Minnesota Legislature
SF 1984
as introduced - 91st Legislature (2019 - 2020) Posted on 04/24/2019 09:04am
Current Version - as introduced
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A bill for an act
relating to health; requiring attorney general review and approval of conversion
transactions by nonprofit health care entities; requiring all net earnings of a
nonprofit health maintenance organization to be used for nonprofit purposes;
extending a moratorium on conversion transactions; amending Minnesota Statutes
2018, sections 62D.12, by adding a subdivision; 317A.811, subdivision 1; Laws
2017, First Special Session chapter 6, article 5, section 11; 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 FINDINGS.
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The Legislature of the state of Minnesota finds and declares that:
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(1) nonprofit health care entities hold their assets in trust, and those assets are irrevocably
dedicated, as a condition of their tax-exempt status, to the specific charitable purpose set
forth in the articles of incorporation of the entities;
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(2) the public is the beneficiary of that trust;
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(3) nonprofit health care entities have a substantial and beneficial effect on the quality
of life of the people of Minnesota;
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(4) transfers of assets by nonprofit health care entities to for-profit entities directly affect
the charitable uses of those assets and may adversely affect the public as the beneficiary of
the charitable assets;
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(5) it is in the best interest of the public to ensure that the public interest is fully protected
whenever the assets or operations of a nonprofit health care entity are transferred, directly
or indirectly, from a charitable trust to a for-profit or mutual benefit entity; and
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(6) the attorney general's approval of any transfers of assets or operations by a nonprofit
health care entity is necessary to ensure the protection of these trusts.
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Sec. 2.
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[62C.045] APPLICATION OF OTHER LAWS.
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Sections 62D.045 to 62D.47 and Laws 2017, First Special Session chapter 6, article 5,
section 11, as amended by section 8 of this act, apply to health service plan corporations
operating under this chapter.
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Sec. 3.
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[62D.046] NONPROFIT HEALTH CARE ENTITY CONVERSIONS;
DEFINITIONS.
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new text begin Subdivision 1. new text end
new text begin Application. new text end
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The definitions in this section apply to sections 62D.045
to 62D.47.
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new text begin Subd. 2. new text end
new text begin Authorized person. new text end
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"Authorized person" means a person who:
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(1) controls, is controlled by, or is under common control with, a for-profit entity. Control
in this clause may be exercised directly or indirectly through one or more intermediaries;
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(2) has entered into an agreement or contract, including a nonbinding letter of intent, to
acquire or be acquired by a nonprofit health care entity through merger or consolidation;
or
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(3) is an officer, director, agent, or managing employee of an entity described in clause
(1) or (2).
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new text begin Subd. 3. new text end
new text begin Conversion transaction or transaction. new text end
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"Conversion transaction" or
"transaction" means any agreement or transaction by a nonprofit health care entity to sell,
transfer, lease, exchange, option, convey, or otherwise directly or indirectly dispose of all
of its assets; a material amount of its assets; or control, responsibility, or governance of its
assets, to a for-profit entity, including one that results from or is created in connection with
the transaction or agreement.
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new text begin Subd. 4. new text end
new text begin For-profit entity. new text end
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"For-profit entity" means an entity that is not a nonprofit
corporation organized under chapter 317A and is also not exempt under United States Code,
title 26, section 501(c)(3). "For-profit entity" includes an entity that results from or is created
in connection with a conversion transaction.
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new text begin Subd. 5. new text end
new text begin Nonprofit health care entity. new text end
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"Nonprofit health care entity" means a nonprofit
health service plan corporation operating under chapter 62C or a nonprofit health maintenance
organization operating under this chapter.
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Sec. 4.
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[62D.047] NONPROFIT HEALTH CARE ENTITY CONVERSION
TRANSACTIONS.
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new text begin Subdivision 1. new text end
new text begin Attorney general notice and approval. new text end
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A nonprofit health care entity
shall not execute a conversion transaction unless the attorney general approves or
conditionally approves the transaction. Before executing a conversion transaction, the
nonprofit health care entity must notify the attorney general as specified under section
317A.811, subdivision 1. In addition to the elements listed in section 317A.811, subdivision
1, paragraph (b), the notice required by this subdivision must also include any other
information from the nonprofit health care entity that the attorney general reasonably
considers necessary to review the proposed conversion transaction. If the attorney general
approves a conversion transaction, the approval may include conditions and recommendations
regarding the nonprofit health care entity's charitable assets.
new text end
new text begin Subd. 2. new text end
new text begin Review elements. new text end
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(a) The attorney general shall review a proposed conversion
transaction to determine whether the charitable assets of the nonprofit health care entity are
adequately protected. The attorney general shall not approve a conversion transaction unless
the attorney general determines that the nonprofit health care entity has taken necessary and
appropriate steps to safeguard the value of its charitable assets.
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(b) In determining whether the nonprofit health care entity's charitable assets have been
adequately protected, the attorney general shall consider whether:
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(1) the conversion transaction is permitted under chapters 317A and 501B and under
Internal Revenue Service rules or policies governing the disposition of charitable assets;
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(2) the nonprofit health care entity exercised due diligence in deciding to sell or transfer
all or substantially all of its assets; in selecting the purchaser; and in negotiating the terms
and conditions of the conversion transaction;
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(3) the procedure used by the nonprofit health care entity in making its decision was fair
and objective, and whether appropriate independent expert assistance was used;
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(4) any authorized person of a party to the conversion transaction is not in full compliance
with any federal, state, or local laws or requirements in every jurisdiction in which the
nonprofit health care entity operates or is licensed to operate;
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(5) any authorized person of a party to the conversion transaction:
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(i) has been convicted of violating any federal or state law, including laws relating to
the delivery of health care services, reimbursement for health care services, employment,
or the environment; or
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(ii) has been charged with, is currently under investigation, or has entered into a settlement
agreement in connection with the violation of any federal or state law;
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(6) the for-profit entity is financially sound and has the financial and management
capacity to operate the nonprofit health care entity, a department or division of the nonprofit
health care entity, or any entity resulting from the conversion transaction;
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(7) the for-profit entity has disclosed all potential conflicts of interest, including conflicts
of interest related to:
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(i) an officer, director, board member, executive, or member of the medical staff of the
nonprofit health care entity;
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(ii) experts retained by the nonprofit health care entity; or
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(iii) parties to the conversion transaction;
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(8) the conversion transaction will result in pecuniary gain to any director, officer, or
member of the nonprofit health care entity or for-profit entity;
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(9) the nonprofit health care entity will receive reasonably fair value for its assets, and
whether the market value of those assets has been manipulated by the actions of the nonprofit
health care entity or receiving entity in a manner that causes or has caused the value of the
assets to decrease;
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(10) charitable funds are placed at unreasonable short-term or long-term risk;
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(11) any management contract under the conversion transaction is for reasonably fair
value;
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(12) the charitable assets have been placed in a charitable trust controlled independently
of the for-profit entity or other parties to the conversion transaction, and used for appropriate
charitable purposes consistent with the nonprofit health care entity's purposes or operation
in the affected community; and
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(13) a right of first refusal has been retained by the nonprofit health care entity to permit
repurchase of the assets by a successor entity organized under chapter 317A and exempt
under United States Code, title 26, section 501(c)(3), if the for-profit entity that results from
the conversion transaction is proposed for sale, conversion, or merger.
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new text begin Subd. 3. new text end
new text begin Public notice and public comment. new text end
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Before approving, approving with
conditions, or disapproving a conversion transaction, the attorney general:
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(1) shall publish a notice of the conversion transaction in a newspaper of general
circulation in the area affected by the conversion transaction;
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(2) may solicit comments from the public regarding the conversion transaction; and
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(3) shall hold a public hearing to receive public testimony regarding the conversion
transaction, if a public hearing is requested by any interested person. If no public hearing
is requested by an interested person, the attorney general may hold a public hearing to
receive public testimony. If a public hearing is held, the attorney general shall ensure that
notice of the hearing is published at least ten days prior to the date of the hearing.
new text end
new text begin Subd. 4. new text end
new text begin Independent expert. new text end
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The attorney general shall use an independent expert to
assess the value of the nonprofit health care entity's charitable assets.
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new text begin Subd. 5. new text end
new text begin Timing; form. new text end
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The attorney general shall approve, approve with conditions,
or disapprove a conversion transaction within 60 days after receiving notice of the proposed
conversion transaction under subdivision 1. The attorney general's decision must be provided
to the nonprofit health care entity in writing.
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new text begin Subd. 6. new text end
new text begin Costs. new text end
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The attorney general shall assess the for-profit entity for the reasonable
costs related to the attorney general's review of the conversion transaction under this section
and the cost of using an independent expert to assess the value of the nonprofit health care
entity's charitable assets. The attorney general's reasonable costs may include further expert
review of the conversion transaction, steps to educate the public about the conversion
transaction, and obtaining public comments.
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new text begin Subd. 7. new text end
new text begin Judicial review. new text end
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If aggrieved by the attorney general's decision under subdivision
1, any party to the conversion transaction may seek judicial review of the decision.
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new text begin Subd. 8. new text end
new text begin Injunctive relief; fines. new text end
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The attorney general may:
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(1) seek injunctive relief in a court of competent jurisdiction to prevent or restrain a
violation of this section; or
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(2) seek against any person who willfully executes a conversion transaction without
obtaining the attorney general's approval or conditional approval, or who deviates from any
provision of the attorney general's approval or conditional approval of the conversion
transaction, a fine of at least $2,500 and up to $10,000 per day of violation.
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Sec. 5.
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[62D.048] CHARITABLE TRUST.
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new text begin Subdivision 1. new text end
new text begin Establishment of a charitable trust. new text end
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If the attorney general determines
that the charitable assets of a nonprofit health care entity have not been placed in a charitable
trust controlled independently of the for-profit entity and other parties to the conversion
transaction and used for appropriate charitable purposes consistent with the nonprofit health
care entity's purpose or operation in the affected community, the attorney general shall
ensure that a charitable trust is established for the nonprofit health care entity's charitable
assets.
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new text begin Subd. 2. new text end
new text begin Governance of charitable trust reviewed by attorney general. new text end
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The attorney
general shall review the governance of a charitable trust established for the assets of a
nonprofit health care entity subject to a conversion transaction and shall ensure that:
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(1) the governance of the charitable trust is broadly based in the community historically
served by the nonprofit health care entity;
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(2) participation on the charitable trust's board by persons involved in negotiating the
conversion transaction is limited, by restricting the number of these persons on the board
or the length of their terms on the board; and
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(3) the charitable activities of the charitable trust are not used to satisfy any charitable
obligations of the for-profit entity.
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Sec. 6.
Minnesota Statutes 2018, section 62D.12, is amended by adding a subdivision to
read:
new text begin Subd. 8a. new text end
new text begin Net earnings. new text end
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All net earnings of a nonprofit health maintenance organization
shall be devoted to the nonprofit purposes of the health maintenance organization in providing
comprehensive health care. No nonprofit health maintenance organization shall provide for
the payment, whether directly or indirectly, of any part of its net earnings, to any person as
a dividend or rebate; provided, however, that nonprofit health maintenance organizations
may make payments to providers or other persons based upon the efficient provision of
services or as incentives to provide quality care. The commissioner of health shall, pursuant
to sections 62D.01 to 62D.30, revoke the certificate of authority of any nonprofit health
maintenance organization in violation of this subdivision.
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Sec. 7.
Minnesota Statutes 2018, 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, consolidate,
or convert, 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; deleted text begin or
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(2) a nonprofit health service plan corporation operating under chapter 62C;
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(3) a nonprofit health maintenance organization operating under chapter 62D; or
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deleted text begin (2)deleted text end new text begin (4)new text end 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, or the name of the
converted organization;
(8) the purposes of persons receiving the assets or of the converted organization; and
(9) the terms, conditions, or restrictions, if any, to be imposed on the transferred or
converted assets.
The notice must be signed on behalf of the corporation by an authorized person.
Sec. 8.
Laws 2017, First Special Session chapter 6, article 5, section 11, 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 health maintenance
organization operating under Minnesota Statutes, chapter 62D, as of January 1, 2017, may
only merge or consolidate with; or convert, or transfer all or a substantial portion of its
assets to an entity that is a corporation organized under Minnesota Statutes, chapter 317A.
(b) Paragraph (a) does not apply if the service plan corporation or 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 health maintenance
organization or a nonprofit health service plan corporation to engage in any transaction or
activities not otherwise permitted under state law.
(d) This section expires July 1, deleted text begin 2019deleted text end new text begin 2029new text end .
new text begin EFFECTIVE DATE. new text end
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This section is effective the day following final enactment.
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Sec. 9. new text begin REVISOR INSTRUCTION.
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The revisor of statutes shall codify Laws 2017, First Special Session chapter 6, article
5, section 11, as amended by section 8 of this act, in Minnesota Statutes, chapter 62D.
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