77R13959 DLF-F By Maxey, Kitchen H.B. No. 393 Substitute the following for H.B. No. 393: By Maxey C.S.H.B. No. 393 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 new ventures, affecting hundreds of 1-14 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 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. 2-9 (2) "For-profit entity" means a business entity that 2-10 is not a mutual plan provider or a nonprofit provider. 2-11 (3) "Health benefit plan provider" means an insurer, 2-12 group hospital service corporation, health maintenance 2-13 organization, or other entity that issues: 2-14 (A) an individual, group, blanket, or franchise 2-15 insurance policy, insurance agreement, or group hospital service 2-16 contract that provides benefits for medical or surgical expenses 2-17 incurred as a result of an accident or sickness; 2-18 (B) an evidence of coverage or group subscriber 2-19 contract; or 2-20 (C) a long-term care insurance policy. 2-21 (4) "Health care provider" means an entity licensed to 2-22 provide health or long-term care. The term includes a facility 2-23 licensed under Subtitle B, Title 4, Health and Safety Code. 2-24 (5) "Mutual plan provider" means a mutual or mutual 2-25 assessment association subject to Chapter 11, 12, 13, or 14, 2-26 Insurance Code, that provides health and accident insurance, 2-27 including any entity exempt under Article 14.17, Insurance Code. 3-1 (6) "Nonprofit provider" means a health benefit plan 3-2 provider or a health care provider that is: 3-3 (A) exempt from federal income tax under Section 3-4 501(a) of the Internal Revenue Code of 1986 by being listed as an 3-5 exempt organization in Section 501(c)(3) or 501(c)(4) of the code; 3-6 (B) incorporated under the Texas Non-Profit 3-7 Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil 3-8 Statutes) or a similar law of another state; 3-9 (C) exempt from state franchise, property, and 3-10 sales taxes; or 3-11 (D) organized and operated exclusively for the 3-12 promotion of social welfare and that normally receives more than 3-13 one-third of its support in a year from private or public gifts, 3-14 grants, contributions, or membership fees. 3-15 SECTION 4. DUTIES OF NONPROFIT PROVIDER. (a) A nonprofit 3-16 provider shall comply with this Act, in accordance with the periods 3-17 established by this Act, with respect to an agreement or 3-18 transaction under which the nonprofit provider directly or 3-19 indirectly: 3-20 (1) sells, transfers, leases, exchanges, provides an 3-21 option with respect to, or otherwise disposes of assets of the 3-22 nonprofit provider in favor of another nonprofit provider, a 3-23 for-profit entity, or a mutual plan provider; 3-24 (2) restructures as or converts to another nonprofit 3-25 provider, a for-profit entity, or a mutual plan provider; 3-26 (3) transfers control, responsibility, or governance 3-27 of the assets, operations, or business of the nonprofit provider in 4-1 favor of another nonprofit provider, a for-profit entity, or a 4-2 mutual plan provider; or 4-3 (4) closes a facility operated by the nonprofit 4-4 provider or dissolves. 4-5 (b) Subsection (a)(1) or (2) of this section applies only 4-6 if: 4-7 (1) the fair market value of the assets of the 4-8 nonprofit provider involved in the proposed agreement or 4-9 transaction is at least 30 percent of the value of the total assets 4-10 of the nonprofit provider; or 4-11 (2) the fair market value of the assets of the 4-12 nonprofit provider involved in the proposed agreement or 4-13 transaction, when added to the fair market value of all assets of 4-14 the nonprofit provider that have been subject to a previous 4-15 agreement or transaction described by Subsection (a)(1), (2), or 4-16 (3) of this section that has been made during the two-year period 4-17 before the date on which the proposed agreement or transaction 4-18 becomes effective, is at least 35 percent of the value of the total 4-19 assets of the nonprofit provider. 4-20 (c) Subsection (a)(3) of this section applies only if: 4-21 (1) the fair market value of the assets of the 4-22 nonprofit provider with respect to which control, responsibility, 4-23 or governance would be transferred under the proposed agreement or 4-24 transaction, is at least 30 percent of the value of the total 4-25 assets of the nonprofit provider; 4-26 (2) the fair market value of the assets of the 4-27 nonprofit provider with respect to which control, responsibility, 5-1 or governance would be transferred under the proposed agreement or 5-2 transaction, when added to the fair market value of all assets of 5-3 the nonprofit provider that have been subject to a previous 5-4 agreement or transaction described by Subsection (a)(1), (2), or 5-5 (3) of this section that has been made during the two-year period 5-6 before the date on which the proposed agreement or transaction 5-7 becomes effective, is at least 35 percent of the value of the total 5-8 assets of the nonprofit provider; 5-9 (3) the gross revenues associated with business or 5-10 operations of the nonprofit provider with respect to which control, 5-11 responsibility, or governance would be transferred under the 5-12 proposed agreement or transaction is at least 30 percent of the 5-13 value of the gross revenues associated with all of the business or 5-14 operations of the nonprofit provider; or 5-15 (4) the gross revenues associated with business or 5-16 operations of the nonprofit provider with respect to which control, 5-17 responsibility, or governance would be transferred under the 5-18 proposed agreement or transaction, when added to the gross revenues 5-19 associated with the business or operations with respect to which 5-20 control, responsibility, or governance has been transferred under a 5-21 previous agreement or transaction described by Subsection (a)(3) of 5-22 this section that has been made during the two-year period before 5-23 the date on which the proposed agreement or transaction becomes 5-24 effective, is at least 35 percent of the value of the gross 5-25 revenues associated with all of the business or operations of the 5-26 nonprofit provider. 5-27 (d) For purposes of applying Subsection (b) or (c)(1) or (2) 6-1 of this section: 6-2 (1) the fair market value of assets of a nonprofit 6-3 provider involved in a previous agreement or transaction is 6-4 determined as of the time the previous agreement or transaction 6-5 became effective; and 6-6 (2) the fair market value of the total assets of the 6-7 nonprofit provider is determined as of the time the proposed 6-8 agreement or transaction would become effective. 6-9 (e) For purposes of applying Subsection (c)(3) or (4) of 6-10 this section: 6-11 (1) the gross revenues associated with the business or 6-12 operations of a nonprofit provider with respect to which control, 6-13 responsibility, or governance has been transferred under a previous 6-14 agreement or transaction are determined as of the time the previous 6-15 agreement or transaction became effective; and 6-16 (2) the value of the gross revenues associated with 6-17 all of the business or operations of the nonprofit provider is 6-18 determined as of the time the proposed agreement or transaction 6-19 would become effective. 6-20 (f) If a nonprofit provider is a health care system that 6-21 owns or operates more than one licensed hospital, each separately 6-22 licensed hospital is a nonprofit provider for purposes of applying 6-23 this section and, for purposes of applying Subsections (b), (c), 6-24 (d), and (e) of this section, only the assets and business or 6-25 operations of the separately licensed hospital shall be considered. 6-26 SECTION 5. CHARITABLE HEALTH CARE ASSETS. (a) Except as 6-27 provided by Subsection (b) of this section, a nonprofit provider 7-1 that enters into an agreement or transaction described by Section 4 7-2 of this Act shall: 7-3 (1) establish the fair market value of the assets of 7-4 the nonprofit provider; and 7-5 (2) request an appraisal from the chief appraiser or 7-6 appraisers of the appraisal district or districts in which the 7-7 nonprofit provider's property is located. 7-8 (b) A nonprofit provider that enters into an agreement or 7-9 transaction described by Section 4 of this Act with another 7-10 nonprofit provider is not required to request an appraisal from the 7-11 chief appraiser or appraisers of the appraisal district or 7-12 districts in which the nonprofit provider's property is located. 7-13 (c) Subject to Subsections (f), (g), and (h) of this 7-14 section, the charitable health care assets resulting from an 7-15 agreement or transaction described by Section 4 of this Act must be 7-16 irrevocably dedicated to a charitable health care purpose and 7-17 distributed to an existing or newly created charitable health care 7-18 organization that will operate in the service area of the nonprofit 7-19 provider and that is designated to receive the distributions. 7-20 (d) An assessor who is not an employee of the nonprofit 7-21 provider and who is otherwise independent of the nonprofit provider 7-22 and of the other nonprofit provider, the for-profit entity, or the 7-23 mutual plan provider with which the agreement or transaction is 7-24 being made shall determine the fair market value of the charitable 7-25 health care assets. In determining the fair market value, the 7-26 assessor shall consider market value, investment or earnings value, 7-27 net asset value, and a control premium, if any. The nonprofit 8-1 provider shall pay for the assessment conducted under this 8-2 subsection. 8-3 (e) A portion of the consideration conveyed to the 8-4 charitable health care organization may consist of stock of a 8-5 for-profit entity that is a party to the agreement or transaction. 8-6 Stock conveyed to the charitable health care organization in 8-7 accordance with this subsection may not be subject to any 8-8 requirements relating to the sale or transfer of the stock by the 8-9 charitable health care organization, except to the extent required 8-10 by federal law. In addition, the agreement or transaction may not 8-11 place unreasonable requirements on the sale or transfer of the 8-12 stock that would adversely affect the value of the stock. 8-13 (f) The charitable health care assets may be used to satisfy 8-14 a debt or similar obligation of the nonprofit provider that exists 8-15 at the time the agreement or transaction becomes effective. 8-16 (g) In a case in which only a portion of the assets or 8-17 operations or business of a nonprofit provider is subject to an 8-18 agreement or transaction described by Section 4 of this Act, the 8-19 nonprofit provider is not required to distribute the charitable 8-20 health care assets and may satisfy the requirements of this Act 8-21 through continued use of the assets by the nonprofit provider, 8-22 provided that the assets are dedicated to a charitable health care 8-23 purpose in the nonprofit provider's service area. 8-24 (h) In a case in which there is an affiliated nonprofit 8-25 provider in the service area of the nonprofit provider that can 8-26 satisfy the requirements of this Act, the nonprofit provider is not 8-27 required to distribute the charitable health care assets and may 9-1 satisfy the requirements of this Act through continued use of the 9-2 assets by the affiliated nonprofit provider, provided that the 9-3 assets are dedicated to a charitable health care purpose in the 9-4 nonprofit provider's service area. For purposes of this subsection, 9-5 nonprofit providers are affiliated nonprofit providers if they 9-6 share common governance. 9-7 SECTION 6. NOTICE OF AGREEMENT OR TRANSACTION. (a) A 9-8 nonprofit provider that signs a letter of intent or another 9-9 document evidencing the intent to enter into an agreement or 9-10 transaction described by Section 4 of this Act shall notify the 9-11 attorney general and shall publish notice in accordance with 9-12 Section 7 of this Act. 9-13 (b) The notice to the attorney general must: 9-14 (1) be made in writing not later than the earlier of: 9-15 (A) the fifth day after the date the letter of 9-16 intent or other document is signed; or 9-17 (B) the 90th day before the date on which the 9-18 agreement or transaction is to become effective; and 9-19 (2) disclose the conditions under which the agreement 9-20 or transaction will be made according to the best information 9-21 available to the nonprofit provider. 9-22 (c) The notice provided to the attorney general under 9-23 Subsection (b) of this section must state: 9-24 (1) the identity of the nonprofit provider and any 9-25 nonprofit entity that owns or controls the nonprofit provider; 9-26 (2) the identity of the other nonprofit provider, the 9-27 for-profit entity, or the mutual plan provider with which the 10-1 proposed agreement or transaction is to be made; 10-2 (3) the identity of any other party to the proposed 10-3 agreement or transaction; 10-4 (4) the terms of the proposed agreement or 10-5 transaction; 10-6 (5) the value of consideration to be provided in 10-7 connection with the proposed agreement or transaction and the basis 10-8 on which this valuation is made; 10-9 (6) the value of the local appraisal of the nonprofit 10-10 provider's property, if requested under Section 5(a) of this Act; 10-11 (7) the identity of any individual or entity who is an 10-12 officer, director, or affiliate of the nonprofit provider and a 10-13 statement as to whether each named individual or entity: 10-14 (A) has been promised future employment as a 10-15 result of the proposed agreement or transaction; 10-16 (B) has been a party to discussions relating to 10-17 future employment as a result of the proposed agreement or 10-18 transaction; or 10-19 (C) has any other direct or indirect economic 10-20 interest in the proposed agreement or transaction; and 10-21 (8) the date on which the proposed agreement or 10-22 transaction is to become effective. 10-23 (d) The nonprofit provider shall notify the attorney general 10-24 of a material change in the agreement or transaction or the 10-25 information required by Subsection (c) of this section not later 10-26 than the 30th day before the date the agreement or transaction 10-27 becomes effective. The attorney general may waive the requirement 11-1 that the notice be provided within the time required by this 11-2 subsection if the attorney general finds the waiver is appropriate. 11-3 (e) The information submitted to the attorney general under 11-4 Subsections (c)(1), (2), (3), and (6) of this section and the 11-5 materials submitted with the notice are public information. The 11-6 attorney general shall make the information described by this 11-7 subsection available as required by Chapter 552, Government Code. 11-8 On the request of any person, the nonprofit provider shall make the 11-9 information described by Subsection (e) of this section available 11-10 at the business office of the nonprofit provider the address of 11-11 which is required to be published under Section 7 of this Act. 11-12 SECTION 7. PUBLICATION OF NOTICE. (a) The published notice 11-13 required by Section 6(a) of this Act must state: 11-14 (1) that the nonprofit provider intends to enter into 11-15 an agreement or transaction that is subject to this Act; 11-16 (2) the address of the business office of the 11-17 nonprofit provider in the nonprofit provider's publication area; 11-18 and 11-19 (3) that more detailed information concerning the 11-20 proposed agreement or transaction as described by Section 6 of this 11-21 Act is available at the business office. 11-22 (b) Not later than the 90th day before the date the 11-23 agreement or transaction is to become effective, the notice must be 11-24 published in the Texas Register and at least once in a newspaper of 11-25 general circulation in the nonprofit provider's publication area. 11-26 (c) If the nonprofit provider's publication area includes 11-27 more than one county, the nonprofit provider must send the notice 12-1 to a newspaper of general circulation in each county included in 12-2 the publication area. If a newspaper of general circulation does 12-3 not exist in a county in which publication is required, the 12-4 nonprofit provider shall send the notice to the commissioners court 12-5 of that county. The commissioners court may post the notice as it 12-6 finds appropriate. 12-7 (d) For purposes of this section, the nonprofit provider's 12-8 publication area is: 12-9 (1) each county in which a facility that is operated 12-10 by the nonprofit provider and that is affected by an agreement or 12-11 transaction described by Section 4 of this Act is located; 12-12 (2) if different from the county described in 12-13 Subdivision (1) of this subsection, the county in which the 12-14 principal executive office of the provider is located; and 12-15 (3) each county that is contiguous to a county 12-16 described by Subdivision (1) of this subsection. 12-17 SECTION 8. PUBLIC MEETING. (a) Except as provided by 12-18 Subsection (d) of this section, not later than the 45th day after 12-19 the date the attorney general receives the notice under Section 6 12-20 of this Act, the nonprofit provider shall: 12-21 (1) solicit written public comment; and 12-22 (2) hold at least one public meeting to obtain public 12-23 comment in the publication area of the nonprofit provider, as 12-24 determined under Section 7 of this Act. 12-25 (b) Not later than the 21st day before the date of the 12-26 public meeting, the nonprofit provider shall: 12-27 (1) publish notice of the request for written comment 13-1 and of the time and place of the meeting; and 13-2 (2) notify the commissioners court in each county in 13-3 the publication area of the nonprofit provider, as determined under 13-4 Section 7 of this Act, of the request for written comment and of 13-5 the time and place of the meeting. 13-6 (c) The notice provided under Subsection (b)(1) of this 13-7 section must state the address of the business office of the 13-8 nonprofit provider in the nonprofit provider's publication area, as 13-9 determined under Section 7 of this Act, and must state that more 13-10 detailed information concerning the proposed agreement or 13-11 transaction is available at the business office. 13-12 (d) A nonprofit provider that enters into an agreement or 13-13 transaction described by Section 4 of this Act with another 13-14 nonprofit provider that is located in the same publication area, as 13-15 determined under Section 7 of this Act, is not required to hold a 13-16 public meeting under Subsection (a)(2) of this section. 13-17 SECTION 9. ENFORCEMENT BY ATTORNEY GENERAL'S OFFICE. (a) 13-18 The attorney general may bring an action in a district court of 13-19 Travis County for: 13-20 (1) a temporary restraining order, a temporary 13-21 injunction, or a permanent injunction to prevent a nonprofit 13-22 provider from entering into an agreement or transaction described 13-23 by Section 4 of this Act in violation of this Act; 13-24 (2) a civil penalty in an amount not to exceed $10,000 13-25 for each day of a continuing violation of this Act; or 13-26 (3) any other appropriate relief authorized under a 13-27 statute or the common law. 14-1 (b) In an action brought under this section in which the 14-2 attorney general prevails, the court may award to the attorney 14-3 general the costs of the suit and attorney's fees. 14-4 SECTION 10. EFFECTIVE DATE. This Act takes effect September 14-5 1, 2001. 14-6 SECTION 11. TRANSITION. (a) This Act applies only to: 14-7 (1) an agreement described by Section 4 of this Act 14-8 that is entered into on or after September 1, 2001; or 14-9 (2) a transaction described by Section 4 of this Act 14-10 that is made pursuant to an agreement entered into on or after 14-11 September 1, 2001. 14-12 (b) An agreement described by Section 4 of this Act that is 14-13 entered into before September 1, 2001, and a transaction described 14-14 by Section 4 of this Act that is made pursuant to an agreement 14-15 entered into before September 1, 2001, are governed by the law as 14-16 it existed immediately before the effective date of this Act, and 14-17 that law is continued in effect for that purpose.