Session of 1997
SENATE BILL No. 283
By Committee on Public Health and Welfare
9 AN ACT relating to health care; concerning nonprofit corporations pro-
10 viding health care and related services changing to for-profit entities;
11 establishing certain requirements prior to such change; granting cer-
12 tain power to and imposing certain duties upon the attorney general.
14 Be it enacted by the Legislature of the State of Kansas:
15 Section 1. (a) Any nonprofit hospital, medical-surgical facility, health
16 maintenance organization, health service corporation or other nonprofit
17 health care provider or insurer that intends to transfer, restructure or
18 convert its activities in conjunction with for-profit activities shall secure
19 written consent from the attorney general prior to entering into any agree-
20 ment or transaction to do any of the following:
21 (1) Sell, transfer, lease, exchange, option, convey, restructure or con-
22 vert or otherwise dispose of its assets to a for-profit corporation or entity
23 or to a mutual benefit corporation or entity when a material amount of
24 the assets of the nonprofit corporation are involved or will be involved in
25 the agreement or transaction.
26 (2) Transfer control, responsibility or governance of a material
27 amount of the assets, operations or business of the nonprofit corporation
28 to any for-profit corporation or entity or to any mutual benefit corporation
29 or entity.
30 (b) A nonprofit corporation must give written notice to the attorney
31 general at least 90 days before it sells, transfers, leases, exchanges, op-
32 tions, conveys, converts, gives, merges or otherwise disposes of its assets.
33 (c) Within 90 days of the receipt of the written notice required under
34 subsection (b), the attorney general shall notify the nonprofit corporation
35 in writing of the decision to approve or disapprove of the agreement or
36 transaction. The attorney general may extend this period for an additional
37 sixty-day period.
38 Sec. 2. (a) No later than 45 days after the attorney general has re-
39 ceived notice from the nonprofit corporation of its intent to enter an
40 agreement or transaction, the attorney general shall hold no less than one
41 public meeting in the service area of the nonprofit corporation. The num-
42 ber of public meetings that shall be held must correspond to the size of
43 community in the nonprofit's business area and the nature and value of
1 the agreement or transaction. At least 21 days prior to the public meeting,
2 the attorney general shall provide written notice of the time and place of
3 the meeting through publication in one or more newspapers of general
4 circulation in the affected communities and to the board of supervisors
5 of the county in which the facility is located and should inform additional
6 stakeholders or interested parties. The attorney general shall have the
7 power to subpoena additional information or witness, require and admin-
8 ister oaths and require sworn statements at any time prior to making a
9 decision on an application.
10 (b) The attorney general shall provide access to the records concern-
11 ing the proposed agreement or transaction at no cost to the public. The
12 records shall be considered public records and be made available at both
13 the attorney general's office and the office of the nonprofit corporation.
14 (c) The attorney general may charge a nonprofit hospital, medical-
15 surgical facility, health maintenance organization or health service cor-
16 poration for the costs of providing the public with notice and reasonable
17 access to records relating to the proposed agreement or transaction of
18 the nonprofit corporation.
19 (d) Within five working days after presenting a plan of agreement or
20 transaction to the attorney general for approval, the nonprofit corporation
21 proposing the agreement or transaction must publish notice of the pro-
22 posed plan in a form, approved by the attorney general, in newspapers
23 and circulated once per week for three weeks in the areas which the
24 nonprofit corporation does business.
25 Sec. 3. Prior to approving an agreement or transaction, the attorney
26 general shall find that the proposal meets all of the following require-
28 (a) The terms and conditions of the agreement or transaction are fair
29 and reasonable to the citizens of the state, the public, recipients and
30 potential recipients of services, the subscribers or policyholders, or both,
31 of the nonprofit corporation and the nonprofit corporation.
32 (b) The agreement or transaction is in the public interest. An agree-
33 ment or transaction is not in the public interest unless appropriate steps
34 have been taken to safeguard the value of charitable assets and ensure
35 that any proceeds of the transaction are irrevocably dedicated to chari-
36 table health care purposes.
37 (c) The agreement or transaction will not result in inurement to any
38 private person or entity, including stock options, agreements not to com-
39 pete and other private benefits.
40 (d) The agreement or transaction does not create or have the likeli-
41 hood of creating an adverse effect on the availability of health care serv-
42 ices to the affected community and sufficient safeguards are included to
43 assure the affected community continued access to affordable care.
1 (e) The nonprofit corporation proposing the agreement or transaction
2 used due diligence in selecting the for-profit corporation or entity or
3 mutual benefit corporation or entity and negotiating the terms and con-
4 ditions of the transaction when deciding to sell, lease, transfer, exchange,
5 option, convey, convert, give, merge or similarly dispose of its assets.
6 (f) A charitable trust shall be set aside equal to the fair market value
7 of the nonprofit corporation. Fair market value should be determined at
8 the time of conversion, determined as if it had voting stock outstanding
9 and 100% of its stock were freely transferable and available for purchase
10 without restrictions. Consideration shall be given to market value, in-
11 vestment or earnings value, net asset value, and a control premium, if
12 any. The attorney general may permit all or a portion of the consideration
13 conveyed to the charitable organization to consist of stock of the for-profit
15 (g) The charitable trust distribution shall be dedicated to an existing
16 or new tax-exempt charitable organization operating pursuant to 26
17 U.S.C.A. Sec. 501(c)(3) of the federal internal revenue code.
18 (h) Each nonprofit charitable corporation receiving the charitable as-
19 sets, its directors, officers and staff shall be and remain independent of
20 the for-profit or stock insurance company or mutual benefit corporation
21 and its affiliates. No person who is an officer, director or staff member
22 of the nonprofit corporation submitting the plans, at the time of the plan
23 is submitted, or at the time of the agreement or transaction, or thereafter,
24 shall be qualified to be an officer, director or staff member of the non-
25 profit charitable corporation receiving the charitable assets. No director,
26 officer, agent or employee of the nonprofit corporation submitting the
27 plan or the nonprofit charitable corporation receiving the charitable as-
28 sets, shall benefit directly or indirectly from the agreement or transaction.
29 (i) The nonprofit charitable corporation receiving the charitable as-
30 sets must put mechanisms in place to avoid conflicts of interest and to
31 prohibit grants benefiting the board of directors and management and
32 grants benefiting the for-profit corporation or entity or mutual benefit
33 corporation or entity.
34 (j) The charitable mission and grant-making functions of the chari-
35 table corporation receiving the charitable trust assets shall be dedicated
36 to serving the state's unmet health care needs, particularly with regard to
37 medically uninsured and underserved populations, focusing on promoting
38 access to care and improving quality of care.
39 (k) The charitable corporation receiving the charitable assets shall
40 provide the attorney general with an annual report of its grant-making
41 and other charitable activities related to its use of the charitable assets
42 received. The annual report shall be made available to the public at both
43 the attorney general's office and the office of the nonprofit charitable
2 Sec. 4. The attorney general shall do the following:
3 (a) Contract with, consult and receive advice from any state agency
4 on those terms and conditions that the attorney general deems appro-
6 (b) Contract with experts or consultants to assist in reviewing the
7 proposed agreement or transaction that is reasonable and necessary.
8 (c) Contract costs shall not exceed an amount that is necessary to
9 conduct the review and evaluation. The attorney general may charge the
10 nonprofit hospital, medical-surgical facility, health maintenance organi-
11 zation or health service corporation submitting the proposed plan, an
12 assessment fee to pay the cost of expert consultants required to help
13 review public benefit and charitable trust proposals and to assess the fair
14 market value of the charitable assets.
15 Sec. 5. (a) Any nonprofit corporation which converts into a mutual
16 insurance company retains charitable trust obligation to preserve its assets
17 for charitable purposes. This obligation shall be paid any time the mutual
18 insurance company enters into an agreement or transaction with a for-
19 profit corporation or otherwise generates sufficient funds to fulfill its
20 charitable trust obligation. The fair market value of the nonprofit cor-
21 poration on the date of conversion to a mutual insurance company, aug-
22 mented by any increase in value of the mutual insurance company attrib-
23 utable to the use of the charitable trust assets or to its prior status as a
24 nonprofit corporation, shall be the basis for the valuation of the trust
25 obligation, consistent with section 3 and amendments thereto.
26 (b) A mutual insurance company which enters into any agreement or
27 transaction with a nonprofit corporation acquires and retains a charitable
28 trust obligation to preserve the assets of the nonprofit corporation for
29 charitable purposes. This obligation shall be paid any time the mutual
30 insurance company enters into an agreement or transaction with a for-
31 profit corporation. The fair market value of the nonprofit corporation on
32 the date of conversion to a mutual insurance company, augmented by any
33 increase in value of the mutual insurance company attributable to the use
34 of the charitable trust assets or to its prior status as a nonprofit corpora-
35 tion, shall be the basis for the valuation of the trust obligation, consistent
36 with section 3 and amendments thereto.
37 (c) At such time that the mutual insurance company enters into an
38 agreement or transaction to demutualize, it shall submit an assets distri-
39 bution plan to fulfill its charitable obligations, consistent with the require-
40 ments under section 3 and amendments thereto. The attorney general
41 shall hold public hearings consistent with section 2 and amendments
42 thereto. No agreement or transaction of a mutual insurance company to
43 demutualize shall occur until the attorney general consents to such plan
1 as fair and equitable to the public and follows the other provisions of this
3 Sec. 6. The attorney general shall require every nonprofit hospital,
4 medical-surgical facility, health maintenance organization or health serv-
5 ice corporation to submit for approval by the attorney general, an annual
6 report that identifies the activities to be undertaken by the nonprofit (if
7 one continues to exist after the agreement or transaction is approved) to
8 meet its public benefit and community benefit obligations.
9 Sec. 7. If the attorney general receives information indicating that
10 the for-profit corporation is not fulfilling the commitment to the affected
11 community under section 3 and amendments thereto, the regulator shall
12 hold a public meeting upon 10 days' notice to the affected parties. If,
13 after such meeting, the regulator determines that the information is true,
14 it shall institute proceedings to require a corrective action plan from the
15 for-profit corporation. The attorney general shall retain oversight of the
16 for-profit's obligations under the corrective action plan for as long as
17 necessary to ensure compliance with this statute.
18 Sec. 8. Any final action by the attorney general, pursuant to section
19 3 and amendments thereto, shall be subject to judicial review by the court
20 at the initiation of the nonprofit corporation or any person that was a
21 party to the agency proceeding. Any person adversely affected by the final
22 agency decision shall be considered a party to the proceeding, including
23 consumers or community groups representing the citizens of the state.
24 Sec. 9. This act shall take effect and be in force from and after its
25 publication in the statute book.