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LETTER FROM ATTORNEY GENERAL DAN MORALES

March 26, 1997

Gentlemen:

It is my understanding that a committee of Baylor University regents and trustees will be meeting tomorrow to discuss, among other matters, the prospect of a sale of Baylor University Medical Center and Baylor Health Care System to a private for-profit entity. As we discussed several weeks ago, my office would have an interest in this matter. We have completed our initial review of this situation and I felt it might be beneficial to the committee's deliberations to outline my office's position.

Baylor is one of the largest nonprofit health care systems in north Texas and is recognized as one of the premier health care facilities in the nation. Baylor has exemplified as philosophy of public service to the Dallas community and north Texas area since its founding. Last year, Baylor Health Care provided more than $65 million in indigent and charity care. Currently, Baylor University Medical Center invests between $6 million and $9 million annually on research projects.

As you are aware, the Texas Baptist Memorial Sanitarium was created in October 1903 with funds donated by several prominent Dallas Baptists. The Sanatarium's initial Articles of Incorporation provided that:

'This corporation is organized for the purpose of supporting

educational, benevolent and charitable undertaking, viz; a hospital

and sanitarium, to be conducted on the broadest humanitarian

principles...'

The incorporators recognized the paramount importance of the charity care mission of the Sanitarium by including in the original Articles of Incorporation the following provision:

'The income from the holdings, earnings and endowment of this institution shall be expended on charity patients, on the current

necessary expenses of the institution and for its enlargement and

general betterment. Such incomes shall not be diverted to the financial

benefit of the incorporators of this institution, nor to any of its directors

at this time or at any time in the future.'

Baylor University operated a medical college in Dallas and recognized the importance of having a teaching hospital connected with the college. As a result, in 1920, Baylor University entered into a contract with the Sanitarium which conveyed the Sanitarium to the University and changed its name to Baylor Hospital. The contract specifically provided that the hospital would never be removed from the city of Dallas and bound by Baylor University to hold and administer all property and property rights, donations and bequests of every kind, 'whether in possession or expectancy,' for the benefit, uses and purposes of the Sanitarium exclusively.'

In September and October of 1981, Baylor Health Care System and Baylor University Medical Center were formed as nonprofit corporations 'organized exclusively for religious, charitable, scientific and educational purposes,' including owning, controlling and operating hospital, medical, clinical, research, and nursing facilities desirable to promote the public health.

Thus the entities which are now known as Baylor Health Care System and Baylor University Medical Center started over 90 years ago with the creation of the Texas Baptist Memorial Sanitarium, through charitable contributions from Dallas citizens committed to serving the health care needs of the entire community. The assets and facilities of these institutions grew and flourished through the efforts of many benevolent donors who were committed to the public purposes and charitable nature of those nonprofit organizations.

The office of the Attorney General represents the public interest in matters involving charitable entities. Texas law favors the protection and preservation of charitable assets and imposes upon the Attorney General the obligation to remedy the use or appropriation of charitable assets for purposes inconsistent with their charter provisions. Assets accumulated, held or received by a nonprofit corporation, whose purpose is established as or determined to be a public charity, are held as a charitable trust to carry out the charitable purposes for which they were given. In Blocker v. State, 718 S.W.2d 409 (Tex. App.- Houston (1st Dist) 1990), the court expressly stated:

Because a charitable corporation is organized for the benefit of the

public, and not for private profit or its own benefit, the public has a

beneficial interest in all the property of a public benefit, nonprofit

corporation. Such a corporation has legal title to the property but may

use it only for furtherance of its Charitable purposes.

My office is obligated to intervene on behalf of the public interest when charitable institutions sway from or abandon their stated charitable purposes. That commitment is heightened when the health care needs of our communities and our state are affected. The entire history of the Baylor University Medical Center and the Baylor Health Care System, from inception to the present day, has been one of charitable institutions committed to service to the community and the advancement of public health.

Please be advised that a sale of the assets of the medical center and the system to a private, for-profit entity would represent, in our judgment, a material change in the charitable purposes and objectives of these entities, which would compel the intervention of my office. In the event of such a sale, my office would insist that the full value of the Dallas community's investment in these entities' charitable assets remain directed toward the charitable public health objectives originally set forth in the Articles of Incorporation.

I hope the foregoing will be of assistance to the committee's discussions and consideration of its various options. Please let me know if you think it would be helpful for us to discuss any of these issues in person. Best regards.

Sincerely,

Dan Morales

Attorney General

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