Political Intel Groups Profit From Government "Inside Information?"

Senator Chuck Grassley

Find out what Government actions are going to be taken and how those are going to affect markets and investments and make a buck (or millions)?  Is this akin to "Insider Trading" and are some profiting from "inside" government intelligence?

That's what Senator Chuck Grassley wants to find out.  Yesterday he asked the top government health care agency, Centers for Medicare and Medicaid Services (CMS) for the details on a key decision on Monday over Medicare Advantage payment rates.

According to a Grassley statement issued yesterday, he wants a timeline and details of the communications on a key Medicare policy decision this week that reportedly moved stock prices when correctly predicted by an outside firm prior to public release.

The Grassley statement refers to a Wall Street Journal story in which the firm, Height Securities, issued an advisory that "...a deal has been hatched to protect Medicare Advantage rates" from a proposed cut, and that stocks rose as a result of the advisory.

Grassley says:

"...The advisory was issued before CMS’ decision became public, raising questions about whether CMS or other federal agencies involved in the decision allowed sensitive information to flow to non-governmental entities before the government made its announcement..."

Grassley told CMS Acting Administrator Marilyn Tavenner:

"This raises questions regarding political intelligence brokers’ ability to gather information from CMS in order to predict market moving events."

In a letter to Tavenner Grassley says:

"On December 12, 2011, I wrote you to raise concerns regarding a dissemination of nonpublic information to hedge funds and political intelligence brokers.1 You responded on January 11, 2012, saying in part “CMS does not have a system for tracking meetings for Agency staff.” Further, you also said that all “Executive Branch employees are prohibited from knowingly making any unauthorized disclosure of nonpublic information,” and “no information is permitted to be provided to the public unless it is already publicly available such as through a public webpage, press release announcement, or another publication."

The letter quotes Tavenner saying in a September 7, 2010 memorandum to all Centers for Medicare and Medicaid Services employees:

"...The purpose of this memorandum and the accompanying document is to reinforce your awareness that as a CMS employee you frequently have access to nonpublic, confidential, privileged, or proprietary information, which may not be disclosed except as authorized by law…For example, an announced changed in CMS payment or coverage policy may be market sensitive in that it could result in a stock or bond value increasing or decreasing as investors react to the announced information. Such information should never be released for public disclosure unless it is properly authorized for such release. Even when this information is properly released, given the potential effects on the markets, the information should be released in a careful way so as to minimize these effects, such as by releasing the information after the markets have closed at 4:00 p.m. Eastern Time to allow the investment community broad access to the information and time to fully analyze the announced change before reacting to it..."

Grassley specifies in the letter:

"According to the Wall Street Journal, at 3:42 p.m. Eastern Time, on Monday, April 1, 2013, Height Securities issued an advisory that “a deal has been hatched to protect Medicare Advantage rates from the -2.3% rate update issued in the advanced notice mid-February…We are supportive of MA related stocks (HUM, HNT [Humana, Health Net]) under these circumstances.  After Height Securities’ prediction was issued, volumes for affected companies jumped to a total of $662.8 million in the final minutes of trading and stocks rose as much as six percent between 3:42 p.m. and when the markets closed.6 Humana and Health Net’s stock prices rose significantly..."

Grassley questions these developments and says:

"...This raises questions regarding political intelligence brokers’ ability to gather information from CMS in order to predict market moving events..."

So he wants to know from Tavenner:

1. When the decision was made at CMS on the final MA policy and the timeline of events on CMS’s decision.
2. All communications, including emails, with respect to the rate announcement for MA and Part D programs within the last two weeks. 
3. All names of CMS and non-CMS personnel (inclusive of Health and Human Services, Office of Management and Budget, and the White House) who received advanced notice of CMS’s April 1, 2013, MA decision prior to the public notification at approximately 4:30 p.m., and the times at which these individuals were notified.

Grassley's office says this is the second time in recent years he has asked the agency to describe its processes for dealing with political intelligence firme and others who seek to profit from government information:

"...In December 2011, he wrote to the agency over allegations from a then-agency employee who said nearly one dozen agency employees were made to have a lengthy meeting with a Wall Street firm in 2009 over reimbursement policy for certain medical devices...The agency’s response revealed loose procedures for dealing with outside firms, causing continued concern for Grassley.  Grassley is working on a legislative effort to require political intelligence-gathering firms to register the way lobbyists are required to register, in an effort to provide transparency into a growing industry that seeks information from Congress, the federal agencies, and the White House for financial gain, possibly to the disadvantage of everyday investors..."

Grassley wants an April 9 response to his inquiry, when Tavenner comes before the Finance Committee for a hearing on her nomination to serve as permanent administrator.