44th legislature - STATE OF NEW MEXICO - first session, 1999
RELATING TO HEALTH; ENACTING THE NONPROFIT HEALTH PLAN CONVERSION ACT; ENACTING SECTIONS OF THE NMSA 1978.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
Section 1. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] SHORT TITLE.--This act may be cited as the "Nonprofit Health Plan Conversion Act"."
Section 2. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] FINDINGS AND PURPOSE.--
A. The legislature finds that substantial changes in health care and in market conditions are affecting nonprofit health care plans and health care providers and are providing an impetus for many nonprofit health care entities to convert to for-profit status or enter into arrangements whereby control of the nonprofit is entirely or partly transferred to the for-profit sector.
B. The legislature further finds that nonprofit corporations hold their assets in trust for charitable purposes. The public interest in nonprofit assets must be protected in the course of transactions in which control of these entities is transferred to the for-profit sector.
C. The purposes of the Nonprofit Health Plan Conversion Act are to regulate such transactions by setting out the procedures to be followed when a nonprofit health care plan proposes to convert to for-profit status, to ensure that charitable assets remain in the public realm and continue to serve the public interest."
Section 3. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] DEFINITIONS.--As used in the Nonprofit Health Plan Conversion Act:
A. "applicant" means a New Mexico nonprofit health care plan that proposes to enter into a transaction covered by the Nonprofit Health Plan Conversion Act;
B. "charitable assets" means the net assets of the nonprofit health care plan;
C. "convert" means within a five-year period to transfer in one or more transactions the legal or equitable ownership of or direct or indirect control of a material amount of the assets, operations or business of a nonprofit health care plan to a person other than a nonprofit corporation but does not include sales or other transfers in the ordinary course of business for fair value, the proceeds of which are paid solely to the nonprofit health care plan and remain subject to the provisions of the Nonprofit Health Plan Conversion Act;
D. "new corporation" means the for-profit entity resulting from the conversion; and
E. "nonprofit health care plan" means a health care plan created pursuant to the Nonprofit Health Care Plan Law."
Section 4. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] PROCESS FOR CONVERSION.--
A. No nonprofit health care plan may convert without first applying for and receiving the approval of the superintendent. The application filed with the superintendent shall include a plan of conversion containing all information required by this section and any other information the superintendent deems necessary. No filing is complete until the superintendent has acknowledged receipt of a completed application.
B. A plan of conversion submitted to the superintendent by an applicant shall comply with Sections 59A-37-4 and 59A-37-5 NMSA 1978, to the extent relevant to nonprofit health care plans, and shall include the following information or documents and any other information or documents required by the superintendent:
(1) the business rationale for the conversion;
(2) the proposed articles of incorporation and bylaws of the new corporation;
(3) a description of the proposed conversion, including the schedule, terms and any conditions, other than approval of the application by the superintendent, to be fulfilled by a proposed date upon which the conversion would occur;
(4) a description of any changes in the applicant's mode of operations after conversion;
(5) a statement describing the manner in which the plan of conversion:
(a) provides for the protection of all existing rights of the corporation's policyholders, subscribers and enrollees to medical or hospital services and payment of claims for reimbursement for those services; and
(b) ensures continuity of care for policyholders, subscribers and enrollees;
(6) a statement that all liabilities and obligations in existence prior to the conversion continue to exist and attach to the new corporation;
(7) documentation showing that the applicant, acting by its board of directors, has approved the plan of conversion;
(8) documentation necessary for the superintendent to assess the probable impact of the conversion on premium rates;
(9) the current or proposed articles of incorporation and bylaws of each charitable organization that will receive the charitable assets. The application shall describe how the public, health care consumers and consumer advocates were involved in developing the articles and bylaws and the mission, structure and governance of any new charitable organization created to receive the charitable assets, or in selecting any existing charitable organization to receive those assets;
(10) any proposed agreements between the charitable organization receiving the charitable assets and the applicant or the new corporation, including any agreement relating to the voting or registration for sale of any capital stock to be issued by the new corporation to the charitable organization; and
(11) a description of plans or proposals to liquidate the applicant, sell its assets or consolidate or merge it with any other person, or to make other material changes in its business or corporate structure or management.
C. In reviewing an application filed pursuant to this section, the superintendent shall consider the report and recommendations of the attorney general and shall determine that:
(1) the financial condition of any party will not jeopardize the financial stability of the insurer or prejudice the interests of policyholders, subscribers or enrollees;
(2) the plan of conversion has been adopted by a majority vote of the board of directors of the applicant;
(3) the governing body of the applicant exercised due diligence in deciding to dispose of the assets of the applicant, in selecting the acquiring entity and in negotiating the terms and conditions of the acquisition;
(4) the plan of conversion is not prejudicial to the rights of policyholders, subscribers or enrollees of the new corporation;
(5) the plan of conversion adequately protects the existing rights of the applicant's policyholders, subscribers and enrollees to medical or hospital services and to payment of claims for reimbursement for those services and ensures continuity of care for subscribers and enrollees;
(6) the applicant has complied with all material requirements of the Insurance Code and disciplinary action is not pending against it;
(7) the competence, experience and integrity of those persons who would control the operation of the new corporation has been demonstrated;
(8) the applicant is receiving full fair market value for its assets, and the value of those assets has not been manipulated by the actions of any party in a manner that causes the fair market value of the assets to decrease. Fair market value shall be determined at the time of conversion, as if the applicant had voting stock outstanding and one hundred percent of its stock were freely transferable and available for purchase without restrictions. Consideration shall be given to market value, investment or earning value, net asset value and a control premium, if any;
(9) the new corporation, after conversion, will be able to satisfy the requirements for the issuance of a certificate of authority to write the line of insurance for which it is currently authorized or for which it has applied;
(10) the conversion will not have an adverse effect on competition in insurance in the state;
(11) if the applicant or any other party to the conversion has any plans or proposals to liquidate the new corporation, sell its assets or consolidate or merge it with any other entity, or to make any other material change in its business or corporate structure or management, that any such plans or proposals will have no detrimental impacts on policyholders, subscribers or enrollees of the new corporation or on the public interest;
(12) there has been no breach of fiduciary duty and that the conversion will not create a conflict of interest or result in private inurement to any officer, director, board member, executive or expert employed or retained by the parties, or any other person;
(13) the new corporation, upon conversion, will meet the applicable standards and conditions of the Insurance Code, including applicable minimum capital and surplus requirements;
(14) the plan of conversion is in the public interest. The superintendent shall find that the plan of conversion is in the public interest only if it provides a benefit for the people of New Mexico equal to the value of the corporation at the time of conversion, in accordance with the criteria set out in this subsection. In determining whether the plan of conversion is in the public interest, the superintendent may also consider other factors, including those relating to the accessibility and affordability of health care insurance; and
(15) the requirements of Section 8 of the Nonprofit Health Plan Conversion Act are satisfied."
Section 5. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] ATTORNEY GENERAL'S REVIEW.--
A. Prior to issuing his decision, the superintendent shall seek the advice of the attorney general, who shall act on behalf of the public and charitable interests in the state. The attorney general shall advise the superintendent in writing as to:
(1) his findings and recommendations with regard to the proposed conversion;
(2) his opinion as to whether the proposed conversion should be approved and any conditions that should be imposed on the conversion; and
(3) whether the requirements of Section 8 of the Nonprofit Health Plan Conversion Act are satisfied.
B. Nothing in the Nonprofit Health Plan Conversion Act limits the power of the attorney general to seek a declaratory judgment or to take other legal action to protect or enforce the rights of the public in a nonprofit organization."
Section 6. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] PUBLIC NOTICE, RECORDS AND HEARING--SUPERINTENDENT'S DECISION.--
A. Within seven business days after an application is filed with the superintendent, the applicant shall publish notice of the proposed conversion in a form approved by the superintendent in one or more newspapers of general circulation in the area where the nonprofit applicant conducts business. The notice shall be published once a week for three consecutive weeks. Within the same time period, the superintendent shall mail notice to all persons who have requested in writing notice of the filing of applications made pursuant to the Nonprofit Health Plan Conversion Act. A material change in the terms or conditions of the proposed conversion is considered a new filing for purposes of this section.
B. The application and all supporting or supplemental materials filed with the superintendent shall be public records subject to the Inspection of Public Records Act and shall be made available for inspection and copying at the office of the insurance division and the office of the applicant. Charges for copies provided by the insurance division or the applicant must be based upon actual costs not to exceed the prevailing community market rates for photocopying, or fifty cents ($.50) per page, whichever is less.
C. The superintendent shall hold at least one public hearing on the proposed conversion. In determining the number and location of the hearings to be held, the superintendent shall consider the size of the population and geographic area served by the nonprofit health care plan and the nature of the proposed conversion. At least twenty-one days prior to each public hearing, the superintendent shall provide written notice of the time and place of the hearing through publication in one or more newspapers of general circulation in the affected communities. The notice shall be published once per week for three consecutive weeks. In addition, the superintendent shall mail notice of the hearing to those persons referred to in Subsection A of this section. The superintendent has the discretion to hold additional hearings. The superintendent shall notify the attorney general promptly of the scheduled hearing dates.
D. A person may file written comments or exhibits or may appear at the hearing and make a statement.
E. The superintendent may subpoena additional information or witnesses, require and administer oaths and require sworn statements at any time prior to making a decision on an application.
F. The superintendent shall notify the applicant in writing of the decision to approve, approve with conditions or disapprove the proposed conversion."
Section 7. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] CONSULTATION AND EXPERT ASSISTANCE--RULEMAKING AUTHORITY.--
A. In reviewing a proposed conversion, the superintendent may contract with, consult and receive advice from any state or federal agency on those terms and conditions they deem appropriate.
B. The superintendent may retain any experts or consultants reasonably necessary to assist his review of the proposed transaction. The superintendent may require the applicant, the new corporation and any other parties to the transaction to enter into an agreement, on terms established by the superintendent, to pay for any costs incurred in retaining the assistance, and the responsible parties shall, upon request, promptly pay those costs.
C. The superintendent is entitled to reimbursement for reasonable costs incurred in providing notice, holding public hearings and providing records to the public pursuant to the Nonprofit Health Plan Conversion Act. The superintendent may require the applicant, the new corporation and any other parties to the transaction to enter into an agreement, on terms established by the superintendent, to pay for any costs, and the responsible parties shall, upon request, promptly pay all those costs.
D. The superintendent may adopt rules to implement the provisions of the Nonprofit Health Plan Conversion Act.
E. The superintendent and the attorney general shall retain jurisdiction over the nonprofit health care plan or any successor for the purposes of enforcing compliance with the Nonprofit Health Plan Conversion Act or enforcing compliance with any conditions imposed or commitments undertaken pursuant to that act."
Section 8. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] PRESERVATION OF CHARITABLE ASSETS.--
A. The charitable assets of a converted plan shall be irrevocably dedicated to charitable health purposes.
B. The charitable assets of a converted plan shall be distributed to one or more existing or new tax-exempt charitable organizations operating pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986. In either instance, whether or not the charitable organization is classified as a private foundation pursuant to Section 509 of the Internal Revenue Code of 1986, the charitable organization shall be subject to the restrictions and limitations that apply to private foundations found in Sections 4941 through 4945 of that code.
C. With the approval of the attorney general, all or a portion of the amount conveyed to the charitable organization receiving the charitable assets may consist of stock in the new corporation.
D. Any agreements between the charitable organization receiving the charitable assets and the applicant or new corporation, including any agreements relating to the voting or registration for sale of any capital stock to be issued by the new corporation to the charitable organization, shall be on terms that are fair to the charitable organization and provide that organization with sufficient flexibility to manage its investment.
E. A charitable organization receiving charitable assets as the result of a conversion is subject to the following requirements:
(1) its directors, officers and staff shall be and remain independent of the new corporation and its affiliates;
(2) the charitable mission and grantmaking functions of the charitable organization shall be dedicated to serving the health needs of the people of New Mexico, particularly with regard to the medically uninsured and underserved populations, and shall focus on improving health, including improving access to services, enhancing quality of care and addressing prevention and health promotion;
(3) it shall establish formal mechanisms to avoid conflicts of interest and to prohibit grants benefiting the board of directors or management of the applicant or of the new corporation;
(4) it shall provide the attorney general with an annual report of its grantmaking and other charitable activities related to its use of the charitable assets received. The annual report shall be made available to the public at both the attorney general's office and the office of the charitable organization;
(5) it shall maintain a community advisory committee to offer broad public input to the charitable organization concerning its operations and activities;
(6) no part of its net earnings shall inure to the benefit of any private shareholder or individual; and
(7) its governing board shall be representative of the community and its structure and operations shall provide mechanisms for ongoing public consultation and participation.
F. No director, officer or employee of the applicant or new corporation may receive:
(1) any fee, commission, compensation or other valuable consideration for aiding, promoting or assisting in the conversion of the nonprofit health care plan, other than compensation paid to the director, officer or employee of the corporation in the ordinary course of business; or
(2) any distribution of the assets, surplus, capital or capital stock of the new corporation as part of a conversion."
Section 9. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] JUDICIAL REVIEW.--A person aggrieved by a final decision of the superintendent pursuant to the Nonprofit Health Plan Conversion Act may petition the district court for Santa Fe county for judicial review within sixty days after receipt of the final decision and order. An appeal from a final decision and order of the superintendent pursuant to this section shall be conducted pursuant to the procedures of Section 59A-4-20 NMSA 1978."
Section 10. A new section of the New Mexico Insurance Code is enacted to read:
"[NEW MATERIAL] CONVERSION IN VIOLATION OF ACT VOIDABLE.--Whenever it appears to the superintendent that a nonprofit health care plan has engaged in a conversion subject to the provisions of the Nonprofit Health Plan Conversion Act without obtaining the approval of the superintendent, the superintendent may order the nonprofit health care plan, a successor entity or any other party to the conversion to cease and desist immediately any further activity under the transaction. After notice and hearing, the superintendent may also order the nonprofit health care plan, successor entity or any other party to the conversion to void any contracts and restore the status quo or to take other action as determined by the superintendent to be in the best interest of policyholders, creditors or the public."