MISSISSIPPI LEGISLATURE

1999 Regular Session

To: Public Health and Welfare; Judiciary

By: Senator(s) Ferris

AN ACT TO PROVIDE FOR A REVIEW OF NONPROFIT HEALTH CARE PROVIDER CONVERSION TRANSACTIONS BY THE OFFICE OF ATTORNEY GENERAL, AND TO PROVIDE THAT THIS REVIEW AND APPROVAL SHALL BE A PREREQUISITE FOR LICENSURE OF THE FACILITY; TO PRESCRIBE PROCEDURES FOR THE REVIEW, INCLUDING NOTICE, PUBLIC MEETINGS, REVIEW ELEMENTS AND RULEMAKING AUTHORITY OF THE ATTORNEY GENERAL IN CONDUCTING SUCH REVIEWS; TO AUTHORIZE THE ATTORNEY GENERAL TO CONTRACT WITH OTHER ENTITIES; TO AUTHORIZE THE ATTORNEY GENERAL TO ASSESS SUCH NONPROFIT HEALTHCARE PROVIDERS FOR THE COSTS OF REVIEW; TO PRESCRIBE PENALTIES; TO AMEND SECTION 41-9-11, MISSISSIPPI CODE OF 1972, IN CONFORMITY THERETO; AND FOR RELATED PURPOSES.

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

SECTION 1. Definitions.

For purposes of this act:

(a) "Nonprofit healthcare entity" means any nonprofit hospital (including corporations and hospitals created under a trust or a will), nonprofit health maintenance organization, or nonprofit healthcare insurer, including entities affiliated with any of these through ownership, governance or membership, such as a holding company or subsidiary. Nonprofit healthcare entity shall include, but not be limited to, nonprofit entities which are licensed as hospitals, HMO's or healthcare insurers (including mutual corporations holding assets in charitable trust) under the laws of this state.

(b) "Nonprofit healthcare conversion transaction" means:

(i) The sale, transfer, lease, exchange, optioning, conveyance or other disposition of a material amount of the assets or operations of a licensed nonprofit hospital, nonprofit health maintenance organization or nonprofit healthcare insurer, including a mutual corporation holding assets in charitable trust, to an entity or person other than a charity; and

(ii) The transfer of control or governance of a material amount of the assets or operations of a licensed hospital, nonprofit health maintenance organization or nonprofit healthcare insurer, including a mutual corporation holding assets in charitable trust, to an entity or person other than a charity.

(c) "Nonprofit healthcare insurer" means any nonprofit provider of healthcare insurance, including hospital service associations, health service corporations and physician service organizations, such as Blue Cross Blue Shield plans.

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

SECTION 2. Notice to and approval of Attorney General.

(1) Any nonprofit healthcare entity shall be 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 provide the Attorney General with written certification that a copy of this statute has been given in its entity 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 shall include and contain all the information the Attorney General determines is required. No notice shall be effective until the Attorney General has acknowledged receipt of a complete notice in accordance with regulations to be adopted pursuant to Section 6 of this act or in accordance with protocol established by the Attorney General.

(3) This act shall 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 corporation a written waiver of this act as to the nonprofit healthcare conversion transaction.

SECTION 3. Approval or disapproval; written notice; time period; extension.

Within ninety (90) days of a complete written notice as required by Section 2 of this act, the Attorney General shall notify the nonprofit healthcare entity in writing of its decision to approve or disapprove the proposed nonprofit healthcare conversion transaction. The Attorney General may extend this period for an additional sixty-day period, provided the extension is necessary to obtain information pursuant to Section 6 or 7 of this act.

SECTION 4. Public meetings; notice of time and place.

Prior to issuing any written decision pursuant to Section 3 of this act, the Attorney General shall conduct one or more public meetings, one (1) of which shall be held in the county where the nonprofit healthcare entity's assets to be transferred are located. At the public meeting, the Attorney General shall hear comments from interested persons desiring to make statements regarding the proposed nonprofit healthcare conversion transaction. At least fourteen (14) days before the meeting, the Attorney General shall cause written notice to be provided of the time and place of the meeting through publication in one or more newspapers of general circulation in the affected community, to the county board of supervisors and, if applicable, to the city council of the city where the nonprofit healthcare entity's assets to be transferred are located.

SECTION 5. Discretion of Attorney General; review elements;

(1) In making a decision whether to approve or disapprove a proposed nonprofit healthcare conversion transaction, the Attorney General shall consider:

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

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

(c) Whether the proceeds of the proposed nonprofit healthcare conversion transaction will be used consistent 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;

(d) 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;

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

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

(g) 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 conflict of interest in patient referrals;

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

(i) 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 such foundation;

(j) 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 thereof on the public, provided 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 such inadequacy; and

(k) Any other criteria the Attorney General considers necessary to determine whether the nonprofit healthcare entity will receive full and fair market value for its assets to be transferred as required in rules adopted by the Attorney General under Section 6 of this act.

(2) In making a decision whether to approve or disapprove an application, the Attorney General shall also determine 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:

(a) Whether sufficient safeguards are included to assure the affected community continued access to affordable care;

(b) Whether 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;

(c) Whether the acquiring entities have made a commitment, at least comparable to the nonprofit healthcare entity, to provide healthcare to the disadvantaged, the uninsured and the underinsured and to provide benefits to the affected community to promote improved healthcare. Activities and funding provided by the nonprofit healthcare entity or its successor nonprofit healthcare entity or foundation to provide such healthcare or to provide support or medical education and teaching programs or medical research programs shall be considered in evaluating compliance with this commitment;

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

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

(f) Whether 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.

SECTION 6. Regulations; authority to adopt; information requests; consequences of refusal to provide information.

(1) The Attorney General may adopt such regulations as the Attorney General deems appropriate to implement this act and/or establish such protocols as are necessary to implement this act.

(2) The Attorney General may demand that the nonprofit healthcare entity giving notice under Section 2 of this act provides such information as the Attorney General reasonably deems necessary to complete his/her review of any proposed nonprofit healthcare conversion transaction described in Section 5 of this act. A failure by the nonprofit healthcare entity giving notice under Section 2 of this act to provide timely information as required by the Attorney General shall be a sufficient ground for the Attorney General to disapprove the proposed nonprofit healthcare conversion transaction.

SECTION 7. Contracts with agencies and consultants; reimbursement for costs and expenses of review; failure to pay.

(1) Within the time periods designated in Section 3 of this act, the Attorney General may do any of the following to assist in the review of the proposed nonprofit healthcare conversion transactions described in Section 2 of this act:

(a) Contract with, consult and receive advice from the State Department of Health or any agency of the state or the United States on such terms and conditions the Attorney General deems appropriate;

(b) In the Attorney General's sole discretion, contract with such experts or consultants the Attorney General deems appropriate to assist the Attorney General in reviewing the proposed nonprofit healthcare conversion transaction; or

(c) Contract with the State Department of Health to coordinate health care facility certificate of need review proceedings relating to the transfer of hospital facilities in order to avoid unnecessary duplication of review proceedings.

(2) Any contract costs incurred by the Attorney General pursuant to this section shall not exceed an amount that is reasonable and necessary to conduct the review of the proposed nonprofit healthcare conversion transaction. The Attorney General shall be exempt from the provisions of any applicable state laws regarding public bidding procedures for purposes of entering into contracts pursuant to this section. The nonprofit healthcare entity giving notice under Section 2 of this act, upon request, shall pay the Attorney General promptly for all costs of contracts entered into by the Attorney General pursuant to this section.

(3) The Attorney General shall be entitled to reimbursement from the nonprofit healthcare entity giving notice under Section 2 of this act for all reasonable and actual costs incurred by the Attorney General in reviewing any proposed nonprofit healthcare conversion transaction under this article, including attorney fees at the billing rate used by the Attorney General to bill state agencies for legal services. The nonprofit healthcare entity giving notice under Section 2 of this act, upon request, shall pay the Attorney General promptly for all such costs.

(4) The failure by the nonprofit healthcare entity giving notice under Section 2 of this act to promptly reimburse the Attorney General for all costs pursuant to subsections (2) or (3) shall be sufficient ground for the Attorney General to disapprove the proposed nonprofit healthcare conversion transaction.

SECTION 8. Public records.

All documents submitted to the Attorney General by any person, including nonprofit healthcare entities giving notice under Section 2 of this act, in connection with the Attorney General's review of the proposed nonprofit healthcare conversion transaction pursuant to this act shall be public records subject to all provisions of the applicable state public records act.

SECTION 9. Penalties; remedies.

(1) Any nonprofit healthcare conversion transactions entered into in violation of the notice, review or approval requirements of this act shall be null and void and each member of the governing boards and the chief financial officers of the parties to the nonprofit healthcare conversion transaction may be subject to a civil penalty of up to One Million Dollars ($1,000,000.00), the amount to be determined by the court of competent jurisdiction in the county in which the nonprofit healthcare entity's assets to be transferred are located. The Attorney General shall institute proceedings to impose such a penalty. In addition, no license to operate a hospital may be issued or renewed under Section 41-9-1 et seq., Mississippi Code of 1972, or under any other applicable statute or regulation if there is a nonprofit healthcare conversion transaction entered into in violation of the notice, review and approval requirements of this act.

(2) Nothing in this section shall be construed to limit the common law authority of the Attorney General and the director of charitable trusts 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 which the Attorney General may take under either the common law or statutory law, including rescinding the nonprofit healthcare conversion transaction, granting injunctive relief or any combination of these and other remedies available under common law or statutory law.

SECTION 10. Section 41-9-11, Mississippi Code of 1972, is amended as follows:

41-9-11. Upon receipt of an application for license and the license fee, the licensing agency shall issue a license if the applicant and hospital facilities meet the requirements established under Sections 41-9-1 through 41-9-35, and the requirements of Section 41-7-173 et seq., and in the case of nonprofit hospitals, the provisions of Senate Bill No. 2930, 1999 Regular Session, where determined by the licensing agency to be applicable. A license, unless suspended or revoked, shall be renewable annually, upon filing by the licensee, and approval by the licensing agency of an annual report upon such uniform dates and containing such information in such form as the licensing agency prescribes by regulation and upon paying the annual fee for such license as determined by the schedule and provisions of Section 41-9-9. Each license shall be issued only for the premises and persons or governmental units named in the application and shall not be transferable or assignable except with the written approval of the licensing agency. Licenses shall be posted in a conspicuous place on the licensed premises.

SECTION 11. This act shall take effect and be in force from and after July 1, 1999.