“Oregon abolishes its hopelessly bungled health insurance exchange” reported the LA Times on March 7.  This $250 million disaster -- a total loss -- is the latest in a series of spectacular failures surrounding the implementation of the Affordable Care Act.  These failures began to be revealed, of course, with the inept, incompetent and failed rollout of “Heathcare.gov” website -- which still has no functioning “back end.”  Americans are probably wondering whether there will ever be a post-disaster investigation or “after-action report” similar to what might transpire if a helicopter crashes or a bridge collapses.  Fortunately, Breitbart News has already unearthed some telling clues.  Let’s begin at the beginning:

Remember President Obama’s 2009 remarks dripping with sanctimony concerning greedy doctors?

“You come in and you’ve got a bad sore throat, or your child has a bad sore throat or has repeated sore throats,” President Obama explained at Wednesday’s press conference. “The doctor may look at the reimbursement system and say to himself ‘You know what? I make a lot more money if I take this kid’s tonsils out.’

In other words, those who undertake the Hippocratic Oath can no longer be trusted.  Here we see the Democratic Party’s overt contempt for medical professionals; M.D.s cannot be trusted with their patients’ well being unless they are closely supervised by their moral superiors, namely leading Democratic politicians, lawyers and health-care economists.   

Let’s update this script to 2015 to place in context Breitbart News’s revelations of built-in contract fraud at the heart of the Affordable Care Act. If we were to restate it: The doctor (Prof. Gruber) may look at the reimbursement system and say to himself ‘You know what? I make a lot more money (compared to my MIT salary) if I take this kid’s tonsils out award myself lucrative no-bid personal federal and state consulting contracts as direct statutory requirement of the Affordable Care Act -- of which I am the architect.” 

These outrageous fees ($500/hour) to Prof. Gruber are required by federal law because his software econometrics model of healthcare exchanges is specifically required for implementation -- not only for the Federal Government but also all the states attempting to set up their own “exchanges.” Prof. Gruber has circumvented competitive bidding and resultant cost-containment by claiming unique proprietary capabilities available nowhere else in the market.   This law constituted carte-blanche for Prof. Gruber to write his own highly lucrative consulting contracts with the States.  As Breitbart’s Michael Patrick Leahy reports:

‘Gruber’s Obamacare-related financial bonanza is based, in part, on the ubiquitous use of his proprietary Gruber Microsimulation Model in virtually every executive and legislative entity involved in the design and implementation of Obamacare: the White House, the Department of Health and Human Services, the Congressional Budget Office (which is charged with providing Congress “independent” analysis of the impact of proposed legislation), and most state governments.

Gruber has essentially enjoyed a monopoly on economic analysis of Obamacare since February 25, 2009, barely a month after President Obama’s inauguration. On that date, the federal government issued a public notice that “[t]he Department of Health and Human Services (DHHS), Assistant Secretary for Planning and Evaluation (ASPE), intends to negotiate with Jonathan Gruber, Ph.D. on a sole sources basis for technical assistance in evaluating options for national healthcare reform.”

According to Solicitation Number AES2009 for Technical Assistance in Evaluating Options for Health Reform, “The basis for restricting competition is the authority 13.106-1(b) because only one source is reasonably available to satisfy agency requirements. The anticipated contract period will be for one year.”

In essence, someone in the Obama administration wanted to make Gruber’s proprietary Gruber Microsimulation Model the “must have” analytic tool not only for the federal government, but also for every state government that would subsequently implement Obamacare after it became law, something that would not become reality until a year later, in March 2010.’

Prof. Gruber, the Architect, used these legal provisions as pretext to arrange lucrative, no-bid, sole-source personal consulting contracts not only from the Federal Government, Department of Health and Human Services (DHHS), but also many states attempting to set up “exchanges.” These contracts resulted in $500 per hour fees to Prof. Gruber personally -- not including separate contracts to pay for his expenses -- resulting in million-dollar-a-year personal compensation (nice work if you can get it!) Americans instinctively know that this arrangement is rotten to the core, but let us examine the implications. It is corrupt on many levels, as is beginning to be revealed by Breitbart and auditors in State Governments. 

Federal Acquisition Regulation

As a customer with unique needs, the Federal Government is what economists term a “monopsony,” a marketplace where market-forces are severely curtailed by the fact that there is only one buyer.  Procurement opportunities therefore can easily be abused by the politically-connected.  In response to war profiteering and other past procurement scandals, Congress has legislated a dense body of law known as the Federal Acquisition Regulation (FAR).  There is no doubt that the special arrangement with Prof. Gruber is inconsistent with the FAR on many points.  The fifty states have similar procurement laws. 

First, the award of no-bid contracts by the federal government to “sole source” contractors is extremely rare and generally illegal; open bidding against a “request for proposal” published in the Federal Register is usually the only legal way to award a contract.  Federal employees who arrange the procurement -- led by a federal “contract officer” -- are proscribed by law from favoring or assisting one bidder to the detriment of others.  Second, the award of long term contracts to persons is extremely rare as well, not least because it may circumvent GS schedules that impose legal limits on compensation to Federal Employees.  Federal contracts are nearly always awarded to business corporations or partnerships that are expected to keep an accurate and auditable set of books, maintained according to Generally Accepted Accounting Principles. 

Conflict-of-Interest

Imagine if the FDA hired a medical panel to weigh the efficacy and cost-benefits of a new cancer drug, and they included on this august panel a member who owned the commercial rights to one of the drugs under consideration.  One could not help but assume that the panel’s deliberations would be biased toward the panelist’s own submission.  For this laudable reason, the DHHS has strict regulations against conflict of interest.  When did it become clear that Dr. Gruber was not only ruling on the technical efficacy of health care reform, but with such rulings also forcing the states to make him a very rich man? Did he properly disclose to DHHS his financial stake?  Not being a permanent employee, Prof. Gruber’s DHHS contract probably falls generally under the rules applied by NIH’s Office of Extramural Research, whose definition of Conflict of Interest can be found on here:

“A Financial conflict of Interest (FCOI) exists when the Institution’s designated official(s) reasonably determines that a Significant Financial Interest (defined below) could directly and significantly affect the design, conduct, or reporting of NIH-funded research.”

“Significant Financial Interest is defined by the regulation as anything of monetary value, including but not limited to:

• salary or other payment for services (e.g. consulting fees or honoraria).

• equity interests (e.g. stocks, stock options, or other ownership interests)

• intellectual property rights (e.g. patents, copyrights, and royalties from such rights).

Is it not clear that at some point Prof. Gruber’s estimated $5.3 million on consulting fees for his “intellectual property” constitutes a Conflict of Interest that disqualifies him from dispassionate weighing of health care options? He also claims 100% ownership in his namesake software model. Creators in the private sector generally owe commercial rights to their work-product to their employers, clients or companies.  Prof. Gruber’s IP obligations are doubtless recorded in the MIT faculty employment manual. If Prof. Guber’s conduct is any guide, MIT is quite generous with its IP. 

Timesheets

In satisfying the aforementioned bonanza in the demand for the statutory mandated purchase of Prof. Gruber’s consulting time, it appears he may have also double- or triple-billed his time. Almost all financial fraud arises from falsifying -- in some manner or another -- one of three types of primary commercial documents: 1) forged bank documents; 2) false invoices submitted for payment or reimbursement; or 3) falsified timesheets submitted for compensation for employment or consulting hours.  Instances of the latter fraud would include “ghost” or “no show” employees[1].  This is noted to explain why the rules for time sheets are so strict, especially as they pertain to government-funded cost-reimbursement type contracts (i.e. nearly all federal contracts) which are particularly vulnerable to abuses such as shifting costs to the federal contract (where they are duly reimbursed) from the private sector work, making the latter effectively more profitable. 

Breitbart reports that Prof. Gruber’s contract with the State of Vermont has become subject to a state audit complete with referral to the Vermont Attorney General.  What is remarkable is the additional detailed reported by Breitbart concerning his most recent invoice to the State of Vermont, submitted for payment in late December after the audit had commenced.  To one familiar with government contracts administration, it’s astonishing to see Prof. Gruber record 80 hours (in other words, about 1/2 full time) of personal time billed at $500 / hour This would indicate a rate of roughly a $1 million annual salary for the period October 15 through November 15 2014 -- the height of the first semester at MIT, yielding a total monthly bill of $40,000. While it is true that such high or higher billing rates are often seen on the open market for legal, technical and financial experts, these are usually for shorter term engagements. It appears by the sums involved, that Prof. Gruber was being retained for months or perhaps years at a time for substantial part-time engagements away from MIT.  Indeed, Prof. Gruber’s public sector funded personal compensation appears to be higher than that afforded to both the President of the United States and the Governor of Vermont.   

It is notable how generous is his primary employer, who lent out Prof. Gruber’s million-dollar talent to their neighbors across state lines, while no doubt retaining 100% obligation for his full-time benefits as a tenured faculty member at MIT.  In this, the MIT administration foregoes any teaching of students that would otherwise be handled by Prof. Gruber. While his biographical sketch on the MIT website records a formal leave of absence in 1997-1998 it appears that he is full-time at MIT today, yet the only link to any class teaching dates from 2010. As can be shown further below, this hourly time commitment to Vermont alone is approaching or in excess of ½ time for Prof. Gruber’s direct billable hours.   It appears that Prof. Gruber is free to apportion however much of his time wherever he chooses.

Yet at the same time, Breitbart reports that Prof. had many other clients during the roughly same time periods. 

Breitbart’s estimate of $5.2 million is based on publicly available reports on the amounts of Gruber’s Obamacare design and implementation contracts with the federal government ($392,600) and four states: Michigan ($481,050), Minnesota ($329,000), Vermont ($400,000), and Wisconsin ($400,000), as well as assumptions about contract sizes with eight additional states with which Gruber has contracts: West Virginia, Maine, Colorado, Oregon, Connecticut, Delaware, Kansas, and California. The amount of those contracts has not been publicly reported:

As The Washington Post reported on Friday, “It’s safe to say that about $400,000 appears to be the standard rate for gaining access to the Gruber Microsimulation Model.”

Prof. Gruber seems to have an extremely elastic sense of the number of personal consulting hours he has available to bill these many other clients.  Have we reached “Peak Gruber” yet? 

This over-commitment of his personal billable time is particularly egregious insult to all those “29ers,” Americans who find despite their bests efforts that they cannot gain jobs offering more than 29 hours which is deemed “part time” only, not subject to employer-provided health-care benefits under Prof. Gruber’s Affordable Care Act.

Romneycare and MIT’s Intellectual Property

In fairness to his colleagues in government, it is probably safe to say that when Prof. Gruber spoke of basing Obamacare, in part, on his “Microsimulation Model,” fellow Democrats and civil servants probably assumed he was, at that moment, wearing his “MIT Professor Hat.”  It makes some sense that the State of Massachusetts, having years of experience with Romneycare, would be enlisted to instruct the other states in the implementation of Obamacare.  But that’s not what happened.  Professor Gruber took personal control of the aforementioned model, retailing it as “proprietary,” owned solely by consultant Gruber personally.  This is corrupt for a number of reasons:

1. To be effective, any such model should be based on Romneycare data (at a minimum), i.e. the healthcare data collected by the State of Massachusetts on behalf of its citizens who are also the patients.  While it is easy to see how MIT ended up having this data, how did Prof. Gruber attain sole personal rights to that data?
2. The Microsimulation model was surely developed while Prof. Gruber was full time employee at MIT, an educational institution which not only paid his salary but also provided office and classroom space, colleagues, computer resources, students, travel expenses, etc. etc.  Again, how did Prof. Gruber attain this model as his sole property?
3. Prof. Gruber claims the model is his proprietary “trade secret.”  This is anathema to the university’s mission to discover and disseminate new information.  For context, note that students are paying tuition to be at a university; they cannot be asked at the same time to keep secret the knowledge they learn.  Trade secrets are never recognized by universities[2] who are known to rigorously (and correctly) guard their right to publish, even when the research is defense-related and supported by the Pentagon. While it is true that universities seek patents, contrary to popular belief, patent filings are publications.  The confusion may arise because inventions must be kept secret temporarily while a patent application is prepared; this is because the patent application by law must be the first publication describing the new invention; otherwise it cannot be patented. As far as we know, Prof. Gruber has never published the details of his model.

A key consequence of Point 3 is that Prof. Gruber’s model, being a proprietary trade secret, has never been subject to peer review.  The Obama administration therefore accepted this model as accurate and effective just based on Prof. Gruber’s self-serving say-so. 

Universities have well developed systems to manage federally funded research projects.  Most graduate students are supported by grants that pay their tuition and stipend.  Universities compete to hire top scholars -- academic superstars -- in order to a) burnish their reputations, b) attract talented junior faculty and students, and c) win grant funding to support the entire enterprise (“rainmakers”).  Prof. Gruber seems to have bypassed his employer, pocketing the federal and state funding directly, without regard to any professional obligations to his colleagues and students.

Phantom Employees

Vastly compounding his problem with overbilling his own time is the suspicion also reported by Breitbart that he has submitted $80,000 billings to the State of Vermont alone for phantom employees (research assistants).  The suspicion is that he pocketed the money himself and never actually employed anyone[3].  It is inconceivable that this severe accusation has not circulated in Cambridge and environs. Yet in the weeks since this accusation was first published -- in the sense of the “dog that didn’t bark” -- no one has come forward to say: “It’s all a misunderstanding!  I am Prof. Gruber’s former student and it was me!  I was the one who did the work and billed the time to the Vermont project!”  This accusation, if true, clearly could lead to potential criminal charge of contract fraud.  While maintaining silence, his colleagues, perhaps resentful and disgusted by his blatant “cashing in,” have not rallied to his defense.

Where was the work of these research assistants conducted? Is there and off-campus office somewhere nearby where they report to work?  Running a private enterprise on-campus usually is strictly forbidden.  Do they work from home?  Do they work at his home?  In a tight-knit community of scholars such as Cambridge, especially within a specialized field, there is general awareness among aspiring students and freelance specialists of which employers are hiring, firing, etc.  Such scuttlebutt cannot be kept secret for long. 

Perhaps only President Walker will be able to sort out this public-sector mess.

Notes: