SECTION I - What are Public Hospital Districts?

Compiled from the PHD Legal Manual, Chapter One

This section will focus on the nature and structure of special purpose districts in Washington State generally, and discuss specifically how PHDs operate within that framework.

A. Special Purpose Districts

Special Purpose Districts Defined
Special purpose districts are governmental entities and political subdivisions of the State of Washington which are created by the legislature to carry out certain limited functions. These functions are specified in statutes. The House Committee on Local Government defines a special purpose district as “... any municipal or quasi-municipal corporation that can be created in this state other than counties, cities, towns and townships.” PHDs share some characteristics with other special purpose districts, including public utility districts, fire districts and port districts. The most common types of special purpose districts in Washington are fire protection districts and school districts.

Special purpose districts are created expressly to fulfill a need for services to the citizens of the district. Generally, special purpose districts perform functions that are not, for one reason or another, performed by general purpose governments (i.e. counties, cities, or towns).

Powers and Limitations
Special purpose districts are municipal corporations, which means that they possess powers unique to governmental entities. For example, they may finance their activities by tax levies, condemn property, hold elections, and join forces with other governmental entities in cooperative ventures. By the same token, special purpose districts are limited by statutory, constitutional, and regulatory provisions in the same manner as other governmental entities. For example, they are prohibited from lending public credit, owning stock, and giving away public property as gifts.

This latter point is critical to understand. As creatures of statute, special purpose districts must exercise their powers within the limits of the legislation authorizing their creation, and the Washington State Constitution. Municipal corporations possess only those powers expressly granted by statute as well as powers necessarily or fairly implied in or incident to the powers expressly granted. In other words, if there is no statute that specifically authorizes a special purpose district to engage in an activity, or such authority cannot be necessarily or fairly implied, the district is prohibited from engaging in such activity.

B. Public Hospital Districts

As discussed above, PHDs belong to the family of special purpose districts and municipal corporations. They operate under all applicable statutory, constitutional and regulatory provisions of the State of Washington and the United States.

How District Hospitals Compare To and Differ From Non-Profit Hospitals
Public Hospital Districts operate approximately half of the entities licensed as acute care hospitals in Washington. The vast majority of the other hospitals are operated as notfor- profit corporations, with a handful owned and operated by private corporations on a for-profit or proprietary basis.

In many cases, PHDs and not-for-profit hospitals may appear very similar. Both may be focused on community service with “profits” being applied not to rates of return for investors, but to enhanced community services, facility upgrading, or subsidized care for persons unable to pay the full costs of service. The major difference is that Washington law reinforces the need for PHDs to maintain this focus in a very precise way, such as through the election of board members (not-for-profit members are normally appointed) and strict legal restrictions on the use of funds for certain purposes. Also, as a municipal corporation, many of the documents and proceedings of a PHD are open to close public scrutiny through open meetings and public records laws, while notfor- profit activities are monitored in a much more general fashion through state and federal review activities. The process for creating a PHD is also much more rigorous than for a not-for-profit hospital, as detailed in Chapter One of the PHD Legal Manual.

In exchange for meeting these procedural and operational requirements, hospital districts are able to access the benefits associated with being such an entity, such as access to tax revenues, and the power to condemn property.

Public Hospital District Locations
The vast majority of PHDs are located in areas considered to be “rural” in character, emphasizing the importance of PHDs in meeting the challenges facing rural health care.

Laws and Regulations Governing Public Hospital Districts
Hospital district powers are those things which a PHD may do, as expressly or implicitly authorized by state law. Duties, on the other hand, are those things which a district must do, as required by state law. Of course, there are also things which a PHD may not do, which then fall outside the range of both powers and duties. All of these powers, duties, and limitations spring from the body of laws outlined below.

The Revised Code of Washington (RCW)
PHDs are organized and exist as a result of chapter 70.44 of the Revised Code of Washington (RCW). It is this statute that allows for the creation of the PHDs and fundamentally defines their purpose, operations, powers and limitations.

In addition to chapter 70.44 RCW, PHDs, as municipal corporations, are affected by statutory provisions that govern governmental entities generally. For example, PHDs, like all municipal corporations, are subject to the Open Public Meetings Act, chapter 42.30 RCW. Thus, all meetings of the governing body of a public agency (board of commissioners) are required to be open to the public. Similarly, PHDs are required to comply with the public record provisions (RCW 42.56.040) of the Code. As a last example, PHD commissioners, as public officials, are prohibited from engaging in activities that result in conflicts of interests. RCW 42.23.030 prohibits a municipal officer from being “beneficially interested, directly or indirectly, in any contract which may be made by, through or under the supervision of such officer, in whole or in part, or which may be made for the benefit of his or her office ....” For a further discussion of conflicts of interest law, see Section III of this Guide.

Not all statutory provisions are prohibitive or related to defining the scope of duties. Some statutes authorize an expansion of powers and provide opportunities for PHDs. One important example is the Inter-Local Cooperation Act, chapter 39.34 RCW. This statute allows two or more municipal corporations to join together in cooperative action and jointly finance these ventures (see PHD Legal Manual, Chapter 6).

State Constitution
Another state source of the law for PHDs lies in the provisions of the Constitution of the State of Washington, which places restrictions on the powers granted to public hospital districts by statute. Constitutions are the over-riding statements of law affecting a government and its citizens. An example of a state constitutional provision of concern to Washington PHDs is Article VIII, Section 7, which states that no municipal entity shall give or loan money to any individual or corporation except for the necessary support of the poor and infirm. Under the section, governmental entities are also barred from owning stocks or any other interests in corporations. The implications of this constitutional provision on hospital revenues and write-offs of charity care is of great importance (for further discussion see PHD Legal Manual, Chapter 4). Another constitutional provision, Article I, Section 16, limits a provision in chapter 70.44 RCW granting the power of eminent domain to PHDs. Needless to say, PHDs are also bound by applicable provisions of the United States Constitution.

Case Law and Attorney General Opinions
Washington’s statutes and constitution have also been shaped over the years by court opinions (state and federal) that clarify, or in some cases confuse the meaning of the laws. Case law and its interpretation of statutory provisions is a definitive source of the law. As is true with all municipal corporations, the courts are very strict in interpreting the powers of PHDs so as to ensure that they do not engage in activities that the legislature did not clearly intend to authorize.

Opinions by the Attorney General (AG) of the State of Washington also help define the boundaries of the statute. Such opinions are viewed as persuasive authority, but are not binding upon PHDs. There are formal and informal opinions which come from the AG's office. A formal opinion is signed by the Attorney General and is binding on the AG's office and other Washington agencies, such as the State Auditor's Office. An informal opinion is the individual opinion of an Assistant AG and has not been reviewed by the AG. Thus, it does not have the same binding effect on Washington agencies as a formal opinion.

Other Statutes and Regulations
Obviously, a hospital managed by a PHD, like any hospital, must comply with the many and local, state, and federal requirements related to operating a hospital. For example, PHDs with hospitals must comply with state licensing regulations, safety standards, zoning laws, federal Medicare standards, and a host of other regulatory requirements. The PHD Legal Manual specifically covers those requirements which apply to a hospital district because of its unique status as a local government authorized under Washington statutory and constitutional provisions.

A brief mention of federal statutory law (and its refinement by case law) completes this introductory discussion of sources of the law relating to PHDs. Antitrust laws are an important example of how federal legislation impacts PHDs. While this subject matter is covered in the PHD Legal Manual (see Chapter 6), few other federal laws have such a unique impact on PHDs and are therefore beyond its scope.