Peter Schweizer - Throw Them All Out

Oberstar had been in Congress since 1975 and knew the ways of Washington. Congressman Jeb Bradley of New Hampshire had just been seated in January 2003, yet he apparently was a quick learner. Bradley owned over $300,000 in pharmaceutical stock when he took office. By October, he'd bought additional shares of Pfizer, Merck, and Johnson & Johnson before voting in favor of the prescription drug benefit. 17Merck stock jumped 10% in the weeks following President Bush's signing of the law. Pfizer and Johnson & Johnson were both up too.

By far the most aggressive congressional trading of pharma stock during this debate was done by Senator John Kerry and his wife. Oversight of the prescription drug plan would fall to Kerry's committee in the Senate, so he was intimately familiar with the law and its ramifications. Kerry was opposed to key portions of the legislation and wanted to allow for the importation of drugs from Canada to keep drug prices down. But when it became apparent that importation of drugs would not pass, the Kerrys became increasingly aggressive in buying up pharma stock. In all, the Kerrys made a stunning 111 transactions of pharmaceutical companies and health insurance companies in 2003, according to his financial disclosure statements. 18They were all great picks. He bought shares of drug makers as well as the health plan companies that would actually administer the plan through Medicare. For example, throughout September Kerry made nine purchases of Johnson & Johnson stock, totaling more than $500,000. 19

The Kerrys also made sixteen purchases of Pfizer stock, totaling as much as $1 million, while the legislation was being worked on in committee. When he bought the stock it was hovering in the $30 range. After the Medicare drug benefit bill passed, the stock rose to $36 a share—up 20%. On November 13 and 17, 2003, he bought at least $200,000 worth of stock in Oxford Health Plans, which provides coverage for prescription drugs. He also bought between $500,000 and $1 million of stock in United Health Group, which happened to become the largest health insurance provider under Medicare Plan D after the legislation passed. Kerry's financial disclosure statements reveal that the amount he had invested United Health by the end of the year was between $1 million and $5 million. He bought the stock in November at around $28 a share. Months later, it was trading at $33. There were also four purchases of stock in Abbott Labs in the month of November, when it was trading at $44 a share. After Medicare Plan D passed, share prices moved up to $46. The Kerrys also bought Bristol-Myers Squibb, which was trading at around $26 a share. The stock rocketed to more than $39 after the prescription drug benefit became law.

The Kerrys also purchased shares of Cardinal Health, another Medicare Plan D provider (at least $100,000 worth), and made four purchases of Merck stock in November, of at least $240,000. 20

In addition to helping drug manufacturers, the Medicare Prescription Drug Act also provided for add-on payments for certain new medical devices. The Kerrys were already invested in two venture funds focused on medical technologies, Salix Ventures II and Delphi. In 2003, they upped their investments in both. The following year they reaped capital gains of between $100,000 and $1 million.

In January 2004, after President Bush signed the law and the stock prices jumped, the Kerrys started selling some of their pharma stocks. The couple netted capital gains of between $100,000 and $1 million with their Oxford Health Plans investment alone. They also netted tens of thousands of dollars in capital gains from Pfizer, Johnson & Johnson, and Cardinal Health stocks.

It was an enormously aggressive short-term bet on pharma stock. If you look at the Kerrys' trades in other sectors throughout 2003—transportation, blue chips, and high tech, among others—you find a regular mix of buys and sells. But of the 111 transactions involving health plans and pharma stock, 103 were buys. 21

The health care debate in 2009 was a much bigger event than any of these predecessors. As we have seen, John Kerry was not alone in buying and selling shares as Congress worked to remake the health care system. Some of the most powerful men in the Senate were part of the action. At the center of forging the health care bill was Senator Max Baucus of Montana. Eventually, when the major health care and pharmaceutical companies came out in favor of the bill, it was partly thanks to a series of detailed set-asides that were of immense benefit to the industry. Baucus had a lot of influence on those set-asides because he had been tasked by the White House and by congressional Democrats to put the deal together. And during the legislative process, Senator Baucus, as he was negotiating with pharmaceutical companies and putting his imprint on the legislation, was buying and selling health care stocks. Baucus does not do a lot of stock trading, and he's not a wealthy man. He is no John Kerry. Indeed, he's not even in Kerry's financial universe. But during 2009, as he was shepherding health care legislation in the Senate, fully 20% of Baucus's stock transactions involved health care—related stocks. He bought Gilead Sciences, Abbott Labs, and Fluor Corporation (which is not a health care company but is heavily involved in the sector, building hospitals and medical care centers). All three were perceived winners in the health care debate. And he seemed to do pretty well. He bought Abbott at around $45 a share. After health care reform passed, it soared to $54 a share. All three firms lobbied in favor of the legislation. 22

Congressman John Boehner, who was leading the opposition to Obamacare in the House of Representatives, may have been fighting John Kerry on policy matters, but he was entirely allied with him when it came to investment decisions. On December 10, 2009, Boehner bought numerous health insurance company stocks, including tens of thousands of dollars in Cardinal Health, Cigna, and Wellpoint. On the same day, Boehner purchased shares in the Big Pharma companies Amgen, Johnson & Johnson, Forest Labs, Covidien, and Pfizer. He also bought shares in CareFusion, which provides systems for countering infections. 23Just days later, on December 15, the Washington Post declared that the "public option" was officially dead. 24

Health insurers breathed a sigh of relief. So too did pharmaceutical companies, who feared that a government health insurance program would lead to price controls. When Boehner bought Wellpoint stock on December 10, the price was about $56 a share. Within a month it was trading at $66 a share. Cardinal Health was up approximately 10% by the time President Obama signed the health care bill. In early 2010, Boehner bought yet more shares in Cardinal Health and Pfizer, before President Obama signed the health care bill.

Sometimes members of Congress see an opportunity for big profits from a smaller, more obscure bill (health-related or otherwise). This approach has certain advantages. The chances of being detected are smaller, and if the focus of the bill is narrow enough, it can mean even more profits. Such was the case in the spring and early summer of 2004, as Congress debated and eventually passed something called Project Bioshield.

Concerned about the possibility of a biological weapons attack or the prospect of a pandemic, legislators submitted a bill that called for $5 billion to be spent on vaccines that would be used in the event of a bioterrorist attack or disease outbreak. The idea behind Project Bioshield was simple: pour billions into small, specialized biotech companies that were developing vaccines and other biochemical defenses. The Department of Health and Human Services was moving forward with plans to acquire a second-generation smallpox vaccine and antidotes to other chemical, biological, and radiological weapons. The government wanted to develop, purchase, and stockpile vaccines and drugs to fight anthrax, smallpox, and other potential agents of bioterror.