86.12

OPINION NO. 86-12

An opinion has been requested concerning how §3-101 of the Public Ethics Law (Article 40A, §3-101, Annotated Code of Maryland, the Ethics Law) would apply to the service as Chairman of the Health Services Cost Review Commission (HSCRC or the Commission) by an individual who serves as counsel to and is a Director of a local general hospital (the Hospital).

The Requestor is an attorney recently appointed by the Governor to serve as Chairman of the HSCRC. The Commission is established pursuant to Health-General Article, §19-201 et seq., Annotated Code of Maryland. It consists of seven members appointed by the Governor, the enabling law providing that "of the 7 members, 4 shall be individuals who do not have any connection with the management or policy of any facility." (§19-203(b).) The Requestor is to serve as a hospital-affiliated member. The Commission is generally charged with the responsibility for establishing rates for health services provided by hospitals and related institutions. It has the authority to conduct investigations and hold hearings, and to establish policies, regulations and procedures to review and establish rates. It establishes record- keeping and account requirements for facilities within its jurisdiction, and requires and supervises the law's reporting requirements.

The most significant function of the Commission is its rate-setting process. This involves certain general policy-making determinations, such as defining the criteria to be considered in classifying hospitals, determining formulas for evaluation and establishment of rates, and defining how the costs of new equipment and processes will be factored into the rate system. This is a general rule-making type of process that does not focus on particular institutions. The actual rate setting for particular facilities is a dual process consisting of application of an automatic annual inflation adjustment (also on an across-the-board basis), or, if a facility does not qualify for this, of consideration by adjudication of a rate application by a particular facility.

Generally, the automatic inflation adjustment is a percentage figure determined based on data from independent sources that is automatically applied to any facility that is eligible for the annual adjustment. Eligibility is determined by evaluating a particular facility's cost in relation to those of other facilities within its classification group. To determine eligibility for the automatic inflation adjustment, the Commission staff computes the cost information provided by each facility to determine an average case cost for the facility. From this information an average cost for all the facilities in each classification group is computed. Each facility's average case cost is then evaluated against the group average. If a facility's average case cost varies above the group average by no more than 2 times the established inflation factor, then it is eligible for the automatic adjustment.

Automatic annual inflation adjustments happen automatically based on the data. Though they are reported to the Commission, no action is taken by the Commission. If a facility's average case cost varies from the group average by more than twice the inflation factor, it would receive no increase except by filing a rate increase application. The Commission considers these applications as adjudicatory matters. Sometimes the consideration is through a full contested case hearing with hospital appearances and presentation of evidence as to why a rate increase is justified. Other cases may be more pro forma, but in all of these situations they are specifically directed at particular identified facilities.

The Commission establishes other general policies and requirements, such as reporting requirements, which apply to all covered facilities. A particular hospital may come before the Commission, however, if it fails to comply with the reporting requirements, as the Commission has enforcement powers (including fining authority). The Commission may also consider specific matters where a facility has costs relating to a capital project, or is requesting the authority to adjust rates to cover experimental programs or studies, or is being considered by the Commission in connection with a procurement action. According to HSCRC staff, there are a few types of matters, where, knowing the situation of a particular facility, one could evaluate a potential policy decision depending on how it would impact that facility. The Commission's Deputy Director indicates that this situation is very rare, however. He states that most policy decisions cannot have a predictable impact, since their application depends upon compilation of data and other factors, including comparisons with other facilities, that are not done until well after the policy is established.

The Requestor here is affiliated as counsel to and a Director of a local general hospital. This is one of 54 general and acute care hospitals subject to HSCRC jurisdiction. It is described as a relatively small low or medium cost hospital, and is the sole provider hospital in its county. Counsel to the Commission says it is not a very active or "high profile" hospital in terms of the Commission's activities. Apparently the Commission has about 100 docketed cases per year. According to general information supplied by HSCRC staff, in the past six years, the Hospital has been on the formal docket four times. None of these situations involved a hearing or a contested case rate application. One involved an increase related to purchase of a CAT scanner, two related to rate increases in connection with staff and other costs related to a building addition, and the other allowed a rate increase for wages related to implementation of a unit dose program.

This request involves application of the outside employment and nonparticipation provisions of the Ethics Law (3-103(a) and 3-101, respectively). Section 3-103(a)(1) prohibits an official from being employed by an entity that is under his authority or that of his agency, and also from having any other employment relationship that would impair his impartiality or independence of judgment. Subsection (a)(2)(i) provides, however, that these prohibitions do not apply to 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." In our Opinion No. 81-21, we considered the HSCRC enabling law, concluding that the language of §19-203(b) could be read as an "implied statutory requirement that the HSCRC include persons involved with hospitals and related institutions." We concluded that persons appointed pursuant to this requirement would be excepted from the §3-103(a) interest and employment prohibition pursuant to §3-103(a)(2)(i).

We also advised, however, that HSCRC members should continue to be aware that they are bound by the Law's other conflict of interest provisions, including the disqualification provisions of §3-101. This section prohibits officials from participating in any non-ministerial way in any matter in which they have an interest or which involves as a party any entity with which they are employed or have certain contractual or debtor relationships. Though the Requestor may not have a direct personal economic interest in Commission decisions that would impact on the Hospital, his service as a Director and as its counsel would create some of the types of relationships intended to be included in §3-101. He would thus be barred from participating in matters where the Hospital is involved as a party. Based on the description of the Commission functions, however, we do not believe that application of this disqualification requirement would impact so significantly on his Commission activity as to render him unable to function effectively as an HSCRC member or its Chairman.

We have in the past considered application of §3-101 in a variety of situations.1 We have concluded that participation includes any kind of informal advice or discussion participation in addition to voting; the concept of a matter has been viewed as including a particular contract, hiring action or claim; and we have advised that an entity impacted by a general program decision is not necessarily involved as a party in a matter. In particular, in an early decision (Opinion No. 80-17) interpreting §3-101, we concluded that this section was not intended to prohibit participation in all matters in which a private entity was generally concerned. We indicated there that

disqualification would not be required as to matters with which such entities are generally interested, but those matters in which they have some specified and clearly defined role; the entities would have to be identified as parties to a transaction and likely to be impacted by the transaction in the usual legal sense of that term.

Applying these principles to the Requestor's situation on the HSCRC, it is clear to us that he is barred from participation in specific adjudicatory matters where action is taken directed at the Hospital as a discretely identified party. Based on the information provided to us, it would appear that situations of this type involving the Hospital have only occurred a few times in the past several years. Application of the bar should therefore not significantly limit the Requestor's participation in Commission business. In our view, the bar would not apply to his involvement in general policy or programmatic decisions directed at a general class or category of entities, and where the impact on a particular entity is not necessarily predictable at the time of the decision.

We realize, of course, that there could be policy decisions whose impact on one or two particular entities could be predicted, even though they are general programmatic decisions. To the extent that this occurs, and a policy determination could be expected to have a predictable impact on the Hospital, the Requestor should take care to disqualify himself from participation as soon as the Hospital's involvement is evident. We understand from HSCRC staff that these types of circumstances arise infrequently, but advise that the Requestor or Commission staff may seek informal guidance from the Ethics Commission or its staff if particular concerns come up as to application of this Opinion.

Thomas D. Washburne, Chairman
   Herbert J. Belgrad
   Reverend John Wesley Holland
   Betty B. Nelson
   Barbara M. Steckel

Date: June 9, 1986

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1 See example, our Opinions No. 85-8, No. 83-35, No. 83-2, No. 81-5 and No. 80-17.