| Date: | 04/25/2024 |
|---|---|
| Organization: | State Ethics Commission |
A state legislator who owns the property, building, furniture, fixtures and equipment of a facility that provides medical care and/or services to MassHealth recipients does not qualify for the exemption in G.L. c. 268A § 7 for state employees who provide goods and services to recipients of public assistance. Section 7, with limited exemptions, prohibits state employees from having a financial interest in a contract made by a state agency.
A state legislator has an ownership interest of greater than 10 percent in Property Company, which recently purchased a facility that provides medical care and/or services (“Facility”) in Massachusetts. An estimated 70 percent of Facility’s patients are MassHealth recipients. The Facility is operated by Operating Company. The legislator does not have an ownership interest in Operating Company. The Property Company and Operating Company have a lease agreement for the Facility property (“Lease”) and a joint mortgage agreement.
Under the Lease, Property Company has leased to Operating Company the Facility’s building, property, furniture, fixtures, and equipment for a term of 25 years. Operating Company has agreed to pay Property Company base rent and a monthly payment equal to the “Net Operating Income” for the preceding calendar month. “Net Operating Income” is the amount by which the gross cash receipts of Operating Company from the use and operation of Facility for such period exceeds the aggregate of all operating costs and expenses and the funding of a reserve.
Does a state legislator who owns the property, building, furniture, fixtures and equipment of a facility that provides medical care and/or services qualify for the exemption in § 7 for state employees who provide goods and services to recipients of public assistance?
No. The legislator, as an owner of Property Company, does not qualify for the public assistance exemption in § 7.
A state legislator is a state employee for purposes of the conflict of interest law, G.L. c. 268A. Under § 7, a state employee is prohibited from having “a financial interest, directly or indirectly, in a contract made by a state agency, in which the commonwealth or a state agency is an interested party, of which interest he has knowledge or has reason to know.” The arrangement by which MassHealth provides funding for medical care or services provided by a facility is considered a contract by a state agency. EC-COI-82-42. Under the terms of the Lease, the legislator, as an owner of Property Company, has an indirect financial interest in the contract between MassHealth and Operating Company because a considerable amount of Operating Company’s gross receipts -- which may result in a monthly payment to Property Company depending on operating costs and funding a reserve for that period -- comes from MassHealth.
There are limited exemptions in § 7 that allow a legislator to have a financial interest in a state contract. First, there is an exemption specific to legislators in § 7(c) which provides that § 7 does not apply “to the interest of a member of the general court in a contract made by an agency other than the general court or either branch thereof, if his direct and indirect interests and those of his immediate family in the corporation or other commercial entity with which the contract is made do not in the aggregate amount to ten percent of the total proprietary interests therein, and the contract is made through competitive bidding and he files with the state ethics commission a statement making full disclosure of his interest and the interests of his immediate family.”
The legislator does not qualify for this exemption because they do not have an ownership interest in Operating Company, with which the contract was made, and, even so, MassHealth’s arrangements with facilities that provide medical care or services are not made through “competitive bidding” as defined in § 1(b).[1]
Second, there is an exemption in § 7 related to recipients of public assistance which provides that § 7 “shall not apply to a state employee who provides services or furnishes supplies, goods and materials to a recipient of public assistance, provided that such services or such supplies, goods and materials are provided in accordance with a schedule of charges promulgated by the department of transitional assistance or the division of health care policy and finance and provided, further, that such recipient has the right under law to choose and in fact does choose the person or firm that will provide such services or furnish such supplies, goods and materials.” G.L. c. 268A, § 7, para. 4. The legislator argues that by providing furniture to Operating Company under the Lease, Property Company is “provid[ing] services or furnish[ing] supplies good and materials” to MassHealth recipients and places their financial interest squarely within the public assistance exemption.
MassHealth is considered to be “public assistance” for purposes of § 7. EC-COI-82-42. The Facility does not have any special conditions amendments/contracts with MassHealth and its MassHealth payments are all based on a rate regulation establishing standard payments to the type of facility, which is promulgated by the Executive Office of Health and Human Services (EOHHS). Until in or about 2012, the Division of Health Care Policy and Finance (DHCPF) had promulgated MassHealth rates. Since 2012, EOHHS is charged with promulgating those rates with analytical assistance from the Center for Health Information and Analysis. G.L. c. 118E. §§ 13, 13C. While the exemption in § 7 was not amended in 2012 to reflect that EOHHS now promulgates rates that were previously promulgated by DHCPF, we nevertheless find that the exemption in § 7 applies to an ownership interest in a facility that provides medical care or services because MassHealth rates are promulgated by DHCPF’s successor, EOHHS.
Further, in Massachusetts, every resident of this type of facility, which is licensed by the Department of Public Health, has the right to freedom of choice in their selection of a facility. G.L. c. 111, § 70E. This residents’ right statute covers the requirement that “such recipient has the right under law to choose” the firm that will provide the services or furnish supplies, goods and materials. The “public assistance” exemption in § 7 also specifies that the public assistance recipient “has the right to choose and in fact does choose the person or firm that will provide such services...” (emphasis added). Therefore, in order to use this exemption, it would need to be established that each MassHealth resident did in fact choose the facility.
However, in order to qualify for the exemption, the “supplies, goods and materials” must be “provided in accordance with a schedule of charges promulgated by [EOHHS].” According to the Lease, the furniture leased by Property Company to Operating Company is not provided to the MassHealth recipients in accordance with rates established by EOHHS. As a result, this exemption does not apply to the legislator’s financial interest in the contract between Operating Company and MassHealth.
Under the law, the state legislator must choose between their public office and retaining their financial interest in Property Company. Section 7(a) requires that this be done within 30 days of learning one is in violation of § 7. In the context of a request for advice from the Commission, we have construed this as meaning within 30 days of receipt of our response to such a request.
