What Hospital District Commissioners Need to Know ETHICS AND CONFLICTS OF INTEREST : ETHICS AND CONFLICTS OF INTEREST : Legal Consultant Presented by: JOE LEVAN Municipal Research and Services Center of Washington November 2011 AWPHD

2 (206) MRSC (206) WELCOME TO THE WEBCAST BEN LINDEKUGEL AWPHD Director of Member Services (206)

3 AWPHD (206) MRSC (206) During the presentation, one-way phone connection (we cannot hear you) To submit a question or comment – During the presentation, click the “type here to chat” button on the right of your screen; type your message and click “send” A copy of the presentation slides will be available on the AWPHD website tomorrow: Quick Technical Notes

4 AWPHD (206) MRSC (206) Legal Consultant JOE LEVAN Municipal Research & Services Center of Washington (206) MRSC provides legal and policy assistance to local governments, including Public Hospital Districts Call on Joe and MRSC consultants with questions related to governance laws and for assistance with sample policies and other research

5 AWPHD (206) MRSC (206) Introduction Gifts and Rewards Prohibited Contract Interests Special Privileges and Exemptions Disclosing Confidential Information Consider Establishing a Local Ethics Code Additional Resources Overview

6 AWPHD (206) MRSC (206) Introduction 1

7 AWPHD (206) MRSC (206) Focus Areas Today This presentation will focus on ethics and conflict of interest issues related to hospital district commissioners as elected officials of a local government Will not discuss health care law issues, such as fraud concerns under the Stark Statute Introduction

8 AWPHD (206) MRSC (206) Common sense approach It you think in your gut that what you’re doing is a conflict of interest or is unethical, chances are … you’re right Court-made law and statutory provisions formalize the principles we will discuss today – and provide penalties for violations Let’s Keep it Simple Introduction

9 AWPHD (206) MRSC (206) We will go through several real world scenarios to understand and apply key principles This topic boils down to: In your role as a hospital district commissioner… 1.There are some things of value you cannot receive; and 2.There are some things of value you cannot give to others. Scenarios Approach Introduction

10 AWPHD (206) MRSC (206) “Municipal officer” is defined broadly to include: 1. All elected and appointed officers of a municipality (i.e., commissioners) together with: 2.All deputies and assistants of such officers, and 3.All persons exercising or undertaking to exercise any of the powers or functions of a municipal officer (including hospital district CEOs and possibly others) What’s a Municipal Officer? RCW (2) RCW (2) Introduction

11 AWPHD (206) MRSC (206) Because there are serious penalties for violations of chapter RCW42.23 – Good faith is not a defense – An officer violating chapter RCW may be held liable for a $500 civil penalty42.23 “… in addition to such other civil or criminal liability or penalty as may otherwise be imposed” – Any contract made in violation of chapter RCW is void – The officer may have to forfeit his or her office Why does this Matter? RCW RCW Introduction

12 AWPHD (206) MRSC (206) Gifts & Rewards

13 AWPHD (206) MRSC (206) Gifts and Rewards

14 AWPHD (206) MRSC (206) Gifts and Rewards

15 AWPHD (206) MRSC (206) A municipal officer may not, directly or indirectly, give or receive any compensation, gift, reward, or gratuity from a source except from the employing municipality for a matter connected with or related to the officer’s services Gifts and Rewards: The Basics Gifts and Rewards RCW (2) RCW (2) But what constitutes a gift, reward, or gratuity? – Not defined in chapter RCW42.23 – Defined for state officials and employees under RCW Anything of economic value for which no consideration is given – related to official duties

16 AWPHD (206) MRSC (206) Technically, any money or item of value received by a hospital district commissioner from a private party related to the performance of the commissioner’s official duties is an illegal gift, reward, or gratuity This could include: Additional money or compensation provided by a private party to a commissioner A free dinner provided by a private party to a commissioner A plaque given by a private party to a commissioner What is Not Allowed? (part 1) Gifts and Rewards

17 AWPHD (206) MRSC (206) Technically, “no” because there is not an explicit statutory provision that applies to public hospital districts providing an exception However, the Office of the State Auditor has been known to apply a “de minimis” rule that allows public officials to accept something of limited value – which generally means a value up to $50 But isn’t there an Exception? Gifts and Rewards

18 AWPHD (206) MRSC (206) State officers and employees cannot, with some exceptions, accept: – gifts with an aggregate value in excess of $50 from a single source in a calendar year, or – a single gift from multiple sources with a value in excess of $50 – Consult with your district’s legal counsel about whether the same standard applies to your district What is Not Allowed? (part 2) Gifts and Rewards RCW RCW

19 AWPHD (206) MRSC (206) Under RCW related to state officials and employees, the following are not considered illegal gifts (even if the value is more than $50): – unsolicited flowers or plants – unsolicited advertising or promotional items of nominal value, such as pens, notepads, t-shirts, and key chains – unsolicited awards, plaques, and trophies – unsolicited informational materials, publications, or subscriptions related to the recipient’s official duties – food and beverages consumed at hosted receptions, if attendance relates to official duties What about other Exceptions for State Officials and Employees? Gifts and Rewards

20 AWPHD (206) MRSC (206) Gift of Public Funds – Lending of Credit Prohibition included in our state constitution – Article VIII, Section 7 – No county, city, town or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm, or become directly or indirectly the owner of any stock in or bonds of any association, company or corporation. Gifts from the District to Others Gifts and Rewards

21 AWPHD (206) MRSC (206) Some activities could constitute an illegal gift by a hospital district, such as: – Use of district facilities, equipment, or funds for private purposes that are not for the poor or infirm – Gifts to private organizations, such as the Chamber of Commerce or service clubs But Note … Illegal Gifts to Others Gifts and Rewards

22 AWPHD (206) MRSC (206) Key distinction between gifts to the district and gifts to a commissioner or employee or from the district RCW (11) gives the district the power: – To solicit and accept gifts, grants, conveyances, bequests, and devises of real or personal property, or both, in trust or otherwise, and – to sell, lease, exchange, invest, or expend gifts or the proceeds, rents, profits, and income therefrom, and – to enter into contracts with for-profit or nonprofit organizations to support the purposes of this subsection, including, but not limited to, contracts providing for the use of district facilities, property, personnel, or services. Gifts and Hospital Districts Gifts and Rewards

23 AWPHD (206) MRSC (206) Under RCW , when evaluating a potential acquisition of an interest in a district hospital by, for example, a for-profit entity, commissioners shall determine compliance with several requirements Including that the acquisition is allowed under: – Article VIII, Section 7 of the state constitution (prohibiting gifts of public funds or lending of credit) and – Article XI, Section 14 (prohibiting private use of public funds ) No Gifting in Relation to Acquisition of District Hospitals Gifts and Rewards

24 AWPHD (206) MRSC (206) Prohibited Contract Interests

25 AWPHD (206) MRSC (206) Prohibited Contract Interest

26 AWPHD (206) MRSC (206)  Is the contract interest one through which the municipal officer would benefit financially?  Is the contract made by, through, or under the supervision of the municipal officer?  Does an exception apply?  Does the municipal officer have what would be considered a "remote interest" in the contract under RCW ? Questions under Chapter RCW Prohibited Contract Interest

27 AWPHD (206) MRSC (206) The commissioner – who is a municipal officer – stands here to benefit financially from the professional services contract The contract is made by, through, or under the supervision of the commissioner Scenario 1 Analysis Prohibited Contract Interest

28 AWPHD (206) MRSC (206) If the commissioner represents a non- rural district, the contract (or contracts) may be allowed if the total amount received under the contract or contracts by the commissioner or his/her business does not exceed $1,500 in any calendar month Scenario 1 Analysis – $ Thresholds Prohibited Contract Interest See RCW (6)(a) See RCW (6)(a)

29 AWPHD (206) MRSC (206) If the commissioner represents a rural hospital district the contract (or contracts) may be allowed even if the total amount exceeds $1,500 in any calendar month, as long as the total amount does not exceed $24,000 in any calendar year, as adjusted for inflation (beginning with the 2006 calendar year). Scenario 1 Analysis – $ Thresholds Prohibited Contract Interest See RCW (6)(c)RCW See RCW (6)(c)RCW DEFINITION: “Rural Hospital District” a hospital district whose geographic boundaries do not include a city with a population greater than 50,000. See RCW RCW DEFINITION: “Rural Hospital District” a hospital district whose geographic boundaries do not include a city with a population greater than 50,000. See RCW RCW

30 AWPHD (206) MRSC (206) Even if the total contract amount is within the allowable monthly or annual dollar thresholds, the contract is allowed only if the commissioner who has the contract interest: Does not vote on the contract; and Discloses his/her contract interest to his/her colleagues on the hospital district commission; and Has the contract interest noted in the commission minutes or similar records “before the formation of the contract” – see RCW (last paragraph) Also … The hospital district must maintain a list of all contracts that are awarded under RCW (6), and the list must be made available for public inspection and copying – See RCW (6)(e) But Such Contracts are Allowed Only If … Prohibited Contract Interest

31 AWPHD (206) MRSC (206) One is which a municipal officer would benefit from financially, either directly or indirectly – The contract must be one that is made by, through, or under the supervision of the municipal officer, in whole or in part – Applies to commissioners and others to whom the commission has delegated contract authority (e.g., CEOs) A municipal officer also cannot accept, directly or indirectly, any compensation, gratuity, or reward in connection with such a contract from any other person who is beneficially interested in the contract What is a Contract Interest? RCW RCW DEFINITION: “Contract” defined broadly and includes employment, sales, purchases, and lease agreements – see RCW (3) DEFINITION: “Contract” defined broadly and includes employment, sales, purchases, and lease agreements – see RCW (3) Prohibited Contract Interest

32 AWPHD (206) MRSC (206) Regardless of the dollar amount, certain contract interests are not allowed – A commissioner (or other municipal officer) cannot purchase or lease property from the district – A commissioner (or other municipal officer) cannot provide legal services to the district (except for reimbursement of expenditures) Sales, Leases, and Contracts for Legal Services Prohibited Contract Interest See RCW (6)(d) See RCW (6)(d)

33 AWPHD (206) MRSC (206) Prohibited Contract Interest

34 AWPHD (206) MRSC (206) The contract is prohibited because no exceptions apply Due to the monthly and total dollar amounts of the contract, the exceptions regarding the dollar thresholds for rural and non-rural districts are inapplicable Because you own 1% or more of the shares of the corporation, the interest is not considered a “remote interest” (see next slide) and you are considered to be financially interested in the contract Scenario 2 Analysis Prohibited Contract Interest

35 AWPHD (206) MRSC (206) Option 1: Your company will not pursue the contract with the district or Option 2: You can resign your commissioner position so that your company can enter into the contract It would not be sufficient to recuse yourself from consideration of and voting on the contract because this contract interest is prohibited Scenario 2: You Have a Choice Prohibited Contract Interest

36 AWPHD (206) MRSC (206) Certain contract interests are considered acceptable “remote interests” – regardless of the dollar amount What is a Remote Interest? See RCW See RCW Prohibited Contract Interest DEFINITION: “Remote Interest” That of a non salaried officer of a nonprofit corporation; That of an employee or agent of a contracting party where the compensation of such employee or agent consists entirely of fixed wages or salary; That of a landlord or tenant of a contracting party; [or] That of a holder of less than one percent of the shares of a corporation or cooperative which is a contracting party. DEFINITION: “Remote Interest” That of a non salaried officer of a nonprofit corporation; That of an employee or agent of a contracting party where the compensation of such employee or agent consists entirely of fixed wages or salary; That of a landlord or tenant of a contracting party; [or] That of a holder of less than one percent of the shares of a corporation or cooperative which is a contracting party.

37 AWPHD (206) MRSC (206) If a hospital district commissioner with authority over the making of a contract has a remote interest: Conditions for a Remote Interest to Apply See RCW See RCW – The commissioner must fully disclose the contract interest to the board of commissioners; – The commissioner is not to vote on the contract, or, as the statute puts it, the commissioner’s vote cannot be counted (the former approach is advisable) – If the commissioner influences or attempts to influence any other commissioner of the board of commissioners on the matter, the remote interest exception does not apply – The remote interest must be noted in the commission’s minutes before entering into the contract, and – The commission must approve the contract “in good faith” Prohibited Contract Interest

38 AWPHD (206) MRSC (206) Prohibited Contract Interest

39 AWPHD (206) MRSC (206) The contract is allowed What is statutorily prohibited are contract interests in which a municipal officer is financially interested, directly or indirectly Here, as a mere member of the nonprofit organization, you would have no legally recognized financial interest in the contract – not even a remote interest You may advocate regarding entering into the contract and you may vote on it But Note: If this situation involved a commissioner who was a nonsalaried officer of the nonprofit corporation at issue, the contract interest would be considered a remote interest and the remote interest conditions would apply Scenario 3 Analysis Prohibited Contract Interest

40 AWPHD (206) MRSC (206) Prohibited Contract Interest

41 AWPHD (206) MRSC (206) Your contract interest would be considered a remote interest based on two of the remote interest conditions because: – You are an employee on fixed salary or wages; and – You are the holder of less than one percent of shares in the corporation You would not be regarded as an officer “interested” in the contract and the contract would be allowed But you cannot vote on the contract and cannot influence or attempt to influence the other commissioners regarding the matter (see the previous slide regarding the other remote interest conditions) Scenario 4 Analysis Prohibited Contract Interest

42 AWPHD (206) MRSC (206) Prohibited Contract Interest

43 AWPHD (206) MRSC (206) Specific exception for hospital district spouses: A hospital district commission can authorize, approve, or ratify any employment contract with the spouse of a district commissioner if: Scenario 5 – Spousal Employment RCW (12) RCW (12) The spouse was employed by the district before the date the commissioner was initially elected; The terms of the contract are commensurate with the pay plan or collective bargaining agreement operating in the district for similar employees; The interest of the commissioner is disclosed to the board of commissioners and noted in the official minutes or similar records of the hospital district prior to the letting or continuation of the contract; and The commissioner does not vote on the authorization, approval, or ratification of the contract or any conditions in the contract. Prohibited Contract Interest

44 AWPHD (206) MRSC (206) The are a few other less common types of contract interests that are allowed A commissioner (or other district municipal officer) is allowed to have a financial interest in a contract related to: Additional Exceptions See RCW (1)-(3), (5) See RCW (1)-(3), (5) The furnishing of utility services by a municipality engaged in the business of furnishing such services The designation of public depositaries for municipal funds The publication of legal notices required by law to be published by a public hospital district, upon competitive bidding or at rates not higher than prescribed by law for members of the general public The employment of any person by a hospital district for unskilled day labor at wages not exceeding $200 in any calendar month Prohibited Contract Interest

45 AWPHD (206) MRSC (206) Special Privileges & Exemptions

46 AWPHD (206) MRSC (206) Common Law Conflict of Interest General prohibition against specially benefitting financially from a matter you vote upon 1909 court decision invalidating a street vacation ordinance because a councilmember who stood to benefit financially from its enactment cast the deciding vote Common Law Origins Smith v. CentraliaSmith v. Centralia, 55 Wash. 573 (1909) Smith v. CentraliaSmith v. Centralia, 55 Wash. 573 (1909) Special Privileges and Exceptions

47 AWPHD (206) MRSC (206) No municipal officer may use his or her position to obtain special privileges for himself, herself, or others DEFINITION: Special Privilege - being allowed to do something that would otherwise be prohibited DEFINITION: Special Exemption - being relieved from doing something that would be otherwise mandated Statutory Basics 47 For a good description of the difference between a special benefit and a special exemption see point 3 in: 2010 AGO No AGO No. 3 For a good description of the difference between a special benefit and a special exemption see point 3 in: 2010 AGO No AGO No. 3 RCW RCW Special Privileges and Exceptions

48 AWPHD (206) MRSC (206) Confidential Information

49 AWPHD (206) MRSC (206) Only reference to confidentiality specifically in the hospital district statute, chapter RCW, is in RCW chapter RCW But that provision is limited in scope – pertains to holding executive sessions regarding the status of clinical or staff privileges of a physician or health care provider in some circumstances and regarding deliberations of a quality improvement committee Confidential Information

50 AWPHD (206) MRSC (206) A municipal officer may not disclose confidential information gained by reason of the officer’s position, or otherwise use such information for his/her personal gain or benefit Confidential Information See RCW (3)-(4) See RCW (3)-(4) A municipal officer may not accept employment or engage in business or professional activity that the officer might reasonably expect would require or induce him/her by reason of his/her official position to disclose confidential information – This could mean, for example, that a commissioner may not disclose confidential information that was discussed in executive session

51 AWPHD (206) MRSC (206) Consider a Local Ethics Code

52 AWPHD (206) MRSC (206) A public hospital district may adopt an ethics policy that includes additional local requirements Cannot conflict with state law but can supplement it Can cover employees as well as officers Many hospital districts do not have formal ethics codes but some do (e.g., Valley Medical – King County PHD No. 1) and MRSC has samples Consider Establishing a Local Ethics Code Local Ethics Codes

53 AWPHD (206) MRSC (206) Additional Resources 7

54 AWPHD (206) MRSC (206) MRSC Website – Conflicts of Interest Conflicts of Interest – Sample Codes of Ethics Sample Codes of Ethics – MRSC Index – General Government: G Conflicts of interest, code of ethics for municipal officers, contract interests, Ch RCW MRSC Index – General Government: G Conflicts of interest, code of ethics for municipal officers, contract interests, Ch RCW MRSC Publications: – Knowing the Territory - Basic Legal Guidelines for Washington City, County, and Special Purpose District Officials – discusses conflict of interest and ethics issues under chapter RCW and otherwise Knowing the Territory - Basic Legal Guidelines for Washington City, County, and Special Purpose District Officials Additional Resources 7

55 AWPHD (206) MRSC (206) Contact Info JOE LEVAN MRSC Legal Consultant (206) BEN LINDEKUGEL AWPHD Director of Member Services (206) Additional Resources 7

56 AWPHD (206) MRSC (206) Ethics and Conflicts of Interest: What Hospital District Commissioners Need to Know