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S1405......................................................by STATE AFFAIRS HOSPITALS - CHARITABLE NONPROFIT - Adds to existing law to govern the acquisition of charitable, nonprofit hospitals by requiring notice to the Attorney General and giving the Attorney General duties and responsibilities in the review of such pending acquisitions. 02/05 Senate intro - 1st rdg - to printing 02/06 Rpt prt - to St Aff
S1405|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fourth Legislature Second Regular Session - 1998IN THE SENATE SENATE BILL NO. 1405 BY STATE AFFAIRS COMMITTEE 1 AN ACT 2 RELATING TO NONPROFIT HOSPITAL ACQUISITIONS; AMENDING TITLE 48, IDAHO CODE, BY 3 THE ADDITION OF A NEW CHAPTER 15, TITLE 48, IDAHO CODE, TO PROVIDE A 4 STATEMENT OF LEGISLATIVE FINDINGS AND INTENT; TO PROVIDE DEFINITIONS; TO 5 PROVIDE FOR NOTICE OF NONPROFIT HOSPITAL ACQUISITIONS; TO PROVIDE FOR 6 NOTICE REQUIREMENTS; TO PROVIDE FOR PUBLIC NOTIFICATION OF NONPROFIT HOS- 7 PITAL ACQUISITIONS; TO PROVIDE FOR PUBLIC HEARINGS; TO PROVIDE FOR AUTHOR- 8 ITY OF ATTORNEY GENERAL AND DISTRICT COURT; TO PROVIDE FOR THE PROHIBITION 9 OF ANY PRIVATE BENEFIT FROM THE ACQUISITION OF A NONPROFIT HOSPITAL; TO 10 PROVIDE FOR THE APPLICATION OF THE CHAPTER; TO PROVIDE FOR THE PRESERVA- 11 TION OF THE ATTORNEY GENERAL'S COMMON LAW AND OTHER STATUTORY POWERS; AND 12 AMENDING CHAPTER 13, TITLE 39, IDAHO CODE, BY THE ADDITION OF A NEW SEC- 13 TION 39-1331A, IDAHO CODE, TO PROHIBIT PRIVATE BENEFIT BY THE BOARD FROM 14 SALE OF DISTRICT PROPERTY. 15 Be It Enacted by the Legislature of the State of Idaho: 16 SECTION 1. That Title 48, Idaho Code, be, and the same is hereby amended 17 by the addition thereto of a NEW CHAPTER , to be known and desig- 18 nated as Chapter 15, Title 48, Idaho Code, and to read as follows: 19 CHAPTER 15 20 IDAHO CHARITABLE NONPROFIT HOSPITAL SALE OR CONVERSION ACT 21 48-1501. LEGISLATIVE FINDINGS AND INTENT. (1) Charitable, nonprofit hos- 22 pitals are assets held in charitable trust, and are irrevocably dedicated to 23 the specific charitable purposes set forth in the articles of incorporation of 24 the nonprofit corporations or governing papers of the nonprofit entities own- 25 ing such hospitals. 26 (2) The public is the beneficiary of the trust on which charitable non- 27 profit hospitals hold their assets. 28 (3) Charitable, nonprofit hospitals have a substantial and beneficial 29 effect on the provision of health care to the people of Idaho, providing as 30 part of their charitable mission uncompensated care to uninsured low-income 31 families and under-compensated care to the poor, elderly and disabled. 32 (4) The attorney general is entrusted by law to bring actions on behalf 33 of the public in the event of a breach of the charitable trust of a nonprofit 34 entity and to represent the public in the sale or other transfer of the assets 35 of a charitable trust. 36 (5) It is in the best interests of the public to ensure that the public 37 interest is fully protected whenever the assets of a charitable nonprofit hos- 38 pital are transferred or converted out of the charitable trust and to or for a 39 for-profit entity or enterprise. 40 (6) This chapter shall be known and cited as the "Charitable Nonprofit 41 Hospital Sale or Conversion Act." 2 1 48-1502. DEFINITIONS. As used in this chapter: 2 (1) (a) "Acquisition" means any acquisition by a person or persons of an 3 ownership or controlling interest in a charitable, nonprofit hospital or 4 its assets, whether by purchase, merger, lease, gift, or otherwise, which 5 results in a change of ownership or control of twenty percent (20%) or 6 greater or which results in the acquiring person or persons holding a 7 fifty percent (50%) or greater interest in the ownership or control of the 8 charitable, nonprofit hospital or its assets. Acquisition also shall be 9 deemed to include the conversion of the status of a charitable nonprofit 10 hospital into a for-profit concern. Finally, acquisition shall also be 11 deemed to include any joint venture between a nonprofit corporation or 12 entity and its charitable, nonprofit hospital and a for-profit entity in 13 which the nonprofit corporation or entity commits twenty percent (20%) or 14 more of the assets of its charitable, nonprofit hospital, or the present 15 joint venture results in the nonprofit corporation or entity having com- 16 mitted, in total, twenty percent (20%) or more of its assets to its vari- 17 ous joint ventures. 18 (b) "Acquisition" does not include the acquisition of an ownership or 19 controlling interest in a charitable, nonprofit hospital owned by another 20 nonprofit corporation or entity if the transferee (i) is a nonprofit cor- 21 poration having a substantially similar charitable health care purpose as 22 the transferor or is a governmental entity, (ii) is exempt from federal 23 income tax under section 501(c)(3) of the Internal Revenue Code or as a 24 governmental entity, and (iii) will maintain representation from the 25 affected community on the local board. 26 (2) "Charitable, nonprofit hospital" means a hospital owned by a non- 27 profit corporation or entity. 28 (3) "Hospital" means a place devoted primarily to the maintenance and 29 operation of facilities for the diagnosis, treatment or care for not less than 30 twenty-four (24) hours in any week of two (2) or more nonrelated individuals 31 suffering from illness, disease, injury, deformity, or requiring care because 32 of old age, or a place devoted primarily to providing, for not less than 33 twenty-four (24) hours in any week, obstetrical or other medical or nursing 34 care for two (2) or more nonrelated individuals. The term "hospital" includes 35 public health centers in general, tuberculosis, mental, chronic disease and 36 other types of hospitals, and related facilities, such as laboratories, out- 37 patient departments, hospital-affiliated nursing homes, nurses' homes and 38 training facilities, and central service facilities operated in connection 39 with hospitals. 40 (4) "Nonprofit corporation" means a corporation organized under chapter 41 3, title 30, Idaho Code, or the nonprofit corporation law of another state. 42 (5) "Person" means natural persons, corporations both foreign and domes- 43 tic, trusts, partnerships both limited and general, incorporated or unincorpo- 44 rated associations, companies, trusts, business entities, and any other legal 45 entity, or any other group associated in fact although not a legal entity or 46 any agent, assignee, heir, employee, representative or servant thereof. 47 (6) "Reasonable fair value" means the price that the assets being trans- 48 ferred would bring in a competitive and open market under a fair sale with the 49 buyer and seller acting prudently, knowledgeably, and in their own best inter- 50 est and a reasonable time being allowed for exposure in the market. 51 48-1503. NOTICE OF NONPROFIT HOSPITAL ACQUISITIONS. (1) No persons shall 52 engage in the acquisition of a charitable, nonprofit hospital without first 53 having given notice to the attorney general and the public pursuant to this 54 chapter. Such notice must be given at least ninety (90) days prior to the 3 1 closing or consummation of the acquisition of the charitable, nonprofit hospi- 2 tal. 3 (2) Notice to the attorney general of an acquisition of a charitable non- 4 profit hospital shall be submitted to the attorney general on forms provided 5 by the attorney general and shall include the names of the parties to the 6 acquisition, including, as applicable, the names of the seller, purchaser and 7 any other parties to the acquisition. The notice shall also include the terms 8 of the proposed acquisition, the sale price, a copy of the acquisition agree- 9 ment, a financial and economic analysis and report from an independent expert 10 or consultant of the effect of the acquisition under the criteria set forth in 11 section 48-1504, Idaho Code, and all other related documents. A copy of the 12 notice and copies of all additional related materials shall be submitted to 13 the attorney general at the same time. The notice and all related documents 14 shall be subject to public disclosure. 15 (3) The notice shall also include the names and addresses of all individ- 16 uals who are or have been chosen as directors, officers, or board members of 17 the parties to the acquisition. Additionally, the notice shall contain a 18 statement acknowledging that the parties to the acquisition are under a con- 19 tinuing duty to notify the attorney general of any changes in the information 20 contained in the notice and that a violation of this duty may delay the clos- 21 ing of the acquisition. 22 (4) Within five (5) business days after the discovery of any changes in 23 information contained in the notice required by this chapter, the person or 24 persons giving notice shall provide copies to the attorney general of any doc- 25 uments and other materials relevant to the changes. For good cause, the ninety 26 (90) days' notice provided to the attorney general under subsection (1) of 27 this section may be extended by up to thirty (30) days following receipt of 28 the documents and other materials relevant to the changes. 29 (5) The notice shall be signed by duly authorized representatives of all 30 parties to the acquisition at the time the notice is submitted to the attorney 31 general. 32 48-1504. NOTICE REQUIREMENTS. The notice filed with the attorney general 33 shall contain information and responses that address the following issues: 34 (1) Whether the acquisition is permitted under the Idaho nonprofit corpo- 35 ration act and other laws of Idaho governing nonprofit entities, trusts or 36 charities; 37 (2) Whether the nonprofit hospital exercised due diligence in deciding to 38 sell, selecting the purchaser, and negotiating the terms and conditions of the 39 sale; 40 (3) The procedures used by the seller in making its decision, including 41 whether appropriate expert assistance was used; 42 (4) Whether there are any conflicts of interest including, but not lim- 43 ited to, conflicts of interest related to board members of, executives of, and 44 experts retained by the seller, purchaser, or parties to the acquisition; 45 (5) Whether the seller will receive reasonable fair value for its assets; 46 (6) Whether charitable funds are placed at unreasonable risk, if the 47 acquisition is financed in part by the seller; 48 (7) Whether any management contract under the acquisition is for reason- 49 ably fair value; 50 (8) Whether the sale proceeds will be used for appropriate charitable 51 health care purposes consistent with the seller's original purpose or for the 52 support and promotion of health care in the affected community and whether the 53 proceeds will be controlled as charitable funds independently of the purchaser 54 or parties to the acquisition; 4 1 (9) Whether a right of first refusal to repurchase the assets by a suc- 2 cessor nonprofit corporation or foundation if the hospital is subsequently 3 sold to, acquired by, or merged with another entity has been retained; 4 (10) Whether sufficient safeguards are included to assure the affected 5 community continued access to affordable care; 6 (11) Whether the purchaser and parties to the acquisition have made com- 7 mitments to provide health care to the disadvantaged, the uninsured, and the 8 underinsured and to provide benefits to the affected community to promote 9 improved health care. Activities and funding provided by the seller or its 10 successor nonprofit corporation or foundation to provide such health care may 11 be considered in evaluating compliance with this commitment; and 12 (12) If health care providers will be offered the opportunity to invest or 13 own an interest in the purchaser or a related entity to the purchaser, whether 14 procedures or safeguards are in place to avoid conflicts of interest in 15 patient referral and the nature of such procedures or safeguards. 16 48-1505. PUBLIC NOTIFICATION OF NONPROFIT HOSPITAL ACQUISITION. Within 17 five (5) business days after filing a completed notice with the attorney gen- 18 eral under section 48-1503, Idaho Code, the parties to the acquisition shall 19 publish notice of the acquisition in a newspaper of general circulation in the 20 county or counties where the hospital is located. The notice shall prominently 21 disclose the intended acquisition of the charitable, nonprofit hospital, state 22 the names of the parties to the agreement, and advise that citizens have sixty 23 (60) days within which they may submit written comments about the acquisition 24 to the attorney general or the parties to the acquisition. 25 48-1506. PUBLIC HEARING. The attorney general may, during the course of 26 review under this chapter, hold a public hearing in which any person may file 27 written comments and exhibits or appear and make a statement. In the event 28 that the attorney general elects to hold a public hearing, it shall be held 29 not later than sixty (60) days after the filing of a notice pursuant to sec- 30 tion 48-1503, Idaho Code. The hearing shall be held upon ten (10) business 31 days' notice. 32 48-1507. AUTHORITY OF ATTORNEY GENERAL AND DISTRICT COURT. (1) The attor- 33 ney general may institute and prosecute a civil action to enforce the provi- 34 sions of this chapter in the district court of the county in which the non- 35 profit corporation's hospital has its principal place of business or the dis- 36 trict court of Ada County. 37 (2) In addition to any civil remedies that exist under the common law, a 38 court may enjoin an acquisition, grant other injunctive relief, assess a civil 39 penalty of up to ten thousand dollars ($10,000) for each violation of this 40 chapter, or impose any combination of these remedies. 41 (3) If, in reviewing the notice, the attorney general, in his sole dis- 42 cretion, believes that a second opinion concerning the reasonable fair value 43 of the assets that are the subject of the acquisition is necessary, he may 44 employ, at the expense of the parties to the acquisition, reasonably necessary 45 expert assistance in making this determination. 46 48-1508. PRIVATE BENEFIT. No person who is an officer, director, board 47 member, or other fiduciary of a nonprofit corporation or entity shall receive 48 anything of value that relates to an acquisition described in this chapter and 49 is of such a character as to have the appearance of an improper influence on 50 the person with respect to the person's duties. For purposes of this section, 51 "anything of value" shall include, but is not limited to, any compensation, 5 1 consideration, employment, or offers of employment. 2 48-1509. APPLICATION OF CHAPTER. This chapter applies to all acquisi- 3 tions, the consummation of which occurs after the effective date of this chap- 4 ter. 5 48-1510. PRESERVATION OF ATTORNEY GENERAL'S COMMON LAW AND OTHER STATU- 6 TORY POWERS. No provision of this chapter shall derogate from the common law 7 or statutory authority of the attorney general including, but not limited to, 8 the attorney general's authority to supervise, enforce, and administer chari- 9 table trusts, as well as review and give necessary prior approval to the sale 10 of any assets which are the subject of a charitable trust. 11 SECTION 2. That Chapter 13, Title 39, Idaho Code, be, and the same is 12 hereby amended by the addition thereto of a NEW SECTION , to be 13 known and designated as Section 39-1331A, Idaho Code, and to read as follows: 14 39-1331A. BOARD NOT TO PRIVATELY BENEFIT FROM SALE OF DISTRICT ASSETS. No 15 member of a board of trustees of any hospital district shall receive anything 16 of value that relates to the sale of any property, real or personal, of a hos- 17 pital district and is of such a character as to have the appearance of an 18 improper influence on the person with respect to the person's duties. For pur- 19 poses of this section, "anything of value" shall include, but is not limited 20 to, any compensation, consideration, employment, or offers of employment.
STATEMENT OF PURPOSE
RS 07556C1
This legislation creates a new chapter of Title 48 of the Idaho
Code expanding upon the existing charitable trust supervisory
powers of the Attorney General in the area of non-profit hospital
conversions. The Attorney General currently has authority over
properties acquired in the name of charity and for public benefit.
Since non-profit hospitals are historically created by community
sacrifice and donation, the proposed conversion of non-profit
hospitals to a "for profit"status clearly fits under the Attorney
General's current authority. This legislation mandates that the
Attorney General be notified of the intended conversion together
with disclosure of specific elements of the proposal. The
legislation also allows the Attorney General to hold a public
hearing and appear in court. The legislation also requires
disclosure of benefits to current board members of the non-profit
hospital.
FISCAL NOTE
This legislation should reduce the loss of public charitable trust
property and services at the local level. Other than increased
workloads for the Office of the Attorney General, there should be
no fiscal impact upon the general funds of the state.CONTACT: Freeman Duncan, Legislative
Liaison Attorney General's Office
Phone: (208) 334-4151
STATEMENT OF PURPOSE/FISCAL NOTE
Bill No S1405