The Austin Court of Appeals has reversed a trial court order denying Central Health’s motion to dismiss a suit brought by taxpayers to enjoin the hospital district’s contract with UT Dell Medical School to help provide indigent care.
Dr. Patrick Lee and Chief Executive Officer of Travis County Healthcare District d/b/a Central Health, in his Official Capacity v. Rebecca Birch; Richard Franklin, III; and Esther Govea (No. 03-24-00408-CV; August 21, 2026) arose from a suit brought by Travis County taxpayers against Central Health. Plaintiffs sought declaratory and injunctive relief based on an allegation that Dr. Lee acted ultra vires by allowing Central Health to illegally spend public funds. Dr. Lee moved to dismiss for lack of subject-matter jurisdiction, asserting governmental immunity and the legality of the expenses. The trial court denied the motion in part. Dr. Lee filed an interlocutory appeal.
In an opinion by Chief Justice Byrne, the court of appeals reversed and dismissed the suit. Travis County voters approved creation of the hospital district in 2004, and in 2012 passed a proposition to raise additional property tax revenue to establish a medical school. Central Health subsequently joined with Seton Healthcare to form the Community Care Collaborative (CCC) “to provide a framework for participating in a federal funding program for uncompensated care and other measures to incentivize providers and hospitals to participate in Medicaid. Central Health and CCC then entered into an affiliation agreement with UT Dell Medical School, which “recognize[d] Central Health’s as a hospital district ‘to provide for the medical care of the indigent and safety net population” of Travis County. CCC agreed to make annual payments of $35 million to UT for an initial term of 25 years, to be used only for “Permitted Investments,” i.e. investments that further the missions of CCC and Central Health.
In 2023, CCC didn’t have sufficient funds to make the full payment, so Central Health paid $22,430,000 to make up the difference. This contribution was approved by Central Health’s board and the Travis County Commissioners Court. Central Health’s 2024 budget, likewise approved, included $35 million for that year’s payment. Plaintiffs filed suit to stop Central Health from making any future payments, alleging that they were ultra vires acts and violated the Gift Clause in Art. III, § 52(a), Texas Constitution. The court commenced the analysis with a discussion of the constitutional and statutory framework for hospital districts, which specifically authorizes districts to create charitable organizations to facilitate management and development of the district’s operations and to make capital or other financial contributions to such organizations. Those organizations may also contract or otherwise partner with public or private entities and hold ownership interests in such entities.
Plaintiffs argued that Dr. Lee spent taxpayer money “on items unrelated to healthcare services for indigent Travis County residents” in violation of the constitution and statutory scheme. The court concluded that Dr. Lee did not act ultra vires either by creating CCC, partnering with Seton, or entering into an affiliation agreement with Dell Medical Center. Each of those actions were specifically authorized by statutes that the Legislature had constitutional authority to enact. A district is also authorized by statute to spend public funds on basic health care services and “any other services” required under the statute creating the district. Some of those services include health education, transportation, environmental health services, and social services, for example. Consequently, Dr. Lee and the district’s board were properly exercising their discretion “to determine how to best provide medical and hospital care to Travis County’s low-income residents.” The court further ruled that “Central Health is expressly empowered to coordinate the delivery of healthcare services to eligible residents and to collaborate in carrying out its functions and the provision of services.” Consequently, “the Permitted Investment Payments in the Affiliation Agreement falls squarely within its statutory and constitutional authority.”
The court rejected Plaintiffs’ argument that the Permitted Investments violated the Gift Clause, § art. III, § 52(a). According to § 52(a), the Legislature may not authorize a political subdivision of the state to “lend its credit or to grant public money or thing of value in aid of, or to any individual, association or corporation whatsoever.” Since UT Dell Medical Center isn’t an individual, association, or corporation, the court concluded, the Gift Clause didn’t apply. The court thus reversed the trial court and dismissed the case for lack of subject-matter jurisdiction.
