Can a Mississippi community hospital lease a satellite facility to its own nonprofit subsidiary to qualify for 340B drug discounts?

Plain-English summary

Singing River Health System (SRHS) is a 501(c)(3) community hospital owned by Jackson County. It runs three hospital facilities under two Medicare provider numbers. The Pascagoula Hospital (PH) and Ocean Springs Hospital (OSH) campuses share a single Medicare number tied to SRHS's tax ID. Singing River Gulfport Hospital is owned and operated by a separate nonprofit, Singing River Gulfport Corporation, which is itself a wholly owned subsidiary of SRHS. SRG Hospital has its own Medicare number tied to the SRG Corporation's tax ID.

The 340B Drug Discount Program treats those Medicare numbers as separate eligibility points. SRHS figured out that if it moved the Pascagoula facility under SRG Hospital's Medicare enrollment (as a satellite of SRG rather than a satellite of Singing River Hospital), the system would qualify for substantial 340B savings. To do that under Medicare rules, the PH facility needs to be operated under SRG Corporation's ownership and control. The proposed structure: SRHS leases the PH facility to SRG Corporation, gets Jackson County's approval, and adds PH as a satellite under SRG's Medicare enrollment.

SRHS asked the AG three questions, all answered favorably:

1. Can the SRHS board lease the PH facility to its wholly owned nonprofit subsidiary with Jackson County's consent? Yes. Section 41-13-35(5)(g) lets the board contract by lease with "any individual, partnership, corporation, owner, other board of trustees, or other health care facility." A 2023 amendment added § 41-13-35(5)(dd), expressly authorizing leases to "such subsidiary, affiliate, nonaffiliated corporation or other lawful business organization." The county's prior approval is required under § 41-13-35(5)(ff) when leases transfer control of real property.

2. Does the public bidding process under § 41-13-15 apply? No. Following MS AG Op., Dukes (Apr. 2, 2010), the bid and notice requirements in § 41-13-15(7)-(10) do not apply when a community hospital is leased between owners (or, here, between a community hospital and its wholly owned nonprofit subsidiary). The bid procedures in subsections (7)-(10) are not cross-referenced from the contract and conveyance subsections (3) and (6).

3. Does the subsidiary get Mississippi Tort Claims Act protection? The AG cannot say. The MTCA is the exclusive remedy against governmental entities, and SRHS is unquestionably a governmental entity. A wholly owned nonprofit subsidiary may receive MTCA coverage if it qualifies as an "instrumentality" of the governmental entity, but that is a case-by-case factual determination courts make, not something the AG decides by official opinion under § 7-5-25.

What this means for you

If you administer a Mississippi community hospital looking at 340B optimization

The lease-to-subsidiary structure is on solid statutory footing. Section 41-13-35(5)(dd), added in 2023, was tailor-made for arrangements like this. You will need: (1) a board resolution; (2) the county owner's prior approval, on the minutes; (3) a written lease; and (4) Medicare/CMS coordination on the satellite enrollment. You can skip the public bid process the law normally imposes for hospital transactions because a lease between a community hospital and its wholly owned subsidiary is not the type of transaction those bid procedures cover.

What this opinion does not give you is comfort on tort liability. If your subsidiary ends up operating the satellite, plaintiffs will argue it is a private nonprofit and not entitled to MTCA caps and immunities. The AG flagged this as a fact-specific call. Build the subsidiary's structure in a way that makes the instrumentality argument easy to make in court: parent control, public mission, government funding, board overlap, etc. Get litigation counsel involved early on the MTCA question.

If you are a county board of supervisors with a community hospital

Section 41-13-35(5)(ff) gives you a real veto. The hospital cannot lease, sell, or convey real property or transfer control of operations without your prior approval. When a request like this comes across your desk, get the lease terms in writing, understand the operational change (who employs the staff, who collects the revenue, who carries the liability), and put your approval on the minutes.

If you advise hospitals on transactional matters

The 2023 amendment is the key change. Pre-2023, the lease-to-subsidiary path went through the more general powers in § 41-13-35(5)(g). Post-2023, you have explicit statutory authorization in § 41-13-35(5)(dd) covering loans, asset transfers, leases, gifts, and guarantees in support of subsidiaries, affiliates, and nonaffiliated corporations. The Dukes opinion still controls on bidding: subsections (7)-(10) of § 41-13-15 are not the bid-and-notice gatekeeper for inter-owner transactions.

If you handle medical malpractice or hospital liability matters

Watch the MTCA instrumentality analysis carefully. Woodall and Bolivar Leflore set the standard: an "instrumentality" is "something that serves as an intermediary or agent through which one or more functions of a controlling force are carried out." A wholly owned nonprofit subsidiary of a community hospital may qualify, but it depends on the actual structure: who funds it, who controls it, what it does, and whether its functions are "an integral part" of the parent's public mission. Plaintiffs will argue the subsidiary is just a private nonprofit that loses MTCA coverage; defendants will argue control and integration. The AG put this question squarely in the courts' hands.

Common questions

Q: What is the 340B program and why does the lease structure matter?
A: The 340B Drug Discount Program lets eligible hospitals buy outpatient drugs at significant discounts. Eligibility is tied to specific Medicare provider enrollments. When a hospital wants to extend 340B savings to a satellite location, the satellite has to be enrolled under a 340B-eligible Medicare provider number. Restructuring ownership of the satellite (here, by lease) is one way to bring it under the right Medicare number.

Q: Why doesn't the bid process apply to this lease?
A: The Mississippi Supreme Court and the AG read § 41-13-15(7)-(10) (the bid procedures) as separate from § 41-13-15(3) and (6) (which authorize contracts and conveyances among owners). Inter-owner transactions and, by extension, transactions with a wholly owned subsidiary are governed by the latter provisions, which do not cross-reference the bid procedures. Dukes (Apr. 2, 2010) is the controlling AG opinion.

Q: Does the county lose ownership of the hospital facility through this lease?
A: No. Jackson County remains the owner. The lease transfers operational control to SRG Corporation (and through it, into SRG's Medicare enrollment) but the county still holds title. The § 41-13-35(5)(ff) approval requirement exists precisely so the owner stays in the loop on lease arrangements that change operations.

Q: Can a private hospital corporation get the same Tort Claims Act protection?
A: Only if it qualifies as an "instrumentality" of a governmental entity. Pure private hospitals do not get MTCA coverage. The case-by-case test looks at control, funding, mission, and integration with the governmental parent. Bolivar Leflore and Woodall are the leading cases.

Q: Does the subsidiary's existing nonprofit status (501(c)(3)) automatically give it MTCA coverage?
A: No. 501(c)(3) is a federal tax classification. MTCA coverage is a Mississippi-law question about whether the entity is a governmental entity or an instrumentality of one. The two analyses are independent.

Background and statutory framework

Section 41-13-35(5) gives community hospital boards a non-exhaustive list of powers. Subsection (g) authorizes leases broadly:

[t]o contract by way of lease, lease-purchase or otherwise, with any agency, department or other office of government or any individual, partnership, corporation, owner, other board of trustees, or other health care facility, for the providing of property, equipment or services by or to the community hospital or other entity or regarding any facet of the construction, management, funding or operation of the community hospital or any division or department thereof, or any related activity.

The 2023 amendment added subsection (dd), explicitly directed at subsidiary support:

to accomplish and facilitate the creation, establishment, acquisition, operation or support of any such subsidiary, affiliate, nonaffiliated corporation or other lawful business organization, by means of loans of funds, acquisition or transfer of assets, leases of real or personal property, gifts and grants of funds or guarantees of indebtedness of such subsidiaries, affiliates and nonaffiliated corporations.

Subsection (ff) is the owner-consent gate:

The board of trustees shall not sell, purchase, convey, lease, or enter into agreements that have the effect of selling, purchasing, conveying, or leasing any real property or enter into management agreements, merger agreements, joint ventures, joint-operating agreements or similar arrangements that transfer control of any real property or the operations of a community hospital described in this subsection without the prior approval of the owners of the real property.

On bidding, § 41-13-15(3) and (6) authorize inter-owner contracts and conveyances without bid procedures, while subsections (7)-(10) impose bid and notice rules in other contexts. Dukes read (3) and (6) as standalone authorities that do not import (7)-(10).

On MTCA, the foundational rule is that "[t]he MTCA is the exclusive remedy for filing a lawsuit against governmental entities and its employees." Guffy, 930 So. 2d at 1255. SRHS is a governmental entity, McLeod, 401 So. 3d at 572. Whether a nonprofit subsidiary is an "instrumentality" entitled to MTCA coverage depends on facts under Woodall and Bolivar Leflore.

Citations

• Miss. Code Ann. § 41-13-35(5)(g), (dd), (ff)
• Miss. Code Ann. § 41-13-15(3), (6), (7)-(10)
• Miss. Code Ann. § 41-13-10(d) ("owner" defined)
• Miss. Code Ann. § 11-46-1(i) (community hospital as political subdivision)
• Miss. Code Ann. §§ 11-46-1 et seq. (Mississippi Tort Claims Act)
• Miss. Code Ann. § 7-5-25
• S. Cent. Reg'l Med. Ctr. v. Guffy, 930 So. 2d 1252 (Miss. 2006)
• City of Jackson v. Brister, 838 So. 2d 274 (Miss. 2003)
• Woodall v. AAA Ambulance Service, Inc., 161 So. 3d 1072 (Miss. 2015)
• McLeod v. Millette, 401 So. 3d 568 (Miss. 2020)
• Bolivar Leflore Med. Alliance, LLP v. Williams, 938 So. 2d 1222 (Miss. 2006)
• MS AG Op., Dearman (Oct. 15, 2007)
• MS AG Op., Dukes (Apr. 2, 2010)
• MS AG Op., Hill (Dec. 8, 2017)

Source

• Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
• Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2024/04/J.Moore-April-8-2024-Potential-Lease-of-Pascagoula-Hospital-Facility.pdf

Original opinion text

April 8, 2024
Jeffrey S. Moore, Esq.
Singing River Health System
105 E. Main Street, Suite 201
Tupelo, Mississippi 38804
Re: Potential Lease of Pascagoula Hospital Facility

Dear Mr. Moore:
The Office of the Attorney General has received your request for an official opinion.

Background
According to your request, Singing River Health System ("SRHS") is a 501(c)(3) tax-exempt Mississippi community hospital owned by Jackson County. Currently, SRHS operates three hospital facilities certified under two Medicare numbers. First, SRHS directly owns and operates a multi-campus hospital known as "Singing River Hospital," consisting of Pascagoula Hospital ("PH") and Ocean Springs Hospital ("OSH"). PH and OSH are separately licensed hospital locations, with PH designated as a satellite, but they are enrolled under a single Medicare provider number linked to SRHS's tax-identification number ("TIN"). Independent of Singing River Hospital, SRHS is the sole member of Singing River Gulfport, a 501(c)(3) tax-exempt Mississippi nonprofit corporation ("SRG Corporation"). The SRG Corporation owns and operates Singing River Gulfport Hospital ("SRG Hospital"), which has its own hospital license and Medicare provider number linked to SRG Corporation's TIN.

It has recently been determined that SRHS would be able to obtain substantial savings via the 340B Drug Discount Program if the PH facility were to be operated as a satellite of SRG Hospital rather than part of Singing River Hospital. To accomplish this, the PH facility would need to be operated under the ownership and control of the SRG Corporation for Medicare-provider requirements. Accordingly, SRHS would like to lease the PH facility and its related assets to the SRG Corporation, allowing PH to be added as a satellite location under the SRG Hospital's Medicare enrollment. SRHS would obtain approval from the Jackson County Board of Supervisors prior to entering into any lease agreement as required by Mississippi Code Annotated Section 41-13-35(5)(ff).

Questions Presented
1. Is the board of trustees of SRHS authorized under Mississippi law, including without limitation Mississippi Code Annotated Section 41-13-35(5)(dd), to lease the Pascagoula Hospital facility to its wholly owned nonprofit subsidiary, SRG Corporation, with the consent of Jackson County?
2. If so, would either the board of trustees or Jackson County be required to comply with the public bidding process set forth in Section 41-13-15?
3. Is SRG Corporation, as a wholly owned nonprofit subsidiary of SRHS, covered by the protections, limitations, and immunities of the Mississippi Tort Claims Act under Sections 11-46-1 et seq., as an instrumentality of the State?

Brief Response
1. Yes. This office has previously opined that "the board of trustees of a community hospital is empowered to lease the hospital." MS AG Op., Dearman at 2 (Oct. 15, 2007).
2. In MS AG Op., Dukes (Apr. 2, 2010), this office opined that the procedures for notice and advertisement for bids set out in Section 41-13-15(7)-(10) were not applicable when one community hospital owner leased said hospital to another owner. For the same reasons as stated in that opinion, the advertisement and bidding procedures set forth in Section 41-13-15(7)-(10) are likewise not required when a community hospital is leased to its wholly owned nonprofit subsidiary without changing ownership.
3. This office has previously opined that a corporate entity may receive coverage under the Mississippi Tort Claims Act ("MTCA" or "Act") if it is determined to be an "instrumentality of a governmental entity." MS AG Op., Hill at 3 (Dec. 8, 2017). However, the question of "[w]hether a nonprofit is an instrumentality of a governmental entity involves an in depth factual examination on a case by case basis." Id. This office may only opine upon questions of state law and may not make such factual determinations. Miss. Code Ann. § 7-5-25.

Applicable Law and Discussion
As an initial matter, this opinion concerns authority under Mississippi law only and does not address any contractual considerations.

You first ask if the SRHS Board of Trustees, with the prior consent of the owner, Jackson County, is authorized under Mississippi law to lease the PH facility to its wholly owned nonprofit subsidiary, SRG Corporation. In short, this office has previously opined, yes, "the board of trustees of a community hospital is empowered to lease the hospital." MS AG Op., Dearman at *2.

Section 41-13-35(5) sets forth a specific, but inexhaustive, list of powers and duties granted to the board of trustees of a community hospital such as SRHS. As set forth in Dearman, this list includes the power:

[t]o contract by way of lease, lease-purchase or otherwise, with any agency, department or other office of government or any individual, partnership, corporation, owner, other board of trustees, or other health care facility, for the providing of property, equipment or services by or to the community hospital or other entity or regarding any facet of the construction, management, funding or operation of the community hospital or any division or department thereof, or any related activity.

Miss. Code Ann. § 41-13-35(5)(g). Further, as highlighted in your request, the 2023 amendment of Section 41-13-35 also granted community hospital boards of trustees the more specific power:

to accomplish and facilitate the creation, establishment, acquisition, operation or support of any such subsidiary, affiliate, nonaffiliated corporation or other lawful business organization, by means of loans of funds, acquisition or transfer of assets, leases of real or personal property, gifts and grants of funds or guarantees of indebtedness of such subsidiaries, affiliates and nonaffiliated corporations.

Miss. Code Ann. § 41-13-35(5)(dd). In sum, Section 41-13-35(5) clearly allows a community hospital board of trustees to enter a lease with its wholly owned subsidiary. This said, it should also be noted that prior owner approval will be necessary for the contemplated lease pursuant to Section 41-13-35(5)(ff), which provides:

The board of trustees shall not sell, purchase, convey, lease, or enter into agreements that have the effect of selling, purchasing, conveying, or leasing any real property or enter into management agreements, merger agreements, joint ventures, joint-operating agreements or similar arrangements that transfer control of any real property or the operations of a community hospital described in this subsection without the prior approval of the owners of the real property.

Accordingly, it is the opinion of this office that the board of trustees of SRHS is authorized under Mississippi law to lease the PH facility to its wholly owned nonprofit subsidiary, SRG Corporation, with the prior approval of owner Jackson County.

You next ask if either the board of trustees or Jackson County would be required to comply with the public bidding process set forth in Section 41-13-15 for the SRHS board of trustees to lease the PH facility to its wholly owned nonprofit subsidiary, SRG Corporation. In MS AG Op., Dukes (Apr. 2, 2010), this office opined that the procedures for notice and advertisement for bids set out in Section 41-13-15(7)-(10) were not applicable when one community hospital owner leased said hospital to another owner. We reasoned that Sections 41-13-15(3) and (6), which specifically address contracts and conveyances between community hospital owners, contain no reference to the bid and public notice procedures in the subsequent subsections. Specifically, Sections 41-13-15(3) and (6) provide:

(3) The owners may likewise contract with each other, or on behalf of any subordinate political or judicial subdivision, or with the board of trustees of a community hospital, and/or any agency of the State of Mississippi or the United States Government, for necessary purposes related to the establishment, operation or maintenance of community hospitals and related programs wherever located, and may either accept from, sell or contribute to the other entities, monies, personal property or existing health facilities.
. . .
(6) Owners may convey to any other owner any or all property, real or personal, comprising any existing community hospital, including related facilities, wherever located, owned by such conveying owner. Such conveyance shall be upon such terms and conditions as may be agreed upon and may make such provisions for transfers of operating funds and/or for the assumption of liabilities of the community hospital as may be deemed appropriate by the respective owners.

Following the logic set forth in Dukes, the advertisement and bidding procedures set forth in Section 41-13-15(7)-(10) are likewise not required when a community hospital is leased to its wholly owned nonprofit subsidiary without changing ownership. It is thus the opinion of this office that neither the board of trustees nor Jackson County would be required to comply with the public bidding process set forth in Section 41-13-15 for the SRHS board of trustees to lease the PH facility to its wholly owned nonprofit subsidiary, SRG Corporation.

Finally, you ask if SRG Corporation, a wholly owned nonprofit subsidiary of SRHS, a community hospital and governmental entity, is covered by the protections, limitations, and immunities of the MTCA as an instrumentality of the state. As stated by the Mississippi Supreme Court, "[t]he MTCA is the exclusive remedy for filing a lawsuit against governmental entities and its employees." S. Cent. Reg'l Med. Ctr. v. Guffy, 930 So. 2d 1252, 1255 (Miss. 2006) (quoting City of Jackson v. Brister, 838 So. 2d 274, 277-78 (Miss. 2003)). "The Act defines 'governmental entity' as 'the state and [its] political subdivisions.'" Woodall v. AAA Ambulance Service, Inc., 161 So. 3d 1072 (Miss. 2015). Generally speaking, community hospitals, as defined by Section 41-13-10, are political subdivisions. Miss. Code Ann. § 11-46-1(i). Specifically, "[i]t is undisputed that [SRHS] is a governmental entity and therefore entitled to the protections under the [MTCA]". McLeod v. Millette, 401 So. 3d 568, 572 (Miss. 2020).

This office has previously opined that a corporate entity may receive coverage under the MTCA if it is determined to be an "instrumentality of a governmental entity." MS AG Op., Hill at *3 (Dec. 8, 2017); see also Woodall, 161 So. 3d at 1072 (holding same). As noted in Woodall, "[a]n instrumentality is 'something that serves as an intermediary or agent through which one or more functions of a controlling force are carried out: a part, organ, or subsidiary branch esp. of a governing body.'" Woodall, 161 So. 3d at 1073 (quoting Bolivar Leflore Med. Alliance, LLP v. Williams, 938 So. 2d 1222, 1226 (Miss. 2006)).

While there is no question that SRHS is a government entity and political subdivision of the state entitled to the protections of the MTCA, "[w]hether a nonprofit [here, SRG Corporation] is an instrumentality of a governmental entity involves an in depth factual examination on a case by case basis." MS AG Op., Hill at *3. Pursuant to Section 7-5-25, this office may only issue official opinions on prospective matters of state law and cannot make such factual determinations. It is therefore the opinion of this office that if SRG Corporation is determined to be an instrumentality of SRHS, a community hospital and governmental entity, then SRG Corporation may be entitled to MTCA protection.

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,
LYNN FITCH, ATTORNEY GENERAL
By: /s/ Maggie Kate Bobo
Maggie Kate Bobo
Special Assistant Attorney General