HBA-DMD C.S.H.B. 876 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 876 By: Maxey Public Health 4/25/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, when a nonprofit health care organization becomes a for-profit 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 individual 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. C.S.H.B. 876 requires nonprofit health care organizations to notify the attorney general when they are considering a conversion to for-profit status as well as to provide public notice of such in a newspaper of general circulation. 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. SECTION BY SECTION ANALYSIS SECTION 1. PURPOSE AND FINDINGS. Sets forth legislative findings. SECTION 2. SHORT TITLE. Authorizes this Act to be cited as the Charitable Health Care Trust Act. SECTION 3. DEFINITIONS. Defines "for-profit entity," "health benefit plan provider," "health care provider," "mutual plan provider," and "nonprofit provider." SECTION 4. DUTIES OF NONPROFIT PROVIDER. (a) Requires a nonprofit provider (provider) to comply with this Act, in accordance with the time periods established by this Act, regarding an agreement or transaction under which the nonprofit provider directly or indirectly: (1) sells, transfers, leases, exchanges, provides an option with respect to, or otherwise disposes of assets of the nonprofit provider in favor of a for-profit entity or a mutual plan provider; (2) restructures as or converts to a for-profit entity or a mutual plan provider; (3) transfers control, responsibility, or governance of the assets, operations, or business of the provider in favor of a for-profit entity or a mutual plan provider; or (4) closes a facility operated by the provider or itself dissolves. (b) Sets forth that Subsection (a)(1) or (2) of this section applies only if the assets of a provider involved in the proposed agreement or transaction are at least 30 percent of the fair market value of the provider's total assets; or if the fair market value of the provider's assets involved in the proposed agreement or transaction, when added to the fair market value of the provider's assets that have been subject to an arrangement under Subsection (a)(1), (2), or (3) of this section, made during the two years preceding the arrangement's effective date, is at least 35 percent of the value of the provider's total assets. (c) Sets forth that Subsection (a)(3) of this section applies only if: (1) the fair market value of the assets of the nonprofit provider that would be transferred under the proposed agreement or transaction regarding control, responsibility, or governance is at least 30 percent of the value of the provider's total assets; (2) the fair market value of the provider's assets that would be transferred under the proposed agreement or transaction regarding control, responsibility, or governance, is at least 35 percent of the total assets of the nonprofit provider that have been subject to a previous agreement or transaction described by Subsection (a)(1), (2), or (3) of this section that has been made during the two-year period before the date on which the proposed agreement or transaction becomes effective; (3) the provider's gross revenues associated with business or operations regarding the transfer of control, responsibility, or governance are at least 30 percent of the value of the gross revenues associated with all of the provider's business or operations; or (4) the gross revenues associated with the provider's business or operations with respect to which control, responsibility, or governance that would be transferred under the proposed agreement or transaction, when added to the gross revenues associated with the business or operations with respect to which control, responsibility, or governance has been transferred under a previous agreement or transaction described by Subsection (a)(3) of this section that has been made during the two-year period before the date on which the proposed agreement or transaction becomes effective, is at least 35 percent of the value of the gross revenues associated with all of the provider's business or operations. (d) Sets forth that for the purposes of applying Subsection (b) or (c)(1) or (2) of this section: (1) the fair market value of the provider's assets involved in a previous agreement or transaction is determined at the time the previous agreement or transaction became effective; and (2) the fair market value of the provider's total assets is determined as of the time the proposed agreement or transaction would become effective. (e) Sets forth that for the purposes of applying Subsection (c)(3) or (4) of this section: (1) the gross revenues associated with the provider's business or operations with respect to which control, responsibility, or governance has been transferred under a previous agreement or transaction are determined at the time the previous agreement or transaction became effective; and (2) the value of the gross revenues associated with all of the provider's business or operations is determined as of the time the proposed agreement or transaction would become effective. (f) Requires that only the assets and business or operations of separately licensed hospitals are to be considered, if the provider is a health care system that owns or operates more than one licensed hospital, in which case each of the separately licensed hospitals will be considered a provider for the purposes of applying this section and, for the purposes of applying Subsections (b), (c), (d), and (e) of this section. SECTION 5. NOTICE OF AGREEMENT OR TRANSACTION. (a) Requires a provider that signs a letter of intent or another document showing the intent to enter into an agreement or transaction described by Section 4 to notify the attorney general and publish notice in accordance with Section 6. (b) Provides that the notice to the attorney general must be made in writing no later than either the fifth day after the date the letter of intent or other document is signed or the 90th day before the date on which the agreement or transaction is to become effective, whichever comes first. Additionally, the notice must disclose the conditions under which the agreement or transaction will be made according to the best information available to the provider. (c) Provides that the notice provided to the attorney general under Subsection (b) of this section must state: (1) the identity of the provider and any nonprofit entity that owns or controls the provider; (2) the identity of the for-profit entity or mutual plan provider with which the proposed agreement or transaction is to be made; (3) the identity of any other party to the proposed agreement or transaction; (4) the terms of the proposed agreement or transaction; (5) the value of consideration to be provided in connection with the proposed agreement or transaction and the basis on which this valuation is made; (6) the identity of any individual or entity who is an officer, director, or affiliate of the provider and a statement as to whether each named individual or entity has been promised future employment as a result of the proposed agreement or transaction; has been a party to discussions relating to future employment as a result of the proposed agreement or transaction; or has any other direct or indirect economic interest in the proposed agreement or transaction; and (7) the date on which the proposed agreement or transaction is to become effective. (d) Requires the provider to notify the attorney general of a material change in the agreement or transaction or the information required by Subsection (c) of this section no later than 30 days before the date the agreement or transaction becomes effective. Authorizes the attorney general to waive the requirement that the notice be provided within 30 days provided that the attorney general finds that the waiver is appropriate. (e) Sets forth that the notice and the accompanying materials are public information and must be submitted to the attorney general who is then required to make the information available as required by Chapter 552 (Public Information), Government Code. Requires the provider, on the request of any person, to make the information available at the provider's business office, the address of which is required to be published under Section 6. SECTION 6. PUBLICATION OF NOTICE. (a) Provides that the published notice required by Section 5(a) must state that the provider intends to enter into an agreement or transaction subject to this Act, the address of the provider's business office in the provider's publication area (area), and that more detailed information concerning the proposed agreement or transaction as described by Section 5 is available at the business office. (b) Provides that the notice must be published in the Texas Register and at least once in a newspaper of general circulation in the provider's area, no later than 90 days before the date the agreement or transaction is to become effective. (c) Sets forth that the provider must send the notice to a newspaper of general circulation in each county included in the area, provided that the provider's area includes more than one county. Requires the provider to send the notice to the county commissioners court of a county, which is authorized to post the notice as it finds appropriate, if a newspaper of general circulation does not exist in that county. (d) Sets forth that for purposes of this section, a provider's area is: (1) each county in which a facility that is operated by the nonprofit provider and that is affected by an agreement or transaction described by Section 4 of this Act that is located; (2) if different from the county described in Subdivision (1) of this subsection, the county in which the principal executive office of the provider is located; (3) each county that is adjacent to a county described by Subdivisions (1) of this subsection. SECTION 7. ENFORCEMENT BY ATTORNEY GENERAL'S OFFICE. Authorizes the attorney general to bring an action in a district court of Travis County for a temporary restraining order, a temporary injunction, or a permanent injunction in order to prevent a provider from entering into an agreement or transaction described by Section 4 as a violation of this Act. Authorizes the attorney general to bring an action in a district court of Travis County for a civil penalty in an amount not to exceed $10,000 for each day of a continuing violation of this Act; or any other appropriate relief authorized under a statute or the common law. Authorizes the court to award the attorney general the costs of the suit and attorney's fees, when the attorney general prevails in an action brought under this section. SECTION 8.Effective date: September 1, 1999. SECTION 9.Makes application of this Act prospective. SECTION 10.Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE This substitute modifies proposed SECTION 6, Subsection (d), by replacing Subdivision (1), to set forth that for purposes of this section, a provider's publication area is each county in which a facility that is operated by the nonprofit provider and that is affected by an agreement or transaction described by Section 4 of this Act is located, whereas Subdivision (1) of the original set forth that for the purposes of this section, a provider's area is the county in which the provider maintains its registered agent. In Subdivision (3), the substitute deletes a reference to Subdivision (2), which provides a description of a county that is contiguous to each county in a nonprofit provider's publication area. The substitute deletes Subdivision (4), which set forth that for purposes of this section, a provider's area is each county not described by Subdivisions (1), (2), or (3) of this subsection in which the provider maintains an office.