PA Supreme Court Clarifies Accessibility of Government Contractor/Subcontractor Records

The Pennsylvania Supreme Court has issued a pair of decisions[1] to clarify the extent that government agencies must disclose records documenting public money paid to government contractors and subcontractors. First, records in the possession of an agency that “deal with” the disbursement of public funds are public records, even if such records contain a government contractor’s trade secrets or confidential proprietary information. Second, records in the possession of private subcontractors who have no direct contract with government agencies are not public records.

These cases involved the administration of Medicaid by the Department of Human Services (formerly the Department of Public Welfare)(“DPW”). DPW enters contracts with managed care organizations (MCOs) to administer Medicaid funds in a way that ensures Medicaid enrollees have access to quality dental care. The MCOs in turn engage subcontractors to negotiate contracts with health care providers who examine and treat Medicaid enrollees.

The first opinion addressed a request for records documenting funds paid by MCOs to subcontractors who recruit health care providers (“MCO Rates”). The Supreme Court concluded MCO Rates are public records. The Supreme Court focused on the fact that DPW either possesses or has control over these records because the MCOs are required to submit subcontracts to DPW for advance approval.

The Supreme Court found MCO Rates are “financial records” as defined by the RTKL, which the Supreme Court broadly interpreted to include records “dealing with” disbursements of public money and services acquisitions by agencies. The Supreme Court noted “subcontracts containing MCO Rates plainly ‘deal with’ DPW’s disbursement of billions of dollars of public monies to provide access to essential healthcare to vulnerable populations, as well as the Department’s acquisition of services to meet its own obligations under federal and state law ….”

The Supreme Court rejected the Commonwealth Court’s conclusion that MCO Records are not “financial records.” The Commonwealth Court had reasoned that MCO records are not “financial records” because they do not document disbursement of funds directly by an agency. The Supreme Court explained the term “financial record” is separate and distinct from the term “public record.” While a “public record” must be “of” an agency (meaning it must document an activity, transaction or business of an agency), a “financial record” includes record that merely deals with the disbursement of public funds (whether by an agency or a government contractor).

The Supreme Court also rejected the Commonwealth Court’s conclusion that an agency may withhold financial records from public disclosure if the financial records contain trade secrets. Under the plain language of the RTKL, a financial record must be disclosed, even if disclosure will reveal a government contractor’s trade secrets or confidential proprietary information. The Commonwealth Court had ruled that the RTKL does not circumvent protections for trade secrets under the Uniform Trade Secret Act. Contrary to the Commonwealth Court’s holding, the Supreme Court held, “the [RTKL’s] self-contained trade-secrets exception supplants the more general application of the Uniform Trade Secrets Act based, inter alia, on the principle of statutory construction that more specific provisions control general provisions control general ones.”

The second opinion involved a request for records of Medicaid funds ultimately received by the health care providers to examine and treat Medicaid enrollees (“Provider Rates”). The Supreme Court focused on the fact that there was no contract between DPW and the subcontractors who negotiate Medicaid funds received by health care providers. The Supreme Court affirmed the Commonwealth Court’s holding that such records are not public records, but implemented a different test for determining whether such records are accessible under the RTKL.

Section 506(d)(1) of the RTKL allows requesters to obtain records in the possession of third parties with whom the agency has contracted to perform a government function if the record directly relates to the governmental function. The Commonwealth Court seemed to incorporate the principle of constructive possession into its Section 506(d)(1) analysis. Although there was no contract between DPW and the subcontractor, the Commonwealth Court still examined whether there was a direct relationship between DPW’s administration of Medicaid and the rates paid to health care providers. The Supreme Court noted “substantial misgivings” with the Commonwealth Court’s conclusion that these items were not directly related. Nonetheless, the Supreme Court held the Commonwealth Court should never have reached that issue because Section 506(d)(1) does not reach records of a subcontractor who has no direct contract with a government agency.

Government contractors should carefully review these decisions with legal counsel. The first decision severely restricts the protections for trade secrets and confidential proprietary information. The second decision confirms that government contractors may enter subcontracts to shield the ultimate expenditure of public funds. The Supreme Court seemed bothered that the payment of Medicaid funds to health care providers is shielded from public view, and recommended that the General Assembly reconsider the openness or secrecy of the records at issue. Unless the RTKL is amended, these decisions send a message to government contractors to be alert to information that may be accessible to the public.

Disclaimer:  This blog is maintained by the members of Nauman Smith’s Media and Right-to-Know Law practice group.  The members of this practice group represent both: 1) media entities, individuals and corporations seeking access to public records, and 2) local municipalities seeking to comply with the law.  THIS BLOG IS NOT MEANT TO BE USED AS LEGAL ADVICE.  The purpose of this blog is to provide educational material for individuals interested in Pennsylvania’s open records law, commonly referred to as the “Right-to-Know Law” or “RTKL”.  The opinions expressed by the individual members of the practice group are solely their own, and do not reflect the opinions of Nauman, Smith, Shissler & Hall, LLP, or the practice group as a whole.

[1]    DPW v. Eiseman, 45, 46 and 47 EAP 2014 (Pa. 10/27/15); Dental Benefit Providers Inc. v. Eiseman, 48, 49, 50 EAP 2014 (Pa. 10/27/15)

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