Can the Washington State Auditor audit UW Physicians, the nonprofit corporation that provides medical services through the University of Washington School of Medicine?
Plain-English summary
State Auditor Pat McCarthy asked whether her office could audit UW Physicians (UWP), the nonprofit corporation that the University of Washington created in 1962 to provide physician services through the UW School of Medicine. UWP is technically a separate Chapter 24.03 RCW nonprofit corporation, but its bylaws make it functionally an arm of UW Medicine: only UW medical-school faculty can be members, all services are at UW-approved facilities, all patient records belong to UW, the medical school dean approves bylaws and sets salaries, and on dissolution all UWP assets transfer to the University.
The legal question was whether RCW 43.09.310 (annual post-audits of state agencies) and RCW 43.09.420 (audits of revolving, local, and other state funds) reach a corporation like UWP. The "state agency" definition in RCW 43.09.290 expressly covers state educational institutions like UW, but it does not on its face include separately incorporated affiliates. The AG concluded UWP was nonetheless reachable, applying a functional-equivalent analysis grounded in Hyde v. Univ. of Wash. Med. Ctr. and the Telford line of cases.
In Hyde, the Court of Appeals held UWP was an "arm of the State" for purposes of the tort claim filing statute (RCW 4.92.100), citing UW's control over where UWP could practice, who it could employ, and the ultimate accountability of UWP's board to UW Medicine. The AG followed that reasoning while emphasizing that the test is statute-by-statute: an entity might be a state agency for one purpose and not another, depending on legislative purpose. For RCW 43.09, the legislative purpose is broad public-fund accountability, and the same control factors that drove Hyde applied with at least equal force.
The opinion also pointed to a 2017-2019 budget proviso in which the legislature itself directed UW to comply with auditor reviews of "any and all" UW services, including those offered through "any public-private partnership, business venture, affiliation, or joint venture with a public or private entity." That proviso functioned as legislative confirmation that audit reach extends through UW's affiliates.
The AG was careful to limit the holding to RCW 43.09. UWP might be a state agency for audit purposes and not for, say, the Public Records Act, depending on how each statute's purpose maps to the Telford factors.
Currency note
This opinion was issued in 2018. 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.
Common questions
Q: Why was UWP's status uncertain?
A: UWP is organized as a Chapter 24.03 RCW nonprofit corporation, separate from the University. The state auditor's authority is defined by reference to "state agencies," which the auditor statute defines to include UW but not to expressly cover separately incorporated affiliates. The question was whether the corporate separation was enough to take UWP outside that definition.
Q: What is the Telford test?
A: A four-factor balancing test from Telford v. Thurston Cnty. Bd. of Comm'rs used to decide whether a private entity is the "functional equivalent" of a public agency for purposes of a particular statute. Factors: (1) governmental function performed, (2) extent of government funding, (3) extent of government involvement, (4) whether the government created the entity. Courts apply Telford in light of the purpose of the specific statute at issue.
Q: What was the holding in Hyde?
A: The Court of Appeals held UWP was a state agency for purposes of the tort claim filing statute (RCW 4.92.100) because UW Medicine's control over UWP made it "functionally an arm of the State," and the state indemnifies UWP medical staff for tort liability. The AG used the same factual record but applied it in light of the auditor statute's purpose rather than the tort claim statute's purpose.
Q: Could UWP be a state agency for audit purposes but not for public records?
A: Yes. The opinion expressly preserved that possibility. The Telford analysis is statute-specific, and the relative weight of each factor depends on the statute's purpose. For example, in Fortgang v. Woodland Park Zoo, the Supreme Court held the Woodland Park Zoo was not a public agency for PRA purposes despite operating under a city contract, because the PRA factors did not support agency status.
Q: What did the legislature say about this?
A: The 2017-2019 biennial appropriations bill contained a proviso directing UW to comply with state auditor reviews of services offered to the public, including those offered through any "public-private partnership, business venture, affiliation, or joint venture." The AG cited this as legislative confirmation that audit reach extends through UW's affiliates.
Q: Does this opinion address the scope of the audit?
A: No. The opinion addressed only whether UWP can be audited, not what specific records or transactions must be produced or how the auditor should conduct the audit.
Background and statutory framework
The State Auditor's authority is constitutional (Wash. Const. art. III, § 20) but the specific powers come from statute. RCW 43.09.310 requires annual post-audits of state agencies. The "state agency" definition in RCW 43.09.290 reaches "every other office, officer, department, board, council, committee, commission, or authority of the state government . . . supported, wholly or in part, by appropriations from the state treasury or funds under its control" and "all state educational, penal, reformatory, charitable, eleemosynary, or other institutions." UW fits cleanly under the educational-institution prong.
RCW 43.09.420 is broader. It directs audits of "all revolving funds, local funds, and other state funds and state accounts that are not managed by or in the care of the state treasurer and that are under the control of state agencies." That definition does not depend on RCW 43.09.290's enumerated list and does not require legislative appropriation. It exists precisely to reach off-treasury funds at universities and similar agencies.
UWP's structure was set out at length in Hyde. UWP exists "for the benefit of the University of Washington School of Medicine exclusively for charitable, educational and scientific purposes." Its trustees include the chairs of each medical school department plus 12 at-large trustees and 3 community members appointed by the dean. UWP's principal and income are devoted exclusively to UW purposes. On dissolution, UWP's remaining assets transfer to the University. Physicians can practice through UWP only if they are UW medical school faculty with no independent practice, and only at UW-managed facilities. Patient records belong to UW. The medical school dean has authority to add and remove UWP board members, approve clinical departments, approve bylaw amendments, and set UWP employee salaries.
Given that level of integration, the AG's analysis was straightforward. UWP brands itself as part of UW; UWP funds must be used to benefit UW; UWP exists at the dean's pleasure for what amounts to UW's purposes. Treating UWP as functionally part of UW for state-auditor purposes serves the legislative goal of broad public-fund accountability.
Citations and references
Statutes:
- RCW 43.09.290, .310, .420 (state auditor authority)
- RCW 43.88.020 (definitions)
- RCW 4.92.100 (tort claims against state)
Constitutional provisions:
- Wash. Const. art. III, § 20
Cases:
- Hyde v. Univ. of Wash. Med. Ctr., 186 Wn. App. 926, 347 P.3d 918 (2015)
- Univ. of Washington v. City of Seattle, 188 Wn.2d 823, 399 P.3d 519 (2017)
- Hontz v. State, 105 Wn.2d 302, 714 P.2d 1176 (1986)
- Telford v. Thurston Cnty. Bd. of Comm'rs, 95 Wn. App. 149, 974 P.2d 886 (1999)
- Fortgang v. Woodland Park Zoo, 187 Wn.2d 509, 387 P.3d 690 (2017)
- Clarke v. Tri-Cities Animal Care & Control Shelter, 144 Wn. App. 185, 181 P.3d 881 (2008)
Prior AG opinions:
- AGLO 1977 No. 11 (university local funds)
Source
Original opinion text
Attorney General Bob Ferguson
STATE AUDITOR—HIGHER EDUCATION—MEDICINE—PUBLIC FUNDS—Whether UW Physicians Is Subject To Audit By The State Auditor
UW Physicians (UWP) is likely subject to audit under RCW 43.09.310 and RCW 43.09.420 because the University of Washington exercises such control that a Washington court is likely to consider UWP to be functionally a part of the University.
March 27, 2018
The Honorable Pat McCarthy
Washington State Auditor
Insurance Building
PO Box 40021
Olympia, WA 98504-0021
Cite As: AGO 2018 No. 4
Dear Auditor McCarthy:
By letter previously acknowledged, you have requested our opinion on the following question, rephrased as follows:
Is the Association of University Physicians, doing business as UW Physicians (UWP), subject to audit under RCW 43.09.310[1] and .420?
BRIEF ANSWER
UWP is likely subject to audit under both RCW 43.09.310 and .420. The University of Washington, a state educational institution subject to audit under these provisions, exercises such control over UWP that UWP should be considered the functional equivalent of the University for purposes of RCW 43.09.
FACTUAL BACKGROUND
In 1945, the Washington State Legislature authorized the University of Washington to establish, operate, and maintain a school of medicine. Laws of 1945, ch. 15, § 1 (enacting former
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RCW 28.77.200 (1945)). A year later, the University of Washington School Of Medicine was founded. In furtherance of its mission, the University created the Association of University Physicians in 1962 to provide medical services to the community. The Association of University Physicians was incorporated as a nonprofit corporation in 1983 and changed its name to UW Physicians (UWP) in 1989. The School of Medicine, UWP, and six other entities comprise the University's UW Medicine program.
In Hyde v. University of Washington Medical Center, 186 Wn. App. 926, 931, 347 P.3d 918 (2015), the court detailed the operation of UWP and its relationship to the University:
UWP is a nonprofit corporation created under chapter 24.03 RCW "for the benefit of the University of Washington School of Medicine exclusively for charitable, educational and scientific purposes, and to aid in performing certain functions of and to carry out certain purposes of the University of Washington School of Medicine." Its principal and income are devoted exclusively to these purposes. UWP is managed and directed by a board of trustees, which includes the chairs of each department of the UW medical school, plus 12 at-large trustees who are voting members of UWP elected by their colleagues and 3 community members who are appointed by the dean of the medical school. Upon dissolution, UWP's remaining assets will transfer to the university.
UWP provides physician services only at hospitals owned or managed by UW and other practice sites approved by the medical school dean. The physicians who provide these services must be faculty members of the UW School of Medicine, must have no independent private medical practice, and, unless otherwise approved by the medical school dean, must be licensed to practice medicine in Washington. All records of care provided by UWP members at UW facilities are the property of UW.
(Footnote omitted.)
There is thus a very close relationship between UW Medicine and UWP, confirmed in the bylaws for each organization. According to its bylaws, UW Medicine's governing board is responsible for the "[p]lanning and delivery of medical services, including oversight of the physician services provided through the UWP." UWP's bylaws correspondingly recognize that it shall be "directly accountable to the [UWP] Board and through it to the Dean." Hyde, 186 Wn. App. at 933. UWP's bylaws also vest the Dean of the School of Medicine with the authority to add
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and remove UWP Board members, approve new clinical departments, approve amendments to UWP's bylaws, and set salaries for UWP employees.
Your opinion request seeks guidance on whether UWP, a nonprofit corporation, may be audited by the state auditor under RCW 43.09. Our analysis of your question follows.
ANALYSIS
Is the Association of University Physicians, doing business as UW Physicians (UWP), subject to audit under RCW 43.09.310 and .420?
For the reasons discussed more fully below, we conclude that the state auditor has the authority to audit UWP under both RCW 43.09.310 and .420. Our analysis is limited to the question of whether the state auditor may audit UWP, and does not address the scope of the auditor's authority under either provision. We also do not imply that UWP would be considered a state agency for other purposes.
a. The State Auditor has Broad Legislative Authority to Audit State Agencies
The Washington State Auditor is the "auditor of public accounts, and shall have such powers and perform such duties in connection therewith as may be prescribed by law." Wash. Const. art. III, § 20. Accordingly, the state auditor "has only such powers as are conferred by the legislature." Graham v. State Bar Ass'n, 86 Wn.2d 624, 625, 548 P.2d 310 (1976).
The state auditor is legislatively mandated to audit state agencies. RCW 43.09.310(1). For the purposes of RCW 43.09.310, the term "state agency" is defined to mean "elective officers and offices, and every other office, officer, department, board, council, committee, commission, or authority of the state government . . . supported, wholly or in part, by appropriations from the state treasury or funds under its control . . . ." RCW 43.09.290. The term also includes "all state educational . . . institutions, supported, wholly or in part, by appropriations from the state treasury or funds under its control." RCW 43.09.290. The University of Washington qualifies as a "state agency" under RCW 43.09.290 because it is a state educational institution partially supported by legislatively-appropriated funds. See Substitute S.B. 5883, § 606, 65th Leg., 3d Sp. Sess. (2017).
Additionally, the state auditor "shall audit all revolving funds, local funds, and other state funds and state accounts that are not managed by or in the care of the state treasurer and that are under the control of state agencies, including but not limited to state departments, boards, and commissions." RCW 43.09.420. While the definition of "state agency" provided in
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RCW 43.09.290 does not apply to RCW 43.09.420, Washington courts have treated the University of Washington as a state agency for a variety of purposes. See, e.g., Univ. of Washington v. City of Seattle, 188 Wn.2d 823, 837, 399 P.3d 519 (2017) ("UW is clearly a state agency as that term is ordinarily defined."); Hontz v. State, 105 Wn.2d 302, 310, 714 P.2d 1176 (1986); Hyde, 186 Wn. App. at 930. The statute's identification of "state departments, boards, and commissions" as examples of state agencies does not alter this conclusion. See Hickle v. Whitney Farms, Inc., 148 Wn.2d 911, 924 n.15, 64 P.3d 1244 (2003) (A definition listing an example while including the phrase "including but not limited to" is open-ended and allows other items to fall within the scope of the definition.). It is therefore likely that the University of Washington also qualifies as a state agency for purposes of RCW 43.09.420.
Accordingly, the state auditor may audit the University of Washington under both RCW 43.09.310 and .420. As we discuss next, UWP may also be audited under these provisions because UWP functions as an arm of the University of Washington.
b. UWP is an Arm of the University of Washington for Purposes of RCW 43.09
Washington courts have faced the question of whether a corporation can be so interconnected with a governmental entity that it may be treated the same as the governmental entity for purposes of a given statute. To resolve this question, courts have looked to the context and purpose of the statute at issue to shape the analysis in each case. See Telford v. Thurston County Bd. of Comm'rs, 95 Wn. App. 149, 159, 974 P.2d 886 (1999) (looking to the intent of the Public Records Act); Hyde, 186 Wn. App. at 929-30 (considering purpose of the tort claims statute).
For example, Washington courts apply a four-part balancing test known as the Telford test to determine whether a nongovernmental entity should be treated like a public agency for purposes of the Public Records Act. See, e.g., Fortgang v. Woodland Park Zoo, 187 Wn.2d 509, 534, 387 P.3d 690 (2017) (concluding that a nonprofit corporation that operates a zoo under a contract with the City of Seattle is not a public agency for purposes of the PRA); Clarke v. Tri-Cities Animal Care & Control Shelter, 144 Wn. App. 185, 188, 181 P.3d 881 (2008) (holding that a corporation running an animal shelter under contract with local government is a public agency for purposes of the PRA). The Telford test considers whether the entity performs a governmental function, as well as the extent of governmental financial support and involvement in its creation and
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activities. Fortgang, 187 Wn.2d at 517-18. The Telford court settled upon this test after deciding that these factors were relevant to furthering the purpose of the PRA. Telford, 95 Wn. App. at 163.
One prior case directly addresses the status of UWP itself. In Hyde, the Washington State Court of Appeals concluded that the statutory filing requirements for bringing tort suits against state agencies should also apply to suits brought against UWP. Hyde, 186 Wn. App. at 928-29. The court decided that the filing requirements did apply because UW Medicine exercised such control over UWP that it was "functionally an arm of the State." Id. at 927. To support its conclusion, the court cited the University's control over where UWP may provide its services, who UWP may employ, and the UWP board of trustees' ultimate accountability to UW Medicine. Id. at 931-33. It also emphasized that the activities of UWP subjected state funds to liability and suggested that it would be contrary to the purpose of RCW 4.92.100 for the statute's filing requirements to not apply to suits brought against UWP. Id. at 927, 932, 934.
While helpful, Hyde does not resolve whether the state auditor's authority extends to UWP because audits are governed by different statutes that serve a different purpose. An entity can be a state agency for one purpose and not for another. Prominent among the reasons why the Hyde court found UWP to be a state agency for purposes of the tort claim filing statute was the fact that the state indemnifies UWP for tort liability. Hyde, 186 Wn. App. at 932 (UWP medical staff are deemed state employees for liability purposes). Applying the tort claim statute to UWP therefore furthered the purpose of the tort claim statute.
The analysis of whether the state auditor may audit UWP must accordingly be informed by the language and purpose of RCW 43.09. The legislature has directed the state auditor to audit all state agencies. RCW 43.09.310. It has broadly defined the term "state agency" to include the University of Washington, and has directed that all "books, records, funds, accounts, and financial transactions" of state agencies be subject to audit, regardless of whether those records are associated with legislatively-appropriated funds. RCW 43.09.290. It has further expanded the auditor's authority in conducting state agency audits by allowing for the audit of "all revolving funds, local funds, and other state funds" under the control of state agencies. RCW 43.09.420. The clear import of this broad legislative mandate is for audits to reach all financial records of state agencies.
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A court deciding whether a corporation like UWP may be audited under RCW 43.09 would likely apply an agency analysis similar to the test applied in Hyde that takes into account the legislative purpose of RCW 43.09. That analysis as to UWP would likely track closely with the Hyde court's analysis concluding that UWP should be treated like a state agency for purposes of RCW 4.92.100, the tort claim filing statute. As discussed, the University of Washington created UWP "for the benefit of the University of Washington School of Medicine[.]" Hyde, 186 Wn.2d at 931. The physicians who provide services through UWP do so only at University-approved facilities and must be faculty members of the medical school. Id. UWP incorporates the name of the University of Washington into its own name, effectively branding itself to the public as affiliated with the University and its medical school. Its patient care records are the property of the University. Id. Of particular relevance to the applicability of RCW 43.09 is the court's recognition that the funds held by UWP must be used to benefit the University. See Hyde, 186 Wn. App. at 931 ("Upon dissolution, UWP's remaining assets will transfer to the university."), 937 (UWP is "required 'to devote its income to the support of the University' and must retain all of its funds in excess of its annual operating expenses 'for the benefit of the School of Medicine, as an Academic Support Fund to be used throughout the University by the School of Medicine for the education, research and other institutional needs of the School of Medicine.'").
Given these factors, UWP should be considered the functional equivalent of the University of Washington for purposes of RCW 43.09 and therefore subject to audit to the same extent.
We trust that the foregoing will be useful to you.
ROBERT W. FERGUSON
Attorney General
GREGORY K. ZISER
Assistant Attorney General
wros
[1] Your opinion request letter asked whether UWP could be subject to audit under RCW 43.09.290. That statute sets forth definitions that are key to our analysis, but the auditing authority associated with them is located in RCW 43.09.310.
[2] References to UW Medicine: Fact Book and Board Bylaws sources are documented in the original opinion's footnotes.
[3] UW Medicine: Board Bylaws, p. 1.
[4] UW Medicine: Board Bylaws, § 1.2.
[5] RCW 43.09.290, .310, and .420, and RCW 43.88.020(5) are all appended for ease of reference.
[6] A revolving fund is "a fund in the state treasury, established by law, from which is paid the cost of goods or services furnished to or by a state agency, and which is replenished through charges made for such goods or services or through transfers from other accounts or funds." RCW 43.88.020(9). A "local fund" is a fund created by a particular agency, with the authorization of the Office of Financial Management, outside the state treasury. See RCW 43.88.195 (authorizing the creation of such funds). The state universities, including the University of Washington, "are permitted to utilize so-called 'local' funds to cover portions of their operational expenses." AGLO 1977 No. 11, at 4.
[7] RCW 43.09.290 provides that its definitions apply "[f]or the purposes of RCW 43.09.290 through 43.09.340 and 43.09.410 through 43.09.418[.]" We view the exclusion of RCW 43.09.420 as deliberate given that the legislature did not amend RCW 43.09.290 to apply to RCW 43.09.420 when the latter statute was enacted in 1993.
[8] As the court explained:
Under the Telford test, the factors relevant to deciding when a private entity is treated as the functional equivalent of an agency are (1) whether the entity performs a government function, (2) the extent to which the government funds the entity's activities, (3) the extent of government involvement in the entity's activities, and (4) whether the entity was created by the government.
Fortgang, 187 Wn.2d at 517-18 (citing Clarke, 144 Wn. App. at 192).
[9] See also Hontz, 105 Wn.2d at 310 (concluding that Harborview Medical Center was an "arm of the State" for Eleventh Amendment immunity purposes because it was operated and managed by the University of Washington and all of its employees were University employees).
[10] For example, an entity might qualify as a state agency for purposes of the tort claim filing statute, as the court concluded of UWP in Hyde, but not for public records purposes under the Telford test.
[11] For the current biennium, the Legislature has confirmed our conclusion that UWP is subject to audit in a budget proviso regarding the University of Washington: "To ensure transparency and accountability, in the 2017-2019 fiscal biennium the University of Washington shall comply with any and all financial and accountability audits by the Washington state auditor including any and all audits of university services offered to the general public, including those offered through any public-private partnership, business venture, affiliation, or joint venture with a public or private entity, except the government of the United States." Engrossed Substitute S.B. 6032, § 602(27).