The norms around science and politics are cracking

https://www.axios.com/science-politics-norms-cracking-f67bcff2-b399-44f4-8827-085573f5ae52.html

Illustration of a hand holding a cracked microscope slide containing the U.S. flag.

Crafting successful public health measures depends on the ability of top scientists to gather data and report their findings unrestricted to policymakers.

State of play: But concern has spiked among health experts and physicians over what they see as an assault on key science protections, particularly during a raging pandemic. And a move last week by President Trump, via an executive order, is triggering even more worries.

What’s happening: If implemented, the order creates a “Schedule F” class of federal employees who are policymakers from certain agencies who would no longer have protection against being easily fired— and would likely include some veteran civil service scientists who offer key guidance to Congress and the White House.

  • Those agencies might handle the order differently, and it is unclear how many positions could fall under Schedule F — but some say possibly thousands.
  • “This much-needed reform will increase accountability in essential policymaking positions within the government,” OMB director Russ Vought tells Axios in a statement.

What they’re saying: Several medical associations, including the Infectious Diseases Society of America, strongly condemned the action, and Democrats on the House oversight panel demanded the administration “immediately cease” implementation.

  • “If you take how it’s written at face value, it has the potential to turn every government employee into a political appointee, who can be hired and fired at the whim of a political appointee or even the president,” says University of Colorado Boulder’s Roger Pielke Jr.
  • Protections for members of civil service allow them to argue for evidence-based decision-making and enable them to provide the best advice, says CRDF Global’s Julie Fischer, adding that “federal decision-makers really need access to that expertise — quickly and ideally in house.”

Between the lines: Politics plays some role in science, via funding, policymaking and national security issues.

  • The public health system is a mix of agency leaders who are political appointees, like HHS Secretary Alex Azar, and career civil servants not dependent on the president’s approval, like NIAID director Anthony Fauci.
  • “Public health is inherently political because it has to do with controlling the way human beings move around,” says University of Pennsylvania’s Jonathan Moreno.

Yes, but: The norm is to have a robust discussion — and what has been happening under the Trump administration is not the norm, some say.

  • “Schedule F is just remarkable,” Pielke says. “It’s not like political appointees editing a report, [who are] working within the system to kind of subvert the system. This is an effort to completely redefine the system.”
  • The Center for Strategic and International Studies’ Stephen Morrison says that the administration has been defying normative practices, including statements denigrating scientists, the CDC and FDA.

The big picture: Public trust in scientists,which tends to be high, is taking a hit, not only due to messaging from the administration but also from public confusion over changes in guidance, which vacillated over masks and other suggestions.

  • Public health institutions “need to have the trust of the American people. In order to have the trust of the American people, they can’t have their autonomy and their credibility compromised, and they have to have a voice,” Morrison says.
  • “If you deny CDC the ability to have briefings for the public, and you take away control over authoring their guidance, and you attack them and discredit them so public perceptions of them are negative, you are taking them out of the game and leaving the stage completely open for falsehoods,” he adds.
  • “All scientists don’t agree on all the evidence, every time. But what we do agree on is that there’s a process. We look at what we know, we decide what we can clearly recommend based on what we know, sometimes when we learn more, we change our recommendations, and that’s the scientific process,” Fischer says.

What’s next: The scientific community is going to need to be proactive on rebuilding public trust in how the scientific process works and being clear when guidance changes and why it has changed, Fischer says.

Nonprofit health systems — despite huge cash reserves — get billions in CARES funding

https://www.healthcaredive.com/news/nonprofit-health-systems-despite-huge-cash-reserves-get-billions-in-car/580078/

CLICK ON LINK ABOVE FOR ACCESS TO GRAPHICS

Next Steps for Public Policy | Cato Institute

Healthcare Dive’s findings revive concerns that greater examination of hospital finances is needed before divvying up COVID-19 rescue funding allocated by Congress.
The nation’s largest nonprofit health systems, led by Kaiser Permanente, Ascension and Providence, have received more than $7.1 billion in bailout funds from the federal government so far, as the novel coronavirus forced them to all but shutter their most profitable business lines.

At the same time, some of these same behemoth systems sit on billions in cash, and even greater amounts when taking into account investments that can be liquidated over time. That raises questions about how much money these systems actually need from the federal government given they have hundreds of days worth of cash on hand. Indeed, some big systems, like Kaiser Permanente, are already returning some of the funds.

And it revives concerns that greater examination of hospital finances is needed before divvying up rescue packages.

Nonprofits with more cash and greater net income tend to have received less funding — but not always

This is the second story of a Healthcare Dive series examining the bailout funds health systems received amid the COVID-19 pandemic. In this report, we focus on the 20 largest nonprofits by revenue and the amount of Coronavirus Aid, Relief, and Economic Security (CARES) Act funding they have received compared to the amount of cash on hand and recent financial performance. Healthcare Dive used bond filings filed as of June 12 to compile the amount of CARES funding received by health systems. In some instances, we relied on data from Good Jobs First, which also tracks the money. In addition to bond filings, we relied on annual audited financial statements and analyst reports to compile financial performance and days cash on hand.

Cash reserves

The cash hospitals have on hand has become an important metric to watch over the past few months as many have seen reserves dwindle to pay everyday expenses as revenue has dried up. At the same time, hospital volumes have plunged due to the economy grinding to a halt.

“You can’t write a payroll check off of accounts receivables, you have to write it off your cash and cash equivalents.” Rick Gundling, senior vice president of healthcare financial practices for Healthcare Financial Management Association, told Healthcare Dive.

In the early days of the outbreak in the U.S., some hospital executives sounded the alarm over dire financial straits, particularly small, rural hospitals whose executives warned they were weeks away from not making payroll. These pleas helped push Congress to pass massive rescue packages, with providers earmarked for $175 billion thus far.

Nonprofit health systems tend to keep more cash on hand than publicly-traded hospital chains. That’s because investor-owned facilities can raise capital more quickly, mainly through the stock market, while nonprofits have to rely on the bond market and their own operations, Gundling said.

Another important avenue that can boost cash is investments. It’s common for large nonprofits to rake in more in net income than they do from their core operations of running hospitals and caring for patients, in large part due to their investments in the stock market.

For example, Chicago-based CommonSpirit posted an operating loss of $602 million during its fiscal year 2019 but net income far exceeded that, totaling $9 billion. It was buoyed by investments and its recent merger, bringing together Catholic Health Initiatives and Dignity Health, according to its audited financial statement for the year ended June 30, 2019.

Many nonprofit health systems rake in more in net income than they do from their core operations

Ascension, the second-largest nonprofit system, received about $492 million in CARES funding, according to Good Jobs First. Ascension reported having 231 days cash on hand. Its unrestricted cash and investments totaled a sum of $15.5 billion as of March 31.

Kaiser, the nation’s largest nonprofit system, has about 200 days of cash on hand as of its fiscal year end, Dec. 31, according to a recent report from Fitch Ratings.

Providence, the third-largest nonprofit and first U.S. health system to treat a COVID-19 patient, reported 182 days of cash on hand as of March 31, according to a May bond filing.

However, Cleveland Clinic has the most cash on hand when measured in days among the top 20 nonprofits.

Cleveland Clinic had 337 days of cash on hand at the end of March, according to an unaudited financial statement from May. That’s nearly an entire year’s worth of operating expenses. The system has received $199 million in CARES funding, according to that same filing.

Rochester, Minnesota-based Mayo Clinic had the second most days of cash on hand with 252. Mayo Clinic has received $220 million in grant money, according to a May financial filing.

“You would never see that much cash on an investor-owned hospital,” Gundling said. “Generally, they want to pour that cash back into the services,” he said.

NYC Health + Hospitals, also the nation’s largest municipal health system, had the fewest days of cash on hand and it received $745 million in CARES funding, the second-most compared to other systems.

How health systems’ funding and cash on hand compare

Samantha Liss (@samanthann) | Twitter

Risks of accepting bailout money

Sitting on a pile of money and accepting the bailout funds is already raising eyebrows.

“There is significant headline risk,” Michael Abrams, co-founder and partner at Numerof & Associates, told Healthcare Dive.

Worried about the optics, other institutions with considerable reserves or endowments have returned federal bailout funds, including Harvard University and major health insurers.

Providers are returning relief funds, too. Kaiser Permanente, the nation’s largest nonprofit by revenue, told the San Francisco Business Times it has returned more than $500 million in CARES funding. CEO Greg Adams the system “will do fine” despite the setback from the pandemic.

Mara McDermott, vice president of McDermott+Consulting, agrees there is a risk in accepting the grant money if systems possess such large reserves. Yet, she also cautioned that the healthcare ecosystem is so much more complicated.

“Regardless of the structure, it requires a deeper dive into need and that’s not what HHS did. They just wrote checks,” McDermott told Healthcare Dive.

Just because a parent company has a large cash reserve, it doesn’t mean that the money is readily available on a daily basis to a smaller practice it may own down the chain and one that hasn’t had any patients since March, she said.

“It’s easy to point the finger… but it’s much more complex than that,” she said.

The first tranche of money HHS sent to hospitals was based on Medicare fee-for-service business, and later on net patient service revenue. These formulas were criticized for putting some hospitals at an advantage compared to others, particularly those with larger shares of Medicaid patients. HHS has since released more targeted funding for providers in hot spots such as New York and plans to funnel funding to those serving a large share of Medicaid members in an attempt to address earlier concerns.

Still, without certainty of how long this public health crisis will last, no one knows how much cash on hand will ultimately be enough.

“A year’s cash on hand sounds like a lot of money but when you expend hundreds of millions of dollars a month, it won’t take you long to burn through that,” Scott Graham, CEO of Three Rivers Hospital, a 25-bed facility in rural Washington state, told Healthcare Dive.

Graham had feared in March that without quick intervention from the government, his hospital was near closure with just a few weeks cash on hand. The federal grant money has bought his hospital some time, about six months if volumes stay where they are, longer if they tick back up.

“I think what HHS did was right at the moment because we needed to ensure that the healthcare system survived this. It’s one thing for a small rural hospital to close, it’s another thing for the entire health system to collapse,” he said.

 

Nursing homes go unchecked as fatalities mount

https://www.politico.com/news/2020/06/15/nursing-homes-coronavirus-321220

Health workers help a patient into Cobble Hill Health Center

About half of all facilities have yet to be inspected for procedures to stop the spread of coronavirus.

Thousands of nursing homes across the country have not been checked to see if staff are following proper procedures to prevent coronavirus transmission, a form of community spread that is responsible for more than a quarter of the nation’s Covid-19 fatalities.

Only a little more than half of the nation’s nursing homes had received inspections, according to data released earlier this month, which prompted a fresh mandate from Medicare and Medicaid chief Seema Verma that states complete the checks by July 31 or risk losing federal recovery funds.

A POLITICO survey of state officials, however, suggests that the lack of oversight of nursing homes has many roots. Many states that were hit hard by the virus say they chose to provide protective gear to frontline health workers rather than inspectors, delaying in-person checks for weeks if not months. Some states chose to assess facilities remotely, conducting interviews over the phone and analyzing documentation, a process many experts consider inadequate.

In places where state officials claimed that in-person inspections have taken place, the reports found no issues in the overwhelming majority of cases, even as Covid-19 claimed more than 31,000 deaths in nursing homes. Less than 3 percent of the more than 5,700 inspection surveys the federal government released this month had any infection control deficiencies, according to a report on Thursday by the Center for Medicare Advocacy, a nonprofit patient activist group.

“It is not possible or believable that the infection control surveys accurately portray the extent of infection control deficiencies in U.S. nursing facilities,” the report states.

Noting the vast and unprecedented danger that the coronavirus presents to the elderly and people with disabilities, patient advocates described the lack of inspections as a shocking oversight.

“If you’re not going in, you’re essentially taking the providers’ word that they’re doing a good job,” said Richard Mollot, the executive director of the Long Term Care Community Coalition.

In March, the Trump administration paused routine nursing home inspections, which typically occur about once a year. Instead, the Centers for Medicare and Medicaid Services asked that state agencies focus on inspecting facilities for their infection control practices, such as whether staff wash their hands or properly wear protective clothing before tending to multiple patients.

But for more than two months, state inspectors failed to enter half the country’s homes — a revelation that prompted CMS to crack down.

“We are saying you need to be doing more inspections,” Verma told reporters, explaining her message to states. “We called on states in early March to go into every single nursing home and to do a focused inspection around infection control.”

In some hard-hit states, inspectors conducted remote surveys rather than going into nursing homes, a process that involved speaking to staff by phone and reviewing records. In Pennsylvania, for example, inspectors conducted interviews and reviewed documents for 657 facilities from March 13 to May 15 — most of which was done remotely.

But critics say the failure to make in-person checks prevented states from identifying lapses at a crucial time. The fact that family members were blocked from visiting their relatives — a policy intended to prevent the virus from entering the facility — removed another source of accountability in homes, some of which ended up having more than half of their residents stricken with the coronavirus.

Keeping relatives out of nursing homes — a policy that continues — has made it more difficult to advocate on behalf of residents in the state, said Karen Buck, executive director of the Pennsylvania-based SeniorLAW Center. More than 4,000 residents of nursing homes and other personal care facilities have died of coronavirus in the Keystone State.

“The inspections are vital,” said Buck. “I think access to residents is essential, and we are very concerned that Pennsylvanians are behind where we should be. We recognize these are very difficult times for our leaders, but we can’t continue to wait.”

Pennsylvania officials maintained that the remote inspections were beneficial, and said they went into the facilities when they felt there was significant concern over residents’ health.

“We can conduct the same interviews, review the same documentation and do all the same actions we could in person, except for the ability to be on-site,” health department spokesperson Nate Wardle wrote in an email, adding that Verma’s office approved the remote procedures earlier this spring.

Nonetheless, many public health experts say they believe states have erred in choosing not to prioritize nursing home inspectors when handing out protective equipment. While it makes sense to direct resources to front-line workers, nursing home inspectors were only a tiny number of people compared to the hundreds of thousands of hospital employees — and experts contend that the situation in nursing facilities was dire enough to require immediate action.

David Grabowski, an expert in aging and long-term care at Harvard Medical School, said he understands inspectors were put in a tough position in the early days of the pandemic, but that inspections needed to be ramped up within a few weeks.

“I think after those first few weeks we should have had personal protective equipment in place for the inspectors and doing these inspections remotely is really second best,” he said.

And yet state after state waited on inspections or performed them remotely.

In Utah, only a small portion of the state’s nearly 100 facilities received inspections over the first three months of the pandemic. Only now is the state health department ramping up on-site inspections, with the goal of hitting all of its nursing homes by the second week of July. It conducted 14 last week, and received some help from federal inspectors with another four.

The state survey agency said it made a conscious determination not to request protective equipment for state inspectors in the initial phase of the pandemic, fearing they would take supplies away from frontline health providers, said Greg Bateman, the head of long-term care surveys. Instead, the department conducted 43 remote reviews and talked to nursing homes at least twice a week.

In Idaho, state inspectors have only recently received the N95 masks, face shields and gowns necessary to perform inspections.

“The reason we had difficulty is because Idaho, like many other states, was challenged to secure adequate PPE to meet the needs of the various health care entities,” health department spokesperson Niki Forbing-Orr wrote in an email. “The state surveyors had concerns about potentially using PPE that other entities could use that provide direct medical services and care to Idaho residents.”

In New Jersey, which has seen roughly 6,000 deaths in nursing homes and other communal settings, the health department also first chose sending supplies to frontline workers in nursing homes and hospitals. The state began making in-person checks when it received PPE April 16, said Dawn Thomas, a New Jersey health department spokesperson.

But New Jersey still has a long way to go. The state has completed inspections in only about 115 out of more than 360 nursing homes as of June 3, according to Thomas.

While Pennsylvania, Idaho, New Jersey and other states complained of a lack of PPE, other states battling major outbreaks of coronavirus in nursing homes have completed nearly all of their inspections, calling into question the explanations for why others have struggled.

Washington state, where the Life Care Center of Kirkland became an early epicenter of the coronavirus outbreak, has completed 99 percent of its inspections, the state reported this spring to CMS. And Michigan, which has had nearly 2,000 deaths in nursing homes, has completed nearly 85 percent of its inspections.

By contrast, states such as West Virginia and Maryland, with only 11.4 and 16.4 percent of facilities inspected as of the end of May, lagged way behind.

A nursing home in Maryland’s Carroll County served as an early example of just how quickly the coronavirus can ravage nursing homes. On March 26, a resident at a Carroll County, Md., facility tested positive for the coronavirus. Two weeks later, the number of confirmed cases was up to 77 out of 95 residents, along with 24 staff members. At least 28 residents have died.

A Maryland health department spokesperson says the state took “early and aggressive measures” to address the virus in nursing homes, noting that Maryland created the country’s first strike teams — composed of state and local health officials, medical professionals and National Guard members — to help triage seniors and scrutinize facilities.

Nonetheless, state inspectors didn’t have personal protective equipment until late April, according to the health department.

“In April, PPE acquisition was challenging across the nation and in Maryland due to the rapidly evolving Covid-19 pandemic,” the spokesperson wrote in an email, adding that the department sought N95 masks, gowns and other items from “the national stockpile, FEMA and national and international supply chains.”

With many facilities still closed to visitors, the slow pace of inspections lost a key window into the nursing homes during the pandemic.

“I think having more eyes on what’s happening is really important,” Grabowski said.

Last month, the Health and Human Services’ watchdog agency announced plans to review the pace of inspections in nursing homes and barriers to completing them — referring to such checks as a “fundamental safeguard to ensure that nursing home residents are safe and receive high-quality care.”

“There is no substitute for boots on the ground — for going into a facility to assess whether a facility is abiding by long-standing infection control practices,” Verma told reporters this month.

 

 

 

Private equity lands $1.5B in Medicare loans

https://www.beckershospitalreview.com/finance/private-equity-lands-1-5b-in-medicare-loans.html?utm_medium=email

One-Click To Private Equity Yields Up To 9%

Private equity companies have borrowed at least $1.5 billion from HHS through two programs intended to provide funding to healthcare providers facing financial damage due to the COVID-19 pandemic, according to Bloomberg‘s analysis of more than 40,000 loans disclosed by HHS. 

The Medicare loans were made to hospitals, clinics and treatment centers controlled by private equity firms through two programs administered by CMS: the Advance Payments Program and the Accelerated Payments Program. Those programs were expanded earlier this year to help offset the financial impact of COVID-19.

HHS approved loans totaling more than $60 million to subsidiaries of companies owned by private equity firm KKR, which has roughly $58 billion of cash to invest, according to Bloomberg. Healthcare facilities owned by private equity firm Apollo Global Management received $500 million in loans, and Cerberus Capital Management’s Steward Health Care System received roughly $400 million in loans. Steward physicians announced June 2 that they’re acquiring the health system from Cerberus.

CMS Administrator Seema Verma said the goal of the programs was to get funds to healthcare providers as quickly as possible. The loan applications did not include questions about beneficial ownership of the healthcare companies seeking loans. 

“We don’t look into ownership, what we look into is are they Medicare-enrolled providers,” Ms. Verma told Bloomberg.

Access the full Bloomberg article here.

 

 

 

Trump Moves to Replace Watchdog Who Identified Critical Medical Shortages

Trump Moves to Replace Watchdog Who Identified Critical Medical ...

The president announced the nomination of an inspector general for the Department of Health and Human Services, who, if confirmed, would replace an acting official whose report embarrassed Mr. Trump.

President Trump moved on Friday night to replace a top official at the Department of Health and Human Services who angered him with a report last month highlighting supply shortages and testing delays at hospitals during the coronavirus pandemic.

The White House waited until after business hours to announce the nomination of a new inspector general for the department who, if confirmed, would take over for Christi A. Grimm, the principal deputy inspector general who was publicly assailed by the president at a news briefing three weeks ago.

The nomination was the latest effort by Mr. Trump against watchdog offices around his administration that have defied him. In recent weeks, he fired an inspector general involved in the inquiry that led to the president’s impeachment, nominated a White House aide to another key inspector general post overseeing virus relief spending and moved to block still another inspector general from taking over as chairman of a pandemic spending oversight panel.

Mr. Trump has sought to assert more authority over his administration and clear out officials deemed insufficiently loyal in the three months since his Senate impeachment trial on charges of abuse of power and obstruction of Congress ended in acquittal largely along party lines. While inspectors general are appointed by the president, they are meant to be semiautonomous watchdogs ferreting out waste, fraud and corruption in executive agencies.

The purge has continued unabated even during the coronavirus pandemic that has claimed about 65,000 lives in the United States. Ms. Grimm’s case in effect merged the conflict over Mr. Trump’s response to the outbreak with his determination to sweep out those he perceives to be speaking out against him.

Her report, released last month and based on extensive interviews with hospitals around the country, identified critical shortages of supplies, revealing that hundreds of medical centers were struggling to obtain test kits, protective gear for staff members and ventilators. Mr. Trump was embarrassed by the report at a time he was already under fire for playing down the threat of the virus and not acting quickly enough to ramp up testing and provide equipment to doctors and nurses.

“It’s just wrong,” the president said when asked about the report on April 6. “Did I hear the word ‘inspector general’? Really? It’s wrong. And they’ll talk to you about it. It’s wrong.” He then sought to find out who wrote the report. “Where did he come from, the inspector general? What’s his name? No, what’s his name? What’s his name?”

When the reporter did not know, Mr. Trump insisted. “Well, find me his name,” the president said. “Let me know.” He expressed no interest in the report’s findings except to categorically reject them sight unseen.

After learning that Ms. Grimm had worked during President Barack Obama’s administration, Mr. Trump asserted that the report was politically biased. In fact, Ms. Grimm is not a political appointee but a career official who began working in the inspector general office late in President Bill Clinton’s administration and served under President George W. Bush as well as Mr. Obama. She took over the office in an acting capacity when the previous inspector general stepped down.

Mr. Trump was undaunted and attacked her on Twitter. “Why didn’t the I.G., who spent 8 years with the Obama Administration (Did she Report on the failed H1N1 Swine Flu debacle where 17,000 people died?), want to talk to the Admirals, Generals, V.P. & others in charge, before doing her report,” he wrote, mischaracterizing the government’s generally praised response the 2009 epidemic that actually killed about 12,000 in the United States. “Another Fake Dossier!”

To take over as inspector general, Mr. Trump on Friday night named Jason C. Weida, an assistant United States attorney in Boston. The White House said in its announcement that he had “overseen numerous complex investigations in health care and other sectors.” He must be confirmed by the Senate before assuming the position.

Among several other nominations announced on Friday was the president’s choice for a new ambassador to Ukraine, filling a position last occupied by Marie L. Yovanovitch.

Ms. Yovanovitch was ousted a year ago because she was seen as an obstacle by the president’s advisers as they tried to pressure the government in Kyiv to incriminate Mr. Trump’s Democratic rivals. That effort to solicit political benefit from Ukraine, while withholding security aid, led to Mr. Trump’s impeachment largely along party lines in December.

Mr. Trump selected Lt. Gen. Keith W. Dayton, a retired 40-year Army officer now serving as the director of the George C. Marshall European Center for Security Studies in Germany. Mr. Dayton speaks Russian and served as defense attaché in Moscow. More recently, he served as a senior United States defense adviser in Ukraine appointed by Jim Mattis, Mr. Trump’s first defense secretary.

 

 

 

The U.S. plans to lend $500 billion to large companies. It won’t require them to preserve jobs or limit executive pay.

https://www.washingtonpost.com/business/2020/04/28/federal-reserve-bond-corporations/?fbclid=IwAR21PBlVqLVVDVf8CeVxGpTuHgxXbDqy49K49BpeeYav-KmKYxS_xfnAX5A&platform=hootsuite

DownWithTyranny!: April 2020

The Fed’s coronavirus aid program lacks restrictions Congress placed on companies seeking financial help under other programs.

A Federal Reserve program expected to begin within weeks will provide hundreds of billions in emergency aid to large American corporations without requiring them to save jobs or limit payments to executives and shareholders.

Under the program, the central bank will buy up to $500 billion in bonds issued by large companies. The companies will use the influx of cash as a financial lifeline but are required to pay it back with interest.

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.”

 

 

 

Large, Troubled Companies Got Bailout Money in Small-Business Loan Program

Large, Troubled Companies Got Bailout Money in Small-Business Loan ...

Companies with accounting problems or in trouble with the government received millions in federal loans.

A company in Georgia paid $6.5 million to resolve a Justice Department investigation — and, two weeks later, received a $10 million federally backed loan to help it survive the coronavirus crisis.

Another company, AutoWeb, disclosed last week that it had paid its chief executive $1.7 million in 2019 — a week after it received $1.4 million from the same loan program.

And Intellinetics, a software company in Ohio, got $838,700 from the government program — and then agreed, the following week, to spend at least $300,000 to purchase a rival firm.

The vast economic rescue package that President Trump signed into law last month included $349 billion in low-interest loans for small businesses. The so-called Paycheck Protection Program was supposed to help prevent small companies — generally those with fewer than 500 employees in the United States — from capsizing as the economy sinks into what looks like a severe recession.

The loan program was meant for companies that could no longer finance themselves through traditional means, like raising money in the markets or borrowing from banks under existing credit lines. The law required that the federal money — which comes at a low 1 percent interest rate and in some cases doesn’t need to be paid back — be spent on things like payroll or rent.

But the program has been riddled with problems. Within days of its start, its money ran out, prompting Congress to approve an additional $310 billion in funding that will open for applications on Monday. Countless small businesses were shut out, even as a number of large companies received millions of dollars in aid.

Some, including restaurant chains like Ruth’s Chris and Shake Shack, agreed to return their loans after a public outcry. But dozens of large but lower-profile companies with financial or legal problems have also received large payouts under the program, according to an analysis of the more than 200 publicly traded companies that have disclosed receiving a total of more than $750 million in bailout loans.

Another dozen or so collected money even though they have recently reported being able to raise large sums through private means. Several others have recently showered top executives with seven-figure pay packages.

The government isn’t disclosing who receives aid, leaving it up to individual companies to decide whether to disclose that they obtained loans. That makes a full accounting of the loan program impossible.

“It’s outrageous,” said Amanda Ballantyne, the executive director of Main Street Alliance, an advocacy group for small businesses. She added that there were countless small business owners “who have laid off all their staff, are trying to file for unemployment and will go bankrupt because of the problems with the way this Paycheck Protection Program was designed.”

Applicants for loans do not need to provide evidence that they have been harmed by the pandemic. They simply need to certify that “current economic uncertainty makes this loan request necessary” to support their operations.

Instead of having the Small Business Administration, which is guaranteeing the loans, decide which companies get funding, the process was essentially outsourced to banks. The banks collect fees for each loan they make but don’t have to monitor whether the recipients use the money appropriately.

For small business owners shut out of the program, watching big companies collect loans while their applications languish has been infuriating.

“It has been beyond frustrating,” said Diane Burgio, a single mother who runs a design business in New York City that employs four people. She was one of more than 280,000 applicants who sought, and did not get, a loan from JPMorgan Chase.

The New York Times identified roughly a dozen publicly traded companies that had recently boasted about their access to ample capital — and then applied for and received millions of dollars in the federal loans.

Legacy Housing, a Texas company that manufactures premade homes, announced on April 1 that it had access to a new $25 million credit line. Curtis D. Hodgson, Legacy’s executive chairman, told investors that he expected any damage from the coronavirus to be short-lived. “Our order book is still strong, and we are well-positioned once the situation begins to normalize,” he said.

Less than two weeks later, on April 10, the company announced that a local lender, Peoples Bank, had approved it for $6.5 million under the S.B.A. loan program.

In an interview on Sunday, Mr. Hodgson said that an inquiry from The Times led the company to decide to give back the money it borrowed, though he defended seeking the loan in the first place. “Legacy is a highly leveraged company without cash on hand,” he said. “Here was a way to get a cash infusion.”

Escalade Sports, which makes things like table tennis tables and basketball hoops, already had a $50 million credit line from JPMorgan Chase. The company’s chief executive, Dave Fetherman, told investors this month that the company, based in Evansville, Ind., had “a strong balance sheet” and was seeing rising demand for its products, with so many Americans cooped up in their homes.

Days earlier, Escalade got a $5.6 million federally backed loan. A spokesman for Escalade said the company “fully met all required conditions at the time we applied for the P.P.P. loan.”

Executives at some companies said applying for the loans made clear business sense. The loans are essentially free money: They have rock-bottom interest rates and can be forgiven if, among other things, the borrower maintains the size of its work force. In some cases, executives said, their bankers encouraged them to apply for the loans.

At least seven companies that received a total of $45 million in loans under the federal government’s program have recently had serious scrapes with the federal government.

MiMedx Group, a biopharmaceutical company in Marietta, Ga., got a $10 million loan on April 21. On April 6, the company had agreed to pay the Justice Department $6.5 million to resolve allegations that it violated federal law by knowingly overcharging the Department of Veterans Affairs for medical supplies.

MiMedx, which makes and sells human tissue grafts, also ran into problems with the Securities and Exchange Commission. Last year, the agency sued MiMedx, accusing the company of exaggerating its revenue to investors over several years. MiMedx agreed to settle the case for $1.5 million, without admitting wrongdoing. Two of its former top executives were indicted last year by federal prosecutors in Manhattan on charges of accounting fraud.

A MiMedx spokeswoman, Hilary Dixon, said the company was trying to move past its accounting scandal. “We don’t have the option of raising capital in the public markets owing to our financial restatement process,” she said.

Another company, US Auto Parts Network, which received a $4.1 million loan through the program, has been in a heated dispute in recent years with Customs and Border Protection. The agency has seized some of the company’s imported products, claiming they are counterfeit.

US Auto Parts Network didn’t respond to requests for comment.

At least two companies that received federally backed loans have previously borrowed heavily from their own executives or others close to the firms — meaning that the new loans could help the companies repay their insiders.

Infinite Group, a cybersecurity firm in Pittsford, N.Y., had been borrowing hundreds of thousands of dollars from its board members and the brother of a top executive at annual interest rates as high as 7.5 percent. This month, Infinite secured a nearly $1 million federally backed loan whose 1 percent interest rate could allow the company to dramatically lower its funding costs. Company officials didn’t respond to requests for comment.

Intellinetics, the company that announced that it was buying a rival days after it received its emergency loan of $838,700, borrowed nearly $400,000 last fall from two brothers who run a small New York brokerage firm, Taglich Brothers. If the money isn’t repaid by May 15, Intellinetics will need to give the brothers stock in the company or start paying a steep 12 percent interest rate. (Some of that debt has already been converted into stock.)

“Securing the PPP funding gives us extra confidence and ability to restart and hit the ground running,” James F. DeSocio, the company’s chief executive, said in a news release.

Infinite Group and Intellinetics have not said precisely how they intend to use the loan proceeds.

A number of other companies have had serious accounting problems. The chief financial officer of CPI Aerostructures, an aerospace manufacturer that got a $4.8 million loanresigned in February after the company disclosed major problems with how it reported revenue.

And several firms have been paying their top executives millions of dollars despite financial problems that predate the coronavirus crisis.

For example, AutoWeb’s chief executive, Jared Rowe, got $4.7 million in total compensation over the past two years — including $1.7 million in 2019 — even as its stock price plummeted more than 70 percent. The company declined to comment.

And Manning & Napier, an investment firm in Fairport, N.Y., that has about $20 billion in assets under management, disclosed in March that its chief executive, Marc O. Mayer, earned nearly $5 million last year. On April 19, the company was approved for $6.7 million in the paycheck protection loans — even as the company said it would pay out a quarterly dividend to its shareholders.

Last week, amid mounting public anger toward large recipients of the rescue loans, Manning & Napier said it had decided not to take the money.

While the federal loan program is supposed to help companies avoid layoffs, some of the large recipients of loans have already dramatically reduced their workforces — and not always because of the coronavirus.

Harvard Bioscience, based in Holliston, Mass., has been trying since last year to pacify an activist investor that is pressuring management to boost the company’s stock price. The company closed facilities in North Carolina and Connecticut and said in February, before the coronavirus upended the economy, that it was laying off about 10 percent of its work force.

This month, Harvard Bioscience received a $6.1 million loan through the paycheck protection program. In a securities filing disclosing the loan, the company didn’t say why it sought the money or how it would use it. A spokesman didn’t respond to requests for comment.

A number of relatively large companies with connections to Mr. Trump also received millions of dollars in loans.

Phunware, a data-collection company that received a $2.9 million loan this month, counts Mr. Trump’s re-election campaign and Fox News as two of its biggest clients.

Continental Materials, a heating and air conditioning and construction material supplier based in Chicago, got a $5.5 million loan. The firm’s chief executive, James Gidwitz, is a major Trump donor, and his brother Ronald was appointed ambassador to Brussels by Mr. Trump after serving as Illinois campaign finance chairman for the 2016 Trump campaign.

It isn’t clear whether political considerations helped Phunware and Continental Materials get their loans approved. Neither company responded to requests for comment.