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Best medical system in the world: Echocardiogram edition

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Via Kevin Drum, Elisabeth Rosenthal writes in the NY Times:

Len Charlap, a retired math professor, has had two outpatient echocardiograms in the past three years that scanned the valves of his heart. The first, performed by a technician at a community hospital near his home here in central New Jersey, lasted less than 30 minutes. The next, at a premier academic medical center in Boston, took three times as long and involved a cardiologist.

And yet, when he saw the charges, the numbers seemed backward: The community hospital had charged about $5,500, while the Harvard teaching hospital had billed $1,400 for the much more elaborate test. “Why would that be?” Mr. Charlap asked. “It really bothered me.”

Testing has become to the United States’ medical system what liquor is to the hospitality industry: a profit center with large and often arbitrary markups. From a medical perspective, blood work, tests and scans are tools to help physicians diagnose and monitor disease. But from a business perspective, they are opportunities to bring in revenue — especially because the equipment to perform them has generally become far cheaper, smaller and more highly mechanized in the past two decades.

And echocardiograms, ultrasound pictures of the heart, are enticing because they are painless and have no side effects — unlike CT scans, blood draws,colonoscopies or magnetic resonance imaging tests, where concerns about issues like radiation and discomfort may be limiting. Though the machines that perform them were revolutionary and expensive when they first came into practice in the 1970s, the costs have dropped considerably. Now, there are even pocket-size devices that sell for as little as $5,000 and suffice for some types of examinations.

“Old technology should be like old TVs: The price should go down,” said Dr. Naoki Ikegami, a health systems expert at Keio University School of Medicine in Tokyo, who is also affiliated with the University of Pennsylvania’s business school. “One of the things about the U.S. health care system is that it defies the laws of economics, and of gravity. Once the price is high, it just stays there.” . . .

Continue reading.

Kevin Drum quotes from the article with emphasis added:

The five hospitals within a 15-mile radius of Mr. Charlap’s home here charge an average of about $5,200 for an echocardiogram, according to an analysis of Medicare’s database. The seven teaching hospitals in Boston, affiliated with Harvard, Tufts and Boston University, charge an average of about $1,300 for the same test. There are even wide variations within cities: In Philadelphia, prices range from $700 to $12,000.

….In other countries, regulators set what are deemed fair charges, which include built-in profit. In Belgium, the allowable charge for an echocardiogram is $80, and in Germany, it is $115. In Japan, the price ranges from $50 for an older version to $88 for the newest, Dr. Ikegami said.

Because Mr. Charlap, 76, is on Medicare, which is aggressive in setting rates, he paid only about $80 toward the approximately $500 fee Medicare allows. But many private insurers continue to reimburse generously for echocardiograms billed at thousands of dollars, said Dr. Seth I. Stein, a New York physician who researches data on radiology. Hospitals pursue patients who are uninsured or underinsured for those payments, he added.


Best medical system in the world, eh?

Written by LeisureGuy

16 December 2014 at 10:52 am

The Charter-School Scam: Ripping off the Taxpayers

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Marian Wang writes at Pacific Standard:

A couple of years ago, auditors looked at the books of a charter school in Buffalo, New York, and were taken aback by what they found. Like all charter schools, Buffalo United Charter School is funded with taxpayer dollars. The school is also a non-profit. But as the New York State auditors wrote, Buffalo United was sending “virtually all of the School’s revenues” directly to a for-profit company hired to handle its day-to-day operations.

Charter schools often hire companies to handle their accounting and management functions. Sometimes the companies even take the lead in hiring teachers, finding a school building, and handling school finances.

In the case of Buffalo United, the auditors found that the school board had little idea about exactly how the company—a large management firm called National Heritage Academies—was spending the school’s money. The school’s board still had to approve overall budgets, but it appeared to accept the company’s numbers with few questions. The sign-off was “essentially meaningless,” the auditors wrote.

In the charter-school sector, this arrangement is known as a “sweeps” contract because nearly all of a school’s public dollars—anywhere from 95 to 100 percent—is “swept” into a charter-management company.

The contracts are an example of how the charter schools sometimes cede control of public dollars to private companies that have no legal obligation to act in the best interests of the schools or taxpayers. When the agreement is with a for-profit firm like National Heritage Academies, it’s also a chance for such firms to turn taxpayer money into tidy profits.

“It’s really just a pass-through for for-profit entities,” said Eric Hall, an attorney in Colorado Springs who specializes in work with charter schools and has come across many sweeps contracts. “In what sense is that a non-profit endeavor? It’s not.”

National Heritage Academies spokeswoman Jennifer Hoff said in an emailed statement, “Our approach relieves our partner boards of all financial, operational, and academic risks—a significant burden that ultimately defeats many charter schools. Freed from burdens like fundraising, our partner boards can focus on governance and oversight…. NHA and its partner schools comply fully with state and federal laws, authorizer oversight requirements, and education department regulations—including everything related to transparency.”

While relationships between charter schools and management companies have started to come under scrutiny, sweeps contracts have received little attention. Schools have agreed to such set-ups with both non-profit and for-profit management companies, but it’s not clear how often. Nobody appears to be keeping track.

What is clear is that it can be hard for regulators and even schools themselves to follow the money when nearly all of it goes into the accounts of a private company. [And that’s the idea, of course. It’s a scam. – LG] . .

Continue reading.

Written by LeisureGuy

15 December 2014 at 5:12 pm

Posted in Business, Education

I.R.S. Asset Seizure Case Is Dropped by Prosecutors

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One small victory, but the scourge of civil asset forfeiture, which allows police and other government entities to rob citizens without repercussions, continues. Shaila Dewan reports in the NY Times:

Federal prosecutors have agreed to dismiss a case against Carole Hinders, an Iowa restaurant owner whose bank account was seized by the I.R.S. based solely on a pattern of cash deposits, Ms. Hinders’ lawyer said Friday.

“After her deposition, at which it became overwhelmingly clear that Carole was an innocent and hardworking restaurateur, the assistant United States attorney on the case told us that he informed the I.R.S. that they should not go forward with the case,” said Larry Salzman, a lawyer with the Institute for Justice, a nonprofit law firm representing Ms. Hinders.

A spokesman for the United States attorney of Iowa’s Northern District did not return a call or email on Friday.

Ms. Hinders was never accused of any crime. The Mexican restaurant she owned, Mrs. Lady’s, did not accept credit cards, and she regularly deposited earnings in a bank branch a block away.

After doing business this way for nearly four decades, Ms. Hinders was told that the I.R.S. had seized $33,000 from her bank account after agents detected a pattern of deposits under $10,000. Under a law designed to catch terrorists, money launderers and drug lords, depositing less than $10,000 is illegal if it is done to evade a federal bank reporting requirement, but Ms. Hinders, 67, said she never knew about the requirement.

Critics say the I.R.S. rarely investigates such cases to see if the business owner has legitimate reasons for making small deposits, such as an insurance policy that covers only a limited amount of cash.

Seizing assets without criminal charges is legal under a controversial body of law that allows law enforcement agents to seize cars, cash and other valuables they believe are tied to criminal activity. The burden of proof falls on owners seeking the return of their property. This week, the two high-ranking members on the House Ways and Means committee filed bipartisan legislation to curb abuses of the practice, known as civil asset forfeiture. Civil forfeiture has become an issue in the confirmation of President Obama’s nominee for attorney general, Loretta Lynch, who as United States attorney for the Eastern District of New York presided over a case involving more than $440,000 seized from a family-run business on Long Island. . .

Continue reading.

And see Radley Balko’s article in the Washington Post on why “structuring” laws are ridiculous:

It seems appropriate that the crime of structuring is also sometimes called smurfing. Generally speaking, structuring is the act of breaking up financial transactions to get around the federal reporting requirements that kick in for transactions over a specific amount of money. The alternate term smurfing is a reference to the children’s cartoon in which a large entity (the Smurf Village) is made up of several smaller ones (the Smurfs themselves).

But if you grew up on the cartoon in the 1980s, or were unfortunate enough to have seen the 2011 movie, you’ll also know that the word smurf itself is rather ambiguous. It can mean whatever the person using the word wants it to mean. And that’s a pretty decent metaphor for how structuring laws function in the hands of federal officials.

First, a little background: Most structuring cases stem from a 1970 law called the Bank Secrecy Act, which requires banks to report any deposits, withdrawals, or transfers of more than $10,000. The law has since been revised several times, but generally it’s intended to make it easier for the government to track tax cheats, money launderers, illegal gambling operations and other criminal enterprises.

But the Bank Secrecy Act also requires banks to report to the federal government any activity from customers that might be construed as structuring deposits to avoid the reporting requirement. So if you have $100,000 to deposit in your bank account, and you deliberately choose to deposit that money in increments of $9,999 so your bank won’t automatically notify the federal government, you’re guilty of structuring. It’s a felony punishable by a fine and/or up to five years in prison.

Your bank is also required to report any suspicious activity by its customers. Moreover, your bank is prohibited from letting you know that it has reported you to the government. Banks that fail to sufficiently police their customers or banks that notify customers that they’ve been reported for suspicious deposits risk financial sanctions. Bank personnel found to have neglected their duties to report suspicious customer behavior can also be criminally charged and sent to prison. So there’s quite a bit of incentive for your bank to give you up, and to cast a wide net around what constitutes “suspicious activity.” There’s lots of risk in under-policing for structuring, and virtually no risk of losing customers due to a policy of over-reporting them to the government. Most customers will never know.

The problem of course is that when you force banks to cast such a wide net, they’re going to report a lot of people who have done nothing wrong.  And some of those people are going to find themselves in legal trouble. A top bartender who makes, say, $2,000-$2,500 per week in tips might make regular monthly deposits of over $9,000, but less than $10,000. It isn’t illegal to deposit $9,500 in your bank account. It’s only illegal if you’re doing so because you don’t want your bank to report the deposit to the government. That’s a pretty thin line between an innocuous activity and a felony.

There also may be some people who quite understandably don’t want to draw attention to themselves or their businesses, and so might keep their deposits under $10,000 to avoid having those transactions reported, without knowing that doing so is illegal.

In the 1994 case Ratzlaf v. U.S., the U.S. Supreme Court sensibly interpreted the word willfully in the Bank Secrecy Act to mean that in order to convict someone of structuring, the government had to show that the defendant knew that structuring was illegal. It wasn’t enough to show only that the defendant knew about the reporting requirement.

It’s an important distinction. Imagine you’re a small business owner, just getting started. The first few times you go to make deposits, they’re all under $10,000. Your business grows, and eventually you bring, say, $10,500 to the bank. The teller informs you that because you’re depositing more than $10,000, the bank will have to report you to the federal government. Even if you’ve done nothing wrong at all, it isn’t difficult to see how the phrase “report you to the government” might sound a little daunting. You might as well just hold $600 back and avoid drawing attention to yourself.

I think the structuring law itself is bad public policy. But in the scenario above, it ought to matter a great deal whether or not the small business owner knew that withholding that $600 is illegal. . .

Continue reading.

Written by LeisureGuy

15 December 2014 at 12:05 pm

What Jamie Dimon lost when he won on the government spending bill

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So long as I seem to be blogging about the financial industry, take a look at this Washington Post article by Tom Hamburger and Steven Mufson:

Wall Street’s biggest banks squeezed out a victory this week when the House narrowly approved a spending bill with provisions  that would weaken a section of the Dodd-Frank financial regulations. But the win came at a high cost for the banks — in spending down their political capital and inflaming public opinion.

In fact, the apparent losers in the legislative debate – such as Rep. Maxine Waters (D-Calif.) and Sen. Elizabeth Warren (D-Mass.,) –  sounded like winners on Friday.

“I think we broke through,” Waters, the ranking member of the House Financial Services Committee, said in an interview Friday afternoon. Both legislators made fiery speeches before the vote, saying the change was a favor to powerful banking interests such as J.P. Morgan Chase and CitiGroup that put taxpayers at risk.

“Under the cover of ‘must pass’ legislation, big bank lobbyists are hoping that Congress will allow Wall Street to once again gamble with taxpayer money – by reversing a provision that prohibits banks from using taxpayer-insured funds, bank deposits, to engage in derivatives trading activity,” Waters said on the House floor. Derivative trades are basically a bet on the future value of things, such as commodities. For example, major airlines use derivatives to hedge against future price changes for jet fuel, as a way to keep ticket prices stable. Most of these transactions carry little risk.

But before the 2008 financial crisis, Wall Street firms used more complicated derivative formulas to place risky bets on the mortgage market. Their excesses nearly brought down the financial system. Dodd-Frank was intended to curb that behavior. Banks have pushed for exceptions to the regulations so they can once again use their deposits to underwrite some more complex derivative trades. Those deposits are often backed by federal insurance, which means taxpayers are on the hook for any risk.

The new language would effectively repeal portions of the “push-out” provision of Dodd-Frank, which requires banks to push some derivatives trading into separate units that do not have access to federal deposit insurance.

On Friday, Waters and her staff made plans to get together with allies on the left to discuss how to “better educate the public about what is at stake” in the debate over financial regulations, which will likely expand next year.

Among bank lobbyists, there was a similar discussion Friday. Several banking industry advocates interviewed by The Post said they expressed concern about the rapidly mobilized opposition to banking interests that developed on the left and the right this week.

In addition to labor and consumer groups sounding the alarm, some conservative opinion leaders also objected to the language added to the spending bill. . .

Continue reading.

Written by LeisureGuy

15 December 2014 at 10:09 am

Posted in Business, Congress, Law

Innovation recapitulates evolution

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In reading Jim Russell’s interesting article about why some locales (Silicon Valley) thrive while others (Boston’s Route 128) withered, I was struck by the way successful areas offer a rich environment to support the evolution of business by facilitating the exchange of information and personnel. Innovation seems stimulated by the way information quickly percolates through many small-company environments, rather than being locked within a large, vertically integrated company. Russell writes:

Writing for the Urban Land Institute in 2013, Richard Florida posed a rhetorical question, “If cities, as Jane Jacobs so memorably argued, are nonpareil engines of innovation, how is it that high tech—the most innovative of industries—has mostly thrived outside them?” Given that young adult talent prefers to live in cities, Florida dispenses with the query as “moot.” Retorting to Jesse Jackson on Saturday Night Live, the question is not moot.

If suburbs are nonpareil engines of innovation, then how did Silicon Valley eat the lunch of Route 128 (suburban ring around Boston)? For scholar AnnaLee Saxenian, the question wasn’t moot but a dissertation. Why did innovation boom in suburban Silicon Valley but not suburban Boston (Route 128)? History provided Saxenian with a great natural experiment. The geography of innovation didn’t matter. It was controlled. Both places were suburban. Better yet, Saxenian has a null hypothesis. Around 1980, she predicted that San Jose would crumble. It didn’t. Turns out that Boston’s innovation corridor was cursed with a Rust Belt malaise:

The Boston area was organized around these big, vertically integrated minicomputer companies — DEC, Data General. They were classic postwar American companies, with vertical hierarchies and career ladders. Planning and research happened at the top of the organization and then funneled down. Whereas in Silicon Valley you had, really by chance not design, a series of flat companies, with project-based teams that moved around. People moved between companies much more fluidly. At a time that technology and know-how were sort of trapped within the vertically integrated companies of Route 128, they were being continually recombined in Silicon Valley. That gave them a real edge in innovation.

Putting my own spin on Saxenian’s observation, the where of innovation took a backseat to the structure of the company and labor mobility (in the economic sense of the term). When research and development is locked up in a large multinational firm, it is supposed to stay there for the sake of shareholder value and corporate profit. If companies couldn’t protect intellectual property, so the trope goes, they wouldn’t invest in innovation. Silicon Valley proved that such fears were unfounded.

Regarding innovation, the paths of Route 128 and Silicon Valley were divergent. I yield the floor to the words of Harvard economist Edward Glaeser about the work of another economist, when New York City ate Pittsburgh’s lunch: . . .

Continue reading.

Written by LeisureGuy

15 December 2014 at 8:35 am

How the SEC and DOJ protect insider traders

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They go after the small fry and leave the big crooks alone. The entire Federal financial-industry oversight function has been hopelessly corrupted, and Obama is VERY much no help at all. I would not be surprised if he does not get a cushy position on various financial industry boards of directors after 2016.

Pam Martens introduces a column by former SEC lawyer James Kidney:

Today we welcome former SEC attorney, James A. Kidney, as a guest columnist to our front page. Mr. Kidney brings 25 years of SEC experience and wisdom to the conversation. Here’s the backdrop:

The U.S. Department of Justice has been burning through millions of dollars of taxpayer money chasing down suspected insider traders who are four and five times removed from the person leaking inside information; convening grand juries to indict the traders; convincing trial courts to send them off to prison. The Securities and Exchange Commission has gone after the same individuals, banning them for life from the industry. That’s the same DOJ and SEC that have failed to bring charges against one CEO of a major Wall Street firm for the crash of 2008 — the greatest and most corrupt financial collapse since the Great Depression.

Last week, in a wide-reaching decision, the U.S. Court of Appeals for the Second Circuit, in United States of America v Todd Newman, Anthony Chiasson effectively advised Americans that the Department of Justice has grossly misapplied insider trading laws. And since the SEC has targeted the same individuals using the same legal principle, the decision means the SEC also doesn’t understand the laws it is supposed to be carrying out.

In a nutshell, the Court found that to be guilty of a crime the person trading on inside information has to have knowledge that the inside tipster breached a duty of trust to the corporation in exchange for a personal benefit. That knowledge was missing in many of these traders who were four and five times removed from the tipster. In fact, the court found that there may not have even been a tangible personal benefit to the tipster.

In simple terms, if a corporate insider gives material non-public information to a trader in exchange for cash or something of value, and the same trader then trades on that information, that’s a classic case of insider trading. But when the traders have no knowledge of any personal benefit given to the tipster, there is no insider trading crime.

Whether this is good law or bad can be debated. For example, corporate insiders might leak information for no current personal benefit on the hope or expectation that in the future they’ll be rewarded with a plum job and fat compensation at the trader’s firm. (That form of quid pro quo is a staple on Wall Street.)

The message the Appeals Court might have been subtly sending to the DOJ and SEC is to stop casting their wide net at people four times removed from a crime scene and go after the real criminals on Wall Street whose past and current actions pose a real and pressing danger to the entire financial system.

We turn the discussion over to James A. Kidney, who caused quite a stir earlier this year in a speech at his retirement party criticizing SEC management for policing “the broken windows on the street level” while ignoring the “penthouse floors”.

Finding the Courage to Go After the Big Fish
By James A. Kidney: December 15, 2014

Most of the highlights of my 25-year career as a trial attorney at the Securities and Exchange Commission involve the half dozen or more insider trading cases I tried before juries.  I was lead counsel in the very first jury trial the SEC ever brought – an insider trading case in Seattle in 1989.  I prevailed on behalf of the SEC in every one of my insider trading trials.

I wish I could say these victories achieved something important for securities enforcement.  I doubt that they did. Those cases tried against other than true corporate insiders were largely a waste of government (and my) time.  As were the far more numerous such cases which settled without trial, sometimes for substantial sums by any standard, and sometimes by such small sums they were substantial only to the middle class sap who acted on a stock tip and had the misfortune to be persecuted by the SEC.

Investigating and litigating insider trading cases are probably the most fun the SEC Enforcement staff has as it muddles around the oft-amended, often confusing statutes and rules embedded in 70 year old basic securities laws that are long past their sell-by date.  Of all the common securities law claims brought by the SEC as civil cases (and, sometimes, by the Department of Justice as civil or criminal matters), insider trading requires investigations that are the most like Sam Spade detective work as seen on film and television.  Insider trading is often like finding out who killed Colonel Mustard in the library with a candlestick. I know I enjoyed them, even as I doubted their utility.

The investigation team at the SEC (and the U.S. attorneys’ offices) first have to figure out if information was leaked from a corporate source. Maybe the trading on good or bad news was a corporate source using a beard, such as a friend or neighbor.  Maybe the corporate source was getting paid, in cash, favors, future employment, or some other benefit, for passing on material nonpublic information to a stock trader.  It is fun trying to track down the inside source, usually working backwards from someone who made a timely purchase or sale in advance of good or bad corporate news.  Finding the key telephone call or other communication and then springing the evidence on the defendant in a deposition or courtroom is a thrill rare in the annals of securities litigation.  A little like Perry Mason, if I may date myself.

In addition to working backwards to the source, the staff usually will also work forward, finding persons who traded at several levels removed from the insider.  I have tried cases, and prevailed in front of juries, in which the defendant was several levels removed from the insider.  In my most extreme case, the defendant was five levels removed from the original source of the information. . .

Continue reading.

Written by LeisureGuy

15 December 2014 at 8:08 am

Two articles on Elizabeth Warren and her success through being straightforward

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Written by LeisureGuy

14 December 2014 at 2:32 pm


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