Section 1399.72 Of Article 11. Nonprofit Plans From California Health And Safety Code >> Division 2. >> Chapter 2.2. >> Article 11.
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.