Session of 1997
SENATE BILL No. 372
By Committee on Ways and Means
AN ACT relating to health care; enacting the nonprofit hospital sale act;
providing for powers, duties and functions of the secretary of health
and environment and the attorney general in administering the act.
Be it enacted by the Legislature of the State of Kansas:
Section 1. Sections 1 to 12 of this act shall be known and may be
cited as the nonprofit hospital sale act.
Sec. 2. As used in this act:
(a) ``Secretary'' means the secretary of health and environment.
(b) ``Hospital'' means a general or special hospital licensed under
K.S.A. 65-425 et seq. and amendments thereto.
(c) ``Acquisition'' means any acquisition by a person or persons of an
ownership or controlling interests in a hospital, whether by purchase,
merger, lease, gift or otherwise, which results in a change of ownership
or control of 20% or greater or which results in the acquiring person or
persons holding a 50% or greater interest in the ownership or control of
a hospital, but acquisition does not include the acquisition of an owner-
ship or controlling interest in a hospital owned by a nonprofit corporation
if the transferee (1) is a nonprofit corporation having a substantially sim-
ilar charitable health care purpose as the transferor or is a governmental
entity, (2) is exempt from federal income tax under section 501(c)(3) of
the internal revenue code or as a governmental entity and (3) will main-
tain representation from the affected community on the local hospital
(4) ``Person'' has the same meaning as such term is defined under
K.S.A. 65-425 and amendments thereto.
Sec. 3. (a) No person shall engage in the acquisition of a hospital
owned by a nonprofit corporation without first having applied for and
received the approval of the secretary of health and environment and
without first having notified the attorney general and, if applicable, re-
ceived approval from the attorney general pursuant to the nonprofit hos-
pital sale act. No person shall engage in the acquisition of a hospital not
owned by a nonprofit corporation without first having applied for and
received the approval of the secretary pursuant to this act unless such
acquiring person is a nonprofit corporation exempt from federal income
1 tax under section 501(c)(3) of the internal revenue code or is a govern-
2 mental entity. For purposes of this act, approval of the secretary and the
3 attorney general shall not be required for the acquisition of a hospital not
4 owned by a nonprofit corporation as follows: (1) The lease of a county
5 hospital; or (2) the disorganization or dissolving of a hospital district under
6 K.S.A. 19-4603 and 80-2524 and amendments thereto or the attachment
7 of territory of hospital districts or city or county hospitals under K.S.A.
8 14-694, 19-460, 80-2522 and 80-2523 and amendments thereto.
9 (b) A person not required to obtain the approval of the secretary
10 under the provisions of the nonprofit hospital sale act shall give the at-
11 torney general at least 30 days' notice of an impending acquisition, during
12 which time the attorney general may take any necessary and appropriate
13 action consistent with the general duties of oversight of the attorney gen-
14 eral with regard to the conduct of charities. The notice shall briefly de-
15 scribe the impending acquisition, including any change in ownership of
16 tangible or intangible assets.
17 (c) The application shall be submitted to the secretary and the attor-
18 ney general on forms provided by the secretary and shall include the name
19 of the seller, the name of the purchaser or other parties to an acquisition,
20 the terms of the proposed agreement, the sale price, a copy of the ac-
21 quisition agreement, a financial and economic analysis and report from
22 an independent expert or consultant of the effect of the acquisition under
23 the criteria set forth in section 7 and amendments thereto and all other
24 related documents. A copy of the application and copies of all additional
25 related materials shall be submitted to the secretary and to the attorney
26 general at the same time. The applications and all related documents shall
27 be considered public records.
28 Sec. 4. (a) Within five working days after receipt of an application
29 under section 3 and amendments thereto, the secretary of health and
30 environment shall publish notice of the application in a newspaper of
31 general circulation in the county or counties where the hospital is located
32 and shall notify by first-class United States mail any person who has re-
33 quested notice of the filing of such applications. The notice shall state
34 that an application has been received, state the names of the parties to
35 the agreement, describe the contents of the application and state the date
36 by which a person may submit written comments about the application
37 to the secretary.
38 (b) Within 60 days after receiving an application, the secretary shall
39 review the application in accordance with the standards set forth in the
40 nonprofit hospital sale act and approve or disapprove the acquisition pur-
41 suant to this act.
42 (c) Within 20 days after receiving an application, the attorney general
43 shall determine whether to review the application in accordance with
1 section 7 and amendments thereto and shall so notify the applicant. If
2 the attorney general determines to review the application in accordance
3 with this act, the attorney general, within 60 days after receiving the
4 application, shall review the application in accordance with the standards
5 set forth in section 7 and amendments thereto and approve or disapprove
6 the acquisition. If the attorney general determines not to review the ap-
7 plication in accordance with this act, then none of the other provisions of
8 this act applicable to review by the attorney general shall apply.
9 Sec. 5. (a) The secretary of health and environment and the attorney
10 general, if the attorney general determines to review the acquisition, shall
11 hold, during the course of review under section 4 or 6, and amendments
12 to such sections, a public hearing in which any person may file written
13 comments and exhibits or appear and make a statement. The secretary
14 or the attorney general may subpoena additional information or witnesses,
15 require and administer oaths, require sworn statements, take depositions
16 and use related discovery procedures for purposes of the hearing and at
17 any time prior to making a decision on the application.
18 (b) The hearing shall be held not later than 30 days after receipt of
19 an application. The hearing shall be held upon 10 working days' notice,
20 not including days the application is deemed to be incomplete.
21 Sec. 6. (a) If the attorney general determines to review the applica-
22 tion, the attorney general shall review the application in accordance with
23 the standards enumerated in section 7 and amendments thereto. Within
24 60 days after receipt of an application, the attorney general shall approve
25 or disapprove the acquisition.
26 (b) If the attorney general does not act within 60 days after receipt
27 of an application, the application shall be deemed approved. If the attor-
28 ney general approves or disapproves the acquisition, the applicant or any
29 person who has submitted comments under section 5 and amendments
30 thereto, if the person has a legal interest in the hospital being acquired
31 or in another hospital that has contracted with the acquired hospital for
32 the provision of essential health services, may bring an action for declar-
33 atory judgment under K.S.A. 60-1701 et seq. and amendments thereto
34 for a determination that the acquisition is or is not in the public interest
35 as provided in section 7 and amendments thereto.
36 (c) The secretary of health and environment shall review the com-
37 pleted application in accordance with the standards enumerated in sec-
38 tion 8 and amendments thereto. Within 60 days after receipt of a com-
39 pleted application, the secretary shall:
40 (1) Approve the acquisition, with or without any specific modifica-
41 tions; or
42 (2) disapprove the acquisition.
43 (d) The secretary shall base the decision only on conditions directly
1 related to criteria enumerated in section 8 and amendments thereto, and
2 any condition or modification shall bear a direct and rational relationship
3 to the application under review.
4 (e) The secretary shall adopt rules and regulations establishing pro-
5 cedures by which any affected person may appeal a final decision by the
6 secretary under the nonprofit hospital sale act.
7 Sec. 7. (a) If the attorney general determines to review the applica-
8 tion, the attorney general shall approve the application unless the attorney
9 general finds that the acquisition is not in the public interest. An acqui-
10 sition is not in the public interest unless appropriate steps have been taken
11 to safeguard the value of charitable assets and ensure that any proceeds
12 of the transaction are used for appropriate charitable health care purposes
13 as provided in subsection (b)(8).
14 (b) In determining whether the acquisition meets such criteria under
15 the nonprofit hospital sale act, the attorney general shall consider:
16 (1) Whether the acquisition is permitted under the laws of Kansas
17 governing nonprofit entities, trusts or charities;
18 (2) whether the nonprofit hospital exercised due diligence in deciding
19 to sell, selecting the purchaser and negotiating the terms and conditions
20 of the sale;
21 (3) the procedures used by the seller in making its decision, including
22 whether appropriate expert assistance was used;
23 (4) whether conflict of interest was disclosed including, but not lim-
24 ited to, conflicts of interest related to board members of, executives of,
25 and experts retained by the seller, purchaser or parties to the acquisition;
26 (5) whether the seller will receive reasonably fair value for its assets,
27 and in making such determination the attorney general may employ, at
28 the seller's expense, reasonably necessary expert assistance;
29 (6) whether charitable funds are placed at unreasonable risk, if the
30 acquisition is financed in part by the seller;
31 (7) whether any management contract under the acquisition is for
32 reasonably fair value;
33 (8) whether the sale proceeds will be used for appropriate charitable
34 health care purposes consistent with the seller's original purpose or for
35 the support and promotion of health care in the affected community and
36 whether the proceeds will be controlled as charitable funds independently
37 of the purchaser or parties to the acquisition; and
38 (9) whether a right of first refusal to repurchase the assets by a suc-
39 cessor nonprofit corporation or foundation has been retained if the hos-
40 pital is subsequently sold to, acquired by or merged with another entity.
41 Sec. 8. (a) In making a decision whether to approve or disapprove
42 an application, the secretary of health and environment shall consider:
43 (1) Whether sufficient safeguards are included to assure the affected
1 community continued access to affordable care;
2 (2) whether the purchaser and parties to the acquisition have made
3 a commitment to provide health care to the disadvantaged, the uninsured
4 and the underinsured and to provide benefits to the affected community
5 to promote improved health care; and in evaluating compliance with this
6 commitment, activities and funding provided by the seller or its successor
7 nonprofit corporation and foundation to provide such health care may be
8 considered; and
9 (3) if health care providers will be offered the opportunity to invest
10 or own an interest in the purchaser or a related entity to the purchaser,
11 whether procedures or safeguards are in place to avoid conflict of interest
12 in patient referral and the nature of such procedures or safeguards.
13 (b) This section does not apply higher standards to hospitals covered
14 by the nonprofit hospital sale act than those applicable to hospitals not
15 covered by this act.
16 Sec. 9. If the secretary of health and environment receives infor-
17 mation indicating that the acquiring person is not fulfilling the commit-
18 ment to the affected community under section 8 and amendments
19 thereto, the secretary shall hold a hearing upon 10 days' notice to the
20 affected parties. If after such hearing the secretary determines that the
21 information is true, it may institute proceedings to revoke the license
22 issued to the purchaser.
23 Sec. 10. The attorney general shall have the authority to ensure com-
24 pliance with commitments which inure the public interest.
25 Sec. 11. (a) No license to operate a hospital may be issued or re-
26 newed under article 4 of chapter 65 of the Kansas Statutes Annotated or
27 acts amendatory thereof or supplemental thereto, and a license which has
28 been issued shall be subject to revocation or suspension, if:
29 (1) There is an acquisition of a hospital without first having received
30 the approval of the secretary under the nonprofit hospital sale act;
31 (2) there is an acquisition of a hospital without the approval of the
32 attorney general, if the attorney general determines to review the appli-
33 cation under this act;
34 (3) there is an acquisition of a hospital and the attorney general dis-
35 approves the acquisition and there is a declaratory judgment under K.S.A.
36 60-1701 et seq. and amendments thereto that the acquisition is not in the
37 public interest; or
38 (4) the hospital is not fulfilling its commitment under section 8 and
39 amendments thereto or is not following procedures of safeguards com-
40 mitted to under subsection (a)(3) of such section.
41 (b) This section shall not limit the right of appeal for a hospital from
42 such decision as provided in K.S.A. 60-2101 et seq. and amendments
1 Sec. 12. Any acquisition of a hospital before the effective date of this
2 act is not subject to the nonprofit hospital sale act.
3 Sec. 13. No provision of the nonprofit hospital sale act shall derogate
4 from the common law or the statutory authority of the attorney general.
5 Sec. 14. This act shall take effect and be in force from and after its
6 publication in the Kansas register.