December 21, 1989

 

FACTS:


ABC and DEF are two of the principals in A&D, a corporation
involved in health care management,

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specializing in public sector work. According to their resumes,
ABC and DEF have expertise in the area of health care delivery
and health care financing. ABC directed a Commonwealth health
care program, has performed consulting work for numerous health
facilities and was the founding chairman of a non-profit
corporation operating a broad range of ambulatory and residential
programs in the area of mental health and retardation. DEF has
also performed consulting activities for numerous health agencies
and was the manager of a state health care program.

ABC and DEF hold the offices of Treasurer and President,
respectively, in A&D. ABC's wife is the Clerk of the
corporation. The stock ownership is divided as follows: each of
ABC's five children own 10% of the corporation's stock, DEF owns
45% of the stock and a third person owns 5% of the corporation's
stock. Currently A&D employs thirteen full-time employees and
six part-time employees. Additionally, A&D ups the part-time
hourly services of twenty-two consultants, such as internists,
dentists and nurses and subcontracts with thirty five
psychiatrists.

In 1985, ABC through A&D, was hired to consult to a Mental
Health Center (AMHC) regarding the management and delivery of
mental health services at that institution. Particularly, AMHC
was interested in ABC's expertise in the area of recruitment and
retention of physicians at DMH facilities. During this consultant
contract, ABC conceived of a health care delivery model to
improve psychiatric services and to facilitate the recruitment of
psychiatrists through use of a private physician group to provide
services. ABC theorized that the provision of services through a
private psychiatric group would produce a qualified, loyal
physician staff because physicians would benefit from partnership
in a professional corporation where fringe benefit and
compensation packages could be individually tailored, rather than
from straight employment as a DMH employee. DEF, in a separate
contract, was instrumental in successfully developing and
managing the AMHC physician group. Subsequently, utilizing the
AMHC delivery system model as the basis for its BFP, A&D was
awarded three DMH contracts to improve health care and
psychiatric services at RST hospital, UVW hospital and XYZ DMH
area. These contracts total over $4,000,000, of which $400,000
is to pay indirect overhead expenses, including consulting work.


1. RST Contract


In FY 1989 A&D received a DMH contract[1] to provide
comprehensive psychiatric services and general medical services
at RST hospital. This contract was renewed for FY 1990. The
program goal is "to provide optimal medical care for mentally ill
patients, in a manner which integrates medical and psychiatric
care and provides linkages to community health services." RST
Contract p.1. Under the contract A&D recruits and provides
physicians to work under the clinical direction of the hospital
medical director, but the medical director has final hiring approval.
Similar to the AMHC concept, the physicians are members
of a private physician group managed by A&D. As envisioned by
the contract, "A&D will be the primary source of contract
accountability to the medical director and the Chief Operating
Officer. A&D will be the single administrator responsible to
them. A&D will subcontract for physicians, and as a condition of
that subcontract, the physicians will be responsible to the
medical director and adrninistratively responsible to the Chief
Operating Officer." RST Contract p.19.

In addition to psychiatrists, A&D also recruits other
professionals, such as internists, nurses and podiatrists to
provide medical care. The RST contract addresses a broad spectrum
of health care delivery issues, such as cost innovations, program
innovations, improved data systems, collection of third party
billing revenues, and a general restructuring of the provision of
health care.

The RST contract contemplates a close working relationship
between A&D and RST. According to the contract, a senior person
in A&D will assume day-to day responsibility for the contract and
a senior management person be on site part time. Contract
management includes two facets: high level management which
"conceives, implements and monitors" the program and
administrative support. According to the FY 1989 contract "The
principals of A&D are dedicated, hands-on managers, always
available for matters relating to the physician group and often
consulted on other matters as well." RST Contract, p.5.


2. UVW Contract


A&D was awarded a second FY 1990 DMH contract to provide the
oversight of medical services as well as to provide comprehensive
psychiatric services at UVW Hospital. In addition to physician
recruitment, the contract addresses other health care delivery
issues such as new revenue sources, cost shifting to other
sections of the health care system and the development of program
innovations. For example, the UVW contract states:

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We are unusually skilled at billing, including maintaining an
auditable trail of supportive documentation. For several
years we have been successfully biding for certain services at
AMHC. (ABC and DEF were once managers of a state health
program). UVW Contract p.34.

The UVW contract is markedly similar to the RST contract in
areas pertaining to the concept of a physician group, the
delegation of authority and management responsibility, and the
manner in which service will be provided within the institution.
Unlike the RST contract, the UVW contract specifies that senior
staff at A&D will perform the management functions. Indirect
expenses within the budget include consultant activities of
senior A&D corporate management. UVW Contract, p. 46 ABC, DEF
and three other A&D employees constitute the senior staff at A&D.


3. XYZ Contract


The third FY 1990 DMH contract awarded to A&D pertains to the
provision of physician services to the DMH XYZ area. This
contract is virtually identical to the other contracts in the
type of services offered and the organizational plan, which is
based on the health care delivery service model ABC ad DEF
developed at AMHC.

The XYZ Contract states that the senior staff of A&D will be
available for consulting activities pertaing to health care
delivery problems and that A&D "was prepared to make a major
commitment of senior staff resources to the development of the
programmatic innovation and third-party biding arrangements
necessary to make this program successful." Contract, pp. 19, 30,
31, 33. Included in the indirect overhead budget in the XYZ
contract are the services of the Chief Financial Officer of A&D
on a limited weekly part-time basis, and other senior staff at
A&D who will be available for consultation. You state that the
senior staff referred to throughout the XYZ contract are ABC, DEF
and three other A&D employees. ABC spends less than four hours
per week at XYZ while DEF only works intermittently on this
contract.

Under all three contracts ABC and DEF, with assistance from
other A&D staff, play a scant role in the recruitment of
physicians and other clinicians. This includes outreach,
advertising, interviewing potential candidates, working out
relationships with academic institutions and dealing with
licensure matters. Additionally they work with outside vendors
relating to the physician contracts and other employee matters,
ad they supervise the A&D employees who are providing the
administrative and management services under the contracts. ABC
ad DEF periodically meet with the Medical Director and Chief
Operating Officer of each institution to discuss implementation
of the contracts, as well as a variety of financial,
administrative and personnel matters. Occasionally ABC, DEF and
other senior staff provide advice on third party reimbursement
issues and on the use of innovative management techniques.

While ABC, DEF and other A&D employees function as a team in
providing services under the contracts, their functions may vary
at the three institutions. For example, at RST, ABC has hired a
account manager for the contract so that ABC and DEF's personal
time commitment under the RST contract is very limited. At UVW
Hospital, particularly during the initial phases of the contract,
DEF has spent considerable time implementing said contract. In
comparison, ABC is at XYZ on a weekly basis, whereas DEF is only
intermittently involved.
 


QUESTION:


Are ABC ad DEF state employees under G.L.c. 268A, s.1(q), by
virtue of the FY 1990 contracts between A&D and DMH?
 


ANSWER:


Yes. ABC and DEF are state employees under G. L.c. 268A
s.1.[2]
 


DISCUSSION:


In the enactment of G.L.c. 268A, the Legislature established
an expansive definition of the term "state employee." "A state
employee" is

any person performing services for or holding an office,
position, employment, or membership in a state agency, whether
by election, appointment, contract of hire or engagement,
whether serving with or without compensation, on a full,
regular, part-time, intermittent or consultant basis,
including members of the general court and executive council.

This definition covers not only individuals who hold full-time
employment with a state agency, but also consultants who provide
services on an intermittent basis, whether or not they receive
any compensation. See, e.g., EC-COI-87-19 (hospital administrator
employed by private corporation to administer county hospital a
county employee); 86-21 (private artist state employee where
specific services contracted for); 85-

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4 (president of consulting group state employee where services
being provided are within his expertise). However, the fact that
a corporation contracts with the state, without more, does not
confer state employee status on all of the employees of the
corporation. See, e.g., EC-COI-86-21 (project manager without
more not state employee by virtue of his employer's contract with
state agency) 83-89 (contract calls for services of firrn as a
whole, not individuals); 84-5 (same); 82-134 (agency contracted
for services of corporation not individual).

The Commission has established certain factors it will weigh
in determining whether an individual who is an employee or
officer of a private corporation which contracts with a public
entity should be deemed to be a public employee. EC-COI-87-19,
87-8
. These factors include:

1. whether the individual's services are expressly or
impliedly contracted for:

2. the type and size of the corporation;

3. the degree of specialized knowledge or expertise required
of the service. For example, an individual who performs highly
specialized services for a corporation which contracts with a
public agency to provide those services may be deemed to be
performing services directly to that agency;

4. the extent to which the individual personally performs
services under the contract, or controls and directs the terms
of the contract or the services provided thereunder; and

5. the extent to which the person has performed similar
services to the public entity in the past.

No one factor is dispositive, rather the Commission will
balance all of the factors based on the totality of the
circumstances. Compare, EC-COI-87-8 (jurisdiction) with EC-COI-
89-6
(no jurisdiction where only one factor present). Under the
circumstances presented in this case the Commission concludes ABC
and DEF, by virtue of A&D's contracts with DMH, are state
employee[3] for purposes of G.L.c. 268A.

The Commission finds that all of the DMH contracts at issue
address broad health care delivery issues in addition to the
recruitment of physicians. Among the issues covered are: program
innovations to improve cost effectiveness and direct care;
improved hospital data systems; academic affiliations and the
collection of third party billing revenues. It can be reasonably
inferred that DMH, in these contracts, was seeking a
restructuring of health care delivery within these state
institutions.

ABC and DEF each have specialized expertise in the area of
health care management and finance. References to this expertise
can be found throughout the contracts. For example, in the UVW
contract, when addressing issues of billing, ABC and DEF indicate
that they were the heads of state health care programs. DMH could
reasonably infer that it was obtaining the principals' expertise
in this area under the contract. Similarly, in a discussion of
potential academic affiliations at UVW and XYZ, ABC and DEF
specify their affiliations with academic institutions, raising a
reasonable inference that DMH bargained for the principals'
connections in the contract. Aiso, there are numerous references
in the contracts to the "network of relationships" within the
medical community developed by ABC and DEF in the area of
physician recruitment. These relationships were cultivated by
the individuals, not the corporation, and both individuals
acknowledge that they play a significant role in the recruitment
of physicians. The contract contemplates that DMH will receive
the benefit of these personal relationships in the establishinent
of a quality psychiatric staff within each institution.

Of significance is the fact that ABC and DEF have a long
history with DMH through their individual consulting activities
at AMHC and other state facilities. EC-COI-87-8; 83-165. Each
contract proposal emphasized the consulting activities at AMHC.
At the time of the AMHC proposal, A&D mainly consisted of ABC and
DEF. Because of this history, DMH is knowledgeable about the
individual expertise of the principals in the area of health care
management and the individuals' standing within the
psychiatric/medical community.

Additionally, both the UVW and MS contracts expressly call for
the consulting services as well as the contract management by the
senior staff of A&D. These consulting services are covered by
indirect overhead in the budget. Although A&D has grown, the
specialized management skills rest in a small senior staff, of
which ABC and DEF are the two leaders. The Commission has
previously stated that where a state contract specifically
contemplates that all of the partners in a firm would work on a
project, each partner would be considered a special state
employee.[4] EC-COI-80-84.

This case is unlike the situation where the officers of a
corporation enter a contract with the state and provide no
further services other than general oversight

Page 287
 

of their employees, or where a contract specifies a generic
program manager. See EC-COI-89-6. Viewing the totality of each
contract, it is apparent that DMH is expressly and impliedly
bargaining for the expertise of the principals and senior
management of A&D to provide a restructuring of health care at
each institution. The contracts seek the specialized expertise of
ABC and DEF to find innovative solutions to mental health care
delivery problems, to use their relationships to build a quality
physician staff and to develop innovations in third party billing
and other financial matters. Given the past experience of DMH
with the skills, innovations and physician relationships that ABC
and DEF have fostered, the Commission concludes that each
contract award was based on their expertise and experience as
individuals as much as on the reputation of the corporation. EC-
COI-87-8
. Further, the contracts contemplate that ABC and DEF
will apply their expertise to the particular problems confronting
each institution.

For all of the above reasons the Commission finds that ABC and
DEF are special state employees for purposes of the conflict of
interest law.[5]

---------------

[1] Each of the contracts to be discussed was signed by DEF as
President of A&D.

[2] This advisory opinion is based on the facts as you relate
them to be at the present time. It does not preclude the
possibility of a different result should these facts change.

[3] Due to the limited time commitment of ABC under the contracts
they will be deemed to be special state employees. G.L. c 268A
s.1(o) G.L. c. 268A generally applies less restrictively to
special state employees.

[4] The Commission notes that this decision may have
ramifications for other senior staff at A&D who are performing
services under more than one state contract. Senior staff are
advised to seek an opinion from the Commission regarding how
G.L.c. 268A applies to their particular situation.

[5] The Commission will address the consequences of ABC and DEF's
special state employee status for purposes of G.L. c. 268A,
particularly s.s.4,6,7, and 23, in a subsequent opinion, should
they so desire.

 

End Of Decision