Former Medicare chief soldiers on in wake of ethics investigations

If Thomas Scully was looking for a smooth transition to K Street when he stepped down in December as administrator of the Centers for Medicare and Medicaid Services to become a lobbyist and consultant, his wish has not been granted. Recent months have brought trying times for the former Medicare chieftain.

Scully is under investigation for threatening to fire Medicare's top actuary if the actuary revealed internal cost projections on the massive Medicare reform bill that were higher than the $400 billion that the Bush administration suggested the bill would cost. Critics also charge that at the same time Scully was negotiating with Congress over the details of the reform legislation, he was talking about a job with law and lobbying firms, some of whose health care clients stood to benefit from the bill. And Scully has been embarrassed by the publication of a series of intemperate e-mails he fired off to his critics when he was at the Medicare agency.

Yet none of this appears to have hampered Scully's ability to attract deep-pocketed clients. When he left the Health and Human Services Department, Scully inked deals with the law and lobbying firm Alston & Bird and the private equity-investment firm Welsh, Carson, Anderson & Stowe. In the past three months, according to sources, he has signed up such big-name clients as Abbott Laboratories, Caremark, US Oncology, the Alliance for Quality Nursing Home Care, and the American Association for Homecare.

By law, Scully may not approach HHS on behalf of clients until after a yearlong cooling-off period, but he may lobby Congress and other executive agencies on many matters right away, and he is free to provide "strategic advice" to clients. In addition, sources say, Scully has been tapped to join the boards of two medical companies that are Welsh, Carson clients: Ardent Health Services and Select Medical Corp.

Even by Washington standards, it's unusual for a prominent figure to be signing up so many clients at the same time he is taking a public beating. But various people who have followed Scully's career say they are not surprised that he has become a lightning rod. Scully is known for pushing the envelope to get what he wants and for surviving flaps that would have sidelined others.

"He's considered a cat with nine lives," said one health care lobbyist. "A lot of incidents have popped up, but he always gets through them with his boyish charm."

In a town of one-note partisans, sluggish bureaucrats, and cautious lawyers, Scully is anything but colorless. Friends and foes alike call him hard-edged but likable, whip-smart and meticulously prepared, but often overbearing. He is seen as a high achiever who often ignores convention. Several colleagues summed Scully up in one word: "operator."

"He charges pretty hard, and when he thinks he's right, the rules don't matter much," said one private-sector official who dealt with Scully at Medicare. "Usually he's right, but the approach he takes sometimes rankles people." A Democratic congressional aide who confesses to finding Scully "a genuinely nice person" nonetheless suggests that when Scully becomes convinced that he's doing the right thing, "protocol goes by the wayside."

The book on Scully is that he gets things done in spite of the bureaucracy and the criticism. The passage of last fall's reform bill stands as his most obvious accomplishment at Medicare's helm. He also pushed through initiatives to improve the program's responsiveness to beneficiaries. But the road to passing the Medicare law, experts say, demonstrated in microcosm Scully's penchant for coloring outside the lines. Examples from the latter part of his tenure include:

• The HHS inspector general is investigating claims that Scully threatened to fire top actuary Richard Foster if Foster gave Congress his analysis showing that the Medicare reforms could cost the government as much as $551 billion over 10 years, considerably more than the administration's budgeted amount of $400 billion. In January, after President Bush had signed the bill, the administration announced the estimated cost of the overhaul was $534 billion over 10 years. Last month, Scully told The Washington Post that he had only joked to Foster about firing him. "They can investigate till the cows come home," he told the newspaper, "but I think I was right." Scully declined to comment for this story on the Foster situation or any other matter.
• Scully has acknowledged that he entertained job offers while the Medicare bill was being hashed out -- some from potential employers whose clients could have been affected by provisions of the pending legislation. According to federal ethics rules, officials engaged in job negotiations must recuse themselves from "any official matter" involving a potential employer. But Scully sought and received a waiver from HHS that allowed him to continue his job talks without curtailing his official business. However, about a month after Scully's departure, White House Chief of Staff Andy Card declared that, from then on, only the White House would issue such waivers. Speculation about the sudden about-face immediately turned to Scully. Soon after, he told The Post, "If I'm partly the cause for this, I feel badly."
• Scully's comments at a private dinner he attended in April 2002 have attracted the attention of Senate Finance Committee Chairman Charles Grassley, R-Iowa, who raised concerns in a letter to HHS Secretary Tommy Thompson and to officials at the Securities and Exchange Commission. At the dinner sponsored by Credit Suisse First Boston, Scully discussed the business prospects for a certain class of for-profit, specialty hospitals. On the next stock market trading day, one of those hospital companies, MedCath, saw its stock price tumble in trading that was nine times the normal volume. At Welsh, Carson, where Scully is now a senior adviser, the New York City investment firm's extensive health care portfolio includes a 28 percent stake in MedCath. Scully told The Post that he never mentioned any companies by name at the dinner and only discussed his general views on federal health care reimbursement policies. Thompson's office, which has said that Scully told HHS he did not make the statements in reference to MedCath, is preparing a response to Grassley. An SEC spokesman would neither confirm nor deny that the commission is looking into the matter.

After George H.W. Bush lost re-election in 1992, Scully went to the law and lobbying firm Patton Boggs, and was then lured away to head the group now known as the Federation of American Hospitals, which represents more than 1,700 privately owned and managed hospitals. He remained there until May 2001, when he took the helm at the Centers for Medicare and Medicaid Services, which oversees $600 billion in annual spending.

Health policy experts say that Scully's upward climb was not a fluke. Michael Bromberg, who preceded Scully as head of the hospitals association, said the group started with a list of 20 candidates but Scully quickly became the obvious pick. "Several people who at the time had much higher visibility than him kept saying, 'Tom would be perfect,' " Bromberg said.

Scully is "tireless, working night and day," Bromberg said, "and in meetings, he doesn't care if you're a senator or a junior staffer." Karen Ignagni, the president of the trade group America's Health Insurance Plans, who has been both an adversary and ally to Scully, says, "He did his homework. He was definitely known as a problem solver."

Since joining Alston & Bird in January as a senior counsel, Scully has been a whirling dervish in signing up clients, sources say. Two health care lobbyists said that Scully has boasted to them that he's already landed new business worth about $3 million a year to the firm.

Alston & Bird "wants to grow the firm and its lobbying practice in a short timeframe, and Tom is someone who can help them do that," said one lobbyist. One of Scully's first moves was to bring on Colin Roskey, a former health care aide at the Senate Finance Committee, and sources say he's looking to hire other well-placed Hill aides.

As nicely as Scully has done on K Street, lobbyists who know him say that his long-term interest is his work with Welsh, Carson, where the dollars are potentially even bigger. Currently, Scully is dividing his time between Washington and Manhattan. "Tom will never leave Washington, but the deals will take him to New York more and more as time goes along," said one lobbyist. Friends say that Scully is using his regulatory and legislative expertise to advise the investment firm's clients on how to navigate the complexities of the new Medicare law.

On Capitol Hill, Democrats and even some Republicans are zeroing in on what they say were Scully's ethical lapses. They also want to know whether Scully was covering for the White House in trying to keep the lid on the potential costs of the Medicare reform measure, which critics say would not have squeaked through the House had the higher costs been known at the time. Rep. Henry Waxman, D-Calif., is one Democrat who charges that Scully's confrontation with Foster is a "very serious" matter and that any effort to withhold information from Congress on a pertinent legislative issue "may have criminal implications." He said that Democrats are not about to let the issue go away.

But some health policy specialists say that any characterization of Scully as a blindly loyal Bush partisan is too simplistic. On many issues, observers say, Scully had better relations with lawmakers in both parties than did his predecessors at Medicare. Scully is considered close to Sens. Jay Rockefeller IV, D-W.Va., and Max Baucus, D-Mont., insiders say, and his penchant for cooperating with Democrats occasionally riled the White House. "He loves deal-making," Bromberg said.

Scully is "one of the rare people in Washington who says what he thinks," said Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, a trade group that was deeply involved in the Medicare negotiations. "I think that's refreshing." One lobbyist who knows Scully well said, "Tom does not like strictures."

That maverick streak seems to have carried over somewhat to his relationship with Thompson, his boss at HHS. At a congressional hearing earlier this year, Thompson drew chuckles when he said, "I cannot speak for Tom Scully. Nobody speaks for Tom Scully, as everybody knows." It was Thompson who, in congressional testimony, pointed the finger at Scully, after the fact, as the person at HHS who had threatened Foster with dismissal.

"It was a love-hate thing" between Scully and Thompson when they worked together at the department, said one health care lobbyist. The two men -- both independent-minded -- respected each other and considered themselves friends, this source explained, but "friends fight, just like husbands and wives fight."

But some who know Scully characterize the situation as more serious than a family spat. "I think Scully feels that Thompson has thrown him under the train," said one pharmaceutical industry lobbyist.

Scully clearly revealed his hotheadedness in a stream of e-mails he sent during his tenure as Medicare administrator. The no-holds-barred missives found their way into The Post's In the Loop column, supplying scribe Al Kamen with dishy items that regularly painted Scully as a loose cannon.

In one e-mail, Scully blasted a University of Wisconsin researcher who was heading a Medicare-sponsored project to study nursing homes. "There is no entitlement to government contracts -- especially when you try to sandbag the agency you contract with," Scully wrote. Later, he fired off another message: "If you want to continue to yank my chain, I will continue to disconnect you from this agency." A General Accounting Office investigation concluded that Scully's actions "undermined the integrity" of the contracting system at the Centers for Medicare and Medicaid Services.

In yet another e-mail, Scully labeled an official with the Gallup Organization who had criticized the centers' contracting process a "weasel" and a "jerk." Scully sent a copy of the e-mail to an OMB aide and added, "I would like to investigate this idiot." That exchange drew a $5 million lawsuit by Gallup, charging Scully with intimidation. The suit is pending.

Some lobbyists agree with Merritt that Scully's forthrightness is endearing. Others aren't convinced. One calls Scully's habit of frank talk both "refreshing and weird." Some suggest that it loops back to egotism. A congressional aide remembers that when Scully took over the Medicare agency in 2001, he devised a contest to come up with a new name. The grand prize for the lucky winner was lunch with Scully.

When it came to his job search, Scully didn't go out of his way to keep matters secret, even though he was still running the Medicare and Medicaid programs. Over several months, the press widely publicized his talks with Alston & Bird, as well as with other firms, including Baker, Donelson, Bearman, Caldwell & Berkowitz; McDermott, Will & Emery; and Ropes & Gray. The reports prompted jokes on K Street about how much it would cost to hire him. Scully also was talking with investment firms about a consulting post.

As for the Foster contretemps, it seems likely to dog Scully as long as controversy persists over the new Medicare law. "I don't know anybody who wishes him ill," said a former colleague. "But I think the feeling on K Street is that, in general, he has made a bed of nails and then lain down on it." A friend of Scully's added: "Everything he did to make the agency more transparent and open to the public has been completely overshadowed" by the controversy over Foster.

Alston & Bird appears to be foursquare behind Scully. Thomas Boyd, head of the firm's legislative and public policy practice, asserted that Scully has "done nothing wrong, ethically or legally." He called Scully "one of the most transparent administrators" ever at Medicare, and cited that as "one of the reasons he was appealing to us."

Some experts argue that Scully has little to fear in the way of sanctions. "Legally, I don't know that there's a tremendous amount of exposure," said Stanley Brand, a lawyer who specializes in white-collar defense and government ethics. Added Brookings Institution senior fellow Stephen Hess, "In Washington, loyalty is the coin of the realm. By Washington standards, what would be his crime?"

Brand and others added that Scully's best strategy is to keep a low public profile. Perhaps that advice influenced Scully's decision not to appear when the House Ways and Means Committee asked him to testify at an April 1 hearing on the Foster matter.

But if the issue is kept alive in this highly partisan election year, things could turn sour for Scully's lobbying business. "It could be ruinous -- or it could be just a bump in the road," says one old friend.