N. Y. Times

Health Industry Bidding to Hire Medicare Chief

December 3, 2003
By ROBERT PEAR

WASHINGTON, Dec. 2 - The federal official who runs Medicare
and was intimately involved in drafting legislation to
overhaul the program is the object of a bidding war among
five firms hoping to hire him to advise clients affected by
the measure.

Though the official, Thomas A. Scully, is not widely known
outside Washington, his exhaustive knowledge of the
Medicare program and the intricacies of the legislation,
approved by Congress last week, would make him a prize
catch for any law firm or private equity firm.

In an interview on Tuesday, Mr. Scully said that his
discussions with potential employers complied with federal
ethics regulations and that he had seen no reason to recuse
himself from work on the legislation. He said he had
consulted with the top ethics officer for the Department of
Health and Human Services and received a waiver allowing
him to continue work on the bill. The department confirmed
his account.

Mr. Scully has made no secret of the fact that he has been
looking for jobs outside the government for more than six
months - even as he spent hundreds of hours in closed
sessions with House and Senate negotiators working out
countless details of the legislation, which makes the
biggest changes in Medicare since creation of the program
in 1965.

Experts on the federal ethics law said they could not judge
the propriety of Mr. Scully's actions without knowing the
terms of the waiver, which have not been made public.

Mr. Scully said Tuesday evening, after several earlier
interviews about his job negotiations, that he was
submitting a letter of resignation and would step down on
Dec. 16. He said he had not decided which of the five jobs
to take.

Gail E. Shearer, a health policy analyst at Consumers
Union, said Mr. Scully's discussions with prospective
employers were troubling. "At a time when there are
questions about whether the Medicare legislation serves
special interests or consumers, we want to know that our
public officials have their minds totally focused on doing
what's best for consumers," she said.

For his part, Mr. Scully said, "I'm not the most popular
guy in the world, but nobody has ever accused me of being
other than honest."

After federal employees resign, they are subject to a
permanent ban on "switching sides." They cannot try to
influence the government on a "particular matter" in which
they were personally and substantially involved. In
addition, federal law establishes a one-year "cooling-off
period," during which former senior officials are not
supposed to lobby at all before the agencies where they
worked. But they often give clients informal advice about
navigating the federal bureaucracy.

President Bush plans to sign the Medicare bill, a
centerpiece of his domestic agenda, on Monday. The bill not
only offers drug coverage to all 40 million beneficiaries,
but also changes Medicare payments to most health care
providers.

Mr. Scully, who served as a White House budget official in
the first Bush administration, has run Medicare and
Medicaid since May 2001.

In the interview on Tuesday, Mr. Scully said that he
tentatively decided last May to leave the government but
that he stayed on, at the request of the Bush
administration, to work on the Medicare bill.

"I have been talking to a number of law firms and private
equity firms," he said. "My hope is to combine work at a
Washington law firm and a Wall Street investment firm."

Mr. Scully said that after consulting with the ethics
officer he saw no reason to disqualify himself from work on
the legislation or on regulations that affected clients of
the five firms.

"My job negotiations were not serious enough," he said.

A summary of ethics rules issued by the Department of Health
and Human Services says employees who have begun seeking
jobs in the private sector must immediately recuse
themselves from "any official matter" that involves the
prospective employer. This covers legislative initiatives
and proposed rules, the document says.

A spokesman for the department said that Mr. Scully's
waiver allowed him to work on "matters of general
applicability like the Medicare reform bill" while he
talked to potential employers.

As administrator of the Centers for Medicare and Medicaid
Services, Mr. Scully receives a salary of $134,000 a year.
Lawyers and lobbyists said he could easily earn five times
that in the private sector because he has extensive
knowledge of the Medicare program and can offer clients
access to senior administration officials.

In his last job, as president of the Federation of American
Hospitals, a trade group for investor-owned hospitals, Mr.
Scully made $675,000 a year. (TENET & HCA THE TOP)

No one has suggested that Mr. Scully took any position in
return for a job offer. In some cases, he took positions
contrary to those of the lobbyists with whom he was
discussing employment. But sometimes their positions
coincided.

Mr. Scully said he had been talking with three law firms
and two private investment firms. He identified them as
follows:

Alston & Bird. The firm, based in Atlanta, represents the
National Association for Home Care and Johnson & Johnson,
among other clients. The Washington office is headed by a
college friend of Mr. Scully's and includes Bob Dole, the
former Senate Republican leader.

Baker, Donelson, Bearman, Caldwell & Berkowitz. The firm
represents the Disease Management Association of America,
which scored a major victory in the Medicare bill,
authorizing payment for services provided by its members to
people with chronic illnesses. The firm, which includes
Linda H. Daschle, wife of the Senate Democratic leader, has
also represented the American Association for Homecare,
Amgen and the Federation of American Hospitals.

Ropes & Gray. The firm, based in Boston, represents the
Pharmaceutical Research and Manufacturers of America, the
main lobby for the brand-name drug industry. It focused on
changes in drug patent laws, one of the hottest issues in
the Medicare bill. It also represents many drug companies
including Abbott Laboratories, AstraZeneca, Bristol-Myers
Squibb, Eli Lilly, Novartis and Pfizer.

Welsh, Carson, Anderson & Stowe. A private equity
investment firm based in New York, it has invested in many
health care businesses. It has a major stake in U.S.
Oncology, which manages cancer treatment centers and
lobbied for more adequate payments under the Medicare bill.

Texas Pacific Group. A private investment partnership, it
manages assets worth more than $13 billion. It helped
rescue Oxford Health Plans, which suffered severe financial
problems while Mr. Scully was a member of Oxford's board.

James C. Duff, managing partner in the Washington office of
Baker, Donelson, said: "Our firm would be a perfect fit for
Tom because we have built one of the top health care
practices in the country. We do both legal and lobbying
work. Tom's recent experience at the highest levels of the
government makes him very attractive to our firm."