Bloomberg News

Medicare Is Probing Advantage Rates Leak, Tavenner Says

April 09, 2013

U.S. Senator Charles Grassley

U.S. Senator Charles Grassley said that “when information leaks from the administration that has the ability to cause significant market movement, it is wrong and quite possibly illegal.” Photographer: Douglas Graham/CQ Roll Call via Getty Images

Medicare is probing the possible leak of a government decision regarding health insurers’ payments for next year, administrator Marilyn Tavenner said.

The potential leak is a “huge issue,” Tavenner said in testimony today before the U.S. Senate Finance Committee as President Barack Obama’s nominee to head the U.S. Centers for Medicare and Medicaid Services. Humana Inc. (HUM:US) surged as much as 9.5 percent on April 1, leading health insurers’ shares higher about 40 minutes before a decision on rates was released.

“When information leaks from the administration that has the ability to cause significant market movement, it is wrong and quite possibly illegal,” said Senator Charles Grassley, the Iowa Republican who has been probing leaks from government agencies and Congress to Wall Street. “I hope you agree that, ultimately, you’re responsible,” he told Tavenner.

Tavenner’s agency has jurisdiction over the rates the government pays insurers as part of Medicare Advantage, a private-sector alternative to the traditional Medicare program, the U.S. health plan for the elderly and disabled. She has been the agency’s acting administrator since 2011, and Obama re- nominated her to lead it on Feb. 7.

“I do not consider this a small issue. I consider this a huge issue,” Tavenner told Grassley. “We will do a thorough investigation of it and give you feedback.”

The inspector general for the Department of Health and Human Services, who has subpoena power, is looking into the matter, she said. Don White, a spokesman for the HHS inspector general, said he could neither confirm nor deny whether the agency was investigating the incident.

Stock Surge

Health insurance stocks rose on April 1, about 40 minutes before the government’s official announcement on new Medicare Advantage rates, shining a spotlight on the ties among Congress, U.S. agencies and certain investment advisers. At issue is a private e-mail from a politically connected research firm that alerted recipients the rates, scheduled to drop under a preliminary decision, would increase instead.

The Washington-based investment research firm, Height Analytics LLC, e-mailed its clients at 3:40 p.m. April 1, saying “a deal has been hatched to protect Medicare Advantage rates,” according to the copy received by Bloomberg News. It was followed less than three minutes later by a sharp rise in the stocks of Louisville, Kentucky-based Humana and Minnetonka, Minnesota-based UnitedHealth Group Inc. (UNH:US), the biggest U.S. health insurer, which participate in the Advantage program.

4 Million Shares

From the time the memo was sent to when the market closed 20 minutes later, about 4 million shares for Humana changed hands, according to data compiled by Bloomberg. That’s equivalent to $305 million in market value and compares with a daily average volume of 2.17 million shares over the past year.

One of Height’s founders is Andrew Parmentier, a former staffer for the House Financial Services Committee and previously an aide to former House Majority Leader Dick Armey.

“Height Securities is an SEC registered broker dealer and not a lobbying or political consulting firm,” Parmentier said in an e-mail. “We issue research reports in accordance with a comprehensive regulatory regime. We are highly confident our April 1 report was based on good research, conducted in accordance with this regulatory regime. We look forward to demonstrating this to Senator Grassley.”

Grassley’s Request

Grassley last week wrote Tavenner demanding the timeline of a decision to reverse a planned cut to rates Medicare pays insurance companies. While it’s not clear where the information to Height Analytics came from, the senator’s letter asked the agency about anybody who might have been told of the news early, including the administration and members of Congress.

Tavenner said she doesn’t know whether her agency leaked the Medicare Advantage information.

“Obviously I have a lot of pride in our agency, and so I don’t want to believe our agency leaked anything, ever,” she told reporters after the hearing. “We have a lot of market- sensitive information that we handle all the time and for that reason we’re very careful about it. But we will go through a complete review of our agency.”

The incident has drawn scrutiny on the world of political intelligence firms, which sell investor clients information about what action government agencies or legislators are likely to take. Grassley has proposed that firms like Height register their employees, much as lobbyists must do.

Cantor Endorsement

Tavenner’s confirmation hearing was largely amicable, as her husband, daughter and son-in-law watched from the front row of the audience. U.S. Representative Eric Cantor, the Virginia Republican who is the House majority leader, introduced Tavenner and endorsed her.

Tavenner, 61, would be the first confirmed administrator of the Medicare agency since 2006. She is a former executive at HCA Holdings Inc. (HCA:US), the largest publicly traded U.S. hospital company, and a former Virginia Secretary of Health and Human Resources. Tavenner told senators she would recuse herself from U.S. decisions involving HCA or the Virginia state government.

One decision her agency faces is whether state governments may use Medicaid money to allow newly eligible recipients to buy private health insurance. Medicaid is the joint federal-state medical program for the poor.

Arkansas Governor Mike Beebe, a Democrat, is negotiating with his state’s Republican-led legislature to expand Medicaid as set out in the Affordable Care Act, the 2010 health overhaul. Beebe has asked Tavenner’s agency to allow the state to spend Medicaid money on private insurance for those new participants.

Senator John D. Rockefeller IV, a West Virginia Democrat, asked Tavenner why she would allow such a plan, which he said would cost more than covering people with state-run Medicaid.

Tavenner told Rockefeller that her agency has no “formal proposal” from Arkansas and “we have not approved anything.”

To contact the reporters on this story: Alex Wayne in Washington at awayne3@bloomberg.net; Drew Armstrong in New York at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • HUM
    (Humana Inc)
    • $134.91 USD
    • 1.73
    • 1.28%
  • UNH
    (UnitedHealth Group Inc)
    • $87.8 USD
    • 0.17
    • 0.19%
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