April 09, 1993
Official Opinion 93-10
- To
Acting Chairman
State Board of Workers' Compensation
- Re
A private, nonprofit corporation that is leasing and operating health care facilities on behalf of a hospital authority may not self-insure its workers' compensation liability as an "entity" of the authority.
Your agency has asked for advice regarding several issues related to the ability of Phoebe Putney Memorial Hospital Inc., a private nonprofit corporation, to self-insure its workers' compensation liability. This corporation operates health care facilities pursuant to a lease agreement with the Albany/Dougherty County Hospital Authority. The corporation wishes to continue the self-insured status of that authority, claiming to be an "entity" of the authority. The Board has asked four questions about this request:
1. Whether or not Phoebe Putney Hospital, Inc., a 501(c)(3) corporation, can be regarded as a "public" entity?
2. If it is not a public entity, can it be self-insured without being a member of the Self-Insurers Guaranty Trust Fund, [*2] if its obligations are guaranteed by a letter from the Chairman of the hospital authority?
3. Does the letter provided by the Chairman of the hospital authority contain the appropriate language to fully guarantee the workers' compensation obligations of the corporation?
4. Does the hospital authority have the authority to guarantee the same obligations if the corporation buys or operates facilities outside of Dougherty County?
In order to answer these questions, it is necessary to examine the relationship between the Albany/Dougherty County Hospital Authority and Phoebe Putney Memorial Hospital Inc. in light of the Georgia Workers' Compensation Act.
The Georgia Constitution authorizes counties to contract with a public authority to provide for the care and hospitalization of its indigent sick. Ga. Const. art. IX, § 3, P 1. Based on documents that your staff has provided to this Office, the Albany/Dougherty County Hospital Authority ("the Authority") was established pursuant to the Hospital Authorities Law in 1941 by resolution of the governing bodies of Dougherty County and the City of Albany. Some time after its inception, the Authority applied for and was granted permission [*3] from the State Board of Workers' Compensation to be a self-insurer.
As you know, an employer that wishes to self-insure its own workers' compensation liability generally must comply with three requirements prescribed by the Georgia Workers' Compensation Act:
1) apply to the Board for permission to self-insure;
2) provide an acceptable security, indemnity, or bond to guarantee payment of claims in the event of the employer's insolvency; and
3) become a member of the Self-Insurers Guarantee Trust Fund ("Trust Fund"). n1
n1 The Self-Insurers Guarantee Trust Fund was established to guarantee payment of workers' compensation benefits to employees of insolvent self-insurers. O.C.G.A. § 34-9-380.
O.C.G.A. 34-9-121, - 382(c).
Of most concern to the Authority are the latter two requirements. According to the Rules of the State Board of Workers' Compensation, "municipalities and political subdivisions" may self-insure without a bond, provided the appropriate financial assurances are given to the Board. Board Rule 121. This is based on the underlying assumption that the ability of a municipality or political subdivision to pay its workers' compensation claims is always [*4] protected by its ability to tax its residents. Likewise, the Trust Fund excuses "governmental self-insurers" from membership in that organization, even though membership is normally required of all "private employers." O.C.G.A. 34-9-382(c). Both of these exceptions can provide a substantial financial savings to those entities that are "municipalities," "political subdivisions," or "governmental self-insurers." Apparently both the Board and the Authority have treated the Authority as exempt from providing a bond or joining the Trust Fund based on this statute and Board rule.
In 1991, the Authority transferred all of its assets and liabilities to a newly-created corporation called Phoebe Putney Memorial Hospital, Inc. ("the Corporation"), which is a nonprofit, tax-exempt entity. See Articles of Incorporation of Phoebe Putney Memorial Hospital, Inc. and Lease and Transfer Agreement. In addition to transferring its assets and liabilities, the Authority has leased the hospital to the Corporation under a 40-year lease that took effect September 1, 1991. In short, the Corporation has taken over from the Authority the management and operation of the hospital.
The Georgia Supreme [*5] Court has already recognized that a hospital authority has the power to enter into this type of lease and transfer arrangement. Richmond County Hosp. Auth., et al. v. Richmond County, et al., 255 Ga. 183 (1985). A review of the documents that memorialize the transfer from the Authority to the Corporation show an undeniable intent to create an entity that is entirely separate from the Authority. The Resolution that authorized this lease and transfer acknowledged that "the laws and regulations applicable to the Hospital Authority" put it at a "competitive disadvantage", and that the lease and transfer to the Corporation would be in the best interests of the authority and the residents of Albany and Dougherty County. According to the Lease and Transfer Agreement, the transfer "provides the Hospital with a new flexible structure which will remove various restrictions and limitations imposed upon the [Authority] and will allow the Hospital to respond to existing competitive threats and to seize available opportunities." Agreement, page 1. Clearly, this transfer of operations to the Corporation is intended to avoid statutory limitations that are placed on hospital authorities, [*6] the success of which is beyond the scope of this opinion. See id. at 191-92.
Now the Corporation wants to enjoy the same privileges as the Authority in self-insuring its workers' compensation liability, claiming that it is an "entity" of the Authority. Thus, it is necessary to determine whether a private, nonprofit corporation that is leasing and operating a hospital on behalf of a hospital authority may self-insure its workers' compensation liability as an "entity" of the authority without posting financial security or joining the Self-Insurers Guaranty Trust Fund.
In order to answer this question, it is necessary to examine the nature of hospital authorities. A hospital authority is defined in the Hospital Authorities Law as "any public corporation created by this article." O.C.G.A. § 31-7-71(2). However, according to the Georgia Supreme Court, [a hospital authority] is clearly not a municipal corporation as such, or a county, but merely their instrumentality. And it is not their instrumentality in the sense that a department or an agency might be because it is a separate corporate entity. . . . [T]he Authority is merely the way the government has chosen to do its [*7] business.
Cox Enter., Inc. v. Carroll City/County Hosp.Auth., 247 Ga. 39, 45 (1981) (hospital authority is a governmental entity and is absolutely barred from suing a newspaper for libel).
An earlier decision by the Georgia Court of Appeals articulated the standard for determining when an authority is a political subdivision:
The general rule is that an authority, which is an agency of one or more participating governmental units created by statute for the specific purpose of having delegated to it certain functions governmental in character, is not a political subdivision unless recited to be so in the pertinent constitutional or statutory instruments creating it. . . .
The same careful distinction between the political subdivision as creator and the authority as agent is observed in the constitutional framework [cit. omitted] authorizing the establishment of authorities for specified purposes. . . . [N]either the language of [the Hospital Authorities Law] which refers to a hospital authority as a "body corporate and politic" nor that which assigns to it "public and essential governmental functions" is sufficient to constitute it a political division of the State. [*8]
Richmond County Hosp. Auth. v. McLain, 112 Ga. App. 209, 210-211 (1965) (emphasis added). Since the Georgia courts have indicated that hospital authorities are not "political subdivisions" unless the instrument creating it so states, then the Albany/Dougherty County Hospital Authority itself does not appear to qualify under Board Rule 121 to self-insure without providing acceptable security, indemnity, or bond. Since the Authority itself is not properly exempt from providing this financial security, then the separately-created corporation certainly may not be exempt from this requirement. In light of this, the other questions regarding the ability of the hospital authority chairman to guarantee the obligations of the Corporation become moot.
Ironically, since the courts have found that hospital authorities are "governmental entities," they are exempt from belonging to the Self-Insurers Guaranty Trust Fund. This contradictory result is based on the difference between "governmental entity" and "political subdivision": while the two are often related, they are not synonymous. However, I could find no authority that would allow the Corporation (a private, nonprofit [*9] entity) to be considered a "governmental entity." Therefore, the Authority's exemption from membership in the Trust Fund would not apply to the Corporation.
As you know, employers in Georgia are required to insure the payment of workers' compensation to their employees who suffer injuries arising out of the course of their employment. O.C.G.A. § 34-9-120. According to the Workers' Compensation Act, the definition of "employer" includes "the State of Georgia and all departments, instrumentalities, and authorities thereof; each county within the state; . . . any municipal corporation within the state and any political division thereof; any individual, firm, association, or public or private corporation engaged in any business." O.C.G.A. § 34-9-1(3) (emphasis added). The private corporation that is now operating Phoebe Putney Hospital clearly meets the Act's definition of "employer." Consequently, it is required to insure the payment of workers' compensation benefits to its employees pursuant to the Workers' Compensation Act and its attendant rules.
In summary, since the hospital authority is not a political subdivision, it is not exempt from the requirement that it provide [*10] appropriate security, indemnity, or bond. However, it is a governmental entity and thus is exempt from the required membership in the Trust Fund. The Corporation is not exempt from either requirement. Therefore, it is my official opinion that a private, nonprofit corporation that is leasing and operating health care facilities on behalf of a hospital authority may not self-insure its workers' compensation liability as an "entity" of the authority.
Prepared by:
Elaine S. Newell,
Staff Attorney