Can a Texas hospital district lease space to a private drug treatment center?

Plain-English summary

A county attorney asked whether the Chambers County Hospital District, which voters had converted in 1991 into a hospital district under article IX, section 9 of the Texas Constitution and chapter 286 of the Health and Safety Code, could lease part of its facility to a group of private physicians to run an adolescent drug treatment center. The Attorney General concluded it could, subject to constitutional conditions, and that the lease did not have to go through a public auction.

The opinion worked through three layers. First, the statutory power. A special-purpose district like a hospital district has only the powers the Legislature has expressly given it or that exist by clear implication, but here the Legislature had been explicit: Health and Safety Code section 286.077(b) lets the board transfer district hospital facilities by lease to physicians, individuals, companies, corporations, or other legal entities. Second, the constitutional "hospital purpose" requirement. Article IX, section 9 authorizes hospital districts with power to issue bonds for "hospital purposes." Chapter 286 does not define "hospital" or "hospital purposes," but the opinion drew on the Hospital Project Financing Act's broad definition of a "hospital project" and on out-of-state cases treating drug rehabilitation and methadone facilities as serving a hospital purpose, and concluded an adolescent drug treatment facility serves a hospital purpose. Because article IX, section 9 also directs a hospital district to assume full responsibility for medical and hospital care of its needy inhabitants, the district had to make sure the lease required the drug treatment facility to treat needy adolescents. The opinion distinguished an earlier opinion that barred leasing hospital space as offices for the private practice of medicine, since private offices are not a hospital purpose, while a facility serving both private and needy adolescent patients fully complies.

Third, the public-purpose limit in article III, section 52. To avoid the bar on gratuitous grants of public resources, the lease of a county-owned facility had to serve a valid public purpose and bring the district "substantial value in return," with sufficient controls to ensure the public purpose is actually accomplished and rent (together with the building's reversion at lease end) that gives the hospital board adequate consideration. As long as those constitutional requirements were met, the district could lease the space. Finally, the opinion addressed the auction question. Local Government Code section 263.001 (formerly V.T.C.S. article 1577) requires that a county commissioner's sale or lease of county real property be made at public auction, but prior opinions had consistently looked to the statutes dealing specifically with leasing county hospitals rather than to article 1577. Because section 286.077(b) specifically authorized the district's lease, section 263.001 did not apply.

Currency note

This opinion was issued in 1992. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Health and Safety Code and Local Government Code provisions discussed here may have been amended or renumbered since 1992, so confirm the current statutes before relying on any procedure described.

Background and statutory framework

A special-purpose district, such as a hospital district, may "exercise only such powers as have been expressly delegated to it by the Legislature, or which exist by clear and unquestioned implication." Attorney General Opinion DM-66 (1991) (citing Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 946 (Tex. 1940)). Health and Safety Code section 286.077(b) empowers the board of directors to transfer by lease to physicians, individuals, companies, corporations, or other legal entities the district's hospital facilities, so the district was specifically authorized to lease its facility to private physicians.

Article IX, section 9 of the Texas Constitution authorizes the Legislature to provide for hospital districts with power to issue bonds for "hospital purposes." Chapter 286 does not define "hospital" or "hospital purposes." Chapter 223, the Hospital Project Financing Act, defines "hospital project" to include a structure suitable for use as a hospital, clinic, health facility, extended care facility, outpatient facility, rehabilitation or recreation facility, pharmacy, medical laboratory, dental laboratory, physicians' office building, or laundry or administrative facility related to a health facility or system. Health & Safety Code § 223.002(4)(B)(i). Courts elsewhere had treated drug rehabilitation facilities as hospitals: in Scerbo v. Board of Adjustment, 297 A.2d 207, 209 (N.J. Super. 1972), a residential narcotic rehabilitation and treatment facility qualified as a "hospital," and in People ex rel. D'Iorio v. Alfa Realty Co., 330 N.Y.S.2d 403, 408 (N.Y. Misc. 1972), a center examining drug addicts and giving daily methadone doses carried on a "hospital" purpose. The opinion concluded an adolescent drug treatment facility serves a hospital purpose. Because article IX, section 9 also directs a hospital district to "assume full responsibility for providing medical and hospital care for its needy inhabitants," the district had to ensure the lease required the proposed facility to treat needy adolescents. See Attorney General Opinion DM-66 at 3-4 (kidney dialysis clinic serves a hospital purpose in part because it serves needy patients). The opinion distinguished Attorney General Opinion JM-258 (1984), which held a hospital district could not lease facility space as offices for the private practice of medicine, because such offices are not "hospital purposes" or the provision of "medical or hospital care for the needy," whereas a facility serving both private and needy adolescent patients complies with article IX, section 9.

On article III, section 52, the opinion drew on Attorney General Opinion H-777 (1976), which (quoting Sullivan v. Andrews County, 517 S.W.2d 410, 413 (Tex. Civ. App.—El Paso 1974, writ ref'd n.r.e.)) stated that to avoid the objection that leasing a county-owned facility violates article III, section 52, the lease must be for a valid public purpose and the county must receive "substantial value in return" for the leasing privilege. See Attorney General Opinion H-966 (1977) (public body should be certain the lease serves a public purpose and includes sufficient controls so the purpose is accomplished, and the rent, with the building's reversion at lease end, should give the hospital board adequate consideration). So long as those requirements were met, the district could lease the space.

On the auction question, Local Government Code section 263.001 (formerly V.T.C.S. article 1577) provides that a commissioners court may appoint a commissioner to sell or lease county real property and that the sale or lease "must be made at a public auction." But Attorney General Opinion JM-335 (1985) noted prior opinions had consistently looked to statutes dealing specifically with the lease of county hospitals rather than to article 1577. Because section 286.077(b) specifically authorized the district's board to lease district facilities to private entities, section 263.001 had no application to the proposed lease.

Common questions

Can a hospital district rent out part of its building to private doctors?
Under this opinion, yes, when a statute authorizes it. Health and Safety Code section 286.077(b) expressly let the district's board lease district hospital facilities to physicians and other entities, so the district could lease space for an adolescent drug treatment center.

Does a drug treatment center count as a "hospital purpose"?
The opinion concluded it does. It relied on the broad statutory definition of a hospital project and on out-of-state cases treating drug rehabilitation and methadone facilities as hospitals, and held an adolescent drug treatment facility serves a hospital purpose.

Are there strings attached to the lease?
Yes, in the opinion's view. The lease had to require the facility to treat needy adolescents (article IX, section 9) and, to satisfy article III, section 52, had to serve a public purpose and give the district adequate rent and controls so the public purpose is actually achieved.

Did the district have to auction the lease?
No. The opinion concluded the public-auction requirement in Local Government Code section 263.001 did not apply, because the specific hospital-district statute, section 286.077(b), authorized the lease.

Citations

• Tex. Const. art. IX, § 9
• Tex. Const. art. III, § 52
• Health & Safety Code § 286.077(b)
• Health & Safety Code § 223.002(4)(B)(i)
• Local Gov't Code § 263.001
• V.T.C.S. art. 1577
• Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945 (Tex. 1940)
• Scerbo v. Board of Adjustment, 297 A.2d 207 (N.J. Super. 1972)
• People ex rel. D'Iorio v. Alfa Realty Co., 330 N.Y.S.2d 403 (N.Y. Misc. 1972)
• Sullivan v. Andrews County, 517 S.W.2d 410 (Tex. Civ. App.—El Paso 1974, writ ref'd n.r.e.)
• Attorney General Opinion DM-66 (1991)
• Attorney General Opinion JM-258 (1984)
• Attorney General Opinion JM-335 (1985)
• Attorney General Opinion H-777 (1976)
• Attorney General Opinion H-966 (1977)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0131
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1992/dm0131.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

June 29, 1992

Honorable Charles S. Brack
Chambers County Attorney
P. O. Box 1200
Anahuac, Texas 77514

Opinion No. DM-131

Re: Whether a hospital district may lease part of its facility for the operation of a private adolescent drug treatment facility (RQ-278)

Dear Mr. Brack:

You have requested our opinion as to whether the Chambers County Hospital District No. 1 (hereafter "the district") may lease a part of its facility to a group of private physicians to operate as an adolescent drug treatment center. You indicate that, following an election in September, 1991, the district was converted into a hospital district operating under article IX, section 9 of the Texas Constitution and chapter 286 of the Health and Safety Code.

Generally, a special purpose district, such as a hospital district, may "exercise only such powers as have been expressly delegated to it by the Legislature, or which exist by clear and unquestioned implication." Attorney General Opinion DM-66 (1991) (citing Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 946 (Tex. 1940)). The district is specifically authorized by statute to lease its facility to private physicians. Section 286.077(b) of the Health and Safety Code empowers the board of directors of the district to, inter alia, "transfer by lease to physicians, individuals, companies, corporations, or other legal entities . . . district hospital facilities." Health & Safety Code § 286.077(b).

This does not end our inquiry, however. We must also determine whether operation of an adolescent drug treatment facility would satisfy the requirements of article IX, section 9 of the Texas Constitution. That constitutional provision declares that the legislature may "provide for the creation, establishment, maintenance and operation of hospital districts . . . with power to issue bonds . . . for hospital purposes." (Emphasis added.) Chapter 286 of the Health and Safety Code does not define "hospital" or "hospital purposes," but chapter 223, the Hospital Project Financing Act, defines "hospital project" to include, inter alia:

  (B) a structure suitable for use as:

       (i) a hospital, clinic, health facility, extended care facility, outpatient facility, rehabilitation or recreation facility, pharmacy, medical laboratory, dental laboratory, physicians' office building, or laundry or administrative facility or building related to a health facility or system . . . .

Health & Safety Code § 223.002(4)(B)(i) (emphasis added). In Scerbo v. Board of Adjustment, 297 A.2d 207 (N.J. Super. 1972), the court held that a residential narcotic rehabilitation and treatment facility qualified as a "hospital." Id. at 209. And in People ex rel. D'Iorio v. Alfa Realty Co., 330 N.Y.S.2d 403 (N.Y. Misc. 1972), the court said that a center where drug addicts were examined and given daily doses of methadone was carrying on a "hospital" purpose. Id. at 408. We conclude that an adolescent drug treatment facility would serve a hospital purpose. In addition, we note that article IX, section 9 also directs that a hospital district created thereunder "assume full responsibility for providing medical and hospital care for its needy inhabitants." Tex. Const. art. IX, § 9. In accordance with this provision, the district must insure that the terms of the lease require the proposed drug treatment facility to treat needy adolescents. See Attorney General Opinion DM-66 at 3-4 (holding that kidney dialysis clinic would serve a hospital purpose in part because it would serve needy patients).

In our opinion, the situation about which you inquire is different from that considered in Attorney General Opinion JM-258 (1984). In that opinion, this office held that a hospital district lacked the authority to lease a portion of its facility as offices for private physicians. The opinion declared that "[w]hereas laboratory testing is a hospital function, offices for the private practice of medicine are not 'hospital purposes' or the provision of 'medical or hospital care for the needy.'" On the other hand, a facility which provides drug treatment and rehabilitation services to both private and needy adolescent patients, in our view, fully complies with the requirements of article IX, section 9 of the Texas Constitution.

[Footnote: In Attorney General Opinion DM-66, we said that operation of a kidney dialysis clinic for the purpose of providing cost-effective renal services would serve a "hospital purpose."]

Finally, we must consider whether the proposed arrangement is constitutional under the terms of article III, section 52 of the Texas Constitution. As this office noted in Attorney General Opinion H-777 (1976),

  in order to avoid the objection that such leasing of a county-owned facility is violative of article 3, section 52 of the Texas Constitution, it must be done for a valid public purpose and the county must receive "substantial value in return" for its grant of the leasing privilege.

Attorney General Opinion H-777 at 5 (quoting Sullivan v. Andrews County, 517 S.W.2d 410, 413 (Tex. Civ. App.—El Paso 1974, writ ref'd n.r.e.)); see Attorney General Opinion H-966 (1977). As was noted in Attorney General Opinion H-966, the public body negotiating the lease "should be certain that the lease will serve a public purpose and include sufficient controls so that the public purpose is actually accomplished." Attorney General Opinion H-966 at 2. Furthermore, "[t]he rent should be set so that together with the reversion of the building at the end of the lease, the Hospital Board receives adequate consideration for the use of its property." Id. So long as these constitutional requirements are met, we conclude that the district may lease part of its hospital facility to a group of private physicians to operate as an adolescent drug treatment center.

You also ask whether the district must comply with "public auction requirements" in order to lease its facility. Section 263.001 of the Local Government Code, formerly V.T.C.S. article 1577, provides that a commissioners court may "appoint a commissioner to sell or lease real property owned by the county." Such sale or lease "must be made at a public auction." In Attorney General Opinion JM-335 (1985), this office noted that prior opinions have "consistently looked to statutes dealing specifically with the lease of county hospitals, not to [V.T.C.S.] article 1577 . . . ." See also Attorney General Opinion Nos. H-77, H-16 (1973). As we have previously indicated, section 286.077(b) of the Health and Safety Code specifically authorizes the district's board of directors to lease district facilities to private entities. Thus, section 263.001 of the Local Government Code has no application to the district's proposed lease of a part of its facility for an adolescent drug treatment center.

                               SUMMARY

      The Chambers County Hospital District is statutorily authorized to lease a part of its hospital facility to a group of private physicians for operation as an adolescent drug treatment center. Article III, section 52 of the Texas Constitution requires that the lease serve a public purpose and provide for payment of adequate rentals, and article IX, section 9 requires that any hospital facility serve a hospital purpose and provide care for the needy inhabitants of the district. Section 263.001 of the Local Government Code, requiring sale or lease by public auction, is not applicable to the district's lease of its hospital facility.

                                            DAN MORALES
                                            Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Rick Gilpin
Assistant Attorney General