March 10, 2005, Introduced by Senators JACOBS, SCHAUER, BASHAM, HAMMERSTROM and PATTERSON and referred to the Committee on Health Policy.
A bill to regulate the conversion and acquisition of a
nonprofit health care organization; to prescribe the powers and
duties of certain state agencies and departments; to require the
disclosure of certain information; to provide for a hearing under
certain circumstances; and to prescribe penalties and remedies.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"nonprofit health care organization conversion act".
Sec. 3. As used in this act:
(a) "Application" means an application for approval of a
proposed conversion filed with the attorney general under this act.
(b) "Conversion" means any of the following:
(i) To sell, transfer, lease, exchange, option, convey,
convert, give, enter a joint venture, merge, or otherwise dispose
of 20% or more of the assets of a nonprofit health care
organization to a for-profit corporation or other entity or to a
nonprofit corporation or nonprofit health care organization.
(ii) To transfer control, responsibility, or governance of 20%
or more of the assets, operations, or business of a nonprofit
health care organization to any for-profit corporation or other
entity or any nonprofit corporation, nonprofit health care
organization, or other entity.
(iii) To enter into a change of governance, ownership, or
operational control that, when combined with 1 or more transactions
occurring within a 5-year period, results in a change of
governance, ownership, or operational control of 20% or more of the
assets, operations, or business in any for-profit corporation,
nonprofit corporation, nonprofit health care organization, or any
other entity.
(c) "Department" means the department of community health.
(d) "Health services" means 1 or more of the following:
(i) Diagnosis and medical and surgical treatment by direct
providers of health care of persons suffering from illness, injury,
and disability, including persons suffering from tuberculosis and
other contagious and infectious diseases, and persons requiring
maternity care, rehabilitation, psychiatric care, or substance
abuse services; dentistry and related services; podiatric medicine
and surgery; optometric services; psychological services; skilled,
basic, and visiting nursing services and home health services;
ambulance operations; advanced mobile emergency care services and
limited advanced emergency services; physical, respiratory, and
occupational therapy; health maintenance services; services for the
prevention of illness, injury, and disability and for the
promotion, maintenance, and improvement of public health and
welfare; food services and care for dependent children, the
disabled, and the elderly; and social work and chaplaincy services
in conjunction with other health services.
(ii) Conduct of or participation in programs for the education
and training of health services personnel, including undergraduate,
internship, residency, postgraduate, and continuing education
programs for physicians; schools and other training programs for
nurses, technicians, therapists, pharmacists, and other health
services personnel; and in-service education of employees of health
care facilities.
(iii) Research relating to the cause, prevention, and treatment
of illness, injury, and disability and the protection, promotion,
or improvement of public health and welfare.
(e) "Nonprofit corporation" means a corporation incorporated
under the nonprofit corporation act, 1982 PA 162, MCL 450.2101 to
450.3192.
(f) "Nonprofit health care organization" means any of the
following:
(i) A municipal health facilities corporation incorporated
under the municipal health facilities corporations act, 1987 PA
230, MCL 331.1101 to 331.1507.
(ii) A public body organized and existing under the laws of
this state and authorized to provide health services.
(iii) A corporation incorporated under the nonprofit
corporation act, 1982 PA 162, MCL 450.2101 to 450.3192, and
authorized to provide health services.
(g) "Person" means an individual or a partnership,
corporation, limited liability company, or other legal entity.
(h) "Public health code" means the public health code, 1978 PA
368, MCL 333.1101 to 333.25211.
(i) "Transacting parties" means the person or persons who seek
to either transfer or acquire ownership, control, or authority of,
or is involved in the conversion of, a nonprofit health care
organization.
Sec. 5. (1) A person shall not engage in the conversion or
acquisition of a nonprofit health care organization without first
having notified the department and applied for and received, if
necessary, a certificate of need from the department and the
approval of the attorney general under this act.
(2) A person seeking to convert or acquire a nonprofit health
care organization under this act shall notify the department and
submit an application to the attorney general on forms provided by
the attorney general. The application forms shall include the name
of the transacting parties, the terms of the proposed agreement,
the acquisition price, and other information considered appropriate
or necessary by the attorney general. The person who is the
acquiring entity shall submit a copy of the proposed agreement and
all other related documents along with the application and other
required forms to the attorney general. If there is a material
change in the terms or conditions of the proposed conversion, the
transacting parties shall withdraw the previous application and
submit a new application with the attorney general.
(3) An application form and all related documents submitted
under subsection (2) are public records for purposes of the freedom
of information act, 1976 PA 442, MCL 15.231 to 15.246.
Sec. 7. (1) Within 5 working days after receipt of a completed
application and other related documents under section 5, the
attorney general shall publish notice of the application through
means reasonably calculated to give notice to the public and shall
notify by first-class United States mail each person who has
requested in writing from the department or attorney general
advance notice of the filing of such applications. The attorney
general shall include at least all of the following information in
the notice required under this subsection:
(a) The fact that an application has been received.
(b) The names of the transacting parties to the proposed
agreement.
(c) A description of the contents of the application.
(d) The date by which a person may submit written comments
about the application to the attorney general.
(2) The attorney general shall within 15 days after the date
an application is received determine if the application is complete
for the purposes of review under this act. The attorney general may
find that an application is incomplete if a question on the
application form has not been answered in whole or in part or has
been answered in a manner that does not fairly answer the question
or if the application does not include attachments of supporting
documents necessary to answer the question or other required
documentation. If the attorney general determines that an
application is incomplete, he or she shall notify the applicant
within 15 days after the date the determination was made, stating
the reasons for his or her determination of incompleteness with
reference to the particular questions or documentation determined
to be deficient.
(3) Within 90 days after receiving a completed application,
the attorney general shall review the application in accordance
with the standards set forth in this act and approve or disapprove
the conversion pursuant to this act.
(4) For a conversion that requires both approval from the
attorney general under this act and a certificate of need from the
department under the public health code, the applicant may submit a
single application for both purposes to the department and the
attorney general. The attorney general shall not approve the
application for conversion unless the department grants a
certificate of need for the same.
Sec. 9. (1) If a certificate of need is issued, the attorney
general shall during the course of his or her review of an
application under section 7 hold a public hearing on the
conversion, pursuant to this section.
(2) A person may intervene in a hearing held under this
section if he or she can show an interest in the conversion
distinct from that of the general public. The attorney general may
jointly promulgate rules with the department pursuant to the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328, for intervention under this subsection.
(3) The attorney general may subpoena additional information
or witnesses, require and administer oaths, require sworn
statements, take depositions, and use related discovery procedures
for purposes of a public hearing held under this section and at any
time before making a decision on an application.
(4) The attorney general shall hold the hearing required under
subsection (1) not later than 30 days after the publication of
notice as required under section 7(1). The attorney general shall
give 10 working days' notice before holding a hearing under this
section. The attorney general shall hold a hearing under this
section in the same manner as required for a public hearing held
for proposed rules under the administrative procedures act of 1969,
1969 PA 306, MCL 24.201 to 24.328.
Sec. 11. (1) The attorney general shall review the completed
application in accordance with the standards set forth in section
13. Within 90 days after receipt of a completed application, the
attorney general shall do 1 of the following:
(a) Approve the conversion, with or without specific
conditions or modifications.
(b) Disapprove the conversion.
(2) The attorney general shall not make his or her decision to
approve an application subject to a condition or modification not
directly related to criteria enumerated in section 13, and a
condition or modification must bear a direct and rational
relationship to the application under review.
(3) If the attorney general does not act within the 90-day
period prescribed in subsection (1), the application is approved.
(4) The applicant or an intervenor may seek judicial review of
the decision of the attorney general in a court of competent
jurisdiction.
Sec. 13. In making a decision to approve or disapprove an
application under this act, the attorney general shall consider all
of the following:
(a) Whether the conversion or acquisition is permitted under
the nonprofit corporation act, 1982 PA 162, MCL 450.2101 to
450.3192, the municipal health facilities corporations act, 1987 PA
230, MCL 333.1101 to 331.1507, and other laws of this state
governing nonprofit entities, trusts, or charities.
(b) Whether due care was exercised by the nonprofit health
care organization in deciding to sell or otherwise transfer assets,
selecting the acquiring entity, and negotiating the conversion.
(c) The procedures used by the nonprofit health care
organization in making its decision to convert, including, but not
limited to, whether appropriate expert assistance was used.
(d) Whether conflict of interest was avoided, including, but
not limited to, conflicts of interest related to board members of,
key executives of, legal counsel for, and experts retained by the
nonprofit health care organization or the acquiring entity.
(e) Whether the nonprofit health care organization will
receive fair market value for its assets. The attorney general may
employ, at the nonprofit health care organization's expense, 1 or
more necessary expert assistants in making the determination of
fair market value if the application has incompletely addressed the
issues enumerated in this subdivision and subdivision (b) or (c).
(f) If the conversion is financed in part by the nonprofit
health care organization, whether funds determined by the attorney
general to be charitable funds are placed at risk.
(g) Whether a management contract, if any, under the
conversion is for fair market value.
(h) Whether the nonprofit health care organization will use
the conversion proceeds for appropriate charitable purposes
consistent with the organization's original purpose, as determined
by the attorney general, or to promote health in the affected
community and whether the proceeds will be controlled as charitable
funds, as determined by the attorney general, independently of the
acquiring entity.
(i) If a nonprofit corporation is established to hold the
proceeds of the conversion, whether it will be based in the
community and be a representative of the affected community, and
the structure and governance of the nonprofit corporation.
(j) Whether the conversion would create or have the likelihood
of creating an adverse effect on the quality, availability, and
affordability of health services in the community and whether
sufficient procedures and safeguards are included to assure the
affected community continued access to affordable health care.
(k) Whether the acquiring entity has made a commitment to
provide care to the disadvantaged, the uninsured, and the
underinsured and to provide benefits to the affected community to
promote improved health care.
(l) Whether the conversion will result in a direct or indirect
inurement to any private person or entity, including stock options,
agreements not to compete, and other private benefits.
(m) Whether the conversion will result in any immediate or
future remuneration to an official director or trustee of the
nonprofit health care organization as a result of the conversion.
Compensation paid for continued employment with the acquiring
entity is not remuneration.
(n) Any other issues the attorney general finds necessary to
determine whether the proposed conversion is in the best interest
of the public.
Sec. 15. (1) The attorney general shall require periodic
reports to be submitted to the department and the attorney general
from the acquiring entity to ensure compliance with commitments
made as described in section 13. If either the department or the
attorney general determines a report made under this subsection to
be deficient or incomplete, the department or attorney general may
subpoena information and documents and may conduct on-site
compliance audits at the acquiring entity's expense.
(2) If the department or attorney general receives information
indicating that the acquiring entity is not fulfilling its
commitment to the affected community under section 13, the
department shall hold a hearing after 10 days' notice to the
affected parties. If after the hearing the department determines
that the information described in this subsection is true, the
department may institute proceedings to require the acquiring
entity to implement a corrective action plan which includes
oversight by the department.
Sec. 17. If a person converts or acquires a nonprofit health
care organization without first having received, if necessary, a
certificate of need from the department and the approval of the
attorney general under this act, or if either of the transacting
parties is not fulfilling its commitment to the affected community
under section 13 or is not following procedures of safeguards
described in section 13, the department shall not renew the
nonprofit health care organization's license to operate under
article 17 of the public health code, MCL 333.20101 to 333.22260.
Sec. 19. This act applies only to the conversion or
acquisition of a nonprofit health care organization that takes
place after the effective date of this act.