March 17, 2012

That guy behind the tree

Recent conversations with conservative friends have not turned out well. One friend is a business consultantwhile another is a small business owner. Both are in healthcare, and due to a high reliance on Medicare and Medicaid funding, their particular niche business has increasingly become a target for fraud.

Fraudsters are a real problem in healthcare. We have all witnessed a steady and rapid loss of profitability for legitimate providers as less scrupulous operators move in. As the wealth of "free" money became apparent, crooks have become bolder, schemes have become more complicated, and the number of fraudulent businesses has exploded.

My friends seems to agree that regulation and enforcement have been woefully insufficient to prevent these con artists from obtaining licensure, stem the tide of criminals entering the industry, monitor compliance with even the pitiful regulations currently in place, or even to investigate and prosecute identified offenders.

We further agree that regulatory and law enforcement agencies charged with keeping the playing field level for all competitors have failed in that duty... doing a sub-par job of protecting the public and maintaining the integrity of the system. In much of health care... and this business in particular... perhaps only one in a hundred scofflaws will ever feel any real heat from the regulators, and even fewer will ever see the inside of a courtroom. 

The reason so many crooks get into the business and thrive is simply because (1) the laws and regulations are lenient, (2) cops and regulators are understaffed and underfunded, so the odds of being caught are low, and (3) even if busted, the court dockets are so swamped that only the highest profile cases are prosecuted.

For law enforcement it is far less expensive to cut the losses, shutter the business and seek to recover what small amount of the lost money they can. The criminal more often than not drives off in thier Lexus or Mercedes, forms a new corporation and reopens down the street under a new name... very often serving up the same scam.

In their particular industry, my friends have been active in efforts to turn this situation around. They have in their own way contributed toward a movement asking for enhanced regulation and greater enforcement.

Until now we are all on the same page, but we derail when I suggest that the problem we are seeing in this industry is a product of the long-running and misleading effort to broad scale deregulate business and defund government regulators... all in the name of job creation.

Don't regulate me… Don't regulate thee… Regulate that man… Behind the tree.

Funny what a good friend I am when we all agree that one particular industry needs better regulation and enforcement, but suddenly I’m a pinko, lefty, socialist liberal when I suggest that other businesses need similar regulation.

There are reasons for the burdensome regulations... not just in health care but for every business. Regulations are intended to protect the public from fraud and negligence... to shield owners of small businesses from the unscrupulous actions of cons and competitors... and to protect investors from greed and scams.

Regulations in every industry became necessary not due to the whim of some bureaucrat, but in response to the actions of fraudsters just like those with whom my friends now suffer. A apt phrase I once heard says that "every rule in the book has blood on it."

There is always someone conniving to make the easy buck by cutting corners, picking pockets or dumping on others. This has happened again and again in just about every industry.... thus there are regulations and regulators. Since about the time of Barry Goldwater, however, the very bureaucrats previously charged with preventing the evils have themselves been branded as evil. 

This is a problem with neoconservative idealism, and it represents the very dangerous attitude that in 2007 played a large part in bringing the world’s financial house down. But it seems we haven't learned much. Conservatives (by dogma) and Democrats (in election year politics) have sold out to mantra of unfettered capitalism. Congress has now crafted a bipartisan bill that once again opens these flood gates... all in the name of job creation and at the peril of the little guy.

A ProPublica article by Jesse Eisinger talking about the de-regulatory aspects of the proposed Jobs Act illustrates this position well. The article, titled Congress’s Genius Jobs Plan—for Fraudsters, Shills, and Wall St. Analysts, quotes Columbia law professor John Coffee, who brands the bill as "the boiler room legalization act."

Boiler room operations were one of the unsung job creators of the 1990s, producing some of America's greatest penny stocks and boom times for yacht makers and coke dealers.

... Taking advantage of the revolutionary possibilities of the Internet, the bill loosens decades-old investor protections so that companies can directly advertise to those who would like to be separated from their money. It does that by giving broad exemptions for start-ups that want to "crowdfund" by raising small amounts of money over the Internet. I.P.O. pitches next to "Lose Your Belly!" ads. Sounds like a great idea!

As my friends prove, all regulation is not bad. Certainly we should review and selectively revise, but the neoconservative charge toward broad-brush deregulation makes the world a little less safe for those wishing only a level playing field.

Crooks, scofflaws and fraudsters do not play fair and generally will not play by the rules, but at least when there are rules in place there is recourse. What we need are reasonable rules supported by sufficiently funded regulators and enforced by a credible force of law.

I've seen little evidence that reasonable regulation stifles job growth, but the evidence of harm to the economy, the environment and of individuals from excessive deregulation or selective enforcement of existing regulation is abundant. Deregulation should follow a great deal of contemplation of potential downsides and consideration of alternate means of accomplishing the goal.

My friends understand the need for regulation and enforcement when it affects their lives and livelihoods, but for some reason it escapes them how others might deserve the same protections and the same opportunities.