CONFLICT OF INTEREST
HEALTHCARE EXECUTIVE SERVING AS UNIVERSITY TRUSTEE
To: Peter Antonacci, Attorney (Tallahassee)
Under the circumstances presented, no prohibited conflict of interest under Section 112.313(7), Florida Statutes, is created where a member of the University of Florida Board of Trustees is employed by a company performing services for hospitals in which affiliates of Shands Teaching Hospital have an interest, or owns shares in the corporate parent of the company which employs him.
Would a prohibited conflict of interest exist were a member of a University Board of Trustees also to be employed by a healthcare management company and to own shares of its corporate parent, when the healthcare management company performs services for hospitals which are jointly owned by companies affiliated with his employer and with the University?
Under the circumstances presented, your question is answered in the negative.
You write on behalf of Alan Levine, a recently-appointed member of the Board of Trustees of the University of Florida ("UF" or "the University"), who is also an employee of Hospital Management Services of Florida, Inc., a wholly owned subsidiary of Health Management Associates, Inc. ("HMA").
The University, you write, is affiliated with Shands Teaching Hospital and Clinics, Inc., ("Shands"). Three companies wholly owned by Shands own 40% interests in three community hospitals. A sub-subsidiary of HMA owns the other 60%, and a subsidiary of HMA has an agreement with each of the hospitals for consulting, management, and administrative services. A separate subsidiary, which employs the Trustee, implements these agreements, and the Trustee also owns stock in HMA. You write to inquire whether the Trustee's employment, or his stock ownership in HMA, gives rise to a prohibited conflict of interest under Section 112.313(7), Florida Statutes.
Section 112.313(7)(a), Florida Statutes, provides:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.— No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee…; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties.
Before the law may be applied a more detailed review of the structure both of the HMA entities and the Shands entities is necessary.
Shands, you write, is a private not-for-profit 501(c)(3) corporation which leases its Gainesville hospital campus and physical plant from UF. Its mission is to support UF's academic training programs in health care fields, clinical research, and community service and patient care. You advise that the UF Board has the authority to maintain and does maintain appropriate governance and control of Shands through the UF President or his designee—the Shands Board of Directors is chaired, appointed, and removed by the UF President or his designee, and a majority of the Shands Board is comprised of UF officials or employees, including at least one Trustee.1 You also advise that the UF President serves as President of Shands.
Pursuant to Chapter 2011-114, Laws of Florida, "the Board of Trustees, which may act through the president of the university or his or her designee, may control Shands Teaching Hospital and Clinics, Inc." Pursuant to this law, the Board of Trustees has the power to approve Shands' articles of incorporation, can provide Shands or any of its not-for-profit subsidiaries with general liability insurance, and, in the event the lease between Shands and the University is terminated, "shall resume management of Shands Teaching Hospital and Clinics." Shands may create, with the Board of Trustees' prior approval, for profit and not-for-profit subsidiaries, and, for purposes of sovereign immunity, Shands Teaching Hospital and Clinics, Inc., is deemed "a corporation primarily acting as an instrumentality of the state."
Shands has created three limited liability companies, each of which owns 40% of three not-for-profit community hospitals in Live Oak, Starke, and Lake City ("the Hospitals"), which are also operated as limited liability companies.
You advise that Health Management Associates, Inc., is a publicly held corporation which, through numerous subsidiaries, owns, leases, or manages hospitals in 15 states. Two wholly-owned subsidiaries of HMA jointly own a third company, which owns the remaining 60% of the three Hospitals.
You write that a wholly-owned subsidiary of HMA, Hospital Management Associates, Inc., has entered into agreements with each of the three Hospitals to provide consulting, management, and administrative services. A separate wholly-owned subsidiary of HMA—Hospital Management Services of Florida, Inc., implements and performs these agreements. Hospital Management Services of Florida, Inc., employs the individuals who serve as the chief executive officers and administration of the three Hospitals and is generally responsible for the hospitals' operational support.2 You relate that the Trustee is Division 3 president of Hospital Management Services of Florida, Inc. and, as such, has responsibility for hospitals in several states, including Florida and the three Hospitals under discussion. The Trustee also, as part of his compensation package, holds shares in HMA.3
In addition to the relationships described above, you advise there are a variety of contractual agreements between and among the various entities which are standard in the industry. These include: clinical affiliation agreements and related agreements to transfer patients when a greater level of care is needed than can be provided in the local community; affiliation agreements for emergency care and pediatric treatment agreements; and clinical rotation agreements. Although the University may be party to some of these agreements, you advise that there are no agreements between the University and the Trustee's employer, Hospital Management Services of Florida, Inc., or between the University and HMA.
The first part of Section 112.313(7) prohibits the Trustee from having an employment or contractual relationship with any business entity which is subject to the regulation of, or is doing business with, his agency. As a member of the UF Board of Trustees, the Trustee's agency is the University. The Trustee has a contractual relationship with HMA by virtue of his stock ownership, and has an employment relationship with Hospital Management Services of Florida, Inc. Neither of these discrete corporate entities are either doing business with, or regulated by, the University. While it may be said that UF through its relationship with Shands has some interests in common with HMA and its family of companies, we consistently have found that separate corporations have separate legal identities for purposes of Section 112.313(7) and we have treated limited liability companies in the same fashion. See, CEO 08-7. That being the case, neither the Trustee's ownership of HMA shares nor his employment relationship violates the first part of Section 112.313(7), Florida Statutes.
The second part of Section 112.313(7) prohibits the Trustee from having any contractual relationship which would create a continuing or frequently recurring conflict between his private interests and the performance of his public duties, or that would impede the full and faithful discharge of his public duties. This provision establishes an objective standard which requires an examination of the nature and extent of his duties together with a review of his private employment to determine whether the two are compatible, separate and distinct, or whether they coincide to create a situation which "tempts dishonor." Zerweck v. Commission on Ethics, 409 So. 2d 57 (Fla. 4th DCA 1982).
While the Board of Trustees may be said to enjoy a significant degree of control over Shands through the powers granted it in Chapter 2001-114, you relate that in practice, Shands "operates independently of the University Board of Trustees, making its corporate decisions without the input or involvement of the University Board of Trustees," and nothing in the information you have provided suggests that the Board has any participation in Shands' operations. Further, and more significant, nothing in the statute or in the facts you have presented suggests that the Board has any involvement whatsoever in the operations of the Shands LLC Subsidiaries or the three Hospitals.
It is conceivable that given the Board's statutory authority with respect to Shands, and in view of Shands' influence over its subsidiaries, the Board could make a policy decision that could affect change all the way down to the level of the Hospitals. But there is no evidence that this has happened, is likely, or is even reasonably foreseeable, and the mere possibility of such an occurrence does not constitute a violation of Section 112.313(7). See CEO 94-31.
Finally, we remind the Trustee of his obligations with respect to Section 112.3143(2) and (4), Florida Statutes, the voting conflicts law. They provide:
(2) No state public officer is prohibited from voting in an official capacity on any matter. However, any state public officer voting in an official capacity upon any measure which would inure to the officer’s special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom the officer is retained or to the parent organization or subsidiary of a corporate principal by which the officer is retained; or which the officer knows would inure to the special private gain or loss of a relative or business associate of the public officer shall, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes.
(4) No appointed public officer shall participate in any matter which would inure to the officer’s special private gain or loss; which the officer knows would inure to the special private gain or loss of any principal by whom he or she is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained; or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer, without first disclosing the nature of his or her interest in the matter.
(a) Such disclosure, indicating the nature of the conflict, shall be made in a written memorandum filed with the person responsible for recording the minutes of the meeting, prior to the meeting in which consideration of the matter will take place, and shall be incorporated into the minutes. Any such memorandum shall become a public record upon filing, shall immediately be provided to the other members of the agency, and shall be read publicly at the next meeting held subsequent to the filing of this written memorandum.
(b) In the event that disclosure has not been made prior to the meeting or that any conflict is unknown prior to the meeting, the disclosure shall be made orally at the meeting when it becomes known that a conflict exists. A written memorandum disclosing the nature of the conflict shall then be filed within 15 days after the oral disclosure with the person responsible for recording the minutes of the meeting and shall be incorporated into the minutes of the meeting at which the oral disclosure was made. Any such memorandum shall become a public record upon filing, shall immediately be provided to the other members of the agency, and shall be read publicly at the next meeting held subsequent to the filing of this written memorandum.
(c) For purposes of this subsection, the term "participate" means any attempt to influence the decision by oral or written communication, whether made by the officer or at the officer’s direction.
The Trustee will have a voting conflict of interest in any measure which will inure to the special private gain or loss of either the company which employs him or any of its parent or subsidiary entities. As an appointed state officer, he is not prohibited from voting on any measure, but must, prior to having any participation in the matter, disclose the nature of his interest, as set forth in the statute.
Accordingly we find that under the circumstances presented, Section 112.313(7), Florida Statutes, is not violated by the Trustee's employment with Hospital Management Service of Florida, Inc., or his ownership of stock in HMA.
ORDERED by the State of Florida Commission on Ethics meeting in public session on September 9, 2011 and RENDERED this 14th day of September, 2011.
Robert J. Sniffen, Chairman
Not the Trustee who is the subject of this opinion.
HMA and its family of companies have similar arrangements with other hospitals not under discussion here.
You advise that the Trustee owns less than 1 percent of HMA's 250 million outstanding shares.