Chap. 230.—An ACT to declare policy as to, and to determine the character of,
plans, projects, or enterprises for the furnishing of future hospital, medical
and/or surgical services, by the operator, or operators, of any hospital, or of
any group or combination of hospitals, and/or by any representative group of
licensed physicians and/or surgeons, through medium of contracts, or securities,
made or issued, in pursuance of a uniform plan, with or to the general public,
or certain classes of the public; to declare the character of contracts made, or
securities issued, in connection with the formation and operation of such plans,
projects, or enterprises; to authorize the formation and operation of such
plans, projects, or enterprises; to provide for distribution of such contracts, or
securities, and management of such plans, projects, or enterprises, directly, or
through medium of agencies, including non-stock, non-profit corporations; to
provide for the creation, operation, and respective liabilities of such non-stock,
non-profit agencies, and for disposition of surplus funds; to determine respective
liabilities of operators of any such plan, project, or enterprise; to provide for
the issuance of licenses for distribution of contracts, or securities, for, and
management of, the operation of, and to provide for the regulation and super-
vision of, such plans, projects, or enterprises; to prescribe the fees to be paid
in connection with licensing, regulation, and supervision thereof; to make
appropriate classifications for purposes of taxation; to prescribe and impose
penalties, and provide civil redress; to confer jurisdiction, directly and by
reference to the Securities Law, upon the State Corporation Commission; to
repeal all laws and parts of laws insofar as irreconcilably inconsistent, to the
extent necessary to give effect hereto but no further; and to declare an emer-
gency. [S B 253]
Approved March 16, 1940

Whereas, the operators and owners of several hospitals, singly
| in groups or combinations have, for several years, directly, or
ough medium of voluntary associations, or of non-stock, non-
fit corporations, respectively, offered and sold to the public, under
form plans, projects, or enterprises, their several, or joint, con-
cts, or securities, as defined in the Securities Law, providing for
furnishing, or rendition of future hospital services, as and when
ded, within the respective terms of such contracts; and

Whereas, such plans, et cetera, have been customarily conducted,
civic enterprises, under the auspices, sponsorship, and patronage,
oublic-spirited citizens, of those interested in hospitals as owners,
ators, and members of hospital boards and staffs, of members of
medical profession, and of medical associations; and

Whereas, such plans, et cetera, have been customarily conducted,
far as operation thereof is concerned, on the theory, and with the
pose, that no direct profit would accrue to anyone from the dis-
tribution of such contracts or from management of such plants, et
cetera; and

Whereas such plans, et cetera, have been generally successful and
have been promotive of the general welfare of the people of the
respective communities wherein conducted; and

Whereas, such plans, et cetera, have been conducted under the
supervision of the State Corporation Commission, under the Se-
curities Law, upon the principle that such contracts and under-
takings, when involving direct obligation on the part of the operator,
or operators, of the hospital, or hospitals, proposing and contracting
to perform the services, constitute service contracts and are securities
within the scope of the definition of securities in the said Securities
Law; and

Whereas, the proposal has been under discussion, and the desire
has been manifested, for the inauguration and operation of similar
plans, et cetera, for the furnishing of medical and/or surgical services
by groups of licensed physicians and/or surgeons, other than in
hospitals and otherwise than in connection with hospitalization plans;
and;

Whereas, the inauguration and operation, under proper regulation
and supervision, of medical and/or surgical service plans appear to
tend to be promotive of the public welfare; and

Whereas, it would appear to be desirable that there be legislation,
not only to enable the formation and operation of medical and/or
surgical plans, analogous to hospitalization plans which have been in
operation, but to declare the nature and character of such plans as
contracts, or securities, for future services, and to provide for licensing
the operators of, and for the regulation and supervision of the opera-
tions of, such plans, et cetera, otherwise than in connection with
operation of hospitalization plans, et cetera, as, at present in some
instances, being operated, but without the necessity of compliance
with all of the technicalities of the Securities Law, and with a scale
of fees less than, and more commensurate with the character of such
enterprises than, those prescribed by the Securities Law, which was
originally devised with reference to, and is more appropriate to, the
distribution of securities of commercial or quasi-commercial character;
an

Whereas, it is deemed to be desirable to authorize and provide
for a convenient, though optional, method of distribution and man-
agement, by means of agencies consisting of non-profit corporate
entities, created and organized for the specific, and only, purposes of
effecting distribution of such contracts, or securities, and for the man-
agement and conduct of such plans, et cetera, or of any one or more
of them; now, therefore,

1. Beit enacted by the General Assembly of Virginia, That any
operator or operators of any hospital, or group or combination of
hospitals, located within or without, or some of which are located
within and some without, the confines of the Commonwealth, be,
and hereby is or are, authorized, permitted and empowered to for-
mulate and conduct, or to continue to conduct, directly, or through
medium of any authorized agency, inclusive of any non-profit corpora-
tion created and organized, or actually operating, for such purposes
only, a plan, enterprise or project for the furnishing, upon a uniform
basis or bases, of future hospitalization services, within the terms
agreed upon in such uniform contract or contracts, and there may
be included agreement for the rendition of medical and/or surgical
services at such hospital or at such participating hospitals, provided
that there be involved in such contracts or securities direct obligation
on the part of such operator or operators of such hospital or hospitals
and upon the part of such physicians and/or surgeons by whom
medical and/or surgical services, within such hospital or hospitals,
are to be rendered to subscribers, or contract holders, directly and
indirectly, and subject to the obtaining of license, the regulation and
supervision, the payment of fees, and the compliance with other valid
requirements, all as hereinafter provided;

That any group of licensed physicians and/or of surgeons, not
less than such number, and of such professional standing, as in the
opinion of the commission, shall be fairly and reasonably representa-
tive of the profession in the community and territory that will be
served under the authorization, or license, if and when issued, may,
by direct and joint contract, containing reasonable provisions for
change of personnel, or through medium of like contracts to be made,
or securities to be issued, on their behalf and upon their joint con-
tractual responsibility, by and in the name of an authorized agency,
natural or corporate, but not operating or organized for profit, in-
augurate and operate a plan, project or enterprise for the furnishing
of future medical and/or surgical services, as and when needed,
through the terms of a uniform contract, at a hospital and/or else-
where, by the member of the group selected, and/or upon the basis
of a reasonable plan for distribution of the actual performance of
services amongst the participating physicians or surgeons, as the
case may be, provided that there be direct personal and contractual
obligation, within the terms of the uniform contract or contracts,
upon the physicians and/or surgeons participating at the time of
the entry into the contract, subject to change of personnel and the
lapse of obligations as in the contract may be provided, and upon
the participating physicians and/or surgeons at the time medical
and/or surgical services shall be demanded within the scope of the
contract, and provided that the participating physicians and/or
surgeons and, in case of hospitalization plans, the operators of the
participating hospitals, be, and they hereby are, made liable only for
contractual obligations of other participants, but no participant shall
be liable except for his or its wrongful act or neglect, if such exemption
from liability for wrongful act or neglect of other participants be
clearly stated in such uniform contract or contracts or security or
securities, and provided, further, that the participating physicians
and/or surgeons need not be nominal parties to the uniform contracts
or securities hereby being authorized to be made, but such contracts
may be made in the names of their joint agent for distribution and
management, on behalf of, and imposing contractual obligations
upon, the participating physicians and/or surgeons, subject to change
in personnel, and rights of action are hereby recognized, on the part
of subscribers, or contract holders, and others within the scope of
the terms of such contracts against the participating physicians
and/or surgeons according to the principles of common law and of
any existing statutory provisions under which the beneficiary of a
contract may sue without being a party thereto, and in accordance
with the intent, purposes and provisions of this enabling act, and
provided that the participating physicians and/or surgeons, both
original and those who subsequently become participants, shall, in
case the functions of distribution and management are conferred
upon an agent, enter into a contract, or contracts, with such agent
and expressly agree, amongst other terms and provisions of such
contract, to become and be liable to subscribers or contract holders
for the performance of services within the scope of the provisions,
limitations and restrictions of such uniform contract or contracts, or
security or securities, and subject to the obtaining of license, the
regulation and supervision, the payment of fees, and the compliance
with other valid requirements, all as hereinafter provided.

Similar agreements, and conformatory contracts, may be made
by operators of hospitals, for changes in participants.

All such contracts made, or securities issued, whether for hospital,
medical and/or surgical services, shall be upon an annual basis, but
may be made automatically renewable for successive years, unless
cancelled by either party, upon notice as shall be provided in such
contracts or securities.

No hospital, physician, or surgeon, participating in one plan,
project, or enterprise, shall participate directly or indirectly in any
other, nor operate, alone, any such plan, et cetera, unless such other
plan, et cetera, be strictly non-competitive, or, if competitive, the
commission is of opinion, and so finds, that such dual or multiple
participation, or operation, is not, on the whole, detrimental to public
interest.

That the commission shall have authority, in the administration
of the provisions of this act, to determine, and to decide disputes as
to, the territorial scope of such plans, projects, or enterprises, with
a view to eliminating or minimizing competition which, in the opinion
of the commission, would, or might, prove obstructive to a healthy
growth and development or otherwise tend to defeat or impede the
accomplishment of the objectives of the law.

No payments on account of services rendered shall be contracted
to be paid, nor shall be paid, direct to subscribers, or contract holders,
except only in cases of emergency service, within the terms of the
contract, when the operator of the hospital, physician or surgeon
performing emergency service within the terms of the contract, on
behalf of the contracting party, or parties, required, or actually re-
ceived, payment from, or on behalf of, the subscriber, or contract
holder, to whom such emergency services have been rendered.

Nothing herein shall be construed to have, nor shall have, the
effect of impairing, or affecting, in any manner, the rights of licensed
insurance, or benefit companies, or associations, nor of unincorporated
associations, organized and operating, or which shall in the future be
organized and shall operate, under and in accordance with any exist-
ing or future law of the Commonwealth, and are engaged, or which
in the future shall engage legitimately, whether for profit or otherwise,
in activities having the same general objectives, or any of them.

2. That it shall be unlawful for the operator of any hospital, any
physician, or any surgeon, or for any group or combination of any
of them, to conduct and operate in Virginia any hospitalization,
medical and/or surgical plan, project or enterprise, and it shall be
unlawful for any person, natural or corporate, to offer, sell or distribute,
in Virginia, whether within or from without the confines of the Com-
monwealth of Virginia, any hospitalization, medical and/or surgical
contracts, or securities, unless and until the requisite license shall
have been issued by the State Corporation Commission, as hereinafter
provided for, and the provisions of Section fifteen of the Securities
Law, providing for punishment and for civil redress, shall be appli-
cable to any person, natural or corporate, who or which shall do
any act hereby declared to be unlawful, as fully and completely as
if the provisions, of said Section fifteen of the Securities Law, Chapter
five hundred and twenty-nine, Acts nineteen hundred and twenty-
eight, as amended heretofore and as same may be hereafter amended,
which provisions are, by reference, incorporated herein, were re-
peated at large herein; and the provisions of Section six of the Se-
curities Law, Chapter five hundred and twenty-nine, Acts nineteen
hundred and twenty-eight, as amended heretofore and as may be
hereafter amended, providing for the issuance of cease and desist
orders, under certain circumstances, are hereby incorporated by
reference and shall be applicable to the same extent as if the said
provisions of Section six of the Securities Law were repeated at large

erein.

Before any contracts, or securities, as defined herein and/or as
the term security is defined, or shall hereafter be defined, in the
Securities Law, for the furnishing of hospital, medical and/or surgical
services or for the operation and conduct, directly or indirectly, of
any hospitalization, medical, and/or surgical plan, project, or enter-
prise, and before there be offered or sold in Virginia, whether within
or from without the Commonwealth of Virginia any such contracts
or securities, and/or before any such contract or security be advertised
for sale, there shall be obtained from the State Corporation Commis-
sion an authorization or license, and license for each solicitor or
salesman, analogous to authorization, or license, and to license tc
act as solicitor or salesman, required by, and issued under, provisions
of the Securities Law, as follows:

(a) An authorization or license on the part of the operator, o1
operators, of a hospital, or of a group of hospitals, and/or a grour
of physicians and/or of surgeons, proposing to conduct a hospitaliza-
tion and/or medical and/or surgical plan, project, or enterprise; 01
on the part of the duly accredited agent for the purpose of distribu-
tion of such contracts or securities and for the management anc
performance of all details, except the rendition of services, pertaining
to any such plan, et cetera;

(b) <A license for each solicitor or salesman;

Provided that no further authorization or license and/or solicitor’s
or salesman’s license shall be necessary as to the operation of any
hospitalization plan authorized under the Securities Law on the
date that this law takes effect, prior to the beginning of the next
ensuing license year, to-wit, May first, but any such then existing
licensee may, at option, obtain authorization or license, and sales-
man’s or solicitor’s license, in accordance with the provisions of this
act for the remainder of the then current license year ending at mid-
night, April thirty.

The authorization or license, and salesman’s or solicitor’s license
provided for by this act shall be upon an annual basis, and filing and
annual fees shall be payable as follows:

(a) Filing fee, in the amount of twenty-five dollars, payable
upon making application and, if authorization or license applied for
be issued, said filing fee shall serve as license fee for the portion of the
license year remaining from date of issuance of authorization or
license to the following May first;

(b) A filing fee of five dollars payable upon application for sales-
man’s or solicitor’s license, and, if license be issued, such fee shall
serve as license fee for the remainder of the license year;

(c) On the basis of the first five thousand subscribers, or any
fraction thereof, an annual license fee, for the ensuing license year,
May first to midnight, April thirty, following, shall be payable by,
or on account of, each holder of an authorization or license in the
amount of twenty-five dollars;

(d) In case the number of subscribers, or contract holders,
during the preceding year be in excess of five thousand, but not in
excess of ten thousand, fifty dollars;

(e) If in excess of. ten thousand, and not over twenty thousand
during the preceding license year, seventy-five dollars;

(f) If in excess of twenty thousand, one hundred dollars;

(g) For each solicitor or salesman there shall be paid an annual
license fee, for the license year, May first to midnight, April thirty,
following, or any part thereof, in the amount of two dollars and
fifty cents;

(h) For every relicensing of a solicitor or salesman whose former
license shall have expired, or been cancelled, a year or more prior to
date of relicense, the fee shall be five dollars:

Provided, such licensed salesmen or solicitors, whether neiaral or
corporate, shall alone be entitled to solicit application or the entry
into, or purchase of, such contracts or securities outside of place
of business of any participating hospital, physician, surgeon, or
managing association or agent, but any such participant, or the bona
fide officers, and regular employees of any such participant, or of a
managing association or agency, may, without a salesman’s or solici-
tor’s license, bring such plan to attention, in such place of business
only, and refer any person inquiring, or person interested, to a licensed
salesman or solicitor.

The authorization or license, and salesman’s or solicitor’s license,
provided for herein, shall be for the distribution of contracts, or
securities, and for the operation of such plan, et cetera, but need not
be for a specific amount. ;

Authorizations, or licenses, and solicitors’ or salesmen’s licenses,
provided for herein, shall be issued by the State Corporation Com-
mission and, except as otherwise and inconsistently provided in this
act, the provisions of the Securities Law shall be applicable and
shall be followed in the administration of this law by the State Corpora-
tion Commission, in issuing licenses and in exercising regulation and
supervision of such plans, et cetera, in pursuance of authority for
issuance of licenses, regulation and supervision, hereby conferred upon
the State Corporation Commission; provided that in the issuing of
authorizations or licenses, and solicitors’ or salesmen’s licenses here-
under, in the investigation and consideration of applications here-
under, in requiring the making of reports, and otherwise in the ad-
ministration of this law, the Commission shall have authority to
exercise a sound discretion and may, by a general or specific regula-
tion, subject to change from time to time, waive or dispense with
such of the mandatory requirements of Section five of the Securities
Law as are deemed to be unnecessary or inapplicable in view of the
character of the enterprises which constitute the subject matters of
this act, and/or in view of the objects which are desired to be at-
tained, provided that any action by the Commission under this act
shall be subject to the right of appeal to the Supreme Court of Ap-
peals, on the part of any person or party in interest, or on behalf of
the Commonwealth, as in other similar cases made and provided.

- However, it shall not be necessary that the language beginning
“The value’, required by subdivision (m) of Section five of the
Securities Law to be used and printed in red, be used by any licensee,
or by any existing licensee under the Securities Law, after having
conformed to the provisions of this law, but every application and
contract, or security, form, for use, and used, under the provisions
of this law, shall contain, immediately before the place for the sig-
nature of the subscriber or contract holder, in shaded type, the
following language: “This is not an application for, or a contract of,
insurance’’; and it shall not be necessary that advertising by a licensee
under this act be submitted to, and approved by, the State Corpora-
tion Commission, but in running advertisements and making solicita-
tions through medium of any written or printed matter, as well as in
verbal representations, the use of language peculiarly appropriate to,
or generally identified with, the conduct of the business of insurance,
and the use of language tending to indicate that the business is that
of insurance shall be avoided, and the Commission shall have au-
thority, by peremptory order, formal or informal, without notice or
hearing, to suspend running of advertisements, and the use of any
written or printed matter, deemed to contravene such requirement
of this act, for a period of fifteen days, at the expiration of which
period, or sooner upon request, a hearing may be had, if desired, for
the purpose of determining whether such peremptory order shall be
modified, vacated, or continued permanently or indefinitely, and the
persistent violation of, or disregard of, such requirement as to adver-
tising matter, et cetera, shall be ground for suspension or revocation
of license, after due notice and full hearing.

Corporations for the purpose of acting as agents for distribution
of the contracts or securities, and for the management of such plans,
may be created under Chapter one hundred and fifty-one of the Code
of Virginia, nineteen hundred and nineteen, as same has been, or may
be, from time to time amended, but such corporations shall have no
other purposes or powers except such as pertain to plans, projects, or
enterprises as provided for, and authorized by, this act, and any other
purposes or powers in the certificate of incorporation of now existing
agencies, and any other purposes or powers in the charter of any
foreign corporation which shall act as an agency under the provisions
of this act, shall not be exercised in the State of Virginia so long as
such corporation shall act as an agency, as provided for, and con-
templated in, this act, provided that any such corporation heretofore
or hereafter chartered under the laws of the State of Virginia and
authorized and acting, or proposed to be authorized and act, as an
agency under the provisions of this act may, by certificate of in-
corporation, by amendment, or by by-laws, make provision for the
nomination and/or designation of directors, managers or trustees by
any non-member association, organization, or agency, whether in-
corporated or unincorporated, provided that such organization,
agency or association upon which any such power of nomination or
designation be conferred shall be of a civic, eleemosynary, professional,
public, or other similar character, or a participant, directly or indi-
rectly, in the particular plan, project, or enterprise, anything in
Chapter one hundred and fifty-one of the Code of nineteen hundred
and nineteen to the contrary notwithstanding.

There shall be no liability upon any such corporation for the
performance of the services agreed to be performed in any such
contracts made or securities issued in pursuance of the provisions of
this act, and every application and contract form used shall clearly
set forth such fact, but the sole liability for obligations incurred, and
bills contracted, in an about distribution of the contracts or securities
and in and about the management of any such plan, enterprise, or
project, shall be upon such corporation, unless otherwise expressly
agreed by the participants.

The rights of subscribers or contract holders for the rendition of
services, or other obligations arising out of the contract, and all
obligations arising in connection with, and pertaining to, such con-
tract, shall be upon the operators of the participating hospitals and/or
participating physicians and/or surgeons respectively, and it shall
not be necessary, except as may be required by the State Corporation
Commission in the exercise of its discretion and with a view to the
ultimate success and continuance of any such plan, project, or enter-
prise, that there be any particular reserve, or that rates for the ser-
vices be necessarily sound and proper from an actuarial standpoint,
but the Commission, in the administration of this law and in the
performance of the functions and duties conferred upon it, shall take
into purview the financial and moral responsibility, and the ability
and capacity to render the services contracted for, on the part of the
operators of the hospitals, physicians and/or surgeons who or which
propose to, or are contracting to, furnish or render the services, and
in this connection the Commission may, in its discretion, require
bond at any time in reasonable penalty and with satisfactory surety,
or other satisfactory security.

Any amount remaining in possession of any such agency duly
incorporated under the laws of this Commonwealth, after discharge
of all obligations of every kind whatsoever, upon the termination of
any such plan, project or enterprise, shall be disposed of in an ap-
propriate and equitable manner by a court of equity, at the instance
of the agent in possession, or, at option, paid to the Commonwealth
of Virginia for credit to the Literary Fund. If hospitals participating
in such plan shall have provided by contract among themselves for
distribution of any amount so remaining, the same shall be dis-
tributed in the manner so provided.

Any such agency, duly incorporated under the laws of this Com-
monwealth, and subject to the provisions of this act, may receive
appropriations, donations, and gifts of any kind of property and in
any manner whatsoever, and same and/or income therefrom, may
be used, in the discretion of the board of directors, for the purposes
of furthering such plan, et cetera, and through it the public welfare,
by extension of services, reduction of rates, segregation to low income
class or classes of citizens, or a combination of any of these, or other-
wise as shall be consistent with, and promotive of, the general objects
of this legislation and the existence of such plans, projects, or enter-
prises, with the proviso that none of such funds nor any other funds
shall ever be appropriated to, or used for reimbursement of, any
participating operator, any hospital, physician or surgeon, on account
of services rendered as charity, in whole or in part; otherwise such
appropriations, donations, and gifts shall be subject to free control
of the board of directors, managers, or trustees, except insofar as
the terms of the appropriation, donation, or gift shall expressly cir-
cumscribe or extend the use thereof, and the unused portion of income
or corpus of any such donations, upon termination of the enterprise
and the discharge of all obligations, to which such unused portions
might be applied, shall be disposed of as other surplus funds upon
termination of such plan, project, or enterprise. The provisions
hereof as to appropriations, donations, and gifts and as to disposition
of surplus upon termination shall not be applicable to any such plan,
project, or enterprise, which shall be operated directly and without
interposition of an incorporated agency such as provided for in this
act, nor shall provisions be applicable to any foreign agency duly
authorized to act hereunder nor to any natural agency nor to any
unincorporated association.
3. The fees upon incorporation, and the fees payable under this
act, by or on behalf of any incorporated agency, shall be in lieu,
while acting under the provisions of this act, of all State and local
licenses, fees, and- taxes, whether on income, bank or other deposits,
money, securities, or other property or property rights, tangible or
intangible, except physical property, real and personal, and except
any charges, such as annual registration fee, as to which, by the pro-
visions of the Constitution, the Legislature is prohibited from pro-
viding for exemption; but nothing herein shall be construed to exempt
from taxation any income derived from services rendered from opera-
tion of any such plan, project, or enterprise, on the part of any partici-
pant therein, provided that the interest, as such, on the part of any
participant in any such plan, project, or enterprise, when operated
through an incorporated, non-profit agency, under the provisions of
this act, shall not be subject to any taxation, State or local.

4. All laws and parts of laws irreconcilably inconsistent with the
provisions hereof are hereby repealed to the extent necessary to give
full effect to the provisions of this act, but not further.

5. An emergency existing, this act shall be in force from its pas-
sage.