N.Y. ISC Law § 4301 — New York Code / Act ISC / Article 43 / Section 4301
Organization of corporation; purposes; board of directors
Status: in_force

§ 4301. Organization of corporation; purposes; board of directors. (a)\nA corporation may be organized under the not-for-profit corporation law,\nand a consumers' cooperative stock corporation may be organized under\narticle two of the cooperative corporations law, for the purpose of\nfurnishing medical expense indemnity, dental expense indemnity, hospital\nservice, or health service or, upon compliance with the applicable\nprovisions of subsection (h) of this section, both medical expense\nindemnity and hospital service, to persons who become covered under\ncontracts with such corporations.\n  (b) (1) Medical expense indemnity shall consist of reimbursement for:\n  (A) medical care provided through licensed physicians,\n  (B) dental care provided through licensed dentists,\n  (C) optometric care provided through licensed optometrists,\n  (D) podiatrical care provided through licensed podiatrists,\n  (E) chiropractic care provided through licensed chiropractors,\n  (F) psychiatric or psychological services provided through physicians,\npsychiatrists or certified and registered psychologists,\n  (G) physical and occupational therapy care provided through licensed\nphysical and occupational therapists upon the prescription of a\nphysician,\n  (H) nursing service,\n  (I) speech-language pathology or audiology services provided through\nlicensed speech-language pathologists or audiologists, provided however,\nthat nothing contained herein shall be construed to prohibit a contract\nfrom requiring said service from being performed pursuant to a medical\norder or similar or related service of a physician, in which case\ncoverage need not be provided for any tests, evaluations or diagnoses if\nsuch tests, evaluations or diagnoses have already been provided by or\nthrough a physician within twelve months of the referral or order from\nthe physician. However, nothing herein shall be construed as preventing\na corporation from covering more than one test or evaluation provided by\na speech-language pathologist or audiologist within a twelve-month\nperiod where such tests or evaluations is ordered by a physician as\nmedically necessary. Nor shall anything herein be construed as\nprohibiting the limitation of such services, where covered, to specified\nsettings other than offices, such as hospitals or to services provided\nby such professionals as part of a home care agency's services,\n  (J) necessary appliances, drugs, medicines and supplies, and\n  (K) bio-analytical or clinical laboratory examinations and reports\nthereof reported to a physician, osteopath, dentist, optometrist,\npodiatrist, chiropractor or physical therapist made by any privately\noperated bioanalytical or clinical laboratory.\n  (2) It is not mandatory that a contract issued by a medical expense\nindemnity corporation provide for and offer all of the services\nhereinabove described, but when any service is provided which can be\nperformed by more than one of the practitioners hereinbefore referred\nto, benefits under the contract shall be provided regardless of which\npractitioner performed the service, provided that the performance of\nsuch service was within the scope of the license of such practitioner.\nUnless such contract shall otherwise provide there shall be no\nreimbursement for ophthalmic materials, lenses, spectacles, eyeglasses,\nand/or appurtenances thereto.\n  (3) Every medical expense indemnity corporation shall be open to the\nparticipation of licensed physicians, podiatrists, chiropractors,\noptometrists, physical and occupational therapists, speech-language\npathologists, audiologists, and dentists, certified and registered\npsychologists without discrimination against schools of medical\npractice, podiatry practice, chiropractic practice, optometric practice,\nphysical and occupational therapy practice, dental practice,\nspeech-language pathology practice (subject to the permitted limitations\nof paragraph one of this subsection), audiology practice (subject to the\npermitted limitations of paragraph one of this subsection), and\npsychological training as defined in the education law.\n  (c) Dental expense indemnity shall consist of reimbursement for dental\ncare provided through licensed dentists and of furnishing necessary\nappliances, drugs, medicines, and supplies, prosthetic appliances,\northodontic appliances, precious metal and ceramic restorations.\n  (d) (1) Hospital service shall consist of in-patient hospital care and\nout-patient hospital care when such hospital care is provided through a\nhospital which is maintained by the state or any of its political\nsubdivisions, or maintained by a corporation organized for hospital\npurposes under the laws of this state, or such other hospitals as shall\nbe designated by the state department of health, and hospitals of other\nstates subject to the supervision of such other state, convalescent care\nprovided by any convalescent institution, or nursing care provided by\nany nursing home.\n  (2) A hospital service corporation may also provide reimbursement for\nexpenses incurred outside of the hospital, convalescent institution or\nnursing home, for nursing service, necessary appliances, drugs,\nmedicines, supplies, and any other services which would have been\navailable in the hospital, convalescent institution or nursing home\n(excluding physicians' services), whether or not provided through a\nhospital, convalescent institution or nursing home.\n  (3) A hospital service corporation may also furnish reimbursement for\nambulance service expenses.\n  (e) (1) Health service, as used in this article, shall consist of the\ntypes of services referred to in this section.\n  (2) A health service corporation, in any hospital, facility or center\ndirectly operated by it may provide hospital or medical care to persons\nother than persons covered under contracts issued by such corporation.\n  (3) A health service corporation may:\n  (A) exercise all of the powers of a medical expense indemnity, dental\nexpense indemnity and hospital service corporation;\n  (B) organize, manage and promote a health maintenance organization as\nsuch term is defined in article forty-four of the public health law;\n  (C) contract or otherwise act jointly with a hospital corporation\norganized under article twenty-eight of the public health law, a\nhospital service corporation organized pursuant to this article, a\nhealth maintenance organization possessing a certificate of authority\npursuant to article forty-four of the public health law, a professional\nservice corporation organized under article fifteen of the business\ncorporation law, a university faculty practice corporation organized\nunder section fourteen hundred twelve of the not-for-profit corporation\nlaw or a partnership for the purpose of organizing, managing and\npromoting such prepaid comprehensive health services plan;\n  (D) contract or otherwise act jointly with an insurance company,\nauthorized to do an accident and health insurance business in this\nstate, for the purpose of organizing, managing and promoting such a\nhealth maintenance organization.\n  (4) A health service corporation engaged in providing medical care\nthrough medical groups, hospital services and dental care, may include\nas a component of its rate a sum of five per centum of such rate to be\nused for the purchase or construction of facilities for the conduct of\nits business, and for the implementation of its program, or for making\nloans for the purposes of implementing the program of such corporation.\n  (5) To encourage the development in this state of health maintenance\norganizations as such term is defined in article forty-four of the\npublic health law, the superintendent may modify any requirement\napplicable to health service corporations and other corporations\norganized under this article to permit such corporations to make fuller\nuse of their resources in the development of such plans, including the\nacquisition and construction of hospitals, medical service centers and\nother health facilities and the equipment therefor, subject to such\nlimitations as the superintendent shall deem necessary or proper to\nensure the performance of contracts issued by such corporations and to\nprotect the interests of persons covered under such contracts.\n  (6) Any other corporation subject to the provisions of this article\nmay by appropriate amendment to its certificate of incorporation become\na health service corporation.\n  (f) No foreign or alien medical expense indemnity corporation, dental\nexpense indemnity corporation, health service corporation, or hospital\nservice corporation shall be authorized to do business in this state. No\nperson, firm, association or corporation shall in this state furnish or\ncontract to furnish medical expense indemnity, dental expense indemnity,\nhospital service or health service under any insurance plan unless\nauthorized so to do under the provisions of this chapter.\n  (g) Two or more corporations organized pursuant to the provisions of\nthis article may, upon compliance with the applicable provisions of\narticle seventy-one of this chapter, consolidate, if the superintendent\nfinds that such consolidation will promote the public interest. No\ncorporation resulting from any such consolidation shall operate in any\ncounty in which none of the corporations so consolidated was empowered\nto operate immediately prior to such consolidation.\n  (h) A medical expense indemnity corporation or a hospital service\ncorporation may, pursuant to a plan submitted to and approved by the\nsuperintendent, furnish both medical expense indemnity and hospital\nservice benefits, as these are defined in subsections (b) and (d) of\nthis section, by amending its certificate or act of incorporation in the\nmanner provided in the applicable provisions of the not-for-profit\ncorporation law and the cooperative corporations law. Except as the\ncontext otherwise requires, a corporation writing both medical expense\nindemnity and hospital service benefits shall be subject to all of the\nprovisions of this article applicable to medical expense indemnity and\nhospital service corporations.\n  (i) Subject to the provisions of the preceding subsections, a hospital\nservice corporation and a medical expense indemnity corporation and a\ndental expense indemnity corporation or any two of such corporations may\nissue a combined contract providing for hospital service, medical\nexpense indemnity or dental expense indemnity, but no one of such\ncorporations shall issue any such combined contract unless it complies\nwith the applicable provisions of subsection (h) hereof. A hospital\nservice corporation and a medical expense indemnity corporation and a\ndental expense indemnity corporation or any two of such corporations may\nunderwrite jointly in such a combined contract such benefits as each\nmight otherwise individually provide under this article. Any one of such\ncorporations may act as agent for the other without being required to\nobtain a license as an agent under article twenty-one of this chapter.\n  (j) (1) Except as provided in this subsection, no medical expense\nindemnity corporation, dental expense indemnity corporation, health\nservice corporation, or hospital service corporation shall be converted\ninto a corporation organized for pecuniary profit. Every such\ncorporation shall be maintained and operated for the benefit of its\nmembers and subscribers as a co-operative corporation.\n  (2) An article forty-three corporation which was the subject of an\ninitial opinion and decision issued by the superintendent on or before\nDecember thirty-first, nineteen hundred ninety-nine, as the same may be\namended or one or more article forty-three corporations whose main\noffices on January first, two thousand seven were located in one of the\ncounties listed in section one thousand two hundred sixty-two of the\npublic authorities law and its or their not-for-profit subsidiaries\n(including, without limitation, any such subsidiary licensed as a health\nservice corporation pursuant to this chapter or as a health maintenance\norganization organized pursuant to article forty-four of the public\nhealth law), hereinafter referred to in the singular, may be converted\ninto one or more corporations or other entities organized for pecuniary\nprofit, or into one or more for-profit organizations, in any such case,\nin accordance with the provisions of section seven thousand three\nhundred seventeen of this chapter.\n  (3) For the purposes of this subsection and section seven thousand\nthree hundred seventeen of this chapter, "public asset" shall mean\nassets representing ninety-five percent of the fair market value of the\ncorporation seeking to convert into a corporation or other entity\norganized for pecuniary profit pursuant to paragraph two of this\nsubsection; provided, however, that for the purposes of the conversion\nof a corporation or corporations after the effective date of the chapter\nof the laws of two thousand seven which amended this paragraph, "public\nasset" shall mean assets representing ninety percent of the fair market\nvalue of the corporation or corporations. Fair market value, as defined\nin subsection (l) of section seven thousand three hundred seventeen of\nthis chapter, shall be determined as of the date the superintendent\napproves the conversion transaction pursuant to subsection (f) of\nsection seven thousand three hundred seventeen of this chapter.\n  (4) In addition to any other requirements of law, rule or regulation,\nthe following requirements shall be applicable to the public asset:\n  (A) The public asset shall be transferred to the fund established\npursuant to subsection (e) of section seven thousand three hundred\nseventeen of this chapter and the public asset shall be irrevocably\ndedicated to the purpose as set forth in such section;\n  (B) There is hereby established a board for the purpose of advising\nand making decisions with respect to the investment of assets and moneys\nin the fund created pursuant to subsection (e) of section seven thousand\nthree hundred seventeen of this chapter. Such board shall be composed of\nfive members appointed as follows: three members shall be appointed by\nthe governor; one member appointed by the temporary president of the\nsenate; and one member appointed by the speaker of the assembly. Each\nmember of the board shall be appointed for a term of three years and may\nbe reappointed at the end of said term by the same person that made the\noriginal appointment. A vacancy in the membership of the board shall be\nfilled for the unexpired portion of the term provided for by the\noriginal appointment by the same person that made the original\nappointment. Each member may be removed, other than upon the expiration\nof his or her term, only for neglect of duty, misconduct or other good\ncause. Each member of the board shall be a member of the public with\nknowledge and expertise in capital markets and a demonstrated commitment\nto ensuring continued access to, and availability of, health care\nservices and may not be an officer or employee of the state or any\nmunicipal subdivision thereof;\n  (C) The members shall serve without compensation for their services as\nmembers, but shall be entitled to reimbursement for actual and necessary\nexpenses incurred in the performance of their official duties. Such\nmembers, except as otherwise provided by law, may engage in private\nemployment, or in a profession or business;\n  (D) The board and its corporate existence shall continue until there\nare no longer any assets or moneys in the fund created pursuant to\nsubsection (e) of section seven thousand three hundred seventeen of this\nchapter available for distribution;\n  (E) The affirmative vote of three of the members shall be necessary\nfor the transaction of any business or the exercise of any power or\nfunction of the board. The board may delegate to one or more of its\nmembers, or its agents, such powers and duties as it may deem proper;\n  (F) The board shall have the power to:\n  (i) direct, in consultation with the director of the division of the\nbudget regarding the anticipated schedule of payments to the state, the\nmanner in which moneys in the fund created pursuant to subsection (e) of\nsection seven thousand three hundred seventeen of this chapter are\ninvested so as to maximize the value of the assets in such fund\nconsistent with the board's statutory obligation to direct disbursements\nas described below and in subsection (e) of section seven thousand three\nhundred seventeen of this chapter;\n  (ii) direct that disbursements be made from such fund in accordance\nwith the direction of the director of the division of the budget and as\ndescribed in subsection (e) of section seven thousand three hundred\nseventeen of this chapter; and\n  (iii) make and execute contracts and all other instruments, and to\nexercise such other powers, necessary or convenient for the exercise of\nits powers and functions.\n  In directing investments pursuant to this subparagraph, the board\nshall not be limited by any restrictions on investments contained in any\nother section of law, subject only to the board's obligations and the\nconsiderations set forth above;\n  (G) (i) Neither the members of the board nor any agent or other person\nor persons acting on its behalf, while acting within the scope of their\nauthority as members or agents of the board, shall be subject to any\npersonal liability resulting from the carrying out of the powers\nconferred hereunder, and (ii) the provisions of section seventeen of the\npublic officers law shall apply to members of the board and agents or\nother persons acting on its behalf, in connection with any and all\nclaims, demands, suits, actions or proceedings which may be made or\nbrought against any of them arising out of any determination made or\nactions taken or omitted to be taken in compliance with any obligations\nunder or pursuant to the terms of this section or section seven thousand\nthree hundred seventeen of this chapter. The provisions of this\nsubparagraph shall be severable from and shall survive any legal\nchallenge to the legality, validity, or constitutionality of this\nsection;\n  (H) Any action or proceeding in which any question arises as to the\nvalidity of any provision in this subsection or in section seven\nthousand three hundred seventeen of this chapter, shall be preferred\nover all other civil causes except election causes in all courts of the\nstate of New York and shall be heard and determined in preference to all\nother civil business pending therein except election causes,\nirrespective of position on the calendar. The same preference shall be\ngranted upon application of counsel to the board in any action or\nproceeding questioning the validity of any provision herein in which he\nor she may be allowed to intervene;\n  (I) To assist in carrying out its functions, the board shall be\nauthorized to hire independent financial, legal and other experts and\nconsultants;\n  (J) Inconsistent provisions of other laws are superseded. Insofar as\nany provision in this section is inconsistent with the provisions of any\nother law, general, special or local, the provisions in this section\nshall be controlling;\n  (K) This section, being necessary for the welfare of the state and its\ninhabitants, shall be liberally construed so as to effectuate its\npurposes;\n  (L) Each member of the board shall be and shall remain independent of\nany control or influence by the surviving corporation or other surviving\nentity organized for pecuniary profit and its affiliates and successors.\nSuch requirement shall not prevent the board from voting its equity\nshares in the for-profit organization in accordance with the voting and\nshareholders rights agreement. No person who is an officer, director or\nemployee of the corporation seeking conversion at the time such\ncorporation applies to the superintendent for permission to convert\nshall be a member of the board;\n  (M) The board shall establish formal mechanisms to avoid conflicts of\ninterest;\n  (N) The board shall enter into an asset preservation agreement with\nthe converted corporation; and\n  (O) Notwithstanding any other provision of law, the board shall direct\nthat such proceeds of the public asset are disbursed in accordance with\ndirection from the director of the division of the budget and\ntransferred to the credit of the tobacco control and insurance\ninitiatives pool, or its successor to be used for the exclusive purposes\nprovided therein.\n  (P) Section one hundred twelve of the state finance law shall apply to\nthe fund established pursuant to subsection (e) of section seven\nthousand three hundred seventeen of this chapter and its board solely\nand exclusively with respect to procurement contracts for consulting and\nprofessional services recommended for award by the fund after June\ntwenty-third, two thousand five; provided that all such contracts\nrecommended for award by the fund on or before June twenty-third, two\nthousand five shall be valid and effective in accordance with their\nterms.\n  (Q) Section one hundred twelve of the state finance law shall not\notherwise apply to the fund established pursuant to subsection (e) of\nsection seven thousand three hundred seventeen of this chapter and its\nboard except as provided in subparagraph (P) of this paragraph. Without\nin any way limiting the foregoing, section one hundred twelve of the\nstate finance law specifically shall not apply to any and all agreements\nsuch fund, its board, or any medical expense indemnity corporation,\ndental expense indemnity corporation, health service corporation or\nhospital service corporation that has converted to for-profit status\npursuant to this section and section seven thousand three hundred\nseventeen of this chapter, may enter into, or has entered into, in\nconnection with, or in anticipation of, sales of stock including, but\nnot limited to, any and all underwriting agreements, pricing agreements\nand other documents related to such sales of stock or stock offerings,\nwhether such agreements are entered into in connection with initial\npublic offerings or subsequent public or private sales of stock.\n  (R) All disbursements from the fund established pursuant to subsection\n(e) of section seven thousand three hundred seventeen of this chapter\nshall be made pursuant to the provisions of this section and section\nseven thousand three hundred seventeen of this chapter without an\nappropriation. The provisions of this section and section seven thousand\nthree hundred seventeen of this chapter shall be controlling, any other\ngeneral, special or local law inconsistent therewith notwithstanding.\n  (5) For the purpose of this subsection and section seven thousand\nthree hundred seventeen of this chapter, "charitable asset" shall mean\nassets representing five percent of the fair market value of the\ncorporation seeking to convert into a corporation or other entity\norganized for pecuniary profit pursuant to paragraph two of this\nsubsection; provided, however, that for the purposes of the conversion\nof a corporation or corporations after the effective date of the chapter\nof the laws of two thousand seven which amended this paragraph,\n"charitable asset" shall mean assets representing ten percent of the\nfair market value of the corporation or corporations. Fair market value,\nas defined in subsection (l) of section seven thousand three hundred\nseventeen of this chapter, shall be determined as of the date the\nsuperintendent approves the conversion transaction pursuant to\nsubsection (f) of section seven thousand three hundred seventeen of this\nchapter. If one hundred percent of the stock is not transferred in\nconnection with the conversion transaction, the proportion of stock to\ncash that is distributed as the charitable asset shall be the same as\nthe proportion of stock to cash that is distributed as the public asset.\n  (k) (1) The board of directors of each health service, hospital\nservice or medical expense indemnity corporation subject to this article\nshall be composed of persons who are representative of the member\nhospitals or licensed medical professionals of such corporation, persons\ncovered under its contracts and the general public. The board of\ndirectors of such corporations may also include persons who are\nemployees of such corporations and who also serve as officers of such\ncorporations. Not more than one-fifth of the directors of any such\ncorporation shall be persons who are licensed to practice medicine in\nthis state (other than physicians employed on a full-time basis in the\nfields of public health, public welfare, medical research or medical\neducation) or who are trustees, directors or employees of a corporation\norganized for hospital purposes, or any combination thereof. Not more\nthan one-eighth of the directors of any such corporation shall be\npersons who are employees of such corporation and who also serve as\nofficers of such corporation. Any person who is an officer of such\ncorporation but not an employee of such corporation shall be considered\nunder one of the other classifications of directors set forth in this\nsection, as appropriate. Whenever the maximum number of directors in\neither of the classifications set forth in the preceding sentences\nincludes a fractional number equal to or greater than one-half, the\nnumber shall be rounded to the next greater whole number. Whenever the\nmaximum number of directors in either of the classifications set forth\nin the preceding sentences includes a fractional number less than\none-half, the number shall be rounded to the next lesser whole number.\nOf the directors not included in the classifications set forth in the\npreceding sentences,\n  (A) one-half in number, as nearly as possible, shall be persons\ncovered under a contract or contracts issued by such health service,\nhospital service or medical expense indemnity corporation, and who are\ngenerally representative of broad segments of such covered persons, and\n  (B) one-half in number, as nearly as possible, shall be persons whose\nbackground and experience indicate that they are qualified to act in the\nbroad public interest, whether or not they are persons covered under a\ncontract or contracts issued by such health service, hospital service or\nmedical expense indemnity corporation.\n  (C) A person who, or whose spouse or minor child, is an officer,\ndirector, or owner of more than ten per centum of the stock of a\ncorporation whose aggregate sales to hospitals and licensed medical\nprofessionals and to facilities of a health service, hospital service or\nmedical expense indemnity corporation exceed five per centum of its\ntotal sales may not serve as a director under subparagraph (A) or (B)\nhereof.\n  (D) Each such health service, hospital service or medical expense\nindemnity corporation shall have an executive committee the members of\nwhich shall be composed, as nearly as possible, of representatives of\nany member hospitals or licensed medical professionals of such\ncorporation, employee-officers of such corporation, persons covered\nunder its contracts and the general public in the same proportions as\nthe membership of the board of directors.\n  (E) The board of directors of a health service, hospital service or\nmedical expense indemnity corporation with a combined premium volume\nexceeding two billion dollars annually as of December thirty-first,\nnineteen hundred ninety-six shall, in addition to its other\nresponsibilities, have responsibility for ensuring that the corporation\nimplements and maintains effective standards and procedures for\noperating efficiency and for quality of consumer service and claims\npayment, including but not limited to coordination of benefits and fraud\nprevention and shall establish one or more committees comprised solely\nof directors who are not officers or employees of the corporation. Such\ncommittee or committees shall have responsibility for recommending the\nselection of independent certified public accountants, reviewing the\ncorporation's financial condition, the scope and results of the\nindependent audit and any internal audit, nominating candidates for\ndirector for election by members, and evaluating the performance of\nofficers deemed by such committee or committees to be principal officers\nof the company and recommending to the board of directors the selection\nand compensation of such principal officers.\n  (2) (A) Compliance with the provisions of paragraph one hereof shall\nbe under the supervision of the superintendent.\n  (B) Within ten days after a vacancy in the board of directors of a\nhealth service, hospital service or medical expense indemnity\ncorporation shall occur, such corporation shall notify the\nsuperintendent in writing that such vacancy exists. Not more than ten\ndays after the election of a person as a director of a health service,\nhospital service or medical expense indemnity corporation, such\ncorporation shall furnish, in writing, the following information to the\nsuperintendent: the name and address of the person so elected; whether\nsuch person is representative of any member hospital or licensed medical\nprofessional of such corporation or persons covered under its contracts\nor the general public and qualified to serve pursuant to the provisions\nof paragraph one hereof or is an employee-officer of such corporation;\nand a biographical statement concerning such person. If the\nsuperintendent finds, after a hearing, that the composition of the board\nof directors of a health service, hospital service or medical expense\nindemnity corporation is not in compliance with the provisions of\nparagraph one hereof, he may direct that such board of directors be\nreconstituted in accordance with his finding.\n  (3) No person who has served as a director of any corporation subject\nto this article for ten consecutive years shall thereafter be elected\nfor an additional term of office as such until at least one year has\nelapsed since the expiration of his prior term of office. The preceding\nsentence shall not apply to a director of any corporation subject to\nthis article who is an employee of the corporation and who also serves\nas an officer of the corporation. The superintendent, upon application\nby a corporation subject to the provisions of this article, may waive\nthe ten year limit in this paragraph for a non-employee serving as\nchairman of its board of directors.\n  (4) A director of a corporation subject to this article shall\nautomatically forfeit his office if (i) he fails to attend at least one\nof the regular meetings of the board of directors held during any period\nof eighteen consecutive months, or (ii) unless excused by the board of\ndirectors of which he is a member, which action shall be entered on the\nminutes of such board, it shall appear at the end of any calendar year\nthat he failed to attend at least one-half of the regular meetings of\nsuch board held in such calendar year. A director whose office becomes\nvacant pursuant to the provisions of this paragraph shall not be\neligible for election to such office for a period of one year from the\ndate the vacancy occurred.\n