Does the North Carolina State Health Plan have to get the Governor's written approval before hiring outside consultants to help negotiate its preferred provider networks?

Plain-English summary

Jack Walker, the Executive Administrator of the Teachers' and State Employees' Comprehensive Major Medical Plan (SHP), wrote the AG on July 3, 2001 to ask a procurement question. SHP was hiring consultants to help it negotiate preferred provider networks for plan members. The question: did SHP have to comply with the consultant-contract approval requirements in Article 3C of Chapter 143, which require the Governor's written approval for state agency consultant contracts?

Senior Deputy AG Reginald Watkins and Assistant AG Anne Kirby answered no for these specific consultant contracts.

Article 3C generally restricts state agencies that want to obtain consultant or advisory services. Section 143-64.20(b) provides that no state agency shall contract to obtain consultant or advisory services unless the proposed contract has been justified to and approved in writing by the Governor.

But the General Assembly enacted exceptions. The one relevant here is N.C. Gen. Stat. § 135-40.4(a), which states: "The design, adoption, and implementation of . . . preferred provider contracts and networks are not subject to the requirements of Chapter 143 of the General Statutes."

The AG read the exemption text on its plain terms. "Design, adoption, and implementation" is broad language. The General Assembly chose three verbs that together cover the full life cycle of getting a preferred provider network into operation: deciding what the network should look like (design), formally choosing among options and committing to them (adoption), and actually putting them in place (implementation). The AG concluded that negotiating contracts with providers fits within "implementation," since negotiation is a necessary part of putting a preferred provider network in place.

So consultants hired to help SHP negotiate preferred provider contracts do not need Governor's approval under Article 3C. SHP can hire them directly.

The exemption is limited, however. It applies only to consultant contracts for the design, adoption, and implementation of preferred provider contracts and networks. SHP consultant contracts for other purposes (general management consulting, IT advisory work, actuarial services unrelated to PPO networks, etc.) still fall under Article 3C and still require the Governor's written approval.

The practical takeaway in 2001: SHP could move quickly on PPO consulting hires without the Governor's approval process, but it had to be careful not to use those consultants for non-PPO work without invoking Article 3C compliance. A consultant retained for PPO network design and contracting could not also do, for example, general operational consulting under the same exempt-from-Article-3C contract.

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The State Health Plan has been reorganized and renamed (now the State Health Plan for Teachers and State Employees), and its enabling statute moved to Chapter 135, Article 3B. The Chapter 143 consultant-contract review framework has also been amended. Anyone advising the State Health Plan or a consultant on current contracting requirements should consult current Chapter 135 Article 3B and current Chapter 143 Article 3C statutes.

Background and statutory framework

What the State Health Plan is. SHP is the self-funded health insurance plan that covers North Carolina teachers, state employees, and many retirees. It is one of the largest health plans in the state by enrollment. Because it self-funds (rather than buying coverage from a commercial insurer), it has to assemble its own provider networks, negotiate rates with hospitals and physicians, and operate utilization-management and claims-payment functions. Outside consultants help with much of this work, especially the network-building piece.

Why the General Assembly carved SHP out of Article 3C. Article 3C's consultant-contract approval requirement is a centralized check on state agency consulting spend. It works well for routine consulting (procurement of an IT advisory firm, hiring an organizational consultant), but it adds delay that can hurt time-sensitive operations like provider-network construction. Provider contracts have annual cycles, market negotiation windows, and operational rollout deadlines (open enrollment dates). Sending each network-related consulting contract through the Governor's Office for approval would slow SHP's work and might cost it leverage in negotiations.

Section 135-40.4(a)'s scope. The exemption uses three verbs ("design, adoption, and implementation") joined by commas and the conjunction "and." Read together, they cover everything from initial concept through operational rollout of preferred provider contracts and networks. The AG read the phrase functionally: any consultant work that contributes to designing, adopting, or implementing a PPO network falls within the exemption. Negotiation is a core part of "implementation" because a network does not exist until provider contracts are signed.

Why the exemption is narrow. "For the design, adoption, and implementation of preferred provider contracts and networks" is a specific phrase. It does not say "all SHP contracts" or "all SHP consultant contracts." A consultant SHP hires to do, say, an actuarial study of plan participant health risks, or to redesign the call center, or to develop a wellness program, is not doing PPO network work and is not within the exemption. Those contracts still need Article 3C compliance.

The plain-meaning method. The AG applied standard statutory interpretation. The exemption text is broad but plain. Where a statute's words are clear, the AG (and courts) give them their plain meaning. The AG did not invoke any specific cases here, but the standard plain-meaning canon (rooted in Stevenson v. Durham and similar cases the AG often cites) was clearly in the background.

Why SHP asked the question. SHP was likely facing a specific upcoming consultant contract for PPO network work and wanted clarification before signing. The AG's confirmation that the Article 3C process could be skipped for this kind of work let SHP move forward without waiting for Governor's Office review.

The boundary the AG drew. The AG was careful to note: "when SHP makes consultant contracts for other purposes, Article 3C will apply." That sentence is the operative limit. It tells SHP it cannot use the PPO exemption as a general workaround for the consultant-contract review process.

Common questions

Q: Can SHP hire a consultant to do PPO network work and other unrelated work under the same contract?

A: The opinion does not address this directly. The cautious reading is no: bundling exempt PPO work with non-exempt other work in one contract would expose the whole contract to Article 3C compliance challenges. Separating the two kinds of work into different contracts is the safer practice.

Q: What about consultant contracts that touch on PPO networks but also do other plan-design work?

A: The opinion does not address mixed-purpose contracts. The exemption's language ("for the design, adoption, and implementation of preferred provider contracts and networks") suggests the exemption is purpose-specific. A consultant whose scope is principally PPO work should be within the exemption; one whose scope is principally other work, with incidental PPO involvement, probably is not.

Q: Does this exemption apply to all state self-funded plans?

A: No. The exemption is specific to SHP, codified in § 135-40.4(a). Other state self-funded plans (like worker's compensation or property liability) operate under their own statutes and have their own exemption structures.

Q: Did the General Assembly later expand the exemption?

A: The opinion does not address subsequent amendments. The exemption framework has been modified over time. Readers should consult current statutes for the current scope.

Citations from the opinion

• N.C. Gen. Stat. § 135-40.4(a) (1999)
• N.C. Gen. Stat. Chapter 143, Article 3C
• N.C. Gen. Stat. § 143-64.20(b) (1999)

Source

• Landing page: https://ncdoj.gov/opinions/applicability-of-the-consultant-contract-provisions-of-chapter-143/

Original opinion text

Reply to: ANNE GOCO KIRBY INSURANCE SECTION

(919) 716-6610 FAX: (919) 716-6757

August 23, 2001

Jack W. Walker Executive Administrator Teachers' & State Employees' Comprehensive Major Medical Plan 4509 Creedmoor Road, Suite 102 Raleigh, NC 27612

Re: Advisory Opinion: Applicability of the consultant contract provisions of Chapter 143 to contracts between the Teachers' and State Employees' Comprehensive Major Medical Plan and consultants hired to assist SHP in negotiating preferred provider networks for Plan members; N.C. Gen. Stat. § 135-40.4(a)(1999).

Dear Dr. Walker:

By Memorandum dated July 3, 2001, you requested an opinion as to whether the consultant contract provisions of Chapter 143 of the North Carolina General Statutes apply to contracts between the State Employees' Comprehensive Major Medical Plan ["SHP"] and consultants hired to assist SHP in negotiating preferred provider networks for SHP members.

Article 3C of Chapter 143 places certain restrictions on State agencies desiring to obtain consultant or advisory services from outside contractors. N.C. Gen. Stat. § 143-64.20(b) provides that "[n]o State agency shall contract to obtain services of a consultant or advisory nature unless the proposed contract has been justified to and approved in writing by the Governor . . .." N.C. Gen. Stat. § 143-64.20(b)(1999).

The legislature has enacted several exceptions to this procedure for hiring consultants. One such exception applies to SHP. Specifically, N.C. Gen. Stat. § 135-40.4(a) provides that "[t]he design, adoption, and implementation of . . . preferred provider contracts and networks are not subject to the requirements of Chapter 143 of the General Statutes . . .." (Emphasis added). The language of N.C. Gen. Stat. § 135-40.4(a) is broad, but plain. The General Assembly obviously intended to exempt SHP from the various contracting requirements of Article 3C of Chapter 143, with respect to the performance of its duty to put preferred provider contracts and networks in place. By the plain words of the statute, this exemption extends from the "design" of those contracts and networks to their "implementation." In our opinion, the negotiation of such contracts fits within the span of the exemption the General Assembly has established.

In sum, in our opinion G.S. § 135-40.4(a) exempts the SHP from the requirements of Article 3C of Chapter 143 of the General Statutes with respect to contracts to assist SHP in negotiating preferred provider networks. We note, however, that the exemption from the consultant contract requirements of Article 3C of Chapter 143 of the General Statutes is limited to contracts for the "design, adoption and implementation" of "preferred provider contracts and networks." Thus, when SHP makes consultant contracts for other purposes, Article 3C will apply.

We hope that this advisory opinion will be useful to you. Please let us know if you have additional questions concerning this matter.

Very truly yours,

Reginald L. Watkins Senior Deputy Attorney General

Anne Goco Kirby Assistant Attorney General