State Policy Issues in Nonprofit Conversions

Health Affairs

Volumn 16, Issue 2, 1997, Pages 69-84

  Butler, Patricia A ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

GOVERNMENT; HEALTH CARE FACILITY; HEALTH CARE POLICY; HEALTH MAINTENANCE ORGANIZATION; HOSPITAL; LEGAL ASPECT; NON PROFIT HOSPITAL; NON PROFIT ORGANIZATION; ORGANIZATION AND MANAGEMENT; REVIEW; SOCIAL CONTROL; UNITED STATES;

FACILITY REGULATION AND CONTROL; HEALTH FACILITY MERGER; HEALTH FACILITY PLANNING; HEALTH MAINTENANCE ORGANIZATIONS; HEALTH POLICY; HOSPITALS, PROPRIETARY; HOSPITALS, VOLUNTARY; ORGANIZATIONS, NONPROFIT; OWNERSHIP; STATE GOVERNMENT; UNITED STATES;

EID: 0347243117     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.16.2.69     Document Type: Article

References (44)

1. See P.A. Butler, Profits and the Public Interest: A State Policymaker's Guide to Non-Profit Hospital and Health Plan Conversion (Portland, Maine: National Academy for State Health Policy, 1996).
2. D.M. Fox and P. Isenberg, "Anticipating the Magic Moment: The Public Interest in Health Plan Conversions in California," Health Affairs (Spring 1996): 202-209; E. Hamburger, J. Finberg, and L. Alcantar, "The Pot of Gold: Monitoring Health Care Conversions Can Yield Billions of Dollars for Health Care," Clearinghouse Review (August/September 1995): 473-504; and A.W. Scott and W.F. Fratcher, The Law of Trusts (Boston: Little Brown, 1989), sec. 399.
3. D.M. Fox and P. Isenberg, "Anticipating the Magic Moment: The Public Interest in Health Plan Conversions in California," Health Affairs (Spring 1996): 202-209; E. Hamburger, J. Finberg, and L. Alcantar, "The Pot of Gold: Monitoring Health Care Conversions Can Yield Billions of Dollars for Health Care," Clearinghouse Review (August/September 1995): 473-504; and A.W. Scott and W.F. Fratcher, The Law of Trusts (Boston: Little Brown, 1989), sec. 399.
4. D.M. Fox and P. Isenberg, "Anticipating the Magic Moment: The Public Interest in Health Plan Conversions in California," Health Affairs (Spring 1996): 202-209; E. Hamburger, J. Finberg, and L. Alcantar, "The Pot of Gold: Monitoring Health Care Conversions Can Yield Billions of Dollars for Health Care," Clearinghouse Review (August/September 1995): 473-504; and A.W. Scott and W.F. Fratcher, The Law of Trusts (Boston: Little Brown, 1989), sec. 399.
5. 18 Am. Jur. 2d Corporations, secs. 32-33 (1985); Greil Memorial Hospital v First Alabama Bank, 387 So. 2d 778 (Ala. 1980); and Queen of Angels Hospital v Younger, 136 Cal. Rptr. 36 (Cal. App. 1977).
6. In a proceeding called cy pres, a court must determine that it is impossible or impracticable to continue the organization's original mission, in which case trustees can substitute a purpose that is as similar as possible to the original purpose. See R. Boisture and D.N. Varley, "State Attorney Generals' Legal Authority to Police the Sale of Nonprofit Hospitals and HMOs" (Presented at Charitable Trusts and Solicitations Seminar, National Association of Attorneys General and National Association of State Charity Officers, Williamsburg, Virginia, 19 September 1995); and D. Shriber, "State Experience in Regulating a Changing Health Care System," Health Affairs (March/April 1997): 48-68.
7. In a proceeding called cy pres, a court must determine that it is impossible or impracticable to continue the organization's original mission, in which case trustees can substitute a purpose that is as similar as possible to the original purpose. See R. Boisture and D.N. Varley, "State Attorney Generals' Legal Authority to Police the Sale of Nonprofit Hospitals and HMOs" (Presented at Charitable Trusts and Solicitations Seminar, National Association of Attorneys General and National Association of State Charity Officers, Williamsburg, Virginia, 19 September 1995); and D. Shriber, "State Experience in Regulating a Changing Health Care System," Health Affairs (March/April 1997): 48-68.
8. Kelley v Michigan Affiliated Health Care System, Inc., No. 96-83848-CZ, Mich. Cir. Ct. Ingham County, 5 September 1996.
9. H. Meyer, "Selling or Selling Out: The Lure," Hospitals and Health Networks (5 June 1996): 22-28.
10. Hamburger et al., "The Pot of Gold."
11. "Texas Settlement Raises For-Profit Deal Scrutiny," Modern Healthcare (26 August 1996): 2, 14.
12. Hamburger et al., "The Pot of Gold;" and L.D. Schaeffer, "Health Plan Conversions: The View from Blue Cross of California," Health Affairs (Winter 1996): 183-187.
13. Hamburger et al., "The Pot of Gold;" and L.D. Schaeffer, "Health Plan Conversions: The View from Blue Cross of California," Health Affairs (Winter 1996): 183-187.
14. Mutual benefit plans are established for the benefit of policyholders or members. Consequently, they are a hybrid between purely nonprofit corporations that are obligated to serve the public interest and for-profit corporations that answer to owners (shareholders). Blue Cross and Blue Shield of Missouri v Angoff, No. CV 196-619CC (Mo. Cir. Ct., 30 December 1996).
15. Interview with Jack Ehnes, Colorado commissioner of insurance, State Health Watch (May 1996): 5-6.
16. California Corporations Code, secs. 5913-5919 (1996).
17. Nebraska Revised Statutes, chap. 71-20, 102-114.
18. Annotated Missouri Statutes, sec. 355.096(2) (1995); and New Jersey Code, secs. 17:48E-45-17:48E-48; and P.L. 1995, chap. 196.
19. Interview with Jack Ehnes.
20. J. Bell, "Commentary: Vigilance Is Needed to Protect Charitable Assets," Modern Healthcare (17 June 1996): 74.
21. California Health and Safety Code, secs. 1399.70-1399.76 (1996).
22. The foundations are to be either a 501(c)(3) organization or, if needed to monetize the selling plan's stock, in a 501(c)(4) pending transfer to a 501(c)(3) organization. Any 501(c)(4) organization, however, is subject to the same restrictions on lobbying, political activities, and reporting requirements as are 501(c)(3) organizations under federal law.
23. For example, the transaction involves no private inurement or conflict of interest and is not inconsistent with the organizations' public, charitable, or mutual benefit purpose.
24. Colorado Revised Statutes 10-16-324 (1996).
25. Like California's law, the foundations may be either 501(c)(3) or (c)(4), but any 501(c)(4) is subject to the same limits on lobbying, self-dealing, political activity, and public reporting as apply to 501(c)(3) organizations.
26. H.B. 824 and H.B. 825 (Ohio 1996).
27. In fact, some attorneys general may object to setting out these duties in statute for fear of implying that this limits their inherent powers. Conversion laws should specifically indicate that they do not in any way narrow other attorney general authority in statute or deriving from common law.
28. See, for example, California Corporations Code, sec. 5142(a)(5); and Hamburger et al., "The Pot of Gold."
29. Interview with Jack Ehnes.
30. For example, community groups in Massachusetts have been very active in monitoring conversions, and Consumers Union has been involved in California and other states.
31. The Massachusetts attorney general was recently criticized for approving a hospital conversion, perhaps in part because he did not hold public hearings on the proposal. G. O'Neill, M. Zuckoff, and D. Kong, "Profit Motives Doom Worcester Hospital," The Boston Globe, 17 November 1996, Al.
32. Ibid.
33. For example, Consumers Union played an active role in the California Blue Cross conversion review. Hamburger et al., "The Pot of Gold."
34. Meyer, "Selling or Selling Out."
35. The law allows, however, activities of the foundation, such as grants or other support for these services, to be considered in evaluating the purchaser's service to disadvantaged populations.
36. R. Kuttner, "Columbia/HCA and the Resurgence of the For-Profit Hospital Business" (Part 2), The New England Journal of Medicine (1 August 1996): 446-451.
37. Fox and Isenberg, "Anticipating the Magic Moment;" and Hamburger et al., "The Pot of Gold."
38. Fox and Isenberg, "Anticipating the Magic Moment;" and Hamburger et al., "The Pot of Gold."
39. See, for example, T. McMahon, "Fair Value? The Conversion of Nonprofit HMOs," University of San Francisco Law Review (Winter 1996): 355-394.
40. This can be complicated by a penalty clause in the sale agreement for accepting another offer as was the case in Columbia/HCA's proposed purchase of Ohio Blue Cross. Kuttner, "Columbia/HCA and the Resurgence of the For-Profit Hospital Business."
41. Meyer, "Selling or Selling Out;" and G. Jaffe and M. Langley, "Generous to a Fault? Fledgling Charities Get Billions for the Sale of Nonprofit Hospitals," The Wall Street Journal, 6 November 1996, Al.
42. Meyer, "Selling or Selling Out;" and G. Jaffe and M. Langley, "Generous to a Fault? Fledgling Charities Get Billions for the Sale of Nonprofit Hospitals," The Wall Street Journal, 6 November 1996, Al.
43. While owning the new for-profit entity's stock can protect against undervaluation of the nonprofit's assets, it also may increase the foundation's risk in a fluctuating stock market and may encourage the foundation to spend funds to increase the for-profit's stock value.
44. In fact, the national Blue Cross and Blue Shield Association rules require the board of any foundation formed from the sale of a Blues plan and holding the successor plan's stock to include a majority of Blues plan board members. Hamburger et al., "The Pot of Gold." This policy could lead to conflicts of interest and self-dealing.