An Account Auditor III (the Employee) in the Department of Health and Mental Hygiene (DHMH) has requested an opinion as to whether he may engage in outside employment or establish a business in the private health care field.

The Requestor works in the Division of Management and Fiscal Services under DHMH's Assistant Secretary for Medical Care Programs. He has a fiscal background with an accounting degree from Loyola, and has requested advice concerning his wish to establish either a health care business or a private consulting business providing fiscal and management services to health care providers. The Requestor's planning is very tentative, pending resolution of the conflict of interest issue. Basically, however, he is considering two possibilities. First, he would possibly establish a private consulting firm that would provide fiscal and management services to health care providers. These services would include working with books, preparing tax returns and developing required reports for submission to government agencies. The reports might include, for example, the Annual Statement of Reimbursable Costs submitted to the DHMH Medicaid section. A second possibility being considered by the Requestor is establishment of a health care agency of his own, either a home health agency or a medical day care program. These entities would be set up much like an employment agency to provide individual services to particular clients.

The Requestor's inquiry deals with ability to do this if the private entity (either his own or another private employer) is reimbursed for services either through the State Medicaid program or with Federal Medicare funds. Currently he works in the DHMH Division that manages the State's Medicaid program, where he serves as the unit's liaison to the Health Services Cost Review Commission (HSCRC). His primary responsibility is to evaluate the impact on the Medicaid programs of cost decisions anticipated by HSCRC. Under the Medicaid program reimbursement is made to providers of fees up to the amount established by HSCRC. The HSCRC jurisdiction covers only hospitals; maximum rates to be paid under the Medicaid program to nursing homes, home health agencies or other non-acute care hospitals are determined by the Medicaid program itself, but in a different Division than the Requestor's own Division of Management and Fiscal Services.

The Assistant Secretary for Medical Care Programs manages the part of DHMH that is responsible for management and administration of the State's medical assistance, or Medicaid program. Funding for this program is from both State and Federal governments, and its purpose is to assure adequate medical care for persons who are medically indigent. The program is managed primarily through a system of cost reimbursement to health care providers, including hospitals, extended care facilities, individual physicians or health professionals, and home health care agencies, Reimbursement is provided pursuant to agreements between the health care providers, who as a general rule must be licensed or certified by the Department's Division of Licensing and Certification (or as to individual professionals, by the appropriate DHMH licensing board or commission). The Division of Licensing and Certification reports to a different Assistant Secretary. Health care providers reimbursed by Medicaid funds must submit reports of their activities to the Department and their activities are monitored by quality control and compliance units under the Assistant Secretary for Medical Care Programs, in coordination with the Attorney General's Medicaid Fraud Control Unit.

The Medicare program is a Federal insurance program for the aged. Its eligibility requirements are less restrictive than those of the Medicaid program, since a showing of economic indigency is not required. Though this program has a different client population, and is fully federally funded, it interfaces with the same health care providers as the Medicaid program. Certification of these providers is done by the DHMH Division of Licensing and Certification, which receives budgeted Federal funds and acts as an agent of the Federal government for this purpose. The criteria for certification are identical to those applying to providers under the Medicaid program. Licensing and Certification does review surveys and makes recommendations for or against certification to the Federal agency, which in turn establishes reimbursement contracts with the providers much like those established by the State under the Medicaid program. The State Division of Licensing and Certification then serves as a liaison to collect reports and otherwise monitor the providers' performance under the Medicare program.

Personnel in Licensing and Certification indicate that all providers of care must be licensed in order to receive Medicare funds. Home health agencies (which provide skilled services ordered by a physician) must also be licensed by DHMH in order to receive Medicaid reimbursement. General staffing agencies, or Personal Care Providers, that provide lesser skilled custodial services need not be licensed by DHMH, but may be required to be licensed as an employment agency by the Department of Licensing and Regulation's Division of Labor and Industry. Personal Care Providers may receive Medicaid reimbursement without being licensed.

The Requestor's plans are still very tentative and it is not possible to provide him with definitive and particularized advice. We can give him general guidance, however, based on the limited description of the alternatives he presents, on the nature of his job, and on the nature of his agency's authority over his proposed outside activities. The obvious concern as to all of his possible activities is application of the outside employment prohibitions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). The two provisions of this section prohibit: 1) having employment or an ownership interest in an entity that is under the authority of or has contractual dealings with one's agency, and 2) having any other employment that would impair one's impartiality or independence of judgment. Individuals may be excepted from these prohibitions if, based on Commission regulations, it is determined that the employment does not create a conflict of interest or appearance of conflict.

In applying the prohibitions of §3-103(a) we have developed certain principles. First, we have generally treated cabinet departments as single indivisible entities for purposes of this section. (See, for example, Opinion No 80-18). Thus a private entity under the authority of any unit within DHMH would be an entity under the authority of the Requestor's agency for purposes of §3-103(a). Second, we have treated sole proprietorship businesses as entities in which the individual has both an employment and ownership interest. (See Opinions No. 82-21 and No. 81-45). A private health care agency operated by the Requestor, whether handling Medicaid or Medicare cases or both, would thus be an entity under authority of his agency, as we understand the agency's authority, and also an entity in which he has both an employment and financial interest. Third, our approach has generally been to look to the substance of a situation in evaluating whether there is an employment relationship, concluding that provision of services even as a consultant/contractor must, in some circumstances, be treated as employment for purposes of §3-103(a). (See Opinion No. 80-18.)

We wish to reiterate that these are general principles that must be applied to the facts of each particular situation. We do not wish to imply to the Requestor any conviction on our part that there are no circumstances under which he could have a private business related to health care. However, he should be aware that the basic intention of the §3-103(a) prohibition is to bar outside employment relationships with entities whose involvement with an employee's agency could result in conflicts with the employee's official duties or otherwise give rise to a conflict of interest or the appearance of conflict. Given the pervasive involvement of DHMH, and of his own Division, in the health care industry, the Requestor should be aware that he will have to be very careful in developing any private affiliations in this field, recognizing that most private entities would in some way be impacted by his agency.

In considering his alternatives, if he is committed to working in the health care field, the Requestor may also take into account our regulations implementing the §3-103(a) exception provisions (COMAR 19A.02.01). These regulations set out criteria for identifying situations where the relationship between private activities and official duties is so remote as to make a conflict or appearance of conflict unlikely. Given the limitation of his DHMH Division to the Medicaid Program, and his own duties to HSCRC review, the Requestor may, for example, be able to establish a private business that would avoid these aspects of DHMH's jurisdiction, and otherwise meet the criteria. The regulations in some instances require a finding by the employing agency of no conflict or appearance of conflict, however, and the Requestor should take care to seek the views of agency management in making his plans. Also, both the exception regulations and subsection 3-103(a)(1)(ii) require a general evaluation of the total employment circumstances to determine application of the prohibition and the exception.

In summary, while we do not wish to rule out any possibility of his having outside employment, we believe the Requestor should be advised that centering such activity in the health care field could raise significant questions under the Ethics Law, given the nature and scope of his agency's jurisdiction. Though such activity could be possible, it should be very carefully designed and specific facts evaluated in view of the Ethics Law, as well as related views of his agency regarding its relationship to the agency program and his official responsibilities.

Herbert J. Belgrad, Chairman
   Jervis S. Finney
   Reverend John Wesley Holland
   Betty B. Nelson
   Barbara M. Steckel

Date: January 12, 1983