable health care purpose; and
5-15 (2) ensure that the proceeds of any transaction are
5-16 irrevocably dedicated to a charitable health care purpose in the
5-17 nonprofit provider's service area.
5-18 SECTION 7. DUE DILIGENCE REQUIRED. In entering into an
5-19 agreement or transaction described by Section 4 of this Act, a
5-20 nonprofit provider shall use due diligence in:
5-21 (1) selecting the entity with which the agreement or
5-22 transaction is being made; and
5-23 (2) negotiating the terms of the agreement or
5-24 transaction.
5-25 SECTION 8. CHARITABLE HEALTH CARE TRUST. (a) A nonprofit
5-26 provider that enters into an agreement or transaction described by
5-27 Section 4 of this Act shall establish a charitable health care
6-1 trust equal to the fair market value of the assets of the nonprofit
6-2 provider. Distributions from the charitable health care trust must
6-3 be dedicated to an existing or newly created charitable health care
6-4 organization that will operate in the service area of the nonprofit
6-5 provider and that is designated to receive the distributions.
6-6 (b) An assessor who is not an employee of the nonprofit
6-7 provider and who is otherwise independent of the nonprofit provider
6-8 and of the entity with which the agreement or transaction is being
6-9 made shall determine the fair market value of the assets of the
6-10 nonprofit provider. In determining the fair market value, the
6-11 assessor shall consider market value, investment or earnings value,
6-12 net asset value, and a control premium, if any. The nonprofit
6-13 provider shall pay for the assessment conducted under this
6-14 subsection. The nonprofit provider, the entity with which the
6-15 agreement or transaction is being made, and the designated
6-16 charitable health care organization shall make the report of the
6-17 assessor available to any person on request.
6-18 (c) A portion of the consideration conveyed to the
6-19 charitable health care trust may consist of stock of an entity
6-20 organized for profit. Stock conveyed to the charitable trust in
6-21 accordance with this subsection may not be subject to a restriction
6-22 prohibiting the sale of the stock by the charitable health care
6-23 trust or a charitable health care organization for a period of
6-24 time. In addition, the agreement or transaction may not otherwise
6-25 place unreasonable restrictions on the transfer of the 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 each individual or entity who is
10-4 an 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 a material change in the agreement or transaction or the
11-6 information required by Subsection (c) of this section not later
11-7 than the 45th day before the date the agreement or transaction
11-8 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, 1999.
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 the effective date of this Act; 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 the
14-10 effective date of this Act.
14-11 (b) An agreement described by Section 4 of this Act that is
14-12 entered into before the effective date of this Act and a
14-13 transaction described by Section 4 of this Act that is made
14-14 pursuant to an agreement entered into before the effective date of
14-15 this Act are governed by the law as it existed immediately before
14-16 the effective date of this Act and that law is continued in effect
14-17 for that purpose.
14-18 SECTION 17. EMERGENCY. The importance of this legislation
14-19 and the crowded condition of the calendars in both houses create an
14-20 emergency and an imperative public necessity that the
14-21 constitutional rule requiring bills to be read on three several
14-22 days in each house be suspended, and this rule is hereby suspended.