1399.70. (a) In addition to the information required by subdivision
(a) of Section 1399.73, a nonprofit health care service plan
submitting an application to the director to restructure or convert
its activities pursuant to this article shall submit to the director
a copy of all of its original and amended articles of incorporation
and bylaws, as well as a report summarizing the activities undertaken
by the plan to meet its nonprofit obligations as directed by the
director.
(b) The report required by this section shall include a summary of
the following:
(1) The nature of public benefit or charitable activities
undertaken by the plan.
(2) The expenditures incurred by the plan on these public benefit
or charitable activities.
(3) The plan's procedure for avoiding conflicts of interest
involving public benefit or charitable activities and a summary of
any conflicts that have occurred and the manner in which they were
resolved.
(c) The report required by this section shall also include a
written plan that specifies on a projected basis the information
required by subdivision (b) for the immediately following fiscal
year.
(d) When requested by the director, the plan shall promptly
supplement the report to include any additional information as the
director deems necessary to ascertain whether the plan's assets are
appropriately being used by the plan to meet its nonprofit
obligations.
(e) For purposes of this article, a "nonprofit health care service
plan" includes a plan formed under or subject to Part 2 (commencing
with Section 5110) or Part 3 (commencing with Section 7110) of
Division 2 of the Corporations Code.
1399.71. (a) Any nonprofit health care service plan that intends to
restructure its activities as defined in subdivision (d) shall,
prior to restructuring, secure approval from the director.
(b) Every nonprofit health care service plan that applies to the
department to restructure its activities shall submit for approval by
the department a public benefit program that identifies activities
to be undertaken by the nonprofit health care service plan following
restructuring to continue to meet its nonprofit public benefit
obligations. The program shall include all information required
pursuant to subdivisions (b) and (c) of Section 1399.70.
(c) The director shall apply the requirements of Section 1399.72
to the public benefit program submitted for approval as part of a
restructuring proposal submitted pursuant to subdivision (b) of this
section. The set-aside requirement in paragraph (1) of subdivision
(c) of Section 1399.72 shall apply only to the fair value of the
portion of the nonprofit health care service plan involved in the
restructuring, as determined by the director.
(d) (1) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan means the sale,
lease, conveyance, exchange, transfer, or other similar disposition
of a substantial amount of a nonprofit health care service plan's
assets, as determined by the director, to a business or entity
carried on for profit. Nothing in this section shall be construed to
prohibit the director from consolidating actions taken by a plan for
the purpose of treating the consolidated actions as a restructuring
or restructure of the plan.
(2) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan shall not
include any sales or purchases undertaken in the normal and ordinary
course of plan business. The director may request information from
the plan to verify that transactions qualify as occurring in the
normal and ordinary course of plan business, and are not subject to
the requirements of subdivision (e).
(e) Notwithstanding that a transaction or consolidated
transactions involve a substantial amount of a nonprofit health care
service plan's assets and are not in the normal and ordinary course
of plan business, a "restructuring" or "restructure" by a nonprofit
health care service plan shall not include any of the following
transactions:
(1) Investments in a wholly owned subsidiary of the nonprofit
health care service plan in which all of the following occur:
(A) Any profit from the investment will not inure to the benefit
of any individual.
(B) The investment is fundamentally consistent with and advances
the public benefit, charitable, or mutual benefit purpose of the
plan.
(C) The investment does not adversely impact the plan's ability to
fulfill its public benefit, charitable, or mutual benefit purposes.
(D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investments.
(E) The investment results in the provision of services, goods, or
insurance to or for the benefit of the plan or its members,
enrollees, or groups.
(2) Sales or purchases of plan assets, including interests in
wholly owned subsidiaries and in joint ventures, partnerships, and
other investments in for-profit entities, in which all of the
following occur:
(A) Any profit from the sale will not inure to the benefit of any
individual.
(B) The sale or purchase is fundamentally consistent with and
advances the public benefit, charitable, or mutual benefit purposes
of the plan.
(C) The plan receives all proceeds from the sale.
(D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the sale or purchase.
(E) The transaction is conducted at arm's length and for fair
market value.
(F) The sale or purchase does not adversely impact the plan's
ability to fulfill its public benefit, charitable, or mutual benefit
purposes.
(3) Investments in or joint ventures and partnerships with a
for-profit entity in which all of the following occur:
(A) Any profit will not inure to the benefit of any individual.
(B) The mission or purpose of the investment, joint venture, or
partnership is fundamentally consistent with the public benefit,
charitable, or mutual benefit purposes of the plan.
(C) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investment, joint venture,
or partnership.
(D) The transaction is conducted at arm's length and for fair
market value.
(E) The investment, joint venture, or partnership furthers the
plan's ability to fulfill its public benefit, charitable, or mutual
benefit purposes.
(F) The investment, joint venture, or partnership results in the
provision of services, goods, or insurance to or for the benefit of
the plan or its members, enrollees, or groups.
The sharing of profits or earnings upon a reasonable and equitable
basis reflecting the contribution of other participants to the
investment, joint venture, or partnership or the success thereof
shall not constitute private inurement.
(f) All transactions subject to the exemptions listed in
subdivision (e) may not be executed by the plan without the written
prior approval of the director. In the application for material
modification seeking approval, the plan shall demonstrate that the
proposed transaction meets all of the relevant conditions for
exemption required by subdivision (e).
(g) Prior to issuing a decision to approve an application for a
material modification involving a transaction that is exempt pursuant
to subdivision (e), the director shall issue a public notice of the
filing of the application and may seek public review and comment on
the director's determination that the transaction is exempt under
subdivision (e).
(h) The director may approve or deny the material modification
request, or approve the request with conditions necessary to satisfy
the requirements of this section, taking into consideration any
public comments submitted to the director.
1399.72. (a) Any health care service plan that intends to convert
from nonprofit to for-profit status, as defined in subdivision (b),
shall, prior to the conversion, secure approval from the director.
(b) For the purposes of this section, a "conversion" or "convert"
by a nonprofit health care service plan means the transformation of
the plan from nonprofit to for-profit status, as determined by the
director.
(c) Prior to approving a conversion, the director shall find that
the conversion proposal meets all of the following charitable trust
requirements:
(1) The fair market value of the nonprofit plan is set aside for
appropriate charitable purposes. In determining fair market value,
the director shall consider, but not be bound by, any market-based
information available concerning the plan.
(2) The set-aside shall be dedicated and transferred to one or
more existing or new tax-exempt charitable organizations operating
pursuant to Section 501(c)(3) (26 U.S.C.A. Sec. 501(c)(3)) of the
federal Internal Revenue Code. The director shall consider requiring
that a portion of the set-aside include equity ownership in the plan.
Further, the director may authorize the use of a federal Internal
Revenue Code Section 501(c)(4) organization (26 U.S.C.A. Sec. 501(c)
(4)) if, in the director's view, it is necessary to ensure effective
management and monetization of equity ownership in the plan and if
the plan agrees that the Section 501(c)(4) organization will be
limited exclusively to these functions, that funds generated by the
monetization shall be transferred to the Section 501(c)(3)
organization except to the extent necessary to fund the level of
activity of the Section 501(c)(4) organization as may be necessary to
preserve the organization's tax status, that no funds or other
resources controlled by the Section 501(c)(4) organization shall be
expended for campaign contributions, lobbying, or other political
activities, and that the Section 501(c)(4) organization shall comply
with reporting requirements that are applicable to Section 501(c)(3)
organizations, and that the 501(c)(4) organization shall be subject
to any other requirements imposed upon 501(c)(3) organizations that
the director determines to be appropriate.
(3) Each 501(c)(3) or 501(c)(4) organization receiving a
set-aside, its directors and officers, and its assets including any
plan stock, shall be independent of any influence or control by the
health care service plan and its directors, officers, subsidiaries,
or affiliates.
(4) The charitable mission and grant-making functions of the
charitable organization receiving any set-aside shall be dedicated to
serving the health care needs of the people of California.
(5) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall have in place procedures and
policies to prohibit conflicts of interest, including those
associated with grant-making activities that may benefit the plan,
including the directors, officers, subsidiaries, or affiliates of the
plan.
(6) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall demonstrate that its directors and
officers have sufficient experience and judgment to administer
grant-making and other charitable activities to serve the state's
health care needs.
(7) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall provide the director and the
Attorney General with an annual report that includes a detailed
description of its grant-making and other charitable activities
related to its use of the set-aside received from the health care
service plan. The annual report shall be made available by the
director and the Attorney General for public inspection,
notwithstanding the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code). Each organization shall submit the annual report
for its immediately preceding fiscal year within 120 days after the
close of that fiscal year. When requested by the director or the
Attorney General, the organization shall promptly supplement the
report to include any additional information that the director or the
Attorney General deems necessary to ascertain compliance with this
article.
(8) The plan has satisfied the requirements of this chapter, and a
disciplinary action pursuant to Section 1386 is not warranted
against the plan.
(d) The plan shall not file any forms or documents required by the
Secretary of State in connection with any conversion or
restructuring until the plan has received an order of the director
approving the conversion or restructuring, or unless authorized to do
so by the director.
1399.73. (a) An application for a conversion or restructuring shall
contain the information the director may require, by rule or order.
(b) The director shall charge a health care service plan an
application filing fee. The fee for filing an application shall be
the actual cost of processing the application, including the overhead
costs. The filing fee shall include the costs of undertaking the
activities described in subdivisions (c), (d), and (e) of Section
1399.74.
(c) The director may contract with experts or consultants to
assist the director in reviewing the application. Contract costs
shall not exceed an amount that is reasonable and necessary to review
the application. Any contract entered into under this subdivision
shall be on a noncompetitive bid basis and shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code. The applicant shall promptly pay the
director, upon request, for all contract costs.
1399.74. (a) By July 1, 1996, the director shall adopt regulations,
on an emergency basis, that specify the application procedures and
requirements for the restructuring or conversion of nonprofit health
care service plans. This subdivision shall not be construed to limit
or otherwise restrict the director's authority to adopt regulations
under Section 1344, including, but not limited to, any additional
regulations to implement this article.
(b) Upon receiving an application to restructure or convert, the
director shall publish a notice in one or more newspapers of general
circulation in the plan's service area describing the name of the
applicant, the nature of the application, and the date of receipt of
the application. The notice shall indicate that the director will be
soliciting public comments and will hold a public hearing on the
application. The director shall require the plan to publish a written
notice concerning the application pursuant to conditions imposed by
rule or order.
(c) Any applications, reports, plans, or other documents under
this article shall be public records, subject to the California
Public Records Act (Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code) and regulations adopted
by the director thereunder. The director shall provide the public
with prompt and reasonable access to public records relating to the
restructuring and conversion of health care service plans. Access to
public records covered by this section shall be made available no
later than one month prior to any solicitation for public comments or
public hearing scheduled pursuant to this article.
(d) Prior to approving any conversion or restructuring, the
director shall solicit public comments in written form and shall hold
at least one public hearing concerning the plan's proposal to comply
with the set- aside and other conditions required under this
article.
(e) The director may disapprove any application to restructure or
convert if the application does not meet the requirements of this
chapter or of the Nonprofit Corporation Law (Div. 2 (commencing with
Sec. 5000), Title 1, Corp. C.), including any requirements imposed by
rule or order of the director.
1399.75. (a) This article shall apply to the restructuring or
conversion of nonprofit mutual benefit health care service plans to
the extent these plans have held or currently hold assets subject to
a charitable trust obligation, as determined by the director.
(b) Nonprofit mutual benefit health care service plans that do not
have, or have only a partial, charitable trust obligation, and that
intend to convert or restructure their activities shall, prior to the
conversion or restructuring, secure approval from the director.
(c) Prior to approving a mutual benefit health care service plan
restructuring or conversion under subdivision (b), the director shall
find that the plan has complied with its noncharitable obligations
including, but not limited to, any obligations set forth in its
articles of incorporation regarding the dedication and distribution
of assets.
(d) The director, in carrying out the department's
responsibilities under subdivision (c), may apply, to the extent
appropriate in each case as determined by the director, the
beneficiary protections authorized in this act, including, but not
limited to, protections concerning the fair market value of assets,
the avoidance of conflicts of interest, and the avoidance of undue
influence or control, with respect to a mutual benefit plan's
proposed disposition of assets.
(e) Nothing in this section shall be construed to limit the
director's, Attorney General's, or a court's authority under existing
law to impose charitable trust obligations upon any or all of the
assets of a mutual benefit corporation or otherwise treat a mutual
benefit corporation in the same manner as a public benefit
corporation.
1399.76. This article shall not apply to a nonprofit health care
service plan restructure or conversion that has been submitted as a
material modification to the department for review and approval prior
to May 16, 1995.
1399.70. (a) In addition to the information required by subdivision
(a) of Section 1399.73, a nonprofit health care service plan
submitting an application to the director to restructure or convert
its activities pursuant to this article shall submit to the director
a copy of all of its original and amended articles of incorporation
and bylaws, as well as a report summarizing the activities undertaken
by the plan to meet its nonprofit obligations as directed by the
director.
(b) The report required by this section shall include a summary of
the following:
(1) The nature of public benefit or charitable activities
undertaken by the plan.
(2) The expenditures incurred by the plan on these public benefit
or charitable activities.
(3) The plan's procedure for avoiding conflicts of interest
involving public benefit or charitable activities and a summary of
any conflicts that have occurred and the manner in which they were
resolved.
(c) The report required by this section shall also include a
written plan that specifies on a projected basis the information
required by subdivision (b) for the immediately following fiscal
year.
(d) When requested by the director, the plan shall promptly
supplement the report to include any additional information as the
director deems necessary to ascertain whether the plan's assets are
appropriately being used by the plan to meet its nonprofit
obligations.
(e) For purposes of this article, a "nonprofit health care service
plan" includes a plan formed under or subject to Part 2 (commencing
with Section 5110) or Part 3 (commencing with Section 7110) of
Division 2 of the Corporations Code.
1399.71. (a) Any nonprofit health care service plan that intends to
restructure its activities as defined in subdivision (d) shall,
prior to restructuring, secure approval from the director.
(b) Every nonprofit health care service plan that applies to the
department to restructure its activities shall submit for approval by
the department a public benefit program that identifies activities
to be undertaken by the nonprofit health care service plan following
restructuring to continue to meet its nonprofit public benefit
obligations. The program shall include all information required
pursuant to subdivisions (b) and (c) of Section 1399.70.
(c) The director shall apply the requirements of Section 1399.72
to the public benefit program submitted for approval as part of a
restructuring proposal submitted pursuant to subdivision (b) of this
section. The set-aside requirement in paragraph (1) of subdivision
(c) of Section 1399.72 shall apply only to the fair value of the
portion of the nonprofit health care service plan involved in the
restructuring, as determined by the director.
(d) (1) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan means the sale,
lease, conveyance, exchange, transfer, or other similar disposition
of a substantial amount of a nonprofit health care service plan's
assets, as determined by the director, to a business or entity
carried on for profit. Nothing in this section shall be construed to
prohibit the director from consolidating actions taken by a plan for
the purpose of treating the consolidated actions as a restructuring
or restructure of the plan.
(2) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan shall not
include any sales or purchases undertaken in the normal and ordinary
course of plan business. The director may request information from
the plan to verify that transactions qualify as occurring in the
normal and ordinary course of plan business, and are not subject to
the requirements of subdivision (e).
(e) Notwithstanding that a transaction or consolidated
transactions involve a substantial amount of a nonprofit health care
service plan's assets and are not in the normal and ordinary course
of plan business, a "restructuring" or "restructure" by a nonprofit
health care service plan shall not include any of the following
transactions:
(1) Investments in a wholly owned subsidiary of the nonprofit
health care service plan in which all of the following occur:
(A) Any profit from the investment will not inure to the benefit
of any individual.
(B) The investment is fundamentally consistent with and advances
the public benefit, charitable, or mutual benefit purpose of the
plan.
(C) The investment does not adversely impact the plan's ability to
fulfill its public benefit, charitable, or mutual benefit purposes.
(D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investments.
(E) The investment results in the provision of services, goods, or
insurance to or for the benefit of the plan or its members,
enrollees, or groups.
(2) Sales or purchases of plan assets, including interests in
wholly owned subsidiaries and in joint ventures, partnerships, and
other investments in for-profit entities, in which all of the
following occur:
(A) Any profit from the sale will not inure to the benefit of any
individual.
(B) The sale or purchase is fundamentally consistent with and
advances the public benefit, charitable, or mutual benefit purposes
of the plan.
(C) The plan receives all proceeds from the sale.
(D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the sale or purchase.
(E) The transaction is conducted at arm's length and for fair
market value.
(F) The sale or purchase does not adversely impact the plan's
ability to fulfill its public benefit, charitable, or mutual benefit
purposes.
(3) Investments in or joint ventures and partnerships with a
for-profit entity in which all of the following occur:
(A) Any profit will not inure to the benefit of any individual.
(B) The mission or purpose of the investment, joint venture, or
partnership is fundamentally consistent with the public benefit,
charitable, or mutual benefit purposes of the plan.
(C) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investment, joint venture,
or partnership.
(D) The transaction is conducted at arm's length and for fair
market value.
(E) The investment, joint venture, or partnership furthers the
plan's ability to fulfill its public benefit, charitable, or mutual
benefit purposes.
(F) The investment, joint venture, or partnership results in the
provision of services, goods, or insurance to or for the benefit of
the plan or its members, enrollees, or groups.
The sharing of profits or earnings upon a reasonable and equitable
basis reflecting the contribution of other participants to the
investment, joint venture, or partnership or the success thereof
shall not constitute private inurement.
(f) All transactions subject to the exemptions listed in
subdivision (e) may not be executed by the plan without the written
prior approval of the director. In the application for material
modification seeking approval, the plan shall demonstrate that the
proposed transaction meets all of the relevant conditions for
exemption required by subdivision (e).
(g) Prior to issuing a decision to approve an application for a
material modification involving a transaction that is exempt pursuant
to subdivision (e), the director shall issue a public notice of the
filing of the application and may seek public review and comment on
the director's determination that the transaction is exempt under
subdivision (e).
(h) The director may approve or deny the material modification
request, or approve the request with conditions necessary to satisfy
the requirements of this section, taking into consideration any
public comments submitted to the director.
1399.72. (a) Any health care service plan that intends to convert
from nonprofit to for-profit status, as defined in subdivision (b),
shall, prior to the conversion, secure approval from the director.
(b) For the purposes of this section, a "conversion" or "convert"
by a nonprofit health care service plan means the transformation of
the plan from nonprofit to for-profit status, as determined by the
director.
(c) Prior to approving a conversion, the director shall find that
the conversion proposal meets all of the following charitable trust
requirements:
(1) The fair market value of the nonprofit plan is set aside for
appropriate charitable purposes. In determining fair market value,
the director shall consider, but not be bound by, any market-based
information available concerning the plan.
(2) The set-aside shall be dedicated and transferred to one or
more existing or new tax-exempt charitable organizations operating
pursuant to Section 501(c)(3) (26 U.S.C.A. Sec. 501(c)(3)) of the
federal Internal Revenue Code. The director shall consider requiring
that a portion of the set-aside include equity ownership in the plan.
Further, the director may authorize the use of a federal Internal
Revenue Code Section 501(c)(4) organization (26 U.S.C.A. Sec. 501(c)
(4)) if, in the director's view, it is necessary to ensure effective
management and monetization of equity ownership in the plan and if
the plan agrees that the Section 501(c)(4) organization will be
limited exclusively to these functions, that funds generated by the
monetization shall be transferred to the Section 501(c)(3)
organization except to the extent necessary to fund the level of
activity of the Section 501(c)(4) organization as may be necessary to
preserve the organization's tax status, that no funds or other
resources controlled by the Section 501(c)(4) organization shall be
expended for campaign contributions, lobbying, or other political
activities, and that the Section 501(c)(4) organization shall comply
with reporting requirements that are applicable to Section 501(c)(3)
organizations, and that the 501(c)(4) organization shall be subject
to any other requirements imposed upon 501(c)(3) organizations that
the director determines to be appropriate.
(3) Each 501(c)(3) or 501(c)(4) organization receiving a
set-aside, its directors and officers, and its assets including any
plan stock, shall be independent of any influence or control by the
health care service plan and its directors, officers, subsidiaries,
or affiliates.
(4) The charitable mission and grant-making functions of the
charitable organization receiving any set-aside shall be dedicated to
serving the health care needs of the people of California.
(5) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall have in place procedures and
policies to prohibit conflicts of interest, including those
associated with grant-making activities that may benefit the plan,
including the directors, officers, subsidiaries, or affiliates of the
plan.
(6) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall demonstrate that its directors and
officers have sufficient experience and judgment to administer
grant-making and other charitable activities to serve the state's
health care needs.
(7) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall provide the director and the
Attorney General with an annual report that includes a detailed
description of its grant-making and other charitable activities
related to its use of the set-aside received from the health care
service plan. The annual report shall be made available by the
director and the Attorney General for public inspection,
notwithstanding the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code). Each organization shall submit the annual report
for its immediately preceding fiscal year within 120 days after the
close of that fiscal year. When requested by the director or the
Attorney General, the organization shall promptly supplement the
report to include any additional information that the director or the
Attorney General deems necessary to ascertain compliance with this
article.
(8) The plan has satisfied the requirements of this chapter, and a
disciplinary action pursuant to Section 1386 is not warranted
against the plan.
(d) The plan shall not file any forms or documents required by the
Secretary of State in connection with any conversion or
restructuring until the plan has received an order of the director
approving the conversion or restructuring, or unless authorized to do
so by the director.
1399.73. (a) An application for a conversion or restructuring shall
contain the information the director may require, by rule or order.
(b) The director shall charge a health care service plan an
application filing fee. The fee for filing an application shall be
the actual cost of processing the application, including the overhead
costs. The filing fee shall include the costs of undertaking the
activities described in subdivisions (c), (d), and (e) of Section
1399.74.
(c) The director may contract with experts or consultants to
assist the director in reviewing the application. Contract costs
shall not exceed an amount that is reasonable and necessary to review
the application. Any contract entered into under this subdivision
shall be on a noncompetitive bid basis and shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code. The applicant shall promptly pay the
director, upon request, for all contract costs.
1399.74. (a) By July 1, 1996, the director shall adopt regulations,
on an emergency basis, that specify the application procedures and
requirements for the restructuring or conversion of nonprofit health
care service plans. This subdivision shall not be construed to limit
or otherwise restrict the director's authority to adopt regulations
under Section 1344, including, but not limited to, any additional
regulations to implement this article.
(b) Upon receiving an application to restructure or convert, the
director shall publish a notice in one or more newspapers of general
circulation in the plan's service area describing the name of the
applicant, the nature of the application, and the date of receipt of
the application. The notice shall indicate that the director will be
soliciting public comments and will hold a public hearing on the
application. The director shall require the plan to publish a written
notice concerning the application pursuant to conditions imposed by
rule or order.
(c) Any applications, reports, plans, or other documents under
this article shall be public records, subject to the California
Public Records Act (Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code) and regulations adopted
by the director thereunder. The director shall provide the public
with prompt and reasonable access to public records relating to the
restructuring and conversion of health care service plans. Access to
public records covered by this section shall be made available no
later than one month prior to any solicitation for public comments or
public hearing scheduled pursuant to this article.
(d) Prior to approving any conversion or restructuring, the
director shall solicit public comments in written form and shall hold
at least one public hearing concerning the plan's proposal to comply
with the set- aside and other conditions required under this
article.
(e) The director may disapprove any application to restructure or
convert if the application does not meet the requirements of this
chapter or of the Nonprofit Corporation Law (Div. 2 (commencing with
Sec. 5000), Title 1, Corp. C.), including any requirements imposed by
rule or order of the director.
1399.75. (a) This article shall apply to the restructuring or
conversion of nonprofit mutual benefit health care service plans to
the extent these plans have held or currently hold assets subject to
a charitable trust obligation, as determined by the director.
(b) Nonprofit mutual benefit health care service plans that do not
have, or have only a partial, charitable trust obligation, and that
intend to convert or restructure their activities shall, prior to the
conversion or restructuring, secure approval from the director.
(c) Prior to approving a mutual benefit health care service plan
restructuring or conversion under subdivision (b), the director shall
find that the plan has complied with its noncharitable obligations
including, but not limited to, any obligations set forth in its
articles of incorporation regarding the dedication and distribution
of assets.
(d) The director, in carrying out the department's
responsibilities under subdivision (c), may apply, to the extent
appropriate in each case as determined by the director, the
beneficiary protections authorized in this act, including, but not
limited to, protections concerning the fair market value of assets,
the avoidance of conflicts of interest, and the avoidance of undue
influence or control, with respect to a mutual benefit plan's
proposed disposition of assets.
(e) Nothing in this section shall be construed to limit the
director's, Attorney General's, or a court's authority under existing
law to impose charitable trust obligations upon any or all of the
assets of a mutual benefit corporation or otherwise treat a mutual
benefit corporation in the same manner as a public benefit
corporation.
1399.76. This article shall not apply to a nonprofit health care
service plan restructure or conversion that has been submitted as a
material modification to the department for review and approval prior
to May 16, 1995.
1399.70. (a) In addition to the information required by subdivision
(a) of Section 1399.73, a nonprofit health care service plan
submitting an application to the director to restructure or convert
its activities pursuant to this article shall submit to the director
a copy of all of its original and amended articles of incorporation
and bylaws, as well as a report summarizing the activities undertaken
by the plan to meet its nonprofit obligations as directed by the
director.
(b) The report required by this section shall include a summary of
the following:
(1) The nature of public benefit or charitable activities
undertaken by the plan.
(2) The expenditures incurred by the plan on these public benefit
or charitable activities.
(3) The plan's procedure for avoiding conflicts of interest
involving public benefit or charitable activities and a summary of
any conflicts that have occurred and the manner in which they were
resolved.
(c) The report required by this section shall also include a
written plan that specifies on a projected basis the information
required by subdivision (b) for the immediately following fiscal
year.
(d) When requested by the director, the plan shall promptly
supplement the report to include any additional information as the
director deems necessary to ascertain whether the plan's assets are
appropriately being used by the plan to meet its nonprofit
obligations.
(e) For purposes of this article, a "nonprofit health care service
plan" includes a plan formed under or subject to Part 2 (commencing
with Section 5110) or Part 3 (commencing with Section 7110) of
Division 2 of the Corporations Code.
1399.71. (a) Any nonprofit health care service plan that intends to
restructure its activities as defined in subdivision (d) shall,
prior to restructuring, secure approval from the director.
(b) Every nonprofit health care service plan that applies to the
department to restructure its activities shall submit for approval by
the department a public benefit program that identifies activities
to be undertaken by the nonprofit health care service plan following
restructuring to continue to meet its nonprofit public benefit
obligations. The program shall include all information required
pursuant to subdivisions (b) and (c) of Section 1399.70.
(c) The director shall apply the requirements of Section 1399.72
to the public benefit program submitted for approval as part of a
restructuring proposal submitted pursuant to subdivision (b) of this
section. The set-aside requirement in paragraph (1) of subdivision
(c) of Section 1399.72 shall apply only to the fair value of the
portion of the nonprofit health care service plan involved in the
restructuring, as determined by the director.
(d) (1) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan means the sale,
lease, conveyance, exchange, transfer, or other similar disposition
of a substantial amount of a nonprofit health care service plan's
assets, as determined by the director, to a business or entity
carried on for profit. Nothing in this section shall be construed to
prohibit the director from consolidating actions taken by a plan for
the purpose of treating the consolidated actions as a restructuring
or restructure of the plan.
(2) For the purposes of this section, a "restructuring" or
"restructure" by a nonprofit health care service plan shall not
include any sales or purchases undertaken in the normal and ordinary
course of plan business. The director may request information from
the plan to verify that transactions qualify as occurring in the
normal and ordinary course of plan business, and are not subject to
the requirements of subdivision (e).
(e) Notwithstanding that a transaction or consolidated
transactions involve a substantial amount of a nonprofit health care
service plan's assets and are not in the normal and ordinary course
of plan business, a "restructuring" or "restructure" by a nonprofit
health care service plan shall not include any of the following
transactions:
(1) Investments in a wholly owned subsidiary of the nonprofit
health care service plan in which all of the following occur:
(A) Any profit from the investment will not inure to the benefit
of any individual.
(B) The investment is fundamentally consistent with and advances
the public benefit, charitable, or mutual benefit purpose of the
plan.
(C) The investment does not adversely impact the plan's ability to
fulfill its public benefit, charitable, or mutual benefit purposes.
(D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investments.
(E) The investment results in the provision of services, goods, or
insurance to or for the benefit of the plan or its members,
enrollees, or groups.
(2) Sales or purchases of plan assets, including interests in
wholly owned subsidiaries and in joint ventures, partnerships, and
other investments in for-profit entities, in which all of the
following occur:
(A) Any profit from the sale will not inure to the benefit of any
individual.
(B) The sale or purchase is fundamentally consistent with and
advances the public benefit, charitable, or mutual benefit purposes
of the plan.
(C) The plan receives all proceeds from the sale.
(D) No officer or director of the plan has any financial interest
constituting a conflict of interest in the sale or purchase.
(E) The transaction is conducted at arm's length and for fair
market value.
(F) The sale or purchase does not adversely impact the plan's
ability to fulfill its public benefit, charitable, or mutual benefit
purposes.
(3) Investments in or joint ventures and partnerships with a
for-profit entity in which all of the following occur:
(A) Any profit will not inure to the benefit of any individual.
(B) The mission or purpose of the investment, joint venture, or
partnership is fundamentally consistent with the public benefit,
charitable, or mutual benefit purposes of the plan.
(C) No officer or director of the plan has any financial interest
constituting a conflict of interest in the investment, joint venture,
or partnership.
(D) The transaction is conducted at arm's length and for fair
market value.
(E) The investment, joint venture, or partnership furthers the
plan's ability to fulfill its public benefit, charitable, or mutual
benefit purposes.
(F) The investment, joint venture, or partnership results in the
provision of services, goods, or insurance to or for the benefit of
the plan or its members, enrollees, or groups.
The sharing of profits or earnings upon a reasonable and equitable
basis reflecting the contribution of other participants to the
investment, joint venture, or partnership or the success thereof
shall not constitute private inurement.
(f) All transactions subject to the exemptions listed in
subdivision (e) may not be executed by the plan without the written
prior approval of the director. In the application for material
modification seeking approval, the plan shall demonstrate that the
proposed transaction meets all of the relevant conditions for
exemption required by subdivision (e).
(g) Prior to issuing a decision to approve an application for a
material modification involving a transaction that is exempt pursuant
to subdivision (e), the director shall issue a public notice of the
filing of the application and may seek public review and comment on
the director's determination that the transaction is exempt under
subdivision (e).
(h) The director may approve or deny the material modification
request, or approve the request with conditions necessary to satisfy
the requirements of this section, taking into consideration any
public comments submitted to the director.
1399.72. (a) Any health care service plan that intends to convert
from nonprofit to for-profit status, as defined in subdivision (b),
shall, prior to the conversion, secure approval from the director.
(b) For the purposes of this section, a "conversion" or "convert"
by a nonprofit health care service plan means the transformation of
the plan from nonprofit to for-profit status, as determined by the
director.
(c) Prior to approving a conversion, the director shall find that
the conversion proposal meets all of the following charitable trust
requirements:
(1) The fair market value of the nonprofit plan is set aside for
appropriate charitable purposes. In determining fair market value,
the director shall consider, but not be bound by, any market-based
information available concerning the plan.
(2) The set-aside shall be dedicated and transferred to one or
more existing or new tax-exempt charitable organizations operating
pursuant to Section 501(c)(3) (26 U.S.C.A. Sec. 501(c)(3)) of the
federal Internal Revenue Code. The director shall consider requiring
that a portion of the set-aside include equity ownership in the plan.
Further, the director may authorize the use of a federal Internal
Revenue Code Section 501(c)(4) organization (26 U.S.C.A. Sec. 501(c)
(4)) if, in the director's view, it is necessary to ensure effective
management and monetization of equity ownership in the plan and if
the plan agrees that the Section 501(c)(4) organization will be
limited exclusively to these functions, that funds generated by the
monetization shall be transferred to the Section 501(c)(3)
organization except to the extent necessary to fund the level of
activity of the Section 501(c)(4) organization as may be necessary to
preserve the organization's tax status, that no funds or other
resources controlled by the Section 501(c)(4) organization shall be
expended for campaign contributions, lobbying, or other political
activities, and that the Section 501(c)(4) organization shall comply
with reporting requirements that are applicable to Section 501(c)(3)
organizations, and that the 501(c)(4) organization shall be subject
to any other requirements imposed upon 501(c)(3) organizations that
the director determines to be appropriate.
(3) Each 501(c)(3) or 501(c)(4) organization receiving a
set-aside, its directors and officers, and its assets including any
plan stock, shall be independent of any influence or control by the
health care service plan and its directors, officers, subsidiaries,
or affiliates.
(4) The charitable mission and grant-making functions of the
charitable organization receiving any set-aside shall be dedicated to
serving the health care needs of the people of California.
(5) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall have in place procedures and
policies to prohibit conflicts of interest, including those
associated with grant-making activities that may benefit the plan,
including the directors, officers, subsidiaries, or affiliates of the
plan.
(6) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall demonstrate that its directors and
officers have sufficient experience and judgment to administer
grant-making and other charitable activities to serve the state's
health care needs.
(7) Every 501(c)(3) or 501(c)(4) organization that receives a
set-aside under this section shall provide the director and the
Attorney General with an annual report that includes a detailed
description of its grant-making and other charitable activities
related to its use of the set-aside received from the health care
service plan. The annual report shall be made available by the
director and the Attorney General for public inspection,
notwithstanding the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code). Each organization shall submit the annual report
for its immediately preceding fiscal year within 120 days after the
close of that fiscal year. When requested by the director or the
Attorney General, the organization shall promptly supplement the
report to include any additional information that the director or the
Attorney General deems necessary to ascertain compliance with this
article.
(8) The plan has satisfied the requirements of this chapter, and a
disciplinary action pursuant to Section 1386 is not warranted
against the plan.
(d) The plan shall not file any forms or documents required by the
Secretary of State in connection with any conversion or
restructuring until the plan has received an order of the director
approving the conversion or restructuring, or unless authorized to do
so by the director.
1399.73. (a) An application for a conversion or restructuring shall
contain the information the director may require, by rule or order.
(b) The director shall charge a health care service plan an
application filing fee. The fee for filing an application shall be
the actual cost of processing the application, including the overhead
costs. The filing fee shall include the costs of undertaking the
activities described in subdivisions (c), (d), and (e) of Section
1399.74.
(c) The director may contract with experts or consultants to
assist the director in reviewing the application. Contract costs
shall not exceed an amount that is reasonable and necessary to review
the application. Any contract entered into under this subdivision
shall be on a noncompetitive bid basis and shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code. The applicant shall promptly pay the
director, upon request, for all contract costs.
1399.74. (a) By July 1, 1996, the director shall adopt regulations,
on an emergency basis, that specify the application procedures and
requirements for the restructuring or conversion of nonprofit health
care service plans. This subdivision shall not be construed to limit
or otherwise restrict the director's authority to adopt regulations
under Section 1344, including, but not limited to, any additional
regulations to implement this article.
(b) Upon receiving an application to restructure or convert, the
director shall publish a notice in one or more newspapers of general
circulation in the plan's service area describing the name of the
applicant, the nature of the application, and the date of receipt of
the application. The notice shall indicate that the director will be
soliciting public comments and will hold a public hearing on the
application. The director shall require the plan to publish a written
notice concerning the application pursuant to conditions imposed by
rule or order.
(c) Any applications, reports, plans, or other documents under
this article shall be public records, subject to the California
Public Records Act (Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code) and regulations adopted
by the director thereunder. The director shall provide the public
with prompt and reasonable access to public records relating to the
restructuring and conversion of health care service plans. Access to
public records covered by this section shall be made available no
later than one month prior to any solicitation for public comments or
public hearing scheduled pursuant to this article.
(d) Prior to approving any conversion or restructuring, the
director shall solicit public comments in written form and shall hold
at least one public hearing concerning the plan's proposal to comply
with the set- aside and other conditions required under this
article.
(e) The director may disapprove any application to restructure or
convert if the application does not meet the requirements of this
chapter or of the Nonprofit Corporation Law (Div. 2 (commencing with
Sec. 5000), Title 1, Corp. C.), including any requirements imposed by
rule or order of the director.
1399.75. (a) This article shall apply to the restructuring or
conversion of nonprofit mutual benefit health care service plans to
the extent these plans have held or currently hold assets subject to
a charitable trust obligation, as determined by the director.
(b) Nonprofit mutual benefit health care service plans that do not
have, or have only a partial, charitable trust obligation, and that
intend to convert or restructure their activities shall, prior to the
conversion or restructuring, secure approval from the director.
(c) Prior to approving a mutual benefit health care service plan
restructuring or conversion under subdivision (b), the director shall
find that the plan has complied with its noncharitable obligations
including, but not limited to, any obligations set forth in its
articles of incorporation regarding the dedication and distribution
of assets.
(d) The director, in carrying out the department's
responsibilities under subdivision (c), may apply, to the extent
appropriate in each case as determined by the director, the
beneficiary protections authorized in this act, including, but not
limited to, protections concerning the fair market value of assets,
the avoidance of conflicts of interest, and the avoidance of undue
influence or control, with respect to a mutual benefit plan's
proposed disposition of assets.
(e) Nothing in this section shall be construed to limit the
director's, Attorney General's, or a court's authority under existing
law to impose charitable trust obligations upon any or all of the
assets of a mutual benefit corporation or otherwise treat a mutual
benefit corporation in the same manner as a public benefit
corporation.
1399.76. This article shall not apply to a nonprofit health care
service plan restructure or conversion that has been submitted as a
material modification to the department for review and approval prior
to May 16, 1995.
