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SF 1472

2nd Engrossment - 90th Legislature (2017 - 2018) Posted on 03/23/2017 08:26am

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Current Version - 2nd Engrossment

A bill for an act
relating to health; providing for attorney general review and approval of conversions
by nonprofit health care entity organizations; 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 317A.

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

Section 1.

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
, which includes a health maintenance organization operating under chapter
62D and a service plan corporation operating under chapter 62C
; 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. 2.

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


Subd. 1a.

Nonprofit health care entity; notice and approval required.

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 317A.814.

Sec. 3.

[317A.814] NONPROFIT HEALTH CARE ENTITY CONVERSIONS.

Subdivision 1.

Definitions.

(a) The definitions in this subdivision apply to this section.

(b) "Commissioner" means the commissioner of commerce if the nonprofit health care
entity at issue is a service plan corporation operating under chapter 62C, and the
commissioner of health if the nonprofit health care entity at issue is a health maintenance
organization operating under chapter 62D.

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

(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 this chapter that is
also exempt under United States Code, title 26, section 501(c)(3). The substitution of a new
corporate member that transfers the control, responsibility for, or governance of a nonprofit
health care entity is also considered a transaction for purposes of this section.

(e) "Family member" means a spouse, parent, or child or other legal dependent.

(f) "Nonprofit health care entity" means a service plan corporation operating under
chapter 62C and a health maintenance organization operating under chapter 62D.

(g) "Public benefit assets" means the entirety of a nonprofit health care entity's assets,
whether tangible or intangible.

(h) "Related organization" has the meaning given in section 317A.011.

Subd. 2.

Private inurement.

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 family member of that
person:

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

(2) has held or will hold, regardless of whether guaranteed or contingent, an ownership
stake, stock, securities, investment, or other financial interest in, or 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

(3) has held or will hold, regardless of whether guaranteed or contingent, an ownership
stake, stock, securities, investment, or other financial interest in, or 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.

Subd. 3.

Attorney general notice and approval required.

(a) Before entering into a
conversion transaction, the nonprofit health care entity must notify the attorney general as
specified under section 317A.811, subdivision 1. The notice required by this subdivision
also 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 from the health maintenance organization or the
proposed conversion benefit entity that the attorney general reasonably considers necessary
for review of the proposed transaction.

(b) A copy of the notice and other information required under this subdivision must be
given to the commissioner.

Subd. 4.

Review elements.

(a) The attorney general may approve, conditionally approve,
or not approve a conversion transaction under this section. 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 any factors the attorney
general considers relevant, including whether:

(1) the proposed transaction complies with this chapter and chapter 501B and other
applicable laws;

(2) the proposed transaction involves or constitutes a breach of charitable trust;

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

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

(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;

(6) the proposed transaction will result in a breach of fiduciary duty, as determined by
the attorney general, including whether:

(i) 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;

(ii) 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; and

(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;

(7) the transaction will result in private inurement to any person, including owners,
stakeholders, or directors, officers, or key staff of the nonprofit health care entity or entity
to which the nonprofit health care entity proposes to transfer public benefit assets;

(8) the conversion benefit entity meets the requirements of subdivision 5; and

(9) 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 proposed conversion benefit entity of any inadequacy
of the information and has provided a reasonable opportunity to remedy that inadequacy.

In addition, the attorney general shall consider the public comments received regarding
the proposed conversion transaction and the proposed transaction's likely effect on the
availability, accessibility, and affordability of health care services to the public.

(b) The attorney general must consult with the commissioner in making a decision
whether to approve or disapprove a transaction.

Subd. 5.

Conversion benefit entity requirements.

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

(b) The conversion benefit entity must be completely independent of any influence or
control by the nonprofit health care entity and related organizations, all entities to which
the nonprofit health care entity transfers any public benefit assets in connection with a
conversion transaction, and the directors, officers, and other executives of those organizations
or entities.

(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:

(1) the directors, officers, or other executives of the conversion benefit entity;

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

(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.

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

Subd. 6.

Public comment.

Before issuing a decision under subdivision 7, the attorney
general may solicit public comment regarding the proposed conversion transaction. The
attorney general may hold one or more public meetings or solicit written or electronic
correspondence. If a meeting is held, notice of the meeting must be published in a qualified
newspaper of general circulation in this state at least seven days before the meeting.

Subd. 7.

Period for approval or disapproval; extension.

(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 disapprove
the transaction. If the transaction is not approved, the notice must include the reason for the
decision. If the transaction is conditionally approved, the notice must specify the conditions
that must be met. The attorney general may extend this period for an additional 90 days if
necessary to obtain additional information.

(b) The time periods under this subdivision are suspended during the time when a request
from the attorney general for additional information is outstanding.

Subd. 8.

Transfer of value of assets required.

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.

Subd. 9.

Annual report by conversion benefit entity.

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.

Subd. 10.

Penalties; remedies.

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 and to recover the amount
of any private inurement received or held in violation of subdivision 2. In addition to this
recovery, the officers, directors, and other executives of each entity that is a party to and
materially participated in a conversion transaction entered into in violation of this section
may be subject to a civil penalty of up to the greater of either the entirety of any financial
benefit each one derived from the transaction, or $1,000,000, as determined by the court.
The attorney general is authorized to enforce this section pursuant to section 8.31.

Subd. 11.

Relation to other law.

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

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

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