95.11

OPINION NO. 95-11

An inquiry has been presented as to whether the Chief of Special Projects (the Employee), of the Health Services Cost Review Commission (HSCRC) may have a private contractor/employment relationship with the Johns Hopkins University School of Hygiene and Public Health (JHU or the School). We advise, given the significant relationships between the JHU and affiliated entities and the Employee's State agency, and the relationship of his official duties to the subject area of his private employment, that this affiliation is inconsistent with the employment provisions of the Public Ethics Law (State Government Article, Title 15 (formerly Article 40A), Annotated Code of Maryland) and that it may not be continued.

The HSCRC is established in the Health General Article, Annotated Code, Title 19, Subtitle 2, as an independent commission functioning within the Department of Health and Mental Hygiene. Its function is to regulate the costs and rates charged by hospitals and related institutions in their delivery of inpatient, emergency and hospital outpatient services as well as limited physician services. In addition to requiring accounting, financial review and other reports of institutions it regulates, the HSCRC has substantial rate setting review authority. It reviews and investigates costs and rates to ensure that total facility costs are reasonable, that aggregate rates are related to aggregate costs, and that rates are set equitably among all purchasers of care. The HSCRC may review and approve or disapprove the reasonableness of any rate set or requested by a facility, which is generally permitted to charge for services only at a rate set in accordance with the law. To promote more efficient and effective use of health care resources, the HSCRC is also permitted to approve alternate experimental methods of rate determination and payment. The HSCRC is a unit of the Department of Health and Mental Hygiene, the State cabinet level Department charged with defining and implementing public health policy in the State.

The Employee was recently employed by the HSCRC (as a Grade 22 regular employee) based on his previous experience in rate setting research, with his original focus on development of a process for dealing with alternative rate methodologies. These methodologies are related to managed care programs and involve review by the HSCRC of requests from hospitals to develop and implement managed care programs in connection with their inpatient facilities. In particular, his position description provides, in connection with his development of an alternative rate setting program, for the following activities:

Analyze all fixed price contracts that come before the commission with particular focus on the level of risk being assumed by the hospital. ... Coordinate the collection of all data necessary to analyze all proposed capitation agreements with particular focus on the expected utilization by the target population. Coordinate the actuarial analysis of all alternative rate setting methodology requests and fixed price contract proposals.

Apparently, however, according to the Employee, regulations relating to alternative rate setting have been adopted and their implementation is more or less automatic. Rate requests submitted under the alternative methodology system are approved as a matter of course. The Employee therefore indicates that most of his time is now devoted to working on Medicaid issues as a technical advisor in the Department's development of a proposal for waiver of federal requirements relating to the Medicaid program (under 1115 of the Social Security Act). The focus of this process is on altering the health delivery system for medical assistance patients to require use of managed care programs. A committee of private providers has reviewed this approach and provided advice, and various experts from the government sector are also involved in the process. The Employee is participating based on his rate setting expertise, and as a reflection of the HSCRC's role in evaluating the impact of a Medicaid switch to managed care on hospitals regulated by it.

This request involves the Employee's proposed continued affiliation with the Johns Hopkins University School of Hygiene and Public Health. He indicates that he has had a private consulting business through which he has provided consulting and training services to health insurers and research organizations, including work with JHU on a research project in the School of Hygiene and Public Health. Though he indicates that he has discontinued his training and other consulting work, the Employee has continued his affiliation with JHU. This work entails about 30 hours per month conducting research in connection with the Johns Hopkins Ambulatory Care Group System (or ACG's). For this work he bills the School and is paid through his private business, though he indicates that for all practical purposes he has a personal services relationship with JHU.

The ACG's project is a research program designed to address the current change in the delivery of health care to a system of pre-payments to HMO's or other managed care programs in which the provision of health care is being managed by public and private insurers by profiling and monitoring physician's practices. The idea is that this provider profiling process take into account concerns that sicker patients require more resources, and that the traditional per patient (or capitation) compensation systems be adjusted to avoid undercompensation for providers for treatment of sick patients that encourages undertreatment, or overtreatment of less sick patients. The ACG methodology is based on the assumption that diagnosis information about patient populations is an important factor in adjusting the per patient fee payment system. The project is a methodology for tapping into diagnosis code information by defining diagnosis groups using data elements typically stored in claims systems. These group codes are assigned within a particular population in accordance with automated software developed at JHU and marketed by a private entity licensed by it.

According to the Employee methodologies such as ACG's are used by insurers and providers in adjusting measures of health care utilization and as a quality assurance tool to identify patient populations that are receiving inappropriate levels of care. He indicates that it has not generally been used by government, though the documentation does identify "public" insurers in the category of those interested in the approach. Apparently the Health Policy and Statistics unit of DHMH does currently use the ACG's under a license that is free to the Department because the Medicaid database was a factor in the original development of the ACG's. Also, the Employee's current duties relate to the State's development of a managed care program for medical assistance patients in the 1115 waiver process. One aspect of this process is determination of the fee payment system that will be applied and under which the State's Medicaid program would reimburse managed care programs for provision of care to Medicaid patients. According to the Employee, as he is an expert in this area, his current activities for the agency entail evaluation of the ACG's as one of several possible approaches to setting the fee payment system in the State's 1115 waiver program.

This request presents employment issues under 15-502(b) of the Ethics Law (formerly 3-103(a)). This section prohibits an employee from being employed by an entity subject to his authority or that of a governmental unit with which he is affiliated or that contracts with that governmental unit (subsection (b)(1)(i) and (ii)), and from having any other employment relationship that would impair his impartiality or independence of judgment (subsection (b)(2)). These provisions appear in the Ethics Law as recodified by the Legislature in its 1995 Session. In addition to transferring its provisions from Article 40A, Annotated Code to Title 15 of the State Government Article, the recodification redrafted and reorganized several provisions and adopted new terminology. In particular, the terms "governmental unit" and "executive unit" replace the terms "government agency" and "executive agency."

It should be noted in this regard, that the Code Revision Committee was made fully cognizant of the long-standing interpretation by this Commission that for purposes of these and other provisions of the Law an individual's agency is the cabinet level department within which a particular program is located, not the particular commission, administration or other program subunit. The legislation adopting the recodification clearly states that the recodification may not be interpreted to render any substantive change in the Ethics Law as previously set forth in Article 40A. Consistent with our previous advice, we therefore advise that for purposes of the employment and other provisions of the Law, the Employee's agency is the Department of Health and Mental Hygiene, rather than just the HSCRC in particular. Our approach to this issue is especially appropriate in this situation given that the Employee is directly involved as an expert in development of the 1115 waiver program, a Department-wide undertaking.

Additionally, we believe that, however the situation is particularly described, the Employee must, for purposes of the Ethics Law, be viewed as being employed by JHU, despite the current nominal existence of a private consulting business. We have consistently advised that we will look to the substance of a relationship, and conclude that there is an employment relationship where personal services are provided directly to an entity. (See, for example, Opinions No. 80-18 and No. 83-3. We therefore conclude that the Employee has an employment relationship with JHU for purposes of both the strict prohibition of 15-502(b)(1) and the impairment provision in 15-502(b)(2).

The Employee and agency supervisors have provided information regarding the relationship of JHU to the Johns Hopkins Health System, and have maintained that there is a legal and practical separation between the School and the directly regulated health delivery activities of the Johns Hopkins Hospital that obviates the potential for conflict of interest in this situation. Although we are not inclined to agree with this approach, it is not necessary to resolve this issue as, in our view, the total circumstances of this situation make it clear that this type of secondary employment is inappropriate and intended to be prohibited by the Ethics Law.

The Employee here is a high-level highly paid expert employed within a State Department that is the central participant in development and implementation of public health policy in the State, as well as the regulator of health care providers and substantial funding source for research about and delivery of health care in the State. He works for the particular regulatory entity that exercises direct and substantial authority over health providers, and is a key contributor to the Department as it addresses important policy issues at a time when major changes and reforms are under way in this area. His role and expertise deal with core issues related to fees and payment rates likely to impact on very substantial expenditures by the State. His private employer is a unit within a School that is part of a larger institution that is one of the most visible and significant participants in the public policy discussion relating to provision of health care in the State. The particular School in which he works is a health policy program. In addition to substantial regulatory and funding relationships, the institution and the particular school have a primary focus on the very issues that are being addressed by the Employee's State agency. Moreover, the particular project with which he works in his private employment is itself focused on the very issues that the Employee deals with in the context of his official duties, and one of the approaches being evaluated by him in this context.

Under all of these circumstances, we must conclude that this private employment is intended to be prohibited by the employment and other provisions of the Ethics Law. The Law includes the expressly stated purpose of avoiding conflicts of interest and the appearance of conflict, and provides that it is to be liberally construed to accomplish this purpose (at 15-101(formerly 1-102)). Whatever the technical legal relationships among the various units of the Johns Hopkins complex, we are convinced that the privately compensated affiliation of a DHMH employee such as the Employee with a health program unit at Hopkins presents the types of actual and apparent conflicts intended to be addressed by the Law. It falls clearly within the employment impairment provision of 15-502(b)(2) and very likely within the strict prohibition of 15-502(b)(1). We therefore advise the Employee and his agency that his continued private affiliation with the School as described is barred by the Law and must be discontinued.

Mark C. Medairy, Jr., Chairman
   Michael L. May
   Charles O. Monk, II
   April E. Sepulveda

Date: November 15, 1995