160.008 Nonprofit Health Corporations


Nonprofit Health Corporations: An Ad Hoc Committee on Medical Practice Act, Section 162.001 (b), formerly known as 5.01(a), Nonprofit Health Corporations was appointed by the Texas Medical Association to study the issue. The following ad hoc committee recommendations for TMA rules addressing board/member financial relationships, balance of financial powers, clinical practice, TMB surveillance, and education were reviewed and adopted with modification:

Board of Directors Selection

(1) The initial Board of Directors shall be appointed by the incorporating physician(s), but must be ratified by the participating physicians. Subsequent board members (or as an initial step, if there is a well-established physician body from the outset) shall be elected by the participating physicians (contracting and employed physicians) and may be ratified by the corporate member. (There should be a limit on the number of nominees on which the corporation member can “pass” before ratification, ie, the member must accept one from the first four presented.) If no participating physicians contract with the NPHC, employee physician election of board members would not be required. The physician board could reelect itself, subject to ratification by the corporate member.

(2) The term “actively engaged in the practice of medicine” shall mean the physician is primarily engaged in patient care as defined by the Medical Practice Act: the diagnosing, treatment, or offering to treat any mental or physical disease or disorder, or any physical deformity or injury, or performing such actions with respect to individual patients for compensation.

Board/Member Financial Relationship

If a physician board member has a financial tie or relationship with the corporation member, then such tie or relationship shall be disclosed at the time of nomination and election to the NPHC board and such tie or relationship shall be disclosed on the annual sworn statement to the TMB. Employees of the corporate member may not serve on the Board of Directors of the NPHC.

Balance of Financial Powers

All financial powers (budget, contracting, purchasing, etc.) shall be subject to board approval.

Clinical Practice

(1) Inclusion of the following language in the NPHC’s bylaws. Nothing herein shall be construed as empowering the member, any officer, or employee of the member, or any nonphysician whatsoever, with the authority to interfere with the independent and professional practice of medicine by any director of the corporation or any participating physician (contracted or employed) of the corporation or to intervene in or interfere with the private doctor-patient relationship established between any patient and any director of the corporation or any participating physician (contracted or employed) of the corporation. All such physicians shall remain at all times free to exercise their independent clinical judgments on behalf of their patients, subject only to oversight by the authority of physician supervisors.

(2) The incorporating physician(s) may present the original bylaws, but the bylaws must be ratified by the physician board before they become effective. All subsequent bylaws and amendments shall be subject to board approval.

(3) The TMB draft regulations, section 177.1(b)(1), (4), and (7), dated Sept. 30 1994, concerning appointment and removal of board members, are adequate to address concerns about corporate member control and should be supported.

TMB draft regulations, Sections 177.1(b) (1), (4), and (7) are as follows:

(1) The organizing and incorporating physician(s) of the nonprofit organization shall select the initial board of directors consistent with the mission, goals, and purposes of the nonprofit organization.

(2) Subsequent to the appointment of the initial board of directors, a nonphysician member may not appoint or elect any director without the approval of at least a majority of the board of directors.

(3) The member may not remove a director during his or her term unless for cause consistent with the specific provisions of the bylaws of the nonprofit organization. Under no circumstances may the member remove a director either without cause or for any reason relating to credentialing, quality assurance, utilization review, peer review, or the practice of medicine.

(4) The TMB draft regulations Section 177.1(b)(6), dated Sept. 30, 1994, should be strengthened so that due process for participating physicians is required:

Section 177.1(b)(6). Any decision of the nonprofit organization to terminate the contract of any physician employed by or otherwise under contract to the nonprofit organization to provide medical services must be made exclusively by the board of directors or its physician designees and subject to the due process and appellate review process which shall be adopted by the board of directors and provided for in the contract between the nonprofit organization and the participating physician.

Texas Medical Board Surveillance

(1) Adoption of the following rules by the TMB: A Section 162.001 (b) formerly know as 5.01(a) NPHC shall, in June of each year, file with the TMB a sworn statement showing the name and address of the association, the names and addresses of all members of the association, and all officers and all members of the board of directors or trustees, and shall state that all board members are licensed to practice medicine and actively engaged in the practice of medicine in Texas. In addition, a copy of the current articles of incorporation and bylaws shall be filed, if not on file, and the financial report of the Section 162.001 (b), formerly known as 5.01(a) corporation and any corporate members also shall be filed as part of the annual report. Failure to file any such report may be grounds for involuntary revocation of the board’s approval or certification under this chapter.

(2) The application and renewal fees charged by the TMB for Section 162.001 (b), formerly known as 5.01(a) NPHCs should be set at a price which approximates the costs of processing the application and renewal requests.


TMA and TMB should develop educational information and programs on NPHCs. The program would include what they are, why they are being developed, and how they should be structured. Articles in Texas Medicine covering similar information also should be developed. A workshop at the TMA Annual Session and joint workshops with other concerned organizations on NPHCs also should be developed (Council on Legislation, p 92, I-94; reaffirmed CSE Rep. 3-A-04; amended CSE Rep. 2-A-14).

Last Updated On

October 07, 2016