HBA-CCH H.B. 393 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 393 By: Maxey Public Health 2/9/2001 Introduced BACKGROUND AND PURPOSE Many nonprofit hospitals, health maintenance organizations, and health insurers, are converting to for-profit or mutual corporations. Under current law, when a nonprofit health care organization becomes a forprofit organization it is obligated under common law to dedicate its assets to a nonprofit organization that is dedicated to similar purposes. However, without careful monitoring, such newly converted for-profit organizations may seek to hold on to these public assets and devote them to serving the corporation's stockholders. The attorney general is responsible for protecting charitable trusts, gifts, and entities and for ensuring that nonprofits are used for their dedicated purpose and not for individual gain. However, nonprofit organizations are not currently required to inform the attorney general when considering whether to sell or change their nonprofit status. House Bill 393 establishes provisions so that charitable assets continue to serve the public's health care needs, especially the needs of uninsured or underinsured individuals. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS House Bill 393 sets forth the Charitable Health Care Trust Act (Act) to guide transfers, leases, exchanges, conversions, restructurings, sales, or transferences of control of a nonprofit health care provider (nonprofit) to a for-profit entity or mutual plan provider. The Act sets forth applicability standards based on the type of agreement, whether previous agreements or transactions are involved, and the fair market value of the assets or gross revenues of the nonprofit (SECTION 4). The fair market value is determined by an independent assessor paid for by the nonprofit at the time the agreement or transaction takes effect (SECTIONS 4 and 8). A nonprofit is prohibited from entering into a transaction unless the transaction: _is in the public interest by properly safeguarding and distributing charitable care assets, and ensuring that the charitable health care assets resulting from the agreement or transaction are irrevocably dedicated to charitable health care purposes in the nonprofit provider's service area (SECTIONS 5, 6, and 8); _ensures that the for-profit entity continues to provide the required level of charity care if the nonprofit is a hospital; _does not directly or indirectly benefit officers, directors, or employees of the nonprofit, such as giving stock options or promises not to compete with a private person or entity; _is not likely to adversely affect the availability of healthcare for uninsured or underinsured individuals in the service area; _is consistent with the nonprofit provider's original purpose (SECTION 5). In the transaction, the nonprofit is prohibited from placing unreasonable requirements on the sale or transfer of stock that adversely affects the value of the stock (SECTION 8). The bill requires the nonprofit to: _utilize due diligence in selecting a for-profit entity or mutual plan provider and negotiating the terms of agreement (SECTION 7); _notify the attorney general with a written disclosure of the agreement (SECTION 10); _publish a public notice of the transaction; _publish the time and place of at least one public hearing for the public to make written comments; and _notify the county commissioners in the service area of the nonprofit of the request for written comment (SECTION 11). The bill provides that the notice and related information submitted to the attorney general are public information (SECTION 10). In the event that a nonprofit is required to distribute assets to a charitable health care organization in its area, the designated charitable health care organization (organization) must be independent from the forprofit entity or mutual plan provider with which the transaction is made. The bill prohibits the governing body of the organization from, at any time, being composed of a majority of individuals who were affiliated with the nonprofit at the time the transaction took place. The organization is required to avoid conflicts of interest, ensure that assets are utilized in the public interest, and ensure that the members of the governing body are representative of the diversity of the service area. The organization is also required to publish notices of the amount of assets, the purpose and governing structure of the organization, and the time and place of at least one public hearing related to its mission and purpose. The bill requires the organization to publish and make public an annual report of the use of assets and sets forth notification requirements for the nonprofit and the organization (SECTIONS 9 and 12). The bill sets forth the attorney general's powers of enforcement and establishes penalties, including a civil penalty not to exceed $10,000 for each day of a continuing violation for organizations that fail to comply with the Act (SECTIONS 13 and 14). EFFECTIVE DATE September 1, 2001.