Office of House Bill AnalysisH.B. 393
By: Maxey
Public Health


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. 


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. 


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

_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).  


September 1, 2001.