HF 2334

as introduced - 90th Legislature (2017 - 2018) Posted on 05/22/2017 01:41am

A bill for an act
relating to health; providing for attorney general review and approval of conversions
by nonprofit health maintenance organizations and nonprofit health service plan
corporations; specifying notice and review requirements; establishing standards
for distribution of certain assets; amending Minnesota Statutes 2016, section
317A.811, subdivision 1, by adding a subdivision; proposing coding for new law
in Minnesota Statutes, chapter 62D.

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

Section 1.

new text begin [62D.046] NONPROFIT HEALTH CARE ENTITY CONVERSIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) The definitions in this subdivision apply to this section.
new text end

new text begin (b) "Commissioner" means the commissioner of commerce if the nonprofit health care
entity at issue is a service plan corporation operating under chapter 62C, or the commissioner
of health if the nonprofit health care entity at issue is a health maintenance organization
operating under this chapter.
new text end

new text begin (c) "Conversion benefit entity" means any foundation, corporation, limited liability
company, trust, partnership, or other entity that receives public benefit assets, or their value,
in connection with a conversion transaction.
new text end

new text begin (d) "Conversion transaction" or "transaction" means a transaction in which a nonprofit
health care entity merges, consolidates, converts, or transfers all or a substantial portion of
its assets to an entity that is not a nonprofit corporation organized under chapter 317A that
is also exempt under United States Code, title 26, section 501(c)(3). The substitution of a
new corporate member or members that transfers the control of, responsibility for, or
governance of a nonprofit health care entity shall also be deemed a conversion transaction
or transaction for the purposes of this section.
new text end

new text begin (e) "Family member" means a spouse, parent, or child or other dependent.
new text end

new text begin (f) "Nonprofit health care entity" means a service plan corporation operating under
chapter 62C or a health maintenance organization operating under this chapter.
new text end

new text begin (g) "Public benefit assets" means the entirety of a nonprofit health care entity's assets,
whether tangible or intangible, and including but not limited to its goodwill, intellectual
property, and membership base.
new text end

new text begin (h) "Related organization" has the meaning given in section 317A.011, subdivision 18.
new text end

new text begin Subd. 2. new text end

new text begin Private inurement. new text end

new text begin A nonprofit health care entity is prohibited from entering
into a conversion transaction if a person who has been an officer, director, or other executive
of the nonprofit health care entity, or of a related organization, or a family member of such
a person:
new text end

new text begin (1) has received or will receive any compensation or other financial benefit, directly or
indirectly, in connection with the conversion transaction;
new text end

new text begin (2) has held or will hold, regardless of whether guaranteed or contingent, any ownership
stake, stock, securities, investment, or other financial interest in, or has received or will
receive any type of compensation or other financial benefit from, any entity to which the
nonprofit health care entity transfers public benefit assets in connection with a conversion
transaction; or
new text end

new text begin (3) has held or will hold, regardless of whether guaranteed or contingent, any ownership
stake, stock, securities, investment, or other financial interest in, or has received or will
receive any type of compensation or other financial benefit from, any entity that has or will
have a business relationship with any entity to which the nonprofit health care entity transfers
public benefit assets in connection with a conversion transaction.
new text end

new text begin Subd. 3. new text end

new text begin Attorney general notice and approval required. new text end

new text begin (a) Before entering into a
conversion transaction, a nonprofit health care entity must notify the attorney general as
specified under section 317A.811, subdivision 1. The attorney general shall have the
discretion to approve, conditionally approve, or not approve a conversion transaction under
this section after considering any factors that the attorney general deems relevant, including
but not limited to the list of factors in subdivision 4. If the transaction is not approved, the
notice denying approval must include the reasons for the decision.
new text end

new text begin (b) The notice required by this subdivision must include an itemization of the nonprofit
health care entity's public benefit assets and the valuation that the entity attributes to those
assets, a proposed plan for distribution of the value of those assets to a conversion benefit
entity that meets the requirements of subdivision 5, and other information the attorney
general reasonably considers necessary from the nonprofit health care entity or any other
entity to which the nonprofit health care entity intends to transfer public benefit assets in
connection with a conversion transaction.
new text end

new text begin (c) The attorney general may also review a proposed conversion transaction pursuant
to the authority granted by section 317A.813 or other law.
new text end

new text begin (d) A copy of the notice and other information required under this subdivision must be
given to the commissioner.
new text end

new text begin (e) The attorney general shall assess the entity proposing to receive the public benefit
assets of the nonprofit health care entity for costs related to reviewing the proposed
conversion transaction, for which the entity shall promptly reimburse the attorney general.
Such costs may include but are not limited to costs associated with the attorney general's
retention of actuarial, valuation, or other experts and consultants that the attorney general
deems necessary to review a proposed transaction, and any administrative costs. Funds
received by the attorney general under this subdivision are appropriated to the attorney
general and shall be deposited into an appropriate account.
new text end

new text begin Subd. 4. new text end

new text begin Review elements. new text end

new text begin (a) In making a decision whether to approve, conditionally
approve, or not approve a proposed transaction, the attorney general, in consultation with
the commissioner, shall consider all relevant factors, including but not limited to whether:
new text end

new text begin (1) the proposed transaction complies with chapters 317A and 501B, and other applicable
charities and nonprofit laws;
new text end

new text begin (2) the proposed transaction involves or constitutes a breach of charitable trust;
new text end

new text begin (3) the nonprofit health care entity will receive full and fair value for its public benefit
assets;
new text end

new text begin (4) the full and fair value of the public benefit assets to be transferred has been
manipulated in a manner that causes, or already has caused, the value of the assets to
decrease;
new text end

new text begin (5) the proceeds of the proposed transaction will be used consistent with the public
benefit for which the assets are held by the nonprofit health care entity;
new text end

new text begin (6) the proposed transaction will result in a breach of fiduciary duty, as determined by
the attorney general, including but not limited to whether:
new text end

new text begin (i) the nonprofit health care entity's board of directors exercised reasonable care and due
diligence in deciding to pursue the transaction, in selecting the entity with which to pursue
the transaction, and in negotiating the terms and conditions of the transaction;
new text end

new text begin (ii) conflicts of interest exist related to payments to or benefits conferred upon officers,
directors, board members, and executives of the nonprofit health care entity or a related
organization; and
new text end

new text begin (iii) the nonprofit health care entity's board of directors considered all reasonably viable
alternatives, including any competing offers for its public benefit assets or alternative
transactions;
new text end

new text begin (7) the proposed transaction will result in private inurement to any person or entity,
including but not limited to owners, stakeholders, or any directors, officers, or key staff of
the nonprofit health care entity or an entity to which the nonprofit health care entity proposes
to transfer public benefit assets;
new text end

new text begin (8) the conversion transaction meets the requirements of subdivision 2;
new text end

new text begin (9) the conversion benefit entity meets the requirements of subdivision 5;
new text end

new text begin (10) the public input received about the proposed transaction is favorable or unfavorable;
new text end

new text begin (11) the proposed transaction is likely to affect the availability, accessibility, and
affordability of health care services to the public; and
new text end

new text begin (12) the attorney general and the commissioner have been provided with sufficient
information by the nonprofit health care entity to adequately evaluate the proposed transaction
and the effects on the public, provided the attorney general or the commissioner has notified
the nonprofit health care entity or the successor entity of any inadequacy of the information
provided and has provided the nonprofit health care entity or successor entity a reasonable
opportunity to remedy that inadequacy.
new text end

new text begin (b) The attorney general must consult with the commissioner in making a decision
whether to approve, conditionally approve, or not approve a proposed transaction.
new text end

new text begin (c) Prior to issuing any written decision under this section, the attorney general may
solicit public input, including holding public hearings, on the proposed transaction. If a
hearing is held, the attorney general shall provide at least seven days' notice of the time and
place of the hearing through appropriate means.
new text end

new text begin Subd. 5. new text end

new text begin Conversion benefit entity requirements. new text end

new text begin (a) A conversion benefit entity must
be an existing or new domestic nonprofit corporation organized under chapter 317A and
also must be exempt under United States Code, title 26, section 501(c)(3).
new text end

new text begin (b) The conversion benefit entity must be completely independent of any influence or
control by:
new text end

new text begin (1) the nonprofit health care entity and related organizations;
new text end

new text begin (2) all entities to which the nonprofit health care entity transfers any public benefit assets
in connection with a conversion transaction; and
new text end

new text begin (3) all directors, officers, and other executives of the entities and organizations specified
in clauses (1) and (2).
new text end

new text begin (c) The conversion benefit entity must have in place procedures and policies to prohibit
conflicts of interest including but not limited to prohibiting conflicts of interests relating to
any grant-making activities that may benefit:
new text end

new text begin (1) the directors, officers, or other executives of the conversion benefit entity;
new text end

new text begin (2) any entity to which the nonprofit health care entity transfers any public benefit assets
in connection with a conversion transaction; or
new text end

new text begin (3) any directors, officers, or other executives of any entity to which the nonprofit health
care entity transfers any public benefit assets in connection with a conversion transaction.
new text end

new text begin (d) The charitable purpose and grant-making functions of the conversion benefit entity
must be dedicated exclusively to meeting the health care needs of the people of this state.
new text end

new text begin Subd. 6. new text end

new text begin Period for approval or disapproval; extension. new text end

new text begin (a) Within 150 days of
receiving notice of a proposed transaction, the attorney general shall notify the nonprofit
health care entity in writing of its decision to approve, conditionally approve, or not approve
the transaction. The attorney general may extend this period for an additional 90 days if
necessary to obtain additional information.
new text end

new text begin (b) The time periods established by this subdivision are suspended while any requests
for information by the attorney general to the nonprofit health care entity or any entity to
which the nonprofit health care entity intends to transfer any public benefit assets are
outstanding.
new text end

new text begin Subd. 7. new text end

new text begin Transfer of value of assets required. new text end

new text begin If a proposed conversion transaction is
approved or conditionally approved by the attorney general, the nonprofit health care entity
shall transfer the entirety of the full and fair value of its public benefit assets to one or more
conversion benefit entities as part of the transaction.
new text end

new text begin Subd. 8. new text end

new text begin Annual report by conversion benefit entity. new text end

new text begin A conversion benefit entity must
submit an annual report to the attorney general that contains a detailed description of its
charitable activities related to the use of the public benefit assets received under a transaction
that is approved under this section.
new text end

new text begin Subd. 9. new text end

new text begin Penalties; remedies. new text end

new text begin A conversion transaction entered into in violation of this
section is null and void. The attorney general is authorized to bring an action to unwind a
conversion transaction entered into in violation of this section. The officers, directors, and
other executives of each entity that are party to a conversion transaction entered into in
violation of this section may be subject to a civil penalty of up to the entirety of any financial
benefit each one derived from the transaction or $1,000,000, whichever is greater, as
determined by the court. The attorney general is authorized to enforce this section pursuant
to section 8.31.
new text end

new text begin Subd. 10. new text end

new text begin Relation to other law. new text end

new text begin (a) This section is in addition to, and does not affect
or limit, any power, remedy, or responsibility of a health maintenance organization, a service
plan corporation, a conversion benefit entity, the attorney general, or the commissioner
under this chapter, chapters 62C, 317A, and 501B, or other law.
new text end

new text begin (b) Nothing in this section authorizes a nonprofit health care entity to enter into a
conversion transaction not otherwise permitted under chapter 317A.
new text end

Sec. 2.

Minnesota Statutes 2016, section 317A.811, subdivision 1, is amended to read:

Subdivision 1.

When required.

(a) Except as provided in subdivision 6, the following
corporations shall notify the attorney general of their intent to dissolve, merge, or consolidate,
or to transfer all or substantially all of their assets:

(1) a corporation that holds assets for a charitable purpose as defined in section 501B.35,
subdivision 2 new text begin , including a health maintenance organization operating under chapter 62D
and a service plan corporation operating under chapter 62C new text end ; or

(2) a corporation that is exempt under section 501(c)(3) of the Internal Revenue Code
of 1986, or any successor section.

(b) The notice must include:

(1) the purpose of the corporation that is giving the notice;

(2) a list of assets owned or held by the corporation for charitable purposes;

(3) a description of restricted assets and purposes for which the assets were received;

(4) a description of debts, obligations, and liabilities of the corporation;

(5) a description of tangible assets being converted to cash and the manner in which
they will be sold;

(6) anticipated expenses of the transaction, including attorney fees;

(7) a list of persons to whom assets will be transferred, if known;

(8) the purposes of persons receiving the assets; and

(9) the terms, conditions, or restrictions, if any, to be imposed on the transferred assets.

The notice must be signed on behalf of the corporation by an authorized person.

Sec. 3.

Minnesota Statutes 2016, section 317A.811, is amended by adding a subdivision
to read:

new text begin Subd. 1a. new text end

new text begin Nonprofit health care entity; notice and approval required. new text end

new text begin A corporation
that is a health maintenance organization or a service plan corporation is subject to notice
and approval requirements for certain transactions under section 62D.046.
new text end