Tuesday, May 3, 2011

Big Brother vs. Private Enterprise

Yesterday, Kathleen Spitzer published an article in the Wall Street Journal that should be alarming to every business person in the U.S. I am attaching the link to the story here so that you can read it for yourself.

The article focuses on a recent decision by Kathleen Sebelius and the Health and Human Services Department to terminate its dealings with the 83-year-old Howard Solomon, the CEO of Forest Laboratories. Last September, Forest Labs entered into a plea deal and settled with the government rather than choosing to litigate a series of government suits claiming that Forest's marketing to doctors amounted to fraud against Medicare and Medicaid. HHS accepted Forest's plea deal without even a hint that Solomon would be forced to resign as part of their continued relationship with the company. Only after the plea was accepted did Sebilius send her letter to Forest and to Solomon. Forest will be reinstated to do business with Medicare, Medicaid and the VA only if Solomon steps down as CEO, even though no allegations were ever made against Solomon personally. He was never charged with, nor accused of, any misconduct.

Sebelius is citing a provision in the Social Security Act which gives the government the right to bar executives of health companies from doing business with the U.S. government if the firms are found guilty of misconduct, even if the CEO has no knowledge of the misconduct.

Writes Spitzer, "HHS says its action is about holding corporate CEO's accountable, but it looks more like the Administration's latest bid to intimidate the health-care industry into doing its bidding on prices, regulation, and political support for Obamacare. This is the same agency that has threatened insurers with exclusion from new state run health exchanges if they raise their premiums more than Mrs. Sebilius wants, or if they spread what she deems to be "misinformation' about the President's health plan. Peter Pitts, a former FDA official states regarding the Forest Lab's incident that it, "reinforces everybody's worst fears--that this Administration won't do business with anybody that doesn't completely agree with policy initiatives. Not only will it refuse to even have this argument, it will actively destroy these people."

What Sebilius is doing to Forest Labs bodes ill for the entire business community--not just those companies working in health care. If HHS can get away with removing a CEO who has not been charged with or accused of any wrong doing under the grounds of "holding corporate America accountable" what may other agencies do? Dodd Frank gives the government unprecedented powers to liquidate companies that are deemed to be a threat to the overall financial system. And even if those companies sue in court, the courts cannot issue a cease and desist order to stop the Orderly Liquidation Authority from doing its work. In addition, the new Consumer Financial Protection Bureau will have unprecedented ability to regulate and audit companies involved in financial services and to call in the IRS to do an audit on any company it regulates whom the agency suspects might not be paying their income taxes. CFPB has power not only over the giant holding company mega banks, but also small independents with under $10 billion assets. That gives them huge authority over a major segment of private industry.

The punitive nature of HHS's actions against Forest Labs should serve as a warning to all of the rest of us. Basically, it means that the federal government is taking the hiring and firing of CEOs upon itself by blackmailing private businesses into replacing executives whom the federal government does not like with those they approve of. The CEO who speaks, writes or contributes politically against the Administration could find his own head and that of his company on the chopping block.

Forest Labs has promised for the present to stand beside Mr. Solomon, but they have also acknowledged that they may have to sue HHS and Solomon will have to step down as head of the company while they do so. And considering Solomon's advanced age, even if Forest Labs ultimately sues the government and prevails, Solomon may not live to see the victory or to be reinstated. No matter how this turns out, it is a loss for the company, for Solomon personally and for all of us who believe in private ownership of businesses.

For related posts visit www.frontier2000.net.

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