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  • October 2014
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See You In Court – Again

One of the things that is becoming more disturbing each day is how the Obama Administration is issuing a tsunami of regulations, interpretive rules, sub-regulatory guidance, executive orders, guidelines, and even divine proclamations on White House tissue paper (just kidding on that last one) that contradict, subvert, or circumvent the law.  Even though I just cover healthcare issues, it is practically impossible to keep current with the changes, particularly as a result of the Affordable Care Act (ACA), better known as ObamaCare.

From the Department of Agriculture to the Environmental Protection Agency (EPA), to Health and Human Services (HHS), and the Treasury, the Obama administration is crafting sub-rosa rules at an alarming rate.  Law professor and Constitution scholar Jonathan Turley says it is a “massive gravitational shift” of power to the executive branch.  The Competitive Enterprise Institute just released its annual study, “The Ten Thousand Commandments,” which “shines a light on the large, growing, and hidden costs of America’s regulatory state.”  According to Wayne Crews, author of the report, the “costs for Americans to comply with federal regulations reached $1.863 trillion in 2013. That is more than the GDPs of Canada or Australia.”

Often, the end result are lawsuits challenging the Obama Administration’s arbitrary decisions in court.  For example, some of the more well-known cases are the four challenges to the IRS’s interpretation that taxpayer-funded subsidies are allowed in the federally-run ObamaCare exchanges.  According to the plaintiffs, ACA contains no such provision that authorizes subsidies in the federal exchanges, yet subsidies have been provided.  The outcome of these cases are still to be determined.

The Murray Energy Corporation and twelve states that rely on coal production are suing the EPA over its proposed rules to cut greenhouse gases from coal plants, excusing the agency for overstepping its authority under the Clean Air Act.  Indiana Governor Mike Pence (R), and one of the plaintiffs, said, “Congress has already rejected legislation that would put limits on carbon dioxide emissions, and a law of this significance should be passed by the legislative branch.”

But often the legal challenges are about relatively obscure issues that don’t grab a lot of public attention.  One issue that I have been tracking has fallen under this rubric.  You may recall I have written about a federal drug discount program called 340B. Citizens Against Government Waste (CAGW) believes that Congress needs to conduct vigorous oversight of the program (the last oversight hearing was in 2005) and reform it. Things are starting to heat up again with program and legal challenges, so I thought I would give you an update.  First, a bit of background.

My blog posted in CAGW’s May 2014 SwineLine described the 340B program and why taxpayers needed to pay attention to what was happening to it even then.  It started out in 1992 as a relatively small program intended to help certain healthcare entities that served large populations of indigent, uninsured patients offer deeply discounted pharmaceuticals to those patients.  If pharmaceutical companies wanted to participate in Medicaid, then they had to participate in the 340B program.  The understanding was these discounts given by the manufacturers would be passed along to uninsured patients.

The 340B program was greatly expanded under the ACA and is now being exploited nationwide by healthcare providers for their own gain.  In many cases, patients who are supposed to be benefitting from the lower prices do not get them; in fact, the poorly-written law does not specifically mandate that healthcare entities to pass along the savings to patients, whether insured or not.

What has happened is the program has turned into a money-making scheme that helps large non-profit hospital systems and their contract pharmacies, reap billions in profit.  The Charlotte Observer, for example, ran a series of articles on non-profit hospitals making huge earnings at the expense of patients while providing little charity care.  The series included at least two articles on how the 340B program was being abused by the hospitals, entitled “Hospitals Probed on Use of Drug Discounts” and “Hospitals Profited on Drugs for Poor, Uninsured.”

Who ends up paying for the misuse of the 340B program?  Taxpayers of course, through higher insurance premium costs, increased drug prices, and taxes.

Since 2011, there has also been an on-going and troubling issue with the 340B program over orphan drugs.  An orphan drug gets its designation from the Food and Drug Administration if it is intended for use in the treatment of a rare disease that affects fewer than 200,000 people in the United States.  Research-based companies are provided incentives to create these drugs because the patient populations are very small.

In May 2011, Health and Human Services’(HHS) Health Resources and Services Administration (HRSA), the agency that oversees the 340B program, issued a proposed regulation that would allow the 340B discount apply to orphan drugs if they are used for a non-rare disease indication (in other words, off-label) by certain 340B-covered healthcare entities.  But the ACA explicitly exempts orphan drugs from the 340B discount and makes no distinction whether the drug is used for a rare disease or not.  Once again, the Obama administration is changing law by regulatory fiat.

In July 2013, HRSA finalized the rule.  In Congress, Senator Orrin Hatch (R-Utah) was strongly critical of the new interpretation, laying out his reasons in a July 2013 letter to HRSA Administrator Mary Wakefield, in which he reminded HRSA that the law exempts orphan drugs from the 340B program, without any qualifiers, and also points out that the agency has proven itself incapable of good oversight.  For example, he believes the agency will be unable to track when orphan drugs are used for a rare disease and when they are not.

The Pharmaceutical Research and Manufacturers of America (PhRMA) sued HHS in September 2013.  Modern Healthcare reported on Oct 2, 2013 that, “The drug trade group this year said that final rule on the orphan-drug exclusion would ‘undermine’ Congress’ intent to preserve orphan-drug development incentives.  In the lawsuit, PhRMA said its member companies will suffer financial harms if they are required to offer 340B pricing ‘beyond the clear boundaries of the 340B statute.’”

In May 2014, the Judge Rudolph Contreras of the United States District Court for the District of Columbia invalidated the rule, siding with PhRMA, and stating that HHS does not have the legal authority to issue the regulation.  The judge did suggest that HHS might want to write an interpretive rule.  Thomas Barker and Igor Gorlach of the law firm FoleyHoag (LLP) questioned “how recasting the same rulemaking as an interpretive rule and repeating the same argument would change the opinion of the Court.”

Just like zombies, the bureaucrats kept on coming.  Predictably, on July 21, HRSA released a new interpretive rule, basically the old rule in a new suit, as an effort to circumvent the court’s decision.  PhRMA requested that Judge Contreras throw out the “new” interpretive rule because it was substantially identical to the one he had just declared the agency had no legal authority to issue.

However, on August 27, 2014 Judge Contreras disagreed with PhRMA’s request because the interpretive rule is a new action and not part of the earlier suit.  He said that PhRMA was free to file another lawsuit.

Sure enough, PhRMA did file another suit.  Here is what the trade association said in its press release:

At issue is the Health Resources and Services Administration’s (HRSA) interpretation of the 340B orphan drug exemption, enacted as part of the Affordable Care Act (ACA). The ACA significantly expanded the type of entities that can access 340B discounts for prescription drugs. To preserve incentives to invest in research and development of new treatments for rare diseases, the ACA expressly exempts manufacturers from having to provide these discounts on orphan drugs to newly eligible providers.

“After the Federal District Court of the District of Columbia vacated the HRSA July 23, 2013 rulemaking regarding the 340B orphan drug exemption, in July 2014, the agency issued the exact same rule, but labeled it ‘interpretive.’  HRSA’s action in this regard is unlawful.

“While we value the hard work and efforts of all agencies, it is important federal agencies recognize and work within the bounds set by Congress. PhRMA is therefore filing suit against the U.S. Department of Health and Human Services to challenge its second attempt to issue a rule conflicting with the plain language of the statute.

So the expensive waiting game begins again and taxpayer money continues to seep out all over the place.

Meanwhile, this case is just one representation of what is happening across business sectors and around the country.  More valuable resources are tied up playing “Whack-A-Mole” as companies scramble to keep up and defend themselves against the regulatory onslaught and an administration that routinely violates and re-interprets the law with reckless indifference.

 

(For further reading on the 340B issue see CAGW’s May Waste Watcher and in my June 2014.)

John Locke was Right….

When he said “I have always thought the actions of men the best interpreters of their thoughts.”

Partisan ideology, never-ending campaigning, and empty rhetoric is no substitute for leadership, competence, and good management.  The Keystone Cop character of the “we first heard about it when we read about it in the news” Obama administration is all the proof you need of the vacuum of ideas at the top in DC.

Not only has the administration been exposed as lacking in creativity, it is also clear that it is incapable, loathe one might say, even when failure is staring it in the face,  to reach out beyond its own (extremely limited and rigid) world view to solicit and implement workable ideas from anyone else, not even its congressional allies.

Even Obama’s left-of-center supporters get it:

“I’ve never seen a guy want to coast this much as president.  Even Bush who couldn’t wait to get out of office and be an ex-president was at least still trying really bad ideas to the end. What in the world is President Obama’s agenda?!…The base has been eviscerated. There is no vision. The approval ratings have been battered. And President Obama hasn’t really done anything colossally wrong yet. ”

Obviously, that last sentence borders on delusional and most of his supporters are dissatisfied because they want something more from him, more stuff, more wealth transfers, more punitive regulatory policies against perceived enemies, bigger government programs, higher taxes, more give-aways, etc. (The Huffington Post article title says it all, “What has Obama Done for You Lately?”).

But on the saner side, Elaine Kamarck, Democrat and former Clinton administration official, nails it in an LA Times op ed:

“Today, presidents travel nonstop and talk nonstop,” she said. “That wasn’t always true. This addiction to PR has been terrible for the presidency. Every hour he’s on the campaign trail is an hour he could be talking with members of Congress. My advice to any president would be: Stop talking. Start working. “This administration has been disconnected from the government it’s supposed to be running,” Kamarck charges (and, remember, she’s a Democrat). “They seem to view the federal workforce as hostile territory. They don’t engage with it…. They don’t have a strong system of getting info from the agencies to the president.

The clearest proof: “They keep getting surprised by stuff. And the surprise is almost worse than anything else. It conveys the sense that the White House doesn’t know what its own government is doing. “You can’t prevent all these problems from happening, but you can certainly get ahead of the curve on some of them. Kamarck points to a larger historical trend at the root of the White House’s failings: the transformation of the presidency since the 1960s into an engine of the permanent political campaign.

“When a president suffers an implementation meltdown, those are far worse than legislative losses,” she said. “Legislative losses, there’s always another party to blame. Implementation problems, voters are going to blame the president — because they think part of his job is running the government. And Americans expect competence.”

Read it all, well worth it.

The War on (Minimum) Wage Payers

Our nation’s Founding Fathers never intended to put the government in charge of picking winners and losers, but as citizens look more and more to Uncle Sam for special favors and handouts, that is precisely what is happening. In the process, the storied American character that once valued hard work and venerated self-reliance has itself been impoverished.

On February 12, 2014, as he signed an executive order raising the minimum wage for federal contractors to $10.10 an hour, President Obama stated, “In the wealthiest nation on Earth, nobody who works full-time should have to live in poverty – nobody, not here in America.” An idea with (arguably) the best of intentions is instead a misguided outlook that has echoed throughout the administration and seeped its way into the halls of Congress, transforming the minimum wage debate into a guiding force behind the deconstruction of the American dream.

This skewed sense of entitlement has evolved into a full-fledged movement with the protests of food-service workers and other low-skilled employees demanding a minimum wage increase from $7.25 an hour to $15 – more than doubling their pay.

While advocates of a minimum wage increase cite “democracy” and “equal rights” as relevant factors in the living wage equation, what proponents fail to acknowledge is that a substantial increase would defy the basic rules of economics and decrease opportunity for all Americans.

Every time President Obama proclaims that an increase in the hourly wage in any form would “aid a dishwasher at Randolph Air Force Base making $8.91 an hour, and a laundry worker at Camp Dodge in Iowa making $9.03 an hour,” he forgets about the nurse’s aide at St. Mary’s Medical Center in Indiana who embarked on months of training to make $10.20 an hour, or the rehabilitation counselor in Westbury, New York who acquired a Master’s degree to obtain that position, making $16.29 per hour – a mere $1.29 more per hour than that being demanded by food service workers.

Regardless of the political, financial, or economic intentions that drive the minimum wage debate, supporters are ignoring the consequences. There is no equality or democracy when the government arbitrarily decides to depreciate the value of one man’s education, skills, and training over someone less qualified. Rather, it simply ends up picking winners and losers.

Businesses hire employees based on skills and experience. Employers then pay their employees based on the value of the work they produce. The minimum wage debate has nothing to do with inequality, but everything to do with how much certain people are able to produce, as well as what a certain product is worth. Do some people produce more than others? Absolutely. Is this unfair? Of course not.

Instead of wagging his finger at Congress’s failure to “give America a raise,” President Obama should instead give America a chance.  In an economic climate where 9.5 million Americans are unemployed or underemployed, the President would be much wiser to promote more robust, market-based economic growth, not risk even more job loss by interfering in the wage market.  During his proclaimed “year of action,” President Obama would accomplish much more by persuading the Senate to pass one of the more than 30 jobs bills that currently lay idle in the Democrat-controlled chamber.

As the White House prepares to give its final review  to regulations requiring the wage increase of federal contractors, it is important to remember a crucial element in the establishment of our nation that seems to be all but forgotten. The U.S. Constitution was drafted with the vision of a nation that was protected by a limited federal government: a government that preserved liberty while encouraging purposefulness and efficiency, not a government that manipulates its citizens into believing the minimum wage is the most they can hope for.

Satellite TV Bill Moves Forward in the Senate

On September 17, 2014, the Senate Committee on Commerce, Science, and Transportation approved S. 2799, the Satellite Television and View Rights Act (STAVRA), which would extend for five years the Satellite Television Access Reauthorization Act. The current authorization expires on December 31, 2014. While one would think this would only be of interest to users of satellite TV, provisions in the bill extend beyond the scope of just reauthorizing satellite access to television signals.

As approved by the committee, the bill would extend the ability of satellite companies to import distant signals for another five years. In addition, the bill would prohibit joint retransmission negotiations; prohibit local stations from using retransmission agreements in order to prevent the ability of multichannel video programming distributors (MVPDs) from carrying certain out-of-market signals; and, sunsets the set-top box integration ban. The bill also requires the Federal Communication Commission to reexamine its good faith negotiation rules, and instructs the FCC to collect and report retransmission consent data as part of its cable pricing report.

Retransmission consent issues have been on the uptick since 2010, with consumers often feeling the consequences of tense negotiations in the form of programming blackouts. In the summer of 2013, the retransmission battle between CBS and Time Warner Cable became ugly, with CBS not only blacking out the television signals, but also disrupting online broadcaster content for Time Warner subscribers. It became clear that a solution to retransmission consent agreements between broadcasters and MVPDs needed to be found.

Reauthorizing the Satellite Television Access Act for the next five years will provide certainty in the Satellite TV marketplace.  In addition, the modest reforms in the retransmission process, as well as the sunset of the set-top box integration ban provide a way forward for the next Congress as it prepares to modernize the Communications Act.

Past Porker Cordray Crimps Car Dealers

So, the Consumer Financial Protection Bureau (CFPB) is at it again!

According to the September 17th, 2014 edition of the Wall Street Journal, the agency announced its intention to regulate the automobile dealers and the finance companies that service them. In prepared remarks, CFPB Director Richard Cordray (named August 2014 “Porker of the Month” by CAGW for the egregious overspending to refurbish CFPB’s rented office space) has deigned to extend his agency’s reach into the realm of auto lending, to right perceived wrongs. The proposed rule can be found here.

The National Automobile Dealers Association (NADA), the National Asssocation of Minority Automobile Dealers (NAMAD), and the American International Automobile Dealers Association (AIADA), representing the interests of auto dealers before the federal government, issued the following statement:

“As stated on numerous occasions, NADA, NAMAD and AIADA strongly oppose discrimination in any form and fully support the efforts of the CFPB, the Department of Justice, the Federal Trade Commission and other federal agencies to eliminate it from the marketplace.

“However, the CFPB has again failed to fully disclose its methodology for measuring for the presence of disparate impact. There are legitimate, market-based reasons for disparities in interest rates – from monthly budget constraints, to the presence of more competitive offers, to inventory reduction considerations – all of which are nondiscriminatory and all of which can be documented in the transaction. A better solution would be for lenders to adopt a robust retail compliance program that documents the basis of the pricing decision to effectively reduce the risk of discrimination in the purchasing process. The Department of Justice has created such a risk mitigation model, and we encourage the Bureau not to overlook this common sense approach to addressing fair credit risks in the auto financing market.

“With respect to the proxy methodology report released by the CFPB, many of the questions that Congress and others have asked remain unanswered. We look forward to rigorous peer review to ensure that the tools the Bureau is using to address fair credit concerns may actually accomplish its goals.”

Cordray’s further meddling in this sector of the economy follows the CFPB’s March 2013 guidance on auto lending. In response to this overreach, H.R. 5403, the “Reforming CFPB Indirect Auto Financing Guidance Act,” a bipartisan bill that now boasts 56 Republican and 31 Democrat co-sponsors, was introduced by Rep. Marlin Stutzman (R-Ind.) on Sept. 8, 2014. The text of the bill can be seen here.

Today, the Council for Citizens Against Government Waste, CAGW’s lobbying arm, submitted a letter in support of the legislation. The text of the letter can be seen here.

On a related note, for the definition of a government shakedown, see also my July WasteWatcher, entitled “Consumer Financial Protection Racket – er, Bureau.”

 

Clarity on Costs Essential To Postal Reform

USPS is posting one thing very well; losses.

The USPS is hemorrhaging money.   It ended its last quarter with a $2 billion net loss, as compared to a $740 million net loss for the same period last year.  The revenue that was generated came as a result of a very anemic increase of 0.9 percent in standard mail volume, as well as an increase in the price of stamps in January, 2014.  The agency reports that it saw a 1.4 percent decline in first-class mail volume and it has sustained losses in 21 of the last 23 quarters.  Overall, the USPS has lost about 30 percent of its first-class mail volume to the internet over the last ten years, a trend which is expected to continue unabated.  In fact, that shrinkage might even accelerate as USPS frantically grabs for rate increases to fill its financial holes.  Some people call this a death spiral.

USPS officials have been trying to grapple with the staggering losses through changes around the margins, but in the final analysis, Congress will need to enact sweeping postal reform in order to truly address its broken business model.

And here is where trouble begins.  Congress has been the biggest stumbling block to the USPS’s attempts to address inefficiencies in its infrastructure.

On August 4, 50 senators from both sides of the aisle crafted a letter to Senate appropriators requesting that the USPS be prevented from taking any further action to close or eliminate postal facilities during fiscal year 2015.  USPS management, in the absence of postal reform, has been painstakingly and haltingly closing and consolidating its facilities; 141 mail processing facilities have been consolidated since 2012.  Postal management has announced that it intends to continue to winnow the workforce by 15,000 and merge another 82 physical plants in 2015.

Congress also stymied their attempt to ratchet back to a five-day delivery schedule.

Senate Homeland Security and Governmental Affairs Committee Chairman Tom Carper (D-Delaware) responded to the latest congressional interference by saying “”If my colleagues want to address these concerns for the long-haul, I urge them to join me this September as we continue our efforts to fix the serious, but solvable, financial challenges facing the Postal Service.”

Both chambers took up postal reform last session, but the bills never made it to the floor of either chamber.

Large postal unions are determined to block any reforms that lead to explicit winnowing of the bloated postal workforce.

Sen. Carper’s bill would kick the can down the road on transitioning to a five-day mail delivery schedule, but allow it nevertheless, and would countenance more facilities closures.  House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) has a bill that would eliminate  Saturday mail delivery, phase out to-the-door delivery in urban areas, and rejigger the funding formula for the USPS’s future healthcare and pension liabilities, which the USPS has argued is unfair and has contributed to its fiscal mess, and allow for the continued shuttering of facilities.  Though both Carper and Issa publicly express optimism and determination to get something done during the current session, given the time constraints and the uncertainty surrounding a lame duck session, postal reform is unlikely to occur until after the new Congress is sworn in in January, 2015.

Of serious concern to proponents of free-markets and anti-waste advocates are provisions that either directly or indirectly allow the USPS to begin competing or expand current lines of business against private-sector companies in sectors where they have no previous expertise or where they may be leveraging their quasi-government status to undercut competitors.

Sen. Elizabeth Warren (D-Mass.) has suggested that the USPS could expand into financial services to the “un-banked”  (the irony of having a nearly bankrupt federal government entirety offering financial services seems to be lost on the rather obtuse Warren).  The USPS OIG, who apparently doesn’t have enough postal service, waste, fraud, abuse and mismanagement to track, meandered off into Elizabeth Warren territory with a report he issued on the same subject…so it’s apparently a “thing” that needs to be carefully watched.

Postal observers have long noted that the USPS is using its monopoly on first-class letter mail to cross subsidize its other postal products, including its parcel services.  Not a surprise; Postmaster General Patrick has stated it explicitly, saying “We’ve been focusing a lot of efforts on package growth, because that’s the biggest opportunity for us,” said Postmaster General Patrick R. Donahoe.  He also stated that he intends to pour another $10 billion into facility and vehicle upgrades designed to help grow the parcel line of business.  How he does this with a multi-billion dollar gaping annual deficit, a $15 billion cap on borrowing from the U.S. Treasury (which the USPS has already reached), and unfunded liabilities that stretch out as far as eye can see has people scratching their heads.

In fact, many are beginning to question the math on the USPS’s parcel delivery costs.  Getting a sight line into the true costs of all the USPS’s products is a key step in keeping the USPS from forcing first-class mailers to cross-subsidize the USPS’s parcel delivery, leveraging its government-granted monopoly against private-sector businesses, and to implementing workable postal reforms.  The USPS should not be permitted to foray into the private sector seeking new revenue in any sector until taxpayers and consumers get a clear sight-line into the USPS’s accounting methods or before it has made the necessary adjustments and changes to its own business model.

One, Two, Three Examples of ObamaCare’s Harmful Effects

Three interesting articles can be found in the September 8 Weekly Special Edition of Investor’s Business Daily (IBD) concerning the Affordable Care Act (ObamaCare) with respect to jobs and the economy.

Low-Wages + ObamaCare = Fewer Work Hours

One article, entitled “Low-Wage Workers See Hours Trimmed as ObamaCare Hits,” concerns how little discussion there is on this topic about low-wage earners.  Most of the noise with respect to these low-wage earners is about raising the minimum wage.

IBD undertook an analysis and found that, “Since December 2012, private industries paying up to about $14.50 an hour have added, on net, 972,000 nonsupervisory jobs with an average workweek of a mere 17.7 hours. That doesn’t mean new employees are being hired for such few hours. Rather, it reflects a combination of reduced hours in existing jobs and short workweeks for newly created jobs.”

IBD found that low-wage workers have seen their work day week shrink to just 27.3 hours per week this July. That is the shortest workweek on record, except for last February when blizzards shut down a lot of the country. According to IBD while some economists have argued that there has been no shift to part-time work due to ObamaCare, in reality the shorter hours by non-managers in low-wage industries are being masked because the rest of the workforce has been working longer hours.  IBD writes the evidence points to ObamaCare as being an important factor in the shrinking work week. The reason why hours are being dropped to an average of 27.3 is because if an employee works over 30 hours, the employer must provide health insurance. You can read the article here.

450 and Counting

Keeping with the part-time worker theme as mentioned above, the second story is about how IBD keeps a tally on businesses and local governments cutting their employees’ hours because of ObamaCare. Says IBD, “ObamaCare’s impact on jobs is hotly debated by politicians and economists. Critics say the Affordable Care Act gives businesses an incentive to cut workers’ hours below the 30-hour-per-week threshold at which the employer mandate to provide health insurance kicks in. White House economists dismiss such evidence as anecdotal, but BLS data show that the workweek in low-wage sectors sank to a record low in July — just before the Obama administration delayed enforcement of the employer mandate until 2015.”

The tally shows that 86 private businesses and 364 public entities have cut workers’ hours to less than 30 hours per week or have cut staffing to avoid the ObamaCare mandate.  IBD invites readers to tell them of any businesses or governments that should be on the list and if they have supporting evidence. You can find the tally here.

The 46 Percenter

The third story concerns how the government has become a bigger piece in the healthcare-spending pie, now at 46 percent.  Of course, the government cannot spend anything without tax dollars so it really means that taxpayers are footing the bill for almost half of all healthcare spending.

President Obama said that ObamaCare would bend the healthcare cost curve down but that had already been happening within private sector spending since the 1960s. But, the private sector downward trend has been replaced by increased government spending. It is expected that government spending on healthcare at all levels amounts to approximately $1.4 trillion this year. If the trend is not reversed, the taxpayers will be paying for more than half of all healthcare costs by 2028.

IBD states that, “ObamaCare is fueling some of this spending surge. This year, federal spending on health care is expected to climb an eye-opening 14.7%. And its growth rate will exceed that of private spending for at least the next 10 years, the data show.” In particular, Medicaid will shoot up by 18.4 percent this year. This is due to 28 states expanding Medicaid eligibility as allowed under ObamaCare but also because people who were already qualified for the program prior to healthcare “reform” are signing up in larger numbers.

This may sound like a good thing but Medicaid is a terrible healthcare program, both fiscally and in quality of care provided, as Citizens Against Government Waste documented in its January 2014 and February 2014 WasteWatcher.

IBD notes that Douglas Holtz-Eakin, former head of the Congressional Budget Office and now president of the American Action Forum, finds the government growth in healthcare disturbing. He tells IBD that, “You are basically saying, we want to put a lot of the health sector’s future innovation in the hands of government programs [but] the government doesn’t have a good track record when it comes to innovation.”

Another trend due to ObamaCare is less out-of-pocket (OOP) costs as a percentage of healthcare spending. According to IBD, it is likely OOP costs will drop $1 billion this year alone and that ObamaCare will accelerate this trend. IBD writes, “While that drop in out-of-pocket costs might seem like good news, some health care economists say it will fuel health care inflation. These economists point out that the less consumers are aware of the cost of health care, the more they’ll likely demand, which has contributed to cost spikes in the past.”

One only needs to look to Canada, Great Britain or other countries with nationalized healthcare to see what happens when it becomes “free” to their citizenry. Healthcare spending rises exponentially and eventually price controls are implemented to control costs. Care is rationed by governing bodies, such as the National Institute for Health and Care Excellence, and by long waits to gain access to specialists and certain technologies, such as CT scans. These are common occurrences in socialized or “single-payer” medicine, as CAGW wrote in its June 2014 WasteWatcher.

In contrast, outside of ObamaCare, IBD points out that employers have been shifting to consumer-driven health plans by utilizing health saving accounts or HSAs. IBD writes that HSAs have, “been widely credited with contributing to the slowdown in health spending over the past five years.” HSAs are combined with a catastrophic insurance plan and are used to pay for routine care and OOP costs.

With respect to healthcare costs, one item that has been in the news lately is the price of new pharmaceuticals. IBD writes that the Centers for Medicare and Medicaid Services (CMS) reports that prescription drugs only account for 9.5 percent of health spending in 2014. This fact is interesting since the insurance industry consistently attacks the drug industry over high drug prices but according to IBD, the “‘net cost of private health insurance’ — which is industry revenue after paying claims — is on its way up. CMS expects these insurance costs to account for 6.6% of the nation’s health spending by 2023, up from 6.4% this year and [it was] only about 2.4% in 1960.”

You can find the healthcare cost article here.

Garage Bands At Risk

In a September 4, 2014 interview in Esquire Magazine, the legendary Gene Simmons of KISS spoke about the demise of rock, and the inability of new musicians to garner success in today’s music world.

When he talked about the difficulty for a 15 year-old’s garage band to achieve success in the music industry because their music is recorded and shared by either a neighbor, friend, or even a fellow band member, I immediately thought of my own son playing his bass guitar with his friends in the basement, and dreaming of a possible future that Simmons says just doesn’t exist anymore.  Simmons explains what the problem is:

The masses do not recognize file-sharing and downloading as stealing because there’s a copy left behind for you – it’s not that copy that’s the problem, it’s the other one that someone received but didn’t pay for.  The problem is that nobody will pay you for the 10,000 hours you put in to create what you created.  I can only imagine the frustration of all that work, and having no one value it enough to pay you for it.

It’s very sad for new bands.  My heart goes out to them.  They just don’t have a chance.  If you play guitar, it’s almost impossible.  You’re better off not even learning how to play guitar or write songs, and just singing in the shower and auditioning for The X Factor.  And I’m not slamming The X Factor, or even pop singers.  But where’s Bob Dylan?  Where’s the next Beatles?  Where are the songwriters?  Where are the creators?  Many of them now have to work behind the scenes to prop up pop acts and write their stuff for them.

A March 2013 University of Lund study reviewed one of the global file sharing sites, Pirate Bay,  to determine who was involved in pirating various types of media, including music, movies, TV shows, sports material, games and software, e-books, and pornography.  The study found that 93.8 percent of the 75,616 file sharers who responded were male, with almost half of the respondents between the ages of 18-24.  The study also found that music files were the most prevalent with 46,554 files shared, despite the availability of “free” legal streaming solutions.  As to why more males than females share files, an August 5, 2014, editorial in TechCentral surmised that women are more risk-averse  than men when it comes to pirating files, even though music pirating is a low-risk activity with little chance that those sharing files will be prosecuted.

In December 1999, the Recording Industry Association of America (RIAA) found that some Napster users had figured out how to illegally share music files, and sued the company for copyright infringement.  On July 27, 2000, a federal judge in San Francisco shut Napster’s website down, noting that the company had acknowledged that they encouraged “wholesale infringement” against music copyrights.  On September 8, 2003, RIAA filed its first suit against individual users of the file sharing systems who were illegally downloading music files.  Napster got the message and now operates as a music subscription service, paying copyright fees to artists, creators, and owners.

The music industry continues to make efforts to combat illegal file sharing of music by monitoring file sharing sites like LimeWire, BitTorrent and Ares and issuing take-down notices to ISPs when they detect any illegal file sharing activity.  In addition, on April 26, 2012, U.S. Immigration and Customs Enforcement announced that it had seized more than 70,000 pirated copies of music and movies valued at nearly $1 million.  In commenting on the seizure, Homeland Security Investigations (HSI) Special Agent Clark Settles stated, “Commercial piracy and product counterfeiting undermine the U.S. economy, rob Americans of jobs, stifle American innovation and promote other types of crime.  Intellectual property theft amounts to economic sabotage, which is why HSI will continue to aggressively pursue product counterfeiters and those who sell counterfeit products.”

Authors of original creative work, including musical recordings, eligible for copyright are not required to register their work with the U.S. Copyright Office (USCO).  Their work is copyright protected from the moment the work is created.  However, the USCO recommends registering the works in order to have documentation of the facts of a copyright on public record, have a certificate of registration, and provide some eligibility for statutory damages and attorney fees in the event litigation over the work occurs

Regardless of whether a song is created by a large recording label, independently distributed by a budding young artist, or surreptitiously recorded and posted on a file-sharing site; the sharing of copyrighted music without adequate compensation to the owner of the copyright is illegal, and steals the intellectual property of the creators.  And, if Gene Simmons is correct, the theft and illegal distribution of music through file-sharing sites is putting the success of new innovative garage bands at risk.

“Shocking” News: CMS Went Over Budget

I’m shocked…shocked that CMS went over budget!  The Health and Human Services Inspector General’s (HHS-IG) office released a report last Tuesday, August 26, that shows the Center for Medicare and Medicaid Services (CMS), the agency that is overseeing the implementation and operation of Healthcare.gov, went over its budget for developing the on-line marketplace.  The IG office states, “This report is the first in a series that will address the planning, acquisition, management, and performance oversight of Federal Marketplace contracts, as well as various aspects of Federal Marketplace operations…”

Specifically, the HHS-IG reviewed 60 contracts that contributed to the development and operation of the federal on-line marketplace, Healthcare.gov.  The IG found that at the time of the award to the contractors, the original estimate of the 60 contracts totaled $1.7 billion.  The contracts ranged in price from $69,195 to over $200 million. Of the 60 contracts, 20 had amounts obligated through February 2014 that had exceeded the estimated value of the contract.  For seven of these contracts, the obligated amounts exceeded the expected cost by 100 percent.  In other words, one-third of the contracts were over budget by February 2014.

The IG writes about the different types of contracts involved and breaks down the data in charts.  In developing the federal marketplace, HHS chose primarily from two broad categories of contract types.  These are fixed-price and cost-reimbursement.  The fixed-price is a firm contract in which the contractor provides the service and the price is not subject to any adjustment.  There is a maximum the government must pay so the contractor assumes the risk for any over-runs.  In the cost-reimbursement contract, the contract states the amount of costs allowed.  The federal government assumes the risk for cost over-runs.  These categories can be furthered broken down into other groups such as cost plus-award-fee and a time-and-materials contract.

According to the IG, 26 were firm-fixed-price contracts, 13 time-and-material contracts, 9 cost-plus-fixed fee contracts, 6 cost-plus-award contracts, and 6 contracts that are a combination of the different types.

The IG provides data in two charts.  One breaks down the amounts by the type of contract that was utilized.  The other chart provides the data for each of the 60 contracts and descriptive information of what the contractor was supposed to provide.

The IG doesn’t give any specific recommendations but provides an overview of the characteristics of the contracts involved in order to be an “informational resource.”  More in-depth audits will be forthcoming but clearly the contracts, which puts the government at risk, are the ones that put the taxpayer at risk.  The IG says, “The troubled launch of the Federal Marketplace on October 1, 2013, raised serious concerns about the Department’s management and oversight of the project, including the selection and oversight of the many contractors that played a role in the development and operation of the Federal Marketplace.”  No kidding.

But, when it comes to OPM (other people’s money) being put at risk and no consequences for poor management by government bureaucrats, taxpayers should be prepared for even more disturbing fiscal news when it comes to Obamacare.

Control, Alt, Delete

Control, Alt, Delete seems to be the standard M.O. for the Obama Administration when they want to extricate themselves from politically damaging, and possibly criminal, behavior.  Deleting emails, using alias emails, crashing or losing computers seem to be some of their favored tactics.*

Most informed citizens are well aware of Lois Lerner’s lost emails due to a crashed computer drive.  Ms. Lerner, as you will recall, was the former director of the Exempt Organizations Unit at the IRS and is in the center of a continuing congressional investigation into the agency’s targeting of conservative groups that had applied for tax-exempt status.  One May 7, 2014, the House of Representatives approved a contempt citation for Ms. Lerner for refusing to cooperate with Congress.

You may also recall that the IRS Commissioner John Koskinen told the House Committee on Oversight and Government Reform the agency had “lost” Lerner’s emails that were “to and from other IRS employees from a period of January 2009 – April 2011 due to a computer crash.”  Of course, this is the precise time period that Congress was investigating the IRS’s targeting of conservative groups.  The commissioner was called before the Oversight committee June 23, 2014 to explain how the emails were lost and why it took so long for the IRS to inform Congress.

Now more emails have gone missing, this time within the Department of Health and Human Services.  On August 7, we learned emails belonging to the Center for Medicare and Medicaid Services (CMS) Administrator Marilyn Tavenner had been deleted.  The committee had subpoenaed the emails ten months ago as part of their investigation of the hugely flawed, $677 million HealthCare.gov website, the Obamacare federal exchange internet portal.

In a press release, Chairman Darrel Issa of the Oversight and Government Reform Committee was quoted:  “Today’s news that a senior HHS executive destroyed emails relevant to a congressional investigation means that the Obama Administration has lost or destroyed emails for more than 20 witnesses, and in each case, the loss wasn’t disclosed to the National Archives or Congress for months or years, in violation of federal law.  It defies logic that so many senior Administration officials were found to have ignored federal recordkeeping requirements only after Congress asked to see their emails.  Just this week, my staff followed up with HHS, who has failed to comply with a subpoena from ten months ago.  Even at that point, the administration did not inform us that there was a problem with Ms. Tavenner’s email history.  Yet again, we discover that this Administration will not be forthright with the American people unless cornered.”

These latest digital malfunctions and malfeasance is nothing new with the current administration.

Many will recall how former Environmental Protection Agency (EPA) Administrator Lisa Jackson used a non-government email account with the name “Richard Windsor” to communicate with outside environmental activist groups.  She also used her alias email to communicate internally with EPA staff.

Ms. Jackson was not the only one to use an alias email.  So did Department of Justice Assistant Attorney Lanny Breuer during the gun-smuggling Operation Fast and Furious program, Secretary of Labor Tom Perez while he was an attorney within the Department of Justice’s Civil Rights Division, and the aforementioned Lois Lerner.

It is believed these alias accounts were created to avoid Freedom of Information Act, or FOIA, requests.

On Monday, August 11, the New York Post reported that 61 computers assigned to U.S. Census Bureau in Philadelphia went missing, just two months before the November 2012 presidential election.  Eleven of these computers were assigned to supervisors, which have the ability to manipulate the data that is collected.  The reporter, John Crudele, mentions that the unemployment rate and consumer price index had been manipulated in the Philadelphia office in the past and that sources have claimed falsification of data was occurring in other Census regions (there are six), including Philadelphia, around the time of President Obama’s re-election effort.

After reviewing emails from the Philadelphia Census office obtain through a FOIA request, Crudele believes there is evidence that “something was amiss at the agency, which releases information that is so important to the Federal Reserve, financial markets, corporations, and retirees, whose annual inflation adjustments are based on the work done by Census field reps.”

Crudele mentions that during the time of the missing computers, the Census was in the process of conducting the Household Survey, which produces the unemployment rate.  September’s 2012 results were significant when they were announced in October 2012.  As you may recall, the unemployment rate dropped an “improbable decline” from 8.1 percent to 7.8 percent.

According to Crudele, the Census Bureau has refused to release 600 emails between workers in the Philly office because they “didn’t fit with the purview” of his request.  The New York Post is appealing the decision.  No doubt, this episode will require more investigative work, either by the New York Post, Congress, or other entity.

Last week, 47 Inspectors General sent a rare joint letter to the oversight committees in Congress complaining about their ability to get access to government records, particularly within the Justice Department, the EPA, and the Peace Corps.  They wrote:

We have learned that the Inspectors General for the Peace Corps, the Environmental Protection Agency (in his role as Inspector General for the Chemical Safety and Hazard Investigation Board) and the Department of Justice have recently faced restrictions on their access to certain records available to their agencies that were needed to perform their oversight work in critical areas. In each of these instances, we understand that lawyers in these agencies construed other statutes and law applicable to privilege in a manner that would override the express authorization contained in the IG Act.  These restrictive readings of the IG Act represent potentially serious challenges to the authority of every Inspector General and our ability to conduct our work thoroughly, independently, and in a timely manner.”

The Chairmen and Ranking Members of the House and Senate oversight committees in turn sent a letter to White House’s Office of Management and Budget Director Shaun Donovan.  Expressing their alarm about the numerous roadblocks the IGs are facing in getting access to documents, they stated:

We write to express our grave concern about difficulties that certain Inspectors General (IG) have encountered in trying to obtain documents from their respective agencies. Timely and complete access to information is essential if Inspectors General are to perform their missions, and their rights to information are clearly provided for in the Inspector General Act of 1978.  We call on you to underscore this important fact and enlist your office to help ensure that agencies comply… This is not the first we have heard of these problems.  Our offices have already spent time working with the affected IGs in an effort to try and help them gain the needed information.  Indeed, Chairman Issa and Ranking Member Cummings examined some of these concerns during hearings before the House Committee on Oversight and Government Reform this year.”

They close by saying:

We trust that you share our commitment to the mission and effectiveness of the Inspectors General, and ask that you take affirmative steps to ensure that all agencies and their staffs are properly informed and trained on the requirements of the Inspectors General Act so that IGs receive the information they need to do their jobs.”

Unfortunately, it has become too clear that many officials in the Obama Administration do not share a commitment to allow investigators to do their jobs.  Let us hope the OMB Director follows through.

*ADDENDUM

One hour after this blog was posted, The Hill, a Capitol Hill newspaper, reported that House Republicans on the Energy and Commerce Committee have accused CMS Director Marilyn Tavenner of telling staff to delete emails regarding the ObamaCare rollout.  The Hill writes,

House Republicans on Friday accused a top Obama administration health official of telling staff to delete an email related to the healthcare law’s rollout last fall.

In a letter to Centers for Medicare and Medicaid Administrator Marilyn Tavenner, the Republicans point to an Oct. 5 email from Tavenner to staff about how to handle calls from people applying for ObamaCare.

In the first line of the email, Tavenner writes ‘please delete this email but see if we can work on call script.’

Republicans in their letter ask why Tavenner wanted the email deleted, and whether she has asked for other emails to be deleted.

‘This contradicts … [the claim] that your practice was to instruct subordinates to retain copies of e-mails,’ said the lawmakers, including House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and Oversight Subcommittee Chairman Tim Murphy (R-Pa.).

Asked for comment, the CMS did not answer why Tavenner requested the email to be deleted.”