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H0223...........................................................by BUSINESS NONPROFIT HOSPITALS - Adds to existing law to clarify the supervisory powers of the Attorney General's Office over nonprofit hospital transactions and conversions. 02/12 House intro - 1st rdg - to printing 02/15 Rpt prt - to Bus
H0223|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fifth Legislature First Regular Session - 1999IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 223 BY BUSINESS COMMITTEE 1 AN ACT 2 RELATING TO NONPROFIT HOSPITAL SALES AND CONVERSIONS; AMENDING TITLE 48, IDAHO 3 CODE, BY THE ADDITION OF A NEW CHAPTER 15, TITLE 48, IDAHO CODE, TO PRO- 4 VIDE A STATEMENT OF LEGISLATIVE FINDINGS AND INTENT, TO PROVIDE DEFINI- 5 TIONS, TO PROVIDE NOTICE TO AND APPROVAL OF THE ATTORNEY GENERAL, TO PRO- 6 VIDE FOR APPROVAL OR DISAPPROVAL, WRITTEN NOTICE AND TIME PERIODS, TO PRO- 7 VIDE FOR PUBLIC MEETINGS, NOTICE, AND TIME, TO PROVIDE FOR ATTORNEY GEN- 8 ERAL REVIEW AND DISCRETION, TO PROVIDE FOR RULEMAKING AND CONSEQUENCES OF 9 REFUSAL TO PROVIDE INFORMATION, TO PROVIDE FOR CONTRACTS WITH AGENCIES AND 10 CONSULTANTS, REIMBURSEMENTS FOR COSTS AND EXPENSES OF REVIEW, TO PROVIDE 11 FOR PUBLIC RECORDS, TO PROVIDE FOR PENALTIES AND REMEDIES, TO PROVIDE FOR 12 NOTICE AND REVIEW OF NONPROFIT HOSPITAL ACQUISITION OF A NONPROFIT HOSPI- 13 TAL, TO PROVIDE FOR THE PROHIBITION OF ANY PRIVATE BENEFIT FROM THE ACQUI- 14 SITION OF A NONPROFIT HOSPITAL AND TO PROVIDE FOR THE APPLICATION OF THE 15 ACT; AND DECLARING AN EMERGENCY. 16 Be It Enacted by the Legislature of the State of Idaho: 17 SECTION 1. That Title 48, Idaho Code, be, and the same is hereby amended 18 by the addition thereto of a NEW CHAPTER , to be known and desig- 19 nated as Chapter 15, Title 48, Idaho Code, and to read as follows: 20 CHAPTER 15 21 IDAHO NONPROFIT HOSPITAL SALE OR CONVERSION ACT 22 48-1501. LEGISLATIVE FINDINGS AND INTENT. (1) Nonprofit hospitals are 23 assets held in charitable trust, and are irrevocably dedicated to the specific 24 charitable purposes set forth in the articles of incorporation of the non- 25 profit corporations or governing papers of the nonprofit entities owning such 26 hospitals. 27 (2) The public is the beneficiary of the trust on which nonprofit hospi- 28 tals hold their assets. 29 (3) Nonprofit hospitals have a substantial and beneficial effect on the 30 provision of health care to the people of Idaho, providing as part of their 31 charitable mission free or low-cost health care to the poor, elderly and dis- 32 abled. 33 (4) The attorney general is entrusted by law to bring actions on behalf 34 of the public in the event of a breach of the charitable trust of a nonprofit 35 entity and to represent the public in the sale or other transfer of the assets 36 of a charitable trust. 37 (5) It is in the best interests of the public to ensure that the public 38 interest is fully protected whenever the assets of a nonprofit hospital are 39 transferred or converted out of the charitable trust and to or for a for- 40 profit entity or enterprise. 41 (6) This act shall be known and cited as the "Nonprofit Hospital Sale or 42 Conversion Act." 2 1 48-1502. DEFINITIONS. As used in this act: 2 (1) "Hospital" means a place devoted primarily to the maintenance and 3 operation of facilities for the diagnosis, treatment or care for not less than 4 twenty-four (24) hours in any week of two (2) or more nonrelated individuals 5 suffering from illness, disease, injury, deformity, or requiring care because 6 of old age, or a place devoted primarily to providing for not less than 7 twenty-four (24) hours in any week of obstetrical or other medical or nursing 8 care for two (2) or more nonrelated individuals. The term "hospital" includes 9 public health centers in general, tuberculosis, mental, chronic disease and 10 other types of hospitals, and related facilities, such as laboratories, outpa- 11 tient departments, hospital-affiliated nursing homes, nurses' homes and train- 12 ing facilities, and central service facilities operated in connection with 13 hospitals. 14 (2) "Nonprofit hospital" means any hospital, including hospitals owned by 15 corporations, that is organized as a nonprofit concern, however structured or 16 created. The term also includes entities owned, governed or controlled by a 17 nonprofit hospital. 18 (3) "Nonprofit hospital conversion transaction" means: 19 (a) The sale, transfer, lease, exchange, optioning, conveyance or other 20 disposition of a material amount of the assets of a nonprofit hospital to 21 an entity or person other than a charity; or 22 (b) The transfer of control or governance of a material amount of the 23 assets of a nonprofit hospital to an entity or person other than a char- 24 ity. 25 (4) "Person" means any individual, partnership, trust, estate, corpora- 26 tion, association, joint venture, joint stock company, insurance company or 27 other organization. 28 48-1503. NOTICE TO AND APPROVAL OF ATTORNEY GENERAL. (1) Any nonprofit 29 hospital shall be required to provide written notice to, and obtain the 30 approval of, the attorney general prior to entering into any nonprofit hospi- 31 tal conversion transaction. At the time of providing notice to the attorney 32 general, the nonprofit hospital shall provide the attorney general with writ- 33 ten certification that a copy of this chapter has been given in its entirety 34 to each member of the board of directors or trustees of the nonprofit hospi- 35 tal. 36 (2) The notice to the attorney general provided for in this section shall 37 include and contain all the information the attorney general determines is 38 required. No notice shall be effective until the attorney general has 39 acknowledged receipt of a complete notice in accordance with rules to be 40 adopted pursuant to section 48-1507, Idaho Code, or in accordance with proto- 41 col established by the attorney general. 42 (3) This chapter shall not apply to a nonprofit hospital if the nonprofit 43 hospital conversion transaction is in the usual and regular course of its 44 activities and if the attorney general has given the nonprofit hospital a 45 written waiver of this chapter as to the nonprofit hospital conversion trans- 46 action. 47 48-1504. APPROVAL OR DISAPPROVAL -- WRITTEN NOTICE -- TIME PERIOD -- 48 EXTENSION. Within ninety (90) days of a complete written notice as required by 49 section 48-1503, Idaho Code, the attorney general shall notify the nonprofit 50 hospital in writing of his decision to approve or disapprove the proposed non- 51 profit hospital conversion transaction. The attorney general may extend this 52 period for an additional sixty (60) day period, provided the extension is nec- 53 essary to obtain information pursuant to section 48-1507(2) or 48-1508(1), 3 1 Idaho Code. 2 48-1505. PUBLIC MEETINGS -- NOTICE OF TIME AND PLACE. Prior to issuing 3 any written decision pursuant to section 48-1504, Idaho Code, the attorney 4 general shall conduct one (1) or more public meetings, one (1) of which shall 5 be held in the county where the nonprofit hospital's assets to be transferred 6 are located. At the public meeting, the attorney general shall hear comments 7 from interested persons desiring to make statements regarding the proposed 8 nonprofit hospital conversion transaction. At least fourteen (14) days before 9 the meeting, the attorney general shall cause written notice to be provided of 10 the time and place of the meeting through publication in one (1) or more news- 11 papers of general circulation in the affected community, to the county board 12 of supervisors, and if applicable, to the city council of the city where the 13 nonprofit hospital's assets to be transferred are located. The costs of such 14 notice shall be reasonable and borne by the nonprofit hospital giving notice 15 under section 48-1503, Idaho Code. 16 48-1506. DISCRETION OF THE ATTORNEY GENERAL -- REVIEW ELEMENTS. In making 17 a decision whether to approve or disapprove a proposed nonprofit hospital con- 18 version transaction, the attorney general shall consider: 19 (1) Whether the nonprofit hospital will receive full and fair market 20 value for its charitable trust assets; 21 (2) Whether the fair market value of the nonprofit hospital's assets to 22 be transferred has been manipulated by the actions of the parties in a manner 23 that causes the fair market value of the assets to decrease; 24 (3) Whether the proceeds of the proposed nonprofit hospital conversion 25 transaction will be used consistent with the trust under which the assets are 26 held by the nonprofit hospital and whether the proceeds will be controlled as 27 funds independently of the acquiring or related entities; 28 (4) Whether the proposed nonprofit hospital conversion transaction will 29 result in a breach of fiduciary duty, as determined by the attorney general, 30 including conflicts of interest related to payments or benefits to officers, 31 directors, board members, executives and experts employed or retained by the 32 parties; 33 (5) Whether the governing body of the nonprofit hospital exercised due 34 diligence in deciding to dispose of the nonprofit hospital's assets, selecting 35 the acquiring entity, and negotiating the terms and conditions of the disposi- 36 tion; 37 (6) Whether the nonprofit hospital conversion transaction will result in 38 private inurement to any person; 39 (7) Whether healthcare providers will be offered the opportunity to 40 invest or own an interest in the acquiring entity or a related party, and 41 whether procedures or safeguards are in place to avoid conflict of interest in 42 patient referrals; 43 (8) Whether the terms of any management or services contract negotiated 44 in conjunction with the proposed nonprofit hospital conversion transaction are 45 reasonable; 46 (9) Whether any foundation established to hold the proceeds of the sale 47 will be broadly based in the community and be representative of the affected 48 community, taking into consideration the structure and governance of such 49 foundation; 50 (10) Whether the attorney general has been provided with sufficient infor- 51 mation and data by the nonprofit hospital to evaluate adequately the proposed 52 nonprofit hospital conversion transaction or the effects thereof on the pub- 53 lic, provided the attorney general has notified the nonprofit hospital or the 4 1 acquiring entity of any inadequacy of the information or data and has provided 2 a reasonable opportunity to remedy such inadequacy; and 3 (11) Any other criteria the attorney general considers necessary to deter- 4 mine whether the nonprofit hospital will receive full and fair market value 5 for its assets to be transferred as required in rules adopted by the attorney 6 general under section 48-1507, Idaho Code. 7 48-1507. RULES -- AUTHORITY TO ADOPT -- INFORMATION REQUESTS -- CONSE- 8 QUENCES OF REFUSAL TO PROVIDE INFORMATION. (1) The attorney general may adopt 9 such rules or establish such protocols as the attorney general deems appropri- 10 ate or necessary to implement this chapter. 11 (2) The attorney general may demand that the nonprofit hospital giving 12 notice under section 48-1503, Idaho Code, provide such information as the 13 attorney general reasonably deems necessary to complete his/her review of any 14 proposed nonprofit hospital conversion transaction described in section 15 48-1506, Idaho Code. A failure by the nonprofit hospital giving notice under 16 section 48-1503, Idaho Code, to provide timely information as required by the 17 attorney general shall be sufficient ground for the attorney general to disap- 18 prove the proposed nonprofit hospital conversion transaction. 19 48-1508. CONTRACTS WITH AGENCIES AND CONSULTANTS -- REIMBURSEMENT FOR 20 COSTS AND EXPENSES OF REVIEW -- FAILURE TO PAY. (1) Within the time periods 21 designated in section 48-1504, Idaho Code, the attorney general may do any of 22 the following to assist in the review of the proposed nonprofit hospital con- 23 version transaction described in section 48-1503, Idaho Code: 24 (a) Contract with, consult, and receive advice from any agency of the 25 state or the United States on such terms and conditions the attorney gen- 26 eral deems appropriate; or 27 (b) In the attorney general's sole discretion, contract with such experts 28 or consultants the attorney general deems appropriate to assist the attor- 29 ney general in reviewing the proposed nonprofit hospital conversion trans- 30 action. 31 (2) Any contract costs incurred by the attorney general pursuant to this 32 section shall not exceed an amount that is reasonable and necessary to conduct 33 the review of the proposed nonprofit hospital conversion transaction. The 34 attorney general shall be exempt from the provisions of any applicable state 35 laws regarding public bidding procedures for purposes of entering into con- 36 tracts pursuant to this section. 37 (3) The attorney general shall be entitled to reimbursement from the non- 38 profit hospital giving notice under section 48-1503, Idaho Code, for all rea- 39 sonable and actual costs incurred by the attorney general in reviewing any 40 proposed nonprofit hospital conversion transaction under this chapter, includ- 41 ing attorney's fees at the billing rate used by the attorney general to bill 42 state agencies for legal services. The nonprofit hospital giving notice under 43 section 48-1503, Idaho Code, upon request, shall pay the attorney general 44 promptly for all such costs. 45 (4) The failure by the nonprofit hospital giving notice under section 46 48-1503, Idaho Code, to promptly reimburse the attorney general for all costs 47 pursuant to this section shall be sufficient ground for the attorney general 48 to disapprove the proposed nonprofit hospital conversion transaction. 49 48-1509. PUBLIC RECORDS. All documents submitted to the attorney general 50 by any person, including nonprofit hospital entities giving notice under sec- 51 tion 48-1503, Idaho Code, in connection with the attorney general's review of 52 the proposed nonprofit hospital conversion transaction pursuant to this arti- 5 1 cle shall be public records subject to all provisions of the applicable state 2 public records. 3 48-1510. PENALTIES -- REMEDIES. (1) Any nonprofit hospital conversion 4 transactions entered into in violation of the notice, review or approval 5 requirements of this chapter shall be null and void and each member of the 6 governing boards and the chief financial officers of the parties to the non- 7 profit hospital conversion transaction may be subject to a civil penalty of up 8 to ten thousand dollars ($10,000), the amount to be determined by the district 9 court in the county in which the nonprofit hospital's assets to be transferred 10 are located. The attorney general shall institute proceedings to impose such 11 a penalty. In addition, no permit to operate a hospital may be issued or 12 renewed under this chapter or under any other applicable statute or regulation 13 if there is a nonprofit hospital conversion transaction entered into in viola- 14 tion of the notice, review and approval requirements of this article. 15 (2) Nothing in this chapter shall be construed to limit the common law 16 authority of the attorney general to protect charitable trusts and charitable 17 assets in this state. These penalties and remedies are in addition to, and 18 not a replacement for, any other civil or criminal actions which the attorney 19 general may take under either the common law or statutory law, including 20 rescinding the nonprofit hospital conversion transaction, granting injunctive 21 relief or any combination of these and other remedies available under common 22 law or statutory law. 23 48-1511. NONPROFIT HOSPITAL TO NONPROFIT ENTITY TRANSACTIONS. (1) The 24 provisions of this chapter notwithstanding, whenever there is the sale, trans- 25 fer, lease, exchange, optioning, conveyance or other disposition of a material 26 amount of the assets of a nonprofit hospital to another nonprofit entity; or 27 the transfer of control or governance of a material amount of the assets of a 28 nonprofit hospital to another nonprofit entity, notice of this transaction 29 shall be provided to the attorney general as follows: 30 (a) Notice shall be provided ninety (90) days prior to the date the 31 transaction is to be completed; and 32 (b) In the notice, the parties to the transaction shall provide a state- 33 ment of the charitable purposes of each entity entering into the transac- 34 tion, as well as a statement concerning the relationship of these purposes 35 to the assets involved in the transaction. The statement may include a 36 certification by the chief executive officers, as approved by the boards 37 of trustees or directors of the nonprofit entities to the transaction, 38 that there will be no material change in the charitable purposes to which 39 the transferred assets are dedicated as a result of the transaction. 40 (2) A transaction covered by this section that will not result in a mate- 41 rial change in the charitable purposes to which the assets of the nonprofit 42 hospital have been dedicated, shall proceed without further review by the 43 attorney general under this chapter. 44 (3) When a transaction covered by this section will result in a material 45 change in the charitable purposes to which the assets of the nonprofit hospi- 46 tal have been dedicated, the attorney general may assess and review or chal- 47 lenge the transaction as deemed appropriate by the attorney general. If the 48 attorney general decides to conduct an assessment or review, the following 49 provisions shall apply: 50 (a) The attorney general shall perform a review and assessment to the 51 extent practicable and necessary. 52 (b) The attorney general is authorized to: 53 (i) Contract with agencies and consultants as set forth in section 6 1 48-1508, Idaho Code; 2 (ii) Require production of material information and documentation, 3 such as the proposed agreement relating to the transaction, pursuant 4 to rules or protocols as the attorney general deems appropriate or 5 necessary to implement this section; and 6 (iii) Hold a public hearing in the manner set forth in section 7 48-1505, Idaho Code. 8 (4) The attorney general shall have the authority to approve a transac- 9 tion under subsection (3) of this section, if the transaction satisfies the 10 following criteria: 11 (a) The assets continue to be dedicated to charitable purposes; 12 (b) The directors or trustees of the parties to the transaction have not 13 acted unreasonably in light of the financial circumstances of the parties 14 or in accommodating the affected community or communities and have not 15 breached their fiduciary duties or otherwise engaged in misconduct in such 16 transaction; and 17 (c) The healthcare needs of the affected community or communities will 18 not be negatively impacted. 19 48-1512. PRIVATE BENEFIT. No person who is an officer, director, board 20 member or other fiduciary of a nonprofit hospital shall receive anything of 21 value that relates to a nonprofit hospital conversion transaction described in 22 this act and is of such a character as to have the appearance of an improper 23 influence on the person with respect to the person's duties. For purposes of 24 this section, "anything of value" shall include, but is not limited to, any 25 compensation, consideration, employment or offers of employment. 26 48-1513. APPLICATION OF ACT. This act applies to all acquisitions, the 27 consummation of which occurs after the effective date of this act. 28 SECTION 2. An emergency existing therefor, which emergency is hereby 29 declared to exist, this act shall be in full force and effect on and after its 30 passage and approval.
STATEMENT OF PURPOSE
RS 08851
This proposed legislation adds a new chapter to Title 48
of the Idaho Code, clarifying the existing charitable trust
supervisory powers of the Attorney General in the area of
nonprofit hospital transactions and conversions. Since
nonprofit hospitals are historically created by community
sacrifice and donation, the proposed conversion of such a
hospital deserves review and consideration. The legislation
establishes procedures by which these transactions are to be
reviewed and evaluated, ensuring that a community's interest in
its hospital is protected and considered. The legislation
provides for notice of such transactions to the Attorney
General and items that should be considered in reviewing any
such transaction. The legislation also allows the Attorney
General to hold a public hearing and appear in court. Finally,
the legislation also prohibits current board members of a
nonprofit hospital from receiving anything of value that
relates to a hospital conversion if it is of such a character
to have the appearance of an improper influence on the person
with respect to that person's duties.
FISCAL NOTE
This legislation should ensure that charitable trust
property will not be lost. Other than potential workloads for
the Office of the Attorney General, there should be no fiscal
impact upon the general funds the State.
Contact: William A. von Tagen, Deputy Attorney General
Division Chief, Intergovernmental & Fiscal Law
334-4140
Brett DeLange, Deputy Attorney General
Lead Deputy, Consumer Protection Unit
334-4114
STATEMENT OF PURPOSE/FISCAL IMPACT Bill No. H 223