Rachana Pradhan: How big pharma money colors Operation Warp Speed
April 16 was a big day for Moderna, the Cambridge, Mass., Massachusetts biotech company on the verge of becoming a front-runner in the U.S. government’s race for a coronavirus vaccine. It had received roughly half a billion dollars in federal funding to develop a COVID shot that might be used on millions of Americans.
Thirteen days after the massive infusion of federal cash — which triggered a jump in the company’s stock price — Moncef Slaoui, a Moderna board member and longtime drug-industry executive, was awarded options to buy 18,270 shares in the company, according to Securities and Exchange Commission filings. The award added to 137,168 options he’d accumulated since 2018, the filings show.
It wouldn’t be long before President Trump announced Slaoui as the top scientific adviser for the government’s $12 billion Operation Warp Speed program to rush COVID vaccines to market. In his Rose Garden speech on May 15, Trump lauded Slaoui as “one of the most respected men in the world” on vaccines.
The Trump administration relied on an unusual maneuver that allowed executives to keep investments in drug companies that would benefit from the government’s pandemic efforts: They were brought on as contractors, doing an end run around federal conflict-of-interest regulations in place for employees. That has led to huge potential payouts — some already realized, according to a KHN analysis of SEC filings and other government documents.
Slaoui owned 137,168 Moderna stock options worth roughly $7 million on May 14, one day before Trump announced his senior role to help shepherd COVID vaccines. The day of his appointment, May 15, he resigned from Moderna’s board. Three days later, on May 18, following the company’s announcement of positive results from early-stage clinical trials, the options’ value shot up to $9.1 million, the analysis found. The Department of Health and Human Services said that Slaoui sold his holdings May 20, when they would have been worth about $8 million, and will donate certain profits to cancer research. Separately, Slaoui held nearly 500,000 shares in GlaxoSmithKline, where he worked for three decades, upon retiring in 2017, according to corporate filings.
Carlo de Notaristefani, an Operation Warp Speed adviser and former senior executive at Teva Pharmaceuticals, owned 665,799 shares of the drug company’s stock as of March 10. While Teva is not a recipient of Warp Speed funding, Trump promoted its antimalarial drug hydroxychloroquine as a COVID treatment, even with scant evidence that it worked. The company donated millions of tablets to U.S. hospitals and the drug received emergency use authorization from the Food and Drug Administration in March. In the following weeks, its share price nearly doubled.
Two other Operation Warp Speed advisers working on therapeutics, Drs. William Erhardt and Rachel Harrigan, own financial stakes of unknown value in Pfizer, which in July announced a $1.95 billion contract with HHS for 100 million doses of its vaccine. Erhardt and Harrigan were previously Pfizer employees.
“With those kinds of conflicts of interest, we don’t know if these vaccines are being developed based on merit,” said Craig Holman, a lobbyist for Public Citizen, a liberal consumer advocacy group.
An HHS spokesperson said the advisers are in compliance with the relevant federal ethical standards for contractors.
These investments in the pharmaceutical industry are emblematic of a broader trend in which a small group with the specialized expertise needed to inform an effective government response to the pandemic have financial stakes in companies that stand to benefit from the government response.
Slaoui maintained he was not in discussions with the federal government about a role when his latest batch of Moderna stock options was awarded, telling KHN he met with HHS Secretary Alex Azar and was offered the position for the first time May 6. The stock options awarded in late April were canceled as a result of his departure from the Moderna board in May, he said. According to the KHN analysis of his holdings, the options would have been worth more than $330,000 on May 14.
HHS declined to confirm that timeline.
The fate of Operation Warp Speed after President-elect Biden takes office is an open question. While Democrats in Congress have pursued investigations into Warp Speed advisers and the contracting process under which they were hired, Biden hasn’t publicly spoken about the program or its senior leaders. Spokespeople for the transition didn’t respond to a request for comment.
The four HHS advisers were brought on through a National Institutes of Health contract with consulting firm Advanced Decision Vectors, so far worth $1.4 million, to provide expertise on the development and production of vaccines, therapies and other COVID products, according to the federal government’s contracts database.
Slaoui’s appointment in particular has rankled Democrats and organizations such as Public Citizen. They say he has too much authority to be classified as a consultant. “It is inevitable that the position he is put in as co-chair of Operation Warp Speed makes him a government employee,” Holman said.
The incoming administration may have a window to change the terms under which Slaoui was hired before his contract ends, in March. Yet making big changes to Operation Warp Speed could disrupt one of the largest vaccination efforts in history while the American public anxiously awaits deliverance from the pandemic, which is breaking daily records for new infections. Warp Speed has set out to buy and distribute 300 million doses of a COVID vaccine, the first ones by year’s end.
“By the end of December we expect to have about 40 million doses of these two vaccines available for distribution,” Azar said Nov. 18, referring to front-runner vaccines from Pfizer and Moderna.
Azar maintained that Warp Speed would continue seamlessly even with a “change in leadership.” “In the event of a transition, there’s really just total continuity that would occur,” the secretary said.
Pfizer, which didn’t receive federal funds for research but secured the multibillion-dollar contract under Warp Speed, on Nov. 20 sought emergency authorization from the FDA; Moderna just announced that it would do so. In total, Moderna received nearly $1 billion in federal funds for development and a $1.5 billion contract with HHS for 100 million doses.
While it’s impossible to peg the precise value of Slaoui’s Moderna holdings without records of the sale transactions, KHN estimated their worth by evaluating the company’s share prices on the dates he received the options and the stock’s price on several key dates — including May 14, the day before his Warp Speed position was announced, and May 20.
However, the timing of Slaoui’s divestment of his Moderna shares — five days after he resigned from the company’s board — meant that he did not have to file disclosures with the SEC confirming the sale, even though he was privy to insider information when he received the stock options, experts in securities law said. That weakness in securities law, according to good-governance experts, deprives the public of an independent source of information about the sale of Slaoui’s stake in the company.
“You would think there would be kind of a one-year continuing obligation [to disclose the sale] or something like that,” said Douglas Chia, president of Soundboard Governance and an expert on corporate governance issues. “But there’s not.”
HHS declined to provide documentation confirming that Slaoui sold his Moderna holdings. His investments in London-based GlaxoSmithKline — which is developing a vaccine with French drugmaker Sanofi and received $2.1 billion from the U.S. government — will be used for his retirement, Slaoui has said.
“I have always held myself to the highest ethical standards, and that has not changed upon my assumption of this role,” Slaoui said in a statement released by HHS. “HHS career ethics officers have determined my contractor status, divestures and resignations have put me in compliance with the department’s robust ethical standards.”
Moderna, in an earlier statement to CNBC, said Slaoui divested “all of his equity interest in Moderna so that there is no conflict of interest” in his new role. However, the conflict-of-interest standards for Slaoui and other Warp Speed advisers are less stringent than those for federal employees, who are required to give up investments that would pose a conflict of interest. For instance, if Slaoui had been brought on as an employee, his stake from a long career at GlaxoSmithKline would be targeted for divestment.
Instead, Slaoui has committed to donating certain GlaxoSmithKline financial gains to the National Institutes of Health.
Offering Warp Speed advisers contracts might have been the most expedient course in a crisis.
“As the universe of potential qualified candidates to advise the federal government’s efforts to produce a COVID-19 vaccine is very small, it is virtually impossible to find experienced and qualified individuals who have no financial interests in corporations that produce vaccines, therapeutics, and other lifesaving goods and services,” Sarah Arbes, HHS’s assistant secretary for legislation and a Trump appointee, wrote in September to Rep. James Clyburn (D.-S.C.), who leads a House oversight panel on the coronavirus response.
That includes multiple drug-industry veterans working as HHS advisers, an academic who’s overseeing the safety of multiple COVID vaccines in clinical trials and sits on the board of Gilead Sciences, and even former government officials who divested stocks while they were federal employees but have since joined drug company boards.
Dr. Scott Gottlieb and Dr. Mark McClellan, former FDA commissioners, have been visible figures informally advising the federal response. Each sits on the board of a COVID vaccine developer.
After leaving the FDA in 2019, Gottlieb joined Pfizer’s board and has bought 4,000 of its shares, at the time worth more than $141,000, according to SEC filings. As of April, he had additional stock units worth nearly $352,000 that will be cashed out should he leave the board, according to corporate filings. As a board member, Gottlieb is required to own a certain number of Pfizer shares.
McClellan has been on Johnson & Johnson’s board since 2013 and earned $1.2 million in shares under a deferred-compensation arrangement, corporate filings show.
The two also receive thousands of dollars in cash fees annually as board members. Gottlieb and McClellan frequently disclose their corporate affiliations, but not always. Their Sept. 13 Wall Street Journal op-ed on how the FDA could grant emergency authorization of a vaccine identified their FDA roles and said they were on the boards of companies developing COVID vaccines but failed to name Pfizer and Johnson & Johnson. Both companies would benefit financially from such a move by the FDA.
“It isn’t a lower standard for FDA approval,” they wrote in the piece. “It’s a more tailored, flexible standard that helps protect those who need it most while developing the evidence needed to make the public confident about getting a Covid-19 vaccine.”
About the inconsistency, Gottlieb wrote in an email to KHN: “My affiliation to Pfizer is widely, prominently, and specifically disclosed in dozens of articles and television appearances, on my Twitter profile, and in many other places. I mention it routinely when I discuss Covid vaccines and I am proud of my affiliation to the company.”
A spokesperson for the Duke-Margolis Center for Health Policy, which McClellan founded, noted that other Wall Street Journal op-eds cited his Johnson & Johnson role and that his affiliations are mentioned elsewhere. “Mark has consistently informed the WSJ about his board service with Johnson & Johnson, as well as other organizations,” Patricia Shea Green said.
Johnson & Johnson’s vaccine is in phase 3 clinical trials and could be available in early 2021.
Still, while they worked for the FDA, Gottlieb and McClellan were subject to federal restrictions on investments and protections against conflicts of interest that aren’t in place for Warp Speed advisers.
According to the financial disclosure statements they signed with HHS, the advisers are required to donate certain stock profits to the NIH — but can do so after the stockholder dies. They can keep investments in drug companies, and the restrictions don’t apply to stock options, which give executives the right to buy company shares in the future.
“This is a poorly drafted agreement,” said Jacob Frenkel, an attorney at Dickinson Wright and former SEC lawyer, referring to the conflict-of-interest statement included in the NIH contract with Advanced Decision Vectors, the Warp Speed advisers’ employing consulting firm. He said documents could have been “tighter and clearer in many respects,” including prohibiting the advisers from exercising their options to buy shares while they are contractors.
De Notaristefani stepped down as Teva’s executive vice president for global operations in October 2019, but according to corporate filings he would remain with the company until the end of June 2020 in order to “ensure an orderly transition.” He’s been working with Warp Speed since at least May overseeing manufacturing, according to an HHS spokesperson.
When Erhardt left Pfizer in May, U.S. COVID infections were climbing and the company was beginning vaccine clinical trials. Erhardt and Harrigan, whose LinkedIn profile says she left Pfizer in 2010, have worked as drug industry consultants.
“Ultimately, conflicts of interest in ethics turn on the mindset behavior of the responsible persons,” said Frenkel, the former SEC attorney. “The public wants to know that it can rely on the effectiveness of the therapeutic or diagnostic product without wondering if a recommendation or decision was motivated for even the slightest reason other than product effectiveness and public interest.”
Rachana Pradhan is a Kaiser Health News correspondent.
Looking across the Charles River toward Kendall Square, Cambridge, headquarters of Moderna and other tech companies.
Seeing red in 2020
“The Red Road” (acrylic on canvas), by Mark Chadbourne, in the show “RED 2020,’’ in the Cambridge (Mass.) Art Association’s Kathryn Schultz Gallery, through Dec. 17. The gallery has an annual show that is always titled BLUE or RED. RED can evoke happiness (your “red letter day”) and passion but it can also summon up intensity, including violence and pain, of which we’ve had plenty this year.
Mark Kreidler: How Harvard and Stanford B-schools have battled COVID-19
Harvard Business School is to the left, on the south side of the Charles River. Across the river, in Cambridge, is the university’s main campus.
At the Stanford University Graduate School of Business, near San Francisco, the stories got weird almost immediately upon students’ return for the fall semester. Some said they were being followed around campus by people wearing green vests telling them where they could and could not be, go, stop, chat or conduct even a socially distanced gathering. Others said they were threatened with the loss of their campus housing if they didn’t follow the rules.
“They were breaking up picnics. They were breaking up yoga groups,” said one graduate student, who asked not to be identified so as to avoid social media blowback. “Sometimes they’d ask you whether you actually lived in the dorm you were about to go into.”
Across the country, in Boston, students at the Harvard Business School gathered for the new semester after being gently advised by the school’s top administrators, via email, that they were part of “a delicate experiment.” The students were given the ground rules for the term, then received updates every few days about how things were going. And that, basically, was that.
In the time of COVID-19, it’s fair to say that no two institutions have come to quite the same conclusions about how to proceed safely. But as Harvard’s and Stanford’s elite MBA-granting programs have proved, those paths can diverge radically, even as they may eventually lead toward the same place.
For months, college and university administrators nationwide have huddled with their own medical experts and with local and county health authorities, trying to determine how best to operate in the midst of the novel coronavirus. Could classes be offered in person? Would students be allowed to live on campus — and, if so, how many? Could they hang out together?
“The complexity of the task and the enormity of the task really can’t be overstated,” said Dr. Sarah Van Orman, head of student health services at the University of Southern California and a past president of the American College Health Association. “Our first concern is making sure our campuses are safe and that we can maintain the health of our students, and each institution goes through that analysis to determine what it can deliver.”
With a campus spread over more than 8,000 acres on the San Francisco Peninsula, Stanford might have seemed like a great candidate to host large numbers of students in the fall. But after sounding hopeful tones earlier in the summer, university officials reversed course as the pandemic worsened, discussing several possibilities before finally deciding to limit on-campus residential status to graduate students and certain undergrads with special circumstances.
The Graduate School of Business sits in the middle of that vast and now mostly deserted campus, so the thought was that Stanford’s MBA hopefuls would have all the physical distance they needed to stay safe. Almost from the students’ arrival in late August, though, Stanford’s approach was wracked by missteps, policy reversals and general confusion over what the COVID rules were and how they were to be applied.
Stanford’s business grad students were asked to sign a campus compact that specified strict safety measures for residents. Students at Harvard Business School signed a similar agreement. In both cases, state and local regulations weighed heavily, especially in limiting the size of gatherings. But Harvard’s compact emerged fully formed and relied largely on the trustworthiness of its students. The process at Stanford was unexpectedly torturous, with serial adjustments and enforcers who sometimes went above and beyond the stated restrictions.
Graduate students there, mobilized by their frustration over not being consulted when the policy was conceived, urged colleagues not to sign the compact even though they wouldn’t be allowed to enroll in classes, receive pay for teaching or live in campus housing until they did. Among their objections: Stanford’s original policy had no clear appeals process, and it did not guarantee amnesty from COVID violation punishments to those who reported a sexual assault “at a party/gathering of multiple individuals” if the gathering broke COVID protocols.
Under heavy pressure, university administrators ultimately altered course, solicited input from the grad student population and produced a revised compact addressing the students’ concerns in early September, including the amnesty they sought for reporting sexual assault. But the Stanford business students were already unsettled by the manners of enforcement, including the specter of vest-wearing staffers roaming campus.
According to the Stanford Daily, nine graduate students were approached in late August by armed campus police officers who said they’d received a call about the group’s outdoor picnic and who — according to the students — threatened eviction from campus housing as an ultimate penalty for flouting safety rules. “For international students, [losing] housing is really threatening,” one of the students told the newspaper.
The people in the vests were Event Services staff working as “Safety Ambassadors,” Stanford spokesperson E.J. Miranda wrote in an email. The staffers were not on campus to enforce the compact, but rather were “emphasizing educational and restorative interventions,” he said. Still, when the university announced the division of its campus into five zones in September, it told students in a health alert email that the program “will be enforced by civilian Stanford representatives” — the safety ambassadors.
The Harvard Business School’s approach was certainly different in style. In July, an email from top administrators reaffirmed the school’s commitment to students living on campus and taking business classes in person in a hybrid learning model. As for COVID protocols, the officials adopted “a parental tone,” as the graduate business education site Poets & Quants put it. “All eyes are on us,” the administrators wrote in an August email.
But the guts of the school’s instructions were similar to those at Stanford. Both Harvard and Stanford severely restricted who could be on campus at any given time, limiting access to students, staff members and preapproved visitors. Both required that anyone living on campus report their health daily through an online portal, checking for any symptoms that could be caused by COVID-19. Both required face coverings when outside on campus — even, a Harvard missive said, in situations “when physical distancing from others can be maintained.”
So far, both Harvard and Stanford have posted low positive test rates overall, and the business schools are part of those reporting totals, with no significant outbreaks reported. Despite their distinct delivery methods, the schools ultimately relied on science to guide their COVID-related decisions.
“I feel like we’ve been treated as adults who know how to stay safe,” said a Harvard second-year MBA candidate who requested anonymity. “It’s worked — at least here.”
But as the experiences at the two campuses show, policies are being written and enforced on the fly, in the midst of a pandemic that has brought challenge after challenge. While the gentler approach at Harvard Business School largely worked, it did so within a larger framework of the health regulations put forth by local and county officials. As skyrocketing COVID-19 rates across the nation suggest, merely writing recommendations does little to slow the spread of disease.
Universities have struggled to strike a balance between the desire to deliver a meaningful college experience and the discipline needed to keep the campus caseload low in hopes of further reopening in 2021. In Stanford’s case, that struggle led to overreach and grad-student blowback that Harvard was able to avoid.
The fall term has seen colleges across the country cycling through a series of fits and stops. Some schools welcomed students for in-person classes but quickly reverted to distance learning only. And large campuses, with little ability to maintain the kind of control of a grad school, have been hit tremendously hard. Major outbreaks have been recorded at Clemson, Arizona State, Wisconsin, Penn State, Texas Tech — locations all over the map that opened their doors with more students and less stringent guidelines.
In May, as campuses mostly shut down to consider their future plans, USC’s Van Orman expressed hope that universities’ past experiences with international students and global outbreaks, such as SARS, would put them in a position to better plan for COVID-19. “In many ways, we’re one of the best-prepared sectors for this test,” she said.
Six months later, colleges are still being tested.
Mark Kreidler is a Kaiser Health News reporter.
Words, words!
“Never better, mad as a hatter,
right as rain, might and main,
hanky panky, hot toddy,
hoity-toity, cold shoulder,
bowled over, rolling in clover….’’
— From “Sweater Weather: A Love Song to Language,’’ by Sharon Bryant (born 1943), a New England-based poet who teaches creative writing at Lesley University, in Cambridge, Mass.
Rearranging Boston
Bluebikes in Boston. Originally Hubway, Bluebikes is a bicycle sharing system in the Boston metropolitan area. The system is owned by the municipalities of Boston, Cambridge, Everett, Somerville and Brookline, and is operated by Motivate.
From Robert Whitcomb’s “Digital Diary,’’ in GoLocal24.com
Boston is starting to implement new street-narrowing, traffic-calming, bike-lane creation and sidewalk-widening plans that will make parts of the city’s very dense urban core more pleasant.
Mass.streets.blog.org summarized the program in May, when it reported:
“The initial plans include a network of new protected bike lanes across downtown Boston and around the Public Garden, expanded bus stop waiting areas, and processes to let restaurants expand their outdoor seating areas on sidewalks and on-street parking lanes.’’
The new bike lanes are already being set up, albeit not yet permanently; cones are being used, not concrete or metal barriers.
Some of these plans were in the works before COVID-19, but the pandemic has jump- started some of them to encourage social distancing and boost walking and bike riding by COVID-cautious people worried about taking public transportation (though those concerns have been found to be exaggerated).
Sidewalks in most American cities are too narrow. Widening them for restaurants, outdoor retail stores and other functions will add to cities’ liveability.
Anything that discourages car traffic and encourages walking and bike riding and, yes, a return to public transportation in center cities, will improve their quality of life and help lure back residents, businesses and tourists who fled because of the virus.
It should be said, by the way, that density per se does not present a COVID-19 peril. Consider how well Hong Kong, Singapore and Taipei have kept virus cases down to a handful. That’s probably in part because of lessons from the East Asian-based SARS epidemic, in 2002-04
And note that virus cases are much lower in densely populated and affluent downtown Boston than in neighborhoods a little further out with more poor people. To reduce your chances of getting sick with COVID, live in a rich, orderly neighborhood where people follow mask and social-distancing guidelines and lose weight while you’re at it. But back to reality….
Of course it’s easier for rich folks to leave town in pandemics and to avoid crowded places.
To read more, please hit this link.
New England a biotech power against COVID-19
Kendall Square in Cambridge, as seen from across the Charles River in Boston. It’s the epicenter of the New England biotech sector.
From Robert Whitcomb’s “Digital Diary,’’ in GoLocal24.com
The economy may or may not recover soon from the pandemic, but in any case New England’s role as a world center for health-related science will probably continue to grow. Indeed, the search for a vaccine for COVID-19 and new treatments for that and other illnesses, old and new, will tend to accelerate this growth. It’s a bit macabre to say so, but New England’s economy could benefit from COVID-19. Researchers in the region are hard at work trying to develop vaccines and treatments against the disease.
That’s not to minimize the damage done to other important regional sectors, especially higher education, and of course the region’s universities do a great deal of life-sciences research. It’s complicated.
Just look at the plan by life-sciences company IQHQ to buy the 26-acre headquarters and campus of GCP Applied Technologies, in North Cambridge, Mass., for $125 million. GCP makes chemicals and construction materials.
The Boston Globe reports that the “once light-industrial area is rapidly transforming into a hub for labs and housing. It’s one of several areas around the region that are drawing tech and life science companies looking for cheaper or roomier alternatives to {Cambridge’s} Kendall Square.’’
To read The Globe’s story, please hit this link.
This is, of course, the sort of business that Rhode Island is trying to get, especially for the land freed up in downtown Providence by the moving of Route 195.
Meeting as a 'restatement'
Polaroid 80B Highlander instant camera, circa 1959
“I find each new person whom I meet a complete restatement of what life and the world are all about.’’
— Edwin Land (1909-81) inventor and the founder (in Cambridge, Mass., in 1937) of Polaroid and long considered the leading statesman of New England technology
A way to enjoy driving on Memorial Drive
View of Boston's Back Bay skyline, at night across the Charles River from Memorial Drive in Cambridge, just south of the Longfellow Bridge.
— Photo by Eric Hill
I love driving through Western Massachusetts, out through the Berkshires, when the road is empty and it's a nice day. I don't like driving home on Memorial Drive at 5:45 or 6:45 at night when it's crowded and stressful. I think that's true of most people, and the goal of automated driving is to take the stressful part of driving out of the task.
— Karl Iagnemma, a Massachusetts-based American writer and research scientist and CEO of Cambridge-based self-driving technology company NuTonomy.
Mt. Greylock, in The Berkshires
Shefali Luthra: Single-payer health insurance looks good to this Providence restaurant owner, some other small-business people
In Big King
PROVIDENCE
Last winter, James Mark was a 2018 James Beard Award finalist. A few months later, both GQ and Bon Appétit ranked Big King, his newest Rhode Island restaurant, as one of the country’s best places to eat.
But in 2018, the chef and restaurateur spent almost double his personal income on health insurance for his employees: $54,000 to cover a dozen or so people, compared with the $35,000 he paid himself.
Mark spends most of his time at the self-identified “small and strange” Big King, his experimental Asian restaurant on Providence’s trendy West Side, where the handwritten menu changes daily. At downtown’s Dean Hotel, he runs the small cocktail bar and the no-reservations North, which serves dishes like smoked shiitake ice cream and crab and fried kabocha with pumpkin miso. He employs fewer than 50 people, so he isn’t required to provide health benefits. But he thinks it helps with staff retention and is the right thing to do.
After all, if a sous-chef needed an emergency appendectomy, the bill without insurance could be financially devastating. A health benefit, he said, is crucial to treating his employees’ jobs as “viable long-term work.”
That’s why Mark, who studied at nearby Johnson & Wales University and trained in restaurants both here and in New York City, has joined a growing chorus of small-business owners to support “Medicare for All” or some type of government-sponsored universal health plan.
The beef is not just about the financial burden. “I could make a lot more money if I didn’t have to pay that,” he said from Big King, a narrow eating space where bottles of golden Japanese whisky and clear sake glimmer against the dark wood paneling. It’s also the confounding choices and hours of administration for which Mark feels, at best, underqualified. Though he tries to pick a good option, he reflected: “I have no idea if it’s a good [health] plan or a bad plan, in comparison to everything else.”
While industry groups have largely opposed the idea of a single-payer system, worrying it would mean tax hikes, some individual owners are increasingly open to the idea. Big companies can hire benefits consultants and managers who arrange and administer employee insurance. Owners of small businesses and restaurants might otherwise decide to let employees fend for themselves.
Mark — and others of his ilk — conclude they would accept higher taxes if the government would take over the herculean task of insuring their workers.
As premiums and health costs rise, the broader industry seems to be eyeing the option with a mix of new curiosity and old concerns.
The National Restaurant Association, for instance, opposed the Affordable Care Act and other Democratic reform efforts that were less sweeping than the single-payer approach but did require employers with 50 or more workers to offer insurance. Today, the trade group doesn’t have a specific stance on Medicare for All, though a spokesperson pointed to concerns about the eventual tax burden its members could face.
The National Federation of Independent Business, a Washington, D.C.-based advocacy organization that represents small-business owners, offered similar worries about the tax hikes likely paired with this system. An internal survey of NFIB members showed 75% opposed single-payer, often citing payroll tax increases as their concern.
Aaron Frazier, the National Restaurant Association spokesperson, suggested that members could get a better health insurance deal by using the organization’s association health plan, which is collectively negotiated by the trade group.
Association health plans — a longtime favorite Republican concept — are a cornerstone of the current White House’s health policy. But they remain controversial and are often held to less stringent coverage standards than other forms of insurance since they may have caps on coverage spending and may not cover some of the Affordable Care Act’s “essential benefits,” such as maternity care and prescription drugs.
A middle ground, proposed by many of the Democratic presidential candidates, might be a “public option,” a government-run health plan that individuals — or their employers — could pay to join if they didn’t like their other options.
That approach could still “go a long way” in addressing some of the concerns restaurant owners outlined, said Linda Blumberg, a health policy fellow at the Urban Institute, a Washington think tank.
The way the Bureau of Labor Statistics tracks health coverage among service-industry workers makes it impossible to determine how many small restaurants offer health insurance to their employees.
Those that do usually face a hefty expense and hours navigating the byzantine world of health insurance.
“It was a lot of bureaucratic stuff that I didn’t really understand. My focus is in the kitchen,” said Richard Wall, who owns Both Ways Café and Catering, in Seattle. He hired a broker but reviewed only a few plans before picking one to offer employees. The process was “confusing.”
On the 2020 campaign trail, presidential candidates Bernie Sanders and Elizabeth Warren talk about how their plans would replace the current, private insurance system with a single, government-run program. Their proposed systems would eliminate most cost sharing, so patients pay very little out-of-pocket, and would be financed through taxes. Warren, a Massachusetts senator, would implement her plan through two legislative steps, while Vermont’s Sanders would do so in one.
Rather than focusing on these details, these restaurateurs emphasized the result: having the government step in and guarantee coverage to everyone.
“We would all, everyone involved, be positively affected,” argued Daniel Myers, who co-owns Loyal Nine, a spacious cafe by day and restaurant by night, in Cambridge, Mass.
Loyal Nine insures about a dozen employees, who must meet a $3,000 deductible before coverage kicks in. It also employs fewer than 50 people. But, Myers argued, subsidizing coverage makes sense. Employees are more likely to stay because of health insurance.
Take Jen Wittlin, who manages Providence’s Dean Bar and has worked on and off with Mark since 2012. Health insurance is non-negotiable. She previously had medullary thyroid cancer and needs daily medication and regular endocrinology checkups.
“I didn’t have the option of working somewhere that didn’t offer health care,” she said.
Before realizing that Mark would subsidize insurance, she worked at North but also had a full-time gig at the YMCA, to access its employer-sponsored health care. Upon learning about Mark’s health benefit, she said, she quit her second job.
“People are forced to sacrifice their creative abilities and go into corporate positions because those are guaranteed benefits,” she said. “To have it paid for! That’s the lure of this place.”
It’s a big expense, though. Myers estimates 10% of his payroll goes to health care. His business is too small to bargain with the insurance company. So each year, the price goes up. The variable is by how much.
“You’re pushed up against a wall,” he said. “We have no ability to negotiate our prices. They are what they are.”
Bigger businesses have the purchasing power to wrangle a favorable deal with an insurance company. Smaller ones don’t, said Paul Ginsburg, an economist who directs the USC-Brookings Schaeffer Initiative for Health Policy. That leaves many restaurateurs in a perilous position, he said.
Such pressures fuel these restaurateurs’ support for Medicare for All, even though the cost and financing remain but pencil sketches.
Mark said he doubts he would pay more in taxes than he spends on health care now. Even if he did, he said, it would be a plannable expense. That — and the knowledge that everyone else shares in the burden — would justify the increase, he said.
Still, Wall at the Both Ways Café has questions. How would Medicare for All’s coverage compare with the insurance he gets through his wife’s employer? He’s unsure. And Adam Orman, who co-owns L’Oca d’Oro in Austin, Texas, and subsidizes his employees’ health care with a direct primary care contract and other additional benefits, worried there would still be “so many layers of bureaucracy.”
Still, no longer having the current system and knowing his employees are covered “sounds really good,” Wall said. Orman called it “a step in the right direction.”
The choice between plans and doctors, which is cited as a benefit of the current market-based system, often doesn’t seem an asset to small restaurateurs and their workers.
Recently, Mark decided to explain to his staff how their insurance works. In response, he got “glazed looks — it’s a system that’s really confusing.”
Shefali Luthra is a Kaiser Health News reporter.
David Warsh: In which the whys didn't matter
Jim Simons speaking at the Differential Geometry, Mathematical Physics, Mathematics and Society conference in 2007 in Bures-sur-Yvette, France. He’s a giant of the quants revolution.
SOMERVILLE, Mass.
The latest book from Gregory Zuckerman is an ideal companion on the reading table next to whatever it is you haven’t read by Michael Lewis, the author who has replaced Tom Wolfe – The Electric Kool-Aid Acid Test (1968), “The Me Decade and the Third Great Awakening” (1976), Bonfire of the Vanities (1987), A Man in Full (1998) – as the premier storyteller of his age.
Lewis, from Liar’s Poker: Rising through the Wreckage on Wall Street (1989 about Salomon Brothers’ John Gutfreund and financial deregulation) and The New New Thing: A Silicon Valley Story (1999, about software entrepreneur Jim Clark and the browser wars that followed the invention of the World Wide Web); to Moneyball: The Art of Winning an Unfair Game (2003, about new-fangled baseball analytics and Oakland Athletics general manager Billy Bean) to The Blind Side: Evolution of a Game (2006, about new-fangled football analytics and left tackle Michael Oher), has illuminated major changes in familiar institutions, in always entertaining but sometimes misleading ways.
After the 2007-08 financial crisis, Lewis published The Big Short: Inside the Doomsday Machine (2010, about the use of credit default swaps to bet against the subprime mortgage market), followed by Flash Boys: A Wall Street Revolt (2014, about high-frequency trading).
Zuckerman, who has the advantage of being a special writer for The Wall Street Journal, is the journalist who gets those changes more nearly right, on the stories on which he and Lewis compete.
The Big Short is about Michael Burry, the physician-turned-hedge-fund-operator who recognized the possibilities inherent in the subprime bubble but who failed to get the timing right. Zuckerman’s The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History (2009) tells the story of the money manager who made $15 billion for his investors – and $4 billion for himself – by getting the bet down right.
Zuckerman’s new book is The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution (2019). In between he wrote The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (2013). When Simons stepped down as head of Renaissance Technologies Corp., in 2009, he was worth more than $11 billion, accumulated in the course of nearly constant trading – a more daunting task, perhaps, than scoring a single brilliant success, as Paulson’s post-2008 experience suggests.
The new book’s title is not quite right. There were plenty of quants before Simons quit the math department at the State University of New York at Stony Brook, many of them making good money. (See The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (2010), by Scott Patterson, More Money Than God: Hedge Funds and the Making of a New Elite (2011) by Sebastian Mallaby). What set Simons apart was his drive to make the most money from his considerable skills as a professor of mathematics, in collaboration with others possessing an academic degree or skill at the same level.
Nor is the account quite as inside as Zuckerman’s other books. Simons declined to talk to him until fairly late in the game, and then only about certain topics, not including his still-secret recipes. Zuckerman had to work harder for this yarn than he did for the Paulson story, which featured a full-page portrait of its subject opposite the title page.
Simons, a well-adjusted prodigy, grew up in Newton, Mass., and attended Brookline’s Lawrence School. He discovered as an undergraduate at The Massachusetts Institute of Technology that he wasn’t quite at the top level of contemporaries in math, including fellow student Barry Mazur. He was, however, close enough to sail through his math PhD at the University of California at Berkeley in three years, before returning, in 1962, to Cambridge to teach.
Bored, Simons quit after a year to become a code-breaker at the Institute for Defense Analysis (IDA), a Pentagon contractor in Princeton, N.J. In 1968, in collaboration with a Princeton University professor, he published a path-breaking paper in differential geometry that assured his reputation. But Simons had acquired a taste in California for commodity trading, and in his spare-time as a code breaker he and three colleagues published a stock-trading scheme. Zuckerman writes,
Here’s what was really unique. The paper didn’t try to identify or predict [various market] states using economic theory or other conventional methods, nor did the researchers seek to address why the market entered certain states. Simons and his colleagues used mathematics to determine the set of states best fitting the observed pricing data; their model then made its bet accordingly. The whys didn’t matter, Simons and his colleagues seem to suggest, just the strategies to take advantage of the inferred states.
One thing led to another. In 1968, at the age of 30, Simons left IDA for Stony Brook, on the north shore of Long Island, where the university administration had set out to establish a mathematics department strong enough to complement its world-class biology department. In 1976 he was recognized with the Oswald Veblen Prize, the profession’s highest honor in geometry. Two years after that, he quit the university and rented a storefront office in a strip mall across from the Stony Brook railroad station as proprietor of Monemetrics, a currency-trading firm, and Limroy, a tiny hedge-fund. A year later, two other distinguished mathematicians signed on as his partners.
It wasn’t a smooth beginning. Partners came and went. Mergers and acquisitions flourished, and with them the return to inside information – the opposite of the advantage Simons sought. But computer power doubled every two years, according to Moore’s Law, while prices fell by half. Simons changed his firm’s name to Renaissance Technologies.
By 1991 the talk of Wall Street was a former Columbia University computer science professor named David Shaw. He had learned the techniques of statistical arbitrage at Morgan Stanley before the old-line investment bank slashed the funding of one of its most profitable units after it had a bad year. Now, backed by veteran bond trader Donald Sussman, Shaw’s startup was the cutting edge of computer-based trading strategies.
Simons understood that, in order to compete with Shaw, he would need to develop new methods. Financial backers whom he sought, including legendary Commodities Corp., turned him down Among those he hired was mathematician Henry Laufer, a former Stony Brook colleague with a knack for programming. And among those Laufer hired was a British code-breaker named Greg Patterson now working at the IDA.
Patterson possessed a special advantage. As a Brit, trained in the out-of-style methods that enabled British cryptographers to decipher the Germans’ wartime Enigma code, he was aware of new computer-based applications of Bayesian statistics. These were techniques based on the fundamental insight of Rev. Thomas Bayes, an eighteenth-century amateur mathematician that, by periodically updating one’s initial presuppositions with newly arrived objective information, one could continually improve one’s understanding of many matters. For an especially clear account of the history of Bayes’ Theorem, see The Theory That Would Not Die: How Bayes’ Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant from Two Centuries of Controversy (2011), by veteran science writer Sharon Bertsch McGrayne
In 1992, the cynosure of the Bayesian community was the little group of computational linguists at IBM Corp. that had run rings around a competing team of linguistics theorists working on machine translation – by the simple expedient of feeding into its powerful computers decades of French-English translations of Canadian parliamentary debates. The computers were armed with machine-learning algorithms that had been instructed to search for patterns. Ever-more dependable translation patterns emerged.
When Patterson learned that IBM was reluctant to permit its team leaders to commercialize their discoveries, he hired Robert Mercer and Peter Brown who had been leaders of the team. Laufer had built a platform that permitted trading across asset classes. It turned out that the methods Mercer and Brown brought with them had wide applicability to the enormous streams of financial data that was becoming ever more plentiful. It was at that point that Renaissance Technologies began to overtake its competitors.
Medallion, the firm’s main fund, earned 71 percent on its capital in 1994, 38 percent in 1995, 31 percent in 1996, and a paltry 21 percent in 1997, a bad year. In 1998, though, D.E. Shaw suffered stinging losses, and Long Term Capital management, Simons’ other main competitor, went bust, after Russia defaulted on its government bonds. By 2000, Medallion returned 99 percent on the $4 billion invested with it, even after Simons collected 20 percent of the gains and five percent of the total invested.
Simons and his colleagues had indeed “solved the market,” at least until their competitors got wise to their methods, but the tumult didn’t go away. Mercer and Brown gradually took over day-to-day management of the firm. A couple of disagreeable Ukrainians traders signed on. The Bayesian Patterson departed for the Broad Institute, in Cambridge, Mass., to work on genomic problems. And in 2016, the libertarian Mercer, by now a billionaire himself, turned out to be, with his daughter Rebekah, a major strategist and funder of Donald Trump’s presidential campaign. Simons forced his resignation from the firm. It all makes for fascinating reading.
At one point, Zuckerman jokes that his next book will be about fortunes made in “the golden age of porn.” He is kidding, and a good thing too. The still-bigger fortune out there is BlackRock, the $7 trillion asset-management firm founded by Larry Fink and partners in 1987, the year of a great “market break,” after which a great deal of modern financial technology took hold. With such a book, covering the rise of private equity firms as well, a basic map of the major features of twenty-first century finance would be complete.
David Warsh, an economic historian veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this column first ran.
© 2020 DAVID WARSH, PROPRIETOR
The joy of public browsing
Excerpted from the Sept. 1 "Digital Diary'' column in GoLocalProv.
The City of Cambridge, Mass., may force the famous Out of Town News business from its eccentric little building in the middle of Harvard Square in order to “repurpose’’ the building as a public space. (Waiting room with news-crawl screens, public bathrooms?) This may force the business, beloved by browsers looking for publications from around the world for so many years, to close.
The structure, actually a kiosk built in 1928, was built at Zero (!) Harvard Square, as an entrance building for the Harvard Square subway station. In 1981, it was moved slightly and renovated. Out of Town News, which opened at Harvard Square in 1955, has been in the kiosk since 1984.
The business is one of the centers of New England, a lively urban space where all sorts of people congregate – not just local academics. I hope that the business stays where it is, letting many thousands of patrons and visitors a year continueto get a sense of what’s going on around the world by reading on paper, still more congenial for many people than reading on a screen. And, unlike in your home or office staring at a screen, while browsing at an old-fashioned newsstand you might actually meet someone interesting.
Robert Whitcomb is New England Diary's overseer.
And we'll triumph
"Send Lawyers, Guns and Money - Warren Zevon" (oil, charcoal, graphite, pastel, collage and glitter on canvas), by Hilary Tait Norod, showing at Christopher's Restaurant, Cambridge, Mass.
'Pretty white gloves'
By PAUL STEVEN STONE
CAMBRIDGE
He sits on a folded-over cardboard box, slightly off-balance and without any visible sign of support other than the granite wall of the bank behind him and the few coins in the paper cup he shakes at each passerby.
Does he realize it is 4 degrees above zero, or minus 25 degrees if you factor in the wind that blows through the city and his bones with little concern for statistics? Does he notice the thick cumulus lifeforms that escape from his mouth in shapes that shift and evanesce like the opportunities that once populated his life?
Can he even distinguish the usual numbing effect of the cheap alcohol from the cruel and indifferent caress of this biting alien chill?
Too many questions, he would tell you, if he cared to say anything. But his tongue sits in silence behind crusted chapped lips and chattering teeth while half-shut eyes follow pedestrians fleeing from the bitter cold and his outstretched cup.
His gaze falls upon the hand holding the cup as if it were some foreign element in his personal inventory. Surprised at first to find it uncovered and exposed, especially in weather this frigid, he now recalls that someone at the shelter had stolen his gloves and left in their place the only option he still has in much abundance.
Acquiescence.
Examining the hand, and the exposed fingers encircling the Seven-Eleven coffee cup, he smiles in amused perplexity, murmuring to himself, “White gloves.”
Lifting his hand for closer inspection, he adds, “Pretty white gloves.”
An image of his daughter . . . Elissa, he thinks her name was . Yes, Elissa!, he recalls. An image of Elissa rises up in his mind, from a photograph taken when she was ten and beautifully adorned in a new Easter outfit: black shoes, frilly lavender dress and hat and, yes, pretty white gloves. The photo once sat on a table in his living room, but he couldn’t tell you what happened to it, nor to the table or the living room, for that matter. They were just gone. Swept away in the same tide that pulled out all the moorings from his life, and everything else that had been tethered to them.
The last time he’d seen Elissa she was crying, though he no longer remembers why. Must have been something he’d done or said; that much he knows.
“Pretty white gloves,” he repeats, staring at his hand.
He recalls the white gloves from his Marine dress uniform. At most he wore them five times: at his graduation from officer’s training school, at an armed services ball in Trenton, New Jersey, and for three military funerals. There was never a need for dress gloves in Vietnam. They would have never stayed white anyway; not with all the blood that stained his hands.
Out of the corner of his eye he can see a policeman walking towards him and instinctively hides his cup, some vestige of half-remembered pride causing him to avert his gaze from the man’s eyes at the same time.
“We need to get you inside, buddy,” the officer says. “You’ll die of cold, you stay out here.”
Moments later, a second police officer, this one a woman, steps up to join them.
“That’s the Major,” she tells her colleague. To the seated figure she offers a smile.
“You coming with us, Major?”
“Go away,” he answers, looking up as he leans further against the cold granite wall. “Don’t need you. Don’t need no one.”
“Can’t leave you out here,” the first officer says. “We’ve got orders to bring you and everyone else in.”
“Leave me alone!” the seated man shouts, gesturing with his hands as if he could push them both away.
“Oh shit,” the female officer says under her billowing breath. To her partner she whispers, “His hands. Look at his hands.”
Quickly recognizing the waxy whiteness for what it is, the officer shrugs, “Guess we’re a little late.”
To the man on the sidewalk, he offers, “That’s frostbite, buddy.”
“No,” the seated man protests. He holds up both hands, numb and strange as they now feel and offers a knowing smile of explanation.
Just like the Marine officer he once was, just like the sweet innocent daughter he once knew, just like the young man grown suddenly old on a frozen sidewalk, his hands are beautiful and special in a way these strangers will never understand.
“White gloves,”he insists proudly.
“Pretty white gloves.”
Paul Steven Stone is a Cambridge-based writer. His blog, from which this comes, is www.paulstonesthrow.com.