This week Politico broke the news of a scathing Congressional investigation into the lavish spending of Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma, centered around boosting her own “brand image” and position among inside-the-beltway Washington power brokers.
According to the report, Verma sidestepped the use of CMS’ internal public relations team, and instead engaged a handpicked group of consultants, who charged the government over $6M in less than two years for their work in polishing her public profile and personal brand, arranging meetings with media, and traveling with her to events around the country.
The spending line items included tens of thousands of dollars focused on “getting Seema on lists”, including Politico’s “50 Most Powerful People in DC” and Washingtonian’s “Most Powerful Women in Washington”. Consultants were paid to arrange op-eds and interviews for Ms. Verma, with outlets such as AARP, Christian Broadcasting Network, and Fox News, and $450 was spent on a makeup artist to ensure Ms. Verma was perfectly camera-ready for a two-minute video shoot. The outside advisers even charged nearly $3,000 to arrange a private “Girls’ Night” event held last November at the home of a USA Today bureau chief, to network Verma with other DC insiders.
This isn’t the first time that Verma’s spending has come under scrutiny. In July the Office of the Inspector General found that Verma’s publicity spending violated federal contracting rules, and she was widely criticized for filing a $47,000 expense request for personal items stolen on an official trip, including a $325 jar of moisturizer and a $5,900 Ivanka Trump-brand necklace.
Public relations expenses to educate the public and promote official initiatives are standard fare, but Verma’s lavish spending, often focused on boosting her personal image, shows a stunning lack of judgement, if not an overt misuse of taxpayer dollars. We’d rather see those dollars put to more worthwhile uses, like educating people on how to best shop for insurance, or how to access testing and other needed care services during the largest healthcare crisis of our lifetimes.
The former CFO of Health Care Conglomerate Associates pleaded not guilty to charges of embezzlement, conflict of interest and using his official position for personal gain, according to The Sun-Gazette.
Alan Germany formerly served as CFO of HCCA, which previously managed Tulare (Calif.) Regional Medical Center. He also served as the acting CFO of Tulare Regional and Inyo Hospital in Lone Pine, Calif. Mr. Germany was one of three HCCA executives indicted Aug. 11.
Mr. Germany was charged with 11 counts of embezzlement, four counts of conflict of interest, and one count each of using his official position for personal gain and failing to file a statement of economic interest. On Aug. 19, he pleaded not guilty to the charges, according to the report.
The charges against Mr. Germany include accusations of having hospital staff generate false billing invoices and working with HCCA’s former CEO Yorai “Benny” Benzeevi, MD, to embezzle U.S. Treasury funds meant for hospital districts, according to the report.
If convicted on all charges, Mr. Germany could face more than 10 years in prison, according to the Visalia Times Delta. His next hearing is set for Sept. 30.
The image of scientists standing beside governors, mayors or the president has become common during the pandemic. Even the most cynical politician knows this public health emergency cannot be properly addressed without relying on the scientific knowledge possessed by these experts.
Yet, ultimately, U.S. government health experts have limited power. They work at the discretion of the White House, leaving their guidance subject to the whims of politicians and them less able to take urgent action to contain the pandemic.
The Centers for Disease Control and Prevention has issued guidelines only to later revise them after the White House intervened. The administration has also undermined its top infectious disease expert, Dr. Anthony Fauci, over his blunt warnings that the pandemic is getting worse – a view that contradicts White House talking points.
And most recently, the White House stripped the CDC of control of coronavirus data, alarming health experts who fear it will be politicized or withheld.
In the realm of monetary policy, however, there is an agency with experts trusted to make decisions on their own in the best interests of the U.S. economy: the Federal Reserve. As I describe in my recent book, “Stewards of the Market,” the Fed’s independence allowed it to take politically risky actions that helped rescue the economy during the financial crisis of 2008.
That’s why I believe we should give the CDC the same type of authority as the Fed so that it can effectively guide the public through health emergencies without fear of running afoul of politicians.
There is a paradox inherent in the relationship between political leaders and technical experts in government.
Experts have the training and skill to apply scientific knowledge in complex biological and economic systems, yet democratically elected political leaders may overrule or ignore their advice for ill or good.
This happened in May when the CDC, the federal agency charged with controlling the spread of disease, removed advice regarding the dangers of singing in church choirs from its website. It did not do so because of new evidence. Rather, it was because of political pressure from the White House to water down the guidance for religious groups.
The ability of elected leaders to ignore scientists – or the scientists’ acquiescence to policies they believe are detrimental to public welfare – is facilitated by many politicians’ penchant for confident assertion of knowledge and the scientist’s trained reluctance to do so.
Given these constraints on technical expertise, the performance of the Fed in the financial crisis of 2008 offers an informative example that may be usefully applied to the CDC today.
The Federal Reserve is not an executive agency under the president, though it is chartered and overseen by Congress. It was created in 1913 to provide economic stability, and its powers have expanded to guard against both depression and crippling inflation.
At its founding, the structure of the Fed was a political compromise designed make it independent within the government in order to de-politicize its economic policy decisions. Today its decisions are made by a seven-member board of governors and a 12-member Federal Open Market Committee. The members, almost all Ph.D. economists, have had careers in academia, business and government. They come together to analyze economic data, develop a common understanding of what they believe is happening and create policy that matches their shared analysis. This group policymaking is optimal when circumstances are highly uncertain, such as in 2008 when the global financial system was melting down.
The Fed was the lead actor in preventing the system’s collapse and spent several trillion dollars buying risky financial assets and lending to foreign central banks – decisions that were pivotal in calming financial markets but would have been much harder or may not have happened at all without its independent authority.
A health crisis needs trusted experts to guide decision-making no less than an economic one does. This suggests the CDC or some re-imagined version of it should be made into an independent agency.
Like the Fed, the CDC is run by technical experts who are often among the best minds in their fields. Like the Fed, the CDC is responsible for both analysis and crisis response. Like the Fed, the domain of the CDC is prone to politicization that may interfere with rational response. And like the Fed, the CDC is responsible for decisions that affect fundamental aspects of the quality of life in the United States.
Were the CDC independent right now, we would likely see a centralized crisis management effort that relies on the best science, as opposed to the current patchwork approach that has failed to contain the outbreak nationally. We would also likely see stronger and consistent recommendations on masks, social distancing and the safest way to reopen the economy and schools.
Independence will not eliminate the paradox of technical expertise in government. The Fed itself has at times succumbed to political pressure. And Trump would likely try to undermine an independent CDC’s legitimacy if its policies conflicted with his political agenda – as he has tried to do with the central bank.
But independence provides a strong shield that would make it much more likely that when political calculations are at odds with science, science wins.
Rick Bright, the former director of the U.S. Biomedical Advanced Research and Development Authority (BARDA), filed a whistleblower complaint Tuesday alleging that the Department of Health and Human Services failed to take early action to mitigate the threat of the novel coronavirus.
Flashback: Bright said last month he believes he was ousted after clashing with HHS leadership over his attempts to limit the use of hydroxychloroquine to treat the coronavirus.
What’s new: In his complaint, Bright claims he was excluded from an HHS meeting on the coronavirus in late January after he “pressed for urgent access to funding, personnel, and clinical specimens, including viruses” to develop treatments for the coronavirus should it spread outside of Asia.
The White House declined to comment. HHS did not immediately respond to a request for comment.
Unlike other portions of the relief for American businesses, however, this aid will be exempt from rules passed by Congress requiring recipients to limit dividends, executive compensation and stock buybacks and does not direct the companies to maintain certain employment levels.
Critics say the program could allow large companies that take the federal help to reward shareholders and executives without saving any jobs. The program was set up jointly by the Federal Reserve and the Treasury Department.
“I am struck that the administration is relying on the good will of the companies receiving this assistance,” said Eswar Prasad, a former official at the International Monetary Fund and economist at Cornell University. “A few months down the road, after the government purchases its debt, the company can turn around and issue a bunch of dividends to shareholders or fire its workers, and there’s no clear path to get it back.”
Treasury Secretary Steven Mnuchin defended the corporate aid program, saying that the lack of restrictions on recipients had been discussed and agreed to by Congress. “This was highly discussed on a bipartisan basis. This was thought through carefully,” he said in an interview with The Washington Post. “What we agreed upon was direct loans would carry the restrictions, and the capital markets transactions would not carry the restrictions.”
Democrats asked for restrictions on how companies can use the money from the central bank’s bond purchases but were rebuffed by the administration during negotiations about the Cares Act, said a spokesman for Senate Minority Leader Charles E. Schumer (D-N.Y.). The spokesman said Democrats won meaningful concessions from the administration on reporting transparency in the final agreement. (Transparency requirements do not apply to the small-business loans, the biggest business aid program rolled out to date.)
Mnuchin also said the program had already bolstered investor confidence in U.S. capital markets, which in turn helped firms raise capital they used to avoid layoffs.
“The mere announcement of these facilities, quite frankly, led to a reopening of a lot of these capital markets,” Mnuchin said in an interview. “Even before these facilities are up and running, they’ve had their desired impact of having stability in the markets. Stability in the markets allows companies to function, and raise money and allows them to keep and retain workers and get back to work.”
The corporate debt purchases by the Fed stand in stark contrast with other portions of the federal aid for U.S. businesses that come with requirements to protect jobs or limit spending.
The Paycheck Protection Program, which offers $659 billion for small businesses, requires companies to certify that the money will be used to “retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.”
The “Main Street” program offering up to $600 billion to “midsize” businesses — with 500 to 10,000 employees — forbids companies from issuing dividends and places limits on executive compensation, according to a term sheet issued by the Fed. Those restrictions are in effect until 12 months after the loan is no longer outstanding. The companies must also “make reasonable efforts” to maintain payroll and retain employees.
Likewise, the $46 billion program for airlines, air cargo companies and national security forbids dividends and limits executive pay. Its requirement on retaining employment is more rigorous, however. Companies are supposed retain at least 90 percent of their employees.
The first version of the Fed program to buy bonds from large companies, known as the Primary Market Corporate Credit Facility, probably would have compelled recipients of the aid to limit executive pay and dividends. That version of the program, described in a March 23 term sheet issued by the Fed, offered direct loans and bond purchases to companies. Under the Cares Act, the federal programs offering direct loans must set restrictions on company dividends and CEO pay; those that buy only corporate bonds do not. Both are forms of lending, although bonds are more easily resold.
But on April 9, the Fed altered the design of the program to exclude direct corporate lending. The Fed program will still essentially lend money to large companies — by buying their bonds — but the Fed will not be compelled by the Cares Act to ensure that companies abide by the divided and CEO pay rules.
“The change to the term sheet between March and April is the smoking gun on the Fed’s own culpability here,” said Gregg Gelzinis, a senior policy analyst at the Center for American Progress, a left-leaning think tank. “The basic principle of the Cares Act was that if we’re going to provide taxpayer funding to private industry, we need conditions to make sure it is in the public interest. This violates that principle.”
Bharat Ramamurti, an aide to Sen. Elizabeth Warren (D-Mass.) who was appointed to the board overseeing the bailout, said in a statement: “Big corporations have shown time and again that they will put their shareholders and executives ahead of their workers if given the choice. That’s why I’m so concerned that the Treasury and the Fed have chosen to direct hundreds of billions of dollars to big companies with no strings attached.”
A spokesman for the Federal Reserve declined to comment. The Fed’s board of governors unanimously approved the new bond purchasing program on March 22. The Fed has said it will purchase only the bonds of firms above a certain grade. The issuer of the bond also must meet the conflicts-of-interest requirements in the Cares Act, which preclude federal lawmakers or their relatives from benefiting financially from the government bailout.
In the interview, Mnuchin also said many companies are ceasing stock buybacks and are likely to use the additional capital to retain workers.
“A lot of companies have stopped their share buybacks and slashed their dividends, because they need that capital to invest in their business. Even though these restrictions don’t necessarily apply, that’s already happening,” he said.
Some experts disputed that assertion. “Some companies have ceased buybacks and dividends and some haven’t. We shouldn’t have to keep our fingers crossed,” Gelzinis said.
It is unknown what the terms will be for the Fed lending under the program, or how favorable they will be for recipients. The term sheet says only that they will depend on the company and be “informed” by market conditions.
Companies selling their bonds to the central bank are expected to be primarily investment grade, publicly traded firms and therefore subject to more disclosure and oversight than those that are privately held. Patricia C. Mosser, a former senior official at the Federal Reserve Bank of New York, said these corporations are scrutinized by the U.S. Securities and Exchange Commission, private investors and the credit rating agencies.
“It’s true that there’s nothing stopping these companies from continuing to pay stock dividends. You may not like that, and I have sympathy for that position,” said Mosser, now a professor at Columbia University. “But it’s easier to unmask bad behavior in public companies. Large companies certainly don’t do everything right, but they have to admit publicly how they pay top executives, where their profits go and how they use them. That history of disclosure and oversight means the risk of not being repaid is lower.”
The weaker restrictions on recipients of the Fed’s lending program may be partly justified, said Nathan Tankus, research director at the Modern Money Network, which studies monetary policy. The corporate bonds that the Fed is purchasing from companies can be resold, whereas direct loans establish an agreement between the company and the government that makes the asset less valuable to the central bank, he said.
“Purchases of debt are a slightly more arm’s-length transaction than the loan, which is forming a bilateral relationship,” Tankus said. “But this is really just the fig leaf the Fed can use to justify lifting the restrictions.”