Current Status Bill Number:962 Type of Legislation:General Bill GB Introducing Body:Senate Introduced Date:19980128 Primary Sponsor:McConnell All Sponsors:McConnell Drafted Document Number:res1550.gfm Residing Body:Senate Current Committee:Medical Affairs Committee 13 SMA Subject:Nonprofit health care entities, Attorney General to review transfers of assets; Medical, Charitable Organizations
Body Date Action Description Com Leg Involved
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Senate 19980128 Introduced, read first time, 13 SMA
referred to Committee
View additional legislative information at the LPITS web site.
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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:
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.