§ 9420. Conversion of nonprofit hospitals
(a) Policy and purpose. The State has a responsibility to ensure that the assets of nonprofit entities, which
are impressed with a charitable trust, are managed prudently and are preserved for
their proper charitable purposes.
(b) Definitions. As used in this section:
(1) “Charitable assets” means the fair market value of a nonprofit hospital. When a conversion
affects only some of the assets of a nonprofit hospital, “charitable assets” means
those assets of the hospital that will be so affected.
(2) [Repealed.]
(3) “Conversion” means a transaction or series of transactions described in subdivision
(4) of this subsection.
(4) “Convert” means to sell, transfer, lease, exchange, option, commit, convey, or otherwise
dispose of assets or operations of a nonprofit hospital. The term does not include
transactions occurring in the normal and ordinary course of business for the nonprofit
hospital, such as management contracts, vendor contracts, physician-hospital contracts,
managed care contracts, financing agreements, or ventures such as letters of credit,
or cooperative or networking agreements with for-profit providers.
(5) “Fair market value” means the price that the assets being converted would bring in
a competitive and open market under a fair sale with the buyer and seller acting prudently,
knowledgeably, at arm’s length, and in their own best interests.
(6) “Hospital system” means a network of hospitals affiliated with a nonprofit hospital.
(7) “Nonprofit hospital” means a nonprofit entity, where no part of the net earnings may
lawfully be applied to the benefit of any private shareholder or individual, and that
is a hospital as defined in section 1902 of this title or a hospital member of a hospital system, provided that the term “hospital” does
not include any hospital conducted, maintained, or operated by the U.S. government
or the State of Vermont or the duly authorized agency of either.
(8) “Parties” means the nonprofit hospital and any other person who is a party to a conversion
described in the application filed pursuant to subsection (e) of this section, including
any person that, pursuant to the plan of conversion, is to receive charitable assets
or proceeds as a result of the conversion. When, in this section, reference is made
to liabilities or obligations of the parties, such liabilities and obligations shall
be joint and several.
(9) “Qualifying amount” means an amount that is at least $1 million and represents at
least 40 percent of the value of the assets of the nonprofit hospital, or that vests
control of the nonprofit hospital in another person or entity. For purposes of determining
whether the threshold requirements of this subdivision have been or will be met, related
conversions shall be aggregated.
(10) “Green Mountain Care Board” or “Board” means the Green Mountain Care Board established
in chapter 220 of this title.
(c) Approval required for conversion of qualifying amount of charitable assets. A nonprofit hospital may convert a qualifying amount of charitable assets only with
the approval of the Green Mountain Care Board, and either the Attorney General or
the Superior Court, pursuant to the procedures and standards set forth in this section.
(d) Exception for conversions in which assets will be owned and controlled by a nonprofit
corporation.
(1) Other than subsection (q) of this section and subdivision (2) of this subsection,
this section shall not apply to conversions in which the party receiving assets of
a nonprofit hospital is a nonprofit corporation.
(2) In any conversion that would have required an application under subsection (e) of
this section but for the exception set forth in subdivision (1) of this subsection,
notice to or written waiver by the Attorney General shall be given or obtained as
if required under 11B V.S.A. § 12.02(g).
(e) Application. Prior to consummating any conversion of a qualifying amount of charitable assets,
the parties shall submit an application to the Attorney General and the Green Mountain
Care Board, together with any attachments complying with subsection (f) of this section.
If any material change occurs in the proposal set forth in the filed application,
an amendment setting forth such change, together with copies of all documents and
other material relevant to such change, shall be filed with the Attorney General and
the Board within two business days, or as soon thereafter as practicable, after any
party to the conversion learns of such change. If the conversion involves a hospital
system, and one or more of the hospitals in the system desire to convert charitable
assets, the Attorney General, in consultation with the Board, shall determine whether
an application shall be required from the hospital system.
(f) Completion and contents of application.
(1) Within 30 days after receipt of the application, or within 10 days after receipt of
any amendment to the application, whichever is longer, the Attorney General, with
the Green Mountain Care Board’s agreement, shall determine whether the application
is complete. The Attorney General shall promptly notify the parties of the date the
application is deemed complete or of the reasons for a determination that the application
is incomplete. A complete application shall include the following:
(A) A detailed summary of the purposes and material terms of the proposed conversion.
(B) The names and addresses of the parties that have been or will be created as part of
the conversion, including a list of all individuals who are or have been chosen as
their directors, officers, or board members.
(C) Copies of all organizational documents relating to the parties.
(D) Copies of all contracts and other agreements related to the conversion.
(E) Copies of the most recent audited financial reports of the entities involved.
(F) A detailed description of all assets of the nonprofit hospital, including the value
of the assets and the basis for that valuation. For assets included in or otherwise
affected by the conversion, the following information is also to be included:
(i) the nature of any restrictions on such assets owned or held by the nonprofit hospital
and the purpose or purposes for which such assets were received;
(ii) a statement as to whether the assets will be converted to cash in connection with
or as a result of the conversion; and
(iii) a detailed description of all proposed changes in control or ownership of the assets
and an explanation regarding whether and if so, how the charitable assets of the nonprofit
hospital will continue to be used in a manner consistent with their intended charitable
purpose.
(G) A description of the process by which the decision to undertake the conversion and
to select the acquiring party and the type and amount of consideration to be given
or received in the conversion, if applicable, was reached by the nonprofit hospital,
and all documents relating to that process and decision, including minutes, committee
or special study reports, correspondence, presentations, audits, and other internal
or outside reviews or analyses.
(H) The amount, source, and nature of any consideration to be paid to the nonprofit hospital,
its directors, officers, board members, executives, or experts retained by the nonprofit
hospital, including prospective employment or consultation.
(I) A detailed description of the structure and functions of any charitable foundation
that will receive proceeds of the conversion, including a description of its assets,
its mission, the purposes of the foundation, the expected charitable uses of the assets,
how it will be broadly based in, and represent, the community affected by the conversion,
and how proceeds from the conversion will be controlled.
(J) A certified board resolution or other appropriate document evidencing approval of
the conversion by each party involved.
(K) A certification signed by those members, identified by name and title, of the governing
body or other person approving the conversion on behalf of the nonprofit hospital
that the standards set forth in subsection (j) of this section have been considered
in good faith and are met, together with such explanations and other documentation
as may be necessary to demonstrate such compliance.
(L) A separate certification from each member of the governing board, the chief executive
officer, and other officers designated in the governing documents of the nonprofit
hospital, executed under oath, stating whether that director or officer is then, or
may become within three years of completion of the conversion a member or shareholder
in, or officer, employee, agent, or consultant of, or may otherwise derive any compensation
or benefits, directly or indirectly, from any party.
(M) A statement from any party specifying the manner in which it proposes to continue
to fulfill the charitable obligations of the nonprofit hospital, if applicable.
(N) Any additional information the Attorney General or Green Mountain Care Board finds
necessary or appropriate for the full consideration of the application.
(2) The parties shall make the contents of the application reasonably available to the
public prior to any hearing for public comment described in subsection (g) of this
section to the extent that they are not otherwise exempt from disclosure under 1 V.S.A. § 317(b).
(g) Notice and hearing for public comment on application.
(1) The Attorney General and the Green Mountain Care Board shall hold one or more public
hearings on the transaction or transactions described in the application. A record
shall be made of any hearing. The hearing shall commence within 30 days after the
determination by the Attorney General that the application is complete. If a hearing
is continued or multiple hearings are held, any hearing shall be completed within
60 days after the Attorney General’s determination that an application is complete.
In determining the number, location, and time of hearings, the Attorney General, in
consultation with the Board, shall consider the geographic areas and populations served
by the nonprofit hospital and most affected by the conversion and the interest of
the public in commenting on the application.
(2) The Attorney General shall provide reasonable notice of any hearing to the parties,
the Board, and the public, and may order that the parties bear the cost of notice
to the public. Notice to the public shall be provided in newspapers having general
circulation in the region affected and shall identify the applicants and the proposed
conversion. A copy of the public notice shall be sent to the Office of the Health
Care Advocate, to the State Long-Term Care Ombudsman, and to the Senators and members
of the House of Representatives representing the county and district and to the clerk,
chief municipal officer, and legislative body of the municipality in which the nonprofit
hospital is principally located. Upon receipt, the clerk shall post notice in or near
the clerk’s office and in at least two other public places in the municipality. Any
person may testify at a hearing under this section and, within such reasonable time
as the Attorney General may prescribe, file written comments with the Attorney General
and Board concerning the proposed conversion.
(h) Determination by the Green Mountain Care Board.
(1) The Green Mountain Care Board shall consider the application, together with any report
and recommendations from the Board’s staff requested by the Board, and any other information
submitted into the record, and approve or deny it within 50 days following the last
public hearing held pursuant to subsection (g) of this section, unless the Board extends
such time up to an additional 60 days with notice prior to its expiration to the Attorney
General and the parties.
(2) The Board shall approve the proposed transaction if the Board finds that the application
and transaction will satisfy the criteria established in section 9437 of this title. For purposes of applying the criteria established in section 9437, the term “project”
shall include a conversion or other transaction subject to the provisions of this
subchapter.
(3) A denial by the Board may be appealed to the Supreme Court pursuant to section 9381 of this title. If no appeal is taken or if the Board’s order is affirmed by the Supreme Court,
the application shall be terminated. A failure of the Board to approve of an application
in a timely manner shall be considered a final order in favor of the applicant.
(i) Determination by Attorney General. The Attorney General shall make a determination as to whether the conversion described
in the application meets the standards provided in subsection (j) of this section.
(1) If the Attorney General determines that the conversion described in the application
meets the standards set forth in subsection (j) of this section, the Attorney General
shall approve the conversion and so notify the parties in writing.
(2) If the Attorney General determines that the conversion described in the application
does not meet such standards, the Attorney General may not approve the conversion
and shall so notify the parties of such disapproval and the basis for it in writing,
including identification of the standards listed in subsection (j) of this section
that the Attorney General finds not to have been met by the proposed conversion. Nothing
in this subsection shall prevent the parties from amending the application to meet
any objections of the Attorney General.
(3) The notice of approval or disapproval by the Attorney General under this subsection
shall be provided not later than either 60 days following the date of the last hearing
held under subsection (g) of this section or 10 days following approval of the conversion
by the Board, whichever is later. The Attorney General, for good cause, may extend
this period an additional 60 days.
(j) Standards for Attorney General’s review. In determining whether to approve a conversion under subsection (i) of this section,
the Attorney General shall consider whether:
(1) the governing body of the nonprofit hospital exercised due diligence in deciding to
engage in the conversion, selecting the acquiring party, and ensuring that the terms
and conditions of the conversion are fair and reasonable to the nonprofit hospital;
(2) the nonprofit hospital will receive fair market value for its charitable assets, and
whether the market value of those assets has not been manipulated by the actions of
the parties in a manner that causes the value of the assets to decrease;
(3) the conversion will not result in a breach of fiduciary duty, including any undisclosed
or material conflicts of interest related to payments or benefits to officers, directors,
board members, executives, or experts employed or retained by the parties;
(4) the conversion will not result in private inurement to any person;
(5) the proceeds of the conversion will be used in a manner and place consistent with
the public benefit purposes of the nonprofit hospital;
(6) any foundation established to hold the proceeds of the conversion will be representative
of and broadly based in the community served by the nonprofit hospital and will be
subject to appropriate public accountability standards;
(7) the application contains sufficient information and data to permit the Attorney General
and the Green Mountain Care Board to evaluate the conversion and its effects on the
public’s interests in accordance with this section; and
(8) the conversion plan has made reasonable provision for reports, upon request, to the
Attorney General on the conduct and affairs of any person that, as a result of the
conversion, is to receive charitable assets or proceeds from the conversion to carry
on any part of the public purposes of the nonprofit hospital.
(k) Investigation by Attorney General. The Attorney General may conduct an investigation relating to the conversion pursuant
to the procedures set forth generally in 9 V.S.A. § 2460. The Attorney General may contract with such experts or consultants the Attorney
General deems appropriate to assist in an investigation of a conversion under this
section. The Attorney General may order any party to reimburse the Attorney General
for all reasonable and actual costs incurred by the Attorney General in retaining
outside professionals to assist with the investigation or review of the conversion.
(l) Superior Court action. If the Attorney General does not approve the conversion described in the application
and any amendments, the parties may commence an action in the Superior Court of Washington
County, or with the agreement of the Attorney General, of any other county, within
60 days after the Attorney General’s notice of disapproval provided to the parties
under subdivision (i)(2) of this section. The parties shall notify the Green Mountain
Care Board of the commencement of an action under this subsection. The Board shall
be permitted to request that the court consider the Board’s determination under subsection
(h) of this section in its decision under this subsection.
(m) Court determination and order.
(1) Within 45 days after the commencement of an action under subsection (l) of this section,
the court shall hold a hearing to determine whether the conversion described in the
application and any amendments submitted prior to the Attorney General’s notice of
disapproval satisfy the standards under subsection (j) of this section that the Attorney
General identified in the notice of disapproval as not having been met by the transaction
described in the application. The court shall determine the matter within 45 days
after the conclusion of the hearing. The court, for good cause, may extend each of
the time periods provided in this subsection for its hearing and determination for
an additional 30 days, or for a longer period if agreed to by the parties and the
Attorney General. The Attorney General shall represent the interests of the public
at any hearing under this subsection. The parties shall have the burden to establish
that the application, with any amendments that were submitted prior to the Attorney
General’s notice of disapproval, meets each of the standards of subsection (j) of
this section identified in the Attorney General’s notice of disapproval as not having
been met by the application.
(2) If the court finds that the parties have shown that the conversion described in the
application meets the standards of subsection (j) of this section identified in the
Attorney General’s notice of disapproval as not having been met by the application,
the court shall set aside the determination of the Attorney General, and the parties
may proceed under this section as if the Attorney General had approved the conversion
described in the application.
(3) If the Attorney General substantially prevails in the action, the court may order
the parties to reimburse the State for the reasonable value of the Attorney General’s
services and expenses in defending the action, separate and apart from any amounts
the parties are required to pay pursuant to subsection (k) of this section.
(4) Nothing herein shall prevent the Attorney General, while an action brought under subsection
(l) of this section is pending, from approving the conversion described in the application,
as modified by such terms as are agreed between the parties, the Attorney General,
and the Green Mountain Care Board to bring the conversion into compliance with the
standards set forth in subsection (j) of this section.
(n) Use of converted assets or proceeds of a conversion approved pursuant to this section. If at any time following a conversion, the Attorney General has reason to believe
that converted assets or the proceeds of a conversion are not being held or used in
a manner consistent with information provided to the Attorney General, the Board,
or a court in connection with any application or proceedings under this section, the
Attorney General may investigate the matter pursuant to procedures set forth generally
in 9 V.S.A. § 2460 and may bring an action in Washington Superior Court or in the Superior Court of
any county where one of the parties has a principal place of business. The court may
order appropriate relief in such circumstances, including avoidance of the conversion
or transfer of the converted assets or proceeds or the amount of any private inurement
to a person or party for use consistent with the purposes for which the assets were
held prior to the conversion, and the award of costs of investigation and prosecution
under this subsection, including the reasonable value of legal services.
(o) Remedies and penalties for violations.
(1) The Attorney General may bring or maintain a civil action in the Washington Superior
Court, or any other county in which one of the parties has its principal place of
business, to enjoin, restrain, or prevent the consummation of any conversion that
has not been approved in accordance with this section or where approval of the conversion
was obtained on the basis of materially inaccurate information furnished by any party
to the Attorney General or the Board.
(2) A conversion entered into in violation of any provision of this section may be voided,
upon petition of the Attorney General, by the Superior Court of Washington County
or the county in which any party has its principal place of business.
(3) If a person violates a provision of this section or any lawful order of a court acting
pursuant to this section, the court, upon petition of the Attorney General, may order
that person to pay to the State the value of services and expenses incurred by the
Attorney General in the investigation and prosecution of the violation, and may:
(A) order that person to cease such activity or other appropriate injunctive relief;
(B) order the disgorgement of any private inurement; and
(C) impose a penalty on that person of up to $1 million.
(4) In determining whether to grant relief under this subsection, and the nature of such
relief, the court shall consider whether:
(A) the violation was willful;
(B) any person has derived, or may derive, an economic benefit from the conversion;
(C) the purposes for which the assets had been held by the nonprofit hospital have been
frustrated by the violation; and
(D) the interests of the public or the community served by the nonprofit hospital would
be jeopardized by voiding the contract.
(p) Conversion of less than a qualifying amount of assets.
(1) The Attorney General may conduct an investigation relating to a conversion pursuant
to the procedures set forth generally in 9 V.S.A. § 2460 if the Attorney General has reason to believe that a nonprofit hospital has converted
or is about to convert less than a qualifying amount of its assets in such a manner
that would:
(A) if it met the qualifying amount threshold, require an application under subsection
(e) of this section; and
(B) constitute a conversion that does not meet one or more of the standards set forth
in subsection (j) of this section.
(2) The Attorney General, in consultation with the Green Mountain Care Board, may bring
an action with respect to any conversion of less than a qualifying amount of assets,
according to the procedures set forth in subsection (n) of this section. The Attorney
General shall notify the Board of any action commenced under this subsection. The
Board shall be permitted to investigate and determine whether the transaction satisfies
the criteria established in subdivision (g)(2) of this section, and to request that
the court consider the Board’s recommendation in its decision under this subsection.
In such an action, the Superior Court may enjoin or void any transaction and may award
any other relief as provided under subsection (n) of this section.
(3) In any action brought by the Attorney General under this subdivision, the Attorney
General shall have the burden to establish that the conversion:
(A) violates one or more of the standards listed in subdivision (j)(1), (3), (4), or (6)
of this section; or
(B) substantially violates one or more of the standards set forth in subdivisions (j)(2)
and (5) of this section.
(q) Other preexisting authority.
(1) Nothing in this section shall be construed to limit the authority of the Green Mountain
Care Board, Attorney General, Department of Health, or a court of competent jurisdiction
under existing law, or the interpretation or administration of a charitable gift under
14 V.S.A. § 2328.
(2) This section shall not be construed to limit the regulatory and enforcement authority
of the Board, or exempt any applicant or other person from requirements for licensure
or other approvals required by law. (Added 2005, No. 28, § 1, eff. May 24, 2005; amended 2015, No. 54, § 39; 2017, No. 113 (Adj. Sess.), § 108; 2023, No. 6, § 237, eff. July 1, 2023.)