Health care providers should take notice of the expanding role of State Attorneys General in the internal corporate activities of nonprofit health care entities.
In response to conversions of nonprofit to for profit entities, many states, including Maryland, recently passed laws requiring notice to, or approval of, the State Attorney General, or some other regulatory authority, prior to consummation of such public to private transactions. However, these new laws have also generally awakened Attorneys General to their role as protector of the "proper" use of the assets of nonprofit entities.
For example, the Rhode Island Attorney General recently sought and received an injunction preventing LifeSpan Health System, a Rhode Island nonprofit entity, from amending its corporate bylaws in connection with a proposed merger with a Boston based nonprofit entity. The proposed amendments decreased representation of LifeSpan's Rhode Island based affiliates, and increased out-of-state representation, on LifeSpan's Board of Directors.
The Attorney General initially determined that Rhode Island's Hospital Conversions Act did not even apply to the pending merger. Nonetheless, the Attorney General later initiated suit upon learning of a large projected operating deficit and the exact nature of the proposed changes to LifeSpan's bylaws.
The Attorney General argued that the proposed changes in representation jeopardized LifeSpan's charitable assets. Eventually, pursuant to a settlement agreement, LifeSpan and the Rhode Island Attorney General agreed to acceptable bylaw provisions.
In the ever changing health care landscape, nonprofit providers should keep an eye out to see if their Attorney General is unexpectedly looking into previously "private" corporate activities.