Can a Texas hospital district house and manage a private imaging business inside its own hospital?

TX AG Opinion GA-0546: Can a hospital district run a private imaging business in its hospital?

Plain-English summary

The Angleton-Danbury Hospital District in Brazoria County ran a 64-bed general hospital. A private company proposed buying an advanced CT scanner, putting it in the district's hospital, and letting the hospital handle the day-to-day operation, scheduling, billing, marketing, supplies, and maintenance. The hospital would keep 30 percent of the imaging center's profits and the private company would keep 70 percent. Without this arrangement, the district said, it could not acquire the scanner at all. A state representative asked the Attorney General whether the district was legally allowed to house and manage that private imaging business.

The Attorney General answered that the district had the authority, subject to constitutional limits. A hospital district is a creature of the Legislature and can exercise only the powers the Legislature expressly gives it or that exist by clear and unquestioned implication. Chapter 1002 expressly let the district acquire a CT scanner as equipment necessary or appropriate for providing health care, and gave the board broad power to do whatever was necessary, convenient, or incidental to the district's purposes. Because acquiring the scanner was expressly authorized, and the district said the proposed deal was the only way to get it, the opinion concluded the district had the implied authority to house and manage the private imaging business.

That was not the end of the analysis. The opinion stressed that the arrangement also had to clear two constitutional hurdles. Under article IX, section 9, a hospital district's buildings and equipment must be used for "hospital purposes" and the district must take full responsibility for caring for its needy residents; so long as the scanner was sufficiently available to needy patients, that requirement would be met. Under article III, section 52(a), which forbids a political subdivision from giving public money or things of value to a private party, the deal had to satisfy a three-part test: a predominantly public purpose, retained public control, and a return benefit to the district. The opinion said the arrangement appeared to serve a public purpose and keep public control, but it would not decide whether the 30/70 profit split and the fees were adequate, because those were fact questions outside the scope of an AG opinion.

Currency note

This opinion was issued in 2007. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The chapter 1002 special-district provisions, Health and Safety Code section 285.051, and the constitutional tests applied here may have been refined by later cases or opinions since 2007. Confirm the current statutes and the current state of the article III, section 52 "public purpose" test before relying on this analysis.

Who this opinion affected (as of 2007)

The Angleton-Danbury Hospital District and its board: The opinion told the board it had implied authority to house and manage the private CT-scanner business, but that the deal still had to serve a hospital purpose under article IX, section 9 and survive the article III, section 52 gift-clause test. The opinion expressly left the adequacy of the 30/70 split and the fee terms for the board and, ultimately, a court to resolve as fact questions.

Other Texas hospital districts: The opinion read chapter 1002's "necessary, convenient, or incidental" language as giving boards substantial discretion to enter public-private equipment arrangements, while reaffirming that any such arrangement was still bound by the gift-clause analysis.

The private imaging company: The opinion confirmed there was a lawful path for the company to place its scanner in a public hospital and share profits, but conditioned it on the district keeping public control and getting an adequate return, neither of which the opinion certified on the facts given.

Common questions

Can a Texas hospital district partner with a private company to bring in medical equipment?
Based on this opinion, yes. The Attorney General concluded the Angleton-Danbury district had implied authority under chapter 1002 to house and manage a private CT-scanner business, because acquiring the scanner was expressly authorized and the partnership was, on the facts presented, the only way to get it.

Does the hospital district have unlimited freedom to structure the deal?
No. The opinion said the arrangement had to serve a "hospital purpose" under article IX, section 9 and satisfy the article III, section 52 test: a predominantly public purpose, retained public control, and a return benefit to the district.

Why wouldn't the Attorney General just approve the 30/70 profit split?
The opinion explained that whether the split and the fees were adequate consideration were questions of fact, and the AG opinion process does not decide fact questions. It pointed to GA-0139 for that limit.

What does the gift-clause test require?
Quoting the Texas Supreme Court, the opinion listed three requirements: the predominant purpose must be public rather than to benefit private parties; the government must retain control over the funds to protect the public's investment; and the political subdivision must receive a return benefit.

Background and statutory framework

The district was a hospital district created by special law, codified at Special District Local Laws Code chapter 1002, under the authority of article IX, section 9 of the Texas Constitution, which lets the Legislature create hospital districts that "shall assume full responsibility for providing medical and hospital care for its needy inhabitants" (Tex. Spec. Dist. Code Ann. § 1002.002 (Vernon 2006); Tex. Const. art. IX, § 9). As a political subdivision, the district had "full responsibility for providing medical and hospital care for the district's needy residents" (Tex. Spec. Dist. Code Ann. §§ 1002.003, .101 (Vernon 2006)). A hospital district may exercise only the powers expressly delegated to it or that exist by clear and unquestioned implication, with implied powers being those indispensable to accomplishing the purposes of the district's creation (Jackson County Hosp. Dist. v. Jackson County Citizens for Continued Hosp. Care, 669 S.W.2d 147, 154 (Tex. App.-Corpus Christi 1984, no writ); Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 946 (Tex. 1940); Mascarenhas v. Meridian Hosp. Auth., 560 F.2d 683, 685 (5th Cir. 1977)).

The Act gave the board "all powers necessary, convenient, or incidental to carry out the purposes for which the district was created" and total management and control of the district's business, including power to contract with private individuals, associations, or corporations to purchase or lease land, construct and equip a hospital system, and operate and maintain a hospital (Tex. Spec. Dist. Code Ann. § 1002.103(a)-(b) (Vernon 2006)). It directed the district to establish a hospital system by acquiring and equipping facilities for hospital purposes, and provided that a hospital system "may include any facility or equipment the board considers necessary or appropriate for providing health care services," including ancillary support (Tex. Spec. Dist. Code Ann. § 1002.104(a)-(b) (Vernon 2006)). The board could acquire and lease office facilities and equipment to staff physicians and execute contracts for operating, management, or consulting services if it retained responsibility for and control of the district's operation (Tex. Spec. Dist. Code Ann. § 1002.058(b)-(c), § 1002.105(a) (Vernon 2006)). General law also authorized a hospital district to lease all or part of its hospital if the transaction was in the best interest of district residents (Tex. Health & Safety Code Ann. § 285.051(a) (Vernon 2001)).

Because the Act expressly authorized the district to obtain a CT scanner as equipment necessary or appropriate for providing health care services, and the district stated it could not otherwise acquire the scanner, the opinion concluded the district had implied authority to house and manage the private imaging business. The opinion then turned to the constitution: article IX, section 9 required use for "hospital purposes" and care for needy inhabitants, satisfied to the extent the scanner was made available to needy patients; and article III, section 52(a) barred grants of public money or things of value to private parties, tested under the three-part standard from Tex. Mun. League Intergovernmental Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002) (public purpose, retained public control, return benefit). The opinion declined to resolve whether the district's predominant purpose was public or whether the 30/70 split and fees were adequate, citing the rule that the opinion process does not determine fact questions.

Citations

Statutes and constitutional provisions:

• Tex. Spec. Dist. Code Ann. § 1002.002 (Vernon 2006)
• Tex. Spec. Dist. Code Ann. §§ 1002.003, .101 (Vernon 2006)
• Tex. Spec. Dist. Code Ann. § 1002.058(b)-(c) (Vernon 2006)
• Tex. Spec. Dist. Code Ann. § 1002.103(a)-(b) (Vernon 2006)
• Tex. Spec. Dist. Code Ann. § 1002.104(a)-(b) (Vernon 2006)
• Tex. Spec. Dist. Code Ann. § 1002.105(a) (Vernon 2006)
• Tex. Health & Safety Code Ann. § 285.051(a) (Vernon 2001)
• Tex. Const. art. IX, § 9
• Tex. Const. art. III, § 52(a)

Cases:

• Jackson County Hosp. Dist. v. Jackson County Citizens for Continued Hosp. Care, 669 S.W.2d 147, 154 (Tex. App.-Corpus Christi 1984, no writ)
• Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 946 (Tex. 1940)
• Mascarenhas v. Meridian Hosp. Auth., 560 F.2d 683, 685 (5th Cir. 1977)
• Tex. Mun. League Intergovernmental Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0546
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2007/ga0546.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain - the linked PDF is authoritative.

GREG ABBOTT

May 10, 2007

The Honorable Dennis Bonnen
Chair, Committee on Environmental Regulation
Texas House of Representatives
Post Office Box 2910
Austin, Texas 78768-2910

Opinion No. GA-0546

Re: Whether the Angleton-Danbury Hospital District of Brazoria County is authorized to house a private imaging business in the district's hospital facility and to manage the private imaging business (RQ-0542-GA)

Dear Representative Bonnen:

On behalf of the Angleton-Danbury Hospital District of Brazoria County, Texas (the "District"), you ask whether the District is authorized "to house a private imaging business in the District's hospital facility and to manage that private entity['s] imaging business, in order to obtain an imaging capacity it would not otherwise have."

We are informed that the District operates the Angleton-Danbury Medical Center (the "Hospital"), a 64-bed, general hospital. Request Letter, supra note 1, at 1. A private entity has proposed acquiring an advanced computerized axial tomography (CT) scanner, housing the scanner and its operation at the Hospital, and having the Hospital manage the daily operation of the CT scanner. The private entity would pay the Hospital a fee for the management services and for housing the CT scanner. See Request Letter, supra note 1, at 1. The Hospital would receive 30 percent of the profits from the CT imaging center, and the private entity would retain the remaining 70 percent. The proposed arrangement would make available to the Hospital an advanced CT scanner that it would not otherwise acquire at this time. See Request Letter, supra note 1, at 1.

The District is a hospital district created by special law, codified at Special District Local Laws Code chapter 1002 (the "Act"), under the authority of Texas Constitution article IX, section 9. See TEX. SPEC. DIST. CODE ANN. § 1002.002 (Vernon 2006); see also TEX. CONST. art. IX, § 9 (authorizing the Legislature to provide by special or general law for the creation and operation of hospital districts that "shall assume full responsibility for providing medical and hospital care for its needy inhabitants"). As a hospital district, the District "may exercise only those powers expressly delegated to it by the Legislature, or which exist by clear and unquestioned implication." Jackson County Hosp. Dist. v. Jackson County Citizens for Continued Hosp. Care, 669 S.W.2d 147, 154 (Tex. App.-Corpus Christi 1984, no writ) (citing Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 946 (Tex. 1940) with respect to the authority of special districts and Mascarenhas v. Meridian Hosp. Auth., 560 F.2d 683, 685 (5th Cir. 1977) with respect to a municipal hospital authority). Implied powers are those that are "indispensable to . . . the accomplishment of the purposes of [the special district's] creation." Tri-City, 142 S.W.2d at 947.

Keeping in mind the above principles, we look at the District's statutory authority under the Act and applicable general law. The District is a political subdivision of the state with "full responsibility for providing medical and hospital care for the district's needy residents." TEX. SPEC. DIST. CODE ANN. §§ 1002.003, .101 (Vernon 2006); see also TEX. CONST. art. IX, § 9. The Act grants the District's board of directors "all powers necessary, convenient, or incidental to carry out the purposes for which the district was created." TEX. SPEC. DIST. CODE ANN. § 1002.103(a) (Vernon 2006). Additionally, it provides that the board has total management and control of the District's business,

including the power to negotiate and contract with any person to purchase or lease land, to construct and equip a hospital system, to operate and maintain a hospital or hospitals, and to negotiate and contract with . . . private individuals, associations, or corporations for those purposes, all as may be determined to be necessary or desirable for the district.

Id. § 1002.103(b). The Act directs the District to establish a hospital or hospital system to provide health care services to district residents by acquiring and equipping buildings and improvements and administering them for hospital purposes. See id. § 1002.104(a). Under the Act, a "hospital system may include any facility or equipment the board considers necessary or appropriate for providing health care services, including . . . ancillary support." Id. § 1002.104(b). The board also has the authority to acquire and lease office facilities and equipment to staff physicians. See id. § 1002.058(b)-(c). Additionally, the Act permits the board to execute contracts to obtain operating, management, or consulting services if the board "retains responsibility for and control of the district's operation." Id. § 1002.105(a). Finally, a general law applicable to the District authorizes a hospital district to lease all or part of a hospital owned and operated by such a hospital district if the transaction is in the best interest of the residents of the district. See TEX. HEALTH & SAFETY CODE ANN. § 285.051(a) (Vernon 2001).

The Act expressly authorizes the District to obtain a CT scanner as equipment "necessary or appropriate for providing health care services." TEX. SPEC. DIST. CODE ANN. § 1002.104(b) (Vernon 2006). Thus, the District would be expressly authorized to purchase or lease the CT scanner from the private entity and manage the scanner's operations like other Hospital facilities; lease Hospital space to the private entity for the private entity to operate the imaging center for the benefit of the District's residents; or contract with the private entity to manage, administer, or operate the imaging center. See id. §§ 1002.058(b)-(c), .103(b), .104(a)-(b), .105(a); TEX. HEALTH & SAFETY CODE ANN. § 285.051(a) (Vernon 2001). But the proposed transaction is somewhat different, requiring the District to provide a private entity and its facilities operational, managerial, or administrative services in exchange for access to the CT scanner and a share of the profits. See Request Letter, supra note 1, at 1; Telephone Conversation, supra note 3.

We believe that the authority to house and manage the CT scanner as proposed here is implied. First, we note the broad authority given to the District's board of directors to carry out the District's purposes. See TEX. SPEC. DIST. CODE ANN. § 1002.103(a) (Vernon 2006) (granting the board "all powers necessary, convenient, or incidental" to carry out the District's purposes); see also TEX. CONST. art. IX, § 9 (establishing as a purpose for a hospital district the "responsibility for providing medical and hospital care for its needy inhabitants"); Tex. Att'y Gen. Op. No. JC-0076 (1999) at 2 ("The terms 'necessary, convenient, or useful' provide . . . substantial discretion"). The board may enter into contracts to equip a hospital system "as may be determined to be necessary or desirable for the [D]istrict." TEX. SPEC. DIST. CODE ANN. § 1002.103(b) (Vernon 2006). In addition, you inform us that absent the business arrangement as proposed here, the District would not otherwise be able to acquire the CT scanner. See Request Letter, supra note 1, at 1. Because the District is expressly authorized to obtain equipment necessary or appropriate for providing health care services, and given your assertion that the proposed transaction is an indispensable method to accomplish this purpose with regard to the CT scanner, we conclude that the District has the implied authority to house the private imaging business in the District's hospital facility and to manage that private imaging business. See Tri-City, 142 S.W.2d at 947 (stating that implied powers are those that are indispensable to accomplishing the purposes for which a special district was created).

Having concluded that the District has the necessary statutory authority, we must consider whether such an arrangement would comport with article IX, section 9 and article III, section 52 of the Texas Constitution. See TEX. CONST. art. III, § 52(a) (prohibiting political subdivisions from using public resources for private purposes); id. art. IX, § 9 (authorizing facilities for hospital purposes and providing medical care); see also Tex. Att'y Gen. Op. No. DM-66 (1991) at 3 (stating that in addition to express statutory authority to lease a hospital building, "[w]e must also consider whether the hospital district's plan would serve a 'hospital purpose' consistent with . . . article IX, section 9 . . . and article III, sections 51 and 52, which generally prohibit the use of public funds for private purposes").

Article IX, section 9 contemplates that a hospital district's buildings and equipment be used for "hospital purposes" and requires that a hospital district must "assume full responsibility for providing medical and hospital care for its needy inhabitants." TEX. CONST. art. IX, § 9. You assert that the CT scanner will be used to provide medical services according to the needs of patients. See Request Letter, supra note 1, at 3. In addition, you state that the District "intends to require that the private entity adopt and follow the indigent care guidelines and policies of the District." See id. at 4. To the extent that the CT scanner is sufficiently made available to needy patients, the Hospital's housing, operating, and managing the CT scanner will not violate article IX, section 9 of the Texas Constitution.

Article III, section 52 prohibits the Legislature from authorizing a county or other political subdivision of the state "to grant public money or thing of value in aid of, or to any individual, association or corporation whatsoever." TEX. CONST. art. III, § 52(a). The Texas Supreme Court has set forth a three-part test to determine whether a statute's grant of public resources violates this provision:

Specifically, the Legislature must: (1) ensure that the statute's predominant purpose is to accomplish a public purpose, not to benefit private parties; (2) retain public control over the funds to ensure that the public purpose is accomplished and to protect the public's investment; and (3) ensure that the political subdivision receives a return benefit.

Tex. Mun. League Intergovernmental Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002). It appears that the acquisition of the CT scanner will accomplish a public purpose and provide the District the benefit of treating its patients in a manner that would not be available absent the proposed arrangement. See Request Letter, supra note 1, at 1. It also appears that the District will maintain public control over the public resources at issue here, given the Hospital's responsibility for the CT scanner's operation. See id. at 4. However, we cannot ultimately determine whether the District's predominant purpose for the acquisition is to accomplish a public purpose, whether the District's use of the CT scanner and retention of 30 percent of the profits is adequate consideration for its payment of 70 percent of the profits to the private entity, or whether the private entity's fee paid to the Hospital for space usage and management services will be adequate. See Tex. Att'y Gen. Op. No. GA-0139 (2004) at 5 (stating that the opinion process does not determine questions of fact).

So long as the constitutional requirements are met, we conclude that the District may enter into the arrangement proposed here for the housing, management, and operation of the private entity's CT scanner.

SUMMARY

The Angleton-Danbury Hospital District of Brazoria County, Texas (the "District") has implied authority under Special District Local Laws Code chapter 1002 and other applicable law to manage and operate a private imaging business housed in the District's hospital facility, provided that the operation of the business complies with article IX, section 9 of the Texas Constitution and the business arrangement complies with article III, section 52 of the Texas Constitution.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

KENT C. SULLIVAN
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General, Opinion Committee