April 18 (Bloomberg) -- A U.S. senator’s review of a possible leak of market-moving government information to an investor services firm is leading into a gray area of law and regulation that may help his push for new legislation.
Senator Charles Grassley, an Iowa Republican, was probing whether one such firm, Height Analytics LLC, received insider information from the government prior to telling clients on April 1 that Medicare was planning to reverse a rate cut for health plans offered by insurers led by Humana Inc.
Now Grassley is turning away from Height and focusing on a lobbyist working for a New York-based law firm who exchanged e-mails about the Medicare rates with a Height analyst, according to Jill Gerber, the senator’s spokeswoman. Grassley asked in a letter sent April 9 for all communications between Height and the Greenberg Traurig LLP law firm.
“This situation emphasizes the value of shedding light on the political intelligence industry with public disclosure requirements,” Grassley said yesterday in an e-mail. Grassley has proposed legislation to have political intelligence firms register with the government the same way as lobbyist firms do.
Gerber said there has been “no indication that Height Securities communicated with any government official who had advance notice of the CMS decision,” referring to the Centers for Medicare and Medicaid Services.
Height’s note to clients on the rate change came about 45 minutes before the decision on Medicare Advantage plans was officially announced, sending insurer stocks soaring before the market closed.
Now the senator “has requested additional information about the relationship between Height and Greenberg Traurig and looks forward to full cooperation from both firms as well as CMS,” Gerber said.
Before Height’s analyst released his note on April 1, the firm received advice bolstering its prediction from a former aide to Grassley, according to company e-mails provided to Bloomberg. The former aide, Mark Hayes, now a lobbyist with Greenberg Traurig in Washington, told Height analyst Justin Simon that “very credible sources” had said the government would reduce the payment cut for the Medicare Advantage plans.
A spokeswoman for Greenberg Traurig, Jill Perry, said the company’s lobbyist didn’t receive or share any “material non-public” information. Instead, Hayes “provided his own policy analysis.” Hayes didn’t return a phone message or e-mail seeking comment on his actions.
Height has maintained it did nothing wrong. “Our report was based on careful and close analysis of the facts, and was solid, sound research in accordance with applicable laws and regulations,” Andrew Parmentier, Height’s managing partner, said in a statement yesterday to the firm’s clients. “Our analyst made an independent call based on multiple data points and he was correct on the big issue.”
Medicare Advantage plans are those offered by private insurers with different benefits and costs than the traditional Medicare health coverage for the elderly and disabled.
The exchanges between Hayes and Height were disclosed previously by the Wall Street Journal.
The discussions in advance of the Medicare decision illustrate the connections among those on Capitol Hill, the administration and lobbying groups that can sometimes be exploited for profit. Grassley has pushed for a law that would require those who seek profitable tidbits of information to register with the government.
“I don’t believe that the political intelligence and policy research industry has done a very good job of policing itself,” Mike Mayhew, chairman of New York-based Integrity Research Associates, said in a telephone area. “Part of that is that it’s a gray area, so they don’t know how to police themselves.”
The situation being review by Grassley “is clearly putting renewed focus on this,” Mayhew said.
Height’s investor memo went out at 3:40 p.m. on April 1, about 45 minutes before Medicare’s official announcement. “Thirty minutes earlier, at 3:12, p.m. Eastern Time, on Monday, April 1, 2013, I understand a lobbyist at Greenberg Traurig sent an e-mail to Height Securities and others regarding the CMS announcement on the Medicare Advantage policy rate change,” Grassley wrote in the letter to Greenberg Traurig seeking information about the incident.
Hayes wrote Simon at 3:12 p.m., after Simon had written Hayes three minutes earlier with his speculation about the decision.
Hayes told Simon that he expected the payment cut to be reduced after Medicare officials changed their calculations, including an assumption that Congress would act to reverse a 25 percent cut in physician’s fees scheduled for next year. Congress has acted every year for a decade to reverse the annual cut, dictated by a formula called the Sustainable Growth Rate.
“We have heard from very credible sources that the final notice will adjust the phase-in on risk adjustment and take into account the likelihood/certainty of an SGR fix,” Hayes wrote in an e-mail reviewed by Bloomberg.
Health insurer stocks have gained since the announcement. The Standard & Poor’s 500 index of managed care stocks advanced 6.8 percent since March 28, the last day of trading before the Medicare announcement.
A spokesman for the Medicare agency, Brian Cook, said in an e-mail that he couldn’t comment on whether any agency staff had communicated with Hayes because the Health and Human Services inspector general is investigating whether the Advantage decision was leaked ahead of the official announcement.
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