ADVISORY OPINION NO. 06-068-E

October 6, 2006

The Mississippi Ethics Commission issued this opinion on the date shown above in accordance with Section 25-4-17(i), Mississippi Code of 1972, as reflected upon its minutes of even date. The Commission is empowered to interpret and opine only upon Article IV, Section 109, Mississippi Constitution of 1890, and Article 3, Chapter 4, Title 25, Mississippi Code of 1972. This opinion does not interpret or offer indemnity from liability for any other laws, rules or regulations. The Commission based this opinion solely on the facts and circumstances provided by the requestor as restated herein. The indemnity provided under Section 25-4-17(i) is limited to the individual who requested this opinion and to the accuracy and completeness of these facts.

I. LAW

The pertinent Ethics in Government Laws to be considered here are as follows, to wit:

Section 25-4-103, Miss. Code of 1972.

(a) “Authority” means any component unit of a governmental entity.

(c) “Business” means any corporation, partnership, sole proprietorship, firm, enterprise, franchise, association, organization, holding company, self-employed individual, joint stock company, receivership, trust or other legal entity or undertaking organized for economic gain, a nonprofit corporation or other such entity, association or organization receiving public funds.

(h) “Governmental entity” means the state, a county, a municipality or any other separate political subdivision authorized by law to exercise a part of the sovereign power of them state.

(k) “Material financial interest” means a personal and pecuniary interest, direct or indirect, accruing to a public servant or spouse, either individually or in combination with each other. Notwithstanding the foregoing, the following shall not be deemed to be a material financial interest with respect to a business with which a public servant may be associated:

(i) Ownership of any interest of less than ten percent (10%) in a business where the aggregate annual net income to the public servant therefrom is less than One Thousand Dollars ($1,000.00);

(ii) Ownership of any interest of less than two percent (2%) in a business where the aggregate annual net income to the public servant therefrom is less than Five Thousand Dollars ($5,000.00);

(iii) The income as an employee of a relative if neither the public servant or relative is an officer, director or partner in the business and any ownership interest would not be deemed material pursuant to subparagraph (i) or (ii) herein; or

(iv) The income of the spouse of a public servant when such spouse is a contractor, subcontractor or vendor with the governmental entity that employs the public servant and the public servant exercises no control, direct or indirect, over the contract between the spouse and such governmental entity.

(p) “Public servant” means:

(i) Any elected or appointed official of the government;

(ii) Any officer, director, commissioner, supervisor, chief, head, agent or employee of the government or any agency thereof, or of any public entity created by or under the laws of the state of Mississippi or created by an agency or governmental entity thereof, any of which is funded by public funds or which expends, authorizes or recommends the use of public funds; or

(iii) Any individual who receives a salary, per diem or expenses paid in whole or in part out of funds authorized to be expended by the government.

Section 25-4-105, Miss. Code of 1972.

(3) No public servant shall:

(a) Be a contractor, subcontractor or vendor with the governmental entity of which he is a member, officer, employee or agent, other than in his contract of employment, or have a material financial interest in any business which is a contractor, subcontractor or vendor with the governmental entity of which he is a member, officer, employee or agent.

II. FACTS

Facts provided by the requestor are set forth below, with identifying information redacted, and are considered a part of this opinion.

I represent a Regional Medical Center (RMA), a community hospital, owned by a County in Mississippi. In recent years, the RMA has purchased several medical clinics and employed the physicians in its ongoing efforts to try to keep qualified physicians in our service area. In part because of ever increasing malpractice coverage costs, the general surgery group of our service area has requested negotiations regarding the sale/purchase of the surgery clinic and the employment of the general surgeons comprising the group. One of the surgeons is a member ( with other physicians) of a limited liability company that leases an outpatient surgery clinic building to another limited liability company that operates an outpatient surgery clinic with the County.

There are three limited liability companies involved in the factual situation concerning the outpatient surgery clinic. They are:

1. A Surgery & Endoscopy Center, LLC (operating LLC) – the Company is owned 51% by a Regional Medical Center and 49% by City Physicians, LLC. It is this LLC that operates the outpatient surgery center.

2. A Real Estate Investors, LLC (real estate LLC) – This Company leases the outpatient surgery clinic building to the operating LLC.

3. City Physicians, LLC (physician investors, LLC) – This Company is the 49% owner of the operating LLC.

One of the surgeons in the general surgery group is one of ten members of the real estate LLC and one of ten members in the investor LLC. He has a 10% interest in these companies. Therefore, the physician has a 10% interest of the 49% interest of the operating LLC (a 4.9% interest the operating LLC). The out-patient surgery clinic has only been operational for a few years and has only recently become profitable.

The Regional Medical Center needs to employ the general surgeons from the general surgery group in order to continue to provide general surgical services for the area serviced by our hospital. However, we want to try to make certain that the employment of the physician who has an interest in the limited liability companies involved in the outpatient surgery clinic does not violate the Ethics in Government statutes.

The general surgeon does not appear to be a “contractor” within the meaning of Moore et al. vs. Byars, 757 So2d 243 (Miss. 2000) (previously decided by the Mississippi Supreme Court) and Official Advisory Opinion # 03-073-E. However, Official Advisory Opinion #05-119-E (which held that a lease of real property by the hospital board attorney to the public hospital board violated the Ethics in Government laws) and Official Advisory Opinion # 03-073-E, when considered together, are confusing on this issue.

Along these same lines is the issue of whether a community hospital may rent a clinic from a physician that is now employed by the community hospital. In other words, in those situations where the community hospital has employed the physicians that previously operated a private clinic, may the community hospital lawfully lease, rent or buy the clinic building from the physicians now employed by the community hospital?

III. ANALYSIS

Section 25-4-103(p), Miss. Code of 1972, quoted above, includes government employees in the definition of “public servant.” Any person included in that definition is subject to the Ethics in Government Laws. Therefore, the physician in question will be a “public servant,” subject to the Ethics in Government Laws if he or she is employed by the Regional Medical Center.

Pursuant to Section 25-4-105(3)(a), Miss. Code of 1972, no public servant may hold a “material financial interest” in a business which is a “contractor, subcontractor or vendor” to the governmental entity with which he or she is employed. Here the “governmental entity” is the county, and the community hospital is an “authority” or “component unit” of county government. See Section 25-4-103(h) and (a) above. Thus, an employee of a county owned community hospital may not have a “material financial interest” in a business which is a contractor, subcontractor or vendor to the county, subject to some narrow exceptions found in Section 25-4-105(4).

The individual physician in question owns ten percent (10%) of the investor LLC. Section 25-4-103(k)(i), Miss. Code of 1972, quoted above, excludes “[o]wnership of any interest of less than ten percent (10%) in a business” from the definition of “material financial interest.” Therefore, as a ten-percent owner of the business, the physician has a material financial interest in the investor LLC.

Consequently, if the physician becomes a public servant of the community hospital, then the investor LLC may not be a “contractor” to the community hospital if the physician continues to hold a material financial interest in the investor LLC. “The term contractor is generally used in the strict sense of one who contracts to perform a service for another and not in the broad sense of one who is a party to a contract.” Moore, ex rel. City of Aberdeen v. Byars, 757 So.2d 243, 248 (¶ 15) (Miss. 2000).

The Commission has previously determined in Op. Miss. Ethics Commn. No. 03-073-E that joint ownership of an LLC by a community hospital and a second LLC does not make the second LLC a “contractor” to the community hospital. See also Op. Miss. Ethics Commn. No. 04-082-E. Consistent with previous opinions, the Commission hereby finds that joint ownership of the operating LLC by the community hospital and the investor LLC does not make the investor LLC a “contractor” to the community hospital in the context of Section 25-4-105(3)(a). Therefore, no violation should result if the physician becomes a public servant of the community hospital and retains a material financial interest in the investor LLC.

Additionally, the real estate LLC, in which the physician also holds a ten-percent material financial interest, is a contractor to the operating LLC via its lease agreement but is neither a contractor nor subcontractor to the community hospital. Thus, under these facts, no violation should arise from the physician’s material financial interest in the real estate LLC.

MISSISSIPPI ETHICS COMMISSION


BY: Tom Hood, Executive Director and
Chief Counsel