Untitled Texas Attorney General Opinion

Honorable William J. Lawson
secretary of state
Austin, Texas

Attention: Honorable Abner L. Lewis

Dear Sir: Opinion No. 0-4480
Re: Corporations - Section lo4 of
Article 1302, V.A.C.S. - Article
4590A V.A.C.S.- Group Hospital Service

Your request for opinion has been received and carefully con-
sidered by this department. We quote from your request as Pollows:

"We are submitting to you herein the application for
charter of the CAPROCK CO-OPERATIVE GENERAL HOSPITAL. We
have on several occasions advised Hon. Edgar E. Payne, at-
torney for said association, that in our judgment same
should be chartered by filing through Article 459OA. He
insists however, same should be approved and filed under
Article 1302, Section 104, but in our judgment Section
104 of the Revised Statutes, 1925 was made apart of Ar-
ticle 4590A.

"It is our judgment that this in an insurance plan
and as such should be under the supervision of the In-
surance Commission of Texas, and we have so advised them.

"Will you please advise this department whether or
not the charter as submitted to us should be approved with-
out the intervention of the Insurance Department as outlined
in Article 4590A or under Article 1302 of said Statute."

Section II of the proposed charter provides:

"The purpose for which it is formed is:

"(a) To buy, lease, or build any hospital, and maintain
such medical, surgical and dental staff as the members may
deem necessary for the efficient and modern treatment of its
said members and others;

'l(b) For the members of said corporation to provide
for their hospital and medical care, if needed, and each
 . .

Honorable William J. Lawson, Page 2

member of said corporation, or any member of his family, or
any other person, if in need of medical care, shall choose
his, her, own physician from any member of the staff, and
the said corporation shall not attempt to control the rela-
tion existing between any member of said corporation, or
any other person, and his or her physician;

"(e) To employ only physicians on the staff, who will
not solicit, nor employ, pay or promise to pay any person,
firm or corporation to secure, solicit or drum patients or
patronage, and discharge any member from the staff if any
person has accepted, or agreed to accept pay or employment
for such securing soliciting or drumming for the patients
for said physician."

Section VI of the proposed charter provides:

"The CAPROCK CO-OPERATIVE GENERAL HOSPITAL ASSOCIATION
shall not have any capital stock and shall not be operated
for profit, but all of its operations shall be for the mutual
benefits of the members. . . .'

The proposed charter does not affirmatively show that the majority
of the incorporators of the proposed corporation are superintendents of hos-
pitals or physicians or surgeons licensed by the State Board of Medical Exam-
iners.

The 46th Legislature of Texas passed House Bill 191 in 1939. Sec-
tions 1 to 15 inclusive of the act were codified by Vernon as Article 459OA,
Vernon's Annotated Texas Civil Statutes. Section 16 of the act was codified
by Vernon as Section 104 of Article 1302, Vernon's Annotated Texas Civil Stat-
utes. The act reads as follows:

"H. B. No. 191

"An Act to provide for the chartering of nonprofit cor-
porations to be organized for the purpose of furnish-
ing group hospital service, and to provide for the
methods of operation, regulation and supervision of
such corporations and of their contracts; providing
exemption from Title 78 of the Revised Civil Statutes
of 1925; and declaring an emergency.

"Be it enacted by the Legislature of the State of Texas:

"Section 1. Incorporation.

'That from and after the passage of this Act, any seven
(7) or more persons, a majority of whom are superintendents
of hospitals or physicians or surgeons licensed by the State
Board of Medical Examiners, upon application to the Secretary
of State of the State of Texas for a corporate charter may be
incorporated for the purpose of establishing, maintaining and
.

Honorable William J. Lawson, Page 3

operating a nonprofit hospital service plan, whereby hos-
pital care may be provided by said corporation through an
established hospital or hospitals, and sanitariums with
which it has contracted for such care, as is hereinafter
defined.

"Sec. 2. Applications

"That such corporations when organized shall be author-
ized to accept applicants, who may become members of said
corporations furnishing group hospital service under a con-
tract, which shall entitle each member to such hospital care
for such period of time as is provided therein; and that
such corporations shall be governed by this Act and shall
not be construed as being engaged in the business of insur-
ance under the laws of this State. That such corporations
organized and operated under the provisions of this Act
shall not be required by any department of this State to
post bond, or place deposits with any department of this
State to begin and/or operate under this Act and the pro-
visions of Title 78 of the Revised Civil Statutes of Texas
of 1925, are hereby declared inapplicable to corporations
organized and/or operated under this Act.

"Sec. 3. Corporations to be Nonprofit Organizations.

"That said corporations shall be governed and conducted
as nonprofit organizations for the sole purpose of offering
and furnishing hospital service to its members in considera-
tion of the payment by such members of a definite sum for the
hospital care so contracted to be furnished. The necessary
expenses of administering the affairs of said corporations
may be paid from the dues or payments collected. Provided
not more than fifteen per cent (15%)of all dues or payments
received may be used for expenses of administering the af-
fairs of said corporations, subject to the authorization or
approval of the Board of Insurance Commissioners of Texas.

"Sec. 4. Authority of Corporations to Contract.

'That such corporations shall have the authority to con-
tract with hospitals charging for services rendered, in such
manner as to assure to each person holding a contract of said
corporation the furnishing of such hospital care as may be
agreed upon in the contract between said corporation and said
member, with the right to said corporation to limit in said
contract the types of disease for which it shall furnish hos-
pital cars.

"Sec. 5. Prohibition against Contracting for Medical Ser-
vices.
 . .
Hon.Wm. J.Ls.wson,Page 4
"That such corporations shall not contract to furnish
to the member a physician or any medical services, nor shall
said corporation contract to practice medicine in any man-
ner, nor shall said corporation control or attempt to con-
trol the relations existing between said member and his or
her physician, but said corporation shall confine its activ-
ities to rendering hospital service only through such type
of hospitals with whom it has contracts, without restricting
the right of the patient to obtain the services of any li-
censed doctor of medicine.

"Sec. 6. Personnel of Directors.

"That at least a majority of the directors of such cor-
poration must be at all times directors, superintendents or
trustees of hospitals, which have contracted or may contract
with such corporation to render its subscribers hospital ser-
vice.

"Sec. 7. Supervision.

"That such corporation shall, before accepting applica-
tions for membership in said nonprofit hospital service plan,
submit to the State Insurance Commission a plan of operation,
together with a schedule of its dues to be charged and the
amount of hospital service contracted to be rendered; which
plan shall first be approved by the Insurance Commission as
fair and reasonable before said corporation shall engage in
business.

"Sec. 8. Approval of Rates.

"That the Insurance Commission shall likewise approve
the rates of payment to be made by said corporations to
hospitals for the rendering of hospital care to the members
of said corporation as being reasonable and just. Said hos-
pitals shall guarantee the benefits of the certificates of
membership issued by the corporation.

"Sec. 9. Membership Certificates.

"That every such corporation shall issue to its members
certificates of membership, set forth the contract between
the corporation and the member, and the period of such ser-
vice, and the rate per day or week payable by said corporation
for hospital service rendered to said member at any hospital
other than the hospitals with which said corporation shall
have contracted.

"Sec. 10. Bond of Treasurer.

"That the treasurer of such corporation shall be required
to give a fidelity bond with corporation surety in such sum
as may be determined by the officers of said corporation for
the faithful handling of the funds of said corporation and
all funds collected from members or subscribers of said cor-
poration shall be deposited to the account of said corporation
in a bank, which is a State depository.
William J. Lawson, Page 5

"Sec. 11. Finance Procedure.

"'Thatsaid corporations shall not pay any of the funds
collected from members or subscribers to any hospital until
after said hospitals shall have rendered the necessary care
to such subscriber or member.

"Sec. 12. Reports to Insurance Commission.

"That every such corporation shall annually on or be-
fore the first day of March file in the office of the In-
surance Commission a statement verified by at least two (2)
of the principal officers of saidcorporation, showing its
condition on the 31st day of December then next preceding.
The report to the Commission shall include an itemization
of all expenses incurred for the period shown in the report,
which expenses shall be in all things approved by said Com-
mission. If the Commission finds any expense item unnecessary
or unreasonable it shall make necessary rules eliminating
same and the Commission is expressly authorized and empower-
ed to provide for the expenses to be incurred and the amounts
which must be within the limits provided for in this Act.

"Sec. 13. No officer or director of the corporation
shall receive any salary, wages or commissions but shall
be allowed reasonable and necessary expenses for any meet-
ings of the corporation which shall not exceed five (5)
during any calendar year. No compensation shall be paid
to any employee in excess of Six Thousand Dollars ($6,000)
per year. All salaries to be approved by the Board of In-
surance Commissioners.

"Sec. 14. Examination of Books and Records.

'That every such corporation shall keep complete books
and records, showing all funds collected and disbursed, and
all books and records shall be subject to examination by
the Insurance Commission annually, the expense of such exam-
ination to be borne by said corporation.

"Sec. 15. Dissolution.

"That any dissolution or liquidation of any such corpora-
tion subject to the provisions of this Act shall be under the
supervision of the Insurance Commission. In case of dissolu-
tion of any group formed under the provisions of this Act,
certificate holders of such group shall be given priority over
all other claims except cost of liquidation.

"Sec. 16. Article 1302 of the Revised Civil Statutes of
Texas of 1925 is hereby amended by adding thereto a subdivision
to be known as No. 104, to read as follows:
Honorable William J. Lawson, Page 6

"'Subdivision 104. Corporations may be created as chari-
table, benevolent and nonprofit corporations to furnish hospi-
tal services to its members.'

"Sec. 17. Separability Clause.

"If any article, section, subsection, sentence, clause
of phrase of this Act is, for any reason, held to be uncon-
stitutional or invalid, such decision shall not affect the
validity of any remaining portions of this Act. The Legis-
lature hereby declares that it would have passed this Act
and each section, subsection, sentence, clause or phrase
thereof, irrespective of the fact that any one or more of
the sections, subsections, sentences, clauses or phrases are
declared unconstitutional.

"Sec. 18. Laws in Conflict with this Act Held Inapplic-
able.

"That all laws or parts of laws in conflict with this
Act are hereby declared inapplicable to any and all corpora-
tions chartered and operated under this Act.

"Sec. 19. The fact that there is no present law, at
this time, which will furnish hospital services to those
who are in dire need of same, and that this legislation
is needed to better protect the public health creates an
emergency and an imperative public necessity that the Con-
stitutional Rule requiring all bills to be read on three
separate days in each House be and the same is hereby sus-
pended and that this Act take effect and be in force from
and after its passage, and it is so enacted.

"(Note.--H. B. No. 191was passed by the House, March
16, 1939, by a vote of 120 yeas, 0 nays; by the Senate, with
amendments, by a vote of 29 yeas, 0 nays; House concurred in
Senate amendments, May 2, 1939, by a vote of 120 yeas, 0 nays.)

"Approved May 10, 1939e
"Effective May 10, 1939."

Since Section 104 of Article 1302, V.A.C.S,, and Article 4590A,
V,A.C.S,, are parts of H.B, 191, supra, it is clear that they must be con-
strued together.

It is our opinion that all of the provisions of H.B. 191, supra,
apply to non-profit corporations organized for the purpose of furnishing
group hospital service.

Under said H. B. 191 a proposed corporation desiring to be ineor-
porated under Section 16 (subdivision 104 of Article 1302, R.C.S.) for the
purpose of furnishing group hospital service to its members is chartered by
the Secretary of State and not by the Board of Insurance Commissioners, How-
every after it is chartered by the Secretary of State, its activities are
supervised by the Board of Insurance Commissioners in the manner and to the
extent set out in said H.B. 191~
Hon. William J. Lawson, Page 7

Section 6 of Article 1302, Vernon's Annotated Texas civil Statutes,
reads as follows:

"The erection and maintenance of sanitariums, with the
right to acquire and own lands and town lots; to improve,
cultivate, rent and alienate same; to erect storage dams
and otherwise develop irrigation on such lands, to erect,
acquire and maintain hotels and bath houses on its proper-
ty; and in conjunction therewith, to erect and maintain
training schools and outdoor sports on its property for the
training and pleasure of its patients and their families;
to maintain and carry on such industrial enterprises in con-
junction therewith as shall be necessary to furnish employ-
ment to the patients therein and their families; provided
such corporation shall not own or control more land than is
necessary for the actual conduct and control of a sanitarium."

Subdivision 104, supra, does not authorize incorporation for the
purpose of building or establishing a hospital. Subdivision 6, supra, is
the subdivision under which corporations may be formed for the purpose of
building or establishing a sanitarium.

It is our opinion that the proposed application for charter
should be refused by you because it attempts to incorporate for a dual
purpose, to-wit, to establish a hospital and to provide group hospital
service for its members. The application would further be objectionable
if it sought to incorporate only for the purpose of providing group hospi-
tal service for its members because the application does not state that a
majority of the incorporators of the propOSed corporation are superintend-
ents of hospitals or physicians or surgeons licensed by the State Board of
Medical Examiners.

Suffice it to say that the proposed charter should be refused by
you.

APPROVED MAY 19, 1942 Very truly yours,
GERALD C. MANN
ATTORNEY GENERAL OF TEXAS ATTORNEY GENERALOFTEXAS

By s/ Wm. J. Fanning
Wm. J Fanning
Assistant
WJF:ff:hep

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