As HCFA Administrator-designate Thomas Scully last week began consulting for the agency President Bush has tapped him to run, he still held board seats on two healthcare corporations and his title as president of the Federation of American Hospitals.
Under federal ethics rules, Scully can remain federation president, as well as hold onto his board seats at managed-care organization Oxford Health Plans and dialysis provider DaVita, until the Senate formally confirms him.
However, he can retain his equity in the two corporations even after being confirmed.
Last week Scully began working part time for HCFA out of a modest office on the third floor of HHS' Washington headquarters. The office until recently was occupied by Timothy Westmoreland, the Medicaid director under former President Clinton.
Scully relinquished his title as chief executive officer of the federation when he was tapped for the HCFA post in late March. The federation has appointed Laura Thevenot, formerly its executive vice president and chief operating officer, to be acting CEO until the board names a successor to Scully.
The HCFA administrator-designate spoke at the federation's annual conference last week, thanking members and staff for supporting him.
Representatives of Oxford and DaVita, meanwhile, said Scully had not given up any title in those corporations.
Although Scully's appointment may present challenges to the government ethics offices that will review his finances, his situation is not unusual, said a scholar in presidential appointments.
"Where's the expertise? The answer's often in the industry," said G. Calvin Mackenzie, professor of government at Colby College, in Waterville, Maine, and an adviser to the Presidential Appointee initiative. The initiative is a project of the Brookings Institution, a Washington think tank. "If they're good at it, they're going to have accomplished some things that will get them some stock and stock options."
Mackenzie added, "(Scully) obviously has some expertise in the area that HCFA has to deal with."
However, he said, that Scully may be able to come into compliance with federal ethics rules without selling his stock in the two companies.
He could comply by placing the stocks in a blind trust or recusing himself from decisions that affect Oxford or DaVita share prices, Mackenzie said.
Scully has served since 1993 on the board of Trumbull, Conn.-based Oxford, a for-profit HMO with 1.6 million enrollees, before the federation announced it was hiring him in late 1994.
According to Oxford's 2001 annual proxy statement filed March 27 with the Securities and Exchange Commission, Scully has the option to buy 57,500 Oxford shares, which were worth $1.5 million at the end of trading on April 5.
Last year, Oxford options turned out to be very lucrative for Scully. In two separate transactions, he netted at least $222,380, according to the Insider Trader Web site.
That sum is more than the $140,000 per year he will earn if confirmed as HCFA administrator, although less than the $613,353 he received in total compensation in 1999 from the federation.
Last week, Scully said he plans to sell his Oxford and DaVita shares, although he didn't say what he would do with the Oxford options.
At Torrance, Calif.-based DaVita (formerly Total Renal Care), Scully attended his first meeting only in December 2000, said company spokeswoman LeAnne Zumwalt.
She said his stock holdings will be disclosed in DaVita's annual proxy statement, which will be released later this month.
Until that statement is published, company officials are barred from releasing that information under SEC rules.
Scully serves on the Oxford board alongside DaVita Chairman and CEO Kent Thiry.
The Senate Finance Committee hasn't scheduled a confirmation hearing for Scully. Spokeswoman Jill Kozeny said the committee hasn't received paperwork from the White House.
-With Mark Taylor and Barbara Kirchheimer