CA Health & Safety Code Section 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.