Wall Street investors hungry for advance information on upcoming federal health-care decisions repeatedly held private discussions with Obama administration officials, including a top White House adviser helping to implement the Affordable Care Act. The private conversations show that the increasingly urgent race to acquire "political intelligence" goes beyond the communications with congressional staffers that have become the focus of heightened scrutiny in recent weeks.
White House records show that Elizabeth Fowler, then a top health-policy adviser to President Obama, met with executives from half a dozen investment firms in 2011 and 2012. Among them was Kris Jenner, a stock picker with T. Rowe Price Investment Services who managed its $6 billion Health Sciences Fund.
Separately, an official in the agency that oversees Medicare and Medicaid spoke in December with managers of hedge funds, pension plans and mutual funds in a conference call. The official, Andrew Shin, was pressed during the 50-minute call for information about upcoming Medicare decisions but declined to discuss matters still under agency review, according to people familiar with the call.
That call and the White House meetings Fowler attended were arranged by political-intelligence firms, an expanding class of consultants in Washington that specialize in providing government information to Wall Street.
Hedge fund executives and other investors are increasingly interested in the timing and nature of health-policy decisions in Washington because they directly affect the profits and stock prices of pharmaceutical, insurance, hospital and managed-care companies. Similar interest surrounds other industry sectors, such as defense, agriculture and energy, whose fortunes are especially dependent on government decisions.
There is no evidence that the private discussions with the two administration officials about health-care decisions provided investors with confidential agency information or that the investors made trades based on what they learned. But this sort of intelligence gathering has been drawing attention from lawmakers and federal investigators who are looking at whether some traders are gaining access to information that is not available to investors in general or the wider public.
The Securities and Exchange Commission and the Justice Department are probing a spike in health-insurance stock trading this year that occurred after a Washington brokerage issued a bulletin predicting the outcome of a decision by the Centers for Medicare and Medicaid Services (CMS) to increase funding for the Medicare Advantage program, which is administered by private insurers.
WHITE HOUSE MEETINGS
Fowler described her sessions with investors as innocuous, discussions of public information of the sort that would be supplied to any group that asked for it. "As a general principle, I met with anyone who requested a meeting," said Fowler, who went to work for the Washington office of pharmaceutical giant Johnson & Johnson six months ago.
White House records show that Fowler met with hundreds of people during her two years as a health-policy adviser. A small number of those meetings were with investment professionals.
In August 2011, Fowler met with executives and analysts from several investment funds in a session attended by Kimberly Monk, a managing director of Capital Alpha Partners, a Washington group that markets its ability to provide "predictive insight for capital markets professionals." White House records list the names of several investment professionals in attendance, including individuals affiliated with Janus Capital Group, Highland Capital and the Capital Group.
In April 2012, Fowler met for breakfast at the White House with a former colleague from the Senate Finance Committee staff, Shawn Bishop, now a senior vice president at the Marwood Group, which provides health-policy information to Wall Street.
About four weeks later, Fowler met with T. Rowe Price’s Jenner and two of his analysts in a meeting set up by a boutique Washington consulting firm, Capitol Street, that tracks health-care policy for major investors. After the meeting, the investors headed to Capitol Hill for talks with congressional health- and tax-policy staffers.
Asked about her meeting with the T. Rowe Price team, Fowler said, "The topics they raised were broad and general in nature, and the discussion never went beyond information that is otherwise publicly available."
The head of equity at T. Rowe Price, Bill Stromberg, said in a statement that his firm had not requested any private information and that none was provided. "It’s commonly understood and often communicated during discussions that no material, nonpublic information should be shared," he said, noting that his firm "prohibits trading on this type of information." Stromberg said that "the opinions of Washington officials can provide incremental input that helps our investment research process."
But Richard Painter, who served for two years as chief White House ethics officer in the George W. Bush administration, said he was convinced from experience that hedge fund executives and other investors were seeking access to nonpublic information as a way to get an advantage over other investors. He recalled receiving "quite a few calls" from investment managers seeking access to staff but said he recommended against conducting the meetings.
"It is inappropriate for White House staff to meet with hedge funds and other investors about anything other than investment company regulation," said Painter, who teaches securities and ethics law at the University of Minnesota. "Why is White House time being wasted on these meetings when so many businesses want access to inform government policy but can’t get inside?"
The same political-intelligence firm that set up the T. Rowe Price meeting at the White House, Capitol Street, also arranged the conference call that Shin held with institutional investors. At the time of the call, Shin was the acting director of stakeholder engagement for the CMS Center for Medicare and Medicaid Innovation. According the center’s Web site, he was responsible for external communications with "patients, consumers, hospitals, clinicians, payers, states, employers, advocates, relevant federal agencies and others" seeking information about new practices involving Medicare payments.
Shin and people who listened to the call said he provided no insider information to the participants. But people familiar with the call said he was pressed to provide specific information about yet-to-be-announced Medicare payment plans, including how those plans would cover end-stage renal disease. Repeatedly, Shin declined to talk about specifics that he said were still under review.
Shin declined to discuss details of the call for this article. He has left government and now works for Potomac Research Group, a Washington-based firm that provides policy analysis to Wall Street investors and private equity firms.
In an e-mail, Potomac Research said Shin discussed only publicly available information on the call, which he said was approved by his supervisor at the CMS. "Andy says he recalls that he described what his job was and what his part of CMS did, reading, as always, from approved public talking points. And that was it," said the e-mail from Erin O’Connor, a spokeswoman for Potomac Research.
At the CMS, spokesman Brian Cook said the staff is well aware that it can offer only public information to investors or anyone else. "CMS engages with a broad range of stakeholders and the general public on health-care improvement," Cook said. "These efforts focus on basic education and cover already public information."
This kind of private communication between public officials and private investors is facing renewed criticism on Capitol Hill. "That kind of thing is exactly what we are trying to stop," Rep. Louise M. Slaughter (D-N.Y.) said when told about Shin’s participation in the conference call with investors.
Slaughter, the ranking Democrat on the House Rules Committee, has proposed legislation with Sen. Charles E. Grassley (R-Iowa) that would require political-intelligence firms to disclose some of their activities. She says the rising profile of such firms gives a special advantage to big investors. "That is not what we are here for — to help a small, elite group of people make money off their investments," she said.
Slaughter and Grassley have renewed their call for disclosure and regulation of the growing field of political intelligence after news reports revealed that federal investigators were examining an unusual increase in the trading of stock in Humana and other health-insurance firms in advance of the official Medicare announcement. That surge occurred April 1 after Washington-based Height Securities sent a bulletin to clients telling them about an upcoming Medicare payment decision that was favorable to the industry.
One spoke occurred on March 18, the first day of trading after the CMS made an internal decision to provide additional funds for Medicare Advantage insurance, which is run by private insurers such as Humana, UnitedHealth and Aetna. That morning, Capitol Street held a conference call for its institutional investor clients with an adviser to Sen. Orrin G. Hatch (R-Utah), who talked about the upcoming decision on funding for the Medicare Advantage program. Trading in a speculative class of Humana stock soared around the time of the conference call, according to a review of market activity by The Washington Post.
Grassley and Slaughter say they are concerned about federal officials meeting so freely and frequently with Wall Street investors and their representatives. Grassley is still pressing, for example, for answers about a 2010 case in which a CMS employee complained that he and others were asked by a political-intelligence firm for information about pending decisions. Grassley last week asked CMS officials about communications with several specific trading firms in advance of the recent Medicare Advantage decision. He also asked what procedures the agency has put in place to protect against the leak of confidential, market-moving information.
That is a familiar topic to former CMS director Thomas Scully, who served during the Bush administration and now works on health-care issues at Alston & Bird, a lobbying and law firm. He said he thought that it was useful for CMS officials to have more communication with Wall Street investors as a way for regulators to learn and "explain what an $800-billion-a-year agency" does with its money.
"But," he added, "it has to be done cautiously," because CMS information can have a powerful effect on the market. "You have to be very careful not to give anyone early or unique information. That is not easy."
Dina ElBoghdady and Zachary A. Goldfarb contributed to this report, which originally appeared in The Washington Post.
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