SENATE BILL NO. 322

INTRODUCED BY M. WATERMAN

A BILL FOR AN ACT ENTITLED: "AN ACT PROVIDING THE ATTORNEY GENERAL AUTHORITY TO REVIEW AND APPROVE CONVERSIONS OF NONPROFIT HEALTHCARE ENTITIES TO FOR-PROFIT STATUS; PROVIDING REVIEW ELEMENTS; PROVIDING RULEMAKING AUTHORITY; AUTHORIZING THE ATTORNEY GENERAL TO REQUIRE A NONPROFIT HEALTHCARE ENTITY TO CONTRACT FOR REVIEW EXPERTS OR CONSULTANTS; PROVIDING PENALTIES; AMENDING SECTIONS 35-2-609 AND 35-2-617, MCA; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Short title. [Sections 1 through 11] may be cited as the "Nonprofit Healthcare Conversion Transaction Act".

NEW SECTION. Section 2. Definitions. For the purposes of [sections 1 through 11] the following definitions apply:

(1) "Health maintenance organization" has the meaning provided for in 33-31-102.

(2) "Health service corporation" has the meaning provided for in 33-30-101.

(3) "Hospital" has the meaning provided for in 50-5-101.

(4) "Nonprofit" means a public benefit corporation or a religious corporation as defined in 35-2-114.

(5) "Nonprofit healthcare conversion transaction" means:

(a) the sale, transfer, lease, exchange, optioning, conveyance, or other disposition of a material amount of the assets or operations of a nonprofit healthcare entity to an entity or person other than a charity; and

(b) the transfer of control or governance of a material amount of the assets or operations of a nonprofit healthcare entity to an entity or person other than a charity.

(6) "Nonprofit healthcare entity" means any nonprofit hospital, nonprofit health maintenance organization, nonprofit health service corporation, or nonprofit healthcare insurer, including entities affiliated with any of these through ownership, governance, or membership, such as a holding company or subsidiary. The term includes but is not limited to mutual benefit corporations holding assets in a charitable trust under the laws of this state.

(7) "Nonprofit healthcare insurer" means a nonprofit entity that provides disability insurance, as defined in 33-1-207, including insurance against medical expenses incurred because of bodily injury or disablement caused by sickness or accidental injury but not including those insurers who provide only wage loss or income protection benefits for persons with disabilities.

(8) "Person" means any individual, partnership, trust, estate, corporation, association, joint venture, joint stock company, insurance company, or other organization.

NEW SECTION. Section 3. Notice to and approval of attorney general -- exception -- request for information -- refusal grounds for disapproval. (1) A nonprofit healthcare entity is required to provide written notice to and obtain the approval of the attorney general prior to entering into any nonprofit healthcare conversion transaction. At the time of providing notice to the attorney general, the nonprofit healthcare entity shall also provide the attorney general with written certification that a copy of [sections 1 through 11] has been given in its entirety to each member of the board of trustees of the nonprofit healthcare entity.

(2) The notice to the attorney general provided for in this section must include and contain all the information that the attorney general determines is required. A notice is not effective until the attorney general has acknowledged receipt of a complete notice in accordance with rules or a protocol established by the attorney general by rules adopted pursuant to [section 8].

(3) The attorney general may demand that the nonprofit healthcare entity providing written notice pursuant to subsection (1) provide information that the attorney general considers necessary to complete a review of the proposed nonprofit healthcare conversion transaction. A failure by the nonprofit healthcare entity to provide timely information as required by the attorney general is a sufficient ground for the attorney general to disapprove the proposed nonprofit healthcare conversion transaction.

(4) [Sections 1 through 11] do not apply to a nonprofit healthcare entity if the nonprofit healthcare conversion transaction is in the usual and regular course of its activities and if the attorney general has given the nonprofit healthcare entity a written waiver of [sections 1 through 11] as to the nonprofit healthcare conversion transaction.

NEW SECTION. Section 4. Approval or disapproval -- written notice -- time period -- extension. Within 90 days of a complete written notice as required by [section 3], the attorney general shall notify the nonprofit healthcare entity in writing of a decision to approve or disapprove the proposed nonprofit healthcare conversion transaction. The attorney general may extend this period for an additional 60 days.

NEW SECTION. Section 5. Public meetings -- notice. (1) Prior to issuing any written decision pursuant to [section 4], the attorney general shall conduct one or more public meetings, one of which must be held in the county where the nonprofit healthcare entity's assets that are intended to be transferred are located. At least 14 days prior to the meeting date, the attorney general shall publish written notice of the time and place of the meeting in one or more newspapers of general circulation in the affected community, provide the notice to the county commissioners, and, if applicable, provide the notice to the city council of the city where the nonprofit healthcare entity's assets that are intended to be transferred are located.

(2) At the public meeting, the attorney general must receive written and oral comments from interested persons desiring to make a statement regarding the proposed nonprofit healthcare conversion transaction. The attorney general may accept written comments for a specified time period after each public hearing. The attorney general shall issue a written response to any oral or written comments received in the written notice of approval or disapproval.

NEW SECTION. Section 6. Discretion of attorney general -- review elements -- financial consideration. In making a decision whether to approve or disapprove a proposed nonprofit healthcare conversion transaction, the attorney general shall consider:

(1) whether the nonprofit healthcare entity will receive full and fair market value for its charitable or social welfare assets;

(2) whether the fair market value of the nonprofit healthcare entity's assets that are intended to be transferred has been manipulated by the actions of the parties in a manner that causes fair market value of the assets to decrease;

(3) whether the proceeds of the proposed nonprofit healthcare conversion transaction will be used consistently with the trust under which the assets are held by the nonprofit healthcare entity and whether the proceeds will be controlled as funds independently of the acquiring or related entities;

(4) whether the proposed nonprofit healthcare conversion transaction will result in a breach of fiduciary duty, as determined by the attorney general, including conflicts of interest related to payments or benefits to officers, directors, board members, executives, and experts employed or retained by the parties;

(5) whether the governing body of the nonprofit healthcare entity exercised due diligence in deciding to dispose of the nonprofit healthcare entity's assets, selecting the acquiring entity, and negotiating terms and conditions of the disposition;

(6) whether the nonprofit healthcare conversion transaction will result in private inurement to any person;

(7) whether healthcare providers will be offered the opportunity to invest or own an interest in the acquiring entity or a related party and whether procedures or safeguards are in place to avoid a conflict of interest in patient referrals;

(8) whether the terms of any management or services contract negotiated in conjunction with the proposed nonprofit healthcare conversion transaction are reasonable;

(9) whether any foundation established to hold the proceeds of the sale will be broadly based in the community and be representative of the affected community, taking into consideration the structure and governance of the foundation;

(10) whether the attorney general has been provided with sufficient information and data by the nonprofit healthcare entity to evaluate adequately the proposed nonprofit healthcare conversion transaction or the effects of the nonprofit healthcare conversion transaction on the public, provided that the attorney general has notified the nonprofit healthcare entity or the acquiring entity of any inadequacy of the information or data and has provided a reasonable opportunity to remedy the inadequacy;

(11) whether any past transactions alone or in combination with the nonprofit healthcare conversion transaction being considered for approval result or have resulted in the cumulative sale, transfer, lease, exchange, optioning, conveyance, or other disposition of a material amount of the assets or operations of a nonprofit healthcare entity to more than one entity or person other than to charities; and

(12) any other criteria that the attorney general considers necessary to determine whether the nonprofit healthcare entity will receive full and fair market value for the assets that are intended to be transferred, as required in rules adopted by the attorney general under [section 8].

NEW SECTION. Section 7. Discretion of attorney general -- review elements -- consideration of healthcare impact. In making a decision whether to approve or disapprove an application, the attorney general shall also make a determination whether the proposed nonprofit healthcare conversion transaction may have a significant effect on the availability or accessibility of healthcare services to the affected community. In making this determination, the attorney general shall consider whether:

(1) sufficient safeguards are included to ensure that the affected community has continued access to affordable care;

(2) the proposed nonprofit healthcare conversion transaction creates or has the likelihood of creating an adverse effect on the access to or availability or cost of healthcare services to the community;

(3) the acquiring entities have made a commitment, at least comparable to the nonprofit healthcare entity, to provide health care to the disadvantaged, the uninsured, and the underinsured and to provide benefits to the affected community to promote improved health care. Activities and funding that provide health care or support and medical education and teaching programs by the nonprofit healthcare entity or its successor nonprofit healthcare entity or foundation must be considered in evaluating compliance with this commitment.

(4) the nonprofit healthcare conversion transaction will result in the revocation of hospital privileges;

(5) sufficient safeguards are included to maintain appropriate capacity for health science research and healthcare provider education; and

(6) the proposed nonprofit healthcare conversion transaction demonstrates that the public interest will be served considering the essential medical services needed to provide safe and adequate treatment, appropriate access, and balanced healthcare delivery to the residents.

NEW SECTION. Section 8. Rulemaking authority. The attorney general may adopt administrative rules that are considered appropriate and may establish protocols by rule that are necessary to implement [sections 1 through 11]. The rules must include but are not limited to:

(1) specifying the form and content of the written notice, required documents, and supplemental information;

(2) determining the scope of the waiver provisions under [section 3];

(3) developing procedures under which information may be considered proprietary business information or trade secrets; and

(4) determining the scope and work product required to be performed by an expert or consultant contracted for services on behalf of the attorney general pursuant to [section 9].

NEW SECTION. Section 9. Contracted services for review -- failure to comply -- conflict of interest prohibition. (1) Within the time periods provided in [section 4], the attorney general may require the applicant to conduct the following activities to assist in the review of a proposed nonprofit healthcare conversion transaction:

(a) contract with, consult, and receive advice from any agency of the state or the United States on any terms and conditions that the attorney general considers appropriate; or

(b) contract with experts or consultants, who may include attorneys, of the attorney general's choosing to perform review functions at the direction of the attorney general and to report to the attorney general its analysis and conclusions regarding the proposed nonprofit healthcare conversion transaction.

(2) Failure of a nonprofit healthcare entity to promptly conduct the activities pursuant to subsection (1) is a sufficient ground to disapprove the proposed nonprofit healthcare conversion transaction.

(3) The nonprofit healthcare entity may not be required to contract with a person who has been previously or currently employed by or associated with the nonprofit healthcare entity. A person with whom a nonprofit healthcare entity contracts for services may not be employed by or associated with the applicant for a period of 1 year from the date of approval of a nonprofit healthcare conversion transaction.

NEW SECTION. Section 10. Public records. All documents submitted to the attorney general by any person, including a nonprofit healthcare entity providing notice under [section 3], in connection with the attorney general's review of the proposed nonprofit healthcare conversion transaction are public records subject to all provisions of applicable state law. The work product outlined in rules adopted pursuant to [section 8] and the analysis and conclusions submitted to the attorney general pursuant to [section 9] are public records.

NEW SECTION. Section 11. Penalties -- remedies. (1) A nonprofit healthcare conversion transaction entered into in violation of the notice, review, or approval requirements of [sections 1 through 11] is void. The provisions of 27-1-732 and 35-2-446 through 35-2-454 do not apply to members of a governing board and officers of the parties to a nonprofit healthcare conversion transaction for willful violation of [sections 1 through 11]. The attorney general may initiate proceedings in the district court of the first judicial district or the judicial district for the county in which the nonprofit healthcare entity's assets that are intended to be transferred are located. The proceedings may be brought against a member of a governing board, an officer, or an employee of a party to a nonprofit healthcare conversion transaction to impose a civil penalty for up to twice the amount of any private inurement received by a member of a governing board, an officer, or an employee as a result of the nonprofit healthcare conversion transaction. In addition, a license to operate a hospital may not be issued or renewed under Title 50, chapter 5, part 2, or a license or certificate authority issued under Title 33 if there is a nonprofit healthcare conversion transaction entered into in violation of the notice, review, and approval requirements of [sections 1 through 11].

(2) This section may not be construed to limit the common-law authority of the attorney general to protect charitable trusts and charitable assets in this state. These penalties and remedies are in addition to, and not a replacement for, any other civil or criminal actions that the attorney general may take under common or statutory law, including rescinding the nonprofit healthcare conversion transaction, granting injunctive relief, or a combination of these and other remedies available under law.

Section 12. Section 35-2-609, MCA, is amended to read:

"35-2-609. Limitations on mergers by public benefit or religious corporations. (1) Except as provided in subsection (4) or without the prior approval of the district court for the judicial district in which the corporation's registered office is located, in a proceeding of which the attorney general has been given written notice, a public benefit corporation or religious corporation may merge only with:

(a) a public benefit corporation or religious corporation;

(b) a foreign corporation that would qualify under this chapter as a public benefit corporation or religious corporation;

(c) a wholly owned foreign or domestic business or mutual benefit corporation, if the public benefit corporation or religious corporation is the surviving corporation and continues to be a public benefit corporation or religious corporation after the merger; or

(d) a business or mutual benefit corporation, provided that:

(i) on or prior to the effective date of the merger, assets with a value equal to the greater of the fair market value of the net tangible and intangible assets, including good will, of the public benefit corporation or the fair market value of the public benefit corporation if it were to be operated as a business concern are transferred or conveyed to one or more persons who would have received its assets under 35-2-725(1)(e) and (1)(f) had it dissolved;

(ii) it shall return, transfer, or convey any assets held by it upon condition requiring return, transfer, or conveyance in case of merger, in accordance with the condition; and

(iii) the merger is approved by a majority of directors of the public benefit corporation or religious corporation who are not and will not become members or shareholders in or officers, employees, agents, or consultants of the surviving corporation.

(2) At least 20 days before consummation of any merger of a public benefit corporation or a religious corporation pursuant to subsection (1)(d), notice, including a copy of the proposed plan of merger, must be delivered to the attorney general.

(3) Without the prior written consent of the attorney general or of the district court in a proceeding in which the attorney general has been given notice, a member of a public benefit corporation or religious corporation may not receive or keep anything as a result of a merger other than a membership in the surviving public benefit corporation or religious corporation. The court shall approve the transaction if it is in the public interest.

(4) A public benefit corporation or a religious corporation that is considered a nonprofit healthcare entity, as defined in [section 2], is subject to the provisions of 35-2-617 and [sections 1 through 11]."

Section 13. Section 35-2-617, MCA, is amended to read:

"35-2-617. Sale of assets other than in regular course of activities. (1) A corporation may sell, lease, exchange, or otherwise dispose of all or substantially all of its property, which may include the good will, other than in the usual and regular course of its activities on the terms and conditions and for the consideration determined by the corporation's board if the proposed transaction is approved as required by subsection (2).

(2) Unless this chapter, the articles, the bylaws, or the board of directors or members, acting pursuant to subsection (4), require a greater vote or voting by class, the proposed transaction to be authorized must be approved:

(a) by the board;

(b) by the members by two-thirds of the votes cast or a majority of the voting power, whichever is less; and

(c) in writing by any person or persons whose approval is required by a provision of the articles, as authorized by 35-2-232, for an amendment to the articles or bylaws.

(3) If the corporation does not have members, the transaction must be approved by a vote of a majority of the directors in office at the time the transaction is approved. In addition, the corporation shall provide notice, in accordance with 35-2-429(3), of any directors' meeting at which approval is to be obtained. The notice must also state that the purpose or one of the purposes of the meeting is to consider the sale, lease, exchange, or other disposition of all or substantially all of the property or assets of the corporation and must contain or be accompanied by a copy or summary of a description of the transaction.

(4) The board may condition its submission of the proposed transaction and the members may condition their approval of the transaction on receipt of a higher percentage of affirmative votes or on any other basis.

(5) If the corporation seeks to have the transaction approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in accordance with 35-2-530. The notice must state that the purpose or one of the purposes of the meeting is to consider the sale, lease, exchange, or other disposition of all or substantially all of the property or assets of the corporation and must contain or be accompanied by a copy or summary of a description of the transaction.

(6) If the board needs to have the transaction approved by the members by written consent or written ballot, the material soliciting the approval must contain or be accompanied by a copy or summary of a description of the transaction.

(7) (a) Except as provided in subsection (7)(b), a public benefit corporation or religious corporation shall give written notice to the attorney general 20 days before it sells, leases, exchanges, or otherwise disposes of all or substantially all of its property if the transaction is not in the usual and regular course of its activities unless the attorney general has given the corporation a written waiver of this subsection.

(b) A public benefit corporation or a religious corporation that is considered a nonprofit healthcare entity, as defined in [section 2], is subject to the provisions of [sections 1 through 11].

(8) After a sale, lease, exchange, or other disposition of property is authorized, the transaction may be abandoned, subject to any contractual rights, without further action by the members or any other person who approved the transaction in accordance with the procedure set forth in the resolution proposing the transaction or, if no procedure is set forth, in the manner determined by the board of directors."

NEW SECTION. Section 14. Codification instruction. [Sections 1 through 11] are intended to be codified as an integral part of Title 50, chapter 4, and the provisions of Title 50, chapter 4, apply to [sections 1 through 11].

NEW SECTION. Section 15. Saving clause. [This act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the effective date of this act].

NEW SECTION. Section 16. Effective date. [This act] is effective on passage and approval.

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