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1 1 Section 1. NEW SECTION. 135M.1 DEFINITIONS.
1 2 As used in this chapter, unless the context otherwise
1 3 requires:
1 4 1. "Acquiring entity" means a person who is a purchaser or
1 5 lessee of an acquisition.
1 6 2. "Acquisition" means a purchase or lease by a person of
1 7 the assets of a hospital which is owned, controlled, or
1 8 operated by a nonprofit corporation, and which meets any of
1 9 the following conditions:
1 10 a. Constitutes a purchase or lease of fifty percent or
1 11 more of the assets of a hospital licensed under chapter 135B.
1 12 b. Constitutes a purchase or lease which, when combined
1 13 with one or more transfers between the same or related parties
1 14 occurring within a five-year period, constitutes a purchase or
1 15 lease of fifty percent or more of the assets of a hospital
1 16 licensed under chapter 135B.
1 17 "Acquisition" does not include the restructuring of a
1 18 hospital involving a lease of assets to any not-for-profit or
1 19 for-profit entity which has a principal place of business
1 20 located in the same county where the main campus of the
1 21 hospital is located and which is not owned, in whole or in
1 22 part, or controlled by any other for-profit or not-for-profit
1 23 entity whose principal place of business is located outside
1 24 the county.
1 25 3. "Attorney general" means the attorney general or the
1 26 attorney general's designee.
1 27 4. "Control" or "controlling interest" means ownership of
1 28 fifty percent or more of the assets of the entity in question
1 29 or the ability to influence significantly the operations or
1 30 decisions of the entity.
1 31 5. "Disposition" means a sale or lease of the assets of a
1 32 hospital which is owned, controlled, or operated by a
1 33 nonprofit corporation to an acquiring entity, which meets any
1 34 of the following conditions:
1 35 a. Constitutes a sale or lease of fifty percent or more of
2 1 the assets of a hospital licensed under chapter 135B.
2 2 b. Constitutes a sale or lease which, when combined with
2 3 one or more transfers between the same or related parties
2 4 occurring within a five-year period, constitutes a sale or
2 5 lease of fifty percent or more of the assets of a hospital
2 6 licensed under chapter 135B.
2 7 "Disposition" does not include the restructuring of a
2 8 hospital involving a lease of assets to any not-for-profit or
2 9 for-profit entity which has a principal place of business
2 10 located in the same county where the main campus of the
2 11 hospital is located and which is not owned, in whole or in
2 12 part, or controlled by any other for-profit or not-for-profit
2 13 entity whose principal place of business is located outside
2 14 the county.
2 15 6. "Family" means a parent, spouse, child, or sibling.
2 16 7. "Financial interest" means the direct or indirect
2 17 ownership of any assets or stock of any business.
2 18 8. "Hospital" means hospital as defined in section 135B.1.
2 19 9. "Related party" means a person that owns or controls,
2 20 is owned or controlled by, or operates under common ownership
2 21 or control with a party to a transaction.
2 22 10. "Transaction" means an acquisition and disposition.
2 23 Sec. 2. NEW SECTION. 135M.2 NOTIFICATION OF ATTORNEY
2 24 GENERAL.
2 25 1. An acquiring entity shall not engage in an acquisition
2 26 without first notifying the attorney general pursuant to this
2 27 chapter. A nonprofit corporation which owns, controls, or
2 28 operates, directly or indirectly, a hospital licensed under
2 29 chapter 135B shall not engage in a disposition without first
2 30 notifying the attorney general pursuant to this chapter. The
2 31 parties to the transaction shall provide the attorney general
2 32 with at least ninety days' notice of the proposed transaction
2 33 prior to its consummation.
2 34 2. Notice to the attorney general shall include the name
2 35 of the hospital; the name of the seller or lessor; the name of
3 1 the acquiring entity and other parties to the acquisition; the
3 2 county in which the main campus of the hospital is located; a
3 3 summary of the terms of the proposed acquisition agreement and
3 4 any related agreements including leases, management contracts,
3 5 and service contracts; the acquisition price; a copy of the
3 6 acquisition agreement and any related agreements including
3 7 leases, management contracts, and service contracts; any
3 8 valuations of the hospital's assets prepared in the three
3 9 years immediately preceding the proposed transaction date; a
3 10 financial and economic analysis and report from any expert or
3 11 consultant retained by the seller or lessor which addresses
3 12 each of the factors required to be addressed by a disclosure
3 13 pursuant to section 135M.5; a copy of the articles of
3 14 incorporation and bylaws of the nonprofit corporation and
3 15 related entities and foundations; all donative documents
3 16 reflecting the purposes of prior gifts of more than one
3 17 hundred thousand dollars in value by donors to the nonprofit
3 18 corporation or any related entities or foundations for or on
3 19 behalf of the hospital; and all documents pertaining to the
3 20 disposition of assets, including those documents which are
3 21 included as schedules or exhibits to the acquisition agreement
3 22 and any related agreements.
3 23 3. The attorney general may prescribe a form of notice to
3 24 be utilized by the seller or lessor and the acquiring entity
3 25 and may require information in addition to that specified in
3 26 this section if the disclosure of such information is
3 27 determined by the attorney general to be in the public
3 28 interest. The notice to the attorney general required by this
3 29 section and all related documents shall be considered public
3 30 records pursuant to section 22.7.
3 31 4. Notice to the attorney general shall be accompanied by
3 32 the payment by either the seller or lessor, or by the
3 33 acquiring entity, of a fee in the amount of fifty thousand
3 34 dollars.
3 35 5. The attorney general is authorized to retain financial,
4 1 economic, health planning, or other experts or consultants to
4 2 assist in addressing each of the factors set forth in section
4 3 135M.5.
4 4 6. Except as provided in subsection 8, notice to the
4 5 attorney general required by this chapter shall also include a
4 6 separate certification from each member of the governing board
4 7 and the chief executive officer of the nonprofit corporation
4 8 which is a party to the proposed disposition, and from each
4 9 member of the governing board and the chief executive officer
4 10 of any nonprofit corporation that holds a membership, stock,
4 11 or controlling interest in the corporation, executed under
4 12 oath, stating whether that director or officer of the
4 13 nonprofit corporation is then or may become within the three-
4 14 year period following the completion of the transaction a
4 15 member or shareholder in, or officer, employee, agent, or
4 16 consultant of, or will otherwise derive any compensation or
4 17 benefits, directly or indirectly, from the acquiring entity or
4 18 any related party in connection with or as a result of the
4 19 disposition.
4 20 7. Except as provided in subsection 8, notice to the
4 21 attorney general required by this section shall also include a
4 22 certification from each member of the governing board and the
4 23 chief executive officer of the nonprofit corporation which is
4 24 a party to the proposed disposition, and from each member of
4 25 the governing board and the chief executive officer of any
4 26 nonprofit corporation that holds a membership, stock, or
4 27 controlling interest in the corporation, executed under oath
4 28 which provides all of the following:
4 29 a. Disclosure of any financial interest held by that
4 30 individual or that individual's family, or held by any
4 31 business in which the individual or the individual's family
4 32 owns a financial interest, in any business which:
4 33 (1) Within the immediately preceding twelve-month period
4 34 sold products, property interests, or services to the
4 35 nonprofit corporation engaged in the disposition.
5 1 (2) Within the immediately preceding twelve-month period
5 2 sold or within the three-year period after the completion of
5 3 the transaction may sell products, property interests, or
5 4 services to the acquiring entity.
5 5 b. Disclosure of any contract pursuant to which a sale was
5 6 made or may be made of those products, property interests, or
5 7 services regarding financial interests which are disclosed
5 8 pursuant to paragraph "a".
5 9 c. A statement that the nonprofit corporation which is a
5 10 party to the disposition will receive fair market value for
5 11 its assets in the transaction or, in the case of a proposed
5 12 disposition to a not-for-profit entity or a hospital
5 13 authority, a statement that the nonprofit corporation will
5 14 receive an enforceable commitment of fair and reasonable
5 15 community benefits for its assets.
5 16 d. A statement that the market value of the hospital's
5 17 assets has not been manipulated to decrease their value.
5 18 e. A statement that the terms of the transaction are fair
5 19 and reasonable to the nonprofit corporation.
5 20 f. A statement that the transaction is authorized by the
5 21 nonprofit corporation's governing documents and is consistent
5 22 with the intent of any major donors who have contributed over
5 23 one hundred thousand dollars.
5 24 g. A statement that the proceeds of the transaction will
5 25 be used solely in a manner consistent with the charitable
5 26 purposes of the nonprofit corporation and will not be used,
5 27 directly or indirectly, to benefit the acquiring entity.
5 28 h. A statement that the transaction will not adversely
5 29 affect the availability or accessibility of health care
5 30 services in the county in which the main campus of the
5 31 hospital is located.
5 32 8. The certification requirements of subsections 6 and 7
5 33 do not apply to any governing board members who vote to oppose
5 34 the proposed disposition.
5 35 Sec. 3. NEW SECTION. 135M.3 PUBLIC NOTICE.
6 1 Within ten business days after receipt of a notice of a
6 2 proposed transaction under this chapter, the attorney general
6 3 shall publish notice of the proposed transaction in a
6 4 newspaper of general circulation in the county where the main
6 5 campus of the hospital is located and shall notify in writing
6 6 the governing authority of such county. The published notice
6 7 shall state that the attorney general has received notice of a
6 8 proposed transaction, the names of the parties to the proposed
6 9 transaction, the date, time, and place of the public hearing
6 10 regarding the transaction, and the means by which a person may
6 11 submit written comments about the proposed transaction to the
6 12 attorney general.
6 13 Sec. 4. NEW SECTION. 135M.4 PUBLIC HEARING.
6 14 1. Within sixty days after receipt of a notice of a
6 15 proposed transaction under this chapter, the attorney general
6 16 shall conduct a public hearing regarding the proposed
6 17 transaction in the county in which the main campus of the
6 18 hospital is located. At the hearing, the attorney general
6 19 shall provide an opportunity for those persons in favor of the
6 20 transaction, those persons opposed to the transaction, and
6 21 other interested persons to be heard. The attorney general
6 22 shall also receive written comments regarding the transaction
6 23 from any interested person, and the written comments shall be
6 24 considered public records pursuant to section 22.7.
6 25 2. Any expert or consultant retained by the nonprofit
6 26 corporation disposing of the hospital to prepare a financial
6 27 and economic analysis of the proposed transaction shall appear
6 28 and testify at the public hearing regarding the expert's or
6 29 consultant's report if requested to do so by the attorney
6 30 general and may be questioned by the attorney general. The
6 31 expert or consultant shall make the same disclosure required
6 32 by members and officers under section 135M.2. An independent
6 33 expert or consultant retained by the attorney general to
6 34 review the proposed transaction shall also appear and testify
6 35 at the public hearing regarding the expert's or consultant's
7 1 findings and analysis.
7 2 3. At least one member of the governing board of the
7 3 seller or lessor shall be designated by the seller or lessor,
7 4 and at least one representative of the acquiring entity shall
7 5 be designated by the acquiring entity, to appear and testify
7 6 under oath at the public hearing and shall be subject to
7 7 questioning by the attorney general.
7 8 Sec. 5. NEW SECTION. 135M.5 DISCLOSURES.
7 9 The purpose of a public hearing under section 135M.4 is to
7 10 ensure that the public's interest is protected when the assets
7 11 of a nonprofit hospital are acquired by an acquiring entity by
7 12 requiring full disclosure of the purpose and terms of the
7 13 transaction and providing an opportunity for local public
7 14 input. The disposition of a nonprofit hospital to an
7 15 acquiring entity shall not be in the public interest unless
7 16 there has been adequate disclosure as determined by the
7 17 attorney general during the public hearing and through the
7 18 notice and documents submitted to the attorney general that
7 19 appropriate steps have been taken to ensure that the
7 20 transaction is authorized, to safeguard the value of
7 21 charitable assets, and to ensure that any proceeds of the
7 22 transaction are used for appropriate charitable health care
7 23 purposes. The public hearing, or documents on file with the
7 24 attorney general pursuant to this chapter, shall address, at a
7 25 minimum, all of the following:
7 26 1. Whether the disposition is permitted under state laws
7 27 governing nonprofit entities, trusts, and charities.
7 28 2. Whether the disposition is consistent with the
7 29 directives of major donors who have contributed over one
7 30 hundred thousand dollars.
7 31 3. Whether the governing body of the nonprofit corporation
7 32 exercised due diligence in deciding to dispose of hospital
7 33 assets, selecting the acquiring entity, and negotiating the
7 34 terms and conditions of the disposition.
7 35 4. The procedures used by the nonprofit corporation in
8 1 making its decision to dispose of its assets, including
8 2 whether appropriate expert assistance was used.
8 3 5. Whether there are any conflicts of interest, including,
8 4 but not limited to, conflicts of interest related to directors
8 5 or officers of the nonprofit corporation and experts retained
8 6 by the parties to the transaction.
8 7 6. Whether the seller or lessor will receive fair market
8 8 value for its assets, including an appropriate control premium
8 9 for any relinquishment of control or, in the case of a
8 10 proposed disposition to a not-for-profit entity, will receive
8 11 an enforceable commitment for fair and reasonable community
8 12 benefits for its assets.
8 13 7. Whether charitable assets will be placed at
8 14 unreasonable risk if the transaction is financed in part by
8 15 the seller or lessor.
8 16 8. Whether the terms of any management or services
8 17 contract negotiated in conjunction with the transaction are
8 18 reasonable.
8 19 9. Whether disposition proceeds will be used for
8 20 appropriate charitable health care purposes consistent with
8 21 the nonprofit corporation's original purpose or for the
8 22 support and promotion of health care in the affected
8 23 community.
8 24 10. Whether a meaningful right of first refusal to
8 25 repurchase the assets from a successor nonprofit corporation
8 26 or foundation has been retained if the acquiring entity
8 27 subsequently proposes to sell, lease, or transfer the hospital
8 28 to yet another entity.
8 29 11. Whether sufficient safeguards are included in the
8 30 acquisition agreement to assure the affected community
8 31 continued access to affordable health care and to the range of
8 32 services historically provided by the nonprofit corporation.
8 33 12. Whether the acquiring entity has made an enforceable
8 34 commitment to provide health care to the disadvantaged, the
8 35 uninsured, and the underinsured and to provide benefits to the
9 1 affected community to promote improved health care.
9 2 13. Whether health care providers will be offered the
9 3 opportunity to invest or own an interest in the acquiring
9 4 entity or a related party, and whether procedures or
9 5 safeguards are in place to avoid conflict of interest in
9 6 patient referrals.
9 7 Sec. 6. NEW SECTION. 135M.6 ENFORCEMENT.
9 8 The attorney general is authorized to ensure compliance
9 9 with any and all notices, certifications, obligations, and
9 10 commitments required to be made in connection with a
9 11 transaction under this chapter and may institute proceedings
9 12 to enforce such compliance in the district court of the county
9 13 in which the main campus of the hospital is located. This
9 14 provision shall not preclude any other person with standing
9 15 from instituting judicial proceedings regarding the proposed
9 16 disposition.
9 17 Sec. 7. NEW SECTION. 135M.7 REPORT OF FINDINGS.
9 18 The attorney general shall issue a report of findings
9 19 addressing the issues outlined in section 135M.5 within thirty
9 20 days of the public hearing; provided, however, the time for
9 21 issuing the report may be extended for an additional thirty
9 22 days if the attorney general finds there has been a failure by
9 23 the entities involved in the transaction under review or any
9 24 of them, to comply with disclosures required by this chapter
9 25 or to respond to subpoenas or any other process authorized by
9 26 this chapter, and additional extensions may be ordered upon a
9 27 continuation of a failure to so comply.
9 28 Sec. 8. NEW SECTION. 135M.8 LICENSE – NONISSUANCE.
9 29 A license shall not be issued to or renewed by a hospital
9 30 under chapter 135B or any other applicable law or rule, and a
9 31 license which has been issued shall be subject to revocation
9 32 or suspension, if there is a disposition or acquisition of
9 33 hospital assets as defined in this chapter without notice
9 34 first having been provided to the attorney general under
9 35 section 135M.2.
10 1 Sec. 9. NEW SECTION. 135M.9 ATTORNEY GENERAL –
10 2 AUTHORITY.
10 3 1. This chapter shall not be construed to reduce any
10 4 existing authority of the attorney general.
10 5 2. The attorney general shall have the same power to
10 6 investigate and issue subpoenas as the attorney general has
10 7 with respect to investigations authorized under chapter 13.
10 8 Sec. 10. NEW SECTION. 135M.10 VIOLATIONS – PENALTIES.
10 9 Any disposition or acquisition made in violation of the
10 10 notice, disclosure, and certification requirements of this
10 11 chapter is null and void, and each member of the governing
10 12 bodies and the chief executive officers of the parties to the
10 13 disposition or acquisition are subject to a fine of up to
10 14 fifty thousand dollars. The attorney general shall institute
10 15 proceedings in the district court in the county in which the
10 16 main campus of the hospital is located to impose the fine
10 17 within one year of the unlawful disposition or acquisition.
10 18 Sec. 11. APPLICATION. Any transaction as defined in
10 19 section 135M.1 which is completed before July 1, 1998, or any
10 20 transaction as defined in section 135M.1 that is subject to a
10 21 pending acquisition agreement as of July 1, 1998, and which is
10 22 either conditioned only upon receipt of regulatory approval,
10 23 or is subject to a pending judicial proceeding as of July 1,
10 24 1998, is not subject to chapter 135M.
10 25 EXPLANATION
10 26 This bill establishes procedures for transfers of assets of
10 27 nonprofit corporations which own, control, or operate
10 28 hospitals when the transfer is to certain acquiring entities.
10 29 The bill provides for notification of the attorney general of
10 30 such transactions, a public hearing regarding a proposed
10 31 transaction, disclosure of certain information relating to a
10 32 transaction, the payment of a fee relating to a transaction,
10 33 and provides a penalty for noncompliance with the procedures.
10 34 LSB 3481XS 77
10 35 pf/sc/14
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