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Saturday, March 29, 2003
 
Senator Frist’s Proposed Changes To The NVICP

Introduction
Mary Beth at Wampum informs us that Senator Frist is attempting to change the National Vaccine Injury Compensation Program legislation.

Like many, we were outraged by the attempt to insulate Eli Lilly and others from liability for including mercury in childhood vaccines by sneaking legislations into the Homeland Security Bill. Our previous posts on the subject are here, here, here and here.

Before we analyze Senator Frist’s proposed legislation, we need to make sure our biases are disclosed. We have a seven and a half year old autistic son. Bobby has the behaviors of classic Kanner’s autism. We do not know whether Bobby’s autism is related in any way to thimerosal, the MMR vaccine or any other external cause. We doubt that we will ever know the cause of Bobby’s autism and doubt that a medical treatment or “cure” will be developed to address Bobby’s condition.

We have previously stated that we have no intention of seeking compensation for Bobby’s autism from the NVICP, a civil suit or by any other means. We have also noted that if given the choice and if we desired to seek such compensation, we would chose the NVICP over the tort system as our remedy.

NVICP Background
The NVICP was established in the 1980s. It is a no-fault system of compensation that operates as an alternative to the tort system. The NIVCP is financed through a $.75 per vaccination excise tax. Drug companies do not contribute the fund.

Children injured by vaccinations may make a claim against the fund. If it is determined that the injury was caused by the vaccination, the family receives compensation including medical and educational expenses, up to $250,000 for pain and suffering and, typically, attorney fees and litigation costs.

The decision is made without a jury. Evidence is presented to a "Special Master.” The Special Master is a lawyer appointed by the Court. The Special Master decides if the claimed injury resulted from the administration of a covered vaccine and, if so, the amount of the compensation.

If a family is dissatisfied with the decision of the special master, a civil suit may be filed if it is not barred by the applicable statute of limitations. On average, a NVICP case takes two years to resolve. Approximately 42% of NVICP petitions result in compensation being awarded. The average award is in excess of $820,000.

Unlike the tort system, no proof of fault is required to receive compensation under the NVICP. The only issues are whether a covered vaccine caused the injury and the amount of the compensation. In the tort system, no recovery is authorized without proof either that the vaccine manufacturer was negligent or that the vaccine itself was defective. No such proof is necessary under the NVICP.

There has been much debate over whether the inclusion of the mercury based preservative thimerosal in childhood vaccines caused autism. That debate is irrelevant to the issues surrounding the NVICP in that proof that the vaccine caused autism will be required in order to recover under either the NVICP or the tort system.

Purposes of the NVICP
Childhood vaccinations are one of the great public health successes of all time. As a result of the development, affordability and universality of vaccinations, we have eradicated small pox and have greatly reduced the incidence of measles, rumps, diphtheria, chicken pox, polio, hepatitis and other diseases.

One of the key public health goals of the immunization program is universality. By vaccinating every child, we prevent outbreaks of the diseases. Childhood vaccinations are required for a child to enroll in school. We feel much more secure in sending our children to school knowing that every child has been vaccinated against many diseases.

Unfortunately, the benefits of universal vaccination come at a price. It is impossible to create a vaccine that does not have adverse effects on a small number of children. Those adverse effects include illness, life-long disability and even death. Some adverse effects are not the fault of the vaccine manufacturers or of the health system that administers the vaccines. Injury to a small number of children is simply the inevitable price our society has to pay for the huge benefits of universal vaccination. As the benefits of universal vaccination are huge and the number of children suffering adverse effects is small, the net result to society is distinctly positive.

While the benefits of universal vaccination to society are great, the costs to the families and children who suffer the inevitable adverse effects are devastating. One of the purposes of the NVICP is to compensate those victims. The health and in some cases the lives of those children are sacrificed to the greater social good. It is only appropriate that the society compensate those families.

It should be noted that without the no-fault aspect of the NVICP, many of those families would receive no compensation at all for their loss. Many injuries resulting from childhood vaccinations occur without negligence or defect in the design, manufacture or administration of the vaccine. The tort system does not compensate for loss in the absence of fault.

When viewed from a public health perspective, childhood vaccines are an efficient way to prevent disease. To the vaccine manufacturers, however, they are a business. Vaccine manufacturing is a low margin business. Many of the vaccines are so old that patent protection is no longer available. Without patent protection, the vaccines are, in essence, commodities. Profit can be made only through manufacturing efficiency, high volume and low margins. The low margins are good from a public health perspective as the low price promotes universality.

The difficulty arises from the fact that the public health system needs to assure an adequate supply of vaccines. If the vaccine manufacturers perceive the risk of liability to be greater than the potential profits, they will simply stop manufacturing the vaccines.

Thus, the second goal is the NVICP is to assure an adequate supply of vaccines. By implementing a no-fault procedure in which compensation for vaccine-related injury is paid by the government through an excise tax (at no cost to the manufacturers), much of the liability risk is removed from the vaccine manufacturers. That helps to guarantee an adequate supply of vaccines.

Thus, the NVICP has two purposes. First, to compensate victims for the inevitable injuries incurred in pursuit of the public health goal of universal vaccinations. Second, to limit the liability risk to vaccine manufacturers thereby assuring an adequate supply of vaccines.

Senator Frist’s Proposals
With the purposes of the NVICP established, we may now turn to Senator Frist’s proposals to see whether or not they constitute good public policy.

First, The Majority Leader proposes to eliminate compensation under the NVICP for all injuries that are related to a genetic condition. Mary Beth describes the proposal by example:
For example, a child who has a cousin who is allergic to eggs, and then experiences an injurious reaction to an egg-based vaccine might be excluded, as allergies are often inherited.

Seantor Frist’s proposal does not address either of the public health goals underlying the NVICP. If a child suffers because a vaccine interacted with a genetic condition, the injury is not any less devastating. The existence of the genetic predisposition does not exempt the child from the requirement of vaccination. The goal of universal vaccinations still requires that the child run the risk of injury. As a society, our duty to compensate children who are the inevitable victims of the greater social good provided by universal vaccination is no less because the child had a genetic condition that, in combination with the vaccine, caused the injury or death. Seantor Frist's porposal does not further the first goal of the NVICP.

Secondly, the goal of assuring an adequate supply of vaccines is not promoted by Frist’s proposal. Whether we compensate injuries caused by a combination of genetic predisposition and vaccines through the NVICP or not, the financial condition of the vaccine manufacturers will be unaffected and the supply of vaccines will not change. Vaccine manufacturers do not fund the program. The program is funded through an excise tax imposed on parents.

If the NVICP was running short of money and some kids injured by vaccines had to go without compensation in order to keep the fund solvent, it might make sense to compensate kids with no genetic predisposition before kids with a genetic predisposition (although that is not clear to us). The argument would be that the fund either has to limit the number of claims or raise the excise tax to remain solvent. The raising of an excise tax would undercut the universality of the program by raising the price of vaccines.

Currently, however, the NVICP is running a surplus. There is simply no reason to limit compensation to kids who have been injured by vaccines. It is hard to know what Frist is seeking to accomplish by limiting recovery under the NVICP. Regardless of his intent, his proposal is bad public policy and should be opposed.

Frist’s second major proposal is to include vaccine components within the NVICP. That is a way to make claims that thimerosal caused autism go through the NVICP instead of the tort system.

Once again, that proposal does not promote either of the twin goals of the NVICP. The public policy goal of compensating children injured as an inevitable result of vaccinations in not promoted by including thimerosal in the NVICP.

Thimerosal is not a vaccine. It is a preservative. Thimerosal was not needed to provide childhood vaccines. Indeed, thimerosal is not now included in any childhood vaccines sold in the United States.

Vaccines come packaged in two different ways. They may come in single dose vials. Those vaccines are used as soon as they are opened and have no need for a preservative. Thus, single dose packages of vaccines do not now and have never contained any thimerosal.

Some childhood vaccines used to come in multiple dose packages. Once opened for the first vaccination, they would spoil if not preserved. Thimerosal was included in the multiple dose packages of vaccines.

Our society has an obligation to use tax dollars to compensate kids who are injured as an inevitable result of a universal vaccination program. Thimerosal was not needed in the vaccines and therefore any injuries resulting from the use of thimerosal were not inevitable. A fault-based remedy in which the responsible parties rather than the taxpayer pay the damages caused by their conduct is appropriate in that instance.

Why should the taxpayers of the United States be required to pay for injuries caused by the negligence or fault of a private party? If Eli Lilly knew or should have known of the dangers of using thimerosal in childhood vaccines, why should the taxpayer pick up the tab for Lilly’s misconduct?

The second goal of he NVICP, to assure an adequate supply of vaccines, is also not promoted by Frist’s proposal to protect Lilly. Lilly does not manufacture childhood vaccines. If tort liability is imposed on Lilly for including thimerosal in vaccines, there will be no financial effect on any childhood vaccine manufacturer.

While we support the NVICP, we do not think that Senator Frist’s proposals will serve either goal of the program. We oppose his proposed legislation.




Thursday, March 27, 2003
 
Hot Links

Jeff Cooper's Reflections on Affirmative Action is a suberb post. Please click through to read it in its entirety. It is well worth your time. Here is Jeff's conclusion:
it's common for people who are not regularly exposed to opposing viewpoints to conclude that what they believe is just the way things are. I don't mean to suggest that providing for racial diversity will guarantee political or ideological diversity. But given the role that race continues to play in American society, it's hard to deny that people of different races have different experiences. And understanding these differences is really only possible through communication. If affirmative action ends, and if its termination results in a return to de facto segregated campuses, education will suffer--for all concerned.



Wednesday, March 26, 2003
 
You Cant Tell the Senators Without A Scorecard

Today the Senate voted to approve a Federal Budget of $2.2 trillion for Fiscal 2004. The vote included only $350 billion of the $726 billion in tax cuts proposed by the administration. All Republicans other than John McCain MaCain voted for the budget. Democrat Zell Miller of Georgia supports the entire Bush tax cut proposal and voted for passage of the budget along with moderate Democrats Sens. Max Baucus of Montana, Evan Bayh of Indiana, John Breaux and Mary Landrieu of Louisiana, and Ben Nelson of Nebraska.

There appear to be at least five distinct positions with regard to the proposed tax cut within the Senate.

One group of Republican Senators plus Democrat Zell Miller of Georgia support the full $726 billion tax cut proposed by President Bush. That group was unable to obtain a majority due to the defection of a number of moderate Republican Senators including John McCain, Lincoln Chaffee, Olympia Snowe, and George Voinovich. The number of Senators supporting the entire Bush tax cut appears to top out at 48.

A group of moderate Senators support tax cuts but think that the Bush proposal goes too far in widening the deficit. That group includes Democrats Baucus, Bayh, Breaux, Landrieux and Nelson along with Republicans Snowe, and Voinovich.

A number of Democrats and one Republican (Lincoln Chaffee of Rhode Island) are deficit hawks and oppose any tax cut while the federal budget remains in the red. Despite that opposition, those Senators signed on to the proposal of the moiderate group to limit the tax cut to $350 billion. That group apparently believes that perfect is the enemy of good and that opposing all tax cuts might result in passage of the entire Bush proposal. The willingness of those senators to compromise with the moderates helped defeat the President’s proposal. Currently, it appears that every Democratic Senator is prepared to vote for tax cuts in the range of $350 billion (or in the case of Zell Miller, even greater tax cuts). With the support of the all the Democrats (other than Miller) , moderates of both parties were able to pull together a majority to reduce the tax cuts to $350 billion.

Two Republican moderates who were instrumental in defeating the budget package containing President Bush’s full tax cut, Senators Olympia Snowe and George Voinovich, have committed to voting for whatever bill comes out of conference although they clearly prefer the smaller package.

Senator John McCain opposes any tax cut at least until he knows the cost of the Iraq war and the cost of a prescription drug benefit. He voted against the moderate proposal and against the Bush proposal and against the final budget package.

We have had a difficult time discerning Senator Susan Collins of Maine’s position with regard to tax cuts. She has expressed reservations about the size of the Bush proposal. She declined however to sign a letter authored by the moderate Senators urging a tax cut scaled back to $350 billion. She voted against the moderates compromise but voted for the final budget package which contained the moderates proposal.

To better undestand Senator Collins’ position, we called her office and spoke with her Legislative Assistant for Economic issues, Mr. Mark LeDuc.

Mr. LeDuc emphasized that Senator Collins had not reached a final decision on the matter. He noted that she perceived two different views of the state of the economy.

The first view, which Mr. LeDuc attributed to Alan Greenspan, is that the economy is being held back by the uncertainties of the war in Iraq. Once those uncertainties are removed, the economy will move back onto a better growth track. If that view is correct, Mr. LeDuc noted, no tax cut is necessary to stimulate the economy.

The other view, which Mr. LeDuc attributed to the administration, is that the economy needs a large dose of economic stimulus. If that is the case, Senator Collins wants to make sure that the stimulus is sufficient to help the economy. Mr. LuDuc noted that the GPD over the next decade was likely to be around $140 trillion and that a tax cut of $350 billion over that period might not be enough to provide enough stimulus to get the economy bac on track.

Thus, Mr. LeDuc argued, it is difficult to see how the compromise package is the best policy. If the economy needs no stimulus, the compromise tax cut would add to the deficit without a corresponding benefit. If stimulus is needed, then the compromise package is too small to accomplish the goal.

Mr. LeDuc concluded that although Senator Collins has not made a final decision as to whether or not a tax cut is necessary to stimulate the economy, she will not support the compromise position.

Less than two hours after our conversation, Senator Collins voted for the budget package that included only $350 billion in tax cuts. We suspect that vote is less a change of mind or a final decision to support the moderate position on the tax cuts but rather a choice among the alternatives offered.

In the end, it appears that Senator Collins will not get a chance on a vote for either no tax cut or the full Bush proposal. Today’s Senate action is likely to result in a conference bill that is between the President’s $726 billion proposal and the Senate’s $350 billion limit. At that point, Senator Collins must simply make her choice.



 
The Magic Wanes

With all attention focused on the war not many people have noticed that President Bush’s political magic appears to be waning.

Despite coming to office with the barest possible margin of victory (5-4 in the Supreme Court), President Bush decided to govern as if he had a mandate.

That decision was largely successful as he was able to win Congressional approval of his major initiatives. Congress passed his huge 2001 tax cut. Congress passed a version of his education package. Congress approved the resolution regarding the use of force in Iraq and Democrats in Congress folded allowing Mr. Bush’s version of the Homeland Security Bill to pass.

Since the mid term elections, however, Mr. Bush has suffered a string of legislative defeats.

First, Senate Republicans were unable to gather the 60 votes needed foe cloture to bring the nomination of Miguel Estrada to a vote on the Senate floor.

Second, the centerpiece of Mr. Bush’s energy agenda, oil drilling in Alaska’s Anwar preserve, failed in a floor vote in the Senate.

Finally, the Senate has voted to cut Mr. Bush’s proposed tax cut from $726 billion over ten years to $350 billion over ten years. That decision is not final and Republicans vow to revisit all three issues again.

The contrast between Mr. Bush’s legislative success before the 2002 elections and his failures since is stark. What accounts for the change? First, and foremost, it appears that Democrats have come to understand that they will be relentlessly attacked by the administration regardless of whether or not they support Mr. Bush’s legislative agenda.

Former Senator Max Cleland voted for the President’s 2001 tax cut, for the education reform bill, for the use of force in both Afghanistan and Iraq. Despite those votes, the Bush administration pulled out all stops to defeat Cleland including sanctioning ads that questioned Cleland’s patriotism and compared him to Osama Bin Laden. Democrats have learned that there is no advantage in appeasing Mr. Bush.

Secondly, Mr. Bush is having an increasingly difficult time holding party discipline among Republican Senators. Eight Republicans split with the administration on thr ANWAR vote.

On yesterday’s budget vote, Ohio Republican George Voinovich, Maine Republican Olympia Snowe and Rhode Island Republican Lincoln Chaffee all split with the administration and voted for the more moderate tax cut.

We suspect that the unpopularity of Mr. Bush’s domestic positions, the rising concern that he is simply fiscally irresponsible and his contemptuous treatment of fellow Republicans all have contributed to Mr. Bush’s inability to pass his legislative agenda.

The administration is hoping and expecting that a victory in Iraq will make the President politically invincible. We shall see.


Monday, March 24, 2003
 
The Rise and Impending Fall of Richard M. Scrushy

Richard M. Scrushy ‘s life story is a roller coaster. Scrushy, 49, is from Selma, Alabama and attended Jefferson State Commnity College in Alabama. He graduated from the University of Alabama at Birmingham. He trained as a respiratory therapist.

In the early 1980s he founded the Company that became HealthSouth. Scrushy served as both CEO and Chairman of Health South (HealthSouth is listed as “HRC” on the New York Stock Exchange). HealthSouth appeared to be a remarkable success. It became the first health care company to operate in all fifty states. At its peak, it had more than 50,000 employees in the U.S., the U.K. Puerto Rico, Canada and Australia. It operated 1,500 health care facilities. HealthSouth was “the nation's leading provider of outpatient surgery, diagnostics, and rehabilitative healthcare services. ... HealthSouth (grew) to a company with more than $4 billion in revenues and an enterprise value in excess of $8 billion.”

With the success of HealthSouth, Mr. Scrushy became wealthy. He drew in excess of $9 million in salary over a three-year period in the late 1990s and 2000s and reaped the benefits of HealthSouth stock rising to about $30 per share. According to one report:
He owns two homes and land worth $4.8 million in Jefferson County, tax records show, and he has two houses and land valued at $5 million at Lake Martin, a popular weekend spot in east Alabama.

Mr. Scrushy’s success was not limited to business. It is difficult to overstate the impact Mr. Scrushy had on the civic, athletic and social life if Alabama.

If you are interested in higher education, you could attend the Richard M. Scrushy campus of Jeffferson State Community College. If a four year school is more your style, Mr. Scrushy is a member of the University of Alabama Board of Trustees, The University of Alabama Board of Visitors, The University of Alabama at Birmingham President's Council, and the Board of Trustees of Birmingham-Southern College.

If you are looking for business leader, Mr. Scrushy, in addition to his leadership at HealthSouth, sat on the Business Council of Alabama.

In the area of health, Mr. Scrushy was a mamber of the Board of Governors of the American Red Cross and a member of the Cerificate of Need Review Board for the State of Alabama.

If you are a sports fan, you can attend the Alabama Sports Hall of Fame, of which Mr. Scrushy is the chair. You could attend a football game at the “Scrush” a new stadium at Troy State University. You could attend a baseball game at Scrushy-Striplin Field, a baseball park at Birmingham Southern College. Mr. Scrushy even once caught “a 582-pound blue marlin in the Gulf of Mexico to win a prestigious fishing tournament.”

If you are the more literary type, you could check out a book at the Richard M. Scrushy branch of the public library.

If you care about disabled citizens, perhaps you would like to attend the award ceremony for the Richard M. Scrushy Awards for Courage given by the Alabama Counsel for Development Disabilities.

If you like country music, Mr. Scrushy once was the front man for a country music band that received air time on the Country Music Channel.

If you wish to know what Mr. Scrushy looks like, you have your choice. You may view his portrait, which hangs at Birmingham Southern College or view his statue in downtown Birmingham.

Perhaps you would just like to take a drive. If so, you could take Exit 119A off I-20 in Birmingham and travel down the Richard Scrushy Parkway.

All in all, Mr. Scrushy was a very successful businessman who was extremely generous to charitable and civic causes. He has been described him as a “truly a modern American success. For the last decade, there has been no bigger name in Birmingham business than Richard Scrushy. He was the go-to guy for charities and politicians."

Mr. Scrushy may also be a crook and a fraud.

The SEC has filed a civil Complaint against HealthSouth. The Complaint alleges that Mr. Scrushy was at the heart of conspiracy to overstate the earnings of HealthSouth.

The government alleges that:
Since 1999, HealthSouth Corp. ("HRC"), one of the nation's largest healthcare providers, has overstated its earnings by at least $1.4 billion. This massive overstatement occurred because HRC's founder, Chief Executive Officer and Chairman of the Board, Richard M. Scrushy ("Scrushy"), insisted that HRC meet or exceed earnings expectations established by Wall Street analysts. When HRC's earnings fell short of such estimates, Scrushy directed HRC's accounting personnel to "fix it" by artificially inflating the company's earnings to match Wall Street expectations. To balance HRC's books, the false increases in earnings were matched by false increases in HRC's assets. By the third quarter of 2002, HRC's assets were overstated by at least $800 million, or approximately 10 percent of total assets.

The Government alleges that the conspiracy began shortly after HealthSouth went public in 1986 and continues through its current filings. According to the SEC, HealthSouth’s earnings were overstated, in at least one instance by more than 4,700%.

The Complaint continues:
If HRC's actual results fell short of expectations, Scrushy would tell HRC's management to "fix it" by recording false earnings on HRC's accounting records to make up the shortfall.

HRC's senior accounting personnel then convened a meeting to "fix" the earnings shortfall. By 1997, the attendees referred to these meetings as "family meetings" and referred themselves as "family members."

At these meetings, HRC's senior accounting personnel discussed what false accounting entries could be made and recorded to inflate reported earnings to match Wall Street analysts' expectations. These entries primarily consisted of reducing a contra revenue account, called "contractual adjustment," and/or decreasing expenses, (either of which increased earnings), and correspondingly increasing assets or decreasing liabilities.

The overstating of earnings in a effort to meet Wall Street expectations results in a self reinforcing, ever growing cycle of fraud. As the books are cooked to meet the Street, the Street bases it expectations on the fraudulently reported earnings. That creates even higher expectations for the next quarter. Those increased expectations require even greater fraud.

Faced with that cycle, the “family” of corporate insiders pressured Scrushy to find a way to lower expectations to as to reduce the need to cook the books. The Government alleges that Mr. Scrushy refused to do so until he sold his stock.

When Medicare changed its reimbursement rules, Scrushy saw an opportunity. He announced that the changed rules would lower HealthSouth’s earnings by $175 million. Before that announcement, Mr. Scrushy sold millions of shares of stock.

The annoucement was false. In fact, an internal company analysis suggested that the changes would reduce earnings by something more of the along the lines of $20 million.

Mr. Scrushy hoped that by announcing the larger figure, he could get out of the cycle of having to overstate earnings to meet Street expectations without his stock taking the hit that an accounting scandal would generate.

The plan backfired when the market crushed HRC from a price over $15 per share to $7 per share on the news. Scrushy's stock sales before the annoucement triggered allegations of insider trading which prompted investigation of HealthSouth. The investigation culminated in the current situation.

Now, things look very bad for both HealthSouth and Scrushy. HealthSouth’s former CFO has been charged in a criminal indictment and is cooperating with authorities.

The New York Stock Exchange has halted trading in HRC shares with the last price below $4. HealthSouth’s credit sources are likely to dry up and they have substantial debt payments due soon.

Mr. Scrushy has been forced out at Health South and his personal assets have been frozen.

The New York Times reports that a number of former members of the family are currently trying to cut deals with the government.

The statue of Mr. Scrushy at the University of Alabama at Birmingham has been defaced with graffiti.

Mr. Scrushy’s fall rates to be at least as fast and probably farther than his rise. We fully expect that Mr. Scrushy’s future will include some time spent enjoying the hospitality of the Federal Prison system.

Many people have tried to use the corporate scandals for political gain. Democrats were hoping that Enron’s fraud would rub off on George W. Bush.

Conservatives blamed Bill Clinton for the corporate scandals, arguing somewhat disingenuously that corporate executives enriched themselves and defrauded stockholders because Bill Clinton had sex with an intern. Conservatives may want to revisit the notion that the tone set by a President causes corporate conduct since the HealthSouth fraud began under Saint Ronnie.

We think those attempts at assigning blame are silly. Scandals such as the one at HealthSouth (assuming the allegations are true) result from a combination two factors. The first factor is the existence of a corporate culture in which executive compensation and success is measured quarter to quarter by whether the company earnings meet the expectations of Wall Street analysts. Measuring success and assigning compensation based on corporate performance over a number of years would result in a healthier system.

The second factor contributing to the scandals is a set of corporate governance procedures that do not ensure the accuracy of corporate accounting in the event of dishonesty of the corporate officers.

Warren Buffett once said that he liked to buy companies that could be run by an idiot because sooner or later they will be.

We need corporate governance procedures that ensure honest accounting even when companies are run by crooks, because sooner or later they will be.