Lax state ethics rules leave health agencies vulnerable to conflicts

 In Politics

When Surgeon General Jerome Adams was the top health official in Indiana, he owned thousands of dollars in tobacco and pharmaceutical stocks which potentially conflicted with his state responsibilities.

Those stocks were never revealed under lax Indiana disclosure laws. His investments became public only when he was required to divest them to serve as the nation’s top doctor — and HHS says he is in full compliance with federal ethics laws.

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The fact that a public health official invested in companies that many would argue harm public health, or whose business might be affected by his decisions, underscores a significant gap in Indiana ethics requirements — a gap that is all too common in other states, a POLITICO investigation found. That lack of transparency prevents the public from having visibility into conflicts by officials who may oversee millions in spending and make decisions that affect thousands of people.

A monthslong review of state ethics rules found that in 1 out of 5 states, top public health officials are not subject to any disclosure for financial holdings. Even when states do have rules on the books, they vary widely and loopholes abound.

Good government groups and ethics experts say the uneven rules — and ill-defined consequences if problems are identified — make it virtually impossible to know whether officials might have conflicts that skew their decision-making, or to hold them accountable if lapses do occur.

Stephen Spaulding of Common Cause, which advocates for greater transparency about public officials’ financial interests said the patchwork of state rules “just ultimately leads to accountability problems.”

POLITICO identified health officials in California and Minnesota with investments related to industries they help regulate, or for which they set policies. But because many states have such loose rules, it’s impossible to know whether such conflicts are more widespread.

The issue was brought into sharp relief early this year when President Donald Trump’s first CDC director, Dr. Brenda Fitzgerald, resigned after POLITICO reported that her financial adviser had traded tobacco, drug and fast food stocks in her name while she was leading the nation’s top public health agency.

Fitzgerald had held investments in these industries during her final year serving as Georgia’s top public health official, according to federal financial disclosure forms she submitted to HHS ethics officials when she was appointed.

It’s not clear how long she had held them. She didn’t disclose those assets to Georgia and wasn’t required to do so under a state law that took effect after 2014. She complied with state law simply by signing an affidavit saying she took no action as health commissioner that materially affected her own interests. Critics of the state’s disclosure rules say it would be nearly impossible to hold a public official accountable with self-attestations.

Indiana’s patchy rules also made it difficult to know precisely what Adams owned when he was overseeing state public health operations. His state records reflect no ownership of individual stocks. Indiana law requires officials to disclose only those investments valued at $10,000 or more. State and federal officials declined to say whether Adams’ investments fell under that reporting threshold. Adams declined to comment for this story.

A review of his federal disclosures show he invested in companies like Pfizer and Mylan, which make opioids among other products, while he was dealing with an opioid crisis that hit Indiana particularly hard. The reports also show thousands of dollars in tobacco companies like Philip Morris, British American Tobacco and Reynolds American, as well as other pharmaceutical companies like Merck, Novartis and Gilead Sciences.

Adams divested those stocks last year when he was nominated Surgeon General and checked off their value as between $1,001 and $15,000, one of several ranges on federal disclosure forms. It’s possible, then, that each of his holdings was under Indiana‘s 10,000 reporting cut-off, even if cumulatively, they surpassed that amount and, therefore, would not have triggered state disclosure requirements. A state spokesperson said she couldn’t comment on the particulars of any one disclosure. The state does little follow-up to ensure reports are accurate and complete, she said.

“The burden of filing a complete and accurate disclosure statement rests with the state employee,” said Stephanie McFarland, a spokesperson for Indiana’s Inspector General.

POLITICO’s 50-state review of ethics rules and disclosure forms found a handful of examples of potential conflicts in which officials held stakes in industries they regulate or for which they set policy.

California regulator’s stake in nursing homes
Dr. Karen Smith, director of the California Department of Public Health, has a financial interest in a publicly traded nursing home company through a family trust. She leads the agency enforcing nursing home laws and regulations.

Smith’s family trust — which she and her husband jointly control has a financial interest of between $2,000 and $10,000 in Brookdale Senior Living, which has 85 facilities in California. The trust also has between $10,000 and $100,000 in HCP Inc., a real estate investment trust that has 18 sites in California, including many Brookdale facilities. Smith’s trust also owns stock in pharmaceutical companies Merck, Abbvie, Roche and McKesson; the medical device companies Medtronic and Danaher; Walgreens; and Abbott Labs.

Her agency is responsible for enforcing safety regulations in hospitals and nursing homes, responding to complaints from staff or patients about possible safety violations — an obligation that critics say should preclude her from having a financial stake in the industry.

“There is no question that the person responsible for regulating patient health and safety in nursing homes shouldn’t have a financial stake in those companies,” said Carmen Balber, executive director of Consumer Watchdog, which is based in California.

But Smith told POLITICO that if the agency’s work affected a company in which she holds a stake, she would recuse herself. She said she has not encountered such a situation.

“I avoid real or apparent conflicts of interest by publicly disclosing my financial interests annually in my form 700,“ she said, “by recognizing my obligations to consider decisions I make in light of my financial interests, and by recusing myself if needed.”

“In the event the department’s business would impact one of these companies,“ she added, “I would recuse myself from the decision-making processes in accordance with legal requirements.”

Questions in Minnesota
Minnesota Health Commissioner Jan Malcolm, meanwhile, filed a required state disclosure of her stock holdings in Coca Cola and major food companies like General Mills, which is headquartered in Minneapolis and manufactures everything from breakfast cereals and ice cream to baking products. She also disclosed owning stock in a number of pharmaceutical companies, including Pfizer, Eli Lilly, AbbVie and Merck.

Among other responsibilities, the health commissioner oversees the state’s anti-obesity efforts, food programs for women, infants and children, as well as the state’s immunization program.

But the campaign finance and public disclosure board that oversees state disclosure rules does not actually audit what officials submit to determine whether they have conflicts. Instead it posts the documents online and relies on the public to report problems.

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