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 considered 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, attorney 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 Article 4590A. 

"It is our judgment that this in an insurance plan 

and as such should be under the supervision of the Insurance 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 without 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 relation 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 hospitals or physicians or surgeons licensed by the State Board of Medical Examiners. 

The 46th Legislature of Texas passed House Bill 191 in 1939. Sections 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 Statutes. The act reads as follows: 

"H. B. No. 191 

"An Act to provide for the chartering of nonprofit corporations to be organized for the purpose of furnishing 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 
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Honorable William J. Lawson, Page 3 

operating a nonprofit hospital service plan, whereby hospital 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 authorized to accept applicants, who may become members of said 

corporations furnishing group hospital service under a contract, 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 insurance 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 provisions 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 consideration 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 affairs 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 contract 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 hospital cars. 

"Sec. 5. Prohibition against Contracting for Medical Services. 
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 manner, nor shall said corporation control or attempt to control the relations existing between said member and his or 

her physician, but said corporation shall confine its activities 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 licensed doctor of medicine. 

"Sec. 6. Personnel of Directors. 

"That at least a majority of the directors of such corporation 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 service. 

"Sec. 7. Supervision. 

"That such corporation shall, before accepting applications 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 hospitals 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 service, 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 corporation 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. 

"'That said 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 before the first day of March file in the office of the Insurance Commission a statement verified by at least two (2) 

of the principal officers of said corporation, 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 Commission. If the Commission finds any expense item unnecessary 

or unreasonable it shall make necessary rules eliminating 

same and the Commission is expressly authorized and empowered 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 meetings 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 Insurance 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 examination to be borne by said corporation. 

"Sec. 15. Dissolution. 

"That any dissolution or liquidation of any such corporation subject to the provisions of this Act shall be under the 

supervision of the Insurance Commission. In case of dissolution 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 charitable, benevolent and nonprofit corporations to furnish hospital 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 unconstitutional or invalid, such decision shall not affect the 

validity of any remaining portions of this Act. The Legislature 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 Inapplicable. 

"That all laws or parts of laws in conflict with this 

Act are hereby declared inapplicable to any and all corporations 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 Constitutional Rule requiring all bills to be read on three 

separate days in each House be and the same is hereby suspended 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 construed 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 ineorporated 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, Howevery 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 property; 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 conjunction therewith as shall be necessary to furnish employment 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 hospital service for its members because the application does not state that a 

majority of the incorporators of the propOSed corporation are superintendents of hospitals or physicians or surgeons licensed by the State Board of 

Medical Examiners. 

you. 

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

APPROVED MAY 19, 1942 

GERALD C. MANN 

ATTORNEY GENERAL OF TEXAS 

Very truly yours, 

ATTORNEY GENERALOFTEXAS 

WJF:ff:hep 

By s/ Wm. J. Fanning 

Wm. J Fanning 

Assistant 

APPROVED 

OPINION 

COMMITTEE 

BY BWB 

CHAIRMAN