The ABC Hospital is a chronic disease hospital owned and
operated by a county. A state statute authorized and directed the
County Commissioners to construct a hospital for "the treatment
of persons ill with tuberculous and other contagious diseases."
Subsequent Acts provided that the hospital could treat patients
who were able to pay the County and patients from outside of the
County, provided that priority be given to "poor patients who are
under the care of public health departments within the County,"
and permitted the hospital to also care for individuals with
cancer and chronic diseases, including mental disorders. By
statute, the hospital has a Board of Directors composed of the
three County Commissioners, the County Treasurer, the County
public health officer and six residents of the County appointed
by the Commissioners.
In the late l980's, the County Commissioners decided to
explore the possibility of terminating county management of the
Hospital because of significant financial losses which the
Hospital had sustained, as well as the difficulty in keeping
abreast of the complex health care issues and health financing
issues today. However, the County wanted to assure that
rehabilitation care would continue to be available to the
residents of the County.
The County hired a consultant to determine the feasibility
of developing a private rehabilitation hospital. When the
consultant determined that such a hospital was feasible, it
prepared a determination of need application, financed by the
County, to submit to
the Department of Public Health. (The County hopes to be
reimbursed the expense of the application at some time by the
non-profit organization). A determination of need was granted for
construction of a 60-bed comprehensive inpatient and outpatient
rehabilitation facility on the existing Hospital site.
The County Commissioners were authorized to negotiate with a
non-profit organization which was organized to establish a
private, non-profit rehabilitation hospital. The County
Commissioners were authorized to enter a Ground Lease, as well as
other instruments to lease or sell the County buildings. The
lease is "for the purpose of establishing on the ground-leased
parcel a new hospital . . . to provide special care,
rehabilitation and other medical services." The lease is required
to contain provisions giving priority in admitting patients to
residents of the County and its neighboring counties, permitting
members of the County Commissioners to participate in meetings of
the non-profit Board as non-voting attendees, and providing that
space in the new facility be made available to state, county,
municipal, and other government entities to provide medical and
social services to the population, if necessary. The County may
subordinate its interest in the Ground Lease to the financing
institution to facilitate the ability of the non-profit
organization to obtain financing.
With the impetus of the consultant, a non-profit
organization was created. The purpose of the non-profit is "to
establish and maintain a special care and rehabilitation hospital
on a tract of land owned by the County and to provide such other
medical services and activities as are related to the needs and
purposes of the hospital."
According to the non-profit organization's bylaws, the Board
of Directors will include two residents of the County, one
resident or employee of three neighboring counties, three
designees of area hospitals, and seven designees of the
consultant. The trustees may, by majority vote, elect other
trustees or fill vacancies. The President, Treasurer and Clerk of
the organization are elected annually by and from the trustees.
The County Commissioners made recommendations concerning probable
candidates to serve on the initial Board, but the County did not
appoint any members of the first board.
The County Commissioners and the non-profit organization
have entered an Agreement to Ground Lease which memorializes the
relationship of the parties. The non-profit organization will
develop, construct and operate a new rehabilitation hospital and
in the process may demolish or renovate existing buildings or
construct a new physical facility pursuant to the terms of the
ground lease. If existing buildings are required to be renovated
or demolished the County may either execute a quitclaim deed or
lease the buildings on mutually acceptable terms. It is
anticipated that the buildings will be conveyed or leased for
The County has the right to review and approve the final
design plans, including exterior design, placement of parking
areas, utilities, height design and siting of every element of
the hospital and landscaping. The County has approval rights of
all architects, engineers and general contractors on the site.
The County has the right to be notified before the non-profit
applies for licenses, permits and approvals and the County will
assist in obtaining such licenses and permits, if the non-profit
agrees to pay the County's out of pocket costs. The County has
the right to approve the terms of the mortgage obtained for the
project financing. The County will not guarantee or underwrite
any obligation of the non-profit corporation.
Members of the Board of County Commissioners will sit as
non-voting attendees at Board meetings in order to monitor
progress on construction and the transfer of patients to the new
non-profit hospital as a result of the County's decision to close
the current Hospital. The non-profit corporation will also use
its best efforts to lease space to the County for the County's
provision of medical services.
Under the lease, the consent of the County Commissioners
must be obtained to any sub-lease, assignment, or transfer but
consent will not be withheld if the transfer is to another non-
profit. The County has right of first refusal if the hospital is
sold. The County Commissioners have the right to approve any
sale. At the termination of the lease, title to all physical
structures, other improvements and all appurtenances will revert
(with or without cost) to the County. The initial ground rent
will be based upon the fair market value of the premises as
determined by a disinterested professional appraiser or such
lesser rent as the County may agree to.
The non-profit Board must receive the consent of the County
Commissioners (which consent will not be withheld if another non-
profit is involved) prior to merging, combining or affiliating
with a person or organization; entering into a partnership or
joint venture with a person or organization; transferring all or
substantially all of the assets of the non-profit to a
person or organization; altering or amending the non-profit's
organizational documents so that voting control is modified;
changing its corporate membership or trustees so that voting
control is altered. The County Commissioners have the right to
consent to any transfer of the non-profit's rights under the
lease. The non-profit may not amend the determination of need
without the consent of the County Commissioners.
Under G.L. c. 268A will the non-profit corporation be
considered to be a "county agency"?
The issue before the Commission is whether the new non-
profit corporation, which will be the lessee under the Ground
Lease with the County, is a "county agency" for purposes of G.L.
c. 268A. G.L. c. 268A, s. 1(c) defines "county agency" as "any
department or office of county government or any division, board,
bureau, commission, institution, tribunal or other
instrumentality thereof or thereunder." G.L. c. 268A, s. 1(c).
Thus, we are required to consider whether the non-profit
organization is an "instrumentality" of the County. The
Commission does not consider the corporate structure of an entity
to be dispositive of the issue. Rather, we weigh such factors as:
whether an entity is created by governmental means; whether the
entity serves an inherently governmental purpose; whether the
entity is controlled or supervised by government employees; and
whether the entity is funded by the government or expends
government funds. See EC-COI-91-12; 89-1; 88-24; 88-19.
Recently, the Massachusetts Appeals Court has had the
opportunity to interpret the term "instrumentality" in
conjunction with analogous language within the definition of
"municipal agency" and employed an analysis similar to that of
the Ethics Commission. McMann v. State Ethics Commission, 32
Mass. App. Ct. 421 (1992). In reaching the conclusion that a
regional school district is an instrumentality of each municipal
member under G.L. c. 268A, s. 1(f), the Court considered the
ordinary and approved use of the word "instrumentality" in the
statute; the formation, operation and purpose of a regional
school district; and the purpose of G.L. c. 268A. Id. at 425-428.
The Court found that the municipalities use the school district
as a means to fulfill their statutory obligation to provide
education, that the municipalities delegate their statutory
educational duties to the school district, that the
municipalities played a substantial role in the creation of the
district and in the district's financial matters, and that the
municipalities fund the district. Id. at 427. The Commission's
recent jurisdiction opinions have expressly followed the Appeals
Court's analysis in the McMann case. EC-COI-92-40; 92-27; 92-26.
Applying this precedent to the non-profit corporation, we
conclude that the corporation lacks sufficient indicia of a
government entity to be considered a "county agency." Initially,
in order to determine jurisdiction, we have examined the presence
or lack of a statute, rule, regulation, or other direct agency
action in furtherance of its statutory mandate in the creation of
a non-profit organization. See EC-COI-91-12 (agency passed
resolution to assist in creating non-profit organization); 90-3
(primary purpose on non-profit to provide fundraising support to
University furthering legislatively mandated purpose); 88-24
(non-profit created by the agency to administer its statutory
mandate). The non-profit hospital corporation was not established
by statute, rule or regulation but rather by private parties. The
County Commissioners were authorized to enter a lease with a non-
profit corporation, not specifically to create the corporation.
In the past, we have been reluctant to find jurisdiction where a
non-profit corporation is created in response to a private
contract or other private action. See EC-COI-88-19 (no
jurisdiction where stems from a private contract, notwithstanding
the participation of governmental officials in organizational
efforts); 84-65 (no jurisdiction where entity created pursuant to
terms of a private will); compare EC-COI-90-7 (government
creation found where there was indirect legislative authorization
to formulate a trust agreement).
However, we note that the County created the need for the
non-profit corporation, in a preliminary management agreement
with the consultant, had substantial input into the initial
determination to create the non-profit corporation and had
obtained the determination of need so that the project would be
viable. We also note that the non-profit corporation is assisting
the County in fulfilling its statutory mandate to provide medical
care to County residents, although the scope of the new
hospital's services is significantly greater than the County's
mandate, which is to provide chronic care. See EC-COI-84-76, n.7
(although a non-profit corporation was chartered by act of
Court, its purpose is not an essentially governmental function).
Thus, the factors relating to governmental creation and purpose
are not clear in these circumstances; however, we do not find it
necessary to resolve these issues in light of the conclusions we
reach under the remaining factors.
We do not find that the corporation will expend or receive
county funding. The corporation is required to seek private
financing to build the new hospital and will pay a fair market
rental under the lease. Although the County may subordinate its
interest in the ground lease to the private financing
institution, it will not guarantee or underwrite any of the new
hospital's obligations. See EC-COI-84-76, n.7 (factor in not
finding jurisdiction was that non-profit required to raise own
revenues and may not pledge Commonwealth's credit). The County
also expects to be reimbursed for expenses it has accrued to date
in obtaining the determination of need.
Finally, the factor which we consider to be the most
significant basis of our conclusion in this case is the lack of
county governmental control over the new hospital. See EC-COI-92-
1; 91-12. The Commission has traditionally examined the nature of
governmental control exercisable over an entity's internal
operations through government participation in the selection of
the non-profit's Board of Directors or the presence of a bloc of
government employees on the Board who are capable of controlling
Board actions. See e.g., EC-COI-91-12 (government presence on
Board not sufficient to control Board decisions and no
jurisdiction found); 90-3 (potential for government control of
Board decisions); 89-1 (same); 89-24. While there is governmental
regulation by the County over the non-profit corporation by
virtue of the lease arrangement, the purpose of this oversight is
to protect the County's investment and rights under the contract
and is not control over Board decisions or supervision over the
administration and operation of the hospital. Under the hospital
corporation bylaws, the County Commissioners may participate at
Board meetings only as non-voting attendees and no county
employee may serve as a Board member during county employment.
Unlike the current County Hospital Board, the County
Commissioners did not select the initial new hospital Board and
do not have the authority to select future members. See EC-COI-
88-19; 84-76, n.7.
In conclusion, the scope and nature of control exercisable
by the County, and the lack of public funding, are sufficient to
find that the non-profit corporation is not an instrumentality of
the County and thus not a "county agency" for purposes of G.L. c.
268A, s. 1(c).
End Of Decision