1-1     By:  Maxey, Kitchen (Senate Sponsor - Ellis)           H.B. No. 393
 1-2           (In the Senate - Received from the House May 7, 2001;
 1-3     May 7, 2001, read first time and referred to Committee on Health
 1-4     and Human Services; May 11, 2001, reported favorably by the
 1-5     following vote:  Yeas 7, Nays 0; May 11, 2001, sent to printer.)
 1-6                            A BILL TO BE ENTITLED
 1-7                                   AN ACT
 1-8     relating to certain nonprofit entities that provide health or
 1-9     long-term care or health benefit plans; providing a penalty.
1-10           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-11           SECTION 1.  PURPOSE AND FINDINGS.  Nonprofit health care
1-12     providers have historically served the needs of their community,
1-13     including the needs of uninsured individuals in the community.
1-14     Access to high quality, affordable health care is a continuing need
1-15     in a state with over four million uninsured individuals and
1-16     millions more individuals who do not have adequate insurance.
1-17     Changes in the health care market have caused a substantial number
1-18     of nonprofit health care providers and nonprofit health benefit
1-19     plan providers to establish new ventures, affecting hundreds of
1-20     millions of charitable dollars.  As these changes in the health
1-21     care system occur, it is in the best interest of this state to
1-22     ensure that these health care assets, which are impressed with a
1-23     constructive charitable trust for health care purposes, continue to
1-24     serve the public and the unmet health care needs in this state.
1-25           SECTION 2.  SHORT TITLE.  This Act may be cited as the
1-26     Charitable Health Care Trust Act.
1-27           SECTION 3.  DEFINITIONS.  In this Act:
1-28                 (1)  "Charitable health care organization" means an
1-29     organization that is:
1-30                       (A)  exempt from federal income tax under Section
1-31     501(a) of the Internal Revenue Code of 1986 by being listed as an
1-32     exempt organization in Section 501(c)(3) of the code; and
1-33                       (B)  dedicated to:
1-34                             (i)  serving unmet health care needs in
1-35     this state, particularly the health care needs of low-income
1-36     uninsured and underserved populations; and
1-37                             (ii)  promoting access to health care and
1-38     improving the quality of health care.
1-39                 (2)  "For-profit entity" means a business entity that
1-40     is not a mutual plan provider or a nonprofit provider.
1-41                 (3)  "Health benefit plan provider" means an insurer,
1-42     group hospital service corporation, health maintenance
1-43     organization, or other entity that issues:
1-44                       (A)  an individual, group, blanket, or franchise
1-45     insurance policy, insurance agreement, or group hospital service
1-46     contract that provides benefits for medical or surgical expenses
1-47     incurred as a result of an accident or sickness;
1-48                       (B)  an evidence of coverage or group subscriber
1-49     contract; or
1-50                       (C)  a long-term care insurance policy.
1-51                 (4)  "Health care provider" means an entity licensed to
1-52     provide health or long-term care.  The term includes a facility
1-53     licensed under Subtitle B, Title 4, Health and Safety Code.
1-54                 (5)  "Mutual plan provider" means a mutual or mutual
1-55     assessment association subject to Chapter 11, 12, 13, or 14,
1-56     Insurance Code, that provides health and accident insurance,
1-57     including any entity exempt under Article 14.17, Insurance Code.
1-58                 (6)  "Nonprofit provider" means a health benefit plan
1-59     provider or a health care provider that is:
1-60                       (A)  exempt from federal income tax under Section
1-61     501(a) of the Internal Revenue Code of 1986 by being listed as an
1-62     exempt organization in Section 501(c)(3) or 501(c)(4) of the code;
1-63                       (B)  incorporated under the Texas Non-Profit
1-64     Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil
 2-1     Statutes) or a similar law of another state;
 2-2                       (C)  exempt from state franchise, property, and
 2-3     sales taxes; or
 2-4                       (D)  organized and operated exclusively for the
 2-5     promotion of social welfare and that normally receives more than
 2-6     one-third of its support in a year from private or public gifts,
 2-7     grants, contributions, or membership fees.
 2-8           SECTION 4.  DUTIES OF NONPROFIT PROVIDER.  (a)  A nonprofit
 2-9     provider shall comply with this Act, in accordance with the periods
2-10     established by this Act, with respect to an agreement or
2-11     transaction under which the nonprofit provider directly or
2-12     indirectly:
2-13                 (1)  sells, transfers, leases, exchanges, provides an
2-14     option with respect to, or otherwise disposes of assets of the
2-15     nonprofit provider in favor of another nonprofit provider, a
2-16     for-profit entity, or a mutual plan provider;
2-17                 (2)  restructures as or converts to another nonprofit
2-18     provider, a for-profit entity, or a mutual plan provider;
2-19                 (3)  transfers control, responsibility, or governance
2-20     of the assets, operations, or business of the nonprofit provider in
2-21     favor of another nonprofit provider, a for-profit entity, or a
2-22     mutual plan provider; or
2-23                 (4)  closes a facility operated by the nonprofit
2-24     provider or dissolves.
2-25           (b)  Subsection (a)(1) or (2) of this section applies only
2-26     if:
2-27                 (1)  the fair market value of the assets of the
2-28     nonprofit provider involved in the proposed agreement or
2-29     transaction is at least 30 percent of the value of the total assets
2-30     of the nonprofit provider; or
2-31                 (2)  the fair market value of the assets of the
2-32     nonprofit provider involved in the proposed agreement or
2-33     transaction, when added to the fair market value of all assets of
2-34     the nonprofit provider that have been subject to a previous
2-35     agreement or transaction described by Subsection (a)(1), (2), or
2-36     (3) of this section that has been made during the two-year period
2-37     before the date on which the proposed agreement or transaction
2-38     becomes effective, is at least 35 percent of the value of the total
2-39     assets of the nonprofit provider.
2-40           (c)  Subsection (a)(3) of this section applies only if:
2-41                 (1)  the fair market value of the assets of the
2-42     nonprofit provider with respect to which control, responsibility,
2-43     or governance would be transferred under the proposed agreement or
2-44     transaction, is at least 30 percent of the value of the total
2-45     assets of the nonprofit provider;
2-46                 (2)  the fair market value of the assets of the
2-47     nonprofit provider with respect to which control, responsibility,
2-48     or governance would be transferred under the proposed agreement or
2-49     transaction, when added to the fair market value of all assets of
2-50     the nonprofit provider that have been subject to a previous
2-51     agreement or transaction described by Subsection (a)(1), (2), or
2-52     (3) of this section that has been made during the two-year period
2-53     before the date on which the proposed agreement or transaction
2-54     becomes effective, is at least 35 percent of the value of the total
2-55     assets of the nonprofit provider;
2-56                 (3)  the gross revenues associated with business or
2-57     operations of the nonprofit provider with respect to which control,
2-58     responsibility, or governance would be transferred under the
2-59     proposed agreement or transaction is at least 30 percent of the
2-60     value of the gross revenues associated with all of the business or
2-61     operations of the nonprofit provider; or
2-62                 (4)  the gross revenues associated with business or
2-63     operations of the nonprofit provider with respect to which control,
2-64     responsibility, or governance would be transferred under the
2-65     proposed agreement or transaction, when added to the gross revenues
2-66     associated with the business or operations with respect to which
2-67     control, responsibility, or governance has been transferred under a
2-68     previous agreement or transaction described by Subsection (a)(3) of
2-69     this section that has been made during the two-year period before
 3-1     the date on which the proposed agreement or transaction becomes
 3-2     effective, is at least 35 percent of the value of the gross
 3-3     revenues associated with all of the business or operations of the
 3-4     nonprofit provider.
 3-5           (d)  For purposes of applying Subsection (b) or (c)(1) or (2)
 3-6     of this section:
 3-7                 (1)  the fair market value of assets of a nonprofit
 3-8     provider involved in a previous agreement or transaction is
 3-9     determined as of the time the previous agreement or transaction
3-10     became effective; and
3-11                 (2)  the fair market value of the total assets of the
3-12     nonprofit provider is determined as of the time the proposed
3-13     agreement or transaction would become effective.
3-14           (e)  For purposes of applying Subsection (c)(3) or (4) of
3-15     this section:
3-16                 (1)  the gross revenues associated with the business or
3-17     operations of a nonprofit provider with respect to which control,
3-18     responsibility, or governance has been transferred under a previous
3-19     agreement or transaction are determined as of the time the previous
3-20     agreement or transaction became effective; and
3-21                 (2)  the value of the gross revenues associated with
3-22     all of the business or operations of the nonprofit provider is
3-23     determined as of the time the proposed agreement or transaction
3-24     would become effective.
3-25           (f)  If a nonprofit provider is a health care system that
3-26     owns or operates more than one licensed hospital, each separately
3-27     licensed hospital is a nonprofit provider for purposes of applying
3-28     this section and, for purposes of applying Subsections (b), (c),
3-29     (d), and (e) of this section, only the assets and business or
3-30     operations of the separately licensed hospital shall be considered.
3-31           SECTION 5.  CHARITABLE HEALTH CARE ASSETS. (a)  Except as
3-32     provided by Subsection (b) of this section,  a nonprofit provider
3-33     that enters into an agreement or transaction described by Section 4
3-34     of this Act shall:
3-35                 (1)  establish the fair market value of the assets of
3-36     the nonprofit provider; and
3-37                 (2)  request an appraisal from the chief appraiser or
3-38     appraisers of the appraisal district or districts in which the
3-39     nonprofit provider's property is located.
3-40           (b)  A nonprofit provider that enters into an agreement or
3-41     transaction  described by Section 4 of this Act with another
3-42     nonprofit provider is not required to request an appraisal from the
3-43     chief appraiser or appraisers of the appraisal district or
3-44     districts in which the nonprofit provider's property is located.
3-45           (c)  Subject to Subsections (f), (g), and (h) of this
3-46     section, the charitable health care assets resulting from an
3-47     agreement or transaction described by Section 4 of this Act must be
3-48     irrevocably dedicated to a charitable health care purpose and
3-49     distributed to an existing or newly created charitable health care
3-50     organization that will operate in the service area of the nonprofit
3-51     provider and that is designated to receive the distributions.
3-52           (d)  An assessor who is not an employee of the nonprofit
3-53     provider and who is otherwise independent of the nonprofit provider
3-54     and of the other nonprofit provider, the for-profit entity, or the
3-55     mutual plan provider with which the agreement or transaction is
3-56     being made  shall determine the fair market value of the charitable
3-57     health care assets.  In determining the fair market value, the
3-58     assessor shall consider market value, investment or earnings value,
3-59     net asset value, and a control premium, if any. The nonprofit
3-60     provider shall pay for the assessment conducted under this
3-61     subsection.
3-62           (e)  A portion of the consideration conveyed to the
3-63     charitable health care organization may consist of stock of a
3-64     for-profit entity that is a party to the agreement or transaction.
3-65     Stock conveyed to the charitable health care organization in
3-66     accordance with this subsection may not be subject to any
3-67     requirements relating to the sale or transfer of the stock by the
3-68     charitable health care organization, except to the extent required
3-69     by federal law.  In addition, the agreement or transaction may not
 4-1     place unreasonable requirements on the sale or transfer of the
 4-2     stock that would adversely affect the value of the stock.
 4-3           (f)  The charitable health care assets may be used to satisfy
 4-4     a debt or similar obligation of the nonprofit provider that exists
 4-5     at the time the agreement or transaction becomes effective.
 4-6           (g)  In a case in which only a portion of the assets or
 4-7     operations or business of a nonprofit provider is subject to an
 4-8     agreement or transaction described by Section 4 of this Act, the
 4-9     nonprofit provider is not required to distribute the charitable
4-10     health care assets and may satisfy the requirements of this Act
4-11     through continued use of the assets by the nonprofit provider,
4-12     provided that the assets are dedicated to a charitable health care
4-13     purpose in the nonprofit provider's service area.
4-14           (h)  In a case in which there is an affiliated nonprofit
4-15     provider in the service area of the nonprofit provider that can
4-16     satisfy the requirements of this Act, the nonprofit provider is not
4-17     required to distribute the charitable health care assets and may
4-18     satisfy the requirements of this Act through continued use of the
4-19     assets by the affiliated nonprofit provider, provided that the
4-20     assets are dedicated to a charitable health care purpose in the
4-21     nonprofit provider's service area. For purposes of this subsection,
4-22     nonprofit providers are affiliated nonprofit providers if they
4-23     share common governance.
4-24           SECTION 6.  NOTICE OF AGREEMENT OR TRANSACTION.  (a)  A
4-25     nonprofit provider that signs a letter of intent or another
4-26     document evidencing the intent to enter into an agreement or
4-27     transaction described by Section 4 of this Act shall notify the
4-28     attorney general and shall publish notice in accordance with
4-29     Section 7 of this Act.
4-30           (b)  The notice to the attorney general must:
4-31                 (1)  be made in writing not later than the earlier of:
4-32                       (A)  the fifth day after the date the letter of
4-33     intent or other document is signed; or
4-34                       (B)  the 90th day before the date on which the
4-35     agreement or transaction is to become effective; and
4-36                 (2)  disclose the conditions under which the agreement
4-37     or transaction will be made according to the best information
4-38     available to the nonprofit provider.
4-39           (c)  The notice provided to the attorney general under
4-40     Subsection (b) of this section must state:
4-41                 (1)  the identity of the nonprofit provider and any
4-42     nonprofit entity that owns or controls the nonprofit provider;
4-43                 (2)  the identity of the other nonprofit provider, the
4-44     for-profit entity, or the mutual plan provider with which the
4-45     proposed agreement or transaction is to be made;
4-46                 (3)  the identity of any other party to the proposed
4-47     agreement or transaction;
4-48                 (4)  the terms of the proposed agreement or
4-49     transaction;
4-50                 (5)  the value of consideration to be provided in
4-51     connection with the proposed agreement or transaction and the basis
4-52     on which this valuation is made;
4-53                 (6)  the value of the local appraisal of the nonprofit
4-54     provider's property, if requested under Section 5(a) of this Act;
4-55                 (7)  the identity of any individual or entity who is an
4-56     officer, director, or affiliate of the nonprofit provider and a
4-57     statement as to whether each named individual or entity:
4-58                       (A)  has been promised future employment as a
4-59     result of the proposed agreement or transaction;
4-60                       (B)  has been a party to discussions relating to
4-61     future employment as a result of the proposed agreement or
4-62     transaction; or
4-63                       (C)  has any other direct or indirect economic
4-64     interest in the proposed agreement or transaction; and
4-65                 (8)  the date on which the proposed agreement or
4-66     transaction is to become effective.
4-67           (d)  The nonprofit provider shall notify the attorney general
4-68     of a material change in the agreement or transaction  or the
4-69     information required by Subsection (c) of this section not later
 5-1     than the 30th day before the date the agreement or transaction
 5-2     becomes effective.  The attorney general may waive the requirement
 5-3     that the notice be provided within the time required by this
 5-4     subsection if the attorney general finds the waiver is appropriate.
 5-5           (e)  The information submitted to the attorney general under
 5-6     Subsections (c)(1), (2), (3), and (6) of this section and the
 5-7     materials submitted with the notice are public information.  The
 5-8     attorney general shall make the information described by this
 5-9     subsection available as required by Chapter 552, Government Code.
5-10     On the request of any person, the nonprofit provider shall make the
5-11     information described by this subsection available at the business
5-12     office of the nonprofit provider the address of which is required
5-13     to be published under Section 7 of this Act.
5-14           SECTION 7. PUBLICATION OF NOTICE. (a)  The published notice
5-15     required by Section 6(a) of this Act must state:
5-16                 (1)  that the nonprofit provider intends to enter into
5-17     an agreement or transaction that is subject to this Act;
5-18                 (2)  the address of the business office of the
5-19     nonprofit provider in the nonprofit provider's publication area;
5-20     and
5-21                 (3)  that more detailed information concerning the
5-22     proposed agreement or transaction as described by Section 6 of this
5-23     Act is available at the business office.
5-24           (b)  Not later than the 90th day before the date the
5-25     agreement or transaction is to become effective, the notice must be
5-26     published in the Texas Register and at least once in a newspaper of
5-27     general circulation in the nonprofit provider's publication area.
5-28           (c)  If the nonprofit provider's publication area includes
5-29     more than one county, the nonprofit provider must send the notice
5-30     to a newspaper of general circulation in each county included in
5-31     the publication area. If a newspaper of general circulation does
5-32     not exist in a county in which publication is required, the
5-33     nonprofit provider shall send the notice to the commissioners court
5-34     of that county.  The commissioners court may post the notice as it
5-35     finds appropriate.
5-36           (d)  For purposes of this section, the nonprofit provider's
5-37     publication area is:
5-38                 (1)  each county in which a facility that is operated
5-39     by the nonprofit provider and that is affected by an agreement or
5-40     transaction described by Section 4 of this Act is located;
5-41                 (2)  if different from the county described in
5-42     Subdivision (1) of this subsection, the county in which the
5-43     principal executive office of the provider is located; and
5-44                 (3)  each county that is contiguous to a county
5-45     described by Subdivision (1) of this subsection.
5-46           SECTION 8.  PUBLIC MEETING.  (a)  Except as provided by
5-47     Subsection (d) of this section, not later than the 45th day after
5-48     the date the attorney general receives the notice under Section 6
5-49     of this Act, the nonprofit provider shall:
5-50                 (1)  solicit written public comment; and
5-51                 (2)  hold at least one public meeting to obtain public
5-52     comment in the publication area of the nonprofit provider, as
5-53     determined under Section 7 of this Act.
5-54           (b)  Not later than the 21st day before the date of the
5-55     public meeting, the nonprofit provider shall:
5-56                 (1)  publish notice of the request for written comment
5-57     and of the time and place of the meeting; and
5-58                 (2)  notify the commissioners court in each county in
5-59     the publication area of the nonprofit provider, as determined under
5-60     Section 7 of this Act, of the request for written comment and of
5-61     the time and place of the meeting.
5-62           (c)  The notice provided under Subsection (b)(1) of this
5-63     section must state the address of the business office of the
5-64     nonprofit provider in the nonprofit provider's publication area, as
5-65     determined under Section 7 of this Act, and must state that more
5-66     detailed information concerning the proposed agreement or
5-67     transaction is available at the business office.
5-68           (d)  A nonprofit provider that enters into an agreement or
5-69     transaction described by Section 4 of this Act with another
 6-1     nonprofit provider that is located in the same publication area, as
 6-2     determined under Section 7 of this Act, is not required to hold a
 6-3     public meeting under Subsection (a)(2) of this section.
 6-4           SECTION 9.  ENFORCEMENT BY ATTORNEY GENERAL'S OFFICE.  (a)
 6-5     The attorney general may bring an action in a district court of
 6-6     Travis County for:
 6-7                 (1)  a temporary restraining order, a temporary
 6-8     injunction, or a permanent injunction to prevent a nonprofit
 6-9     provider from entering into an agreement or transaction described
6-10     by Section 4 of this Act in violation of this Act;
6-11                 (2)  a civil penalty in an amount not to exceed $10,000
6-12     for each day of a continuing violation of this Act; or
6-13                 (3)  any other appropriate relief authorized under a
6-14     statute or the common law.
6-15           (b)  In an action brought under this section in which the
6-16     attorney general prevails, the court may award to the attorney
6-17     general the costs of the suit and attorney's fees.
6-18           SECTION 10.  EFFECTIVE DATE.  This Act takes effect September
6-19     1, 2001.
6-20           SECTION 11.  TRANSITION.  (a)  This Act applies only to:
6-21                 (1)  an agreement described by Section 4 of this Act
6-22     that is entered into on or after September 1, 2001; or
6-23                 (2)  a transaction described by Section 4 of this Act
6-24     that  is made pursuant to an agreement entered into on or after
6-25     September 1, 2001.
6-26           (b)  An agreement described by Section 4 of this Act that is
6-27     entered into before September 1, 2001, and a transaction described
6-28     by Section 4 of this Act that is made pursuant to an agreement
6-29     entered into before September 1, 2001, are governed by the law as
6-30     it existed immediately before the effective date of this Act, and
6-31     that law is continued in effect for that purpose.
6-32                                  * * * * *