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Why Do Tom Price's Potential Conflicts of Interest Matter?

Investments in health-care companies by Trump’s nominee for health secretary raise both ethical and legal questions.

Georgia Representative Tom Price is a wealthy man. A successful orthopedic surgeon in Atlanta before his tenure in the U.S. House, Price amassed a net worth of millions in private practice before entering public service. Since then, he’s managed his wealth via investments in a diverse portfolio. His net worth places him somewhere comfortably in Congress’s upper tier of wealth.

That net worth and just how Price maintains it have become the subjects of scrutiny this week after a CNN report found that Price—a member of the Ways and Means Subcommittee on Health and a leading author of health-policy legislation—disclosed a number of investments in pharmaceutical and medical-products companies that lobbied for rules that Price endorsed or introduced. Democrats claim that Price’s holdings and actions while in Congress could violate federal law, but even if they don’t, they also could bring conflicts of interest if he is confirmed as Secretary of Health and Human Services. Those potential conflicts were one of the central sources of partisan tension in his confirmation hearing on Wednesday. 

The extent of potential conflicts for Price is unclear; they are the subject of ongoing investigations. According to reports from CNN last week, Price purchased between $1,000 and $15,000 in stock in leading medical-device company Zimmer Biomet in May 2016, just two weeks before introducing a law that would have delayed Medicare value-based purchasing rules that might decrease payments to companies like Zimmer Biomet. Later that year Zimmer Biomet’s political action committee donated $1,000 to PriceFurther reports indicate that Price also invested as much as $90,000 in 2016 in the pharmaceutical companies Eli Lilly, Bristol-Meyers Squibb, Amgen, McKesson, Biogen, and Pfizer, and co-sponsored a bill that these companies lobbied for that would have blocked a proposed change in Medicare reimbursement rates that would have specifically impacted them. None of these purchases came via mutual funds, which means his broker decided—at Price’s general direction—to purchase these specific stocks based on information she had about their financial futures.

Price has also faced questions about his 2016 investment in the Australian biomedical firm Innate Immunotherapeutics Ltd. Price purchased between $50,000 and $100,000 of stock in the company, which has no approved drugs and has no notable presence in biomedical markets, but has been buoyed by stock purchases from prominent Republicans with ties to President-elect Donald Trump, including New York Representative Chris Collins, who is the largest shareholder in the company and is also on its board.

In Price’s hearing, Democrats pounced on the relationship between Collins, Price, and Innate Immuno. Collins is under fire after being heard bragging about “making millionaires” via a stock tip, which may have been unrelated to the Australian company, but has certainly stoked fears of impropriety. Price testified that Collins did give him publicly-available information, and that Price personally made the decision to purchase those stocks via an “private placement offering,” though he did not think he was offered special pricing. That purchase has been characterized as “sweetheart deal” by Kaiser Health News. 

Democrats have cried foul over Price’s investments and subsequent policy decisions, with Senate Democratic Leader Chuck Schumer claiming his investments violate the STOCK Act, a 2012 law designed to prohibit people in Congress from insider trading. Members of Congress  had often claimed immunity from regular insider trading laws for unelected officials. Specifically, if Price’s statements and revelations during the hearing today on Innate Immunotherapeutics turn out to be less than true, he runs the risk of being in violation of that law.

Republicans, however, have characterized these claims of impropriety as partisan obstruction, and have noted that public knowledge of Price’s investments is only possible because of his open disclosures via the STOCK Act. Also, according to Price and leading Republicans, the stock purchases in Zimmer Biomet and pharmaceutical companies were made by his broker without his knowledge or input, and make up a small portion of his overall portfolio. Price testified that he did not direct his broker to avoid stocks affected by his policies.

It is unclear if these purchases violate the letter of the STOCK Act or will trigger a probe of Price’s actions in the Senate. Price’s fortunes will not be made or broken on his holdings in medical products, and as Senator Orrin Hatch noted today, it has not been uncommon for members of Congress to have financial interests in the industries they regulate. As a physician who earned his wealth in medicine, Price long favored policies that materially affect and reduce regulations on him and other medical providers, even before the recent investments. So far, that’s been Price’s modus operandi in office, as he has favored deregulating health-care industries, increasing malpractice protections for physicians, and giving more power to individual physicians to take—and deny—patients as they wish.

But it is also true that the legality of Price’s involvement in biomedical firms is one thing; whether it is ethical is something else again. As Secretary of the Department of Health and Human Services, Price would have much more direct contact with medical firms—not just as a single legislator or lobbying target among many, but as the chief regulator of medicine in the United States. Price’s plan to repeal and replace Obamacare eliminates its taxes on device-makers and some other providers, firms in which Price holds thousands of dollars in stock. The Centers for Medicare and Medicaid Services would be the single largest customer in the world for the firms in which he is entangled. The Food and Drug Administration, which would also fall under his department’s umbrella, is the largest gatekeeper for pharmaceutical firms, and would be the major barrier to entry in the American market for, say, a tiny Australian biomedical firm.

Can a person with at least a quarter million-dollar involvement in an industry—and who has accepted lobbying money to pass laws on their behalf—be relied upon to regulate it in the interest of American people? The question echoes the ethical concerns that surround many of Trump’s nominees, including secretary of education pick Betsy DeVos; Andrew Puzder, Trump’s choice for secretary of labor; Scott Pruitt, tapped to lead the Environmental Protection Agency, and Rex Tillerson, who received the nod to run the State Department. Not every cabinet pick has come close to meeting ethics disclosure requirements, and the president-elect’s own plan to mitigate conflicts of interest has been criticized by ethics experts as potentially ineffectual at best.

Trump has offered technical, legal arguments in support of his own approach, claiming that conflicts-of-interest laws for other elected offices simply don’t apply to the Office of the President. That language also shapes defenses of Price, with conservative supporters noting that he made the proper legal disclosures and that there is no hard evidence yet that he received insider information or benefitted from his trades on purpose. But that language does not address the fundamental question Democrats are asking: Can people, markets, and the industry have faith that Price’s decisions on the cabinet will be unbeholden to his financial interests, and that the companies in which he holds stakes will not use that tie to shape policy in their favor?

During the hearing, Senator Al Franken noted the ethical conundrum facing Price. “I think our job, our duty in Congress is to avoid the appearance of conflict,” Franken said. That “appearance of conflict” exists separately from the reality of interference or impropriety. And in volatile health-care markets, where health-care stocks and prices—and thus the lives of millions of Americans—do depend on appearances and overall trust in the functions of those markets, the perception of Price as a regulator and administrator will mean almost as much as whether or not he violated the law.