[atlas:bill]

AN ACT Relating to the protection of charitable trusts that are health care service contractors and health maintenance organizations; amending RCW 48.43.005; and adding new sections to chapter 48.43 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. A new section is added to chapter 48.43 RCW to read as follows:

The legislature recognizes the state's interest in protecting charitable trusts. Charitable trusts are distinct from private trusts. Charitable trusts primarily benefit the general public or a segment of the public, rather than specific persons. The promotion of health is a commonly recognized charitable purpose. Certain health care service contractors and health maintenance organizations have established charitable trusts using state nonprofit incorporation statutes. Market pressures have forced nonprofit health care service contractors and health maintenance organizations to consider various corporate structures, including for-profit structures, that would permit issuance of stock to shareholders. Reconfiguring corporate structure from nonprofit to for-profit compromises the value of the charitable trust because the for-profit structure introduces a fiduciary duty to shareholders, which can conflict with the original charitable purpose.

The attorney general represents the public interest in securing enforcement of charitable trusts. However, statutory provisions are needed to clarify the role of the attorney general and provide regulatory authority to the insurance commissioner to assure preservation of the fair market value of the charitable trust when the corporate structure is altered.

Sec. 2. RCW 48.43.005 and 2000 c 79 s 18 are each amended to read as follows:

((~~Unless otherwise specifically provided,~~)) The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Adjusted community rate" means the rating method used to establish the premium for health plans adjusted to reflect actuarially demonstrated differences in utilization or cost attributable to geographic region, age, family size, and use of wellness activities.

(2) "Basic health plan" means the plan described under chapter 70.47 RCW, as revised from time to time.

(3) "Basic health plan services" means that schedule of covered health services, including the description of how those benefits are to be administered, that are required to be delivered to an enrollee under the basic health plan, as revised from time to time.

(4) "Catastrophic health plan" means:

(a) In the case of a contract, agreement, or policy covering a single enrollee, a health benefit plan requiring a calendar year deductible of, at a minimum, one thousand five hundred dollars and an annual out-of-pocket expense required to be paid under the plan (other than for premiums) for covered benefits of at least three thousand dollars; and

(b) In the case of a contract, agreement, or policy covering more than one enrollee, a health benefit plan requiring a calendar year deductible of, at a minimum, three thousand dollars and an annual out-of-pocket expense required to be paid under the plan (other than for premiums) for covered benefits of at least five thousand five hundred dollars; or

(c) Any health benefit plan that provides benefits for hospital inpatient and outpatient services, professional and prescription drugs provided in conjunction with such hospital inpatient and outpatient services, and excludes or substantially limits outpatient physician services and those services usually provided in an office setting.

(5) "Certification" means a determination by a review organization that an admission, extension of stay, or other health care service or procedure has been reviewed and, based on the information provided, meets the clinical requirements for medical necessity, appropriateness, level of care, or effectiveness under the auspices of the applicable health benefit plan.

(6) "Charitable trust" means a nonprofit health carrier that has dedicated all or any portion of its assets to benefit the general public or a segment of the public. Such dedication may be evidenced by its articles of incorporation, bylaws, other organic documents, business transactions, or any other means sufficient to establish a charitable trust at common law. Charitable trusts include but are not limited to a nonprofit health carrier operating at any time as a 501(c)(3) organization for federal tax purposes, a 501(m) organization for federal tax purposes, or a 501(c)(4) organization for federal tax purposes. A nonprofit health carrier that is a public benefit corporation under chapter 24.03 RCW is a charitable trust. A nonprofit health carrier does not have to meet the filing and other requirements of chapter 11.110 RCW in order to be considered a charitable trust for this act.

(7) "Charitable trust assets" means a charitable trust that is less than the entire health care service contractor's or health maintenance organization's business.

(8) "Concurrent review" means utilization review conducted during a patient's hospital stay or course of treatment.

((~~(7)~~)) (9) "Conversion transaction" means the transfer of control or governance of a charitable trust or material charitable trust assets.

(10) "Covered person" or "enrollee" means a person covered by a health plan including an enrollee, subscriber, policyholder, beneficiary of a group plan, or individual covered by any other health plan.

((~~(8)~~)) (11) "Dependent" means, at a minimum, the enrollee's legal spouse and unmarried dependent children who qualify for coverage under the enrollee's health benefit plan.

((~~(9)~~)) (12) "Eligible employee" means an employee who works on a full-time basis with a normal work week of thirty or more hours. The term includes a self-employed individual, including a sole proprietor, a partner of a partnership, and may include an independent contractor, if the self-employed individual, sole proprietor, partner, or independent contractor is included as an employee under a health benefit plan of a small employer, but does not work less than thirty hours per week and derives at least seventy-five percent of his or her income from a trade or business through which he or she has attempted to earn taxable income and for which he or she has filed the appropriate internal revenue service form. Persons covered under a health benefit plan pursuant to the consolidated omnibus budget reconciliation act of 1986 shall not be considered eligible employees for purposes of minimum participation requirements of chapter 265, Laws of 1995.

((~~(10)~~)) (13) "Emergency medical condition" means the emergent and acute onset of a symptom or symptoms, including severe pain, that would lead a prudent layperson acting reasonably to believe that a health condition exists that requires immediate medical attention, if failure to provide medical attention would result in serious impairment to bodily functions or serious dysfunction of a bodily organ or part, or would place the person's health in serious jeopardy.

((~~(11)~~)) (14) "Emergency services" means otherwise covered health care services medically necessary to evaluate and treat an emergency medical condition, provided in a hospital emergency department.

((~~(12)~~)) (15) "Enrollee point-of-service cost-sharing" means amounts paid to health carriers directly providing services, health care providers, or health care facilities by enrollees and may include copayments, coinsurance, or deductibles.

((~~(13)~~)) (16) "Grievance" means a written complaint submitted by or on behalf of a covered person regarding: (a) Denial of payment for medical services or nonprovision of medical services included in the covered person's health benefit plan, or (b) service delivery issues other than denial of payment for medical services or nonprovision of medical services, including dissatisfaction with medical care, waiting time for medical services, provider or staff attitude or demeanor, or dissatisfaction with service provided by the health carrier.

((~~(14)~~)) (17) "Health care facility" or "facility" means hospices licensed under chapter 70.127 RCW, hospitals licensed under chapter 70.41 RCW, rural health care facilities as defined in RCW 70.175.020, psychiatric hospitals licensed under chapter 71.12 RCW, nursing homes licensed under chapter 18.51 RCW, community mental health centers licensed under chapter 71.05 or 71.24 RCW, kidney disease treatment centers licensed under chapter 70.41 RCW, ambulatory diagnostic, treatment, or surgical facilities licensed under chapter 70.41 RCW, drug and alcohol treatment facilities licensed under chapter 70.96A RCW, and home health agencies licensed under chapter 70.127 RCW, and includes such facilities if owned and operated by a political subdivision or instrumentality of the state and such other facilities as required by federal law and implementing regulations.

((~~(15)~~)) (18) "Health care provider" or "provider" means:

(a) A person regulated under Title 18 or chapter 70.127 RCW, to practice health or health-related services or otherwise practicing health care services in this state consistent with state law; or

(b) An employee or agent of a person described in (a) of this subsection, acting in the course and scope of his or her employment.

((~~(16)~~)) (19) "Health care service" means that service offered or provided by health care facilities and health care providers relating to the prevention, cure, or treatment of illness, injury, or disease.

((~~(17)~~)) (20) "Health carrier" or "carrier" means a disability insurer regulated under chapter 48.20 or 48.21 RCW, a health care service contractor as defined in RCW 48.44.010, or a health maintenance organization as defined in RCW 48.46.020.

((~~(18)~~)) (21) "Health plan" or "health benefit plan" means any policy, contract, or agreement offered by a health carrier to provide, arrange, reimburse, or pay for health care services except the following:

(a) Long-term care insurance governed by chapter 48.84 RCW;

(b) Medicare supplemental health insurance governed by chapter 48.66 RCW;

(d) Disability income;

(e) Coverage incidental to a property/casualty liability insurance policy such as automobile personal injury protection coverage and homeowner guest medical;

(f) Workers' compensation coverage;

(g) Accident only coverage;

(h) Specified disease and hospital confinement indemnity when marketed solely as a supplement to a health plan;

(i) Employer-sponsored self-funded health plans;

(j) Dental only and vision only coverage; and

(k) Plans deemed by the insurance commissioner to have a short-term limited purpose or duration, or to be a student-only plan that is guaranteed renewable while the covered person is enrolled as a regular full-time undergraduate or graduate student at an accredited higher education institution, after a written request for such classification by the carrier and subsequent written approval by the insurance commissioner.

((~~(19)~~)) (22) "Material modification" means a change in the actuarial value of the health plan as modified of more than five percent but less than fifteen percent.

((~~(20)~~)) (23) "Nonprofit health carrier" means a nonprofit corporation formed under Title 24 RCW doing business as a disability insurer regulated under chapter 48.20 or 48.21 RCW, health care service contractor as defined in RCW 48.44.010, or a health maintenance organization as defined in RCW 48.46.020.

(24) "Preexisting condition" means any medical condition, illness, or injury that existed any time prior to the effective date of coverage.

((~~(21)~~)) (25) "Premium" means all sums charged, received, or deposited by a health carrier as consideration for a health plan or the continuance of a health plan. Any assessment or any "membership," "policy," "contract," "service," or similar fee or charge made by a health carrier in consideration for a health plan is deemed part of the premium. "Premium" shall not include amounts paid as enrollee point-of-service cost-sharing.

((~~(22)~~)) (26) "Review organization" means a disability insurer regulated under chapter 48.20 or 48.21 RCW, health care service contractor as defined in RCW 48.44.010, or health maintenance organization as defined in RCW 48.46.020, and entities affiliated with, under contract with, or acting on behalf of a health carrier to perform a utilization review.

((~~(23)~~)) (27) "Small employer" or "small group" means any person, firm, corporation, partnership, association, political subdivision except school districts, or self-employed individual that is actively engaged in business that, on at least fifty percent of its working days during the preceding calendar quarter, employed no more than fifty eligible employees, with a normal work week of thirty or more hours, the majority of whom were employed within this state, and is not formed primarily for purposes of buying health insurance and in which a bona fide employer-employee relationship exists. In determining the number of eligible employees, companies that are affiliated companies, or that are eligible to file a combined tax return for purposes of taxation by this state, shall be considered an employer. Subsequent to the issuance of a health plan to a small employer and for the purpose of determining eligibility, the size of a small employer shall be determined annually. Except as otherwise specifically provided, a small employer shall continue to be considered a small employer until the plan anniversary following the date the small employer no longer meets the requirements of this definition. The term "small employer" includes a self-employed individual or sole proprietor. The term "small employer" also includes a self-employed individual or sole proprietor who derives at least seventy-five percent of his or her income from a trade or business through which the individual or sole proprietor has attempted to earn taxable income and for which he or she has filed the appropriate internal revenue service form 1040, schedule C or F, for the previous taxable year.

((~~(24)~~)) (28) "Utilization review" means the prospective, concurrent, or retrospective assessment of the necessity and appropriateness of the allocation of health care resources and services of a provider or facility, given or proposed to be given to an enrollee or group of enrollees.

((~~(25)~~)) (29) "Wellness activity" means an explicit program of an activity consistent with department of health guidelines, such as, smoking cessation, injury and accident prevention, reduction of alcohol misuse, appropriate weight reduction, exercise, automobile and motorcycle safety, blood cholesterol reduction, and nutrition education for the purpose of improving enrollee health status and reducing health service costs.

NEW SECTION. Sec. 3. A new section is added to chapter 48.43 RCW to read as follows:

(1) A nonprofit health carrier must not enter any conversion transaction without notifying the attorney general in writing prior to entering any conversion transaction and obtaining approval from the office of the insurance commissioner for any conversion transaction referred to the office of the insurance commissioner by the attorney general. The office of the insurance commissioner may notify and refer to the attorney general nonprofit health carrier transactions it believes may include conversion transactions.

(a) Notice shall include the health carrier's articles of incorporation, including all historical versions, bylaws, and contracts governing the proposal necessary for the attorney general to make its determination. The health carrier has a duty to respond to attorney general requests for information.

(b) Notice is not effective until the attorney general acknowledges receipt of a complete notice in accordance with the rules adopted by the attorney general under section 6 of this act.

(c) The nonprofit health carrier shall provide the attorney general with written certification that a copy of sections 1 and 3 through 9 of this act and RCW 48.43.005 have been given in their entirety to each member of the board of trustees of the nonprofit health carrier at the time the notice is submitted.

(2) The attorney general shall determine whether the proposed transaction is a conversion transaction that requires review by the office of the insurance commissioner.

(3) If the nonprofit health carrier is a charitable trust and the proposed transaction is a conversion transaction, the attorney general must require administrative regulation of the conversion transaction by the office of the insurance commissioner. If the nonprofit health carrier is not a charitable trust in its entirety, but has material charitable assets that are included within the conversion transaction, the attorney general must require administrative regulation of the conversion transaction by the office of the insurance commissioner.

(4) A decision by the attorney general for administrative regulation of the conversion transaction by the office of the insurance commissioner is not subject to the review provisions under chapter 34.05 RCW until the office of the insurance commissioner has taken final action.

(5) A nonprofit health carrier shall disclose all documents to the attorney general that are relevant to determine whether the nonprofit health carrier is a charitable trust or has charitable trust assets and that are relevant to determine whether the proposal is a conversion transaction. The disclosure of records by the attorney general is governed by chapter 42.17 RCW.

NEW SECTION. Sec. 4. A new section is added to chapter 48.43 RCW to read as follows:

(1) In making a decision whether to approve or disapprove a proposed nonprofit health carrier conversion transaction the office of the insurance commissioner shall consider:

(a) Whether the nonprofit health carrier will receive full and fair market value for its charitable trust assets;

(b) Whether the fair market value of the nonprofit health carrier's charitable trust assets to be transferred has been manipulated by the actions of the parties in a manner that causes the fair market value of the charitable trust to decrease;

(c) Whether the proceeds of the proposed nonprofit health care conversion transaction will be used consistent with the trust under which the assets are held by the nonprofit health carrier and whether the proceeds will be controlled as funds independently of the acquiring or related entities;

(d) Whether the board members of the nonprofit federal tax-exempt foundation or foundations receiving the proceeds of the conversion transaction were nominated by a public community-based selection process;

(e) Whether the proposed nonprofit health care conversion transaction will result in a breach of fiduciary duty, as determined by the office of the insurance commissioner, including conflicts of interest related to payments or benefits to officers, directors, board members, executives, and experts employed or retained by the parties;

(f) Whether the governing body of the nonprofit health carrier exercised due diligence in deciding to dispose of the nonprofit health carrier's charitable trust assets, selecting the acquiring entity, and negotiating the terms and conditions of the disposition;

(g) Whether the nonprofit health care conversion transaction will result in private inurement to any person;

(h) Whether health care providers will be offered the opportunity to invest or own an interest in the acquiring entity or a related party, and whether procedures or safeguards are in place to avoid conflict of interest in patient referrals;

(i) Whether the terms of any management or services contract negotiated in conjunction with the proposed nonprofit health care conversion transaction are reasonable;

(j) Whether the office of the insurance commissioner has been provided with sufficient information and data by the nonprofit health carrier to evaluate adequately the proposed nonprofit health care conversion transaction or the effects thereof on the public, provided the office of the insurance commissioner has notified the nonprofit health carrier or the acquiring entity of any inadequacy of the information or data and has provided a reasonable opportunity to remedy such inadequacy; and

(k) Any other criteria the office of the insurance commissioner considers necessary to determine whether the nonprofit health carrier will receive full and fair market value for its charitable trust assets to be transferred as required in rules adopted by the office of the insurance commissioner under section 6 of this act.

(2) The insurance commissioner may exempt from conversion transaction review any of the following transactions:

(a) Any sales or purchases undertaken in the normal and ordinary course of health carrier business. The insurance commissioner may request information from the health carrier to verify that transactions qualify as occurring in the normal and ordinary course of health carrier business.

(b) Investments in a wholly owned subsidiary of the nonprofit health carrier in which all of the following occur:

(i) Any profit from the investment will not inure to the benefit of any individual;

(ii) The investment is fundamentally consistent with and advances the nonprofit health purpose of the entity;

(iii) The investment does not adversely impact the carrier's ability to fulfill its nonprofit health purposes;

(iv) No officer or director of the plan has any financial interest constituting a conflict of interest in the investments;

(v) The investment results in the provision of services, goods, or insurance to or for the benefit of the health carrier or its members, enrollees, or groups; and

(vi) The investment protects the charitable trust or charitable trust assets, does not diminish their value, and continues their dedication to serving the health care needs of the people of the state of Washington.

(c) Sales or purchases of health carrier 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:

(i) Any profit from the sale will not inure to the benefit of any individual;

(ii) The sale or purchase is fundamentally consistent with and advances the nonprofit health purposes of the health carrier;

(iii) The health carrier receives all proceeds from the sale;

(iv) No officer or director of the plan has any financial interest constituting a conflict of interest in the sale or purchase;

(v) The transaction is conducted at arm's length and for fair market value;

(vi) The sale or purchase does not adversely impact the health carrier's ability to fulfill its nonprofit health purposes; and

(vii) The sale or purchase protects the charitable trust or charitable trust assets, does not diminish their value, and continues their dedication to serving the health care needs of the people of the state of Washington.

(d) Investments in or joint ventures and partnerships with a for-profit entity in which all of the following occur:

(i) Any profit will not inure to the benefit of any individual;

(ii) The mission or purpose of the investment, joint venture, or partnership is fundamentally consistent with the nonprofit health purposes of the health carrier;

(iii) No officer or director of the health carrier has any financial interest constituting a conflict of interest in the investment, joint venture, or partnership;

(iv) The transaction is conducted at arm's length and for fair market value; and

(v) The investment, joint venture, or partnership protects the charitable trust or charitable trust assets, does not diminish their value, and continues their dedication to serving the health care needs of the people of the state of Washington.

(3) The office of the insurance commissioner has ninety days to approve or disapprove, in writing, the proposed nonprofit health care conversion transaction. The time may be extended for an additional sixty-day period, if the extension is necessary to obtain information requested under this act.

(4) All documents submitted to the office of the insurance commissioner under this section and sections 3 and 8 of this act are subject to chapter 42.17 RCW.

NEW SECTION. Sec. 5. A new section is added to chapter 48.43 RCW to read as follows:

(1) Any proceeds from regulation of conversion transactions shall be dedicated to serving the unmet health care needs of the people of the state of Washington. The charitable health care assets shall be used to endow a nonprofit federally tax-exempt foundation or foundations that will fund and support health care and health-related activities that serve the unmet health care needs of the people of the state of Washington.

(2) The insurance commissioner shall appoint a consumer advisory committee to oversee the foundation. The consumer advisory committee must consist of a broad cross section of the views and interests of the people of the state of Washington, including but not limited to consumer advocates, health care providers, academics, labor unions, and health carrier administrators.

(3) The consumer advisory committee shall, at a minimum:

(a) Function as the permanent nominating committee of the foundation board of directors. The consumer advisory committee must ensure that the foundation board of directors represents and reflects the diversity of the people of the state of Washington; and

(b) Assess and advise the foundation board of directors on how effectively the foundation represents community interests, particularly those who are underserved by the health care system.

NEW SECTION. Sec. 6. A new section is added to chapter 48.43 RCW to read as follows:

The insurance commissioner and the attorney general are each authorized to establish rules to implement this act.

NEW SECTION. Sec. 7. A new section is added to chapter 48.43 RCW to read as follows:

Before issuing any written decision under section 4 of this act, the office of the insurance commissioner shall conduct one or more public meetings hearing public testimony regarding the proposed nonprofit health care conversion transaction. Notice shall be provided in a manner reasonably calculated to notify interested persons. The meeting shall be held in a location accessible to persons interested in participating.

NEW SECTION. Sec. 8. A new section is added to chapter 48.43 RCW to read as follows:

The attorney general and the office of the insurance commissioner may demand that the nonprofit health carrier provide such information as the attorney general or the office of the insurance commissioner deems necessary to complete its review of any proposed nonprofit health care conversion transaction. A failure to provide timely information as required shall be sufficient ground for the attorney general or the office of the insurance commissioner to disapprove the proposed conversion transaction. The disclosure of records by the office of the insurance commissioner is governed by chapter 42.17 RCW.

NEW SECTION. Sec. 9. A new section is added to chapter 48.43 RCW to read as follows:

Nothing in sections 3 through 8 of this act shall be construed to limit the authority of the attorney general under the common law or other statutory authority to protect charitable interests in this state. These penalties and remedies are in addition to, and not a replacement for, any other civil or criminal actions that the attorney general may take under either the common law or statutory law.

NEW SECTION. Sec. 10. A new section is added to chapter 48.43 RCW to read as follows:

(1) The attorney general may commence an action against a nonprofit health carrier that enters into a conversion transaction without notice to the attorney general or approval by the insurance commissioner pursuant to this chapter, and any other party to the conversion transaction, to recover all charitable trust assets or to void the transaction and return the parties to the situation existing before the conversion transaction, or, if the conversion transaction has not yet occurred, to enjoin such conversion transaction from occurring. Such action may be brought in the superior court for the county where the nonprofit health carrier has its principal place of business or in Thurston county.

(2) Upon request by the attorney general, any nonprofit health carrier that has entered into, or is proposing to enter into, a transaction without making a filing with the attorney general pursuant to section 3 of this act shall provide to the attorney general all documents relevant to determine whether such transaction is or was a conversion transaction and whether the nonprofit health carrier is or was a charitable trust or has or had charitable trust assets.

NEW SECTION. Sec. 11. A new section is added to chapter 48.43 RCW to read as follows:

(1) The office of the insurance commissioner may:

(a) Contract with, consult, and receive advice from any agency of the state or the United States on such terms and conditions the office of the insurance commissioner deems appropriate; or

(b) In the office of the insurance commissioner's sole discretion, contract with such experts or consultants the insurance commissioner deems appropriate to assist the insurance commissioner in reviewing the proposed nonprofit health care conversion transaction.

(2) Any contract costs incurred by the insurance commissioner under this section shall not exceed an amount that is reasonable and necessary to conduct the review of the proposed nonprofit health care conversion transaction. The insurance commissioner shall be exempt from chapter 43.19 RCW for the purposes of entering into contracts under this section. The nonprofit health carrier giving notice under section 3 of this act, upon request, shall pay the office of the insurance commissioner promptly for all costs of contracts entered into by the office of the insurance commissioner under this section.

(3) The office of the insurance commissioner is entitled to reimbursement from the nonprofit health carrier giving notice under section 3 of this act for all reasonable and actual costs incurred by the office of the insurance commissioner in reviewing any proposed nonprofit health care conversion transaction under this act, including attorneys' fees at the billing rate used by the office of the insurance commissioner to bill state agencies for legal services. The nonprofit health carrier giving notice under section 3 of this act, upon request, shall pay the office of the insurance commissioner promptly for all such costs.

(4) The failure by the nonprofit health carrier giving notice under section 3 of this act to promptly reimburse the office of the insurance commissioner for all costs under subsection (2) or (3) of this section is sufficient ground for the office of the insurance commissioner to disapprove the proposed nonprofit health care conversion transaction.