S 962 Session 112 (1997-1998)
S 0962 General Bill, By McConnell
A BILL TO AMEND CHAPTER 7, TITLE 44, CODE OF LAWS OF SOUTH CAROLINA, 1976,
RELATING TO NONPROFIT HEALTH CARE ENTITIES, SO AS TO ADD ARTICLE 27 TO REQUIRE
THAT THE ATTORNEY GENERAL REVIEW TRANSFERS OF ASSETS BY CERTAIN NONPROFIT
HEALTH CARE ENTITIES TO FOR-PROFIT ENTITIES, AND TO REQUIRE THAT THE ATTORNEY
GENERAL BE NOTIFIED OF TRANSFERS OF ASSETS BETWEEN CERTAIN NONPROFIT HEALTH
CARE ENTITIES.
01/28/98 Senate Introduced and read first time SJ-6
01/28/98 Senate Referred to Committee on Medical Affairs SJ-6
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A BILL
TO AMEND CHAPTER 7, TITLE 44, CODE OF LAWS OF
SOUTH CAROLINA, 1976, RELATING TO NONPROFIT
HEALTH CARE ENTITIES, SO AS TO ADD ARTICLE 27 TO
REQUIRE THAT THE ATTORNEY GENERAL REVIEW
TRANSFERS OF ASSETS BY CERTAIN NONPROFIT HEALTH
CARE ENTITIES TO FOR-PROFIT ENTITIES, AND TO
REQUIRE THAT THE ATTORNEY GENERAL BE NOTIFIED OF
TRANSFERS OF ASSETS BETWEEN CERTAIN NONPROFIT
HEALTH CARE ENTITIES.
Be it enacted by the General Assembly of the State of South
Carolina:
SECTION 1. Chapter 7, Title 44 of the 1976 Code is amended by
adding:
"Article 27
Section 44-7-4110. (A) The following definitions are applicable
to this section:
(1) 'Fair market value' means the price that the assets being
transferred would bring in a competitive and open market under a fair
sale with the buyer and seller acting prudently, knowledgeably, and
in their own best interest and a reasonable time being allowed for
exposure in the market.
(2) 'Nonprofit health care entity' means any of the following
that was created for any charitable or social welfare purpose related
to health care:
(a) a hospital, as defined in Section 44-43-910; or
(b) either of the following that is or has been exempt from
taxation under Section 501(a) of the Internal Revenue Code:
(i) an entity that is or has been granted a certificate of
authority under Title 44; or
(ii) an entity that is authorized or has been authorized to
transact business in this state, that is in the business of providing
sickness and accident insurance, and that was previously a hospital
service association, has merged or otherwise consolidated with a
former hospital service association, or any of whose predecessors in
interest has merged or otherwise consolidated with a former hospital
service association.
(3) 'Party' includes a nonprofit health care entity that is the
subject of a transaction or proposed transaction, an acquiring person,
and the resulting entity, if any.
(4) 'Transaction' means a transfer of ownership or control of
assets of a nonprofit health care entity, whether by purchase, merger,
consolidation, lease, gift, joint venture, or other transfer, including
any binding obligation in furtherance of the transaction, that is equal
to at least twenty percent of the assets of the entity and occurs in the
twenty-four-month period prior to the date notice is submitted to the
Attorney General in accordance with Section 44-7-4120.
'Transaction' also means a transfer of ownership or control of any
assets of a nonprofit health care entity, whether by purchase, merger,
consolidation, lease, gift, joint venture, or other transfer, including
any binding obligation in furtherance of the transaction, if the entity
is unable to fulfill its stated or actual purpose without the assets.
'Transaction' does not include either of the following:
(a) a transfer of ownership or control of assets of a
nonprofit health care entity between nonprofit health care entities and
persons exempt from taxation under Section 501(a) of the Internal
Revenue Code of 1986, as amended; or
(b) a transfer of ownership or control of assets of a
nonprofit health care entity in relation to which the nonprofit health
care entity, prior to the effective date of this section, has entered into
a consent decree with the Attorney General that requires distribution
of the charitable assets of the entity to an appropriate health-related
charity. This exemption does not limit the authority of the Attorney
General to seek remedies for breaches of fiduciary duty or other
violations of law.
Section 44-7-4120. (A) A nonprofit health care entity proposing
to enter into a transaction shall provide notice of the proposed
transaction to the Attorney General and obtain written approval of the
transaction in accordance with this section. The nonprofit health care
entity shall submit the notice on forms provided by the Attorney
General, and the notice shall include all of the following:
(1) the names and addresses of the parties, including a list of all
individuals who are or have been chosen as directors, officers, or
board members of the parties;
(2) the terms of the proposed transaction, including a summary
of all contracts or other agreements of the parties;
(3) the amount, source, and nature of consideration to be paid
to the nonprofit health care entity, its directors, officers, board
members, executives, or experts retained by the nonprofit health care
entity; and
(4) a statement, signed by a representative of the nonprofit
health care entity at the time the notice is submitted to the Attorney
General, acknowledging that the nonprofit health care entity is under
a continuing duty to notify the Attorney General of any changes in
the information contained in the notice or other documents required
by this section and that a violation of this duty may delay approval of
the proposed transaction.
(B) In addition to the notice described in subsection (A) of this
section, the nonprofit health care entity shall submit all of the
following:
(1) audited financial statements for the nonprofit health care
entity for the three fiscal years prior to the date the nonprofit health
care entity submitted the notice to the Attorney General;
(2) a valuation statement prepared by an independent, qualified
expert, including an investment banker, actuary, appraiser, certified
public accountant, or other expert, that assesses the full and fair
market value of the nonprofit health care entity;
(3) copies of all contracts and other agreements between the
parties or their officers, directors, board members, or other
fiduciaries, including any contracts or other final agreements relating
to the close of the proposed transaction; and
(4) any additional information the Attorney General considers
necessary to value the nonprofit health care entity's assets as required
by the Attorney General in accordance with rules adopted pursuant
to this article.
(C) The notice and all other documents or materials submitted
pursuant to this section are public records provided they meet the
definitions set forth in Chapter 4, Title 30 of the Freedom of
Information Act.
(D) Not later than two business days after the discovery of any
changes in information contained in the notice or other documents
required by this section, the nonprofit health care entity shall provide
copies to the Attorney General of any documents and other material
relevant to the changes. In addition to the ninety-day extension
authorized by Section 44-7-4130(A), the Attorney General for good
cause may delay approval of the proposed transaction up to thirty
days following receipt of the documents and other material relevant
to the changes.
(E) Not later than seven days after submitting the notice and other
documents required by this section, the nonprofit health care entity
shall publish notice of the proposed transaction in at least one daily
newspaper of general circulation in the county where the nonprofit
health care entity has its principal place of business. The notice shall
state the names of the parties and a description of the proposed
transaction.
(F) Notwithstanding subsection (A)(4)(a) of this section, as used
in this section, 'nonprofit combination' means a transaction between
a nonprofit health care entity and another unrelated nonprofit health
care entity.
Not less than sixty days before the closing of a nonprofit
combination, a nonprofit health care entity that is a party to the
combination and is the party to be acquired shall provide notice of the
nonprofit combination to the Attorney General by submitting the
information described in subsections (A)(1) and (3) of this section.
Not later than seven days after the information required by this
section is submitted to the Attorney General, each of the nonprofit
health care entities that is a party to a nonprofit combination shall
publish the notice described in subsection (E) of this section.
Section 44-7-4130. (A) Not later than sixty days after receipt of
a notice and other documents required by Section 44-7-4120, the
Attorney General shall approve or disapprove the proposed
transaction, except that the Attorney General for good cause may
extend this period an additional ninety days.
(B) In determining whether to approve or disapprove a proposed
transaction, the Attorney General shall consider:
(1) whether the proposed transaction will result in a breach of
fiduciary duty, as determined by the Attorney General, including
conflicts of interest related to payments or benefits to officers,
directors, board members, executives, and experts employed or
retained by the parties;
(2) whether the nonprofit health care entity will receive full and
fair market value for its charitable or social welfare assets;
(3) whether the proceeds of the proposed transaction will be
used consistent with the nonprofit health care entity's original
charitable purpose; and
(4) any other criteria the Attorney General considers necessary
to determine whether the nonprofit health care entity will receive full
and fair market value for its charitable or social welfare assets as
required in rules adopted pursuant to this article.
(C) The Attorney General may retain, at the nonprofit health care
entity's expense, one or more independently qualified experts,
including an investment banker, actuary, appraiser, certified public
accountant, or other expert, as the Attorney General considers
reasonably necessary to provide assistance in making a decision
under this section. The nonprofit health care entity shall promptly
reimburse the Attorney General for the cost of retaining experts. The
cost of retaining an expert shall not exceed an amount that is
reasonable and necessary to make a determination under this section.
The contract to retain an expert is exempt from the requirements of
Chapter 35, Title 11 of the 1976 Code.
At any time while considering a proposed transaction under this
section, the Attorney General may request any additional information
from the nonprofit health care entity that the Attorney General
considers appropriate to the valuation of the entity's charitable or
social welfare assets. The nonprofit health care entity shall provide
the information not later than ten days after the date of the request.
The Attorney General for good cause may delay approval of the
proposed transaction up to thirty days, in addition to the ninety-day
extension authorized by subsection (A) of this section, following
receipt of documents and other material containing the information
requested.
(D) The Attorney General shall approve or disapprove a proposed
transaction on the basis of the criteria set forth in subsection (B) of
this section. Once a proposed transaction is approved, any substantial
alteration is a new transaction subject to approval by the Attorney
General.
The nonprofit health care entity may resubmit a notice and other
documents seeking approval of a proposed transaction disapproved
by the Attorney General but may not submit a notice and other
documents that are identical or substantially similar to the original
submission.
If the Attorney General disapproves the proposed transaction, the
nonprofit health care entity may appeal the disapproval pursuant to
subsection (H) of this section.
(E) If the Attorney General approves the proposed transaction, the
nonprofit health care entity shall hold a public hearing to receive
comment on the proposed use of the proceeds of the transaction. The
hearing shall be held in the county where the nonprofit health care
entity has its principal place of business not later than forty-five days
after receipt of written notice of the Attorney General's approval.
At least thirty days prior to the date set for the hearing, the
nonprofit health care entity shall publish notice of the hearing in at
least one daily newspaper of general circulation in the county where
the nonprofit health care entity has its principal place of business.
The notice shall include a statement that a transaction has been
approved by the Attorney General, the names of the parties, a
description of the proposed transaction, and the date, time, and place
of the hearing.
(F)(1) The proceeds of an approved transaction shall be dedicated
and transferred to one or more existing or new charitable
organizations exempt from taxation under Section 501(a) and
described in Section 501(c)(3) of the Internal Revenue Code of 1986,
100 Stat. 2085, 26 U.S.C.A. 501, as amended.
(2) The Attorney General may authorize a dedication and
transfer to a person exempt from taxation under Section 501(a) and
described in Section 501(c)(4) of the Internal Revenue Code of 1986,
100 Stat. 2085, 26 U.S.C.A. 501, as amended, if all of the following
conditions are met:
(a) The Attorney General determines that the dedication and
transfer is necessary to ensure effective management and
monetization of the equity ownership, if any, in the nonprofit health
care entity.
(b) The person described in subsection (F)(2) of this section
agrees to all of the following conditions:
(i) The person described in subsection (F)(2) of this
section will receive from the nonprofit health care entity only the
amount of proceeds of the transaction as are necessary to fund the
level of activity necessary to preserve the person's tax-exempt status.
(ii) No proceeds of the transaction, or any other funds or
resources controlled by the person described in subsection (F)(2) of
this section, will be disbursed for campaign contributions, lobbying
expenditures, or other political activity.
(iii) The person described in subsection (F)(2) of this
section agrees to abide by any requirements imposed on persons
exempt from taxation under Section 501(a) and described in Section
501(c)(3) of the Internal Revenue Code of 1986, 100 Stat.2085, 16
U.S.C.A 501, as amended, that the Attorney General determines
appropriate.
(G)(1) No nonprofit health care entity shall enter into a transaction
subject to this section without the approval of the Attorney General
granted in accordance with this section.
(2) No person who is an officer, director, board member, or
other fiduciary of a nonprofit health care entity shall receive anything
of substantial value that relates to a transaction described in this
article and is of such a character as to manifest a substantial and
improper influence on the person with respect to the person's duties.
(3) The Attorney General may institute and prosecute a civil or
criminal action to enforce this article in the circuit court of the county
in which the nonprofit health care entity has its principal place of
business. In addition to any civil remedies that exist under common
law or the Code of Laws of South Carolina, 1976, a court may
rescind the transaction, grant injunctive relief, assess a civil penalty
in an amount not exceeding ten million dollars, or impose any
combination of these remedies.
(H) A nonprofit health care entity that is a party to a proposed
transaction that has been disapproved by the Attorney General may
appeal the disapproval only by following the procedure set forth in
this section. The disapproval may be appealed to the circuit court of
the county in which the nonprofit health care entity has its principal
place of business. The circuit court may reverse, vacate, or modify
the Attorney General's decision to disapprove a transaction if the
court finds that the decision was unlawful or unreasonable. This
appeal shall proceed as an appeal de novo. To bring an appeal under
this section, a nonprofit health care entity shall file a notice of appeal
with the court and the Attorney General not later than fifteen days
after the entity's receipt of notice of the Attorney General's
disapproval of the transaction. Not later than thirty days after receipt
of the notice of appeal, the Attorney General shall prepare and certify
to the circuit court a complete record of all of the documents
submitted by the nonprofit health care entity to the Attorney General
and any documents generated by consultants at the request of the
Attorney General or other materials produced by the Attorney
General as part of the Attorney General's determination of whether
to approve or disapprove the transaction.
The judgment of the circuit court is final unless reversed, vacated,
or modified on appeal. An appeal may be taken by either the
nonprofit health care entity or the Attorney General, shall proceed as
in the case of appeals in civil actions, and shall be pursuant to the
rules of appellate procedure.
(I) The powers of the Attorney General under this article are in
addition to all other powers of the Attorney General. This article
does not limit or otherwise affect any of the following:
(a) any other civil or criminal right, claim, or defense that the
Attorney General or parties may assert under common law or the
Code of Laws of South Carolina, 1976;
(b) the authority of the Attorney General to institute and
prosecute an action to enforce this article; or
(c) the authority of the Attorney General to investigate and
prosecute violations of any state or federal antitrust law.
Section 44-7-4140. (A) Whoever violates subsection G(1) of
Section 44-7-4130 is guilty of entering into a transaction involving
a nonprofit health care entity without the approval of the Attorney
General, a felony of the third degree.
(B) Whoever violates subsection G(2) of Section 44-7-4130 is
guilty of receiving improper compensation relating to a transaction
involving a nonprofit health care entity, a felony of the third degree."
SECTION 2. This act takes effect upon approval by the Governor.
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