Opinion
Opinion By: Jack Conway, Attorney General; Amye L. Bensenhaver, Assistant Attorney General
Open Records Decision
The question presented in this appeal is whether the Murray-Calloway County Public Hospital Corporation d/b/a Murray-Calloway County Hospital, violated the Open Records Act in the disposition of Jennifer A. Peterson's October 23, 2008, request for "documentation exhibiting the total dollars paid by [the Hospital] 1 to Dr. Matt Price and Primary Care Medical Center for the years 2007 and January 2008 through September 2008." Dr. Price is a physician employed by Primary Care who was "incentivize[d] to locate his practice in Murray, Kentucky." For the reasons that follow, we affirm the Hospital's partial denial of Ms. Peterson's request on the basis of KRS 61.878(1)(c)1. and KRS 61.878(1)(i) and (j).
In her letter of appeal, Ms. Peterson objected to "the redaction of the overwhelming majority of the information requested," arguing that "disclosure of the redacted information would [not] give [her client, the Murray Woman's Clinic, PLLC] an unfair commercial advantage. " 2 She explained:
The clinic does not believe that it will gain an unfair commercial advantage by knowing how much money Primary Care Medical Center spent on postage and utilities . . .[,] the amount paid for malpractice insurance . . .[, or] the amount of money spent on medical supplies . . . .
She acknowledged that the redacted record "revealed the total amount expended on such supplies, but did not indicate what type or how many supplies were purchased."
In its original response to Ms. Peterson's request, the Hospital released a one page document entitled "Murray-Calloway County Hospital Payments toward Dr. Price Income Guarantee," and advised that the "cumulative sum of $ 2,670,017 has been paid by the Agency to Matt Price, M.D., and Primary Care Medical Center, P.S.C., jointly, as of October 27, 2008." Relying on KRS 61.878(1)(c)1., the Hospital justified its redactions as follows:
Article 4.20 of Dr. Price's Physician Recruitment Agreement provides, in relevant part, as follows:
Information disclosed to and provided to the Agency by Primary Care, a signator of the Physician Recruitment Agreement, is not generally available to the public at large and constitutes confidential and proprietary business information of Primary Care. Any information provided by Primary Care to the Agency has been submitted as a requirement of the agreement and is subject to this confidentiality provision. The information provided concerns the business and financial operation of a for-profit woman's health medical practice within a Kentucky Professional Services Corporation. As articulated by the Kentucky Supreme Court, "[i]t does not take a degree in finance to recognize that such information concerning the inner workings of a corporation is 'generally recognized as confidential or proprietary . . . ." Hoy v. Kentucky Industrial Revitalization Authority, 907 S.W.2d 766, 768 (Ky. 1995). A release of this confidential and proprietary information would undoubtedly permit a competitor of Primary Care to obtain an unfair commercial advantage.
Conceding that the requester's identity was generally irrelevant, the Hospital noted:
With regard to the provision of woman's health services in the City of Murray and the County of Calloway, Kentucky, only two providers exist: The Murray Woman's Clinic 3 and Matt Price, M.D. of Primary Care. A disclosure of the requested information to the Murray Woman's Clinic would constitute a disclosure to a competitor which would give it " . . . substantially more than a trivial advantage . . ." over Primary Care or even the Hospital, in the event that the Hospital elects to employ a physician in that specialty in the future. Southeastern United Medigroup v. Hughes, 952 S.W.2d 195, 199 (Ky. 1997). See also Marina Management Services, Inc. v. Commonwealth of Kentucky, Cabinet for Tourism, 906 S.W.2d 318 (Ky. 1995).
The Hospital noted the additional redaction of "certain components of the document consist[ing] of preliminary drafts and notes, which are not intended to give notice of final agency action pursuant to KRS 878(1)(i) as well as preliminary recommendations and preliminary memoranda in which opinions are expressed or policies formulated or recommended pursuant to KRS 61.878(1)(j)."
In supplemental correspondence directed to this office following commencement of Ms. Peterson's appeal, the Hospital explained, by way of background, that "[i]n order to advance the quality and availability of health care for residents of the service area, [it] recruits physicians to relocate to the community and join the Hospital's medical staff to provide medical services for which there is a recognized need." Dr. Price was recruited for this reason, and the mechanisms by which he is compensated include a physician recruitment agreement executed by the Hospital, Dr. Price, and Primary Care Medical Center the terms of which require Dr. Price and Primary Care to:
Submit confidential and proprietary business information to the [Hospital] to determine whether the [Hospital] will be supplementing Dr. Price's income for a specific month as well as determining how much, if any, the [Hospital] will reimburse Primary Care for its incremental expenses incurred relative to its employment of Dr. Price.
It was to this "business and operational financial information for Dr. Price and Primary Care's obstetrics and gynecology medical practice" that the Hospital denied Ms. Peterson access on the basis of KRS 61.878(1)(c)1.
By letter dated December 18, 2008, Primary Care Medical Center 4 amplified on the competitive harm that would flow from disclosure of the requested information. The Center explained:
The release of the requested information provides the Murray Woman's Clinic with details about Primary Care's business that goes to the essence of what the two competitors compete over (i.e., market share), it would allow the Murray Woman's Clinic to make business decisions (i.e., offering modified "price" or salary terms in other arrangements) with more insight than would/could be possible in a competitive market. The business decisions on "price" are only possible through the release of Primary Care's "product" information by the Hospital. 5
It was Primary Care's position that disclosure of "financial information about its fees, salaries, loans, interest rates, malpractice expenses, and other costs" would give the Murray Woman's Clinic an unfair competitive advantage. We concur.
To begin, we find that Ms. Peterson did, in fact, receive the precise information she requested, namely, "documentation exhibiting the total dollars paid by the Hospital to Dr. Matt Price and Primary Care for the years 2007 and January 2008 through September 2008." Ms. Peterson did not request a cost breakdown of that total. Arguably then, the issue presented in this appeal was moot upon submission because the requested information was not withheld. It happens that the document containing the information sought also contained a cost breakdown, and notes relating to the information in that breakdown, neither of which the Hospital was obligated to disclose since it had not been formally requested.
Assuming, for the sake of argument, that Ms. Peterson's request should properly have been interpreted to include the accompanying cost breakdown, we find that the Hospital properly relied on KRS 61.878(1)(c)1. in redacting the breakdown. That exception authorizes public agencies to withhold:
[R]ecords confidentially disclosed to an agency or required by an agency to be disclosed to it, generally recognized as confidential or proprietary, which if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records.
This office has, on a number of occasions, reviewed public agency denials of requests for records characterized by the agency as confidential or proprietary for which exemption is claimed under KRS 61.878(1)(c)1., consistently recognizing that to qualify for exemption under this provision, the requested records must be:
1. confidentially disclosed to an agency or required by an agency to be disclosed to it;
2. generally recognized as confidential or proprietary; and
3. of such a character that disclosure would permit an unfair commercial advantage to competitors of the entity that disclosed them.
See, e.g., 96-ORD-135; 97-ORD-66; 01-ORD-87; 08-ORD-083.
On at least two occasions, the Kentucky Supreme Court has analyzed this provision, concluding that the public agencies which had invoked it on behalf of a private entity met their statutory burden of proof. In
Marina Management Services, Inc. v. Cabinet for Tourism, 906 S.W.2d 318 (Ky. 1995), the Court held that records containing financial information of privately owned marina operators were exempt from disclosure. The Court reasoned that disclosure would provide an unfair advantage to competitors by allowing them to ascertain the economic status of the marina operators. At page 319 of that opinion, the Court observed:
The records submitted to the Parks Department include information on asset values, notes payable, rental amounts on houseboats, related party transactions, profit margins, net earnings, and capital income. These are records of privately owned marina operators, disclosure of which would unfairly advantage competing operators. The most obvious disadvantage may be the ability to ascertain the economic status of the entities without the hurdles systematically associated with acquisition of such information about privately owned organizations. Further, the facts on the record indicate that the audit statements were disclosed confidentially to Tourism and the Auditor's Office. On these facts alone, the exemption clearly applies.
Thus, the Parks Department adduced sufficient proof to support invocation of the exemption.
Similarly, in
Hoy v. Kentucky Industrial Revitalization Authority, 907 S.W.2d 766, 768 (Ky. 1995), the Court found:
The financial information required to be submitted by GE in its application to KIRA detailed the company's business and revitalization project. Under administrative regulations adopted by KIRA, such information included a financial history of the corporation, projected cost of the project, the specific amount and timing of capital investment, copies of financial statements and a detailed description of the company's productivity, efficiency and financial stability. . . . It does not take a degree in finance to recognize that such information concerning the inner workings of a corporation is "generally recognized as confidential or proprietary" and falls within the wording of KRS 61.878(1)(c)(2).
Again, the public agency from which access to confidentially disclosed records of a private corporation was sought established that those records were generally recognized as confidential or proprietary.
These cases, along with the cited open records decisions, demonstrate that the burden of proving that the records withheld qualify for exclusion under KRS 61.878(1)(c)1. rests with the public agency. That exception "is aimed at protecting records of private entities which, by virtue of involvement in public affairs, must disclose confidential or proprietary records to a public agency, if disclosure of those records would place the private entities at a competitive disadvantage." 97-ORD-66, p. 10 (emphasis added).
In the appeal now before us, that involvement arises from the physician recruitment agreement executed by the Hospital, Dr. Price and Primary Care under the terms of which Primary Care is required to disclose "very specific financial information derived from the operation of Primary Care's practice . . . [including] incremental expenses related to equipment, supplies, and salaries and other direct and indirect operating expenses . . . ." Pursuant to Article 4.20 of the recruitment agreement the Hospital is required to treat the information as confidential. 6 Clearly then, the redacted information was confidentially disclosed to the Hospital or required to be disclosed to it under the terms of the agreement.
On appeal, the Hospital amply demonstrated that the information sought is generally recognized as confidential or proprietary, commenting:
This data has been provided to the Hospital in sufficient enough detail that with little effort a competitor, like the Murray Woman's Clinic would, if they were given access to it, discern sensitive financial information about the practice beyond that related to Dr. Price. For instance, they would discover the volume of certain procedures performed by Dr. Price and others in the practice. They would also discern price and fee schedule information, including the amounts payors reimburse the group. This volume and reimbursement information is not generally available in the market, nor do competitors freely share this type of information with each other without risking exposure under the antitrust law. They would deduce from the information supplied how Primary Care allocates practice expenses and overhead and ultimately how revenue is allocated. Moreover, the Murray Woman's Clinic would learn about the salaries Primary Care is paying to certain non-physician personnel and could use that to its advantage; they would figure out loan arrangement details including interest rates and terms; and they would figure out volumes and discounts on supplies that have been worked out confidentially with vendors.
The record on appeal thus supports the Hospital's argument that disclosure would permit an unfair commercial advantage to its competitors. As the Court noted in the cited opinions, the most obvious disadvantage resulting from disclosure would be a competitor's ability to "ascertain the economic status of [Primary Care] without the hurdles systematically associated with acquisition of such information about privately owned organizations." Marina Management at 319. And, as in the Supreme Court opinions, it does not "take a degree in finance to recognize that such information concerning the inner workings of a [private medical practice] is 'generally recognized as confidential . . . .'" Hoy at 768. "If it is established that a [record] is confidential or proprietary, and that disclosure to competitors would give them substantially more than a trivial unfair advantage, the record should be protected from disclosure . . . ."
Southeastern United Medi-Group v. Hughes, 952 S.W.2d 195, 199 (Ky. 1997). The Hospital and Primary Care adduce sufficient proof that mandatory disclosure of the information withheld would result in far more than a trivial unfair advantage to Primary Care's competitors. We therefore affirm the Hospital's decision to redact the information.
Additionally, we find that the Hospital properly redacted the typewritten notes, opinions, and recommendations made by its chief financial officer relative to the confidential financial information. The Hospital relied on KRS 61.878(1)(i) and (j) in making the redactions. These exceptions authorize nondisclosure of:
(i) Preliminary drafts, notes, correspondence with private individuals, other than correspondence which is intended to give notice of final action of a public agency;
(j) Preliminary recommendations, and preliminary memoranda in which opinions are expressed or policies formulated or recommended[.]
This office has consistently held that preliminary interoffice and intraoffice memoranda or notes setting forth opinions, observations and recommendations, as well as investigative reports that do not represent the agency's final action, may be withheld from public inspection pursuant to KRS 61.878(1)(i) and (j). These exemptions are intended to protect the integrity of the agency's internal decision-making process by encouraging the free exchange of opinions and recommendations. See, e.g., OAG 88-85; OAG 90-97; 93-ORD-26; 02-ORD-099. They are premised on the notion that:
Not every paper in the office of a public agency is a public record subject to public inspection. Many papers are simply work papers which are exempted because they are preliminary drafts and notes. KRS 61.878(1)(g) [now (i)]. Yellow pads can be filled with outlines, notes, drafts and doodlings which are unceremoniously thrown in the wastebasket or which may in certain cases be kept in a desk drawer for future reference. Such preliminary drafts and notes and preliminary memoranda are part of the tools which a public employee or officer uses in hammering out official action within the function of his office. They are expressly exempted by the Open Records Law and may be destroyed or kept at will and are not subject to public inspection.
OAG 78-626, p. 2. Only if these preliminary notes and opinions are adopted as part of any final action of the public agency do they forfeit their preliminary characterization. We concur with the Hospital in its view that the preliminary notes and opinions appearing on the document released to Ms. Peterson fall squarely within the parameters of these exemptions, and were therefore properly redacted.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
Footnotes
Footnotes
1 Murray-Calloway County Public Hospital Corporation and Murray-Calloway County Hospital are referred to as "the Hospital" in this appeal. We attach no particular legal significance to this designation.
2 Ms. Peterson's letter of appeal was also signed by R. Kent Westberry. Both Ms. Peterson and Mr. Westberry are attorneys in the law firm of Landrum & Shouse, LLP.
3 Represented by Ms. Peterson.
4 Primary Care is represented in this matter by Rene Remek Savarise.
5 While Primary Care characterizes these observations as "potential antitrust implications," they are also indicative of the unfair commercial advantage that mandatory disclosure would give its competitors.
6 This office has recognized that while an agency may give assurances of confidentiality relative to public records, those assurances will only be accorded deference to the extent that they are consistent with one or more exceptions to the Open Records Act. See, e.g., OAG 79-413; OAG 90-13; 92-ORD-127. Here, the assurances of confidentiality are supported by KRS 61.878(1)(c)1.