Are you the publisher? Claim or contact us about this channel

Embed this content in your HTML


Report adult content:

click to rate:

Account: (login)

More Channels


Channel Catalog

older | 1 | .... | 91 | 92 | (Page 93) | 94 | 95 | .... | 165 | newer

    0 0

    After years of criticism that they cost taxpayers too much, private Medicare Advantage health plans are facing landmark audits that for the first time could order them to repay the government tens of millions of dollars for past overcharges and other billing mistakes.

    Medicare pays the health plans a set amount monthly for each person based on estimates — known as “risk scores” — of how sick they are. The industry has grown explosively over the past decade under this payment method and now cares for nearly 16 million people at a cost expected to top $150 billion this year.

    The government audits are targeting chronic Medicare Advantage billing errors that federal officials blame for billions of dollars in “improper” payments every year — mainly due to inflated estimates of the health “risks” of the seniors the plans insure. The findings carry added importance because insurers selling policies on exchanges set up under the Affordable Care Act will be paid under a similar risk-based formula, which officials expect to reduce overall health care expenditures.

    The secretive audit process is known as Risk Adjustment Data Validation, or “RADV,” in Washington parlance. In early November 2013, federal officials notified 30 health plans that they had been selected for review this year. Officials declined to name the companies or discuss the audit process. So it’s not clear if any of these audits have yet been completed, or what the results might be.

    The Centers for Medicare and Medicaid Services (CMS), the agency that runs Medicare, has quietly conducted some of these RADV (pronounced RAD’-vee) audits since 2008. But the agency has never before imposed stiff financial penalties for overbilling the government, as it now intends to do. In the first round of audits, officials expect to recoup as much as $370 million from overpayments allegedly made to the 30 Medicare Advantage plans during 2011, according to CMS.

    However, that figure is well below previous administration estimates, and health plans have been granted extensive appeal rights that could stall any repayment orders for years.

    CMS is part of the Department of Health and Human Services (HHS). The HHS Office of Inspector General, which acts as a watchdog over CMS, has done some of its own audits of Medicare Advantage. It estimated much higher losses in six plan audits it conducted starting late in 2008. Those audits found that just the six plans reviewed had been overpaid by as much as $650 million for 2007 alone because of inflated risk scores, including payments for diseases that couldn’t be verified through a patient’s medical record.

    The HHS inspector general audits are more worrisome to the industry than the CMS audits  because the findings are made public and often draw media notice and attention from members of Congress. But the inspector general’s office has said it won’t be conducting any more of its reviews for the foreseeable future due to budget cuts, leaving oversight in the hands of CMS.

    CMS officials have said that health plans would be selected for review this year based “primarily” on changes in risk scores, presumably increases.

    Humana Inc., one of the nation’s largest Medicare Advantage plans with more than 2.7 million members, notified investors in February that one of its contracts had been chosen. The company did not elaborate.

    Florida Blue Cross also has notified its doctors that the plan was among the 30 selected for review this year. Samaritan Health Plan, based in central Oregon with 6,500 members, also was picked, according to a company newsletter. Health Net, Inc. disclosed in a Securities and Exchange Commission filing that its plan in Arizona was selected. None of the health plans would comment.

    At issue is the accuracy of “risk scores” used since 2004 to pay the health plans. At the time, Congress hoped to spur the growth of these insurance plans by adjusting payments based on how likely their enrollees were to need costly medical services.

    The health plans collect medical data used to compute a “risk score” for each person they enroll and Medicare pays them higher rates for sicker people and less for those in sound health.

    But the risk-scoring formula has proven to be a breeding ground for billing irregularities — as much as $70 billion in “improper” payments to health plans from 2008 through the end of last year, according to government sampling data reviewed by the Center for Public Integrity.

    Mary Inman, a San Francisco lawyer who represents whistleblowers, said officials have been concerned for years that risk scores if abused could offer a “new way to fleece” the Medicare program. “This is a weak spot for CMS,” she said, noting that it “hasn’t hit the public realm yet.”

    The CMS RADV audits will probe whether health plans trigger overpayments by reporting diseases that don’t have any impact on health and medical care, or by exaggerating the severity of conditions — in effect making patients look sicker on paper than they actually are. Doing that leads Medicare to pay a plan more money than it deserves.

    Maria Gonzalez Knavel, a health care attorney in Milwaukee, said that if insurers have been reporting risk scores accurately, the impact of these audits will be minimal. But if they reveal a lot of “loose” reporting, “that will be a whole different ball game,” she said.

    Gonzalez Knavel said there’s a perception in the industry that billing errors occur with some frequency. “They’re humans and they don’t always get it right,” she said. “There will be some mistakes made.”

    When mistakes are made, risk scores are far more likely to be too high than too low, government records show. Nearly 80% of the improper payments in 2013 — $9.3 billion — were overcharges, according to the data sampling.

    Whether Medicare Advantage plans are a good deal for taxpayers has been a contentious, and often highly political, question in Washington for years. Many critics, particularly Democrats in Congress, argued that the health plans marketed to healthier seniors and inflated risk scores to boost profits.

    “That makes enrollees look less healthy without any actual change in health status and drives up payments to plans,” Rep. Henry Waxman, then chairman of the House Energy and Commerce Committee, wrote in a March 6, 2009, letter to a top Medicare official. The letter was signed by four other senior Democrats as well.

    The Center for Public Integrity’s independent analysis of government data confirmed that in 2011 more than 800,000 patients across the country were enrolled in Medicare Advantage plans that are paid rates at least 25 percent higher than under the more common traditional Medicare option run directly by the government.

    Supporters counter that the health plans offer extra benefits, such as dental care and hearing aids, and can cost seniors less in out-of-pocket expenses than standard Medicare, a major selling point.

    Cutting back on overpayments to Medicare Advantage plans has been a priority for the Obama administration. With the support of some key Democrats in Congress, the administration had hoped to use some of the savings for the Affordable Care Act.

    Still, the Obama administration has taken years to get the new round of RADV audits underway amid criticism from the industry over the details. Group Health, a non-profit plan that operates in Washington state and Idaho, argued in a December 2009 letter to CMS that the audit process “could seriously jeopardize the future viability of the Medicare Advantage program.”

    While the reasons are not clear, over time CMS has scaled back the amount of money it expects to recoup from the audits. 

    In testimony before Congress in March 2010, an administration official predicted the audits would result in $7.6 billion in savings over a decade. A year later that figure had shrunk to $6.1 billion over the same period. In late February 2012, the agency simply stated that it expected to collect $370 million in the first year.

    “Fighting fraud, improving payment accuracy and saving money for Medicare is one of our top priorities,” CMS Administrator Marilyn Tavenner said in a February 2012 prepared statement.

    Industry consultant John Gorman said that he believes CMS may be disappointed in what it finds.

    “It’s pretty clear that this is a substantial revenue collection exercise for the government,” Gorman said. “They clearly think there is a pot of gold at the end of the rainbow.”

    Gorman said officials are likely to find some Medicare Advantage plans that can’t produce adequate documentation of the diseases they billed for, but any shortcomings are the result of the complexity of billing, not abuse or fraud, he believes.

    Centers for Medicare and Medicaid Services Adminstrator Marilyn Tavenner testifies on Capitol Hill in Washington, D.C. before a November 2013 Senate Health, Education, Labor, and Pensions Committee hearing.Fred Schultehttp://www.publicintegrity.org/authors/fred-schultehttp://www.publicintegrity.org/2014/06/09/14858/new-audits-may-recover-missing-millions-or-not

    0 0

    If health insurance companies announce big premium increases on policies for 2015, I hope regulators, lawmakers and the media will look closely at whether they are justified, especially in light of recent disclosures of better-than-expected profits in 2013, rosy outlooks for the rest of this year and soaring CEO compensation.

    Almost all of the publicly traded health insurers reported big increases in revenue and profits last year. The big winners have been the top executives of those companies, led by Mark Bertolini, CEO of Aetna, the nation’s third largest health insurer. Bertolini’s total compensation of $30.7 million in 2013 was 131 percent higher than in 2012.

    If the stock prices of these firms keep growing at the current pace, Bertolini and his peers can expect to be rewarded even more handsomely this year, especially if they can hike premiums high enough to satisfy shareholders.

    According to Health Plan Week, a trade publication, the CEOs of the 11 largest for-profit companies were rewarded with compensation packages last year totaling more than $125 million.

    Over the past several weeks, several of them have told shareholders and Wall Street financial analysts that their companies likely will have higher profits at the end of this year than they expected, despite having to pay more medical claims as a result of the new Obamacare customers they picked up.

    Those announcements have been music to the ears of shareholders, who are considerably wealthier today than they were this time last year.

    Of those 11 companies (Aetna, Centene, Cigna, Health Net, Humana, Molina, Triple-S Management Corp., UnitedHealth Group, Universal American, Wellcare, and WellPoint) nine saw their stocks close near 52-week highs this past Friday.

    The biggest gainer has been Humana, one of the largest operators of Medicare Advantage plans, whose share price has increased more than 53 percent over the past year.

    The increases have been equally impressive at most of the other big companies. Aetna’s share price is up 31 percent, Cigna’s 32 percent. United’s is up 28 percent. And WellPoint’s is up 39 percent.

    But it is the CEO compensation that has been the most eye-popping, especially at two of the publicly traded companies that specialize in managing Medicaid enrollees in several states: Centene and Molina.

    Centene’s CEO Micheal Neidorff saw his compensation increase 71 percent last year, from $8.5 million to $14.5 million. Even more impressive was the 140 percent raise Molina’s J. Mario Molina got. His compensation jumped from $4.95 million in 2012 to $11.9 million in 2013.

    All of those totals were disclosed in the proxy statements those companies filed with the Securities and Exchange Commission earlier this spring.

    When I handled financial communications for Cigna, the day I dreaded most every year was the day we filed the company’s proxy. That’s because I knew I would get calls from reporters wanting to know how we could justify paying the CEO so much when most other employees were lucky to get 3 percent raises.

    I always had talking points drafted with plenty of help from the company’s lawyers and HR executives. They didn’t vary much from year to year. Basically, all I said was, hey, this is a very big company, the CEO has a very big job and his pay is in line with what other firms of similar size pay their top guys.

    I made frequent use of those talking points the first couple years. But toward the end of my 15 years at the company, I would rarely get more than one or two calls. By 2008, the year I left, the phone didn’t ring at all, at least not from the media. Fewer and fewer reporters even bothered to look at the proxy statements.

    Chances are you are learning for the first time right now just how much the CEOs  of big health insurance companies make. Unless you subscribe to Health Plan Week, it’s not likely you will stumble across their salaries. Nor it is likely that many members of Congress have subscriptions to Health Plan Week. That’s a shame, because they probably haven’t seen this quote, attributed to Paul Dorf, managing director of Compensation Resources Inc., from the May 19 edition, in reaction to insurers’ increasingly stratospheric CEO pay:

    “I think what is going to happen is that the government is going to be stepping in. I really foresee it. As this stuff becomes public and more of the media recite these numbers, I think people are going to go to their legislators … This is crazy.”

    I agree. But I’m not holding my breath waiting for the media to recite those numbers. Or for Congress to pay any attention to the outsized paychecks those CEOs are demanding — and getting — even though by law we now have to buy coverage from those companies.

    Aetna CEO Mark BertoliniWendell Potterhttp://www.publicintegrity.org/authors/wendell-potterhttp://www.publicintegrity.org/2014/06/09/14912/skyrocketing-salaries-health-insurance-ceos

    0 0

    President Barack Obama has selected Jane Hartley, a major campaign bundler, to be the next U.S. ambassador to France, the White House announced Friday afternoon.

    Hartley, the chief executive officer of the Observatory Group, an economic and political consultancy, ranks as the 26th elite political fundraiser Obama has tapped for an ambassadorship since his second term began in January 2013.

    Collectively, these political rainmakers have raised more than $18.4 million for Obama over the years, according to a Center for Public Integrity review of federal records. Hartley herself has raised at least $820,000.

    The Obama campaign did not reveal the exact amount of money its bundlers raised, only offering broad ranges.

    Hartley, for instance, was credited with raising more than $500,000 for Obama's 2012 re-election efforts, and between $200,000 and $500,000 for his 2008 campaign. She also bundled $120,000 for Obama's 2009 inauguration.

    But documents leaked to the New York Times indicate she actually raised more than $2.2 million for Obama since 2007, including about $1.4 million during his 2012 campaign.

    Individuals who raise funds from family members, friends or business associates are known as "bundlers," and they are often rewarded by campaigns with special access and other perks.

    By law, only lobbyists who bundle campaign contributions are required to be disclosed — although Obama listed all of his bundlers who raised at least $50,000 during both his 2008 and 2012 campaigns.

    Hartley, who also previously worked in the White House during the Carter administration, is the first bundler to be elevated for a posh diplomatic post since March, when Obama selected attorney Andrew Schapiro to be the next ambassador to the Czech Republic.

    In the meantime, Obama quietly named more than a dozen career United States Foreign Service officers to ambassadorships in far-flung nations such as Bangladesh, Kazakhstan and Paraguay.

    For years, both Democratic and Republican presidents have awarded some plumb ambassadorships to top campaign bundlers.

    But this year, Obama, who since 2013 has almost exclusively nominated bundlers or other political backers to posts in western and central Europe, has increasingly drawn fire for the practice.

    In February, several of his nominees with fundraising backgrounds demonstrated little experience with, or knowledge of, the countries where they may soon represent U.S. interests.

    After one — George Tsunis, a hotel magnate and campaign bundler who Obama had nominated as the next ambassador to Norway — bungled several responses to questions during a Senate Foreign Relations Committee hearing, Sens. Amy Klobuchar and Al Franken, both Democrats from Minnesota, announced plans to oppose him. Minnesota is home to the largest population of Norwegian-Americans.

    All the while, the American Foreign Service Association, the main trade group and labor union for career foreign service officers, issued new guidance on the characteristics and skills a good ambassador should possess. In April, the group also announced the State Department would begin publishing nominees' qualifications online.

    The U.S. Senate must confirm each of Obama's ambassador picks.


    Jane Hartley, then CEO of Observatory Group, LLC, at a meeting of the Economic Club of New York with David Koch in April 2011.Michael Beckelhttp://www.publicintegrity.org/authors/michael-beckelhttp://www.publicintegrity.org/2014/06/09/14914/obama-nominates-campaign-fundraiser-next-ambassador-france

    0 0

    Los Angeles’ top juvenile court judge is objecting to a planned diversion of $13 million to school police there from state funds earmarked to provide special learning assistance to disadvantaged kids.  

    An unprecedented new California funding plan is poised to distribute billions across the Golden State, which has long been beleaguered by inequities in educational support in low-income communities and waves of budget cuts in more recent years. Earmarked funds are supposed to be slated specifically for low-income and foster-care kids, as well as students classified as still learning English as a second language. 

    In a June 6 letter to the Los Angeles Unified School District, Los Angeles County Presiding Juvenile Court Judge Michael Nash said this particular pot of money should not be diverted to support the L.A. district’s own school police force, which has an annual budget of around $57 million.

    Nash expressed “great respect” for recent efforts to reduce school suspensions and referrals to police, but said he did “not see a reasonable nexus between law enforcement and specifically improving the educational experience and outcomes for our most vulnerable student populations.”

     “On the contrary,” the judge said, “there has been a wealth of research that indicates that aggressive security measures produce alienation and mistrust among students which, in turn, can disrupt the learning environment.

    “This explains why, as part of a nationwide discipline reform process that has gained significant traction of late, there is a specific focus on reducing police involvement in routine school discipline matters,” Nash wrote.

    Nash’s letter was made available to the Center for Public Integrity.  

    Nash presides over one of the biggest juvenile courts in the country and was a recent president of the National Council of Juvenile Court Judges. In that role he also wrote to the White House expressing concerns about schools rushing to obtain federal money to put more school police on campuses in the wake of the 2012 school massacre in Newtown, Conn. 

    As the Center for Public Integrity reported, Nash has been involved in efforts in Los Angeles to rein in the use of school police on campuses; practices were leading to the annual ticketing of tens of thousands of mostly low-income black and Latino students for tardiness, truancy, schoolyard fights and other minor infractions. Almost half of the ticketed students were 14 or younger.

    Nash argues that excessive use of police in essentially school discipline matters — and matters he said were better addressed through counseling and family support — were contributing to a “school-to-prison pipeline” putting kids at risk of greater, not less, trouble with the criminal justice system.

    A 12-year-old featured in a Center story was arrested and charged with assault in connection with a fight, his first, with a friend over a basketball game; the school later apologized but the boy had to go to court and also has a police arrest record on the books until he’s at least 18.

    Considered the most important school financing reform in 40 years, California’s new so-called “Local Control Funding Formula” general plan will distribute funds per student to districts, along with supplemental money schools are expected to use to address the academic and counseling needs of disadvantaged students.

    The state’s black, Latino and lower-income students’ rates of overall graduation or on-time graduation are lagging other groups of students, resulting in disproportionate college enrollment and job skills.     

    L.A. Unified School District leaders are scheduled to publicly present their draft plan Tuesday for how the district will spend hundreds of thousands of dollars extra to boost services for its most vulnerable students. The district’s board must vote on the plan June 30.

    A review of other California school districts’ plans shows that some are also considering using money for vulnerable students to supplement school police or security, including in Sacramento, Long Beach and the Kern Union High School District, a Central Valley district with a record of high rates of student expulsion or transfers, as the Center has also reported.

    L.A. Unified representatives did not respond to requests for comment on Nash’s letter or the final draft of a spending plan that released over the weekend. The $13 million allotment to support police was unchanged from a previous draft proposal released several months ago.

    A chart of proposed spending — posted on the district’s website — is not specific in justifying why school police should receive funding meant to support “school climate” for disadvantaged students. But a more detailed version of the plan does say: “We must point out that there are sometimes serious and legitimate safety issues, such as violence or criminal activity, which necessitate the immediate removal of a student from the campus.”

    In another letter to the district in April, a group of legal aid and community groups involved in school-discipline reform in California praised the L.A. district for proposing to direct $37 million of the new supplemental funds to 37 of the district’s most troubled middle and high schools.

    But the groups also objected to the idea of diverting more than $13 million to L.A. school police, for the same reasons as Nash. The groups additionally protested that the district’s draft proposal initially allocates only $2.6 million for certain methods of managing student clashes and misbehavior known as “restorative justice” counseling.

    Restorative justice methods are key to the L.A. district’s own adopted “School Climate Bill of Rights,” the groups noted. That bill of rights aims to reduce suspensions and referrals of students to police for fights or misbehavior. The relatively modest proposed spending to hire a relative handful of counselors to lead this effort is “extremely disturbing,” the letter says.

    The groups asked for many millions more to be invested in such counseling, including all the $13 million slated for police. But no additional money for restorative justice appears in the latest version of the plan.

    The letter is signed by the Community Rights Campaign of the Labor Community Strategy Center in Los Angeles and Public Counsel, the nation’s largest pro bono law firm, groups that were instrumental in rolling back school-police ticketing in Los Angeles.

    Also signing the letter were the California office of the Children’s Defense Fund; the American Civil Liberties Union of Southern California; the Youth Justice Coalition and CADRE, a parents’ group that has pushed for alternatives to student suspensions.

    0 0

    Over this past week we published the Medicare Advantage Money Grab investigation, which reveals that billions of tax dollars are wasted every year through leakage of a Medicare payment tool called a "risk score".

    Get involved

    If you are a health professional or medical coder and have a story to tell about Medicare Advantage billing issues or “risk scores”, please send Fred Schulte an email.

    If you are a patient in a Medicare Advantage plan and have been scheduled for a “home visit” let us know your opinion.

    Was the visit helpful and do you think it will improve your health?

    Do you disapprove of the health plan sending someone to your home when you’re not sick?

    Tell us how you feel.

    What we've found so far

    • Federal officials made nearly $70 billion in “improper” payments to Medicare Advantage plans from 2008 through 2013 — mostly overbillings — traced to errors with risk scores;

    • From 2007 through 2011, Medicare Advantage risk scores rose more than twice as fast as the average for people in standard Medicare in more than 500 counties nationwide; 

    • Though federal health officials have recently disclosed billing histories for doctors and other health professionals, key financial records of Medicare Advantage plans have been kept under wraps;

    • Medicare Advantage health plans collect billions of dollars from controversial “house calls.” Insurers say the visits improve patient care, but critics argue they inflate costs needlessly;

    • The failure to crack down on health plans that overbill doesn’t bode well for the Affordable Care Act, which relies on a similar risk scoring system.

    About the series

    Center reporters and data analysts spent over a year examining the Medicare payment formula supposed to pay health plans more for sicker patients and less for healthy people, and found that it pays too much. Federal officials made nearly $70 billion in "improper" payments to Medicare Advantage plans from 2008 through 2013 -- mostly overbillings -- traced to errors with risk scores.

    We also graphed how Medicare Advantage risk scores have changed in more than 14,000 health plans in 3,000 counties nationwide between 2007 and 2011.

    CMS officials declined to comment, and refuse to make public specifics on Medicare Advantage plans’ service and billing histories. As a result, the Center filed suit against HHS in U.S. District Court of the District of Columbia in late May.

    The series is reported by Center reporter Fred Schulte, with data analysis by David Donald and Erin Durkin, and edited by Gordon Witkin


    The Center for Public Integrityhttp://www.publicintegrity.org/authors/center-public-integrityhttp://www.publicintegrity.org/2014/06/10/14785/get-involved-help-medicare-advantage-investigation-go-further-donations-and-news

    Warnning: Do NOT Get Caught While Searching!!
    Your IP : - Country : - City:
    Your ISP TRACKS Your Online Activity! Hide your IP ADDRESS with a VPN!
    Before you searching always remember to change your IP adress to not be followed!
    0 0

    Third in a three-part series.

    Some of the senior citizens who called Arizona insurance agent Denise Early wondered why their Medicare Advantage health plans were eager to send a doctor to visit them at home.

    A few worried that the offer might be a scam. After all, they asked, how many doctors make house calls these days?

    More than people might think. Home visits have risen sharply at many private Medicare health plans, which treat close to 16 million elderly and disabled people under contracts with the federal government.

    The health plans tout the voluntary, free annual physicals as a major new benefit that can help selected members stay fit and in their homes as long as possible. While the doctors and nurses don’t offer any treatment during their visit, they report their exam findings to the patient’s primary care physician.

    Yet there’s more to this spurt in home visits than the appearance of enhanced elder care. The house calls can be money makers for health plans when they help document medical problems — from complications of diabetes to a history of heart trouble that’s flared up.

    Health plans can profit because Medicare pays them higher rates for sicker patients using a billing formula known as a “risk score.” So when a home visit unearths a medical condition, as it often does, health plans may be able to raise a person’s risk score and collect thousands of dollars in added Medicare revenue over a year — even if they don’t incur any added expenses caring for that person. That’s been allowed under the billing rules.

    The home visits are the most visible segment of a burgeoning medical information and data analysis industry that is thriving behind the scenes, in some cases backed by formidable venture capital and other investment groups, including Google Ventures.

    The cottage industry is flourishing as federal officials struggle to prevent Medicare Advantage plans from overcharging the government by billions of dollars every year, a Center for Public Integrity investigation has found.

    Medicare made nearly $70 billion in “improper” payments to Medicare Advantage plans from 2008 through 2013, mostly overbillings based on inflated risk scores, according to government estimates.

    Federal officials last year suggested that home visits might play a role. They said they were concerned that some health plans may be turning to home visits and other strategies that drive up risk scores — and Medicare costs — without offering patients more actual medical services or tangible health benefits.

    Officials didn’t say in the draft regulation how much the home visits have added to Medicare’s cost through higher risk scores. But two investor-backed companies together made a total of nearly half-a-million senior home visits in 2013.

    In April, though, officials bowed to industry pressure and backed off their earlier proposal to restrict these visits.

    Officials at the Centers for Medicare and Medicaid Services in Washington refused numerous requests for comment and declined to answer questions posed in writing.

    Limiting the house calls could have cut payments to Medicare Advantage plans by nearly $3 billion a year, according to a report prepared for the insurance industry’s trade association.

    Health plans argue that home visits help them meet a patient’s total health care needs — and assure that the plans are paid fairly for taking on that responsibility.

    Scott Weiner, a Virginia Medicare billing expert, said health plans that don’t bill aggressively “will lose out to competitors” that do. “It’s keeping up with the Joneses,” he said.

    The accuracy of risk scores isn’t just a Medicare Advantage issue. The payment system also will be used in paying for health care for millions of Americans under the Affordable Care Act, which officials expect to contain costs.

    Behind the curtain

    The federal government pays Medicare Advantage plans a monthly fee for each patient to cover all their health-care needs, based largely on the risk scores. But the plans generally don’t tell patients how much, or how the sum is calculated — and neither do federal officials.

    Patients only hear about how much they owe for monthly premiums. Some plans have no premium, but premiums are expected to average about $40 a month this year depending on the type of plan, according to the Kaiser Family Foundation.

    Still, those premiums are just a fraction of what Medicare pays health plans — on average $9,900 per person a year, more for people in poor health, including those with multiple chronic diseases.

    The billing process is extremely complicated. More than 70 health conditions, depending on their severity, may push up the risk scores, and thus the payments.

    Take depression as an example. Simply having feelings of sadness and hopelessness that limit activities doesn’t qualify. Yet if depression lingers for at least two weeks and is present with other symptoms it may be classified as “major depressive disorder.” That condition alone pays nearly $450 a month for a 75-year-old woman living in Miami-Dade County, Florida, according to the Coleman Consulting Group, based in neighboring Broward County.

    When it comes to benefits such as home visits, many patients are impressed their health plan took the trouble to look after them, supporters say.

    “Who wouldn’t want a physician to sit across from them for an hour asking what is ailing them free of charge? Where is the downside in that?’’ said Sy Zahedi, president and CEO of MedXm, in Santa Ana, California, which does home assessments.

    ‘Paucity of evidence’

    The downside, federal officials have argued, is the paucity of evidence showing that home visits make people any healthier, improve their care, or do much beyond driving up Medicare’s costs.

    In February 2013, Centers for Medicare and Medicaid Services officials proposed flagging diagnoses written up from a home visit with an eye toward refusing to pay for any that didn’t prompt follow-up medical attention from a doctor. Officials reasoned that if an ailment wasn’t serious enough to merit any treatment, then taxpayers shouldn’t foot the bill.  Billing guidelines require health plans to treat any disease they diagnose.

    In late February of this year, CMS officials said in a draft regulation that they had seen “little evidence” that medical care “is substantially changed or improved as a result” of the home visits.

    Officials wrote “we are concerned that the apparent significant increase in the prevalence of these assessments … contributes to increased risk scores.”

    The proposal to restrict home visits didn’t sit well with health plans.

    Karen Ignagni, president of the industry’s powerful trade group, America’s Health Insurance Plans, in a March 7, 2014 letter to CMS argued that the agency had shown no evidence that diagnoses made at home visits were “inappropriate.” “We strongly believe the proposal is misguided and should be withdrawn,” she wrote.

    CMS changed its mind with a final order issued in early April that said simply that the agency was not “finalizing this policy.” Officials said they would continue to “analyze data” and “may reconsider” their decision in the future.

    CMS officials have been trying to arrest the rise in risk scores for years.

    Agency data analyzed by The Center for Public Integrity show that scores spiraled upward from 2007 through 2009, yielding Medicare Advantage costs that totaled $12 billion more over those three years than traditional Medicare would have likely paid for the same patient population. In 2010, CMS stepped in and trimmed back the scores using a multiplier to adjust them downward, but the impact didn’t last. By 2011, these scores were up another 2 percent, which raised costs over traditional Medicare by more than $11 billion in just one year.

    How much home visits contributed to that growth is not clear because the government limits public access to billing data. But risk scores at one plan, XLHealth Corp., based in Maryland, jumped by at least 20 percent between 2007 and the end of 2011, a time when its house calls program mushroomed, according to the Center’s analysis of CMS data.

    Suresh Ramakrishnan, who led the home visit expansion for three years as a senior vice president at XLHealth, said it helped bring in more than $600 million in revenue in 2013. He has since left the company.

    “It did raise revenues, but that was not the purpose,” Ramakrishnan said in an interview. “It was to take care of the members who were frail and ill and identify conditions that remain undiagnosed.”

    Terence Ohara, a spokesman for UnitedHealth Group, which owns the company, declined to address the financial impact of the visits. In an email, he said the house calls improve the “continuity and management of care and, in many cases, saves lives. In 2013 alone, our HouseCalls program made thousands of ‘urgent’ referrals so our members could receive immediate care from a physician or hospital.” 

    The debate over home visits has gotten little attention in Congress. But some members, mainly Democrats, have argued for years that CMS needs to make steeper cuts in risk scores to keep Medicare costs in check. Their views are buttressed by a range of government audits and studies, which have concluded that Medicare health plans can boost profits by coding higher and higher risk scores.

    With nearly 16 million patients to track, CMS largely trusts health plans to make sure risk scores are accurate. But when the agency has checked, it has exposed errors — mostly scores that were too high — in nearly a third of patient files examined. Given the magnitude of program spending, even a small error rate can bleed millions of dollars from the federal treasury. Medicare expects to pay the health plans more than $150 billion this year.

    As a result, CMS officials are stepping up audits called Risk Adjustment Data Validation, or RADV, this year. They expect to recoup about $370 million in overpayments tied to inflated risk scores from prior years.

    Thomas E. Hutchinson, a former CMS official who was involved in setting up the RADV audit process, said plans have relied on home visits at least partly to detail a patient’s health history should they be audited. “That’s how it got started,” he said.

    The CMS decision to allow home visits to continue has played only a bit part in a howling political debate in Washington over cutting Medicare Advantage rates. Yet it could cost taxpayers billions of dollars.

    A report commissioned by America’s Health Insurance Plans predicted in February that limiting home visits would shave payments to Medicare Advantage plans by two percent over a year — nearly $3 billion. The report defended the visits as a means to “address conditions that could otherwise be untreated or undiagnosed.”

    Humana, Inc., which has enrolled more than 2 million people in Medicare Advantage, alerted investors the CMS proposal to restrict home visits could “potentially result in additional significant funding declines,” according to a Feb. 24 Securities and Exchange Commission filing. The company heralded home visits as a “critical program.”

    Spokesman Tom Noland said Humana conducted health assessments for about 531,000 members in the first three months of this year. He said that federal officials “should be encouraging Medicare Advantage plans to do more of this type of work,” because in-home visits help create a “trusting and engaging relationship” with patients.

    UnitedHealth Group, which counts more than 3 million seniors in its Medicare Advantage plans, made more than 700,000 house calls last year. The giant insurer makes its pitch in this video.

    Proponents of home visits don’t deny that they generate new revenue by raising risk scores. But they point to concrete benefits for patients.

    Dr. Jack McCallum, a pioneer in the home health assessment field, said insurers typically can count on getting $2,000 to $4,000 more per person from Medicare in a year as a result. The plans pay about $300 for a physician or nurse practitioner to conduct the home exam, so it more than pays for itself, according to McCallum, a co-founder of CenseoHealth, who retired from the Dallas-based home visit company last year.

    McCallum stressed that home visits should be structured to help patients and not “just to attract revenue.” While the doctors and other health professionals who visit don’t render any treatment, their observations and other exam findings are sent to the patient’s primary care physicians for possible follow-up care, he said.

    Most home exams take about an hour or more and can range from recording a patient’s blood pressure and full medical history to sorting through medicine chests. They also may help spot hazards in the home, such as a mislaid rug that might cause a fall, the industry says.

    As a result, proponents say, health professionals can remedy dangerous conditions before they result in a trip to the emergency room, or days in the hospital.

    Some examples: dangerously high blood pressure, medical complications caused by improper mixing of prescription drugs, or home safety concerns related to dementia, said Brian Wise, chief executive officer of Advance Health in Chantilly, Virginia.

    “I know there is a lot of good happening. People who are in danger are getting medical or social services that can help save their lives,” said Wise, whose firm expects to do as many as 200,000 home visits this year.

    But Wise acknowledged that only about four out of every thousand home visits uncovers maladies serious enough to require an immediate phone call to the patient’s primary care doctor, urgent care or emergency medical services.

    Other experts are skeptical of the importance of home visits.

    Dr. Reid Blackwelder, president of the American Academy of Family Physicians, said that in his experience the home visits often aren’t well coordinated with the patient’s doctor, and as a result, haven’t been of much help.

    “Unfortunately, they’re reporting back on things I already know. I don’t remember anything … that necessarily improved the care of my patient other than what I had already documented,” he said.

    Early, the independent insurance agent in Tucson who blogs on Arizona Medicare issues, said from her vantage point, the verdict among seniors is mixed. She said some of her clients enjoy the attention. Others wonder, “Is this legitimate?” Some say they aren’t sick, and even though they don’t pay a dime, they’re annoyed and tell the health plan to “leave me alone.”

    Making more money off Medicare “is the reason for the house calls,” she said. The visits also may discourage some patients from switching to competitors. “If you’re able to show you care about members, it’s less likely they will jump ship,” Zahedi of MedXM said.

    Bright future

    Some home assessment firms have turned to former government health officials and venture capitalists for support. And Wall Street investors see a bright future for the home assessment industry — and other initiatives that help Medicare Advantage plans maximize billing.

    Matrix Medical Network, of Scottsdale, Arizona, forecasts revenues topping $1 billion in the next few years from home visits. The firm, which is backed by venture capital powerhouse Welsh, Carson, Anderson & Stowe, says it completed more than 348,000 Medicare Advantage in-home health assessments in 2013.

    Matrix and some other firms use telemarketers who set up home appointments reading from a script that stresses the health benefits.

    A Matrix news release says that home visits “can be transformed into information that benefits” patients. Matrix also audits medical charts to confirm a disease the health plan may have failed to report to Medicare for reimbursement. In a video it touts home visits as a way for seniors to lead a better life. Company officials declined to be interviewed.

    Thomas A. Scully, who led CMS under President George W. Bush, serves on Matrix’s board and is a general partner in the investment firm backing it. He said the government’s concerns about billing are “somewhat legitimate.” But he said that Matrix “does a terrific job” making sure that findings from a home visit are “passed on to doctors and used to get better care” for patients.

    Health Evolution Partners, an investment firm whose managing partner and CEO is former Bush health information technology czar Dr. David Brailer, has a stake in CenseoHealth, which does more than 100,000 annual home assessments. Brailer declined to discuss CenseoHealth’s operations for the record.

    Many firms that conduct home visits or analyze medical records aren’t shy about tossing out buzzwords such as “ROI,” short for return on investment, or touting other financial benefits in sales pitches to Medicare Advantage plans. Others plug their services as “revenue optimization.”

    Predilytics, a Burlington, Massachusetts, health information analytics firm, markets software to Medicare Advantage plans that helps identify the “highest opportunity” elderly people to visit at home. Doing so can boost Medicare payment rates by 25 percent, it says. On average that comes to $600 per member, per month, which would add up to $36 million in new Medicare payments for a health plan with 5,000 members. The company, which also markets software to help improve the quality of medical care, did not respond to requests for comment.

    One investor in the firm is Google Ventures. Google did not respond to a request for comment.

    Maria Gonzalez-Knavel, a Milwaukee health care attorney, said the rapid spread of electronic health records and billing software are also driving the industry.

    “It’s easier to data mine than in the past when everything was on paper. An increasing amount of records are electronic and more easily searchable,” she said.


    By all accounts, Medicare Advantage billing is highly complex and subject to interpretation — and that uncertainty supports many of the companies whose mission is to capture unseen Medicare dollars.

    Something similar happened nearly two decades ago after Medicare created a coding system that paid doctors escalating fees based upon the amount of time they spent with a patient and the complexity of medical decisions they made.

    Soon, waves of billing consultants were teaching doctors how to work the new system. Most did so honestly, but others devised ways to overstate the complexity of medical services to gain higher fees, a scheme known as “upcoding.” Congress held a well-publicized hearing hoping to crack down on offenders.

    But upcoding by doctors and hospitals remains a serious drain on Medicare in the era of electronic health records and billing software. Top federal officials in late 2012 warned doctors and hospitals to avoid using software programs to overbill.

    Medicare Advantage plans don’t bill for each service the way that doctors do. But officials have yet to determine if electronic health records and billing software can be used to inflate risk scores.

    The industry denies that it overcharges. The plans argue they are often underpaid and turn to data miners to make sure they don’t leave money on the table through missed diagnoses.

    An often cited example is a person who has prescriptions for insulin, an obvious indicator of diabetes, but whose medical record doesn’t capture that diagnosis. Doctors also may fail to report a patient’s chronic medical condition every year as required for payment.

    Look both ways

    Still, there’s little evidence to support the notion that billing errors shortchange health plans.

    When these mistakes occur, Medicare most often pays too much, not too little. In 2013, officials estimated that Medicare made $11.8 billion in “improper” payments to health plans because of risk score errors. Nearly 80 percent — or $9.3 billion — was overcharges.

    One possible reason is that CMS officials have done little to make sure health plans promptly alert the government when a patient’s health improves and Medicare’s payment should be reduced.

    Coleman Consulting, the Florida billing experts, said doctors often document a diagnosis of cancer after it has been treated or is no longer active. Doing so improperly inflates a patient’s risk score and triggers an overpayment.

    “There are a lot of conditions that are coded incorrectly. Cancer is at the top of the list,” said M. Alexandra Johnson, of the consulting group. She said most cases are “done out of ignorance” rather than to defraud the government.

    These disputes, like so many involving Medicare Advantage billing, rarely spill out into public view. One case that did was a 2009 Department of Justice lawsuit against the owners of America’s Health Choice Medical Plans Inc. in Vero Beach, Florida. The government accused the health plan of bilking Medicare out of millions of dollars by reporting “as many diagnosis codes as possible without regard to their truthfulness.”

    The Justice Department said the plan’s risk score software added diagnoses, but wasn’t able to subtract erroneous ones.

    The health plan denied the accusations. The case was settled in 2010 when the plan’s owners agreed to pay the government $22.6 million. The HMO is defunct.

    In another case, a woman claimed in a 2011 federal lawsuit that she was fired from her job at Priority Health in Michigan after she refused an order from her supervisor to “only focus” on adding billing codes that would increase payments to the Medicare Advantage plan — and ignore any “previously submitted codes that were false or wrong and had caused overpayment.”

    The health plan denied the allegations. The case was settled with no admission of fault.

    In a third case — against SCAN, a major California health plan — a whistleblower alleged that the company hired reviewers to comb medical files for  overlooked medical conditions, but not for  overpayments. The health plan paid $3.8 million in 2012 to settle the Medicare payment allegations and denied wrongdoing. A spokesman said SCAN “fully cooperated with regulators and the matter was resolved to the satisfaction of all parties.”

    CMS appears to be showing signs its tolerance for billing errors — intentional or not — is wearing thin. In draft regulations issued in January, the agency said it would begin requiring that Medicare Advantage plans conduct medical record reviews that detect any improper payment — either too much or too little.

    Data mining systems “cannot be designed only to identify diagnoses that would trigger additional payments,” the proposal states. The draft regulations also require the plans to return any overpayments they discover within 90 days — or face penalties.

    One specialist in the data mining field said the “stakes are much higher” for health plans that fail to remove unverified codes. “CMS is asking plans to take money off the table,” said Michael Curran, chief operating officer of Health Data Vision Inc. in Burbank, California.

    Dollar signs

    Some experts believe that Medicare’s difficulties taming risk scores don’t bode well for the Affordable Care Act.

    Starting this year, people of all ages who buy coverage off state insurance exchanges will be scored by health status to decide the amount of money health plans will be paid for enrolling them.

    Some critics believe that federal officials haven’t learned much from their experiences with Medicare Advantage overpayments.

    A big concern: officials have announced that for the first two years of the “Obamacare” rollout, there won’t be any audits to make sure that risk scores are accurate.

    Some health policy experts already are speculating that the hands off policy may undermine the Affordable Care Act’s potential to cut costs.

    Edwin Park, of the Center on Budget and Policy Priorities, calls risk adjustment an “essential element” of the health reform law. He notes that insurance companies are lobbying hard to do their own assessments without any government oversight — and worries that will result in massive overbilling.

    John Gorman, a prominent Medicare Advantage consultant, said under the Affordable Care Act health plans “will get a hall pass for the sake of making sure people get access” to health care.

    He confided: “That’s not the best policy.”

    Fred Schultehttp://www.publicintegrity.org/authors/fred-schultehttp://www.publicintegrity.org/2014/06/10/14880/home-where-money-medicare-advantage-plans

    0 0

    Sen. Al Franken didn’t mince words when he accused Medicare Advantage plans of overcharging the federal government — and praised legislation to slash their payments by billions of dollars.

    “These insurers were getting much more than they should have based on the benefits they were providing to seniors. So we cut what Medicare gives to these private insurance companies,” the Minnesota Democrat intoned in a Dec. 13, 2012, speech on the Senate floor in praise of the Affordable Care Act.

    Franken rebuked Republican Mitt Romney for his 2012 presidential campaign promise to “restore those billions and billions of dollars in overpayments to private insurance companies for no reason, for no good effect, just so that, I guess, these insurance companies could have more profit.”

    Yet less than four months later, Franken was in the company of more than 160 lawmakers publicly thanked by industry surrogates for their help in killing some of the same Medicare Advantage cuts he’d previously supported so forcefully.

    By most accounts it was a stunning policy reversal for many Democratic members of Congress and the Obama administration, and a forceful flexing of the Medicare Advantage industry’s growing political might in Washington.

    John Gorman, a top Medicare Advantage consultant, hailed the lobbying victory in early 2013 as a “direct reflection of muscle this program has obtained.” Gorman noted: “It’s now nearly 30 percent of the [Medicare] program and that gives it a lot of juice.”

    Indeed. Congress created Medicare Advantage in 2003 to encourage private insurance companies to jump into the senior care market without hesitation. Since then, the program has hit its stride as a health care colossus that now cares for nearly 16 million elderly and disabled people, nearly a third of those eligible for Medicare, at a cost expected this year to top $150 billion.

    Some of the nation’s mightiest insurance carriers — UnitedHealth Group and Humana Inc. are two of the biggest — dominate the market and are deeply invested in keeping Medicare Advantage alive and thriving. The health insurance industry’s main trade group, America’s Health Insurance Plans, or AHIP, funds its own “grassroots” lobbying group and its members dole out millions of dollars in federal campaign contributions.

    The top 10 Medicare Advantage companies in terms of enrollment unleashed as many as 145 lobbyists in 2013, according to Senate Office of Public Records data. AHIP spent nearly $2.5 million in the first quarter of 2013 lobbying senators and congressmen on health care issues, according to Senate filings. Ultimately, the group's assertion that cuts to the insurers would harm seniors trumped criticism that the health plans can be a poor value for taxpayers.

    The magnitude of Medicare Advantage overcharges is staggering by any measure. An investigation by the Center for Public Integrity found that Medicare paid the health plans nearly $70 billion in “improper” payments— mostly inflated charges from overstating the health risks of patients — from 2008 through 2013 alone.

    The health plans, which are paid a varying fee for each person they enroll, also have driven up Medicare costs in many parts of the country. The Center’s analysis of Medicare enrollment data uncovered more than 550 counties where payments to Medicare Advantage plans have been at least 25 percent higher than the average costs of treating seniors who remain on standard Medicare.

    But the threat of riling up elderly voting blocs and the sheer complexity of the program’s finances has kept the overpayment controversy largely in the province of academics. Elderly patients have no reason to question how much the government pays their health plan or the fine points of the billing process.

    That the industry can enlist seniors’ help in beating back attempted rate cuts comes as no surprise to many supporters of the program. They say many seniors are pleased with their Medicare Advantage plans because they offer extra benefits, such as dental care and hearing aids, which standard Medicare does not cover. Seniors often shell out less in out-of-pocket expenses and some pay no premium at all.

    Low end care

    A generation ago, putting elderly people into privately-run health insurance plans, the forerunners of Medicare Advantage, was a tough sell. It didn’t help that these “managed care” plans in Florida and other states were plagued by scandals, from failing to provide vital medical care to enrolling people who didn’t understand what they were signing. Many seniors chafed at the restrictions the plans imposed over which networks of doctors and hospitals they could use.

    But as baby boomers, who are more familiar with managed care, hit their retirement years, those objections are fading — and enrollment has risen sharply.

    Whether American taxpayers are getting a good deal remains controversial.

    Policy hands and some academic researchers have argued for years that many private health plans appeal to healthy people likely to cost them little to treat, a practice known as “cherry picking.” Conversely, they argue, some plans steered clear of people with serious diseases for fear of losing money on them.

    Congress stepped in to fix things in 2003, by adopting a highly complex payment formula called a “risk score.”

    The idea was simple enough: pay higher rates for sicker people with chronic diseases and less for people in good health. Lawmakers believed the new formula would cut costs and reduce waste and billing abuses that occur when doctors and hospitals are paid for each service they offer.

    The industry has nearly tripled in size since the risk scores were phased in — and barring sharp payment cuts that may make insurers fold up operations in some communities — is expected to expand even more.

    A turnaround in sentiment

    Democrats, generally hostile to the idea of “privatizing” Medicare, complained for years that the private health plans milked the system for richer payments than they deserved.

    President-elect Barack Obama suggested big changes were on the horizon during a Dec. 11, 2008, press conference in Chicago when he said: “We're also going to examine programs that I'm not sure are giving us a good bang for the buck. The Medicare Advantage program is one that I've already cited where we're spending billions of dollars subsidizing insurance companies.”

    Medicare Advantage was also a target of a February 2010 White House health reform plan which asserted that the insurers “have gamed the payment system in ways [that] drive up the public cost of the program.” The White House added: “All of this is why Medicare Advantage has become a very profitable line of business for some of the nation’s largest health insurers.”

    Not surprisingly, the Affordable Care Act took aim at Medicare Advantage payment levels. The law, passed in 2010, mandated some $200 billion in cuts to the health plans over a decade and redirected the savings to help cover millions of uninsured people under what’s become known as “Obamacare.”

    But many of those cuts weren’t scheduled to take effect for years or were postponed by the administration, critics argue, in order to mute the issue in advance of the 2012 elections.

    When federal officials in February 2013 did announce cuts of 2.2 percent — amounting to more than $2 billion a year — AHIP pounced.

    The trade group mobilized its forces to turn that policy around using a “grassroots” lobbying organization. That group, The Coalition for Medicare Choices, claims to have 1.5 million members who are working together “to protect and improve Medicare Advantage.” Coalition members “actively communicate with members of Congress about issues that affect their coverage,” according to the website. The coalition also pitches its agenda through television commercials and print advertising that demands and end to rate cuts with the explicit message: “Seniors are (Done) Watching.”

    Similar ads did the trick last year. By April 2013, the industry had turned the proposed two percent cut in rates into a three per cent rate hike. In explaining, CMS said that the rates would give patients “more value in the care they receive and greater protections against increasing costs.”

    And AHIP, the insurance trade group, thanked 160 members of Congress from both parties — including Franken — who had helped make that happen by adding their names to petitions demanding that the cuts be restored, and thus putting pressure on federal health officials.

    Those same 160 legislators collected more than $6.5 million for their campaign coffers from the health services industry over the past three election cycles, according to data from the Center for Responsive Politics. Franken alone has received at least $90,000 from the health services industry since first running for the Senate in 2008.

    Stacey Sanders, federal policy director with the Medicare Rights Center in Washington, a nonprofit consumer service organization, criticized the industry. She said it mounted a “scare campaign” that involved “contacting seniors and saying their benefits were going away.” 

    “They had a very simple message that resonates with seniors” and that left politicians “uncomfortable,” Sanders said. “It was tough for members to really dig in and find out what’s behind that message.” She said it was “pretty remarkable” to see Democrats get in line. “It was sort of stunning to me.”

    Asked to respond, AHIP spokeswoman Clare Krusing wrote in an email: “There is plenty of evidence to show that cuts to Medicare Advantage payments have harmed seniors in the program.” She said that as a result of these cuts seniors have “faced higher costs, reduced benefits, and fewer choices.”

    Sensing political gain, Republicans have stepped up their longstanding support of Medicare Advantage. Florida’s Marco Rubio, in a Senate speech in August of last year, said a Medicare Advantage plan got his mother’s business not only because it had good doctors but also because it picked her up at home and took her to medical appointments.

    Rubio went on to cite industry figures showing that 53 percent of Hispanics on Medicare choose the health plans and that 38 percent of Medicare Advantage members make less than $30,000 a year.

    The payment brouhaha isn’t quieting down. As federal officials contemplate further Medicare Advantage rate cuts under the Affordable Care Act, the industry is doing its best to back the government down.

    The AHIP website notes that it has “recently launched its largest ever mobilization to remind Washington that seniors are following this issue closely and to urge the Medicare agency to protect them from further harm by maintaining current payment levels.”

    Since the television ad campaign and other lobbying efforts, Medicare Advantage has drawn praise from many Democrats.

    Sen. Charles Schumer, D-N.Y., was one of 40 members of Congress who signed a February 2014 letter to Centers for Medicare and Medicaid Services Administrator Marilyn Tavenner supporting Medicare Advantage. The letter said seniors who join the plans “enjoy better health outcomes and receive higher quality care than their counterparts in the Medicare fee-for-service program.”

    The politicians called the program a “great success” and urged the CMS chief to maintain payment levels to protect seniors from “disruptive changes in 2015.” A March 11, 2014 letter to CMS administrator Tavenner signed by 200 members of Congress expressed similar sentiments.

    There was no mention of the longstanding Democratic criticism that the plans overbill.

    Not all critics have given up the fight. In a March 2014 memo to its members, the Democratic staff of the House Committee on Energy and Commerce accused the Medicare Advantage industry of making “exaggerated claims” about the impact of funding cuts. Rep. Henry A. Waxman, D-Calif., a die-hard critic of Medicare Advantage, is the committee’s ranking member.

    “The leading insurance companies have multi-billion dollar annual profits, their stock prices have risen substantially in recent years, and they expect significant growth in customers and revenues in the coming years,” the memo concludes.

    When federal officials announced the final 2015 rates on April 7, they took pains to call it a small rate gain — not the reduction officials had planned.

    The industry disagreed. Given the complexity of Medicare Advantage rate setting, it’s difficult to know for sure who is right.

    As for Franken, his office did not respond to requests for comment. Franken recently defended the Affordable Care Act and the cuts it makes to Medicare Advantage. But he also said he wants to shield seniors from any ill effects.

    “I voted to stop the overpayments and make the program run more efficiently,” he told the Minneapolis Star Tribune in early April. Franken, who is up for re-election in the fall, told the newspaper he wanted CMS to “prioritize seniors when setting their policies.”

    Sen. Al Franken, D-Minn.Fred Schultehttp://www.publicintegrity.org/authors/fred-schultehttp://www.publicintegrity.org/2014/06/10/14881/medicare-advantage-lobbying-machine-steamrolls-congress

    0 0

    In early March, billionaire John Catsimatidis met privately in New York City with Sen. Lindsey Graham, R-S.C., where the two men lamented the still-fragile economy and chewed over other national issues.

    At the time, Catsimatidis, the owner of a grocery store chain and a 2013 New York City Republican mayoral hopeful, had already donated the legal maximum of $5,200 to Graham’s re-election campaign.

    But about an hour after Graham left Catsimatidis’ New York City office, Catsimatidis received another guest: a man connected with a pro-Graham super PAC called the West Main Street Values PAC.

    The West Main Street Values PAC — it says its mission is to “aggressively defend” Graham — ultimately received $25,000 from one of Catsimatidis’ companies, United Refining Company. That money arrived in the super PAC’s bank account three days after the in-person meeting, according to records filed with the Federal Election Commission.

    Donors — including corporations and unions — may give unlimited amounts of money to a super PAC under the condition that the super PAC doesn’t coordinate its spending with a political candidate’s campaign.

    “I’m a moderate, and I believe in the middle of the road,” Catsimatidis told the Center for Public Integrity in confirming the meetings with Graham and his supportive super PAC. “One of the PAC people came to see me after the senator left, and I decided to support him. And that is that.”

    Neither a spokesman for Graham or for the West Main Street Values PAC responded to requests for comment.

    While Graham, a relativemoderate who faces multiple right-wing primary challengers Tuesday, stockpiled millions of dollars to fend off a potentially threatening opponent, the West Main Street Values PAC also filled a war chest to assist in the fight. Graham is seeking a third term in the Senate.

    To date, the group has raised more than $420,000 and funded online ads, mailings, TV spots and phone banks to support Graham’s re-election. The bulk of this money has come from people like Catsimatidis — wealthy donors with few direct ties to South Carolina.

    In the wake of the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision, the electoral influence of the ultra-rich has expanded, and the nationalization of what once were local races has become evident.

    In all, more than 99 percent of the money the West Main Street Values PAC — it named itself after the street in Central, S.C., on which Graham’s family ran a small business — has reported raising has come from donors who reside outside of South Carolina, according to a Center for Public Integrity analysis of FEC filings.

    The West Main Street Values PAC’s top donor is Colorado developer Larry Mizel, who gave $100,000 and alone accounts for nearly 25 percent of the group’s receipts.

    Mizel, who made his fortune building and selling homes across the country, does not have any business operations in South Carolina, according to the latest filing that his company, MDC Holdings, has submitted to the Securities and Exchanges Commission.

    Mizel also serves on the board of the American Israel Public Affairs Committee, a pro-Israel lobby organization. At least two other AIPAC board members donated to the pro-Graham super PAC as well.

    Michael Kassen, AIPAC’s board chairman, donated $10,000, and Robert Kargman, a board member and owner of a Massachusetts real estate firm, gave $25,000, according to campaign finance records.

    When Graham spoke to an AIPAC gathering in 2010, he called Israel the “best friend” of the United States and pledged that “Congress has your back,” adding that “sometimes it is better to go to war than to allow the Holocaust to develop a second time.”

    Other large donors to the West Main Street Values PAC include:

    • Missouri businessman Sam Fox, a campaign bundler for President George W. Bush who served as the U.S. ambassador to Belgium and once served as the chairman of the Republican Jewish Coalition ($50,000)
    • Hedge fund manager Richard Chilton of Connecticut, who also co-hosted a campaign fundraiser in New York City for Graham in early May, according to an invitation obtained by the Sunlight Foundation ($50,000)
    • Super PAC for America, the super PAC launched by political strategist Dick Morris ($50,000)
    • Reaud & Associates, a Texas-based law firm headed by attorney Wayne Reaud ($25,000)
    • Pharmaceutical executive Richard Roberts of New Jersey ($25,000)
    • Doug Silverman, co-founder of the New York-based Senator Investment Group hedge fund firm ($25,000)

    Records indicate that only two residents of the Palmetto State contributed to the West Main Street Values PAC.

    One was former South Carolina Republican Party Chairman Katon Dawson. The other was Donald Finkell, the former chairman of a trade association for hardwood manufacturers and distributors. Each man gave $1,000.

    Donors who give $200 or less to PACs do not have to be identified in FEC reports, and the West Main Street Values PAC only raised $450 from such small-dollar contributors.

    There was, however, at least one large West Main Street Values PAC donor not based in South Carolina with strong business interests in the state: aircraft manufacturer and defense contractor Boeing.

    The company’s political action committee gave $25,000 to the super PAC, ranking it among the largest contributions it has made this election cycle. The PAC has also given the legal maximum of $10,000 to Graham’s campaign.

    Boeing spokeswoman Gayla Keller said the company “supports candidates with whom we have alignment on issues of importance.”

    For his part, Graham has been a staunch supporter of Boeing’s decision to open a non-unionplant in South Carolina. The move was met by criticism from the company’s union workers in Washington, where Boeing is headquartered, and garnered a complaint with the National Labor Relations Board.

    Graham even cited his work “fighting unions” and “saving Boeing jobs” as reasons he deserved re-election in one of his last ads of the primary campaign.



    Sen. Lindsey Graham, R-S.C., visits billionaire John Catsimatidis and his children in New York in March 2014. A representative from a pro-Graham super PAC would call on Catsimatidis an hour later.Marcelo Rochabrunhttp://www.publicintegrity.org/authors/marcelo-rochabrunhttp://www.publicintegrity.org/2014/06/10/14921/after-lindsey-graham-met-billionaire-supportive-super-pac-secured-donation-hour

    0 0

    With the election still five months away, attack ads have already hit the airwaves in Michigan’s gubernatorial race thanks to two national organizations that are on pace to break spending records this fall as they duel over governorships in 36 states.

    Through March, the Republican Governors Association has spent five times more around the country than it did at the same point four years ago while the Democratic Governors Association's overall spending is double what it was in 2010, according to data from the Internal Revenue Service.

    Both groups are “527s,” tax-exempt organizations named for the IRS code they fall under, which can accept unlimited amounts of money from individuals, corporations and unions. Depending on state rules, the money can be given directly to candidates or as independent advertising to goose a campaign.

    Much of the money spent so far has been used on so-called outside spending, the controversial political advertising created independently of candidates. The two groups are typically the largest state outside spenders across the country, so their increased early spending likely indicates that outside spending will be higher across the board this election cycle.

    Already the RGA has spent more than $15 million overall on its operations. By comparison, the group had spent just over $3 million through March in 2010, part of more than $110 million spent during the cycle that helped the party pick up five governorships previously held by Democrats.

    At least $5 million of that 2014 spending has been used to flood the airwaves with early ads, including in the Michigan race that pits incumbent Republican Gov. Rick Snyder against presumed Democratic challenger Mark Schauer.

    Snyder has been attacked for making cuts to education while his presumed Democratic opponent has been criticized for his support of the federal stimulus package when he served in Congress.

    Michigan’s primary is in August.

    The RGA has also targeted races with ads in Arkansas, Georgia, New Mexico, Ohio, South Carolina and Wisconsin.

    Separately the D.C.-based group has given $2.5 million directly to a committee supporting Florida’s Republican incumbent, Rick Scott, and $1.5 million to a committee supporting the Republican challenger in Illinois, Bruce Rauner, along with contributions to Republican groups in Texas, Maine, Pennsylvania and Kansas.

    So far this cycle, the DGA has put up ads in Michigan and given more than $500,000 to a group active in the open Arkansas gubernatorial race. Overall it spent more than $6.75 million on its operations through March, compared with the $3.15 million it had spent at that point in 2010.

    While most of the RGA focus so far has been on defending Republican incumbents, RGA spokesman Jon Thompson says that will change soon.

    “We are focused on offense, too,” he said in an e-mail.

    The RGA’s initial focus on seats already held by Republicans makes sense, said Kyle Kondik, a political analyst at the University of Virginia’s Center for Politics.

    “The RGA and the DGA are first incumbent-protection groups,” he said.

    The RGA’s spending spree has been fueled by record fundraising so far this year.

    While there were some concerns that the fundraising abilities of RGA Chairman and New Jersey Gov. Chris Christie might be hampered by the so-called “bridgegate” scandal in New Jersey, the Christie-led RGA raised more than $22 million in the first three months of the year, nearly 2.5 times what it raised in 2010 and nearly double the DGA haul this year. While second quarter numbers won’t be available until July, the RGA’s Thompson said they will show continued strong fundraising and spending levels.

    Despite being outgunned, the DGA has increased its early spending, in part, to help counteract the RGA’s fatter wallet by increasing awareness of their candidates earlier in the race.

    "We find that a lot of times early spending is an effective investment," said DGA spokesman Danny Kanner.

    Kondik suggested the early spending may be inspired by President Barack Obama and his campaign’s early focus on attacking GOP nominee Mitt Romney.

     “People looked at the Obama 2012 campaign and thought that early ad spending was effective,” he said. “They’d like for these races to not be competitive.”

    However RGA spokesman Thompson said that his group’s early spending isn’t just a front-loaded push. Instead, he said, it plans to continue to spend heavily throughout the year.

    That doesn’t mean Republicans gubernatorial candidates can necessarily count on more outside spending support than their Democratic counterparts.

    The Center’s analysis of 2012 outside spending showed that a coalition of Democratic groups, including the DGA, and labor unions actually outspent pro-Republican groups in state races.




    Michigan Gov. Rick Snyder prepares to deliver his State of the State address to a joint session of the House and Senate in Lansing.Ben Wiederhttp://www.publicintegrity.org/authors/ben-wiederhttp://www.publicintegrity.org/2014/06/11/14826/outside-money-pouring-governors-races

    0 0

    A new audit of the government’s estimated spending to maintain its nuclear deterrent in the next decade concludes that the expenses will likely be at least tens of billions of dollars more than the Energy and Defense departments have claimed.

    The report by the U.S. Government Accountability Office, a watchdog arm of Congress, is the second official rebuke in the past six months of a claim by Obama’s senior defense appointees a year ago that the likely expense would be $263.8 billion.

    Last December, the Congressional Budget Office suggested in its own report that administration officials had undercounted likely nuclear-related expenses by around 66 percent. Its calculations pegged the 10-year costs related to preserving the nuclear deterrent at a total of $570 billion, large enough to make the 30-year government-wide total plausibly exceed $1 trillion.

    The GAO, in a report released on June 10, did not estimate the exact size of the undercount. But it said the Pentagon had wrongly omitted from its formal estimate of nuclear-related work the projected costs of modernizing the U.S. ballistic missile and bomber forces, which the budget office has said may total $64 billion over the next decade.

    Defense officials told GAO analysts that the cost of replacing Minuteman III ballistic missiles was not included in the administration’s calculus because the program is “not yet defined,” even though it’s in the department’s plans, the report said. “An Air Force official added that specific estimates for the new bomber were considered too sensitive to include in the report.”

    GAO found those explanations wanting, and said the Defense Department should have included a range of likely expenses, even if the precise tallies cannot be forecast.

    GAO also said the Energy Department, in the administration estimate last year, had included “less funding than will be needed” to fulfill its ambitious plans for modernizing a series of nuclear warheads, including those for ballistic and cruise missiles. It also said the department had projected billions of dollars in savings from efficiency improvements that it had not figured out how to achieve. In addition, the report said Energy officials had excluded the costs of refurbishing or replacing several laboratories designed for special work with nuclear materials.

    “By not including preliminary estimates or ranges for these projects and programs, DOE underestimated the total anticipated cost and limited the utility” of the 2013 report, the GAO said.

    The report also said officials had not been transparent enough about how the administration estimated the costs of modernizing command links to the nuclear force, and that as a result it could not assess the accuracy of that assessment.

    The new administrator of DOE’s National Nuclear Security Administration, Frank G. Klotz, responded that his agency is now providing a sound range of cost estimates for its deterrent-related work. The assistant secretary of defense for nuclear programs, Andrew Weber, promised to do the same.

    An unarmed Minuteman III intercontinental ballistic missile launches in February during an operational test from a facility on north Vandenberg Air Force Base. R. Jeffrey Smithhttp://www.publicintegrity.org/authors/r-jeffrey-smithhttp://www.publicintegrity.org/2014/06/11/14935/federal-auditors-say-obama-administration-underestimates-nuclear-weapons-costs

    Warnning: Do NOT Get Caught While Searching!!
    Your IP : - Country : - City:
    Your ISP TRACKS Your Online Activity! Hide your IP ADDRESS with a VPN!
    Before you searching always remember to change your IP adress to not be followed!
    0 0

    A 2013 collaboration between the Center for Public Integrity and NPR has been honored with a prestigious Edward R. Murrow Award.

    The Radio Television Digital News Association announced Wednesday that the project, which examined preventable worker deaths in grain bins, had won the investigative reporting award in the network radio category.

    In online and radio stories, the Center’s Jim Morris and NPR’s Howard Berkes focused on a 2010 accident in Mt. Carroll, Ill., in which two workers, ages 14 and 19, suffocated while engaging in an illegal practice known as “walking down the grain.”

    Morris and Berkes reported that 26 people died in grain entrapments in 2010, the worst year in decades. And yet, from 1984 to 2013, the Occupational Safety and Health Administration cut initial fines for entrapment deaths by nearly 60 percent overall, an analysis by the news organizations found.

    The stories were part of “Hard Labor,” an award-winning CPI series on worker health and safety in America.

    Will Piper and Annette Pacas kneel at the grave of Pacas’s son, Alex, one of two young workers who suffocated in a grain bin in Mt. Carroll, Ill., in July 2010. Piper narrowly avoided death in the same incident. The Center for Public Integrityhttp://www.publicintegrity.org/authors/center-public-integrityhttp://www.publicintegrity.org/2014/06/11/14937/cpi-npr-collaboration-wins-edward-r-murrow-award

    0 0

    Well-heeled federal lobbyists are quietly helping embattled Democrats raise serious campaign cash ahead of November’s midterm elections, according to a Center for Public Integrity review of federal records.

    During the 15-month period between January 2013 and March 2014, Democratic candidates and groups easily raised more money from lobbyist-bundlers than Republicans did — about $3.7 million versus $2.5 million.

    No other political candidate or group received more money from lobbyist-bundlers than the Democratic Senatorial Campaign Committee, which raised nearly $2.6 million from them despite regularlycriticizinglobbyists and Republicans who associate with them.

    Records indicate that Senate Democrats from Senate Majority Leader Harry Reid, D-Nev., to Sen. Mark Udall, D-Colo., likewise collected bundles of campaign cash from lobbyists doubling as fundraisers.

    Reid, in fact, raised a larger percentage of his campaign cash from lobbyist-bundlers than any other member of Congress: 14 percent, or $357,000 of the total $2.6 million he raised. He next faces re-election in 2016.

    Udall, for his part, collected about $100,000, which represented about 1.4 percent of his $7.3 million in receipts.

    On the GOP side, lobbyists raised about $1.3 million for the National Republican Senatorial Committee. And they raised nearly $1.1 million for Sen. John Cornyn, R-Texas, the Senate Republican whip who many worried would see a competitive primary challenge this year.

    Cornyn’s haul from lobbyist-bundlers was a larger sum than any other individual politician collected and accounted for 11 percent of his total receipts.

    Bundlers, by definition, are elite political fundraisers credited by campaigns for raising money from relatives, friends or business associates. Lobbyists who bundle campaign contributions above a certain financial threshold are required by law to be identified in candidates’ reports with the Federal Election Commission.

    Critics contend that bundlers have undue influence over politicians. Congress addressed lobbyists’ fundraising activities in 2007, requiring them to disclose bundling activity in the wake of the Jack Abramoff corruption scandal.

    More recently, as part of his campaign to “change Washington,” President Barack Obama has eschewed money from registered lobbyists, and he banned lobbyists from bundling campaign contributions on his behalf. But many other political leaders in both parties have long benefitted from torrents of campaign cash steered their way by lobbyists.

    Lobbyist Tony Podesta of the Podesta Group ranked as the Democratic Party’s top fundraising ally on K Street, records show, bundling about $550,000 combined for Reid and the DSCC.

    Podesta, whose brother John Podesta serves as an adviser to Obama, represents a range of corporate clients, including drugmaker Amgen, BP, Google, Wal-Mart and Wells Fargo.

    Several Democratic campaigns also disclosed bundling by political action committees affiliated with ideological groups that also lobby.

    Hawaii’s Brian Schatz and Oregon’s Jeff Merkley both disclosed bundling activity by the League of Conservation Voters, while Kentucky’s Alison Lundergan Grimes and West Virginia’s Natalie Tennant reported collecting bundled contributions from the Council for a Livable World.

    On the Republican side, lobbyist Bill Paxon of Akin Gump Strauss Hauer & Feld — a former member of Congress himself — ranked as the most prolific fundraiser. He raised about $335,000 for the NRSC.

    Paxon's clients include the likes of trade group Pharmaceutical Research and Manufacturers of America, tobacco giant Philip Morris International and the city of Houston.

    Some House members, too, reaped riches from lobbyist-bundlers.

    For instance, Rep. Mac Thornberry, R-Texas, vice chairman of the House Armed Services Committee, received $40,400 from Larry Duncan, a lobbyist for defense contractor Lockheed Martin.

    Rep. Adam Smith, D-Wash., the ranking Democratic member of the House Armed Services Committee collected $18,200 from the PAC of Northrup Grumman, another defense contractor.

    And Rep. Tammy Duckworth, D-Ill., an Iraq War veteran and double amputee, reported raising $17,850 from the PAC of the American Orthotic and Prosthetic Association — a trade association that works “for favorable treatment” of the orthotics and prosthetic industry “in laws, regulations and services.”

    Overall, K Street giant Brownstein Hyatt Farber Schreck was credited with raising the most political money during the 15-month period: $789,400.

    The firm’s PAC bundled $508,500 for the DSCC and another $246,300 for the NRSC. Alfred E. Mottur, the former managing partner of Brownstein Hyatt’s Washington, D.C., office, also bundled $34,600 for the DSCC.

    Brownstein Hyatt’s clients include many blue-chip companies such as Comcast, Johnson & Johnson and McDonald’s.

    Kathy Kiely, managing editor of the Sunlight Foundation, says bundling is a way for lobbyists to “to ingratiate themselves even more” with politicians.

    Tom Susman, a lobbyist for the American Bar Association who is not himself a bundler, added: “The more money you’re responsible for putting into a candidate’s coffer, the more likely that you’ll get an audience.”

    The American Bar Association itself has called for lobbyists to refrain from fundraising for politicians whom they lobby.


    Senate Majority Leader Harry ReidMichael Beckelhttp://www.publicintegrity.org/authors/michael-beckelhttp://www.publicintegrity.org/2014/06/16/14924/lobbyists-boost-senate-democrats

    0 0

    When U.S. Sen. John Cornyn, R-Texas, needed help fortifying his campaign war chest against a pesky and potentially dangerous tea party challenger, a small army of lobbyists volunteered.

    Government influencers representing Goldman Sachs, Koch Industries and Lockheed Martin ranked among the “bundlers” who helped fill Cornyn’s coffers with nearly $1.1 million during 2013 and early 2014 — about $1 out of every $9 Cornyn raised — according to a Center for Public Integrity review of federal campaign finance filings.

    No other politician raised a larger sum from lobbyist-bundlers. And only Senate Majority Leader Harry Reid, D-Nev., who collected about $357,000 during the same period, raised a similar percentage from K Street-connected fundraisers, according to the analysis.

    Cornyn ultimately bulldozed Rep. Steve Stockman, R-Texas, and several lesser-known challengers in a March 4 intra-party battle.

    But despite his stature as the GOP’s second-highest ranking senator, Cornyn’s electoral success wasn’t initially guaranteed.

    A June 2013 poll sponsored by the University of Texas and Texas Tribune, for example, found that only 54 percent of Republicans viewed Cornyn favorably. In October 2013, Roll Callnamed him among the seven GOP senators “most vulnerable to a primary.” And after a November 2013 poll, Public Policy Polling warned that Cornyn was in “grave danger of losing a primary next year if a serious campaign is run against him.”

    Lobbyists’ previously unreported role in Cornyn’s campaign helped the incumbent avoid, in his own words, a “fair fight.”

    Big bundles from Koch Industries, Goldman Sachs

    Elite political fundraisers credited by campaigns for raising money from relatives, friends or business associates are known as “bundlers.” Registered lobbyists who bundle campaign contributions above a convoluted financial threshold are required by law to be identified in reports to the Federal Election Commission. The actual donors who compose each bundle, however, need not be revealed.

    Critics contend that bundlers have undue influence over politicians by gaining access through fundraising activity.

    In 2007, Congress itself required lobbyist-bundlers to disclose their activity following the Jack Abramoff corruption scandal. Nevertheless, many political leaders in both parties have long benefited from torrents of campaign cash steered their way by lobbyists.

    None have received more assistance this election cycle than Cornyn.

    Between January 2013, and March 2014, the Cornyn campaign disclosed 21 bundlers who collectively raised about $1.1 million.

    Nearly all declined to comment or did not respond to interview requests.

    Topping the list was William “Kirk” Blalock, a partner at the Washington, D.C.-based lobbying firm Fierce, Isakowitz & Blalock.

    Blalock, who previously served as President George W. Bush’s “lead staff liaison to the U.S. business community” according to his online biography, raised $153,500 for Cornyn, records show. He also personally donated the legal maximum of $5,200 to Cornyn’s campaign.

    Blalock lobbies for dozens of clients, including major companies such as Apple, BP, Coca-Cola, Ford and JPMorgan Chase, as well as trade associations such as the Business Roundtable and the Grocery Manufacturers Association, according to federal records.

    Brian Henneberry, a lobbyist for energy conglomerate Koch Industries, ranked as Cornyn’s second-most-prolific lobbyist-bundler, bringing in about $109,000.

    Through subsidiaries and associated companies, Koch Industries — which is ranked by Forbes as the nation’s second-largest private company — operates a host of businesses in Texas, including oil refineries, chemical plants, pipelines, a natural gas-fueled electric power plant and a cattle ranch.

    Billionaire brothers David and Charles Koch, who have pumped millions of dollars into conservative political causes, are the principal owners of the corporation.

    No other lobbyists were credited with personally bundling more than $100,000 — although a few came close.

    They include Goldman Sachs lobbyist Joe Wall ($98,000), Lockheed Martin lobbyist Jack Overstreet ($96,200) and National Association of Realtors lobbyist Jamie Gregory ($85,100).

    Jenny Werwa, a spokeswoman for the National Association of Realtors, declined to comment beyond saying that the organization backs “candidates who support the value of home ownership and the policies that support that.”

    In terms of sales volume, seven of the nation’s Top 100 association members were located in Texas, according to the Realtors’ most recent survey.

    Officials with Koch Industries, Goldman Sachs and Lockheed Martin did not respond to requests for comment.

    An opportunity ‘to educate’

    Airlines for America lobbyist Christine Burgeson was also among the bundlers identified as Cornyn’s campaign, being credited with raising $23,500. She also personally donated $3,100 to Cornyn’s re-election bid.

    Burgeson did not respond to requests for comment. But Airlines for America spokeswoman Jean Medina confirmed that the trade group sponsored a fundraising event for Cornyn. She noted that Texas houses the headquarters of two airlines — American and Southwest — and multiple airline hubs.

    “We support the re-election of Sen. Cornyn because he understands well the importance of the airline industry to the economy and jobs both in his home state and across the United States,” she said.

    Mike Graham, a lobbyist for the American Dental Association, said he doesn’t typically do a lot of fundraising events — but hosting one for Cornyn, whose father was a dentist, was a must.

    “The dentists always insist that I be involved in fundraising for the senator so I am,” said Graham, who was credited with raising about $31,400 for the Lone Star State’s senior senator in 2013.

    He called hosting a fundraising for Cornyn a “small way” for the American Dental Association to “acknowledge and appreciate” the senator’s understanding of their issues.

    “Fundraising gives us an opportunity to educate members of Congress,” Graham continued. “Getting that message across is not always easy.”

    ‘Gotten in well with lobbyists ‘

    Why do corporate lobbyists care for Cornyn so much?

    For one, he’s good to their clients.

    Cornyn has long cultivated a reputation for pro-business and pro-energy politicking. The conservative Club for Growth, for example, gave him a 93 percent rating on “pro-growth” policies during 2013 — tied for eighth among the Senate’s 100 members.

    In Congress, Cornyn co-founded the bipartisan Texas Shale Oil and Gas Caucus, and he has called for the construction of the Keystone XL pipeline, , designed to bring Canadian tar sands oil to the Gulf Coast for refining. His official Senate website calls him“an ardent proponent of maximizing Texas’ and America’s energy resource potential.”

    He has also advocated for the repeal of President Barack Obama’s signature health care law, for increasing the nation’s border security and for separating defense spending caps from domestic ones, which would allow Congress to propose larger military budgets.

    Cornyn — already powerful in the Senate — could also find himself in line for a promotion if Senate Minority Leader Mitch McConnell, R-Ky., loses this fall to Alison Lundergan Grimes, his well-funded Democratic challenger.

    A spokesman for Cornyn did not respond to multiple requests for comment.

    Andrew Wheat, research director of the left-leaning nonprofit Texans for Public Justice, said he was “not shocked” to see Cornyn collecting so much campaign cash from lobbyists.

    “This guy has got a long history of taking money from big business and delivering for big business,” Wheat said.

    That opinion was shared by Dave Nalle, a regional director of the Republican Liberty Caucus, a conservative group that calls itself “the conscience of the Republican Party.”

    “Cornyn has gotten in well with lobbyists,” he said. “He’s done the things they want.”

    $150,000 a week

    Cornyn’s Washington workload has also included a rigorous fundraising schedule that offers lobbyists and their clients opportunities to meet with him — for a price.

    Since December 2012, when special interest groups — including the political action committees of Koch Industries, Boeing and Amgen — threw Cornyn a “campaign kick-off reception” at the National Republican Senatorial Committee’s headquarters, Cornyn has been fêted at more than a dozen known fundraisers in the nation’s capital, according to the Sunlight Foundation.

    Because the Sunlight Foundation’s database is not comprehensive, the actual number is likely larger.

    Cornyn raised an average of about $150,000 per week from all sources during the 15 months ahead of his primary, federal records indicate.

    His strategy, he recently told the Washington Post, “was the same as Norman Schwarzkopf’s in Desert Storm: overwhelming force. We didn’t want to have a fair fight.”

    Stockman, who ran a lackluster campaign, raised slightly more than $100,000 during his entire, short-lived Senate race.

    Meanwhile, David Alameel, Cornyn’s Democratic opponent in November, has already pumped more than $9.3 million of his own money into his Senate bid — and spent nearly the same amount.

    As of early May, Alameel reported about $65,000 cash on hand compared to the $3.3 million Cornyn had in the bank as of March 31, the date of his campaign’s most recent FEC filing. Cornyn is a heavy favorite to win a third term this fall.

    Kathy Kiely, the Sunlight Foundation’s managing editor, says bundlers provide “a concierge service for politicians in need of campaign cash.”

    Her organization’s database shows that multiple breakfast fundraisers were held for Cornyn at posh D.C. spots such as Charlie Palmer Steak, Johnny’s Half Shell and the headquarters of BGR Group, the lobbying firm co-founded by former GOP Gov. Haley Barbour of Mississippi.

    There were also fundraising luncheons at restaurants near the U.S. Capitol such as Art and Soul and Bistro Bis. There was even a “birthday BBQ” for Cornyn at the Texas-themed Hill Country Barbecue Market in downtown Washington, D.C., a venue where all-you-can-eat brisket is de rigueur and Lone Star favorites like Shiner Bock and Tito’s Texas Vodka flow freely.

    Tom Susman, a lobbyist for the American Bar Association who is not among Cornyn’s bundlers, argued that lobbyists wouldn’t waste their time bundling “if it wasn’t worth something.”

    “There’s a tendency to reward someone who does a favor for you,” he said. “That’s human nature.”


    Sen. John Cornyn, R-Texas, speaks at the 2014 Conservative Political Action Conference.Michael Beckelhttp://www.publicintegrity.org/authors/michael-beckelhttp://www.publicintegrity.org/2014/06/16/14925/how-lobbyists-helped-build-john-cornyn-s-election-war-chest

    0 0

    A year-long investigation by the Center for Public Integrity has revealed that health insurers may have fleeced taxpayers out of $70 billion in just five years.

    You would think members of Congress in both parties would be so outraged they’d be launching their own investigation and railing against the “fraud and abuse” they decry on the campaign trail.

    But I’m not holding out much hope. That’s because I know just how powerful and influential the health insurance industry is and how its lobbyists almost always get what they want out of Congress and the White House, regardless of who is sitting in the Oval Office.

    The Center’s Medicare Advantage Money Grab investigation, led by veteran reporter Fred Schulte, found that:

    The findings did not come as a shock to me. During my two decades in the industry, at both Humana and Cigna, I came to understand just how much of a cash cow the Medicare Advantage program has become to insurers participating in the program. Wall Street financial analysts devote considerable attention to determining how much insurers’ Medicare Advantage business contributes to their bottom lines and how much of the money they take in from the government is actually paid out in medical claims. The less they spend on medical care, the better, from Wall Street’s perspective.

    This is a huge business, and it’s growing rapidly. This year alone, the government is expected to pay private insurers $150 billion to cover about 16 million Medicare beneficiaries. Almost one of every three Medicare enrollees now belongs to a privately operated Medicare Advantage plan.

    Because the business is so profitable, insurers spend millions of dollars on lobbying, advertising, PR and “grassroots” political activities to keep the money flowing unimpeded.

    It’s not been a secret that the government has been overpaying the private insurers. The Congressional Budget Office has provided lawmakers with estimates of the overpayments a number of times in the past. One health policy expert testified that the extra payments to Medicare Advantage plans averaged 13 percent — or $1,100 per enrollee — in 2009 alone. In an effort to fix the problem, lawmakers included a provision in the Affordable Care Act to reduce the overpayments by several billion dollars over the next several years.

    That prompted the industry to launch an intensive campaign to try to forestall those reductions. Having served on the strategic communications committee of America’s Health Insurance Plans, I can imagine how sophisticated and multi-pronged the industry’s campaign really is.

    As I noted last January, AHIP formed a front group call the Coalition for Medicare Choices to intimidate lawmakers by posting ads on Washington buses and subway trains and on TV stations serving the area. The ads, which were part of a seven-figure campaign, warned that seniors would face higher costs, fewer benefits and a loss of provider choice if Congress and the Obama administration didn’t act to keep plan rate cuts from going into effect.

    In a POLITICO story at the time, an industry source was quoted as saying that, "If CMS (the Centers for Medicare and Medicaid Services) doesn't keep Medicare Advantage payment rates flat next year, it is going to create a huge political problem for members of Congress this fall when they have to face millions of angry seniors who just found out they are losing benefits and choices they were promised they could keep."

    The industry has played the intimidation card many times over the years, and members of Congress, Democrats as well as Republicans, know it. When I was an industry executive, we used to joke about the “granny fly-ins” — all expenses-paid trips for hundreds of seniors to D.C. for a day of lobbying — coordinated by AHIP.  

    Even Charles Schumer of New York, who chaired the Democratic Senatorial Campaign Committee from 2005-2009 and is the third ranking Democrat in the Senate, has become a champion of the Medicare Advantage program. Schumer was among 40 members of Congress who signed a letter to CMS supporting the insurers’ cause earlier this year. Schumer and his colleagues wrote that seniors who join the plans “enjoy better health outcomes and receive higher quality care than their counterparts in the Medicare fee-for-service program.”

    The effort paid off. Health plan executives and financial analysts were happy that the relatively minor reductions were “not material to earnings,” to use Wall Street jargon.

    Print ad from Coalition for Medicare Choice's campaign "Seniors are Watching"Wendell Potterhttp://www.publicintegrity.org/authors/wendell-potterhttp://www.publicintegrity.org/2014/06/16/14941/health-insurance-lobby-keeps-medicare-advantage-overpayments-flowing

    0 0

    Auditors for the office that oversees the approval of all federal security clearances have apparently located the most productive federal contract worker in America.

    An unnamed employee at U.S. Investigative Services (known as USIS) — the same private company that processed Edward Snowden's clearance to work at the NSA — managed to review a startling 15,152 clearance cases in a single month during fiscal 2013, according to an Office of Personnel Management inspector general’s report.

    USIS is a private firm spun off from the government that does the arduous work of investigating the loyalty and integrity of applicants for sensitive federal jobs. Qualified officials are supposed to review information drawn from background investigations before granting some security clearance.

    OPM pays USIS to verify that the right data was assembled into a single package for final review. Figuring a 40-hour work week, the employee cited in the IG report reviewed 1 ½ cases a minute, a pace the OPM’s watchdog called, with some understatement, “abnormal.”

    It is not clear if the person still works at USIS, since the company declined to say. But in response to questions, OPM said on June 16 that the person no longer works on the agency's contract. OPM spokeswoman Lindsey S. O’Keefe declined to say however how many clearances USIS is presently processing and where those applicants want to work in the federal government.

    The two entities — still bound together by the purchase of "support services" and investigative fieldwork — are essentially in duck-and-cover mode in the wake of a Jan. 22 Justice Department filing that accused USIS of deliberately defrauding the government from March 2008 through at least September 2012, by pretending it conducted quality data reviews that never occurred. The Justice Department said USIS did this as matter of official policy, motivated by greed.

    In its response at the time, USIS said the allegations “relate to a small group of individuals over a specific time period” and that it has new leadership and better oversees its workers now. Allegations against the firm attracted particular notice because one of those whose application it processed was Edward Snowden.

    The new details of rote reviews are noteworthy in part because the actions in question fall outside the period mentioned by government prosecutors in their court filing. But the inspector general’s report also describes how OPM and its security clearance contractors are using software that flushes applications past internal quality reviews after 30 days — whether complete or not, a practice OPM calls “auto-release.”

    It says the practice is “a necessary fail-safe to eliminate workflow backlogs and move work along in deference to timeliness mandates.” That’s a reference to Congress’ requirement that the agency process 90 percent of clearance cases within 60 days — including 40 days for a background investigation and 20 days for review.

    The deadline was set to benefit applicants, but multiple reviews have shown that it caused the agency and its contractors — which often cannot conduct complex investigations that quickly — to cut corners.

    The report noted that contractors are “not conducting a pre-review of all investigative items as required.” It also said a sampling of paperwork for contract reviewers and support personnel failed to prove they had adequate training. “It is clear that USIS lacks internal controls over the retention of training documentation, as they could not provide the required … documentation for almost half of the personnel we reviewed,” it stated.

    USIS spokesman Patrick Scanlan said the company had no comment on the contents of the report. OPM’s director, Katherine Archuleta, said in a prepared statement that contractors do not conduct quality reviews anymore — the work has been federalized (again) — and that officials at OPM “appreciate the OIG’s diligence on this matter.” One of her aides also claimed, without allowing her name to be used, that audits and inspections of contractors have been increased.

    But OPM also told the inspector general that it is only “exploring” making changes in the software that flushes applications past the reviewers after a prescribed deadline. It said its officials would “recommend” to USIS that “it consider reevaluating its internal controls” to better oversee its reviewers and validate their training.

    USIS is continuing to work under two OPM contracts signed in 2011 and is "eligible for new contracts," OPM spokeswoman Jennifer Dorsey said.

    Headquarters for U.S. Investigations Services Inc., or USIS, in Falls Church, Virginia.R. Jeffrey Smithhttp://www.publicintegrity.org/authors/r-jeffrey-smithhttp://www.publicintegrity.org/2014/06/16/14945/federal-contract-employee-reviewed-15152-security-clearances-month-audit-says

    Warnning: Do NOT Get Caught While Searching!!
    Your IP : - Country : - City:
    Your ISP TRACKS Your Online Activity! Hide your IP ADDRESS with a VPN!
    Before you searching always remember to change your IP adress to not be followed!
    0 0

    On a recent Thursday, a light rain was washing against the office window of South Carolina's first-term attorney general, Alan Wilson. On the floor near his desk, about a dozen thick black binders spilled out of the bottom shelf of a bookcase and onto the carpet. Inside each of them: supporting documentation from a 10-month state police investigation into the sitting House speaker, Bobby Harrell, a fellow Republican and arguably the state's most powerful politician.

    “And that's just a preliminary investigation,” said Wilson, gesturing to the pile.

    The attorney general will not say what's inside the binders, and no one outside a handful of lawyers, prosecutors, law enforcement agents and grand jurors who are sworn to secrecy have seen what's in the report. The speaker of the House himself hasn't seen what's in it either, although he's called for Wilson to release the voluminous file to the public, maintaining he's done nothing wrong and decrying the grand jury probe as political in nature.

    But the question of what’s in those binders is but one of many queries that have riveted the Palmetto State as it struggles to cope with a scandal unprecedented even by the standards of this often ethically challenged state. Whether Wilson, the state’s top prosecutor, will be able to continue an investigation he turned over to a state grand jury in January has itself now come into question. A state court judge who was elected by the legislators — South Carolina is one of just two states that allow that — issued a stunning ruling last month that said the AG lacks jurisdiction over the powerful speaker. The judge ordered Wilson to shut down his probe. Wilson has appealed to the state Supreme Court, calling the judge’s order “unprecedented in American law and unsupported by any known legal authority,” and has vowed to press on. The state’s highest court has set a June 24 date to hear oral arguments.

    It might all just be good theater if the situation wasn’t so troubling, and if it didn’t remind folks of a disturbing history here. The merits of this probe — and whatever the speaker might or might not have done to warrant it — have lately taken a backseat to an even broader public debate about whether lawmakers in South Carolina are something of a protected class of citizen outside the reach of traditional law enforcement. Meanwhile, veteran Statehouse watchers are wondering whether any substantial ethics reform legislation — so vigorously pursued by the state's governor, Nikki Haley — will emerge from a conference committee, now that the legislature has actually adjourned for the year, and make it through the Senate in an extended session that ends this week.

    The whole sordid stew is raising fundamental concerns about South Carolina’s legislatively dominated government structure, the efficacy of self-policing lawmakers and the integrity of the state's institutions, such as they are, from the General Assembly to the courts.

    For exhausted reformers like Lynn Teague, a lobbyist for the League of Women Voters of South Carolina, the stakes are more than a little daunting.

    “I don't think there's anything more crucial for our state government than what happens with this,” she says.

    'Worst it's been in a long, long time'

    In August 2012, when Wilson boarded the state plane with Gov. Haley for a whirlwind tour of the state to promote ethics reform, the attorney general could not have imagined how the situation would look on the ground less than two years later. During the second part of the legislature's two-year session that ran from January to June of this year, lawmakers had been ripping apart an omnibus ethics reform package like ravished barbecuers at a backwoods pig pickin'; reformers wonder if even a watered-down version which recently came out of a conference committee and heads to the Senate this week might ever make it to the governor's desk this summer. Meanwhile, Wilson’s own campaign finances are under scrutiny as he fights to keep control of his investigation into the House speaker.

    Irony, tragedy, farce. It’s all playing out under the Statehouse dome, where a statue of slavery defender John C. Calhoun looms in the lobby and a Confederate flag ruffles in the hot breeze on the grassy grounds outside.

    Ethics reform has been on the agenda of lawmakers here for more than two years now, ever since South Carolina earned an 'F' from the State Integrity Investigation, a project of the Center for Public Integrity, Global Integrity and Public Radio International, which graded the states on their transparency, accountability and risk for corruption. But despite calls for substantive reform from media, public interest groups and even the governor — who set up a blue-ribbon commission and toured the state using the SII report card as a prop — the status quo threatens to fester like a backwater swamp.

    Those expecting a package of legislation that might actually close loopholes, tighten up ethics rules and fix some of the state’s fundamental problems, such as the way lawmakers police themselves, or what kinds of personal income they’re required to disclose, have seen such attempts unravel in spectacular fashion.

    Along this twisted road, warning signs appeared early that the whole effort might be little more than a cruel joke.

    During one memorable day last spring, a mysterious bill that purported to deal with ethics reform popped up in a House committee. Sponsors of the curious measure, including the House speaker, had introduced it as a “shell bill,” which meant there was a summary but no full text about what was in the proposal. Lawmakers eventually made that text public — after they voted on it — and what was in it floored more than a few who had been following the ethics reform debate. The law would have actually decriminalized many ethics violations, including the use of campaign money for personal use. After media stories drew attention to that fact, lawmakers quickly moved to fix the measure.

    But the backroom political jockeying didn’t stop there.

    As the legislative session unfolded throughout 2014, House lawmakers tried to pass bills aimed at the attorney general, including one that would limit the AG’s investigative power by, for instance, deleting language from the state's constitution declaring that the attorney general is the “chief prosecuting officer of the state.”

    The legislative maneuvering led The State newspaper's associate editor and columnist Cindi Scoppe to liken South Carolina's politics to those of Italy — where Silvio Berlusconi's “minions in the Italian Parliament would pass laws to essentially invalidate the charges” when prosecutors brought them against the powerful prime minister.

    Mild-mannered Cathy Hazelwood, who has spent 15 years as a lawyer for the State Ethics Commission, says neighbors have been approaching her at church lately, asking what's so wrong up there at the Capitol. She tells them state government is dysfunctional.

    “It is absolutely, positively the worst it's been in a long, long time,” she says. “Even in the face of clearly defined problems, there's still not a movement to change.”

    As good-government types face the possibility of another year with no substantive movement on the ethics front, they’re also confronted with another matter that underscores deeper fundamental problems in this troubled little state. It comes back to the attorney general’s investigation into the House speaker, and whether he’ll be allowed to continue it.

    Political damage?'

    For Bobby Harrell of Charleston, arguably South Carolina’s most powerful politician, Valentine’s Day 2013 was less than romantic.

    The news leaked first out of the South Carolina Policy Council, a libertarian-leaning think tank housed in a two-story brick house in a leafy neighborhood just blocks from the Statehouse. Wilson, the first-term attorney general, a Republican himself and the son of a sitting congressman, said he'd directed the State Law Enforcement Division, commonly known as SLED, to investigate an ethics complaint alleging potential public corruption against Harrell, the Republican House speaker — a complaint lodged by a private citizen.

    The revelation hit the state’s tight-knit political circles like a bunker-buster bomb. A wealthy 58-year-old Charlestonian with salt-and-pepper hair and a boyish face, Speaker Harrell runs an insurance agency and pharmaceutical repackaging business. He pilots his own private airplane from a home on the coast to Columbia during the five-month legislative session, during which he holds perhaps the most concentrated amount of power of any state lawmaker in the country. Over the years Harrell has raised hundreds of thousands of dollars and been re-elected without substantial opposition, receiving heavy support from businesses like AT&T and the health care and energy sectors, as well as institutions such as the state Chamber of Commerce.

    The citizen who filed the complaint? Ashley Landess, the fiery and outspoken president of the Policy Council. She wanted the AG to look into whether the speaker had used his office to get a state permit for his pharmaceutical business, had improperly appointed his brother to a state panel that screens judges and had used hundreds of thousands of dollars in campaign donations for personal expenses such as operating his plane, among other items. Once tied closely to the mainstream Republican elite in South Carolina, the nonprofit Policy Council under Landess, an intense, blonde woman who began captivating tea party audiences since around 2009, became more aligned with the limited-government movement. Along with doing policy analysis for lawmakers, the Policy Council, which does not disclose its donors, crusades for ethics reform and seeks to reduce both secrecy in government and the legislature’s concentrated power.

    Taking the complaint to the attorney general was an unusual move, and one that's sparked its fair share of drama ever since. Landess says she shouldn't have had to do it but was left with little choice. In South Carolina, lawmakers police their own ethical behavior in special legislative House and Senate ethics committees that are made up of their own members. Legislators therefore are outside the jurisdiction of the State Ethics Commission, an independent state agency that regulates statewide officeholders and other public officials. But Landess argued the speaker's unique power over his colleagues and friends in the House Ethics Committee, and over its staff, had created crippling conflicts of interest. The AG agreed and directed SLED to check out the complaint.

    In an interview in his office last month, Wilson said he initially expected he might hear back from SLED in a few weeks about the inquiry with reports of poor bookkeeping, or perhaps something minor the House Ethics Committee might be able to take up.

    “Ten months later, see all those black notebooks?” Wilson said, pointing toward a bookshelf near his desk. “I get that back, including the ones on the floor.”

    Wilson pored over the report with the chief of SLED and about a dozen agents, lawyers and prosecutors. What was in it, says Wilson, convinced the group to unanimously agree to take the next step and impanel a state grand jury, which turned the matter into a criminal probe. Wilson announced the news in January — just one day before Speaker Harrell was to don his blue robe and gavel the House into order on its first day of the legislative session.

    A stunned and angry speaker said the timing wasn't a coincidence.

    “I believe it was intended to inflict political damage to me,” Harrell said during a hastily called news conference, without being specific. “However, the facts still are that I have not broken the law. … I still have not done anything wrong, and fully expect that will be the ultimate outcome of this process.”

    For months, Harrell said, SLED agents had been telling him they weren't concerned with anything they'd found throughout their investigation.

    And the speaker's spokesman, Greg Foster, says Wilson expressing surprise at a massive SLED report landing on his desk after 10 months doesn't square with what Harrell had been hearing from the agents during multiple rounds of questioning. It's the speaker's understanding, Foster says, that Wilson was asking SLED agents to widen the scope of their probe each time they came back with what Foster describes as a “clean report.”

    “This was a pure fishing expedition,” Foster says. “The AG's office was clearly running their own parallel investigation.”

    Since the inquiries began, Harrell has not been charged with any crime, and has maintained he's followed the law in regard to his campaign funds and other allegations against him.

    For their part, his colleagues in the House and Senate have avoided the matter as if it were a toxic poison — as has Gov. Haley. Even the state's Democratic Party, whose lieutenants have taken any opportunity to criticize Haley during this election year, has stayed out of the Harrell-Wilson fray.

    But that doesn't necessarily surprise Landess, who doesn't believe there's much ideology left at the Statehouse. The power dynamic among politicians here, she says, is more about who can get what for themselves, and how.

    “They either don't want to challenge him, or they really don't want to see the system crash,” Landess says of state legislators and their relationship with the speaker. “I think it's because they generally believe they live in a club. They don't see themselves as representatives of us at all.”

    All this news comes as Haley has been pushing a narrative calling South Carolina the new “it state,” a place where manufacturers and other businesses should locate; over the past few years, big companies like Michelin, Boeing and Amazon have broken ground here. Charleston, meanwhile, is topping lists as a world travel destination, and the capital city of Columbia's urban core is undergoing a renaissance.

    'The judge is wrong'

    But such a high-profile scandal could threaten to drown out that narrative. Five months after news of the grand jury dropped, the twists and turns in this dramatic political story continue to grip the state. From the Drip coffee house on Main Street near the Statehouse to after-hours downtown political hangouts like Garibaldi Cafe, talk inevitably turns to the most recent bombshell in the titanic clash between two of the state's most prominent political players.

    Now at issue: the explosive May 12 ruling by Circuit Court Judge Casey Manning in Columbia that ordered Wilson to drop his investigation. Assisted by two of the best attorneys in the state, both with long backgrounds in prosecuting and defending public corruption cases, Harrell had taken Wilson before a judge, trying to get him removed from the case. Harrell and his lawyers argued that Wilson had called a meeting with a legislative employee of Harrell’s and issued a veiled warning that he wanted a certain bill passed that gave the AG a new unit in state government to investigate public officials. But the judge didn’t rule on that matter, instead raising a much different one on his own. Did Wilson even have jurisdiction to investigate Harrell? The judge asked for briefs from both sides on that question and then ruled against Wilson.

    “Despite multiple requests, the Attorney General has failed to offer or present to the Court any evidence or allegations which are criminal in nature,” Judge Manning wrote in his order, a line which shocked Wilson, who had said in court that he didn’t want to go into detail about the merits of the case in public because of confidentiality rules.

    Furthermore, the judge wrote that while Wilson claims the case against the speaker “rises to the level of criminal activity under his jurisdiction,” violations of the Ethics Act are civil and not criminal in nature, a finding with which Wilson vigorously disagrees.

    "The Attorney General's initiation of this matter is premature," Judge Manning wrote in his order. "Any investigation by the State Grand Jury at this stage is illegitimate."

    Instead, the judge wrote that allegations of ethics violations against the speaker must first be heard in the House Ethics Committee. That's the panel made up of the speaker's colleagues, and staffed with people whom the speaker employs. Wilson said those potential conflicts were enough to decide to take on the case himself.

    Two years ago, the same judge had ruled that a private citizen could not take Gov. Haley to court for alleged ethics violations that stemmed from her time as a House member. Instead, he’d ruled that a citizen must submit a formal complaint to the House Ethics Committee, which regulates the behavior of current and former members. That committee, then made up of five Republicans and one Democrat, eventually cleared Haley, a Republican herself, of wrongdoing. The public media circus, however, eventually led lawmakers to change the committee’s structure to include five members of each party.

    But the idea that a judge might one day rule that the legislature is in effect the only place for a lawmaker like the speaker to face scrutiny over potential ethical violations that might or might not be criminal is, well, eliciting a fair amount of discussion. Indeed, during oral arguments before Circuit Judge Manning in court on May 2, South Carolina's three previous attorneys general, Travis Medlock, Charlie Condon and Henry McMaster, looked on in collective astonishment at the possibility of such a decision.

    “Over the past thirty years, not one of us ever imagined the Attorney General needed authorization from a legislative committee or political body in order to investigate or prosecute alleged criminal behavior by an elected official,” the three wrote in a statement.

    “The judge is wrong,” current Attorney General Wilson says flatly. He worries such a ruling could create a dangerous precedent undercutting the power of the attorney general's office. In his appeal to the state Supreme Court, the AG called it “unimaginable that the Legislature intended to grant itself immunity from criminal investigation.”

    To hear Wilson tell it, the judge has basically created a world in which the only route for the speaker of the House in South Carolina to be prosecuted for criminal conduct under the Ethics Act, or public corruption in general, is through a complaint to a committee staffed by folks who work at the pleasure of the speaker. Meanwhile, the House members of that committee rely on the speaker for their appointments to other committees and of course need the speaker's help to pass legislation that's important to them and their constituents. Half of the committee's members have also taken campaign money from an influential political action committee with ties to the speaker.

    “I don't think it's fair to the people of this state when one person, either the speaker or any other influential person, can control the very committee that polices them,” Wilson says. “I just think it's wrong.”

    The House speaker's hometown newspaper, The (Charleston) Post & Courier, which first raised questions in September 2012 about the powerful lawmaker's use of campaign funds, has been outspoken on its editorial page about the problematic issue of having a self-policing legislature.

    “One of the biggest shortcomings of ethics laws in this state is that legislators are allowed to make the call on complaints against their colleagues,” read an unsigned April editorial, while another stated that kicking the Harrell case to the House Ethics Committee would be “a particularly bad idea, in view of the broad influence that Speaker Harrell wields in the House.”

    But Jay Bender, a lawyer who represents the South Carolina Press Association, says Manning's ruling has some practical benefit.

    “I think it's good to decide the jurisdictional issue before anything else happens,” he says.

    Not surprisingly, Speaker Harrell has applauded the judge’s ruling. He’s accused the AG of disobeying the law by keeping the probe going. And he’s thrown down the gauntlet at Wilson, calling on the attorney general to request a special prosecutor to investigate his own campaign finances for potential ethics violations. Throughout Wilson’s first term, reporters have exposed that Wilson failed to report more than $100,000 in campaign funds, received more than the maximum contributions from some donors, and even took campaign money from a lobbyist, which state law prohibits. Harrell has said that if all Ethics Act violations carry criminal penalties,  then Wilson “himself is guilty of over 30 criminal violations, including accepting money from lobbyists, accepting money above the legal limit and failing to report a number of items.”

    Wilson, who has amended his filings and given back money at the request of the State Ethics Commission, the independent body that regulates him as a statewide officeholder, brushes off his disastrous campaign finances as merely mistakes made by underlings.

    A long, twisted history

    South Carolina has a long, tortured history when it comes to ethics in government. Many here still remember the shock of a 1990 FBI sting that at the time represented the largest legislative vote-buying scandal in American history. Known as Operation Lost Trust, the sting nailed 17 South Carolina lawmakers for accepting bribes from a well-connected lobbyist whom the feds had flipped and wired up as an informant after they busted him with a kilo of cocaine. The news embarrassed the people of South Carolina, and led lawmakers to pass what became known as the State Ethics Act in 1991.

    One of those who vividly remember the fallout from those dark days is John Crangle. A few miles from the Statehouse, the retired lawyer runs the state's chapter of Common Cause and has been spending evenings hammering away at a big metal typewriter in his office at nearby Limestone College, where he teaches political science. He's working on a book for the 25th anniversary of Lost Trust.

    Back then, Crangle was the only lobbyist for the Ethics Act, and he helped write the bill. What he's watched transpire in recent months, he says, has been captivating. As the director of Common Cause, he’d worked with the Policy Council’s Landess on the complaint against the speaker. For years the groups hadn’t shared much of anything, but lately a crusade for ethics reform at the Statehouse has created a strange bedfellows coalition in South Carolina, bringing together liberal organizations with libertarian ones, good government groups and others more focused on conservation and the environment.

    For Crangle, the current situation is a symptom of deep-rooted problems in the state’s culture that the political elite haven’t yet addressed. The system, he says, is riddled with conflicts.

    For instance, South Carolina is the only state other than Virginia with a system by which state lawmakers alone elect state court judges, including members of the Supreme Court. The way Crangle sees it, perhaps never has there been as glaring an instance where conflicts in that system are so apparent. This winter in fact, a rare race for Supreme Court chief justice took place under the dome of the Statehouse, and Speaker Harrell actively campaigned for the incumbent, Jean Toal, lining up votes for her against an associate sitting justice who wanted the top job. Toal eventually won re-election, and as chief it is Toal who will preside over four other colleagues on the bench during the June 24 arguments about whether the attorney general’s investigation into the speaker can continue.

    “I think that's an inherent difference that distinguishes South Carolina from 48 states and the federal government,” Crangle says. “Our government is a freak show in the sense that you have an abnormally powerful legislature doing things that legislatures in normal states don't do, like elect the judges and determine who the chief justice is.”

    He’s sent a letter to Toal and her opponent in this winter’s race, Costa Pleicones, asking that the two recuse themselves from hearing the Harrell arguments because the speaker’s electioneering in their election represented a potential conflict of interest.

    Meanwhile, as Wilson pushes his probe into the speaker, Crangle says, he wouldn’t have the black eye he’s sporting from his own campaign finance mess if the state had publicly funded elections for attorney general, a proposal Common Cause has long advocated.

    As Crangle researches his book on Lost Trust, he’s feeling a sense of déjà vu. The state still has an extremely troubled political system and a law enforcement culture that tends to look the other way at potential public corruption, he says. For instance, the Lost Trust sting was not triggered by any legislators or local and state law enforcement, but rather by federal authorities. He sees the genesis of the recent high-stakes investigation into the speaker similarly. Outside groups like Common Cause, the Policy Council think tank and the media had to initiate it. Questions about Harrell's finances or business dealings hadn't been raised inside government or law enforcement in the near-decade he's been speaker or since he was elected to the House in 1993.

    “Wilson didn’t want to do this; it took a cattle prod to get him moving in the right direction,” Crangle says, adding that the current AG is the first person “to really go after a high-profile political figure at the state level in my memory.”

    Back in his office at the Statehouse complex, Wilson has been working as late as 11 p.m. preparing for the June 24 showdown at the high court; he's expected to personally argue before the five justices. “No man in this country is so high that he is above the law,” prosecutors in his office wrote in a 50-page legal brief for the hearing. The brief also called it “inconceivable that the General Assembly intended to make legislators a protected class as compared to other state officials and employees, to be prosecuted only when their colleagues consent.”

    But even after the arguments take place in what's likely to be a packed courtroom just a block from the Statehouse, it’s becoming clear that this strange story won’t likely end even there.

    “If the Supreme Court shuts down the state grand jury,” says Wilson, “what's to say we just don't keep investigating outside of the state grand jury?”

    South Carolina Gov. Nikki Haley gives her 2012 State of The State address to the joint session of the legislature as Speaker of the House Bobby Harrell looks on, at The Statehouse in Columbia, S.C.Corey Hutchinshttp://www.publicintegrity.org/authors/corey-hutchinshttp://www.publicintegrity.org/2014/06/17/14942/ethical-mess-south-carolina

    0 0

    A federal appeals court has scrapped a 2010 foreclosure ruling in favor of Wells Fargo Bank after a Center for Public Integrity investigation revealed that one of the three judges who participated in the decision owned stock in the banking giant.

    But Mountaga and Michelle Johnson Bah, the couple fighting to keep their Bowie, Maryland, home, didn’t get the decision they wanted when a new panel of judges reopened the case. On June 10, the 4th U.S. Circuit Court of Appeals once again dismissed the couple’s claims accusing Wells Fargo of predatory lending.

    “I do not agree with it,” Mountaga Bah said of the most recent judgment.

    “I’m not going to give up,” he added. “I am not going to leave my home.”

    The Virginia-based appeals court reopened the case at the Bahs’ request. The couple had challenged the judgment after the court acknowledged in March that Judge Barbara Keenan owned $1,900 worth of stock in Wells Fargo at the time she participated in the 2010 ruling favoring the bank.

    In a May 27 letter to the court, Bah called the original appeals court judgment unfair and urged the court to reopen the case. “The only decision we are looking for is the dismissal of the decision and to save our home with our three little girls,” he wrote.

    The Center identified the conflict while reporting its months-long “Juris Imprudence” investigation, which found 26 examples since 2010 where federal appellate judges ruled on cases in which they had a financial conflict. By law, judges cannot own even a single share of stock in companies that come before them. 

    In response to the Center’s findings — and as required under court rules — judges in all of those cases had letters sent to the litigants to alert them of the conflicts. The letters were the first step in possibly reopening the cases.

    Keenan’s case is the fourth to be reopened due to the Center’s reporting.

    Of those cases, one other case had a panel reach the same decision as the first. In April, the 4th Circuit favored General Electric in a civil rights suit after an initial decision was thrown out because Judge Allyson Duncan controlled an estate that held stock in the company.

    Two other cases are still pending. Many of the others remain in limbo.

    Jim Hines, a spokesman for Wells Fargo Home Mortgage, declined to discuss the Bah foreclosure case in detail. “We believe the decision was appropriate,” he said.

    For now, the Bahs remain in their home, partly because they filed for bankruptcy in 2009. But Bah said he is struggling to keep up with mortgage payments. And he said he is feeling overwhelmed by the legal process.

    Despite the latest setback, though, he said he will continue his legal fight against Wells Fargo. Bah said he is currently looking for an attorney to help him file an appeal to the U.S. Supreme Court.



    Chris Younghttp://www.publicintegrity.org/authors/chris-younghttp://www.publicintegrity.org/2014/06/17/14946/fourth-case-reopened-after-center-uncovers-judicial-conflict-interest

    0 0

    The Internal Revenue Service will propose new and specific rules defining how much money “social welfare” nonprofits may spend on political campaigns, Commissioner John Koskinen said Tuesday during an interview for an upcoming Center for Public Integrity investigative report.

    Such rules could curb the influence of “dark money” nonprofits engaging in overt political activity that proliferated after the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in 2010.

    The new rules would seek to define what constitutes political activity. The new regulations could also further regulate labor unions and trade associations — two kinds of politically active nonprofits that the IRS didn’t address in a highly contentious rulemaking attempt the agency itself short-circuited in May. 

    “There are three issues: What should be the definition, to whom should it apply and how much … can you do before you jeopardize your exemption?” said Koskinen, the IRS' top official who took office in December.

    The IRS asked for comments on all three issues but addressed only one in the first round of proposed regulations.

    “The next resolution will differ from the first draft because it will deal with all three questions,” he said.

    Sitting on Koskinen’s desk at IRS headquarters in Washington, D.C., was a 4-inch binder with 1,200 pages: a sampling of comments on all sides of the three issues.

    He said he plans to personally read 85 to 100 comments and ultimately wants to see “regulations that are fair to everyone, clear and easy to administer.”

    “We’d be much better off if we had clearer definitions and a clearer roadmap,” he said.

    Such definitions, Koskinen said, wouldn’t just benefit the IRS but “people running 501(c)(4)s in terms of knowing what they can do and can’t do, what the rules are." Nonprofit leaders, he added, shouldn't get "surprised or concerned that when they undertake more of an activity that after the fact somebody is going to say, ’You’ve now jeopardized your exemption.’”

    Koskinen said he expects a new draft of the regulations to be out by early 2015. At that point, people will be able to weigh in with additional comments in writing or at public hearings.

    The IRS issued its first set of regulations, proposed in November, only to withdraw them this year after receiving more than 150,000 public comments. Many comments were highly critical and came not only from conservative organizations stung by the recent targeting of tea party-related and other nonprofit organizations but some liberal groups that feared the rules would affect nonpartisan activities, such as voter drives or candidate forums.

    Social welfare groups, organized under Sec. 501(c)(4) of the U.S. tax code, must operate “exclusively to promote social welfare” and “primarily to further the common good and general welfare of the people of the community,” according to the IRS.

    Some people have interpreted that to mean campaigning expenses may only constitute less than half of a “social welfare” nonprofit’s total expenses.

    Koskinen explained that the IRS today determines whether a social welfare nonprofit is getting too political based on the “facts and circumstances” of each case. He acknowledged that this is “subjective” and makes it difficult for nonprofit leaders to determine “when are they getting too close to the line” with their politicking.

    Koskinen didn’t say what, precisely, the IRS will propose as a political spending threshold for various nonprofits.

    Without clear rules, politically active social welfare nonprofits — such as conservative Crossroads GPS and liberal America Votes—  have largely operated without fear they’ll lose their tax exempt status or be forced to register as a political committees that must publicly reveal their funders. Labor unions and trade associations, like social welfare groups, are not required to disclose their donors.



    Internal Revenue Service Commissioner John Koskinen explains how his agency wants to regulate politically active nonprofits during an interview on June 17, 2014, at the agency's headquarters in Washington, D.C.Julie Patelhttp://www.publicintegrity.org/authors/julie-patelhttp://www.publicintegrity.org/2014/06/18/14960/irs-chief-promises-stricter-rules-dark-money-nonprofit-groups

    0 0

    The California Public Employee Retirement System requires that bonds it holds be rated by one of the top three credit raters even after it sued those companies for issuing “untrue, inaccurate and unjustifiably high credit ratings.”
    “These credit ratings were false at the time they were initially assigned, and continued to be false during the existence of the” investments, Calpers, the nation’s biggest pension fund, claims in its 2009 lawsuit against Moody’s Corp., Fitch Inc. and the parent company of Standard and Poor’s. The state pension fund says the bad ratings cost it as much as $1 billion.
    That Calpers still depends on S&P, Moody’s and Fitch to rate its investments shows how much power these companies continue to wield in the global financial industry even after several investigations concluded their AAA ratings on mortgage bonds and other complex investments helped lead directly to the 2008 financial collapse. Calpers settled with Fitch without receiving payment, and the suit against S&P and Moody’s is pending.
    Calpers, which manages $288 billion in assets, isn’t alone. Most major pension funds, insurance companies and mutual funds require investments in corporate bonds, mortgage bonds or collateralized debt obligations be rated by one of the three major ratings agencies.

    Pimco, the world’s largest bond investor, also requires many of its investments to be rated by S&P and Moody’s even after its chairman, Bill Gross, in 2007 vividly thrashed the two companies for giving high ratings to trash investments.

    “What was chaste and AAA years ago may no longer be the case today,” Gross wrote in his weekly investment outlook. “You were wooed, Mr. Moody’s and Mr. Poor’s, by the makeup, those six-inch hooker heels and a ‘tramp stamp.’ ”

    The ratings industry has mostly escaped reform despite its central role in the financial crisis because the Securities and Exchange Commission has failed to implement many proposed changes and the companies themselves have fought off others.

    The Dodd-Frank financial reform law, which passed in 2010 in response to the crisis, devoted an entire section to fixing the broken credit rating industry.

    The changes were supposed to boost oversight, increase competition, reduce investor reliance on credit ratings, and make the companies liable for negligent practices. The law also required the SEC to consider changing the entire business model to eliminate the conflicts of interest that arise when credit ratings are paid for by the companies issuing the securities.

    Four years after President Barack Obama signed Dodd-Frank into law, many of the reforms to the credit rating industry have not been implemented, and the private sector continues to rely on the same companies for investment opinions.

    While lawmakers who worked on Dodd-Frank agreed the system needed a fix, they disagreed on how to do it, according to congressional staffers involved in writing the law. The result is a mishmash of vague mandates with contradictory goals that try at once to diminish the importance of credit ratings while increasing competition in the industry, to diminish conflicts of interest while failing to eliminate the central problem, and to create an oversight office with little authority.

    “The change has been minuscule,” said former Pennsylvania congressman Paul Kanjorski, D-Pa., who was an author of the credit rating section of the Dodd-Frank law. “I have to be honest. It was the most disappointing section the bill.”

    Rating inflation

    Undeserved triple-A credit ratings were one of the major accelerators of the financial meltdown of 2007 and 2008. Wall Street firms created wildly complex securities based on junk subprime mortgages and sold them to pension funds, insurance companies and other Wall Street banks because they carried the golden seal — AAA.

    In early 2007, S&P and Moody’s were rating mortgage bonds at record speed, putting their AAA stamp of approval on hundreds of billions of dollars of securities tied to home mortgages in a declining market. The two dominant companies, along with the smaller Fitch, controlled roughly 95 percent of the ratings market, according to various estimates.

    In the first two weeks of July, the companies issued investment grade ratings on more than 2,000 mortgage bonds and CDOs. Then, on July 10, 2007, Moody’s downgraded $5.2 billion in mortgage bonds, and S&P put $7.35 billion-worth on credit watch. Over the next few months the companies cut their ratings on thousands more mortgage bonds and collateralized debt obligations that depended on those bonds. The foundation of the U.S. financial system began to crumble.

    Banks at the time owned trillions of dollars worth of the bonds and couldn’t sell them as investors realized they weren’t as safe as the credit raters had claimed.

    The “massive ratings correction that was unprecedented in U.S. financial markets,” caused “an economic earthquake from which the aftershocks continue today,” said the Senate Permanent Subcommittee on Investigations in a 2011 report.

    Post-crisis investigations revealed that the rating companies had grown so focused on increasing their market share and boosting their profits that they apparently threw out most analytical standards and gave their seal of approval to bonds whose underlying mortgages would never be repaid.

    Mortgage bonds are made up of hundreds of individual loans that are pooled together. Investors are paid interest from the cash flow that comes from individual homeowners’ monthly payments. Those who buy the AAA-rated portion of the bond are first in line to get paid, but earn the lowest interest rate. Those who buy the lower-rated portions of the loan pool get a higher return but run a greater risk of not getting paid at all.

    The entire system was predicated on homeowners’ making their monthly payments. However, during the height of the housing bubble, in 2006 and 2007, mortgage companies were making enormous loans on overvalued homes without verifying borrowers’ income. Credit raters ignored the declining standards and increasing foreclosures, according to several investigations, and continued to deem home mortgages a safe investment.

    Ratings are ‘opinions’

    Just one day after President Barack Obama signed the Dodd-Frank act into law on July 21, 2010, the credit ratings section began to crumble.

    Ford Motor Credit asked the SEC that day for special permission to sell $22 billion in securities backed by car and truck loans without including credit ratings in its prospectus. The credit raters who had reviewed the deal were refusing to give Ford permission to include the ratings in their SEC filings, a move that would have amounted to them accepting legal liability for their work.

    “While we will continue to publish credit ratings, given the potential legal consequences, we cannot consent to the inclusion of ratings in prospectuses or registration statements without further study,” Moody’s said in a document published on July 15, 2010. S&P and Fitch made similar statements.

    Until Dodd-Frank, credit rating agencies were specifically excluded from being liable for any ratings they issue. But lawmakers including Sen. Jack Reed, D-R.I., and Rep. Mary Jo Kilroy, D-Ohio, specifically wanted ratings agencies to face the threat of lawsuits if their ratings are bad because these same companies, according to several investigations, ignored their own analysis and issued AAA ratings to investments that didn’t merit them.

    The new law removed the liability exemption and the companies cried foul. S&P, Moody’s and the others argue their ratings are merely opinions, protected under the First Amendment, and not subject to the rigorous standards of an expert assessment such as that of a company auditor. As forward-looking statements, they argued, ratings cannot be right or wrong.

    SEC rules require bonds backed by loans to include credit ratings in their initial filings. So when Ford went to the SEC complaining that no ratings agency would allow the automaker to include a rating in its filings, many analysts predicted the market would freeze, making it impossible for Ford and other companies to raise the capital they needed to operate.

    “They [credit rating companies] basically threatened to blow up the financial system if they didn’t get their way,” said Micah Hauptman of the Consumer Federation of America.

    Ford spokeswoman Margaret Mellott declined to say whether the company had asked every qualified rating agency to analyze their securities, and the SEC declined to say whether the agency had verified that no raters were willing to accept the liability.

    The SEC acquiesced immediately, saying it wouldn’t enforce the rule for six months. It then followed up four months later with a letter saying it would ignore the mandate indefinitely.

    It was the first clear of example of the power the ratings agencies continued to wield in the financial industry even after the crisis and subsequent investigations tarnished their image.

    The major credit rating companies make money by essentially assessing the likelihood that corporations, municipalities, school boards and national governments will pay off their debts. The ratings from S&P, Moody’s and others determine whether these entities will get credit and what interest rate they’ll pay.

    When Moody’s downgraded Greece’s bond rating to junk status in June 2010, investors demanded 6.08 percentage points more for their money than they did for German bonds. In the summer of 2011, S&P downgraded the debt of the U.S. government for the first time in history from AAA to AA+ when lawmakers threatened not to raise the debt ceiling.

    When it comes to structured securities such as mortgage bonds the rating is a judgment of whether those who invest in the safest part of the deal area likely to get all their money back, plus interest.

    SEC Chairwoman Mary Jo White and three other commissioners declined or ignored requests to be interviewed for this story.

    In a July 2011 hearing, John Ramsey, the agency’s deputy director of the Division of Trading and Markets, declined to say whether the agency intended to alter the conflicting rules so that credit raters would face liability, as lawmakers had required.

    “We haven’t done anything to alter [the rules] or what was done in the statute. The only thing that we did was to issue a no-action letter,” he said in response to questions.

    The SEC proposed eliminating the credit rating requirement and instead requiring issuers of mortgage bonds to make details of the individual loans publicly available. That plan was delayed in February, however, because of concerns that consumers’ private financial information would be made public.

    The Dodd-Frank law did make it somewhat easier for an investor to sue over a bad rating, if they could prove that the company “knowingly and recklessly” ignored evidence that their opinion was wrong.

    It’s a hard standard to meet, but it’s easier than before the law passed, when courts often ruled that the companies were protected by the First Amendment because their ratings were simply opinions.

    Commissioner Luis Aguilar said in an email that the agency still has a lot of work to do to fix the problems identified in the credit ratings industry during the financial crisis.

    “There are significant issues that require the commission’s attention,” he said.

    Conflicts of interest still in place

    While the liability reform was the first part of the law to die, another initiative designed to reduce conflicts of interest withered even before the law was signed.

    Several investigations into the causes of the financial crisis concluded that S&P and Moody’s wanted to gain market share and boost profits so badly that they gave AAA ratings to investments — particularly mortgage bonds — that didn’t deserve the high marks.

    “It was not in the short term economic self-interest of either Moody’s or S&P to provide accurate credit ratings … because doing so would have hurt their own revenues,” said the report by the Senate Permanent Subcommittee on Investigations.

    The investigations, including a Justice Department inquiry that ended in a lawsuit against S&P, found that the companies issuing securities would shop their deal between S&P and Moody’s in particular and see which company would give them the AAA rating on the most favorable terms. Issuers — including huge Wall Street banks such as JPMorgan and Goldman Sachs — paid as much as $150,000 for a rating on a mortgage bond offering, according to the Justice Department. A CDO rating could fetch as much as $750,000.

    Sen. Al Franken, D-Minn., tried to eliminate one major conflict by creating an independent agency that would assign the job of rating a new security to the agencies on a rotating basis.

    Franken’s amendment would have reduced “ratings shopping” by creating a system for assigning ratings rather than having issuers bid for them. The Senate approved it in May 2010 by a vote of 64-35. Then-Senate Banking Committee Chairman Christopher Dodd, D-Conn., and House Financial Services Chairman Barney Frank, D-Mass., opposed the bill, however, and opposition from the big-three firms was fierce.

    Lobbying by S&P, Moody’s and Fitch peaked in 2010, with the three companies spending a combined $3.6 million to influence lawmakers. That’s 59 percent more than the $2.1 million the three companies spent in 2007, just as the housing market began to teeter.

    Still, it’s just a fraction of the total spending on financial reform. The securities and investment industry spent nearly $106 million on lobbying in 2010, according to the Center for Responsive Politics.

    When the House and Senate got together to reconcile their versions of financial reform, the assigned ratings system disappeared. The law instead ordered the SEC to study the issue and change the system if it considered it to be in the public interest.

    The SEC published that study in December 2012, in which it described a variety of methods for assigning credit ratings but offered no opinion. S&P, Moody’s and Fitch all opposed a ratings assignment system in comment letters to the agency.

    The study concluded by recommending a roundtable on the issue, which was held in May 2013. An agency spokeswoman said the SEC staff is developing a recommendation for the commission but declined to say when that would come, and refused to say whether the agency believes it must act at all.

    Congress also mandated, as an alternative to the Franken amendment, that issuers of structured bonds make all the offering information available to every credit rating agency so those that aren’t hired to do the rating can publish one independently, without pay.

    Such unsolicited ratings could impose some discipline on credit raters that won the business, who would presumably not want to look like they were too generous with their AAAs. The system would also allow smaller companies to build a reputation in the market by issuing good ratings on their own.

    Since the law was passed four years ago, not one company has issued an unsolicited rating.

    S&P said in comments to the SEC that bond issuers designate all the deal information confidential, making it nearly impossible for the rater not officially hired to analyze the bond to publish an opinion without violating that confidentiality.

    The rule “was designed to address, among other things, the ‘issuer pay’ conflict of interest and to improve the quality of credit ratings,” the SEC’s Aguilar said. “The Commission should assess why this rule has failed to accomplish its goals and what else should be done.”

    Even with the evidence that competition for market share led to a “race to the bottom” in ratings standards, some lawmakers and advocates argued that boosting competition in the ratings industry — and diluting the power of the S&P-Moody’s duopoly — was the answer to fixing low-quality credit ratings.

    With that in mind, lawmakers also urged the SEC to increase the number of qualified credit raters by designating more companies Nationally Recognized Statistical Ratings Organizations. Now ten companies carry that title, but the industry is still dominated by S&P, Moody’s and to a lesser degree Fitch because private investors such as Calpers and Pimco still demand ratings from them.

    “You have the SEC granting a designation — an anointment … that has nothing to do with the quality of their ratings,” said Dan Alpert, managing partner at the investment bank Westwood Capital in New York.

    The Congress also tried to diminish the clout of the raters by ordering all federal agencies to delete any references to credit ratings – such as in rules on how banks measure the quality of their capital -- from federal regulations.  Government agencies such as the Federal Reserve, the Securities and Exchange Commission and the Federal Housing Finance Agancy are busy coming up with alternative ways to measure creditworthiness.

    The change may make ratings less important in some fields, but as long as private investors continue to rely on them, the ratings firms will continue to hold sway in the markets, analysts and investors said.

    Today, credit ratings for mortgage bonds and other complex debt securities are issued exactly as they were before the crisis. Bond issuers ask several raters their opinions and then choose which they want to rate the deal.

    When Redwood Trust, the largest post-crisis issuer of mortgage bonds, sought ratings for an offering last year, it provided information to Moody’s, S&P, Fitch and Kroll Bond Rating Agency, a relatively new and growing company.

    Redwood then dropped Moody’s from the group “because the sponsor disagreed with the preliminary assessment by Moody’s of the risks,” the company said in its SEC filing.

    When Goldman Sachs Group Inc. in March wanted to sell commercial mortgage bonds, it sought ratings from six companies and eventually chose three, Moody’s, Fitch and Kroll, and acknowledged in its filings that the other companies might not have given the deal the same ratings.

    In another offering, however, Redwood chose Moody’s, Fitch and Kroll over S&P even though S&P appeared to be giving it the most favorable rating terms.

    Redwood says it now has a policy of alternating between S&P and Moody’s since so many investment funds require a rating from one of those two.

    “A large number of the deals being brought to market have not only two, but generally three or four ratings,” said Guy Cecala, CEO of Inside Mortgage Finance, a trade publication that tracks mortgage-backed securities. “You never saw that in 2006 or 2007.”

    Cecala said companies may be getting several ratings to reassure investors that the ratings are credible after the reputational beating the ratings firms took during the financial crisis.

    With companies getting so many ratings, it’s hard to identify “ratings shopping” in the pre-crisis sense. Still, there are no regulatory or legal backstops in place to prevent the raters from lowering their standards to attract business.

    Good ratings equal good business

    While Dodd-Frank gave the SEC a way to avoid revamping the industry’s business model, the law did require the SEC to “prevent the sales and marketing considerations” from influencing credit ratings. The law says the SEC can revoke a credit rater’s federal registration if it violates that law.

    The SEC took a narrow view of this mandate however and wrote rules that simply prohibit sales personnel from being involved in the ratings process, a restriction that would do little to prevent the kinds of abuses that happened before the crisis, such as pressure from top management to boost market share or face consequences if an issuer went with a competitor with lower standards, according to Barbara Roper of the Consumer Federation of America.

    During the housing boom, mortgage bonds generated huge revenue and profits for credit raters. S&P’s 2006 revenue was $2.75 billion, primarily due to growth in so-called structured finance ratings, the company said in its annual filings.

    Structured finance products accounted for 44 percent of Moody’s $2.04 billion in revenue in 2006, according to the company’s annual report. “As in 2004 and 2005, U.S. structured finance was the largest dollar contributor to Moody’s revenue growth,” the company said. By 2008, Moody’s revenue had plummeted to $1.76 billion, with structured finance accounting for the biggest decline.

    The Senate report showed that during the boom years Moody’s managers threatened to fire analysts who were too conservative in their ratings of mortgage bonds.

    One manager told Moody’s senior analyst Richard Michalek “how he had previously had to fire [another analyst] … because of numerous complaints about [that analyst’s] extreme conservatism, rigidity and insensitivity to client perspective,” Michalek testified at one hearing. “He then asked me to convince him why he shouldn’t fire me.”

    Roper of the Consumer Federation says the SEC’s rule wouldn’t address that type of influence because Michalek’s manager was likely not considered a “marketing” employee.

    One Dodd-Frank reform that has been effective is that the credit raters are required to publish their ratings methodologies and standards on their websites. That means investors can look at how Moody’s or S&P analyzes a security before giving it a rating, and can determine whether that method is adequate.

    The rating companies have to disclose every change in their ratings methods, or reaffirm each year that they are continuing to follow the previously published analysis.

    Investors, however, cannot independently confirm whether the raters are actually following those methodologies or deviating from them, as they often did when rating mortgage bonds before the financial crisis.

    The SEC has also been gentle in its oversight, taking another Dodd-Frank reform and strolling with it, rather than running.

    The agency set up an Office of Credit Ratings, as the law required, to ensure companies publish their ratings criteria for each type of investment, from corporate bonds to commercial mortgage securities to collateralized debt obligations.

    That Credit Ratings Office is barred from offering an opinion on the companies’ ratings methods. Rather, its job is to ensure the companies have effective systems in place so they don’t — as happened during the housing boom — simply throw out those criteria if their customers want a better rating than the models offer.

    That office has spent the last three years examining the practices of the companies that are registered as Nationally Recognized Statistical Ratings Organizations.

    In each of the annual reports, the SEC details a variety of ways the companies are not complying with their own internal rules and with government regulations. The problem: The SEC doesn’t name the companies in its reports, so investors cannot determine which companies actually follow the law and operate in the manner that they publicly claim to.

    “The staff found that a larger NRSRO did not maintain written procedures for certain key aspects of the rating process,” the report said, in one of several instances where it found problems at a company it didn’t name.

    S&P spokesman Ed Sweeney said the annual reports have shown that the industry has made progress in complying with the slew of new Dodd-Frank rules. He also said the reports show a greater degree of reporting than most regulated industries.

    “There aren’t many industries that have the reporting requirements with the SEC that our industry has,” Sweeney said.

    By keeping the companies’ names out of the reports, the SEC is undermining its own effectiveness, said Gene Phillips, a director at PF2 Securities, which evaluates CDOs for private investors. Phillips, who used to work at Moody’s, said companies would feel compelled to correct problems if the SEC identified them in the reports.

    “I think you’d start to see very significant changes if they made just a minor public announcement,” he said.

    An SEC spokeswoman said the agency doesn’t disclose the companies’ names because of “fairness and due process.”

    Quiet times for raters

    Credit rating companies’ revenues and profits have largely rebounded since the financial crisis, with Moody’s $2.97 billion in revenue last year far outstripping its 2007 pre-crisis peak. Revenue for S&P ratings, a subsidiary of McGraw Hill, reached $2.3 billion last year. The company has changed how it reports earnings by business so its 2013 revenue numbers don’t compare with those from earlier years.

    Ratings agencies have been on good behavior since the financial crisis, when they took a major beating from members of Congress, private investors and even the Justice Department, which is suing Standard & Poors, accusing it of knowingly giving fraudulent AAA ratings to risky mortgage-backed securities.

    S&P says it’s become much harder for an issuer to get those three As.

    Most residential mortgage bonds today require more so-called credit enhancement to earn a triple-A rating than they did pre-crisis. That means issuers have to set aside a larger portion of the loan pool for excess collateral. Today most mortgage-backed securities have to “subordinate” more than 7 percent of the bond sale to absorb losses and protect the AAA-rated portion, compared to about 4 percent in 2006.

    “Credit enhancement has gone up by at least 50 percent to achieve a triple-A rating,” S&P’s Sweeney said. “And there are concentration limits for each major geographic market.”

    However, there are almost no new rules or regulations that would prevent S&P or others from allowing their standards to slide as memories fade and profits increase.

    “There’s no question in my mind that people will stop looking back to this era, and the ratings will start to fail again,” Kanjorski, the former congressman, said.

    Alison Fitzgeraldhttp://www.publicintegrity.org/authors/alison-fitzgeraldhttp://www.publicintegrity.org/2014/06/18/14936/credit-rating-industry-dodges-reforms-despite-role-financial-meltdown

    0 0

    The U.S. intelligence community has been outsourcing much of its sensitive work to private contractors, but it’s had a hard time figuring out just how much and explaining why. That’s made it particularly difficult for lawmakers on Capitol Hill to assess whether the contracting is excessive or wasteful, as some independent groups have alleged.

    Although the Director of National Intelligence has tallied the number annually since 2006 and reported recently that the number of core contractor personnel is dropping, the Government Accountability Office concluded in a report early this year that the data used to compile this tally was inconsistent or inaccurate.

    Lawmakers’ frustration about the shortcomings boiled over at a hearing June 18 by the Senate Committee on Homeland Security and Government Affairs. Although members have complained for years about the outsourcing, Sen. Thomas Carper, D-Del., the committee chairman, complained that they still “don’t have the full picture of who is working for the intelligence community as contractors, or why.”

    Congressional pique intensified last year after Edward Snowden, an employee for contractor Booz Allen Hamilton, leaked thousands of classified documents. Sen. Intelligence Committee chairman Diane Feinstein, D-Cal., asserted at the time that intelligence agencies had not complied with a promise to cut their use of contractors by 5 percent a year.

    A report last year by Maplight, a nonprofit group, showed however that every member of the House and Senate intelligence committees had received campaign funds from intelligence contractors. And earlier this year, another report showed that more than two-thirds of cases of intelligence contractor misconduct examined involved fraudulent billing for work contractors hadn’t done, costing the government millions of dollars. Even if the contractor employees implicated in these charges lost their jobs, they often kept their security clearances and were able to be rehired.

    Intelligence officials have claimed that asking each agency to tally its contractor workforce annually, even in an imprecise way, has helped managers manage problems and reduce risks. Stephanie O’Sullivan, principal deputy director of the DNI’s office, told the hearing that despite the shortcomings, the data still helped officials weigh how often to use contractors or federal employees.

    But Sen. Tom Coburn, R-Okla., the ranking Republican on the committee, challenged O’Sullivan, asking how officials can make good decisions with unreliable data. “GAO is testifying that the data has some big holes in it,” Coburn said. “And you’re testifying that you’ve dropped core contracting down a significant amount. If you have data that has big holes in it, how do you know that you did it right?”

    “I think this is a pretty damning report,” Coburn said.

    He noted that when agencies complete the survey, they are supposed to say why they have used contractors in particular roles, and offered the chance to say that the contractor had “unique expertise.” But when they did so, they typically provided no supporting information, according to the GAO, an independent watchdog group that reports to Congress.

    Scott Amey, general counsel for the Project on Government Oversight, a nonprofit watchdog group, said “I think this is highlighting a problem we see throughout the federal government … The government hasn’t done a very good job collecting useful workforce data that allows it to make human capital planning decisions.”

    The GAO report urged intelligence officials to delineate the limitations in their data more carefully and to develop a plan for taking a better inventory. O’Sullivan said her office was taking steps to increase the data’s accuracy. Timothy DiNapoli, director of acquisition and sourcing management for the GAO, said ODNI had responded favorably to his agency’s recommendations.

    Sen. Tom Carper, D-Del. heads to the Senate chamber on Capitol Hill in Washington, D.C., February 2014, during consideration of the veterans benefits bill. James Arkinhttp://www.publicintegrity.org/authors/james-arkinhttp://www.publicintegrity.org/2014/06/19/14967/lawmakers-complain-about-shoddy-intelligence-contractor-database

    Warnning: Do NOT Get Caught While Searching!!
    Your IP : - Country : - City:
    Your ISP TRACKS Your Online Activity! Hide your IP ADDRESS with a VPN!
    Before you searching always remember to change your IP adress to not be followed!

older | 1 | .... | 91 | 92 | (Page 93) | 94 | 95 | .... | 165 | newer