Attorneys General: Tackling Health Care and Protecting Consumers in a Virtual Currency World

State and territorial attorneys general are using antitrust and consumer protection enforcement authority to address issues in the health care marketplace, as well as warning consumers about virtual currency called Bitcoin.

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About the Authors and the National Association of Attorneys General

George Jepsen is Connecticut attorney general and 2016-2017 president of the National Association of Attorneys General, or NAAG. He also served 16 years in the Connecticut General Assembly.

Constance Patterson is visiting counsel for the National Attorneys General Training and Research Institute, or NAGTRI, a NAAG branch.

NAAG, www.naag.org, was founded in 1907 to help attorneys general fulfill the responsibilities of their office to the states and territorial jurisdictions. Its members are the attorneys general of the 50 states and Washington, D.C., and the chief legal officers of the commonwealths of Puerto Rico (secretary of justice) and the Northern Mariana Islands, and the territories of American Samoa, Guam, and the U.S. Virgin Islands.


Evolving Challenges in the American Health Care Marketplace: Competition, Cost and Policy Innovation in a Rapidly Changing Industry
The American health care marketplace is rapidly changing. Evolving challenges include consolidation among industry participants, rising costs, new technologies, the transition from fee-for-service to outcome-based payment models, greater integration of care and fuller data transparency. Attorneys general, entrusted with protecting the public interest, are trying to meet these challenges using existing regulatory and enforcement tools and possible future reforms. The National Association of Attorneys General, or NAAG, 2016–2017 presidential initiative was designed as a comprehensive learning tool for attorneys general highlighting critical issues, conveying emerging trends and exploring innovative policy approaches.

The federal Patient Protection and Affordable Care Act, or ACA,1 became law 10 months before I took office as Connecticut attorney general in 2011. The ACA significantly altered our national health care policy and landscape, but it was not the first or only substantial change to a huge and fast-evolving economic sector. Changes continue to ripple across the health care economy. We seek to control medical costs while maintaining or improving quality, and market participants seek cost-effective ways to survive and compete. From day one as attorney general, it became clear my office would be on the front line for confronting these challenges through antitrust and consumer protection enforcement, representation of public health agencies and other exercises of our authority.

In early spring 2016, when it was my privilege to be NAAG president-elect, the issues affecting the health care marketplace had not settled down. In fact, they had exploded in every direction with the rising cost of prescription drugs and ongoing mergers. One example in Connecticut was a July 2016 federal antitrust lawsuit filed by the U.S. Department of Justice and 12 state attorney general offices, seeking to block a proposed merger between two large insurance companies, Anthem Inc. and Cigna Corp. I believed such a merger would have a negative impact on the availability of competitively priced health care and the quality of care.

I decided to use the bully pulpit of my NAAG presidential initiative to take a comprehensive look at health care, not a single issue such as opioid abuse, but the spectrum of issues across the marketplace. For several reasons, no topic was more important than health care. One, every attorney general has a significant role in health care regulation, differing in degree depending on state law. As lawyers, we have different academic and professional backgrounds, but few of us have prior health care expertise. Finally, and most importantly, health care is a policy area where enormous stakes are involved for providers, regulators and ultimately consumers.

Working to define the framework for the NAAG initiative, my staff followed two principles. First, it had to be bipartisan. I did not want anyone thinking there was an ideological bias. I wanted people involved who could see the big picture and represent the breadth of the policy spectrum. The second principle was to be inclusive. I did not want any important stakeholder feeling that their perspective was not represented. We got to work, identifying, scheduling and engaging in an extensive number of stakeholder meetings in Connecticut, Washington, D.C. and elsewhere. The meetings proved hugely valuable in defining issues, but also in identifying academic, industry and policy experts. There was a very positive response from stakeholders. Once they understood what we were trying to do, they had a strong desire to participate, excited by the opportunity to address so many attorneys general.

After completing our research, the biggest challenge was deciding on the issues to address. We developed several dozen potential topics and narrowed those to 10 for panel presentations during my year as president, including a three-day April 2017 summit. We looked for topics that covered as much ground as possible from a practical and educational standpoint, and that would be most relevant to attorneys general and staff, as well as to interested members of the public. Our goals were to bring attorneys general up to date on health care issues, to advance the discussion on health care policies of national importance and to foster ongoing communication among stakeholders and attorneys general, as they continue their work on health care at the state level.

The result was a diverse mix of topics, either directly related to the work of attorneys general or providing context on health care policies and trends, such as consolidation, drug costs and the future of health care reform. They reflect the breadth and depth of our focus: health care provider consolidation—analyzing antitrust enforcement remedies; increasing competition and reducing costs in the pharmaceutical market; fighting fraud, abuse and waste in health care; drug cost perspectives from the marketplace; health care, data and technology—all-payer claims databases, electronic records and telemedicine; potential state legislative responses to drug costs; future of health care reform; state law as a potential barrier to competition; and drivers, impacts and future trends for consolidation in health care.

The future of the ACA and health care reform were clearly among the most important issues we hoped to address, even before the outcome of the presidential election and the unsuccessful attempt in March 2017 by Congress at repeal and replacement. Market forces driving generic and brand-name drug pricing and industry consolidation also emerged as critical issues.

The initiative’s themes of cost, competition and policy innovation were always addressed in some manner. For example, our keynote speaker at the 2016 NAAG Fall Meeting was Mike Leavitt, founder and chairman of Leavitt Partners and a former Utah governor who also served as secretary of the U.S. Department of Health and Human Services. He focused on the economic imperative to move away from fee-for-service payments toward value-based models.

Mark McClellan, M.D., Ph.D., director of Duke University’s Margolis Center for Health Policy, offered a big-picture view of health care reform, including Medicaid expansion, as the keynote speaker during the NAAG Winter Meeting in February 2017. Dr. McClellan is a former administrator of the Centers for Medicare & Medicaid Services and former commissioner of the U.S. Food and Drug Administration, where he developed and implemented major reforms in health policy. David Cordani, president and chief executive officer of Cigna Corp., a global health service company, was the keynote speaker for the April 2017 NAAG Presidential Initiative Summit. Cordani is an advocate of empowering individuals to manage their own health, developing new health delivery models focused on patients’ health improvements, and partnering with physicians to focus on wellness, and improving clinical quality.

This initiative will provide attorneys general with better information and access to resources to help address the problems presented in their own states, and to engage in national policy discussions. This is not solely a federal issue. Stakeholders and policymakers all understand and agree that states and attorneys general have a significant role to play in the future of health care. Our effort may not solve the problems of the health care marketplace, but I am confident we will move the national discussion forward on policy issues affecting all our states and citizens.

State Regulation and the Attorneys General Role in the Bitcoin World
Bitcoin has become a topic of conversation among state attorneys general as to where they fit as enforcement in this new virtual currency world. This section focuses on recent court decisions that have shaped the U.S. stance on bitcoin, recent state regulation, as well as how attorney general offices have warned individual consumers of the risks bitcoin may have, since more and more merchants are accepting it as currency.

Bitcoin is a “self-regulating, electronic exchange” between individuals in which its members establish the veracity of every transaction without relying on other third parties, such as banks or governments.2 Bitcoin is a completely electronic form of currency and is therefore only transferred and stored either on an individual’s computer or within an online database.3

Is Bitcoin Money?
Over the last few years, four court cases have shaped the U.S. stance on bitcoin due to its nefarious use, however a debate continues as to how the United States will and should regulate it.4 Ultimately, the issue that each case answers is whether or not bitcoin is considered money.

In New York, Ross Ulbricht was indicted on charges of money laundering, engaging in a criminal enterprise and computer and drug trafficking.5He designed, launched and supervised a website, “Silk Road,” a marketplace for illicit goods and services.6 The court rejected Ulbricht’s argument and held that the purpose and function of Bitcoin is to carry value and “act as a medium of exchange.”7Further, the court stated that bitcoins can be exchanged for legal tender, whether it be in U.S. dollars, euros or some other currency.8

Also, in New York, Charlie Shrem and Robert Faiella were charged with money laundering and operating an unlicensed money transmitting business due to their connection with an underground market in bitcoin.9 The court held that bitcoin qualifies as money in light of the fact that it can be easily purchased in exchange for ordinary currency, act as a denominator of value, and used to conduct financial transactions.10

In Texas, Trendon Shavers was charged with “soliciting illicit investments in bitcoin-related opportunities” from numerous lenders, also referred to as a bitcoin Ponzi scheme.11 Shavers obtained at least 700,000 bitcoin in investments from investors, an excess of $23 million at the time of his arrest.12 Both the Securities and Exchange Commission and Shaver agreed that bitcoin is a measure of value that can be used as a means of payment as well as accepted by some vendors as a medium of exchange.13

However, in the most recent case, a Miami trial court judge held in opposition of the above-mentioned cases that bitcoin is not money.14 Michell Espinoza was charged with illegally transmitting and laundering $1,500 worth of bitcoins, but the charges were eventually dropped after the court ruled that “bitcoin is not backed by any government or bank and is not tangible wealth.”15The court further stated that bitcoin has a long way to go before it can be considered the equivalent of money.16

State Regulation of Bitcoin
New York became the first state to launch a regulatory approach to digital currencies, including bitcoin, in which a license would ultimately be issued by the state.17 The regulations lay out standards and establish procedures to be used when approving, suspending or revoking a virtual currency license.18California and Connecticut have also enacted their own legislation. California now allows for virtual currency to be used to purchase goods and services.19 Connecticut amended their Money Transmission Act and now requires licenses for all virtual currencies operating in the state.20The amendment, like New York, includes provisions that establish even more standards for virtual currency businesses.21

Although states are starting to follow this trend to regulate bitcoin, attorneys general are still in the beginning stages in terms of identifying their role. Attorneys general are aware of the issues that come from bitcoin use in illegal activity, but may still be uncertain as to how the prosecution of these cases will unfold.

Role of State Attorneys General
In 2014, U.S. Attorney General Eric Holder addressed his concerns in which he informed lawmakers that bitcoin poses a great challenge due to its concealment of illegal activity.22 State attorneys general became aware of these concerns and are now warning consumers to protect themselves from the risks that virtual currencies contain. Michigan Attorney General Bill Schuette released in 2014 a consumer alert addressing the risks of bitcoin, such as failing to keep your virtual wallet secure, which can result in losing all of your virtual currency.23Attorney General Schuette noted that it’s important for consumers to be aware of bitcoin’s volatility and the risk that it has to potentially lose all of its value.24 Further, because bitcoin is not regulated by any government agency, or insured against any loss, there is no protection for consumers and they can easily be harmed.25

The Delaware Attorney General’s Office released “an investor advisory cautioning investors to consider risks associated with bitcoin and other virtual currencies” in April 2014, that also stressed the substantial risks virtual currencies can carry.26 The advisory warned consumers that virtual currencies, such as bitcoin, are “subject to little or no oversight.”27 Similarly to Attorney General Schuette’s consumer alert, the Delaware Investor Protection Unit further alerted state residents on how virtual currencies are “extremely volatile” and that bitcoins can become worthless.28 Due to the fact that it is not legal tender, “companies do not have to accept them as a form of payment.”29 Lastly, the advisory made sure to include the alert that virtual currency is “vulnerable to hacking attacks,” and there is usually no way to recover it if stolen.30

Conclusion
Bitcoin’s use in illegal activity has become a great concern and states have begun to take strides regulating it. State attorneys general unfortunately do not yet have the resources to combat these criminal transactions but have been able to take steps to try and protect consumers with public education.

 


Notes

1 Patient Protection and Affordable Care Act, 42 U.S.C. § 18001 et seq. (2010).
2 See Benjamin W. Akins, Jennifer L. Chapman & Jason M. Gordon, A Whole New World: Income Tax Considerations of the Bitcoin Economy, 12 Pitt. Tax Rev. 25 (2014).
3 Id. at 30.
4 Tanaya Macheel, 4 Court Cases Helping Shape the US Stance on Bitcoin, CoinDesk.Com, (Sept. 28, 2014), http://www.coindesk.com/4-court-cases-helping-determineus-stance-bitcoin/.
5 Id.
6 United States v. Ulbricht, 79 F. Supp. 3d 466 (S.D.N.Y. 2015).
7 CoinDesk.com, supra note 3.
8 Id.
9 United States v. Faiella, 39 F.Supp. 3d 544, 545 (S.D.N.Y. 2014).
10 Id.
11 CoinDesk.com, supra note 3.
12 SEC v. Trendon T. Shavers & Bitcoin Sav., 2014 U.S. Dist. LEXIS 194382 (E.D. Tex. Aug. 26, 2014).
13 Id. at 17.
14 David Ovalle, BitCoin Not Money, Miami Judge Rules in Dismissing Laundering Charges, MiamiHerald.com, (July 25, 2016), http://www.miamiherald.com/news/local/crime/article91682102.html.
15 Id.
16 Id.
17 Stan Higgins, NY Bitcoin Businesses Now Have 45 Days to Apply for BitLicense, CoinDesk.com, (June 24, 2015), http://www.coindesk.com/ny-bitcoin-business-45-days-bitlicense/.
18 Edward V. Murphy, M. Maureen Murphy & Michael V. Seitzinger, Bitcoin: Questions, Answers, and Analysis of Legal Issues, FAS.org, (Oct. 13, 2015).
19 Id.
20 Id.
21 Id.
22 Evan Perez, Holder: Bitcoin Raises Law Enforcement Concerns, Money.CNN.com, (April 8, 2014), http://money.cnn.com/2014/04/08/technology/bitcoin-holder/.
23 Bill Schuette, Attorney General, Virtual Currency Has Real Life Risk, (last visited March 29, 2017).
24 Id.
25 Id.
26 Beau Biden, Attorney General, Attorney General’s Investor Protection Unit Cautions Investors on Use of Virtual Currencies, (April 29, 2014).
27 Id.
28 Id.
29 Id.
30 Id.

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