The Prince George's County Council sidestepped yesterday the issue of regulating the embattled nonprofit corporation that runs the county's public hospital system.

The Community Hospital and Health Care Systems Inc., established in 1983 to improve the management of Prince George's General Hospital and two other county-owned facilities, has been the target of allegations of mismanagement, nepotism and conflicts of interest.

Last week, a committee of five corporation board members issued a report largely absolving the board of conflict of interest but criticizing the board president for hiring his brother to work for the body.

Since the controversy erupted in February with the firing of board member and internal critic Fred Frederick, the corporation has maintained that its lease with the county permits it to operate independent of government scrutiny.

But the lease allows the county to create a health council, to which the corporation would be obliged to "provide reasonable access to its facilities, records, planning documents and other nonrestricted information."

Yesterday, the council reviewed a staff draft of a letter asking County Executive Parris Glendening to propose legislation establishing such a council.

"We believe that the time has come for the county to take a comprehensive overview of the provisions of health care services within Prince George's County by public and private sectors," the letter said.

Council member Sue V. Mills said the corporation "needs a watchdog" but she opposed the letter as "authorizing carte blanche the creation of a health council." Member Hilda Pemberton called the letter too vague.

"I have never seen such discussion about something that innocuous in all my life," said Chairman William B. Ammonett. Council member Frank Casula then withdrew the letter from consideration, saying he will introduce detailed legislation soon that will satisfy the concerns of his colleagues.

Glendening, who also has been critical of the corporation, urged the corporation last week to hire a professional administrator to remove politics from board decisions, to open more of its meetings and to allow press and public scrutiny of its financial records.

Prince George's State's Attorney Arthur A. Marshall Jr. has been reviewing allegations against the hospital board members. His office said yesterday the investigation is continuing but at this point there is no evidence of criminal wrongdoing.