Sen. Grassley Probes CMS’ Release of Information to Those Who Seek to Profit from Government Information

Sen. Charles E. Grassley (R-Iowa), in his role as ranking member of the Senate Committee on the Judiciary, has asked Marilyn Tavenner, Acting Administrator of CMS, for the timeline and other details regarding the agency’s release of final 2014 Medicare Advantage (MA) payment rates on April 1, 2013. Grassley is seeking this information because this important MA data reportedly moved stock prices as much as 6 percent higher prior to close of the stock market when the specifics of CMS’ release were correctly predicted by a privately-held capital markets firm prior to public release.

Non-Governmental Advisory Issued

In his April 4, 2013, letter to Tavenner, Grassley states that “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. Humana and Health Net’s stock prices rose significantly.”

Information Sought

According to Grassley, this information raises questions regarding the ability of non-governmental political intelligence brokers to gather information from CMS in order to predict market-moving events. To determine how this market-moving information was predicted prior to public release, Grassley has asked Tavenner to provide the following information by April 9, 2013, when she is scheduled to come before the Finance Committee for a hearing on her nomination to serve as permanent administrator:

  1. a timeline of events on CMS’ decision on the final MA policy;
  2. all communications, including emails, with respect to the rate announcement for MA and Part D programs within the last two weeks; and
  3. all names of CMS and non-CMS personnel (inclusive of HHS, Office of Management and Budget, and the White House) who received advanced notice of CMS’ 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.

Prior Incident of Information Dissemination

In his letter, Grassley reminds Tavenner that on December 12, 2011, he wrote her concerning the dissemination of non-public information to hedge funds and political intelligence brokers. According to Grassley, in her January 11, 2012, response, Tavenner stated while “CMS does not have a system for tracking meetings for Agency staff,” 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.”

CMS Policy on Information Release

On September 7, 2010, a memorandum to all CMS staff was released, which stated “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.”

“STOCK Act” and Recent GAO Report

The Stop Trading on Congressional Knowledge Act of 2012 (P.L. 112-105) (a/k/a the “STOCK Act”), enacted April 4, 2012, prohibits the use of non-public information for private profit, including insider trading by members of Congress and other government employees. The Act also directs the Government Accountability Office (GAO) to report to Congress on the role of political intelligence in the financial markets. The first such report, issued April 4, 2013, by GAO, concluded that the prevalence of the sale of political intelligence is not known and is difficult to quantify. The GAO also determined the extent to which investment decisions are based on a single piece of political intelligence would be extremely difficult to measure. In addition, even if a connection could be established between discrete pieces of government information and investment decisions, the GAO believes it is not always clear that such information is material, such that a reasonable investor would find the information important in making an investment decision. Finally, the GAO opined that if Congress chose to supplement existing guidance and laws regarding disclosure of political intelligence information, it would need to address the lack of consensus in the meaning of the terms “direct communication” and “investment decision” to provide clarity regarding the definition of political intelligence as well as specificity regarding the (1) purpose of disclosure, (2) who would be required to file, (3) how often disclosures would be required, and (4) who would manage the disclosure process. The GAO report made no recommendations to Congress.