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From Health Law Daily, October 29, 2014

Is Wall Street being tipped off about CMS coverage decisions?

By Harold M. Bishop, JD

The Wall Street Journal (WSJ) reports that the Securities and Exchange Commission (SEC) is pursuing three related insider-trading investigations involving CMS. According to WSJ sources, the SEC is investigating two public policy-research firms and a former CMS official to determine whether they were the intermediaries that passed along nonpublic information from CMS to Wall Street investors.

The WSJ describes the three investigations as follows:

  • Whether CMS officials leaked information about CMS’ intention to review the coverage limits of the costly new prostate-cancer treatment Provenge®, manufactured by Dendreon Corp., to the policy-research and institutional investment firm Marwood Group LLC. Dendreon’s stock reportedly dropped 26 percent between June 1, 2010, and June 30, 2010, just prior to CMS’ announcement that it would scrutinize the coverage limits for the drug.

  • Whether CMS officials leaked the same information to David Blaszczak, a former CMS employee and a policy analyst for Potomac Research Group, who, on June 29, 2010, issued an accurate prediction that CMS was likely to review the coverage limits on Dendreon’s Provenge. Dendron’s shares reportedly dropped 10 percent on June 29, 2010, closing at $33.59.

  • Whether CMS officials disclosed information about an increase in funding for health-insurance firms before it was made public in April 2013. As previously reported by the WSJ, that investigation is looking at the actions of the research firm Height Securities LLC and a prominent health-care lobbyist, both of which have denied passing along nonpublic information.

Denials. In a written statement reported by the WSJ, Blaszczak claims “I only use public information in preparing all my reports. I am proud of my record, and if needed, will vigorously fight any false allegation. No governmental agency has contacted me related to this matter.”

In addition, a spokesman for the Marwood Group has stated that the firm “has cooperated fully with the SEC’s inquiry and demonstrated to the SEC that we knew nothing about the CMS announcement on Provenge beforehand, and that we were completely surprised by it.”

Information release policy. 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 change 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.”

In addition to the CMS policy memorandum, 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 STOCK 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, 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.

Results of CMS’ review of Provenge®. On June 30, 2011, CMS announced that the evidence was adequate to conclude that the use of Provenge® improves health outcomes for Medicare beneficiaries with certain prostate cancers. CMS thereby agreed to pay for FDA-approved uses of the drug.

The WSJ, however, reports that by then Dendreon was facing additional concerns about the price of the drug, its effectiveness, and whether doctors would prescribe it widely. In fact, Dendreon’s stock closed at $1.06 on October 26, 2014, according to the Journal.

MainStory: TopStory CMSNews ConfidentialityNews CoverageNews DrugBiologicNews EnforcementNews PrescriptionDrugNews 

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