Opinion  EC-COI-89-35

Date:	12/21/1989
Organization:	State Ethics Commission

Individuals who are independent consultants for a private corporation which contracts with a public entity may be deemed to be public employees.                           

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 administratively 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 pertaining 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 firm 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. Also, 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 establishment 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

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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.