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Public Citizen Calls for Investigation of Former Medicare Chief’s Ethics Waiver

Dec. 22, 2003

Public Citizen Calls for Investigation of Former Medicare Chief’s Ethics Waiver


HHS Secretary and Ethics Officer May Have Acted Improperly in Ignoring Potential Employers’ Massive Interests in Medicare Bill


WASHINGTON, D.C. – Public Citizen today issued a letter of complaint to the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) concerning Secretary Tommy Thompson’s waiver exempting former Center for Medicare and Medicaid Services (CMS) Administrator Thomas Scully from ethics laws. The waiver allowed Scully to represent the Bush Administration in negotiations with Congress over the recently-enacted Medicare prescription drug legislation while Scully simultaneously negotiated possible employment with three lobbying firms and two investment firms that had a major stakes in the legislation.

A Public Citizen investigation has revealed that these firms own or represent dozens of health care companies, trade associations, and physicians’ organizations with billions of dollars at stake in the new law. Click here to view the letter to the OIG and a fact sheet on the employers Scully was negotiating with, and the interests they represent.

“That ethics laws were brushed aside in the face of such conflicts of interest is highly questionable,” said Frank Clemente, director of Public Citizen’s Congress Watch. “That the public and Congress were kept in the dark about the conflicts of interest until the Medicare bill was passed is absolutely disgraceful.”

In the complaint Public Citizen urges the OIG to initiate an investigation into possible impropriety by Secretary Thompson and the HHS’ Associate General Counsel of Ethics in the granting of the waiver, which was signed by Thompson on May 12, 2003. The waiver allowed Scully to seek private employment with firms that represent or own parties with clear financial interests in Scully’s official duties, an otherwise clear violation of federal ethics laws. The waiver gives the self-serving justification that it is “neither practicable, nor in the interest of the Department, for Mr. Scully to remain disqualified,” ignoring clear guidelines set out in federal regulations and law that list specific criteria for such waivers.

Those criteria specify that a waiver from conflicts of interest laws are justified primarily on the grounds that the private benefit to the public employee and the employee’s potential employers and their clients or subsidiaries are so insubstantial as not “to affect the integrity of the employee’s services.” [5 CFR 2640.301(c)]

The three lobby firms with which Scully negotiated possible employment lobby for at least 30 companies or associations that are affected by the new Medicare law. The two investment firms own substantial stakes in at least 11 companies that are affected by the Medicare changes. Among those 41 entities are 12 pharmaceutical companies and the trade association for the pharmaceutical industry.

Pharmaceutical companies were widely considered the biggest winners in the passage of the Medicare bill; it subsidizes private insurers to provide prescription drug coverage to seniors – thereby increasing demand for drugs, bans the Medicare administrator from bargaining for lower drug prices and effectively prohibits the reimportation of lower-priced drugs from Canada. The entities with which Scully discussed employment also included many representatives from the health care provider industry that has estimated it will receive $3.5 billion in increased Medicare physician payments—including 10 health care provider companies, four of their trade associations, and three professional organizations representing their doctors.

None of these interests were disclosed by HHS in its waiver, despite regulations that require the waiver to “describe the disqualifying financial interest, the particular matter or matters to which it applies, [and] the employee’s role in the matter or matters.” [5 CFR 2640.301(c)]

“This kind of disregard for our country’s ethics laws is inexcusable,” said Public Citizen President Joan Claybrook. “Just as the billions in corporate give-aways in this bill are coming to light, we now have to wonder how much was tossed in to sweeten Thomas Scully’s employment package.”

Scully resigned from the Centers for Medicare and Medicaid Services on December 16. On December 18 he announced that he would be joining two of the five firms he had been negotiating with while CMS administrator. They are: Alston & Bird, a firm with many health care industry clients, and Welsh, Carson, Anderson & Stowe, an investment firm with investments in health care companies.

Several Members of Congress have also expressed concern about the waiver. On December 3 Senate Committee on Finance Chairman Chuck Grassley (R-Iowa) announced he had made an inquiry to HHS over the issue. Rep. Pete Stark (D-Calif.), Ranking Democrat on the Ways and Means Health subcommittee and Rep. Jan Schakowsky (D-Ill.), Ranking Democrat on the Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection sent a letter on December 11 to Secretary Thompson questioning the waiver.