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(122nd General Assembly)(Amended Substitute House Bill Number 242)
AN ACT
To amend section 109.99 and to enact sections 109.34 and 109.35
of the Revised Code to require that the Attorney General review
transfers of assets by certain nonprofit health care
entities to for-profit
entities, to require that the attorney general be notified of transfers of
assets between certain nonprofit health care entities, and to declare an
emergency.
Be it enacted by the General Assembly of the State of Ohio:
SECTION 1 . That section 109.99 be amended and sections
109.34 and 109.35 of the Revised Code be enacted to read as
follows:
Sec. 109.34. (A) As used in this section and in section 109.35
Of the Revised Code: (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 3727.01 Of the Revised Code, that is
owned
or operated
by a corporation organized
under Chapter 1702. Of the Revised Code or the nonprofit corporation law of another
state; (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
Chapter 1742. of the
Revised
Code; (ii) An entity that is authorized or has been authorized to
transact business in this state under Title XXXIX of the
Revised
Code, that is in the business of
providing sickness and accident insurance, and that was previously a hospital
service association under former Chapter 1739. Of the Revised Code or
Chapter 669. of the General Code, 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
per cent 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 division
(B) of this section.
"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," 100
Stat. 2085, 26
U.S.C.
501, as amended; (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.
The exemption in division (A)(4)(b) of this section
does not
limit the authority of the attorney general to seek
remedies for breaches of fiduciary duty or other violations
of law. (B) 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. (4) A statement 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. The statement shall be signed by a representative of
the
nonprofit health
care
entity at the time the notice is submitted to the attorney
general. (C) In addition to the notice described in division (B)
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; (4) Any additional information the attorney general considers necessary
to value the nonprofit health care
entity's assets as required in
rules adopted by the attorney
general in accordance with Chapter 119. Of the Revised Code. (D) The notice and all other documents or materials
submitted pursuant to this section are public records provided they meet the
definition set forth in
section 149.43 of the Revised
Code. (E) 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 division
(A) of section 109.35 Of the Revised Code, 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. (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 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. (G) Notwithstanding division (A)(4)(a)of this section, AS USED IN THIS DIVISION, "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 DIVISIONS
(B)(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 DIVISION
(F) OF THIS SECTION. Sec. 109.35. (A) Not later than sixty days after receipt of a
notice and other documents required by section 109.34 Of the Revised Code, 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; (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 by the attorney general in accordance with Chapter 119.
Of the Revised Code. (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 Chapter 125. of the Revised
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 division
(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 division (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 division
(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 division
(F)(2) of this section agrees
to all of the following conditions: (i) The person described in division (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 division
(F)(2) of this section, will
be disbursed for campaign contributions, lobbying expenditures,
or other political activity; (iii) The person described in division (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, 26
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
section
and section 109.34 Of the Revised Code 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 section and section 109.34 Of the Revised Code in
the court of common pleas
of the county in which the nonprofit health care entity has its principal
place of business or the Franklin county court of common pleas. In
addition to any civil remedies that exist under common law or the
Revised Code, 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 division. The disapproval
may be appealed to the court of common pleas of the county in which the
nonprofit health entity has its principal place of business. The court of
common pleas 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 division, 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 court of common
pleas 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 court of common pleas 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 and, to the extent not in conflict with those rules,
Chapter 2505. Of the Revised Code. (I)(1) The powers of the attorney general under this section and
section 109.34 Of the Revised Code are in addition to the attorney general's powers held at
common law and under sections 109.23 to 109.33 of the
Revised
Code. This section and section
109.34 of the Revised
Code do 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 Revised
Code; (b) The authority of the attorney general to institute and
prosecute an action to enforce sections 109.23 to 109.33
of the Revised
Code; (c) The authority of the attorney general to investigate
and prosecute violations of any state or federal antitrust
law. (2) Nothing in this section shall be construed to grant
to the attorney general any authority OF the superintendent of
insurance under Title
XVII or
Title
XXXIX of the
Revised
Code relating to the
superintendent's review of an entity described in division
(A)(2)(b)
of section 109.34 of the
Revised
Code. (3) Nothing in this section or section 109.34 Of the Revised Code shall be construed to
limit the independent authority of the attorney general to protect charitable
trusts and charitable assets in this state. Sec. 109.99. (A) Whoever violates section 109.26 of the Revised
Code shall be fined not less than five hundred nor more than ten thousand
dollars or be imprisoned not less than one month nor more than one year, or
both. (B) Whoever violates division (G)(1) of
section 109.573 of the Revised Code is guilty of unlawful disclosure of
DNA database information, a misdemeanor of the first degree. (C) Whoever violates division (G)(2) of section 109.573 of the Revised Code
is guilty of unlawful possession of DNA database information, a
misdemeanor of the first degree. (D)(1) Whoever violates division (G)(1) of section
109.35 Of the Revised Code 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. (2) Whoever violates division (G)(2) of section 109.35 Of the Revised Code is
guilty of receiving improper compensation relating to a transaction
involving a nonprofit health care entity, a felony of the third degree. SECTION 2 . That existing section 109.99 of the Revised Code is
hereby repealed.
SECTION 3 . This act is hereby declared to be an emergency
measure necessary for the immediate preservation of the public
peace, health, or safety. The reason for such necessity is that
some transactions involving the acquisition of a nonprofit
health care entity by a for-profit health care entity have
undervalued the charitable assets in the nonprofit entity, attempted to
channel
charitable assets into the for-profit entity, and
provided the Attorney General with inadequate time and
information to review the transaction. Therefore, this act
shall go into immediate effect.
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