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.