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HF 4669

as introduced - 92nd Legislature (2021 - 2022) Posted on 03/28/2022 02:39pm

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to health; prohibiting certain conversion transactions by nonprofit health
care entities; requiring a nonprofit health care entity to provide notice to the attorney
general before entering into a conversion transaction; authorizing penalties and
remedies; extending a moratorium on certain conversion transactions; amending
Minnesota Statutes 2020, section 317A.811, by adding a subdivision; Laws 2017,
First Special Session chapter 6, article 5, section 11, as amended; proposing coding
for new law in Minnesota Statutes, chapters 62C; 62D.

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

Section 1.

new text begin [62C.045] APPLICATION OF OTHER LAW.
new text end

new text begin Sections 62D.046 and 62D.047 apply to health service plan corporations operating under
this chapter.
new text end

Sec. 2.

new text begin [62D.046] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Application. new text end

new text begin The terms defined in this subdivision apply to this section
and section 62D.047.
new text end

new text begin Subd. 2. new text end

new text begin Commissioner. new text end

new text begin "Commissioner" means the commissioner of commerce for a
nonprofit health care entity that is a nonprofit health service plan corporation operating
under chapter 62C or the commissioner of health for a nonprofit health care entity that is a
nonprofit health maintenance organization operating under this chapter.
new text end

new text begin Subd. 3. new text end

new text begin Conversion benefit entity. new text end

new text begin "Conversion benefit entity" means a foundation,
corporation, or charitable trust to which the value of any public benefit assets is distributed
in a conversion transaction in accordance with section 62D.047.
new text end

new text begin Subd. 4. new text end

new text begin Conversion transaction or transaction. new text end

new text begin "Conversion transaction" or
"transaction" means a transaction otherwise permitted by applicable law in which a nonprofit
health care entity:
new text end

new text begin (1) merges, consolidates, converts, or transfers all or a material amount of its assets to
an entity other than a corporation that is also exempt under United States Code, title 26,
section 501(c)(3);
new text end

new text begin (2) makes a series of separate transfers within a 24-month period that in the aggregate
constitute a transfer of all or a material amount of the nonprofit health care entity's assets
to an entity other than a corporation that is also exempt under United States Code, title 26,
section 501(c)(3); or
new text end

new text begin (3) adds or substitutes one or more members that effectively transfers the control of,
responsibility for, or governance of the nonprofit health care entity to an entity other than
a corporation that is also exempt under United States Code, title 26, section 501(c)(3).
new text end

new text begin Subd. 5. new text end

new text begin Corporation. new text end

new text begin "Corporation" has the meaning given in section 317A.011,
subdivision 6, and also includes a nonprofit limited liability company organized under
section 322C.1101.
new text end

new text begin Subd. 6. new text end

new text begin Director. new text end

new text begin "Director" has the meaning given in section 317A.011, subdivision
7.
new text end

new text begin Subd. 7. new text end

new text begin Full and fair value. new text end

new text begin "Full and fair value" means the amount that the public
benefit assets of the nonprofit health care entity would be worth if the assets were equal to
stock in the nonprofit health care entity, if: (1) the nonprofit health care entity was a for-profit
corporation; and (2) the nonprofit health care entity had 100 percent of its stock authorized
by the corporation and available for purchase without transfer restrictions. The valuation
shall consider market value, investment or earning value, net asset value, goodwill, the
amount of donations received, and a control premium, if any.
new text end

new text begin Subd. 8. new text end

new text begin Material amount. new text end

new text begin "Material amount" means the lesser of ten percent of a
nonprofit health care entity's total net admitted assets as of December 31 of the preceding
year or $10,000,000.
new text end

new text begin Subd. 9. new text end

new text begin Member. new text end

new text begin "Member" has the meaning given in section 317A.011, subdivision
12.
new text end

new text begin Subd. 10. new text end

new text begin Member of the family. new text end

new text begin "Member of the family" means a spouse, parent, child,
spouse of a child, brother, sister, or spouse of a brother or sister.
new text end

new text begin Subd. 11. new text end

new text begin Nonprofit health care entity. new text end

new text begin "Nonprofit health care entity" means a nonprofit
health service plan corporation operating under chapter 62C, a nonprofit health maintenance
organization operating under this chapter, a corporation that can effectively exercise control
over a nonprofit health service plan corporation or a nonprofit health maintenance
organization, or any other entity that is effectively controlled by a corporation operating a
nonprofit health service plan corporation or a nonprofit health maintenance organization.
new text end

new text begin Subd. 12. new text end

new text begin Officer. new text end

new text begin "Officer" has the meaning given in section 317A.011, subdivision
15.
new text end

new text begin Subd. 13. new text end

new text begin Public benefit assets. new text end

new text begin "Public benefit assets" means the entirety of a nonprofit
health care entity's assets, whether tangible or intangible, including but not limited to its
goodwill and anticipated future revenue.
new text end

new text begin Subd. 14. new text end

new text begin Related organization. new text end

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

Sec. 3.

new text begin [62D.047] NONPROFIT HEALTH CARE ENTITY CONVERSION
TRANSACTIONS; NOTICE.
new text end

new text begin Subdivision 1. new text end

new text begin Certain conversion transactions prohibited. new text end

new text begin A nonprofit health care
entity must not enter 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 member of the family of such a person:
new text end

new text begin (1) has held or will hold, whether guaranteed or contingent, an ownership stake, stock,
securities, investment, or other financial interest in an entity to which the nonprofit health
care entity transfers public benefit assets in connection with the conversion transaction;
new text end

new text begin (2) has received or will receive any type of compensation or other financial benefit from
an entity to which the nonprofit health care entity transfers public benefit assets in connection
with the conversion transaction;
new text end

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

new text begin (4) has received or will receive any type of compensation or other financial benefit from
an entity that has or will have a business relationship with an entity to which the nonprofit
health care entity transfers public benefit assets in connection with the conversion transaction.
new text end

new text begin Subd. 2. new text end

new text begin Attorney general notice. new text end

new text begin (a) Before entering into a conversion transaction, a
nonprofit health care entity must notify the attorney general according to section 317A.811.
In addition to the elements listed in section 317A.811, subdivision 1, the notice required by
this subdivision must also include an itemization of the nonprofit health care entity's public
benefit assets and an independent, third-party valuation of the nonprofit health care entity's
public benefit assets; a proposed plan to distribute the value of those assets to a conversion
benefit entity that meets the requirements of subdivision 4; and other information contained
in forms provided by the attorney general.
new text end

new text begin (b) When the nonprofit health care entity provides the attorney general with the notice
and other information required under this subdivision, the nonprofit health care entity must
also provide a copy of the notice and other information required under this subdivision to
the commissioner. If the attorney general requests additional information from a nonprofit
health care entity in connection with its review of a proposed conversion transaction, the
nonprofit health care entity must also provide a copy of this information to the commissioner
when this information is provided to the attorney general.
new text end

new text begin Subd. 3. new text end

new text begin Nonprofit health care entity requirements. new text end

new text begin Before entering into a conversion
transaction, a nonprofit health care entity must ensure that:
new text end

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

new text begin (2) the proposed transaction does not involve or constitute 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 value of the public benefit assets to be transferred has not been manipulated in
a manner that causes or caused the value of the assets to decrease;
new text end

new text begin (5) the proceeds of the proposed transaction will be used in a manner 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 not result in a breach of fiduciary duty; and
new text end

new text begin (7) the conversion benefit entity meets the requirements in subdivision 4.
new text end

new text begin Subd. 4. new text end

new text begin Conversion benefit entity requirements. new text end

new text begin A conversion benefit entity must:
new text end

new text begin (1) have in place procedures and policies to prohibit conflicts of interest, including but
not limited to conflicts of interest relating to any grant-making activities that may benefit:
new text end

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

new text begin (ii) any director, officer, other executive, or trustee of an entity to which the nonprofit
health care entity transfers public benefit assets in connection with a conversion transaction;
new text end

new text begin (2) operate to benefit the health of the people of this state; and
new text end

new text begin (3) have in place procedures and policies that prohibit:
new text end

new text begin (i) an officer, director, or other executive of the nonprofit health care entity from serving
as an officer, director, other executive, or trustee of the conversion benefit entity for the
five-year period following the conversion transaction;
new text end

new text begin (ii) an officer, director, or other executive of the nonprofit health care entity from directly
or indirectly benefiting from the conversion transaction; and
new text end

new text begin (iii) an officer, director, other executive, or trustee of the conversion benefit entity from
directly or indirectly benefiting from the conversion transaction.
new text end

new text begin Subd. 5. new text end

new text begin Waiting period. new text end

new text begin (a) Subject to paragraphs (b) and (c), a nonprofit health care
entity must not enter into a conversion transaction until 90 days after the nonprofit health
care entity has given written notice to the attorney general as required in subdivision 2.
new text end

new text begin (b) The attorney general may waive all or part of the waiting period or may extend the
waiting period for an additional 90 days by notifying the nonprofit health care entity of the
extension in writing.
new text end

new text begin (c) The time periods specified in this subdivision shall be suspended while an
investigation into the conversion transaction is pending or while a request from the attorney
general for additional information is outstanding.
new text end

new text begin Subd. 6. new text end

new text begin Penalties; remedies. new text end

new text begin (a) Upon application by the attorney general, the district
court is vested with jurisdiction to restrain, enjoin, and redress violations of this section.
The court may make any necessary order or judgment, including but not limited to
injunctions, restitution, appointment of a receiver for the corporation or the corporation's
assets, unwinding of the conversion transaction, and awards of reasonable attorney fees and
costs of investigation and litigation. The court may also award to the state civil penalties of
up to $100,000 for each violation of this section against the individual officers, directors,
or other executives and up to $1,000,000 against the corporations or entities who are parties
to or materially participated in the transaction that violates this section. In ordering injunctive
relief, the attorney general must not be required to establish irreparable harm but must
instead establish that a violation of this section occurred or that the requested order promotes
the public interest.
new text end

new text begin (b) The attorney general has the powers in sections 8.31, 501B.40, and 501B.41 to
supervise and investigate corporations under this section and to bring proceedings to secure
compliance. Nothing in this subdivision shall limit the powers, remedies, or responsibilities
of the attorney general under chapter 8, 317A, 501B, or any other chapter.
new text end

new text begin (c) Failure of the attorney general to take action with respect to a transaction under this
section does not constitute approval of the transaction or waiver, nor shall such failure
prevent the attorney general from taking action in the same, similar, or subsequent
circumstances.
new text end

new text begin Subd. 7. 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, the commissioner of
health, or the commissioner of commerce under this chapter or chapter 8, 62C, 317A, 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 or 501B or other law.
new text end

Sec. 4.

Minnesota Statutes 2020, 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. new text end

new text begin In addition to the requirements of
subdivision 1, a nonprofit health care entity as defined in section 62D.046, subdivision 11,
is subject to the notice requirements for certain transactions in section 62D.047.
new text end

Sec. 5.

Laws 2017, First Special Session chapter 6, article 5, section 11, as amended by
Laws 2019, First Special Session chapter 9, article 8, section 20, is amended to read:


Sec. 11. MORATORIUM ON CONVERSION TRANSACTIONS.

(a) Notwithstanding Laws 2017, chapter 2, article 2, a nonprofit health service plan
corporation operating under Minnesota Statutes, chapter 62C, or a nonprofit health
maintenance organization operating under Minnesota Statutes, chapter 62D, as of January
1, 2017, may only merge or consolidate with; convert; or transfer, as part of a single
transaction or a series of transactions within a 24-month period, all or a material amount of
its assets to an entity that is a corporation organized under Minnesota Statutes, chapter
317A; or to a Minnesota nonprofit hospital within the same integrated health system as the
health maintenance organization. For purposes of this section, "material amount" means
the lesser of ten percent of such an entity's total admitted net assets as of December 31 of
the previous year, or $50,000,000.

(b) Paragraph (a) does not apply if the nonprofit service plan corporation or nonprofit
health maintenance organization files an intent to dissolve due to insolvency of the
corporation in accordance with Minnesota Statutes, chapter 317A, or insolvency proceedings
are commenced under Minnesota Statutes, chapter 60B.

(c) Nothing in this section shall be construed to authorize a nonprofit health maintenance
organization or a nonprofit service plan corporation to engage in any transaction or activities
not otherwise permitted under state law.

(d) This section expires July 1, deleted text begin2023deleted text endnew text begin 2033new text end.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end