December 13, 1995
Mr. Gregory L. Hassler Associate University Attorney for Health Sciences Administration AD-55 Brody Medical Sciences Building East Carolina University Greenville, NC 27858-4353
Re: Advisory Opinion; East Carolina University School of Medicine; Development and Operation of a Regional Physician Organization; Conflict of Interest, N.C.G.S. 14-234 and 14236; Articles I, Sec. 32, V, Sec. 2(1) and V, Sec. 2(7) of the North Carolina Constitution
Dear Mr. Hassler,
I reply to your request dated December 5, 1995 for an opinion concerning possible conflicts of interest and constitutional issues related to the Dean and faculty of the East Carolina University School of Medicine (hereafter "SOM") delivering healthcare through participation in a nonprofit corporation (Eastern Carolina Health Organization, Inc., hereafter "ECHO") and ownership of stock in their individual capacities in a for-profit management corporation (ECHO Management Organization, Inc., hereafter "EMO").
As I understand the fact situation you pose, the SOM does not expect to enter into any contractual agreements with either ECHO or EMO. You state that the Dean and the faculty will not be contracting on behalf of the SOM or the University for their own benefit and that neither the Dean nor the faculty will be involved on behalf of either the University or the Medical School in decisions to enter into or extend any agreement between the SOM or the University and ECHO or EMO. There are no plans for EMO to bid for contracts with, or otherwise petition, the SOM to provide goods or services.
As to the issue about the possible conflicts of interest, two statutes are of possible concern:
- N.C.G.S.
- 14-234 and 14-236. N.C.G.S. 14-234(a) bars a director appointed "to discharge any trust wherein the State . . . may be in any manner interested" from making any contract under that authority for his own benefit or being concerned or interested in making such a contract, or in the profits thereof. N.C.G.S. 14-234(c) bars a director or state employee from entering into or participating in a business transaction, involving public funds, with a private entity with which that employee has, or had within the past two years, a financial association. The purpose of the statutory provisions is to prevent a state employee from contracting for his own benefit. Neither subsection of this statute would apply to your stated factual situation since the dean and faculty of the SOM would not be involved on behalf of the SOM in entering into any contract with ECHO or EMO.
- N.C.G.S.
- 14-236 states that officers and employees are prohibited from having "any pecuniary interest, either directly or indirectly, proximately or remotely in supplying any goods, wares or merchandise of any nature or kind whatsoever . . ." to a State entity. The phrase "goods, wares and merchandise" is a term of art defined in Black’s Law Dictionary (6th ed.) as "[a] general and comprehensive designation of such chattels and goods as are ordinarily the subject of traffic and
sale." Professional services, both patient care and practice management, are not "goods, wares, or merchandise." Thus, under your statement of facts, no state employee of the SOM would be supplying any goods, wares or merchandise to the SOM or any other state entity. For that reason,
N.C.G.S. 14-236 likewise seems inapplicable to the facts you pose.
Based upon your statement of facts, it is therefore my opinion that participation by SOM employees in ECHO and ownership of stock in their individual capacities in EMO does not violate the above referenced criminal statutes and thus does not pose a conflict of interest under North Carolina criminal law.
As to the constitutional issue, one question is whether or not the direct or indirect use of SOM resources in support of ECHO or EMO would be contrary to the public purpose doctrine of Article V, Section 2(1) of the North Carolina Constitution. You indicate, among other reasons, that the public purpose served by the Dean and faculty’s participation is to promote the mission of the SOM by enhancing patient access to SOM faculty and by providing additional clinical opportunities for all medical students. You state that the for profit corporation model was used for EMO to enhance physician commitment to the organization and to reduce direct capital outlays by the SOM. You further indicate that the Dean and faculty of the SOM will be significantly involved in the governance and operation of ECHO and EMO, including the Dean having the power to appoint four faculty members as directors of ECHO and EMO, and the SOM paying the fees for faculty members to participate in ECHO.
Article V, Section 2(1) of the North Carolina Constitution provides that "[t]he power of taxation shall be exercised in a just and equitable manner, for public purposes only. . . ." "’The power to appropriate money from the public treasury is no greater than the power to levy the tax which put the money in the treasury.’" Foster v. North Carolina Medical Care Commission, 283 N.C. 110, 195 S.E.2d 517, 527 (1973), quoting from Mitchell v. Financing Authority, 273 N.C. 137, 159 S.E.2d 745 (1968). Related to this provision in the facts of your situation is Article V, Section 2(7), which permits legislation authorizing a public entity to "contract with and appropriate money to any person, association, or corporation for the accomplishment of public purposes only."
The SOM cannot participate in such activities without sufficient statutory authority. See Hughey
v. Cloninger, 297 N.C. 86, 253 S.E.2d 898 (1979). N.C.G.S. 116-40.4 authorizes the creation of the SOM and further mandates meeting the accreditation requirements of accrediting agencies for medical schools. I understand that the accrediting entities named in the statute, the Council on Medical Education of the American Medical Association and the Association of American Medical Colleges, no longer directly accredit themselves, but that both bodies appoint members of the new accrediting body for all medical schools in this country which is now the Liaison Committee on Medical Education (hereafter "LCME"). The 1995 Standards for Accreditation of Medical Education Programs Leading to the M.D. Degree (hereafter "Standards") promulgated by the LCME speak, among other matters, to the clinical training required of medical students in accredited schools. "All schools must provide broad-based clinical education programs that equip students with the knowledge, skills, attitudes, and behaviors necessary for further training in the practice of medicine. Instruction and experience in patient care must be provided in both ambulatory and hospital settings. All schools must offer a core curriculum in primary care, utilizing the disciplines or multidisciplinary approaches involved in the delivery of such care." (Standards, p. 13) "Clinical education programs involving patients should include disciplines such as family medicine, internal medicine, obstetrics and gynecology, pediatrics, psychiatry, and surgery." (Standards, p. 14) "Students must have opportunities to gain knowledge in those content areas that incorporate several disciplines in providing medical care, for example, emergency medicine and the care of the elderly and disabled." (Standards, p. 14) "Each required clinical clerkship must allow the student to undertake thorough study of a series of selected patients having the major and common types of disease problems represented in the primary and related disciplines of the clerkship. The committee responsible for curriculum must require close faculty supervision of the learning experience of each student at the appropriate level of graded clinical responsibility. Supervision must be provided throughout required clerkships by members of the school’s faculty." (Standards, p. 14) "The medical school must have adequate resources to provide clinical instruction to its medical students. Resources must include ambulatory care facilities and hospitals where the full spectrum of medical care is provided and can be demonstrated. . . . [T]he aggregation of clinical resources must be sufficient to permit students in each of the major clerkships to work up and follow several new patients each week." (Standards, p 19)
As set out above, critical to meeting the accreditation requirements, as mandated by the North Carolina General Assembly, is the maintaining of requisite types of educational experiences for medical students. Due to the current rapid and profound changes in the health care system, a sufficient number of patients with a sufficiently broad range and mix of health care problems will not be available for the faculty to treat in conjunction with the students’ education in the SOM unless the faculty of the SOM can participate in new developments and structures of delivering healthcare, especially in a managed care and an outpatient setting. Thus it seems that the continued viability of the SOM and its ability to meet the accreditation requirements are dependent upon its ability, and the ability of its faculty, to participate in new developments in healthcare. Thus in my opinion N.C.G.S. 116-40.4 is sufficient statutory authority for the SOM to participate in ECHO and EMO as you have described, including through the use of its funds to pay membership in ECHO for its faculty and the use of its other resources, such as office space, telephone, and support staff.
But sufficient statutory authority alone does not dispose of this issue. While legislative authority is given great weight by the courts of this state, it is for the courts "to determine whether an appropriation of tax funds is for a purpose forbidden by the Constitution of the State. . . ." Foster
v. North Carolina Medical Care Commission, supra, at 195 S.E.2d 527. The Supreme Court is guided by two principles when it determines whether a particular undertaking is for a public purpose. First, it asks whether there is a reasonable connection between the activity on the one hand and the convenience and necessity of the particular governmental entity on the other. Madison Cablevision, Inc. v. City of Morganton, 325 N.C. 634, 386 S.E.2d 200, 207 (1989). Second, it asks whether "the activity benefits the public generally, as opposed to special interests or persons." Id. Each case is determined on its own merits on a case-by-case basis, rather than a rigid definition of public purpose being established by the courts. The concept of "public purpose" is not to be narrowly construed. Id.
As to ECHO, the nonprofit corporation whereby physicians as a group can enter into contracts
with large payors, and EMO, the for profit corporation providing the network administration, including marketing, information systems and claims payment to ECHO and others, both entities would seem to meet the above definition of public purpose. Both would in fact serve the purpose of enhancing patient access to faculty members and provide additional clinical opportunities for medical students. Thus, there is in my opinion a reasonable connection between the activity of ECHO and EMO and the governmental interest of the SOM. It also appears that for the same reasons such activity by the Dean and faculty in these entities would benefit the public generally. Thus in my opinion, direct or indirect use of SOM resources in the development or operation of ECHO and EMO meets the public purpose requirements of Article V, Section 2(1) of the North Carolina Constitution, and is authorized by Article V, Section 2(7) of the North Carolina Constitution.
The use of state resources for these two entities would also seem to be in accord with Article I, Section 32 of the North Carolina Constitution, which prohibits special privileges or emoluments which are not given in consideration for public service. Support given ECHO and EMO by the SOM is, as set out above, in the public service. Thus in my opinion the use of SOM resources to organize or operate ECHO and EMO, would not be contrary to the private emolument ban of the State Constitution.
Lastly, your letter raised the issue of the Umstead Act. N.C.G.S. 66-58(b)(8)(as amended) gives an exemption to the provision of the Umstead Act in N.C.G.S. 66-58(a) to the "hospital and Medical School of the University of North Carolina. . . ." Since the General Assembly did not limit that designation to a particular campus, in my opinion East Carolina University’s School of Medicine, since it is a part of The University of North Carolina System, is entitled to the exemption granted by N.C.G.S. 66-58(b)(8). Thus, in my opinion, the Umstead Act does not bar the SOM from participation in ECHO and EMO.
I have addressed each of the issues raised. Should you have any questions, please contact me.
Andrew A. Vanore, Jr. Chief Deputy Attorney General