Summary of the Revolving Door Phenomenon
Before we get to some cases, though, let me summarize an important article on the revolving door that came out since. This was published by U4, the "anti-corruption resource center" NGO based in lovely Bergen, Norway. The title was "The Revolving Door Indicator: Estimating the distortionary power of the revolving door." Although it's main point was to summarize a new measure the importance of the revolving door in a particular economic sector, it started with a very useful summary of the revolving door phenomenon. It included a useful definition
According to Transparency International UK, the term 'revolving door' refers to 'the movement of individuals between positions of public office and jobs in the private sector, in either direction.'
To expand,
The revolving door involves two distinct types of movement. The first is from the public to the private sector, as regulators (ministers, cabinet secretaries, legislators, high-level officials, advisers) leave the public sector to enter the private sector they have regulated. The second is from the private to the public sector, as high-level executives of regulated companies enter the executive branch, the legislature, or key regulatory agencies.
It also included some idea of prevalence
The revolving door is particularly common in countries where explicit bribes cannot be paid safely, and thus regulators look forward to future employment with the regulated firms
We will discuss what the U4 report said about the implications of the revolving door after a quick review of the cases we have run across since May, 2014, involving the US government. They will be listed in order of their appearance in the news.
Former National Coordinator for Health Information Technology and Colleague at ONC to Aledade (Company Supporting Accountable Care Organizations)
In June, 2014, various versions of this story appeared. The Modern Healthcare version stated,
Dr. Farzad Mostashari, former head of the Office of the National Coordinator for Health Information Technology, is starting a new firm, Aledade, to help independent primary-care physicians form accountable care organizations. The startup has $4.5 million in seed funding from venture capital firm Venrock.
Independent practices looking to form ACOs have to expend money 'to hire the people, to get the agreements, to get the licenses, to do the legal work, to hire the executive director, and a medical director, practice transformation, the analytics software, the data warehousing, the EHR interfaces,' he said. 'All of that takes money,' often $1 million to $2 million.
Note that the current concept of the "accountable care organization" [ACO] includes heavy dependence on the electronic health records (EHRs) and other health information technology that Dr Mostashari had been so vigorously promoting as head of the ONC, so this transition seems to fit the revolving door rubric.
It also turns out that one of Dr Mostashari's former ONC colleagues was already at Aledade
Mostashari will be joined by Mat Kendall, a former leader with the regional extension center program at ONC, who will be executive vice president
Former US Senators to Lobby for Medtronic and Covidien
In August, 2014, per Bloomberg,
Former U.S. Senators Trent Lott and John Breaux are part of a lobbying effort by companies that want to preserve the option of reducing their corporate taxes by moving their legal addresses overseas.
Nine U.S. companies that have sought cross-border mergers for tax reasons, are considering doing so or are targets of such deals have been pressuring lawmakers since April on legislation to stop the practice, federal disclosure reports show.
They include Medtronic Inc., the Minneapolis-based company that is seeking to acquire Dublin-based Covidien Plc. Medtronic paid Breaux-Lott Leadership Group $200,000 in June to block legislation from moving forward. Breaux, a Democrat, was once a member of the Senate Finance Committee. Lott, a Republican, is a former Senate majority leader.
Note that as Senator, Breaux had an important role in health policy, particularly the passage of the Affordable Care Act (ACA).
Former Assistant Secretary of Health and Human Services to Drinker Biddle & Reath (Lobbying Firm)
In August, 2014, per the Washington Post,
District Policy Group, the lobbying unit of law firm Drinker Biddle & Reath, is experimenting with a new model of using outside consultants to capture new business in the health-care field.
The group, which lobbies primarily on health-care policy, has taken the unusual step of forming an advisory board that includes external consultants. The outside advisers are not employees of the firm and instead receive a consultant’s fee, which means the firm does not have to pay their salary or benefits, but can still tout their services to clients.
The board was formed in July and is made up of four Drinker Biddle attorneys and two outside consultants, Tracy Sefl, a Democratic communications strategist, and Michael O’Grady, a health economics specialist and former Health and Human Services assistant secretary under President George W. Bush. Both Sefl and O’Grady have day jobs running their own consulting shops.
This seems to require no further comment.
Former Federal Trade Commissioner to Herbalife
In October, 2014, per the Hill,
Herbalife has hired a former federal regulator to run its compliance program as it deals with allegations of running a pyramid scheme.
Pamela Jones Harbour, who served at the Federal Trade Commission (FTC) from 2003 to 2010, has been named the company’s senior vice president of global member compliance and privacy, according to media reports.
The FTC opened a probe into Herbalife’s business practices earlier this year after lobbyists, interest groups and policymakers asked for a review.
Shortly after the FTC announced its investigation, the FBI began looking into how the direct-selling company recruits new distributors.
Herbalife is best known for its meal-replacement shakes and dietary supplement products. Harbour says she has been a Herbalife customer since 2004, according to Reuters, favoring the company’s Formula 1 shake mix.
Note that the FTC devotes considerable energy to health care issues, and Herbalife styles itself a "a global nutrition company" which makes "weight management" and "energy and fitness" products.
Director of US Centers for Disease Control and Prevention (CDC) to Merck as President of Merck Vaccines, then Executive Vice President for Strategic Communications, Global Public Policy and Population Health
In December, 2014, per a news release on BusinessWire,
Merck (NYSE:MRK), known as MSD outside the United States and Canada, today announced the appointment of Dr. Julie Gerberding, 59, as executive vice president for strategic communications, global public policy and population health, effective Dec. 15. In this newly created Executive Committee position, Gerberding, who most recently served as president of Merck Vaccines, will be responsible for Merck’s global public policy, corporate responsibility and communications functions, as well as the Merck Foundation and the Merck for Mothers program.
Note that
Prior to joining Merck, Gerberding served as director of the U.S. Centers for Disease Control and Prevention (CDC) from 2002-2009 and before that served as director of the Division of Healthcare Quality Promotion.
From UnitedHealth (Optum Subsidiary) Executive to Administrator of the Center for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services
In January, 2015, per the Business Journals,
Marilyn Tavenner's replacement at the Center for Medicare and Medicaid Services is a former executive at one of the contractors for the initially botched HealthCare.gov insurance exchange.
Andy Slavitt, former group executive vice president of United Health Group's Optum unit, joined CMS last June to help fix HealthCare.gov. Now he'll be acting administrator of CMS.
An Optum subsidiary, Quality Software Services Inc., was one of the original contractors for HealthCare.gov. QSSI developed the exchange's data services hub and a registration tool that allows users to create secure accounts.
Apparently nothing succeeds like failure.
Discussion
I apologize for the somewhat desultory way I have been summarizing health care revolving door cases. My excuse is that such cases are almost never publicized as such. Most of the stories above were found when looking for something else. Despite its potential importance, the revolving door phenomenon gets little consistent coverage in the news media, and the particular issue of the revolving door affecting health care is particularly anechoic. (If one searches for "'health care revolving door," one finds discussion of patients who are frequently re-admitted to the hospital.) There is one website devoted to the revolving door affecting the US government, (OpenSecrets.org has a database here.) However, it is not searchable by sector, and seems not to be complete (that is, for example, it fails to contain most of the cases I listed above).
None of the cases above got more than minimal media coverage, yet they all involved people who at one time held high government positions, including US Senators, director of the Centers for Disease Control and Prevention (CDC), a Federal Trade Commission (FTC) commissioner, the director of Center for Medicare and Medicaid Services (CMS) within the US Department of Health and Human Services (DHHS), an Assistant Secretary of DHHS, and the National Coordinator for Healthcare Information Technology. So the anechoic effect persists regarding this issue.
Yet the revolving door is a significant issue. As discussed in the U4 article,
The literature makes clear that the revolving door process is a source of valuable political connections for private firms. But it generates corruption risks and has strong distortionary effects on the economy, especially when this power is concentrated within a few firms.
Also, the principal way the revolving door can benefit a company is...
The rent-seeking channel: The revolving door is used to capture public resources, through legal and illegal means, rather than to increase production or efficiency. Transparency International UK (2011) and the OECD (2009) point out that the revolving door may lead to various schemes involving conflicts of interest, both during and after a regulator’s term in public office. This in turn generates undue bureaucratic and political power for firms using such schemes
Furthermore,
The revolving door is also related to lawful behaviours (Brezis 2013), termed 'legal corruption' by Kaufmann and Vicente (2011). This phrase refers to 'efforts by companies and individuals to shape law or policies to their advantage, often done quasi-legally, via campaign finance, lobbying or exchange of favors to politicians, regulators and other government officials. […] In its more extreme form, legal corruption can lead to control of entire states, through the phenomenon dubbed ‘state capture,’ and result in enormous losses for societies'
So,
Firms connected through the revolving door may therefore derive undue advantages by legally and illegally influencing the formulation, adoption, and implementation of laws, regulations, and public policies. For example, when firms are connected to (former) members of Parliament [or the legislature], they may influence the enactment of laws and regulations in their favour. When firms are connected to (former) ministers [or in the US, cabinet secretaries] and their advisers, they may influence the upstream formulation and implementation of policies and regulations in their favour. When firms are connected to (former) high-level officials, they may influence the downstream implementation of regulations in their favour.
Finally,
Empirical studies suggest that the revolving door gives firms political and bureaucratic power that enables them to divert state resources by biasing public procurement processes (Goldman, Rocholl, and So 2013; Cingano and Pinotti 2013), obtaining preferential access to public finance (Faccio, Masulis, and McConnell 2006; Boubakri et al. 2012), and unduly benefiting from tax exemption, arrears, and subsidies (Faccio 2010; Slinko, Yakovlev, and Zhuravskaya 2005; Johnson and Mitton 2003).That all suggests that the revolving door in health care ought to get attention beyond posts in Health Care Renewal, but so far there has been precious little of that. The continuing egregiousness of the revolving door in health care shows how health care leadership can play mutually beneficial games, regardless of the their effects on patients' and the public's health. Once again, true health care reform would cut the ties between government and corporate leaders that have lead to government of, for and by corporate executives rather than the people at large
Therefore, firms politically connected through the revolving door tend to shape laws and regulations in their favour and to divert state resources to their own benefit. They are unlikely to gain a productivity advantage, and indeed may reduce productivity in the private and the public sectors. The literature on state capture and political influence (Hellman and Kaufmann 2004; Hellman, Jones, and Kaufmann 2003; Slinko, Yakovlev, and Zhuravskaya 2005) supports the thesis that such distortions result from the high concentration of political and bureaucratic power among a few powerful firms.
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