An opinion has been requested as to whether the Public Ethics Law (Article 40A, Annotated Code of Maryland, the Ethics Law) prohibits service on the Kidney Disease Commission by two individuals who are employed by a Maryland health insurance carrier (the Company), where the Company is a Medicare intermediary that has contractual relationships with the Kidney Disease Program (KDP or the Program).
This request is presented by the Kidney Disease Commission (through its Executive Director) on behalf of two of its Commission members. The program for treatment of kidney disease in Maryland is a two part program, including the Kidney Disease Commission (the Commission) and the Kidney Disease Program, both units within the Department of Health and Mental Hygiene (DHMH). The Commission is established in §13-301 et seq. of the Health-General Article, Annotated Code of Maryland. It consists of twelve members appointed by the Governor, including several nominees from identified medical organizations, two from the insurance industry, and several lay people. The subjects of this request each fill an insurance position.
The Commission's primary function is to establish regulations setting physical and medical standards for the operation of dialysis and renal transplantation centers. It also defines the criteria for acceptance of individuals into the program and establishes regulatory standards for allocation of funds under the program. The Commission is responsible for an educational program and collecting and disseminating information and for annual evaluation of the program. For organizational purposes, the Commission is within DHMH's Office of Regulatory Services (under the Assistant Secretary for Health Regulatory Services). It selects its own officers and appoints its Executive Director.
The statute (§13-308) provides that the Secretary of DHMH is responsible for operation of the kidney disease program within the rules, regulations and standards adopted by the Commission. The Program is within the Department's Office of the Assistant Secretary for Administration. The Program's responsibility is to disburse and collect any funds under the program and to coordinate the program's activities with the Commission. The Program's Chief indicates that he interacts on a daily basis with the Commission's Executive Director, and also attends every Commission meeting. This interaction involves recommendations on and comments regarding regulations being considered by the Commission, and reports and discussions regarding the operational progress of the Program. The relationships of the Commission and the KDP are set forth in a Memorandum of Understanding.
Basically, the Kidney Disease Program provides funding for dialysis and transplant treatment for patients with irreversible renal disease. Patients may apply to the program when first diagnosed. The case is reviewed to determine compliance with the eligibility requirements and a certification card is issued. The program is last resort funding, in the sense that private insurance or Medicare billings by provider entities are first exhausted, and the unpaid balance is covered by KDP. Where there is no private insurance or Medicare eligibility the treatment is funded 100 percent by the Program. Ability to pay with non-insurance resources is only a very minimal factor.
One aspect of the Program is its provision for home dialysis, funded by the federal government through Medicare. This is a special program designed to provide services and supplies to individuals who are able to use home dialysis. The KDP is itself viewed as a supplier, or provider, for Medicare reimbursement purposes under the home dialysis program. Until the spring of 1984, claims for reimbursement were submitted to the federal government's Office of Direct Reimbursement (in the Health Care Financing Administration). That office was abolished, however, and the reimbursement processing assigned (for purposes of this situation) to the Company as a claims processing intermediary on behalf of the federal government.
The Program has a provider number and submits claims to the Company pursuant to a Medicare provider agreement. The claims are processed by the Company's Office of Government Programs, which is directed by one of the subjects of this request. Personnel in his office review the claim to determine whether the patient is an eligible Medicare beneficiary and that the claim is for covered services, and payment is then authorized. Each provider then submits an annual report to the Company's Office of Audit, directed by the other Commission Member involved in this request. The total costs of services provided are reviewed and a determination made as to the allowable rate of payment. The total amount paid to a provider over the year may be increased or decreased based on this audit, and the payment rate for the next year is established. This individual supervises, directs and reviews the decisions of his staff as to these matters.
The fact that both of these Commission Members have Company intermediary responsibilities relating to the KDP as a provider resulted in conflict of interest concerns by the federal program office. The Company, as a federal contractor performing the government's claims processing functions, was directed to resolve the issue, either by reassigning these individuals in their Company duties, or assuring their resignation from the Commission. They have not been active on the Commission since this directive, but the Commission, wishing to retain them, has requested this Opinion. The Commission's view is that these individuals provide it with valuable expertise. This view is strongly supported by the KDP Program Chief.
The Kidney Disease Commission is an executive agency in State government, and its members are public officials for purposes of the Public Ethics Law. Both of the individuals involved in this request filed Board and Commission financial disclosure forms for 1982 and 1983 (pursuant to §4-101 of the Ethics Law), both disclosing their employment with the Company. In addition to disclosure filings, these individuals are also subject to the outside employment limitations of §3-103(a) of the Law. This section bars an official from being employed by an entity that contracts with or is subject to the authority of his agency (subsection (a)(1)(i)). It also prohibits any other employment that would impair his impartiality or independence of judgment (subsection (a)(1)(ii)).
Though the Company is, as one of the State's large health insurers, significantly involved in the State's health care programs, it is not, according to DHMH's Chief Counsel, subject to the Department's regulatory authority, or involved as a general matter in contractual relationships with DHMH. As the federal Medicare intermediary, however, it is a party to the provider agreement with the Kidney Disease Program for the home dialysis program. The Commission's request points out that the Commission and the KDP perform separate defined functions under the State law and consistent with the Memorandum of Understanding. We have consistently held, however, that units within a cabinet department are part of a single indivisible agency.1 Also, there appear to be definite and strong ties and cooperative relationships that would tend to negate a conclusion that these are two separate agencies. (See also our earlier Opinion No. 82-30, which dealt with these two entities.)
Since we therefore conclude that the Commission and KDP are part of the same agency, then, in view of the provider contract between KDP and the Company, the employment relationships of these individuals with the Company come within the prohibition of §3-103(a)(1)(i) unless an exception applies. There are several possible exceptions in this situation, pursuant to §3-103(a), and also under other provisions of the Law. As a preliminary matter, however, we do not believe that the automatic board and commission member exceptions of §3-103(a)(2)(i) or (iii) can be applied. Subsection (a)(2)(i) applies to except a "public official who is appointed to a regulatory or licensing authority pursuant to a statutory requirement that persons subject to the jurisdiction of the authority be represented in appointments to it." Both of these individuals fill insurance company positions on the Commission. In our view, however, the particular contractual relationship at issue here is not the kind of jurisdictional conflict intended to be excused by this provision, and this exception therefore cannot be applied. Subsection (a)(2)(iii) is the time of appointment exception applicable where disclosure of a conflict is made and evaluated by the appointing authority in connection with the appointment process. Both of these individuals were last appointed in 1982, prior to the time that this conflict arose, and neither filed a a time of appointment disclosure identifying their employment with the Company. This exception thus would also not apply.
Other more generally applicable exception provisions are set forth in §3-103(a)(1) and implemented in Ethics Commission regulatory criteria published at COMAR 19A.02.01. Section 3-103(a) provides that its prohibitions apply, "except as permitted by regulation of the Commission where such interest is disclosed or where such employment does not create a conflict of interest or appearance of conflict." The regulations set forth various guidepost criteria that are designed to evaluate whether the private interest or employment relationships are sufficiently remote from the employee's duties and agency program that a conflict of interest or appearance of conflict is unlikely. They include evaluation of the relationships of the individual's agency job and particular agency program interests to the private employment, and also consideration of how the private duties interact with the employee's agency. The regulations also provide for a general evaluation of the total circumstances of the situation in view of the statutory criteria regarding conflicts and appearances of conflict. (See our Opinion No. 83-34 for a more detailed discussion of the exception regulations.)
In reviewing the circumstances of this request, we have concluded that an exception would not be applicable here. We note that there could be some issues raised under the regulatory items that relate to the agency duties, since the Commission has significant general policy responsibilities regarding the Kidney Disease Program. Moreover, more substantial issues are presented by the regulatory provisions relating to duties with the private employer, given the non-ministerial involvement of both of these individuals in their positions with the Company. Though the home dialysis program does not represent a substantial percentage of either the total KDP or the Company's Medicare responsibilities, the authority of these individuals over the program's provider activities is significant. This situation appears to be a basis for the federal concern, and it is our conclusion that it bars our concluding that the private employment of these individuals is sufficiently remote from their agency and their own duties to justify an exception under §3-103(a)(1).
The Ethics Law also provides other possible bases for exemption under §2-103(h) and 3-103(a)(3). In considering the §2-103(h) exemption in our Opinions No. 82-56 and No. 83-39, we noted that pert-time members of boards and commissions often serve with little or no compensation and are generally expected to have other income-producing activities. In both of those Opinions we recognized that this provision reflects a legislative understanding that some persons who volunteer their public service on State boards or commissions "may bring special skills to their assignment that would be lost to the State if the conflict of interest prohibitions were strictly applied." Nevertheless, our general approach to this exemption and to the gubernatorial exemption of §3-103(a)(3) is that they are extraordinary measures designed to deal with situations where strict application of the provisions of the Ethics Law would clearly be contrary to a defined public interest, particularly the interest in recruiting uniquely qualified and otherwise unavailable individuals for part-time public service. In our view the basic intention of the Law is that its provisions be uniformly and evenly applied to require avoidance of situations that could impair a State agency's credibility and damage the public's trust in its implementation of its mission. We continue to believe that this is the correct and proper approach to both of these exemptions, especially given the other specific exceptions built into §3-103(a).
Moreover, both of these statutory exemption provisions recognize the special expertise of the appointing authority and an individual's agency in evaluating the propriety of these extraordinary exemption provisions. Section 2-103(h) allows for exemption based on the "written request of the executive agency involved," and §3-103(a) (3) provides for exemption "based upon the recommendation of the Governor upon request of the executive agency involved." In view of these provisions the Ethics Commission postponed its final consideration of this request in order to obtain input from the Department of Health and Mental Hygiene. The response from the Department Secretary and the Deputy Secretary recognized the contribution made by these individuals to the Commission. The Secretary indicated, however, that if an exception were not granted under our exception regulations, the Department was confident that alternative individuals could be found to serve on the Commission. No exemption under either §2-103(h) or §3-103(a)(3) has been requested.
Under all of these circumstances we must advise the Kidney Disease Commission and these individuals that their continued service on the Commission would be prohibited by §3-103(a) of the Ethics Law, as long as they are employed in their current positions with the Company. This employment is with an entity that contracts with their agency as to a program subject to policy and regulatory direction of the Commission, and it involves substantive management responsibilities regarding that program. It is therefore within the prohibition of §3-103(a)(1)(i). Given these relationships, it is employment that we cannot describe as sufficiently remote from their public duties to warrant application of the statutory exception set forth in §3-103(a)(1). Moreover, the employment is viewed as a conflict of interest by the federal agency responsible for this program, and the State executive agency has declined to request an exemption. We therefore conclude that this employment is barred by §3-103(a) of the Ethics Law, and that this prohibition cannot be overcome by any exception or exemption in the Law, and so advise the Commission, the Department and the individuals involved.
Herbert J. Belgrad, Chairman
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: April 17, 1985
1 See, for example, our Opinions No. 83-30, No. 83-17, No. 83-5, No. 83-3, No. 83-1, and No. 82-56.