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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



Opinion No. 6479

November 12, 1987


Joint municipal hospitals--authority to make loans to HMO

A joint municipal hospital authority organized under 1945 PA 47 is not authorized to make loans to an HMO.

Honorable Alvin J. Hoekman

State Representative

The Capitol

Lansing, Michigan 48909

You have requested my opinion whether a hospital authority organized under 1945 PA 47, MCL 331.1 et seq; MSA 5.2456(1) et seq, the joint municipal hospitals act (hereafter "Act 47"), may invest money of the hospital authority in the form of loans to a private nonprofit health maintenance organization (an "HMO").

An HMO is defined in Sec. 21005(2) of the Public Health Code, 1978 PA 368, MCL 333.21005(2); MSA 14.15(21005)(2), as follows:

" 'Health maintenance organization' means a facility or agency that:

"(a) Delivers health maintenance services which are medically indicated to enrollees under the terms of its health maintenance contract, directly or through contracts with affiliated providers, in exchange for a fixed prepaid sum or per capita prepayment, without regard to the frequency, extent, or kind of health services.

"(b) Is responsible for the availability, accessibility, and quality of the health maintenance services provided."

The requested loan consists of a line of credit of up to $505,000.00 with an immediate advance of $223,878.76 to be paid back in 20 equal quarter-annual payments at an interest rate of one percent above the 90-day treasury bill rate. Your letter and its enclosure indicate that, in turn, the HMO intends to loan up to $100,000.00 to a local physicians' group.

The corporation counsel for the hospital authority has rendered an opinion listing the investments which are, in the opinion of counsel, legal for investment of hospital authority funds. Those permissive investments do not include investment in the form of loans to an HMO. I concur with the corporation counsel that a loan to an HMO is not a legal investment for funds of an Act 47 hospital authority.

Act 47 provides that a hospital authority organized pursuant to Act 47 "may exercise those powers necessary and incident to the acquisition, construction, improvement, enlargement, extension, ownership, maintenance, and operation of 1 or more community hospitals." MCL 331.2(1); MSA 5.2456(2)(1). Nothing in Act 47 or other applicable law provides that a hospital authority may lend money to an HMO, nor is there any basis to conclude that lending money to an HMO is necessary and incidental to the operation of a community hospital. Since the loan is not authorized, this opinion need not consider whether it would, if authorized and made, constitute a pledge of credit in violation of Const 1963, art 9, Sec. 18.

It is my opinion, therefore, that a hospital authority organized under 1945 PA 47 is not authorized to make loans to an HMO.

Frank J. Kelley

Attorney General

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