1999-2000 Bill 780: Nonprofit health care entities, Attorney General to review transfer of assets by; Medical, Residential Care Facilities

South Carolina General Assembly
113th Session, 1999-2000

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Bill 780

~~Indicates Matter Stricken~~
Indicates New Matter

                    Current Status

Bill Number:                      780
Type of Legislation:              General Bill GB
Introducing Body:                 Senate
Introduced Date:                  19990429
Primary Sponsor:                  McConnell
All Sponsors:                     McConnell
Drafted Document Number:          l:\council\bills\psd\7386ac99.doc
Residing Body:                    Senate
Subject:                          Nonprofit health care entities, Attorney 
                                  General to review transfer of assets by; 
                                  Medical, Residential Care Facilities


                        History

Body    Date      Action Description                     Com     Leg Involved
______  ________  ______________________________________ _______ ____________
------  20000403  Scrivener's error corrected
Senate  20000330  Committee report: Favorable with       13 SMA
                  amendment
Senate  19990429  Introduced, read first time,           13 SMA
                  referred to Committee


              Versions of This Bill
Revised on March 30, 2000 - Word format
Revised on April 3, 2000 - Word format

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COMMITTEE REPORT

March 30, 2000

S. 780

Introduced by Senator McConnell

S. Printed 3/30/00--S. [SEC 4/3/00 9:57 AM]

Read the first time April 29, 1999.

THE COMMITTEE ON MEDICAL AFFAIRS

To whom was referred a Bill (S. 780), to amend Chapter 7, Title 44, Code of Laws of South Carolina, 1976, relating to hospitals, tuberculosis camps, and health services districts, etc., respectfully

REPORT:

That they have duly and carefully considered the same, and recommend that the same do pass with amendment:

Amend the bill, as and if amended, by striking all after the enacting words and inserting:

/ SECTION 1. Chapter 7, Title 44 of the 1976 Code is amended by adding:

"Article 27

Nonprofit Health Care Entities

Transfer and Control of Assets

Section 44-7-4110. For purposes of this article:

(1) 'Acquisition' means the change in ownership, or in controlling interest, of a health care facility, or entity owning a health care facility, directly or indirectly, by purchase, lease, gift, exchange, donation, transfer of assets, ownership or control, conveyance, transfer of equity or ownership interest, or comparable arrangement.

(2) 'Fair market value' means the price that the assets being transferred would bring in a competitive and open market under a fair and arms length sale between a willing buyer and seller acting prudently, knowledgeably, and in their respective best interests, and with a reasonable time being allowed for exposure in the market.

(3) 'For-profit combination' means a transaction between a nonprofit health care entity and any for-profit entity.

(4) 'For-profit entity' means any entity which is not a nonprofit health care entity.

(5) 'Health care facility' means a health care facility as defined in Section 44-7-130.

(6) 'Nonprofit combination' means a transaction between a nonprofit health care entity and any other nonprofit health care entity.

(7) 'Nonprofit health care entity' means any entity that was created for any charitable or social welfare purpose related to health care and satisfies both item (a) and item (b) set forth below:

(a) it is an entity that is either:

(i) a hospital as defined in Section 44-7-130(12);

(ii) a health care facility;

(iii) an entity which is in the business of managing and operating hospitals and/or other health care facilities, or otherwise is affiliated with a hospital or other health care facility, including entities affiliated through ownership, governance, or membership, such as a holding company or subsidiary, in this State; or

(iv) an entity that is in the business of providing sickness and accident insurance and 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; and

(b) it is an entity that is either:

(i) an entity that is exempt from federal income tax under either Sections 115, 501(a) or 501(c)(3) of the Internal Revenue Code of 1986, as amended, and which is not a private foundation under Section 509(a) of the Internal Revenue Code of 1986, as amended, and contributions to which are deductible under Sections 170(c)(2), 2055(a)(2) and 2522(a)(2) of the Internal Revenue Code of 1986, as amended;

(ii) an entity that is owned and operated by this State or a governmental entity, hospital authority, or any political subdivision of the State and which is exempt from federal income tax under Section 115 of the Internal Revenue Code of 1986, as amended; or

(iii) an entity which is owned and operated by a governmental entity, hospital authority, or any political subdivision of a state other than this State and which is exempt from federal income tax under Section 115 of the Internal Revenue Code of 1986, as amended, and authorized to transact business in this State.

(8) 'Party' includes:

(a) a nonprofit health care entity that is the subject of a transaction or proposed transaction;

(b) a for-profit entity;

(d) the resulting entity, if any.

(9) 'Person' means an individual, a trust or estate, a partnership, a limited liability company, a limited liability partnership, a corporation, an association, a joint stock company, an insurance company, a health maintenance organization of a state, a hospital authority of a state, a political subdivision of a state, an instrumentality, including a municipal corporation of a state, or any other legal entity recognized by the State of South Carolina.

(10) 'Transaction' means:

(a) a transfer of ownership or control of assets of a nonprofit health care entity, whether by acquisition, merger, consolidation, affiliation, 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, or control of the assets of the nonprofit health care entity, to any other person and which occurs either at one time or through a series of transfers, or is contemplated to occur, in the twenty-four-month period after the date notice is submitted to the Attorney General in accordance with Section 44-7-120; however, if a transfer of ownership or control of assets of a nonprofit health care entity occurs, as provided for in this item, which is equal to at least five percent of the assets or control within twenty-four months of an initial transfer of ownership or control of assets of a nonprofit health care entity as described above, then such subsequent transfer of ownership or control of assets also constitutes a 'transaction'; or

(b) a transfer of ownership or control of any assets of a nonprofit health care entity, whether by acquisition, merger, consolidation, affiliation, joint venture, or other transfer, including any binding obligation in furtherance of the transaction, if the nonprofit health care entity is unable to fulfill its stated or actual purpose without the assets or control of such assets.

'Transaction' does not include a transfer of ownership or control of assets of a nonprofit health care entity which, prior to the effective date of this section, has entered into a consent decree with the Attorney General that requires distribution of the assets of the nonprofit health care entity to an appropriate health-related entity exempt from federal income tax under either Section 115, 501(a) or 501(c)(3) of the Internal Revenue Code of 1986, as amended, or another nonprofit health care entity. This exemption does not limit the authority of the Attorney General to seek remedies for breaches of fiduciary duty or other violations of law to include, but is not limited to, enforcement of violations of the South Carolina Nonprofit Act.

(11) 'Unrelated nonprofit health care entity' means an entity which is not directly, or indirectly through one or more intermediaries, controlled by, or under common control of, any other nonprofit health care entity specified in the transaction.

Section 44-7-4120. (A) The Attorney General shall review all transactions involving any nonprofit health care entity and a for-profit entity. No nonprofit health care entity shall enter into a transaction with a for-profit entity unless the transaction has been reviewed and approved in writing by the Attorney General pursuant to subsection (B) of this section.

(B) A nonprofit health care entity proposing to enter into a transaction with a for-profit entity shall, at least ninety days prior to the closing of a proposed transaction, 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 persons who are, or have been, chosen as directors, officers, executives, and other fiduciaries of the parties to the transaction;

(2) the material terms of the proposed transaction, including a summary of the transaction agreement and all contracts or other agreements of the parties material to the transaction;

(3) the amount, source, and nature of consideration to be paid to the nonprofit health care entity, its directors, officers, executives, or other fiduciaries and affiliated persons of the parties;

(4) a statement from each of the parties' directors, officers, executives, and other fiduciaries as to whether any actual or potential conflict of interest exists, to include the following:

(a) whether individuals described in items (1) and (4) received, or will receive in the future, any pecuniary or other rewards, or any contractual agreements, based in whole or in part on the consummation of the proposed transaction;

(b) whether the individuals described in items (1) and (4) exercised due care, consistent with their fiduciary duties, in determining whether to engage in the proposed transaction;

(c) whether legal counsel was engaged by the individuals described in items (1) and (4) in order to consider their individual rights or duties in acting in their capacities as fiduciaries in connection with the proposed transaction;

(d) a report from an independent financial or economic expert, retained by the nonprofit health care entity, as to the effect of the proposed transaction on the continued existence of accessible and affordable quality health care facilities which will serve the needs of the communities in which they exist; and

(e) a statement, signed by the highest ranking officer 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 material changes in the information contained in the notice or other documents required by this section, or subsequently requested by the Attorney General, and that a violation of this duty may delay approval of the proposed transaction.

(C) In addition to the notice required in subsection (B), 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, executives, or other fiduciaries which are material to the transaction, to include any contracts or other agreements relating to the consummation of the proposed transaction; and

(4) any additional information the Attorney General considers necessary to determine the value or the nature of the nonprofit health care entity's assets.

(D) 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.

(E) Not later than fifteen business days after the discovery of any material 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 sixty-day extension authorized by Section 44-7-4130(A), the Attorney General may delay approval of the proposed transaction up to thirty days following receipt of the documents and other material relevant to the changes.

(F) 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 primary service area 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. In accordance with this section, the Attorney General must conduct at least one public hearing in the primary service area in which the nonprofit health care entity is located to receive comment on the proposed transaction. The public hearing must be held within forty-five days after the Attorney General receives notice of the proposed transaction and the notice has been published in accordance with this subsection and before issuing a written decision. Notice of the public hearing must be provided at least twenty days before the public hearing is to take place.

(G) Not less than ninety days before the closing of a nonprofit combination, a nonprofit health care entity that is a party to the nonprofit combination and is the party to be acquired or otherwise transfer control of its assets, shall provide notice of the nonprofit combination to the Attorney General by submitting the information described in subsections (B)(1), (2), and (3).

Section 44-7-4130. (A) Not later than ninety 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 involving a for-profit combination, except that the Attorney General may extend this period for up to an additional sixty days.

(B) In determining whether to approve or disapprove a proposed transaction involving a for-profit combination, 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, executives, other fiduciaries, and experts employed or retained by the parties;

(2) whether the nonprofit health care entity will receive full and fair market value for its assets and whether the value of the assets to be transferred has been manipulated by the actions in a manner that causes the fair market value of the assets to decrease;

(3) whether the proceeds of the proposed transaction, after the consummation of the proposed transaction, will be used for purposes consistent with the nonprofit health care entity's charitable purposes including, but not limited to, providing health care to the disadvantaged, the uninsured, and the underinsured and providing benefits to promote improved health to the community;

(4) whether the proposed transaction will have an effect on the availability or accessibility to health care services in the community;

(5) whether the proposed transaction is in the best interest of the public;

(6) whether the proposed transaction will result in private inurement to any person;

(7) whether other health care providers will be offered the opportunity to invest or otherwise own an interest in the acquiring entity or a related party and whether appropriate procedures and safeguards are established to avoid conflicts of interest related to patient referrals;

(8) whether the terms of any management services agreement to be entered into in connection with the proposed transaction are fair and reasonable including, but not limited to, the amount of compensation, term of the relationship, duties of the parties, and dispute resolution; and

(9) 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 assets as required and that the community will benefit from the proposed transaction in rules adopted pursuant to this article.

(C) The Attorney General may retain, at the for-profit 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 for-profit entity shall promptly reimburse the Attorney General for the cost of retaining experts and shall, upon notice of the Attorney General's retention of one or more independently qualified experts, establish an escrow account at a third party financial institution located and doing business in this State and deposit a sufficient and reasonable amount of funds as determined necessary by the Attorney General to cover such costs and ensure prompt reimbursement. The for-profit entity shall provide proof to the Attorney General that it has followed the requirements of this section. 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. 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 assets. The nonprofit health care entity shall provide the information not later than ten days after the date of the request. The Attorney General may delay approval of the proposed transaction up to thirty days, in addition to the sixty-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 of a proposed transaction on the basis of the criteria set forth in subsection (B) of this section. Once a proposed transaction is approved, any material alteration is a new transaction subject to review and 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 (G).

(E)(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 Sections 115, 501(a) and 501(c)(3) of the Internal Revenue Code of 1986, as amended. The nonprofit corporation receiving the charitable assets must establish formal mechanisms to avoid conflicts of interest and to prohibit grants or distributions benefiting the board of directors and management of any for-profit corporation, as well as grants or distributions benefiting any for-profit corporation or any mutual corporation or entity.

(2) The Attorney General may authorize a dedication and transfer to one or more existing or new charitable organizations, as described in item (E)(1), exempt from federal income tax under Sections 115, 501(a), and 501(c)(3) of the Internal Revenue Code of 1986, 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 of the equity and membership ownership, if any, in the nonprofit health care entity.

(b) If the existing or new charitable organizations described in item (E)(1) agree to these conditions:

(i) the existing or new charitable organizations described in item (E)(1) will use the funds received from the nonprofit health care entity in a manner consistent with its tax-exempt purposes; and

(ii) no proceeds of the transaction or any other funds or resources controlled by the existing or new charitable organizations described in item (E)(1) will be disbursed for campaign contributions, lobbying expenditures, or other political activity.

(c) The existing or new charitable organizations described in item (E)(1) agree to abide by any requirements imposed on persons exempt from taxation under Sections 115, 501(a), and 501(c)(3) of the Internal Revenue Code of 1986, as amended, and any other requirements that the Attorney General determines appropriate.

(F)(1) No nonprofit health care entity or for-profit entity shall enter into a for-profit combination 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, executive, 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 statutory law, 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.

(G)(1) 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 as a contested case to the Administrative Law Judge Division pursuant to the rules of the division and the Administrative Procedures Act, Articles 3 and 5, Chapter 23, Title 1. To bring an appeal under this section, a nonprofit health care entity shall file a request for a contested case hearing with the division and a copy to 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 (30) days after receipt of the notice of appeal, the Attorney General shall prepare and certify to the division 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 judgement of the administrative law judge is final unless reversed, vacated, or modified on appeal. An appeal must be taken to the Court of Appeals in the same manner in which an appeal is taken from the Court of Common Pleas under the South Carolina Appellate Court Rules. Appeal in these matters is by right.

(2) All reasonable and necessary attorney's fees and other costs incurred by the Attorney General in an appeal of the Attorney General's decision by the nonprofit health care entity shall be borne by the for-profit health care entity unless there is a formal finding by the administrative law judge that the Attorney General has acted in bad faith. Such payment for attorney's fees and other costs shall be made by the nonprofit health care entity within thirty (30) days of written demand by the Attorney General. Such demand for payment may be made by the Attorney General at any time to include prior to a formal finding by the administrative law judge.

(H) Any tax-exempt organization created from the proceeds of a transaction shall provide the Attorney General with a list of all contributions, distributions, or grants for each calendar year or the entity's filed 990 (tax return of exempt organization) if the 990 lists all of the entity's contributions, distributions, or grants for that year.

(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:

(1) 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;

(2) the authority of the Attorney General to institute and prosecute an action to enforce this article; or

(3) 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 (F)(1) of Section 44-7-4130 is guilty of entering into a for-profit combination involving a nonprofit health care entity without the approval of the Attorney General, a felony of the third degree.

(B) Whoever violates subsection (F)(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.

(C) This section shall be applied to any pending or future transaction involving an existing or new nonprofit health care facility as of the effective date of this act.

SECTION 2. This act takes effect upon approval by the Governor./

Renumber sections to conform.

Amend title to conform.

THOMAS L. MOORE, for Committee.

A BILL

TO AMEND CHAPTER 7, TITLE 44, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO HOSPITALS, TUBERCULOSIS CAMPS, AND HEALTH SERVICES DISTRICTS BY ADDING ARTICLE 27 SO AS TO REQUIRE THE ATTORNEY GENERAL TO REVIEW TRANSFERS OF ASSETS OR CONTROL OF ASSETS BY NONPROFIT HEALTH CARE ENTITIES TO FOR-PROFIT ENTITIES, AND TO REQUIRE THAT SUCH ENTITIES NOTIFY THE ATTORNEY GENERAL NINETY DAYS PRIOR TO A CLOSING IN WHICH TRANSFERS OF ASSETS OR CONTROL OF ASSETS BETWEEN NONPROFIT HEALTH CARE ENTITIES IS BEING PROPOSED.

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

Nonprofit Health Care Entities

Transfer and Control of Assets

Section 44-7-4110. (A) For purposes of this article:

(3) 'For-profit combination' means a transaction between a nonprofit health care entity and any for-profit entity.

(4) 'For-profit entity' means any entity which is not a nonprofit health care entity.

(5) 'Health care facility' means a health care facility as defined in Section 44-7-130.

(6) 'Nonprofit combination' means a transaction between a nonprofit health care entity and any other nonprofit health care entity.

(7) 'Nonprofit health care entity' means any entity that was created for any charitable or social welfare purpose related to health care and satisfies both subitem (a) and subitem (b) set forth below:

(a) it is an entity that is either:

(i) a hospital as defined in Section 44-7-130(12);

(ii) a health care facility;

(iii) an entity which is in the business of managing and operating hospitals and/or other health care facilities, or otherwise is affiliated with a hospital or other health care facility, including entities affiliated through ownership, governance or membership, such as a holding company or subsidiary, in this State; or

(b) it is an entity that is either:

(8) 'Party' includes:

(a) a nonprofit health care entity that is the subject of a transaction or proposed transaction;

(b) a for-profit entity;

(d) the resulting entity, if any.

(9) 'Person' means an individual, a trust or estate, a partnership, a limited liability company, a limited liability partnership, a corporation, an association, a joint stock company, an insurance company, a health maintenance organization of a state, a hospital authority of a state, a political subdivision of a state, an instrumentality including a municipal corporation of a state, or any other legal entity recognized by the State of South Carolina.

(10) 'Transaction' means:

(a) a transfer of ownership or control of assets of a nonprofit health care entity, whether by acquisition, merger, consolidation, affiliation, 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, or control of the assets of the nonprofit health care entity, to any other person and which occurs either at one time or through a series of transfers, or is contemplated to occur, in the twenty-four-month period after the date notice is submitted to the Attorney General in accordance with Section 44-7-4120; however, if a transfer of ownership or control of assets of a nonprofit health care entity occurs, as provided for in this subitem, which is equal to at least five percent of the assets or control within twenty-four months of an initial transfer of ownership or control of assets of a nonprofit health care entity as described above, then such subsequent transfer of ownership or control of assets also constitutes a 'transaction'; or

(1) the names and addresses of the parties, including a list of all persons who are, or have been, chosen as directors, officers, executives, and other fiduciaries of the parties to the transaction;

(2) the material terms of the proposed transaction, including a summary of the transaction agreement and all contracts or other agreements of the parties material to the transaction;

(3) the amount, source, and nature of consideration to be paid to the nonprofit health care entity, its directors, officers, executives, or other fiduciaries and affiliated persons of the parties;

(4) a statement from each of the parties' directors, officers, executives, and other fiduciaries as to whether any actual or potential conflict of interest exists, to include the following:

(b) whether the individuals described in items (1) and (4) exercised due care, consistent with their fiduciary duties, in determining whether to engage in the proposed transaction;

(c) whether legal counsel was engaged to by the individuals described in items (1) and (4) in order to consider their individual rights or duties in acting in their capacities as fiduciaries in connection with the proposed transaction;

(C) In addition to the notice required in subsection (B), 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;

(4) any additional information the Attorney General considers necessary to determine the value or the nature of the nonprofit health care entity's assets.

(E) Not later than fifteen business days after the discovery of any material 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 sixty-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.

(G) Not less than sixty-days before the closing of a nonprofit combination, a nonprofit health care entity that is a party to the nonprofit combination and is the party to be acquired or otherwise transfer control of its assets, shall provide notice of the nonprofit combination to the Attorney General by submitting the information described in subsection (B)(1), (2), and (3).

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 involving a for-profit combination, except that the Attorney General for good cause may extend this period an additional sixty-days.

(B) In determining whether to approve or disapprove a proposed transaction involving a for-profit combination, the Attorney General shall consider:

(3) whether the proceeds of the proposed transaction, after the consummation of the proposed transaction, will be used in such a manner as consistent with the nonprofit health care entity's original charitable purposes or used in such other manner as approved by the Attorney General which provides benefits to the community served by the nonprofit health care entity;

(4) whether the proposed transaction will assure the availability of safe, accessible, and affordable health care to persons residing in the community served by the nonprofit health care entity;

(5) whether the proposed transaction will result in private inurement to any person;

(6) whether other health care providers will be offered the opportunity to invest or otherwise own an interest in the acquiring entity or a related party and whether appropriate procedures and safeguards are established to avoid conflicts of interest related to patient referrals;

(7) whether the terms of any management services agreement to be entered into in connection with the proposed transaction are fair and reasonable including, but not limited to, the amount of compensation, term of the relationship, duties of the parties, and dispute resolution; and

(8) 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 assets as required, and that the community will benefit from the proposed transaction, 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. 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 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 sixty-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 material alteration is a new transaction subject to review and 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).

(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 the 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 Sections 115, 501(a) and 501(c)(3) of the Internal Revenue Code of 1986, as amended.

(2) The Attorney General may authorize a dedication and transfer to a person exempt from federal income tax under Sections 115 and 501(a) and 501(c)(3) of the Internal Revenue Code of 1986, 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 of the equity and membership ownership, if any, in the nonprofit health care entity.

(b) If the person agrees to these conditions:

(i) the person will use the funds received from the nonprofit health care entity in a manner consistent with its tax-exempt purposes; and

(ii) no proceeds of the transaction, or any other funds or resources controlled by the person described will be disbursed for campaign contributions, lobbying expenditures, or other political activity.

(c) The person agrees to abide by any requirements imposed on persons exempt from taxation under Sections 115, 501(a) and 501(c)(3) of the Internal Revenue Code of 1986, as amended, and any other requirements that the Attorney General determines appropriate.

(G)(1) No nonprofit health care entity or for-profit entity shall enter into a for-profit combination subject to this section without the approval of the Attorney General granted in accordance with this section.

(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. 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:

(1) any other civil or criminal right, claim, or defense that the Attorney General or parties may assert under common law or the statutory law;

(2) the authority of the Attorney General to institute and prosecute an action to enforce this article; or

(3) the authority of the Attorney General to investigate and prosecute violations of any state or federal antitrust law.

Section 44-7-4140. (A) A person who violates Section 44-7-4130G(1) by entering into a for-profit combination involving a nonprofit health care entity without the approval of the Attorney General is guilty of a felony and, upon conviction, must be imprisoned not more than five years.

(B) A person who violates Section 44-7-4130(G)(2) by receiving improper compensation relating to a transaction involving a nonprofit health care entity is guilty of a felony and, upon conviction, must be imprisoned not more than five years.

(C) This section applies to any pending or future transaction involving an existing or new nonprofit health care facility as of the effective date of this act."

SECTION 2. This act takes effect upon approval by the Governor.

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This web page was last updated on Wednesday, December 9, 2009 at 9:08 A.M.