Why The Obama Administration's Fraud-Fighting May Be Going Too Far

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Photo: matt_oviaFlickr

Reasonable people sometimes challenge the notion that President Obama is anti-business. Look at Wall Street, they say, making millions again. Nary a head has rolled!It is true that President Obama and his regulatory team muted the financial crash by providing banks with essential capital and borrowing capacity. Had they not, the U.S. would have led the world’s economies into a far darker place.

The White House commitment to steadying the financial markets, though, was not an outcropping of President Obama’s political philosophy; it was a survival tactic.

More revealing of the Obama administration’s regard for private enterprise are  the recurrent attacks on insurers, oil companies, mortgage brokers, utilities, tech outfits, coal producers, medical device manufacturers and myriad other enterprises. Most recently, the Department of Health and Human Services (HHS) cautioned that it may force out Forest Laboratories’ long-time CEO Howard Solomon. 

Why would HHS target Mr. Solomon? Simple. President Obama has promised to pay for out-of-control Medicare bills in large part by rooting out waste and fraud. It is clear he has no appetite for attempting the sort of thorough overhaul of our healthcare colossus recommended by Congressman Paul Ryan. The White House is desperate to show it can “save” Medicare, in part by significantly ramping up investigations of abuse. How? By scaring the daylights out of CEOs, corporations will be quicker to pay large fees and fines, eager to avoid more draconian consequences and allowing the government to score political points.

The HHS case stems from federal criminal and civil charges, now settled, that Forest Labs paid kickbacks to doctors and inappropriately advertised its anti-depressant Celexa for use by young people prior to receiving necessary approvals. The company pleaded guilty and paid a fine last fall. HHS advised Forest Labs in a letter two weeks ago that it intended to “exclude” Mr. Solomon (and thus his company) from doing business with the federal government – a prohibition that would effectively put Forest Labs, or any pharmaceutical firm, out of business. Given the importance of Medicare, Medicaid and the Veterans Administration to the healthcare industry, if the government carries through on its threat, the company will have no choice but to ask Mr. Solomon to step down.

Howard Solomon himself has not been charged with any crime and has not been asked to testify in court or in a deposition – but he might well be knocked out of his job. The head of the company’s audit committee, William Candee III, is quoted in a company press release saying “At no time during the government’s six year investigation of Forest was Mr. Solomon ever accused of any wrongdoing in connection with the matters settled in 2010.”

Doubtless Medicare, like any other giant government program, is riddled with thievery, but the notion that stricter oversight can guarantee long-term prosperity is like suggesting that the Knicks could have beaten the Celtics if only their free-throw percentage had been a little higher. The only way the Obama administration can even pretend that prosecutions and greater vigilance can rein in Medicare’s bloat is by targeting large corporations like Forest Labs.

Testifying before Congress in March, HSS Inspector General Dan Levinson referred to  “our shared goal of safeguarding the fiscal integrity of these programs,” and described efforts to go after organised crime syndicates, as well as “major corporations, such as pharmaceutical and medical device manufacturers…” He cited the case against Allergan, convicted of “misdemeanour misbranding” in its promotion of Botox. The company paid the government $375 million to settle a slew of charges – a big win for Levinson’s office. But, in the context of the estimated $34.3 billion paid for inappropriate claims in 2010 alone, it’s a mere drop in the bucket.

Levinson has brought on new fraud-fighting weapons included in the Affordable Care Act – including “one of the most powerful tools in our arsenal: the authority to exclude that provider from participating in federal health care programs.”  He alleges that corporations willingly commit fraud, and consider resultant fees as a “cost of doing business.” He says he wants to “alter the cost-benefit calculus of the corporate executives who run these companies [by] excluding the individuals who are responsible for the fraud, either directly or because of their positions of responsibility in the company.”

Levinson acknowledges that the “exclusion” tactic has formerly been used only in smaller companies – and against officials who presumably are directly connected to misdeeds – but said that “moving forward, we intend to use this essential fraud-fighting tool in a broader range of circumstances.” It is worrisome that this approach is also being considered by regulators in other sectors.

Those who are suspect of profit-making enterprises may cheer this approach. Those who think it important to protect those few industries – like pharmaceuticals – where we remain global leaders will not. In either case, no one should consider this a reasonable tool for fixing our broken healthcare establishment.

This post originally appeared at The Fiscal Times.

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