HonorableWilliam J. Lawson

secretary of state Austin, Texas Attention: HonorableAbner L. Lewis
Dear Sir: OpinionNo. 0-4480 Re: Corporations - Section lo4 of Article 1302,V.A.C.S. - Article 4590AV.A.C.S.- Group Hospital Service
Your request for opinion has been received and carefully consideredby this department. We quote from your request as Pollows:

"We are submittingto you herein the application for charter of the CAPROCK CO-OPERATIVE GENERAL HOSPITAL. We have on several occasionsadvised Hon. Edgar E. Payne, attorney for said association, that in our judgment same shouldbe charteredby filing throughArticle 459OA. He insistshowever, same shouldbe approved and filed under Article 1302, Section 104, but in our judgment Section 104 of the Revised Statutes, 1925was made apart of Article 4590A.
"It is our judgment that this in an insuranceplan and as such shouldbe under the supervisionof the InsuranceCommission of Texas, and we have so advised them. "Will you please advise this departmentwhether or not the charteras submittedto us shouldbe approvedwithout the interventionof the InsuranceDepartment as outlined in Article 4590A or under Article 1302 of said Statute." Section II of the proposed charterprovides: "The purpose for which it is formed is: "(a) To buy, lease, or build any hospital, and maintain such medical, surgicaland dental staffas the members may deem necessary for the efficient and modern treatment of its said members and others; 'l(b) For the members of said corporationto 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 existingbetween 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 corporationto 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 saidphysician." SectionVI of the proposed charterprovides: "The CAPROCK CO-OPERATIVE GENERAL HOSPITALASSOCIATION shall not have any capital stock and shall not be operated for profit, but all of its operations shallbe for the mutual benefits of the members.
. . .' The proposed charter does not affirmatively show that the majority of the incorporatorsof the proposed corporationare superintendentsof hospitals or physicians or surgeons licensedby the State Board of Medical Examiners. The 

### 46thLegislature of Texas passed House Bill 

### 191in 1939. Sections 1 to 

### 15inclusive of the act were codifiedby 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'sAnnotated Texas Civil Statutes. The act reads as follows:

"H. B. No. 191
"AnAct 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, regulationand supervisionof such corporationsand of their contracts;providing exemption from Title 78 of the Revised Civil Statutes of 1925; and declaringan emergency.
"Be it enactedby 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 licensedby the State Board of Medical Examiners, upon application to the Secretary of State of the State of Texas for a corporate chartermay be incorporatedfor the purpose of establishing,maintaining and.

HonorableWilliam J. Lawson, Page 

### 3
operating a nonprofit hospital serviceplan, whereby hospital care may be provided by said corporationthrough an establishedhospital or hospitals, and sanitariumswith which it has contracted for such care, as is hereinafter defined.
"Sec. 2. Applications "That such corporationswhen organized shallbe authorized to accept applicants,who may become members of said corporations furnishing group hospital serviceunder a contract, which shall entitle each member to such hospital care for suchperiod of time as is provided therein; and that such corporations shallbe governedby this Act and shall not be construedas 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 requiredby any department of this State to post bond, or place depositswith 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 inapplicableto corporations organizedand/or operatedunder this Act. "Sec. 

### 3. Corporations to be Nonprofit Organizations. "That said corporations shallbe governed and conducted as nonprofit organizations for the solepurpose of offering and furnishinghospital service to itsmembers in consideration of the payment by suchmembers of a definite sum for the hospital care so contractedto 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 fifteenper 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 Corporationsto Contract. 'That such corporations shall have the authority to contract with hospitals charging for servicesrendered, 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 contractbetween said corporationand said member,with the right to said corporationto limit in said contract the types of disease for which it shall furnishhospital 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 practicemedicine in any manner, nor shall said corporation control or attempt to control the relations existingbetween saidmember and his or her physician,but said corporation shall confine its activities to renderinghospital service only through such type of hospitalswith 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, superintendentsor trustees of hospitals,which have contracted or may contract with such corporationto render its subscribershospital service.
"Sec. 

### 7. Supervision. "That such corporation shall,before accepting applications for membership in saidnonprofit hospital serviceplan, submit to the State InsuranceCommission a plan of operation, together with a schedule of its dues to be chargedand the amount of hospital service contractedto be rendered;which plan shall first be approvedby the InsuranceCommission as fair and reasonablebefore said corporation shall engage in business.
"Sec. 

### 8. Approval of Rates. "That the Insurance Commission shall likewiseapprove the rates of payment to be made by said corporationsto hospitals for the rendering of hospital care to the members of said corporationas being reasonable and just. Said hospitals shall guarantee the benefits of the certificatesof membership issuedby the corporation.
"Sec. 

### 9. Membership Certificates. "That every such corporation shall issue to its members certificates of membership, set forth the contractbetween the corporationand the member, and the period of such service, and the rate per day or week payable by said corporation for hospital service rendered to saidmember at any hospital other than the hospitalswith which said corporation shall have contracted.
"Sec. 10. Bond of Treasurer. "That the treasurer of such corporation shallbe required to give a fidelitybond with corporation surety in such sum as may be determinedby the officers of said corporation for the faithfulhandling of the funds of said corporationand all funds collected from members or subscribersof said corporation shallbe 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 subscribersto 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 Commissiona statementverified 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 includean itemization of all expenses incurred for the period shown in the report, which expenses shallbe in all things approved by said Commission. If the Commission finds any expense item unnecessary or unreasonable it shallmake necessary rules eliminating same and the Commission is expressly authorized and empowered to provide for the expenses to be incurredand the amounts which must be within the limitsprovided for in this Act. "Sec. 

### 13. No officer or director of the corporation shall receive any salary,wages or commissionsbut shall be allowed reasonable and necessary expenses for any meetings of the corporationwhich shall not exceed five 

### (5) during any calendaryear. No compensation shallbe paid to any employee in excess of Six Thousand Dollars ($6,000) per year. All salaries to be approvedby the Board of Insurance Commissioners.
"Sec. 14. Examination of Books and Records. 'That every such corporation shall keep completebooks and records, showingall funds collected and disbursed,and all books and records shallbe subject to examinationby 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 shallbe under the supervisionof the InsuranceCommission. In case of dissolution of any group formed under the provisions of this Act, certificateholders of such group shallbe 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 "'Subdivision104. Corporationsmay be createdas charitable, benevolent and nonprofit corporationsto furnish hospital services to its members.'
"Sec. 

### 17. SeparabilityClause. "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 remainingportions of this Act. The Legislaturehereby declares that itwould have passed this Act and each section, subsection, sentence, clause or phrase thereof, irrespectiveof the fact that any one or more of the sections, subsections, sentences,clauses or phrases are declared unconstitutional.
"Sec.

### 18. Laws in Conflictwith this Act Held Inapplicable. "That all laws or parts of laws in conflictwith this Act are hereby declared inapplicableto any and all corporations charteredand operatedunder this Act.
"Sec. 

### 19. The fact that there is no present law, at this time, which will furnishhospital servicesto 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 imperativepublic necessity that the ConstitutionalRule 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.) "ApprovedMay 10, 1939e "EffectiveMay 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 corporationsorganized for the purpose of furnishing group hospital service.

Under saidH. B. 191 a proposed corporationdesiring to be ineorporated under Section 16 (subdivision104 of Article 1302,R.C.S.) for the purpose of furnishinggroup hospital service to its members is charteredby the Secretary of State and not by the Board of InsuranceCommissioners,Howevery after it is charteredby the Secretary of State, its activities are supervisedby the Board of InsuranceCommissioners 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 AnnotatedTexas 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 irrigationon such lands, to erect, acquire and maintain hotels and bath houses on its property; and in conjunctiontherewith, to erect and maintain training schoolsand outdoor sports on its property for the training and pleasure of its patients and their families; to maintain and carry on such industrialenterprises in conjunction therewith as shallbe necessary to furnish employment to the patients therein and their families;provided such corporation shall not own or controlmore land than is necessary for the actual conductand control of a sanitarium." Subdivision 104, supra, does not authorize incorporationfor the purpose of building or establishinga hospital. Subdivision

### 6, supra, is the subdivisionunder which corporationsmay be formed for the purpose of building or establishinga sanitarium.

It is our opinion that the proposed application for charter should be refusedby you because it attempts to incorporatefor a dual purpose, to-wit, to establisha hospital and to provide group hospital service for its members. The applicationwould furtherbe objectionable if it sought to incorporateonly for the purpose of providing group hospital service for its membersbecause the application does not state that a majority of the incorporatorsof the propOSed corporation are superintendents of hospitals or physicians or surgeons licensedby the State Board of Medical Examiners.

you. Suffice it to say that the proposed charter shouldbe 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