Can a Texas county hospital district create and fund a nonprofit physician group?

Plain-English summary

Tarrant County Criminal District Attorney Sharen Wilson brought the AG three questions about the Tarrant County Hospital District. The backdrop was a new partnership between the District and the University of North Texas Health Science Center (UNTHSC) to set up a joint physician group, and the questions probed whether the District could create and fund that group, how its control could be structured, and whether the group had to follow Texas open-government laws.

On the first question, the AG said yes, with conditions. Health and Safety Code section 281.0565(b) lets a hospital district create a charitable organization to help manage a district health care program. Assuming the physician group qualifies as a "charitable organization" and does one of the things the statute lists, the District may create it. But because the District is a political subdivision spending public money, it also has to satisfy the Texas Constitution's limit on giving public funds to private entities. Article III, section 52(a) and the Texas Supreme Court's three-part test require the District to spend for a public purpose (not to benefit private parties), keep public control over the funds to protect the public's investment, and receive a return benefit. The AG noted that whether a given expenditure serves a public purpose is for the District to decide in the first instance, and that the bylaws the District described (reserving budget and planning authority to the District and UNTHSC) resembled controls the office had previously found sufficient.

On the second question, whether the District could share or transfer part of the group's managerial and oversight authority to an outside entity not elected or appointed locally, the AG again pointed to statute. Section 285.091(a) lets a hospital district, directly or through a nonprofit it forms, contract, collaborate, or enter a joint venture with any public or private entity "as necessary" to carry out the district's functions or provide its services. The AG read that as a broad grant that puts no particular restrictions on how the collaboration is managed, so the District may structure the group's management and oversight as it deems necessary, as long as the public-funds controls required by article III, section 52(a) stay in place.

On the third question, open-government laws, the AG split the two statutes. For the Open Meetings Act, a "governmental body" includes the governing board of a special district, but the District described the physician group as an independent contractor created with UNTHSC to provide services under an arms-length contract. Drawing on prior opinions about nonprofits that assist local entities by contract without being handed governmental authority, the AG concluded that to the extent the group is not delegated any governmental authority, it is likely not a "governmental body" and is not subject to the Open Meetings Act. For the Public Information Act, the analysis depended on whether the group is "supported in whole or in part by public funds" in the narrow sense the Texas Supreme Court had recently defined (entities sustained by public funds, not those in quid pro quo transactions). The AG concluded that a complete answer required resolving additional fact issues, which is beyond what an AG opinion can do, so it could not say definitively whether the group is subject to the Public Information Act.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. In fact, the opinion itself noted that section 281.0565(c) was being amended by H.B. 2557 in the 2015 legislative session. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Tarrant County Hospital District and its board (as the opinion described it): The opinion described the District as authorized to create and fund the charitable physician group under section 281.0565(b) if it determined in good faith that the spending served a public purpose, kept sufficient control over the funds, and obtained a return benefit. It described the District as authorized under section 285.091(a) to structure the group's management and oversight as it deemed necessary, subject to keeping the public-funds controls in place.

UNTHSC and the joint physician group (as the opinion described it): The opinion described the collaboration with an outside partner like UNTHSC as permitted, even where the District does not have exclusive oversight, because section 285.091(a) allows a hospital district to collaborate or joint-venture with any public or private entity as necessary. It described the group as likely an independent contractor rather than a governmental body, based on the District's description.

People seeking open meetings or public records (as the opinion described it): The opinion described the physician group as likely not a "governmental body" under the Open Meetings Act, to the extent it has no delegated governmental authority, so its meetings would likely not have to be open. On public records, the opinion did not decide whether the Public Information Act applies.

Where the AG declined to opine: The opinion stated it did "not opine on whether any particular charitable organization is properly formed" under section 281.0565(b). It left the public-purpose determination to the District "in the first instance." And it concluded that whether the group is a "governmental body" subject to the Public Information Act "requires the resolution of certain fact issues and is thus beyond the purview of an attorney general opinion." The page does not resolve those questions, because the AG did not.

Common questions

Can a Texas county hospital district set up a nonprofit physician group?
Yes, according to this opinion, under Health and Safety Code section 281.0565(b), provided the group qualifies as a "charitable organization" and helps manage a district health care program in one of the ways the statute lists.

What constitutional limit applies when the district spends public money on it?
Article III, section 52(a) of the Texas Constitution, which bars giving public funds to private entities. The AG applied the Texas Supreme Court's three-part test: the spending must serve a public purpose, the district must keep control over the funds to protect the public's investment, and the district must receive a return benefit.

Can the district share control of the group with a university or other outside partner?
Yes. The AG read section 285.091(a) as a broad grant letting a hospital district collaborate or joint-venture with any public or private entity as necessary, with no particular restriction on the management structure, so long as the public-funds controls remain in place.

Does the physician group have to hold open meetings?
Likely not, the AG said, to the extent the group is not delegated any governmental authority. Based on the District's description of the group as an independent contractor, the AG concluded it would likely not be a "governmental body" under the Open Meetings Act.

Is the group subject to the Public Information Act (open records)?
The AG did not decide. It explained that whether the group is "supported in whole or in part by public funds" in the sense the Texas Supreme Court defined depends on fact questions that an AG opinion cannot resolve.

Background and statutory framework

The request concerned the Tarrant County Hospital District's authority to create and fund a joint physician group with UNTHSC and the group's status under open-government laws. Health and Safety Code section 281.0565(b) authorizes a hospital district to "create a charitable organization to facilitate the management of a district health care program" by providing or arranging health care services, developing resources, or providing ancillary support services, and section 281.0565(a) defines "charitable organization" by reference to the Internal Revenue Code (Tex. Health & Safety Code Ann. § 281.0565(a)-(b)). The District, as a political subdivision, must comply with the constitutional limit on spending public funds for private entities (Armendarez v. Tarrant Cnty. Hosp. Dist., 781 S.W.2d 301, 307 (Tex. App.-Fort Worth 1989, writ denied)). Article III, section 52(a) bars granting public money to private parties, and the Texas Supreme Court's three-part test requires a public purpose, retained public control over the funds, and a return benefit (Tex. Const. art. III, § 52(a); Tex. Mun. League Intergov'l Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)). The AG noted that whether the expenditure serves a public purpose is for the District to determine in the first instance, and that the described bylaws reserving budget and planning authority to the District and UNTHSC resembled controls previously found sufficient.

On governance structure, section 285.091(a) authorizes a hospital district, directly or through a nonprofit it creates, to "contract, collaborate, or enter into a joint venture with any public or private entity as necessary to carry out the functions of or provide services to the district" (Tex. Health & Safety Code Ann. § 285.091(a)). The Government Code's interlocal-cooperation provisions reinforce that local governments may contract with universities to perform governmental functions and services, including in the area of public health and welfare (Tex. Gov't Code Ann. § 791.035(a); § 791.003(4)(A); § 791.003(3)(D)). The AG read section 285.091(a) as placing no particular restriction on the management arrangement, so the District could structure the group's management and oversight as needed, while still keeping controls sufficient to satisfy article III, section 52(a).

On open-government laws, the AG first noted that section 281.0565(c) makes such a charitable organization "a unit of local government" for purposes of the Tort Claims Act, a separate question from whether it is a "governmental body" (Tex. Health & Safety Code Ann. § 281.0565(c); Tex. Civ. Prac. & Rem. Code Ann. §§ 101.001-.109; § 101.021). Under the Open Meetings Act, a "governmental body" includes "the governing board of a special district created by law" (Tex. Gov't Code Ann. § 551.002; § 551.001(3)(H)). Because the District described the group as an independent contractor providing services under an arms-length contract, and because prior opinions had found nonprofits that assist local entities by contract without delegated governmental authority were not subject to the Act, the AG concluded the group is likely not a "governmental body" under the Open Meetings Act to the extent it lacks delegated governmental authority. Under the Public Information Act, a "governmental body" includes the governing board of a special district and entities "supported in whole or in part by public funds" (Tex. Gov't Code Ann. § 552.002; § 552.021; § 552.003(1)(A)(viii); § 552.003(1)(A)(xii)). The Texas Supreme Court had recently read that phrase narrowly, to reach only entities "sustained" by public funds and dependent on the public fisc, not those in quid pro quo transactions (Greater Houston P'ship v. Paxton, No. 13-0745, 2015 WL 3978138, at *7 (Tex. June 26, 2015)). Because a complete analysis required resolving additional fact issues beyond the AG's authority under section 402.042 of the Government Code (Tex. Gov't Code Ann. § 402.042), the AG could not definitively say whether the group is subject to the Public Information Act.

Citations

Constitutional and statutory provisions:

• Tex. Const. art. III, § 52(a) (no grant of public funds to private entities)
• Tex. Health & Safety Code Ann. § 281.0565(a)-(c) (hospital district charitable organization; unit of local government for Tort Claims Act)
• Tex. Health & Safety Code Ann. § 281.0286(c) (district may not supervise or control the practice of medicine)
• Tex. Health & Safety Code Ann. § 285.091(a) (district contracts, collaborations, and joint ventures)
• Tex. Gov't Code Ann. § 791.003(3)(D), (4)(A); § 791.035(a) (interlocal cooperation)
• Tex. Gov't Code Ann. § 551.001(3)(H); § 551.002 (Open Meetings Act; "governmental body")
• Tex. Gov't Code Ann. § 552.002; § 552.003(1)(A)(viii), (xii); § 552.021 (Public Information Act; "governmental body")
• Tex. Gov't Code Ann. § 402.042 (scope of attorney general opinions)
• Tex. Civ. Prac. & Rem. Code Ann. §§ 101.001-.109; § 101.021 (Texas Tort Claims Act)

Cases:

• Armendarez v. Tarrant Cnty. Hosp. Dist., 781 S.W.2d 301, 307 (Tex. App.-Fort Worth 1989, writ denied)
• Tex. Mun. League Intergov'l Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)
• Greater Houston P'ship v. Paxton, No. 13-0745, 2015 WL 3978138, at *7 (Tex. June 26, 2015)

Prior Attorney General opinions referenced:

• Tex. Att'y Gen. Op. Nos. GA-0188 (2004), GA-0078 (2003), GA-0666 (2008), JC-0407 (2001), JC-0327 (2001)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0029
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2015/kp0029.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

August 10, 2015

The Honorable Sharen Wilson Opinion No. KP-0029
Tarrant County Criminal District Attorney
401 West Belknap Re: Authority of a county hospital district to
Fort Worth, Texas 76196-0201 create a charitable organization under section
281.0565 of the Health and Safety Code and
related governance questions (RQ-0008-KP)

Dear Ms. Wilson:

You ask three questions regarding the authority of the Tarrant County Hospital District (the "District"). [1] The District informs us that your inquiry pertains to a recent partnership between the District and the University of North Texas Health Science Center ("UNTHSC") to create a joint physician group. [2]

You first ask whether section 281.0565 of the Health and Safety Code authorizes the District "to create a charitable organization to facilitate the management of a district health care service and fund it with tax-payers revenue." Request Letter at 1. Subsection 281.0565(b) of the Health and Safety Code authorizes a hospital district to "create a charitable organization to facilitate the management of a district health care program by providing or arranging health care services, developing resources for health care services, or providing ancillary support services for the district." TEX. HEALTH & SAFETY CODE ANN. § 281.0565(b) (West 2010); see also id. § 281.0565(a) (defining "charitable organization" in relation to the Internal Revenue Code). Thus, assuming the physician group meets the definition of a "charitable organization" under the statute and the physician group facilitates the management of a District health care program in one of the ways articulated therein, the District is authorized to create it. [3]

The District states that its "funds were utilized to assist in the organization and creation of" the physician group. Brief at 4. As a political subdivision, the District must abide by certain constitutional limitations concerning the expenditure of funds for private entities. Armendarez v. Tarrant Cnty. Hosp. Dist., 781 S.W.2d 301, 307 (Tex. App.-Fort Worth 1989, writ denied) (describing the District as "a political subdivision of the State"). Specifically, article III, section 52(a) of the Texas Constitution prohibits the Legislature from authorizing "any ... political ... subdivision of the State to lend its credit or 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 articulated a three-part test to determine whether a monetary transfer satisfies the limitations of article III, section 52(a): The entity making the transfer must (1) ensure that the transfer 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 Intergov'l Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002). This office previously applied the three-part test to the District in the context of an expenditure for a physician group formed under subsection 281.0565(b). Tex. Att'y Gen. Op. No. GA-0188 (2004) at 4. GA-0188 advised that the District would "avoid violating article III, section 52" if it determined in good faith that the expenditure would serve a public purpose, and it placed "sufficient controls on the transaction, contractual or otherwise," to ensure that the public purpose would be carried out. Id.

It is for the District to determine in the first instance whether the funds utilized to assist in the formation of a physician group serve a District public purpose. See Tex. Att'y Gen. Op. No. GA-0078 (2003) at 4. The District has indicated that the bylaws of the physician group reserve authority to the District and UNTHSC "to develop, approve, adopt, and modify [the group's] capital and operating budgets, strategic plans, business plans, mission plans, and other matters related to expenditures" and that the District "must approve any development, adoption, or modification of [the group's] capital and operating budgets." Brief at 5. These contractual provisions are similar to ones in the past that we have determined could allow a governmental body to provide the requisite control. Tex. Att'y Gen. Op. No. GA-0188 (2004) at 4.

Your second question is whether the District may "transfer 50% or any portion of the Corporation's managerial and oversight authority to a third-party entity, who isn't elected by the voters of Tarrant County or appointed by the Board of Managers of the [District] or appointed by the Commissioners Court of Tarrant County." Request Letter at 1-2. The District advises that in the corporate structure of the physician group, "the District and UNTHSC are the sole members." Brief at 3. It appears your concern is that the District would not have exclusive oversight of the physician group. The Legislature, however, has expressly authorized a hospital district, either "directly or through a nonprofit corporation created or formed by the district" to "contract, collaborate, or enter into a joint venture with any public or private entity as necessary to carry out the functions of or provide services to the district." TEX. HEALTH & SAFETY CODE ANN. § 285.091(a) (West 2010) (emphasis added); see also TEX. GOV'T CODE ANN. § 791.035(a) (West Supp. 2014) (authorizing a local government and an institution of higher education or university system to "contract with one another to perform any governmental functions and services"), id. § 791.003(4)(A) (West 2012) (including a "political subdivision of this state" within the scope of "local government"), § 791.003(3)(D) (defining "governmental functions and services" to include "all or part of a function or service" in the area of "public health and welfare"). This broad grant of authority to collaborate with any entity "as necessary" places no particular restrictions on the managerial arrangement of the collaboration as long as "functions of or ... services to the district" are carried out. [4] Thus, pursuant to subsection 285.091(a) of the Health and Safety Code, the District is authorized to structure the managerial and oversight authority of a physician group as it deems necessary to carry out the functions of or provide services to the District. Again, to the extent that public funds are used to further a collaboration under subsection 285.091(a), the management and oversight of the physician group, regardless of the manner structured, would need to include controls over the funds sufficient to ensure that the requirements of article III, section 52(a) of the Texas Constitution remain satisfied.

Your last question is whether a charitable organization formed pursuant to section 281.0565 of the Health and Safety Code is "subject to the Texas Open Meetings Act and the Texas [Public Information] Act." Request Letter at 2. We note at the outset that the Legislature has made a charitable organization formed pursuant to section 281.0565 of the Health and Safety Code "a unit of local government" for purposes of the Tort Claims Act. TEX. HEALTH & SAFETY CODE ANN. § 281.0565(c) (West 2010); [5] see also TEX. CIV. PRAC. & REM. CODE ANN. §§ 101.001-.109 (West 2011 & Supp. 2014) (Texas Tort Claims Act). The Tort Claims Act makes a governmental unit generally liable for injury or property damage from certain tortious conduct involving a motor vehicle. See TEX. CIV. PRAC. & REM. CODE ANN. § 101.021 (West 2011). Your question, however, requires us to consider whether the physician group meets the definition of "governmental body" under the Open Meetings Act ("OMA"), which is a different inquiry.

Meetings of a "governmental body," as that term is defined in the OMA, must be open to the public. TEX. GOV'T CODE ANN. § 551.002 (West 2012). Relevant here, a "governmental body" is defined to include "the governing board of a special district created by law." Id. § 551.001(3)(H) (West Supp. 2014). The District tells us that the physician group was "organized and created" by the District "in conjunction with [UNTHSC]" and that it is "organized ... exclusively to, among other things, benefit the District and UNTHSC ... in providing medical services and health-related education." Brief at 2 (internal quotations omitted). The District further notes that the physician group "will be an independent contractor of the District and will provide specified physician related services pursuant to an arms-length negotiated contract between the District" and the physician group. Id. at 9. Based on this description, the physician group would not appear to meet the definition of "governmental body" in the OMA. Furthermore, this office has on a number of occasions concluded that nonprofit corporations formed under the Texas Non-Profit Corporation Act that assist local entities pursuant to contract and that are not delegated governmental authority are not subject to the OMA. See, e.g., Tex. Att'y Gen. Op. Nos. JC-0407 (2001) at 8 (health maintenance organization designated by the District as a section 281.0565 entity not a "governmental body" under the OMA), JC-0327 (2001) at 3 (Bryan-College Station Economic Development Corporation, formed under the Texas Non-Profit Corporation Act, not subject to the OMA). To the extent that a physician group formed pursuant to subsection 281.0565(b) is similarly not delegated any governmental authority, it is likely not a "governmental body" for purposes of the OMA and thus is not subject to its provisions.

The Public Information Act ("PIA") generally requires that information collected, assembled or maintained by or on behalf of a governmental body be made available to the public. See TEX. GOV'T CODE ANN. §§ 552.002 (West Supp. 2014) (defining "public information"), .021 (West 2012) (making such information available to the public). A "governmental body" under the PIA is defined to include "the governing board of a special district," not unlike under the provisions of the OMA. Id. § 552.003(1)(A)(viii) (West Supp. 2014). The PIA definition also incorporates "the part, section, or portion of an organization, corporation, commission, committee, institution, or agency that spends or that is supported in whole or in part by public funds" in its definition of "governmental body." Id. § 552.003(1)(A)(xii). The Texas Supreme Court has recently construed the meaning of the phrase "supported in whole or in part by public funds" to "only include those entities 'sustained' by public funds—thereby ensuring that the statute encompasses only those private entities dependent on the public fisc to operate as a going concern." Greater Houston P'ship v. Paxton, No. 13-0745, 2015 WL 3978138, at *7 (Tex. June 26, 2015). The Court noted that "the Legislature did not intend for the statute to reach entities involved in quid pro quo transactions with the government." Id.; see also Tex. Att'y Gen. Op. No. GA-0666 (2008) at 2 (stating that "[t]he primary test ... is whether the entity receives public funds for the general support of its activities, rather than using those funds to perform a specific and definite obligation"). A complete analysis regarding the physician group's status under the PIA would require the resolution of additional fact issues, which is beyond the purview of an attorney general opinion issued pursuant to section 402.042 of the Government Code. See TEX. GOV'T CODE ANN. § 402.042 (West 2013). Thus, we cannot definitively advise you on whether the physician group is subject to the PIA.

SUMMARY

The Tarrant County Hospital District (the "District") is authorized to create and fund a physician group under subsection 281.0565(b) of the Health and Safety Code if it reasonably determines in good faith that the expenditure will serve a public purpose, and it puts sufficient controls in place to ensure that the public purpose is carried out and that the District receives a return benefit.

The District is authorized by subsection 285.091(a) of the Health and Safety Code to structure the managerial and oversight authority of a physician group as it deems necessary to carry out the functions of or provide services to the District.

To the extent that a physician group formed pursuant to subsection 281.0565(b) is not delegated any governmental authority, it is likely not a "governmental body" for purposes of the Open Meetings Act and thus is not subject to its provisions.

Whether a physician group formed pursuant to subsection 281.0565(b) is a "governmental body" subject to the Public Information Act requires the resolution of certain fact issues and is thus beyond the purview of an attorney general opinion.

Very truly yours,

KEN PAXTON
Attorney General of Texas

CHARLES E. ROY
First Assistant Attorney General

BRANTLEY STARR
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

BECKY P. CASARES
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Sharen Wilson, Tarrant Cnty. Crim. Dist. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1-2 (Jan. 29, 2015), https://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] See Brief from Neal Adams, Gen. Counsel, Tarrant Cnty. Hosp. Dist. at 2-3 (Feb. 27, 2015) (on file with the Op. Comm.) ("Brief").

[3] We do not opine on whether any particular charitable organization is properly formed pursuant to subsection 281.0565(b) of the Health and Safety Code.

[4] Under section 281.0286 of the Health and Safety Code, the District itself cannot "supervise or control the practice of medicine." TEX. HEALTH & SAFETY CODE ANN. § 281.0286(c) (West Supp. 2014). But section 285.091 allows a district to create a nonprofit to "provide services to the district," which is not statutorily limited to the services the district itself may provide. Id. § 285.091(a) (West 2010).

[5] Amended by Act of May 20, 2015, 84th Leg., R.S., H.B. 2557, § 2 (to be codified as an amendment to TEX. HEALTH & SAFETY CODE ANN. § 281.0565(c)).