What Hospital District Commissioners Need to Know

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

2. WELCOME TO THE WEBCAST BEN LINDEKUGEL AWPHD Director of Member Services • BenL@awphd.org • (206) 216-2528

3. Quick Technical Notes • 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: http://www.awphd.org/Publications/resources_web.aspx

4. 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 JOE LEVAN Legal Consultant Municipal Research & Services Center of Washington • jlevan@mrsc.org • (206) 625-1300

5. Overview 1 Introduction Gifts and Rewards Prohibited Contract Interests Special Privileges and Exemptions Disclosing Confidential Information Consider Establishing a Local Ethics Code Additional Resources 2 3 4 5 6 7

6. 1 Introduction

7. 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. Let’s Keep it Simple • 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 Introduction

9. Scenarios Approach • 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… • There are some things of value you cannot receive; and • There are some things of value you cannot give to others. Introduction

10. What’s a Municipal Officer? “Municipal officer” is defined broadly to include: • All elected and appointed officers of a municipality (i.e., commissioners) together with: • All deputies and assistants of such officers, and • All persons exercising or undertaking to exercise any of the powers or functions of a municipal officer (including hospital district CEOs and possibly others) RCW 42.23.020(2) Introduction

11. Why does this Matter? Because there are serious penalties for violations of chapter 42.23 RCW • Good faith is not a defense • An officer violating chapter 42.23 RCW may be held liable for a $500 civil penalty “… in addition to such other civil or criminal liability or penalty as may otherwise be imposed” • Any contract made in violation of chapter 42.23 RCW is void • The officer may have to forfeit his or her office RCW 42.23.050 Introduction

12. Gifts &Rewards

13. May a public hospital district commissioner attend a meeting hosted by a private vendor to explain a product or service they want to sell to the district if dinner is included and the dinner is free to the commissioner? Q: Gifts and Rewards

14. Maybe. If the dinner costs $50 or less. A: Gifts and Rewards

15. Gifts and Rewards: The Basics 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 RCW 42.23.070(2) Gifts and Rewards • But what constitutes a gift, reward, or gratuity? • Not defined in chapter 42.23 RCW • Defined for state officials and employees under RCW 42.52.010 • Anything of economic value for which no consideration is given – related to official duties

16. What is Not Allowed? (part 1) 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 Gifts and Rewards

17. But isn’t there an Exception? • 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 Gifts and Rewards

18. What is Not Allowed? (part 2) RCW 42.52.150 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 Gifts and Rewards

19. What about other Exceptions for State Officials and Employees? Under RCW 42.52.150 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 Gifts and Rewards

20. Gifts from the District to Others • 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 and Rewards

21. Illegal Gifts to Others • 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 … Gifts and Rewards

22. Gifts and Hospital Districts • Key distinction between gifts to the district and gifts to a commissioner or employee or from the district • RCW 70.44.060(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 Rewards

23. No Gifting in Relation to Acquisition of District Hospitals • Under RCW 70.44.315, 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 ) Gifts and Rewards

24. Prohibited Contract Interests

25. Scenario 1: In addition to being a commissioner, you own a consulting firm. Your firm is looking to enter into a professional services contract with the district. The contract will come before the commission for approval. What should you do? Prohibited Contract Interest

26. Questions under Chapter 42.23 RCW • 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 42.23.040? Prohibited Contract Interest

27. Scenario 1 Analysis • 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 Prohibited Contract Interest

28. Scenario 1 Analysis – $ Thresholds • 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 See RCW 42.23.030(6)(a) Prohibited Contract Interest

29. Scenario 1 Analysis – $ Thresholds • 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). DEFINITION: “Rural Hospital District” a hospital district whose geographic boundaries do not include a city with a population greater than 50,000. See RCW 70.44.460 Prohibited Contract Interest See RCW 42.23.030(6)(c)

30. But Such Contracts are Allowed Only If … 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 42.23.030 (last paragraph) Also … • The hospital district must maintain a list of all contracts that are awarded under RCW 42.23.030(6), and the list must be made available for public inspection and copying – See RCW 42.23.030(6)(e) Prohibited Contract Interest

31. What is a Contract Interest? RCW 42.23.030 • 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 DEFINITION: “Contract” defined broadly and includes employment, sales, purchases, and lease agreements – see RCW 42.23.020(3) Prohibited Contract Interest

32. Sales, Leases, and Contracts for Legal Services 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) • See RCW42.23.030(6)(d) Prohibited Contract Interest

33. Scenario 2: In addition to being a commissioner, you own stock in a corporation that is looking to enter into a contract with the district. The contract is for $50,000 and exceeds $1,500 in any calendar month. You own 10% of the shares of the corporation. What should you do? Prohibited Contract Interest

34. Scenario 2 Analysis • 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 Prohibited Contract Interest

35. Scenario 2: You Have a Choice 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 Prohibited Contract Interest

36. What is a Remote Interest? See RCW 42.23.040 • Certain contract interests are considered acceptable “remote interests” – regardless of the dollar amount • 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. Prohibited Contract Interest

37. Conditions for a Remote Interest to Apply • If a hospital district commissioner with authority over the making of a contract has a remote interest: See RCW 42.23.040 • 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. Scenario 3: In addition to being a commissioner, you are an unpaid member (not an officer) of a local nonprofit organization (e.g., the Lion’s Club, Rotary) and the organization is seeking to contract with the district. What should you do? Prohibited Contract Interest

39. Scenario 3 Analysis • 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 Prohibited Contract Interest

40. Scenario 4: In addition to being a commissioner in a rural hospital district, you are a non-shareholding employee of a corporation earning a fixed salary. The corporation is looking to contract with the district. The contract is for $50,000 per year. What should you do? Prohibited Contract Interest

41. Scenario 4 Analysis • 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) Prohibited Contract Interest

42. Scenario 5: You are a commissioner and your spouse is employed by the same hospital district. What should you do? Prohibited Contract Interest

43. Scenario 5 – Spousal Employment • RCW 42.23.030(12) 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: • 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. Additional Exceptions See RCW 42.23.030(1)-(3), (5) • 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: Prohibited Contract Interest • 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

45. Special Privileges & Exemptions

46. Common Law Origins • 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 Special Privileges and Exceptions Smith v. Centralia, 55 Wash. 573 (1909)

47. Statutory Basics • 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 RCW 42.23.070 For a good description of the difference between a special benefit and a special exemption see point 3 in: 2010 AGO No. 3 Special Privileges and Exceptions

48. Confidential Information

49. Confidential Information • Only reference to confidentiality specifically in the hospital district statute, chapter 70.44 RCW, is in RCW 70.44.062 • 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. Confidential Information SeeRCW 42.23.070(3)-(4) • 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 • This could mean, for example, that a commissioner may not disclose confidential information that was discussed in executive session Confidential Information • 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