§ 4301. Organization of corporation; purposes; board of directors. (a)
A corporation may be organized under the not-for-profit corporation law,
and a consumers' cooperative stock corporation may be organized under
article two of the cooperative corporations law, for the purpose of
furnishing medical expense indemnity, dental expense indemnity, hospital
service, or health service or, upon compliance with the applicable
provisions of subsection (h) of this section, both medical expense
indemnity and hospital service, to persons who become covered under
contracts with such corporations.

(b) (1) Medical expense indemnity shall consist of reimbursement for:

(A) medical care provided through licensed physicians,

(B) dental care provided through licensed dentists,

(C) optometric care provided through licensed optometrists,

(D) podiatrical care provided through licensed podiatrists,

(E) chiropractic care provided through licensed chiropractors,

(F) psychiatric or psychological services provided through physicians,
psychiatrists or certified and registered psychologists,

(G) physical and occupational therapy care provided through licensed
physical and occupational therapists upon the prescription of a
physician,

(H) nursing service,

(I) speech-language pathology or audiology services provided through
licensed speech-language pathologists or audiologists, provided however,
that nothing contained herein shall be construed to prohibit a contract
from requiring said service from being performed pursuant to a medical
order or similar or related service of a physician, in which case
coverage need not be provided for any tests, evaluations or diagnoses if
such tests, evaluations or diagnoses have already been provided by or
through a physician within twelve months of the referral or order from
the physician. However, nothing herein shall be construed as preventing
a corporation from covering more than one test or evaluation provided by
a speech-language pathologist or audiologist within a twelve-month
period where such tests or evaluations is ordered by a physician as
medically necessary. Nor shall anything herein be construed as
prohibiting the limitation of such services, where covered, to specified
settings other than offices, such as hospitals or to services provided
by such professionals as part of a home care agency's services,

(J) necessary appliances, drugs, medicines and supplies, and

(K) bio-analytical or clinical laboratory examinations and reports
thereof reported to a physician, osteopath, dentist, optometrist,
podiatrist, chiropractor or physical therapist made by any privately
operated bioanalytical or clinical laboratory.

(2) It is not mandatory that a contract issued by a medical expense
indemnity corporation provide for and offer all of the services
hereinabove described, but when any service is provided which can be
performed by more than one of the practitioners hereinbefore referred
to, benefits under the contract shall be provided regardless of which
practitioner performed the service, provided that the performance of
such service was within the scope of the license of such practitioner.
Unless such contract shall otherwise provide there shall be no
reimbursement for ophthalmic materials, lenses, spectacles, eyeglasses,
and/or appurtenances thereto.

(3) Every medical expense indemnity corporation shall be open to the
participation of licensed physicians, podiatrists, chiropractors,
optometrists, physical and occupational therapists, speech-language
pathologists, audiologists, and dentists, certified and registered
psychologists without discrimination against schools of medical
practice, podiatry practice, chiropractic practice, optometric practice,
physical and occupational therapy practice, dental practice,
speech-language pathology practice (subject to the permitted limitations
of paragraph one of this subsection), audiology practice (subject to the
permitted limitations of paragraph one of this subsection), and
psychological training as defined in the education law.

(c) Dental expense indemnity shall consist of reimbursement for dental
care provided through licensed dentists and of furnishing necessary
appliances, drugs, medicines, and supplies, prosthetic appliances,
orthodontic appliances, precious metal and ceramic restorations.

(d) (1) Hospital service shall consist of in-patient hospital care and
out-patient hospital care when such hospital care is provided through a
hospital which is maintained by the state or any of its political
subdivisions, or maintained by a corporation organized for hospital
purposes under the laws of this state, or such other hospitals as shall
be designated by the state department of health, and hospitals of other
states subject to the supervision of such other state, convalescent care
provided by any convalescent institution, or nursing care provided by
any nursing home.

(2) A hospital service corporation may also provide reimbursement for
expenses incurred outside of the hospital, convalescent institution or
nursing home, for nursing service, necessary appliances, drugs,
medicines, supplies, and any other services which would have been
available in the hospital, convalescent institution or nursing home
(excluding physicians' services), whether or not provided through a
hospital, convalescent institution or nursing home.

(3) A hospital service corporation may also furnish reimbursement for
ambulance service expenses.

(e) (1) Health service, as used in this article, shall consist of the
types of services referred to in this section.

(2) A health service corporation, in any hospital, facility or center
directly operated by it may provide hospital or medical care to persons
other than persons covered under contracts issued by such corporation.

(3) A health service corporation may:

(A) exercise all of the powers of a medical expense indemnity, dental
expense indemnity and hospital service corporation;

(B) organize, manage and promote a health maintenance organization as
such term is defined in article forty-four of the public health law;

(C) contract or otherwise act jointly with a hospital corporation
organized under article twenty-eight of the public health law, a
hospital service corporation organized pursuant to this article, a
health maintenance organization possessing a certificate of authority
pursuant to article forty-four of the public health law, a professional
service corporation organized under article fifteen of the business
corporation law, a university faculty practice corporation organized
under section fourteen hundred twelve of the not-for-profit corporation
law or a partnership for the purpose of organizing, managing and
promoting such prepaid comprehensive health services plan;

(D) contract or otherwise act jointly with an insurance company,
authorized to do an accident and health insurance business in this
state, for the purpose of organizing, managing and promoting such a
health maintenance organization.

(4) A health service corporation engaged in providing medical care
through medical groups, hospital services and dental care, may include
as a component of its rate a sum of five per centum of such rate to be
used for the purchase or construction of facilities for the conduct of
its business, and for the implementation of its program, or for making
loans for the purposes of implementing the program of such corporation.

(5) To encourage the development in this state of health maintenance
organizations as such term is defined in article forty-four of the
public health law, the superintendent may modify any requirement
applicable to health service corporations and other corporations
organized under this article to permit such corporations to make fuller
use of their resources in the development of such plans, including the
acquisition and construction of hospitals, medical service centers and
other health facilities and the equipment therefor, subject to such
limitations as the superintendent shall deem necessary or proper to
ensure the performance of contracts issued by such corporations and to
protect the interests of persons covered under such contracts.

(6) Any other corporation subject to the provisions of this article
may by appropriate amendment to its certificate of incorporation become
a health service corporation.

(f) No foreign or alien medical expense indemnity corporation, dental
expense indemnity corporation, health service corporation, or hospital
service corporation shall be authorized to do business in this state. No
person, firm, association or corporation shall in this state furnish or
contract to furnish medical expense indemnity, dental expense indemnity,
hospital service or health service under any insurance plan unless
authorized so to do under the provisions of this chapter.

(g) Two or more corporations organized pursuant to the provisions of
this article may, upon compliance with the applicable provisions of
article seventy-one of this chapter, consolidate, if the superintendent
finds that such consolidation will promote the public interest. No
corporation resulting from any such consolidation shall operate in any
county in which none of the corporations so consolidated was empowered
to operate immediately prior to such consolidation.

(h) A medical expense indemnity corporation or a hospital service
corporation may, pursuant to a plan submitted to and approved by the
superintendent, furnish both medical expense indemnity and hospital
service benefits, as these are defined in subsections (b) and (d) of
this section, by amending its certificate or act of incorporation in the
manner provided in the applicable provisions of the not-for-profit
corporation law and the cooperative corporations law. Except as the
context otherwise requires, a corporation writing both medical expense
indemnity and hospital service benefits shall be subject to all of the
provisions of this article applicable to medical expense indemnity and
hospital service corporations.

(i) Subject to the provisions of the preceding subsections, a hospital
service corporation and a medical expense indemnity corporation and a
dental expense indemnity corporation or any two of such corporations may
issue a combined contract providing for hospital service, medical
expense indemnity or dental expense indemnity, but no one of such
corporations shall issue any such combined contract unless it complies
with the applicable provisions of subsection (h) hereof. A hospital
service corporation and a medical expense indemnity corporation and a
dental expense indemnity corporation or any two of such corporations may
underwrite jointly in such a combined contract such benefits as each
might otherwise individually provide under this article. Any one of such
corporations may act as agent for the other without being required to
obtain a license as an agent under article twenty-one of this chapter.

(j) (1) Except as provided in this subsection, no medical expense
indemnity corporation, dental expense indemnity corporation, health
service corporation, or hospital service corporation shall be converted
into a corporation organized for pecuniary profit. Every such
corporation shall be maintained and operated for the benefit of its
members and subscribers as a co-operative corporation.

(2) An article forty-three corporation which was the subject of an
initial opinion and decision issued by the superintendent on or before
December thirty-first, nineteen hundred ninety-nine, as the same may be
amended or one or more article forty-three corporations whose main
offices on January first, two thousand seven were located in one of the
counties listed in section one thousand two hundred sixty-two of the
public authorities law and its or their not-for-profit subsidiaries
(including, without limitation, any such subsidiary licensed as a health
service corporation pursuant to this chapter or as a health maintenance
organization organized pursuant to article forty-four of the public
health law), hereinafter referred to in the singular, may be converted
into one or more corporations or other entities organized for pecuniary
profit, or into one or more for-profit organizations, in any such case,
in accordance with the provisions of section seven thousand three
hundred seventeen of this chapter.

(3) For the purposes of this subsection and section seven thousand
three hundred seventeen of this chapter, "public asset" shall mean
assets representing ninety-five percent of the fair market value of the
corporation seeking to convert into a corporation or other entity
organized for pecuniary profit pursuant to paragraph two of this
subsection; provided, however, that for the purposes of the conversion
of a corporation or corporations after the effective date of the chapter
of the laws of two thousand seven which amended this paragraph, "public
asset" shall mean assets representing ninety percent of the fair market
value of the corporation or corporations. Fair market value, as defined
in subsection (l) of section seven thousand three hundred seventeen of
this chapter, shall be determined as of the date the superintendent
approves the conversion transaction pursuant to subsection (f) of
section seven thousand three hundred seventeen of this chapter.

(4) In addition to any other requirements of law, rule or regulation,
the following requirements shall be applicable to the public asset:

(A) The public asset shall be transferred to the fund established
pursuant to subsection (e) of section seven thousand three hundred
seventeen of this chapter and the public asset shall be irrevocably
dedicated to the purpose as set forth in such section;

(B) There is hereby established a board for the purpose of advising
and making decisions with respect to the investment of assets and moneys
in the fund created pursuant to subsection (e) of section seven thousand
three hundred seventeen of this chapter. Such board shall be composed of
five members appointed as follows: three members shall be appointed by
the governor; one member appointed by the temporary president of the
senate; and one member appointed by the speaker of the assembly. Each
member of the board shall be appointed for a term of three years and may
be reappointed at the end of said term by the same person that made the
original appointment. A vacancy in the membership of the board shall be
filled for the unexpired portion of the term provided for by the
original appointment by the same person that made the original
appointment. Each member may be removed, other than upon the expiration
of his or her term, only for neglect of duty, misconduct or other good
cause. Each member of the board shall be a member of the public with
knowledge and expertise in capital markets and a demonstrated commitment
to ensuring continued access to, and availability of, health care
services and may not be an officer or employee of the state or any
municipal subdivision thereof;

(C) The members shall serve without compensation for their services as
members, but shall be entitled to reimbursement for actual and necessary
expenses incurred in the performance of their official duties. Such
members, except as otherwise provided by law, may engage in private
employment, or in a profession or business;

(D) The board and its corporate existence shall continue until there
are no longer any assets or moneys in the fund created pursuant to
subsection (e) of section seven thousand three hundred seventeen of this
chapter available for distribution;

(E) The affirmative vote of three of the members shall be necessary
for the transaction of any business or the exercise of any power or
function of the board. The board may delegate to one or more of its
members, or its agents, such powers and duties as it may deem proper;

(F) The board shall have the power to:

(i) direct, in consultation with the director of the division of the
budget regarding the anticipated schedule of payments to the state, the
manner in which moneys in the fund created pursuant to subsection (e) of
section seven thousand three hundred seventeen of this chapter are
invested so as to maximize the value of the assets in such fund
consistent with the board's statutory obligation to direct disbursements
as described below and in subsection (e) of section seven thousand three
hundred seventeen of this chapter;

(ii) direct that disbursements be made from such fund in accordance
with the direction of the director of the division of the budget and as
described in subsection (e) of section seven thousand three hundred
seventeen of this chapter; and

(iii) make and execute contracts and all other instruments, and to
exercise such other powers, necessary or convenient for the exercise of
its powers and functions.

In directing investments pursuant to this subparagraph, the board
shall not be limited by any restrictions on investments contained in any
other section of law, subject only to the board's obligations and the
considerations set forth above;

(G) (i) Neither the members of the board nor any agent or other person
or persons acting on its behalf, while acting within the scope of their
authority as members or agents of the board, shall be subject to any
personal liability resulting from the carrying out of the powers
conferred hereunder, and (ii) the provisions of section seventeen of the
public officers law shall apply to members of the board and agents or
other persons acting on its behalf, in connection with any and all
claims, demands, suits, actions or proceedings which may be made or
brought against any of them arising out of any determination made or
actions taken or omitted to be taken in compliance with any obligations
under or pursuant to the terms of this section or section seven thousand
three hundred seventeen of this chapter. The provisions of this
subparagraph shall be severable from and shall survive any legal
challenge to the legality, validity, or constitutionality of this
section;

(H) Any action or proceeding in which any question arises as to the
validity of any provision in this subsection or in section seven
thousand three hundred seventeen of this chapter, shall be preferred
over all other civil causes except election causes in all courts of the
state of New York and shall be heard and determined in preference to all
other civil business pending therein except election causes,
irrespective of position on the calendar. The same preference shall be
granted upon application of counsel to the board in any action or
proceeding questioning the validity of any provision herein in which he
or she may be allowed to intervene;

(I) To assist in carrying out its functions, the board shall be
authorized to hire independent financial, legal and other experts and
consultants;

(J) Inconsistent provisions of other laws are superseded. Insofar as
any provision in this section is inconsistent with the provisions of any
other law, general, special or local, the provisions in this section
shall be controlling;

(K) This section, being necessary for the welfare of the state and its
inhabitants, shall be liberally construed so as to effectuate its
purposes;

(L) Each member of the board shall be and shall remain independent of
any control or influence by the surviving corporation or other surviving
entity organized for pecuniary profit and its affiliates and successors.
Such requirement shall not prevent the board from voting its equity
shares in the for-profit organization in accordance with the voting and
shareholders rights agreement. No person who is an officer, director or
employee of the corporation seeking conversion at the time such
corporation applies to the superintendent for permission to convert
shall be a member of the board;

(M) The board shall establish formal mechanisms to avoid conflicts of
interest;

(N) The board shall enter into an asset preservation agreement with
the converted corporation; and

(O) Notwithstanding any other provision of law, the board shall direct
that such proceeds of the public asset are disbursed in accordance with
direction from the director of the division of the budget and
transferred to the credit of the tobacco control and insurance
initiatives pool, or its successor to be used for the exclusive purposes
provided therein.

(P) Section one hundred twelve of the state finance law shall apply to
the fund established pursuant to subsection (e) of section seven
thousand three hundred seventeen of this chapter and its board solely
and exclusively with respect to procurement contracts for consulting and
professional services recommended for award by the fund after June
twenty-third, two thousand five; provided that all such contracts
recommended for award by the fund on or before June twenty-third, two
thousand five shall be valid and effective in accordance with their
terms.

(Q) Section one hundred twelve of the state finance law shall not
otherwise apply to the fund established pursuant to subsection (e) of
section seven thousand three hundred seventeen of this chapter and its
board except as provided in subparagraph (P) of this paragraph. Without
in any way limiting the foregoing, section one hundred twelve of the
state finance law specifically shall not apply to any and all agreements
such fund, its board, or any medical expense indemnity corporation,
dental expense indemnity corporation, health service corporation or
hospital service corporation that has converted to for-profit status
pursuant to this section and section seven thousand three hundred
seventeen of this chapter, may enter into, or has entered into, in
connection with, or in anticipation of, sales of stock including, but
not limited to, any and all underwriting agreements, pricing agreements
and other documents related to such sales of stock or stock offerings,
whether such agreements are entered into in connection with initial
public offerings or subsequent public or private sales of stock.

(R) All disbursements from the fund established pursuant to subsection
(e) of section seven thousand three hundred seventeen of this chapter
shall be made pursuant to the provisions of this section and section
seven thousand three hundred seventeen of this chapter without an
appropriation. The provisions of this section and section seven thousand
three hundred seventeen of this chapter shall be controlling, any other
general, special or local law inconsistent therewith notwithstanding.

(5) For the purpose of this subsection and section seven thousand
three hundred seventeen of this chapter, "charitable asset" shall mean
assets representing five percent of the fair market value of the
corporation seeking to convert into a corporation or other entity
organized for pecuniary profit pursuant to paragraph two of this
subsection; provided, however, that for the purposes of the conversion
of a corporation or corporations after the effective date of the chapter
of the laws of two thousand seven which amended this paragraph,
"charitable asset" shall mean assets representing ten percent of the
fair market value of the corporation or corporations. Fair market value,
as defined in subsection (l) of section seven thousand three hundred
seventeen of this chapter, shall be determined as of the date the
superintendent approves the conversion transaction pursuant to
subsection (f) of section seven thousand three hundred seventeen of this
chapter. If one hundred percent of the stock is not transferred in
connection with the conversion transaction, the proportion of stock to
cash that is distributed as the charitable asset shall be the same as
the proportion of stock to cash that is distributed as the public asset.

(k) (1) The board of directors of each health service, hospital
service or medical expense indemnity corporation subject to this article
shall be composed of persons who are representative of the member
hospitals or licensed medical professionals of such corporation, persons
covered under its contracts and the general public. The board of
directors of such corporations may also include persons who are
employees of such corporations and who also serve as officers of such
corporations. Not more than one-fifth of the directors of any such
corporation shall be persons who are licensed to practice medicine in
this state (other than physicians employed on a full-time basis in the
fields of public health, public welfare, medical research or medical
education) or who are trustees, directors or employees of a corporation
organized for hospital purposes, or any combination thereof. Not more
than one-eighth of the directors of any such corporation shall be
persons who are employees of such corporation and who also serve as
officers of such corporation. Any person who is an officer of such
corporation but not an employee of such corporation shall be considered
under one of the other classifications of directors set forth in this
section, as appropriate. Whenever the maximum number of directors in
either of the classifications set forth in the preceding sentences
includes a fractional number equal to or greater than one-half, the
number shall be rounded to the next greater whole number. Whenever the
maximum number of directors in either of the classifications set forth
in the preceding sentences includes a fractional number less than
one-half, the number shall be rounded to the next lesser whole number.
Of the directors not included in the classifications set forth in the
preceding sentences,

(A) one-half in number, as nearly as possible, shall be persons
covered under a contract or contracts issued by such health service,
hospital service or medical expense indemnity corporation, and who are
generally representative of broad segments of such covered persons, and

(B) one-half in number, as nearly as possible, shall be persons whose
background and experience indicate that they are qualified to act in the
broad public interest, whether or not they are persons covered under a
contract or contracts issued by such health service, hospital service or
medical expense indemnity corporation.

(C) A person who, or whose spouse or minor child, is an officer,
director, or owner of more than ten per centum of the stock of a
corporation whose aggregate sales to hospitals and licensed medical
professionals and to facilities of a health service, hospital service or
medical expense indemnity corporation exceed five per centum of its
total sales may not serve as a director under subparagraph (A) or (B)
hereof.

(D) Each such health service, hospital service or medical expense
indemnity corporation shall have an executive committee the members of
which shall be composed, as nearly as possible, of representatives of
any member hospitals or licensed medical professionals of such
corporation, employee-officers of such corporation, persons covered
under its contracts and the general public in the same proportions as
the membership of the board of directors.

(E) The board of directors of a health service, hospital service or
medical expense indemnity corporation with a combined premium volume
exceeding two billion dollars annually as of December thirty-first,
nineteen hundred ninety-six shall, in addition to its other
responsibilities, have responsibility for ensuring that the corporation
implements and maintains effective standards and procedures for
operating efficiency and for quality of consumer service and claims
payment, including but not limited to coordination of benefits and fraud
prevention and shall establish one or more committees comprised solely
of directors who are not officers or employees of the corporation. Such
committee or committees shall have responsibility for recommending the
selection of independent certified public accountants, reviewing the
corporation's financial condition, the scope and results of the
independent audit and any internal audit, nominating candidates for
director for election by members, and evaluating the performance of
officers deemed by such committee or committees to be principal officers
of the company and recommending to the board of directors the selection
and compensation of such principal officers.

(2) (A) Compliance with the provisions of paragraph one hereof shall
be under the supervision of the superintendent.

(B) Within ten days after a vacancy in the board of directors of a
health service, hospital service or medical expense indemnity
corporation shall occur, such corporation shall notify the
superintendent in writing that such vacancy exists. Not more than ten
days after the election of a person as a director of a health service,
hospital service or medical expense indemnity corporation, such
corporation shall furnish, in writing, the following information to the
superintendent: the name and address of the person so elected; whether
such person is representative of any member hospital or licensed medical
professional of such corporation or persons covered under its contracts
or the general public and qualified to serve pursuant to the provisions
of paragraph one hereof or is an employee-officer of such corporation;
and a biographical statement concerning such person. If the
superintendent finds, after a hearing, that the composition of the board
of directors of a health service, hospital service or medical expense
indemnity corporation is not in compliance with the provisions of
paragraph one hereof, he may direct that such board of directors be
reconstituted in accordance with his finding.

(3) No person who has served as a director of any corporation subject
to this article for ten consecutive years shall thereafter be elected
for an additional term of office as such until at least one year has
elapsed since the expiration of his prior term of office. The preceding
sentence shall not apply to a director of any corporation subject to
this article who is an employee of the corporation and who also serves
as an officer of the corporation. The superintendent, upon application
by a corporation subject to the provisions of this article, may waive
the ten year limit in this paragraph for a non-employee serving as
chairman of its board of directors.

(4) A director of a corporation subject to this article shall
automatically forfeit his office if (i) he fails to attend at least one
of the regular meetings of the board of directors held during any period
of eighteen consecutive months, or (ii) unless excused by the board of
directors of which he is a member, which action shall be entered on the
minutes of such board, it shall appear at the end of any calendar year
that he failed to attend at least one-half of the regular meetings of
such board held in such calendar year. A director whose office becomes
vacant pursuant to the provisions of this paragraph shall not be
eligible for election to such office for a period of one year from the
date the vacancy occurred.