SENATE, No. 1686
STATE OF NEW JERSEY
INTRODUCED NOVEMBER 18, 1996
By Senator MacINNES
An Act concerning conversion of certain nonprofit entities to for profit status and supplementing Title 52 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. A hospital, health maintenance organization, health service corporation or other health care provider that is incorporated as a nonprofit corporation in this State that intends to transfer, restructure, or convert its activities in conjunction with for-profit activities shall secure written consent from the Attorney General prior to entering into any agreement or transaction to:
(1) Sell, transfer, lease, exchange, option, convey, restructure, or convert or otherwise dispose of a material amount of its assets, as established by regulation of the Attorney General, to a for-profit corporation or entity or to a mutual insurance corporation or entity; or
(2) Transfer control, responsibility, or governance of a material amount of the assets, operations, or business of the nonprofit corporation to a for-profit corporation or entity or a mutual insurance corporation or entity.
b. A nonprofit corporation shall give written notice to the Attorney General at least 90 days before it enters into an agreement or transaction subject to the provisions of this section.
c. Within 90 days of receipt of the written notice required by subsection b. of this section, the Attorney General shall notify the nonprofit corporation in writing of his decision to approve or disapprove of the proposed agreement or transaction. The Attorney General may extend this review period for an additional 60 days.
2. a. No later than 45 days after the Attorney General has received notice from the nonprofit corporation of its intent to enter into an agreement or transaction subject to the provisions of this act, the Attorney General shall hold at least one public hearing in the service area of the nonprofit corporation. The number of public hearings that shall be held shall correspond to the size of community in the nonprofit's service area and the nature and value of the agreement or transaction. At least 21 days prior to the public hearing, the Attorney General shall provide written notice of the time and place of the hearing through publication in one or more newspapers of general circulation in the affected service area and shall provide notice to the board of chosen freeholders of the county in which the facility is located, in the case of a hospital or other health care facility, and to other interested parties, as determined by the Attorney General.
b. The Attorney General may subpoena additional information or witnesses, require and administer oaths, and require sworn statements at any time prior to making a decision on the proposed plan of agreement or transaction.
c. The Attorney General shall provide access to the records relating to the proposed agreement or transaction at no cost to the public. The records shall be considered public information and be made available at both the Attorney General's office and the office of the nonprofit corporation.
d. The Attorney General may charge a nonprofit corporation for the costs of providing the public with notice and reasonable access to records relating to the proposed agreement or transaction of the nonprofit corporation.
e. Within five working days after submitting a plan of agreement or transaction to the Attorney General for approval, the nonprofit corporation shall publish notice of the proposed plan, in a form approved by the Attorney General, in newspapers and circulated once per week for three weeks in the service area of the nonprofit corporation.
3. Prior to approving a proposed plan of agreement or transaction, the Attorney General shall find that the plan meets all of the following requirements:
a. The terms and conditions of the agreement or transaction are fair and reasonable to the citizens of the State, the public, recipients and potential recipients of services, enrollees, and subscribers, as the case may be, of the nonprofit corporation;
b. The agreement or transaction is in the public interest. An agreement or transaction shall not be considered to be in the public interest unless appropriate steps have been taken to safeguard the value of charitable assets and ensure that any proceeds of the transaction are irrevocably dedicated to charitable health care purposes;
c. The agreement or transaction will not result in inurement to any private person or entity, including stock options, agreements not to compete, or other private benefits;
d. The agreement or transaction does not create or have the likelihood of creating an adverse affect on the availability of health care services to the affected service area, and sufficient safeguards are included to assure the affected service area continued access to affordable care;
e. The nonprofit corporation submitting the agreement or transaction used due diligence in selecting the for-profit corporation or entity or mutual insurance corporation or entity, and in negotiating the terms and conditions of the transaction when deciding to sell, transfer, lease, exchange, option, convey, restructure, convert, or otherwise dispose of its assets;
f. A charitable trust shall be set aside equal to the fair market value of the nonprofit corporation. Fair market value shall be determined as of the effective date of the agreement or transaction, as if the nonprofit corporation had voting stock outstanding and 100% of its stock were freely transferable and available for purchase without restrictions. Consideration shall be given to market value, investment or earnings value, net asset value, and a control premium, if any. The Attorney General may permit all or a portion of the consideration conveyed to the charitable trust to consist of stock of the for-profit corporation;
g. The charitable trust distribution shall be dedicated to an existing or new tax-exempt charitable organization operating pursuant to 26 U.S.C.§ 501 (c)(3) of the federal Internal Revenue Code;
h. Each charitable corporation receiving the charitable assets, its directors, officers, and staff shall be and remain independent of the for-profit corporation or entity or mutual insurance corporation or entity, and its affiliates.
No officer, director or staff member of the nonprofit corporation which submits the proposed plan of agreement or transfer to the Attorney General, at the time the plan is submitted, or on the effective date of the agreement or transaction, or thereafter, shall be qualified to be an officer, director or staff member of the charitable corporation which receives the charitable assets.
No director, officer, agent or employee of the nonprofit corporation which submits the plan or the charitable corporation which receives the charitable assets, shall benefit directly or indirectly from the agreement or transaction;
i. The charitable corporation which receives the charitable assets shall establish a mechanism to avoid conflicts of interest and to prohibit grants that benefit the board of directors and management of the for-profit corporation or entity or mutual benefit corporation or entity; and
j. The charitable mission and grant-making functions of the charitable corporation which receives the charitable trust assets shall be dedicated to serving the state's unmet health care needs, particularly with regard to medically uninsured and underserved populations, and shall focus on promoting access to care and improving quality of care.
4. a. The Attorney General may:
(1) Contract with, consult, and receive advice from any State agency regarding a proposed plan of agreement or transaction, as the Attorney General deems appropriate; and
(2) Contract with experts or consultants to assist in reviewing the proposed plan of agreement or transaction as is reasonable and necessary.
b. Contract costs shall not exceed an amount that is necessary to conduct the review and evaluation required pursuant to this act. The Attorney General may charge the nonprofit corporation which submits the proposed plan an assessment fee to pay the cost of expert consultants required to help review public benefit and charitable trust proposals and to assess the fair market value of the charitable assets.
5. If the Attorney General receives information indicating that the for-profit corporation is not fulfilling its commitment to the affected service area pursuant to section 3 of this act, the Attorney General, or his designee, shall hold a public hearing upon 10 days notice to the affected parties. If, after the hearing, the Attorney General determines that the information is true, he shall institute proceedings to require a corrective action plan from the for-profit corporation. The Attorney General shall retain oversight of the for-profit's obligations under the corrective action plan for as long as necessary to ensure compliance with this act.
6. a. The charitable corporation which receives the charitable assets pursuant to the provisions of section 3 of this act, shall provide the Attorney General with an annual report of its grant-making and other charitable activities related to its use of the charitable assets received. The annual report shall be made available to the public at both the Attorney General's office and the office of the charitable corporation.
b. If the nonprofit corporation which submitted the plan of agreement or transaction to the Attorney General continues to exist after the agreement or transaction is approved, the corporation shall submit to the Attorney General, for his approval, an annual report that identifies the activities to be undertaken by the nonprofit corporation to meet its public benefit and community benefit obligations.
7. a. Notwithstanding the provisions of P.L.1995, c.196 (C.17:48E-45 et seq.) to the contrary, a health service corporation that converts to a mutual insurance corporation retains charitable trust obligations to preserve its assets for charitable purposes. This obligation shall be paid if the mutual insurance corporation enters into an agreement or transaction with a for-profit corporation or otherwise generates sufficient funds to fulfill its charitable trust obligation. The fair market value of the health service corporation on the date of conversion to a mutual insurance corporation, augmented by any increase in value of the mutual insurance corporation attributable to the use of the charitable trust assets or to its prior status as a nonprofit corporation, shall be the basis for the valuation of the trust obligation, consistent with section 3 of this act.
b. A mutual insurance corporation that enters into any agreement or transaction with a health service corporation acquires and retains a charitable trust obligation to preserve the assets of the health service corporation for charitable purposes. This obligation shall be paid if the mutual insurance corporation enters into an agreement or transaction with a for-profit corporation. The fair market value of the health service corporation on the date of conversion to a mutual insurance corporation, augmented by any increase in value of the mutual insurance corporation attributable to the use of the charitable trust assets or to its prior status as a nonprofit corporation, shall be the basis for the valuation of the trust obligation, consistent with section 3 of this act.
c. At such time that the mutual insurance corporation enters into an agreement or transaction to demutualize, it shall submit an asset distribution plan to fulfill its charitable obligations, consistent with the requirements under section 3 of this act. The Attorney General shall hold public hearings consistent with the provisions of section 2 of this act. No agreement or transaction of a mutual insurance corporation to demutualize shall occur until the Attorney General consents to the plan as fair and equitable to the public and follows the other provision of this act.
d. The requirements of this act, as they apply to a health service corporation seeking to convert to a domestic mutual insurer, shall be in addition to any requirements established pursuant to P.L.1995, c.196 (C.17:48E-45 et seq.).
8. Any final action by the Attorney General pursuant to section 3 of this act shall be subject to judicial review by the Superior Court at the initiation of the nonprofit corporation or any person that was a party to the agency proceeding. Any person adversely affected by the final agency decision shall be considered a party to the proceeding, including consumers or community groups representing the citizens of the state.
9. The Attorney General shall adopt rules and regulations pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) to carry out the provisions of this act.
10. This act shall take effect immediately.
STATEMENT
Substantial and recent changes in market and health care conditions are affecting hospitals, health maintenance organizations, health service corporations and other health care providers that are incorporated as nonprofit corporations in the State, creating a need for equal regulatory treatment and competitive equality for health care providers and insurers.
The bill requires a nonprofit corporation to provide the Attorney General with 90 days notice of its intention to enter into any agreement or transaction to sell, transfer, lease, exchange, option, convey, convert, restructure or otherwise dispose of a material amount of its assets to a for profit corporation or entity or to a mutual insurance corporation or entity. The bill requires the Attorney General to hold at least one public hearing and to notify the nonprofit corporation in writing of his decision to approve or disapprove of the proposed agreement or transaction. The Attorney General shall make his decision to approve or disapprove the agreement or transaction based on criteria set forth in the bill.
Requires Attorney General approval of sale or transfer of assets of nonprofit health care provider or insurer to for profit or mutual benefit corporation.