Mass. hands out $58 million in aid to solar company, now leaving state

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In a blow to state officials hoping to make Massachusetts a hub of clean-energy manufacturing, solar panel maker Evergreen Solar, Inc. announced Wednesday that it will shut its operation in Devin, and fire all 800 workers. The company’s 450,000-square-foot manufacturing plant has been operational only since 2008.

Governor Deval Patrick led the controversial effort to lure Evergreen’s stateside operation to  Massachusetts, providing the company with aid and subsidies worth $58 million, one of the largest ever handed out to a private enterprise.

The company’s chief executive, Michael El-Hillow, said that the local cost structure was too high compared to China, at a time when the selling price of solar panels is dropping steadily. “During the month of December, we experienced a 10 percent decrease in average selling prices from the beginning of the fourth quarter. As industry selling prices continue their rapid declines into 2011, panel manufacturing in Devens, either fully or partially, is no longer economically feasible, consequently requiring a complete shutdown of the facility.”

The company said that it will continue to have its headquarters in the state, but move all of its U.S. manufacturing work to its plant in Michigan, where it said costs are lower and the state has provided them with $5.7 million in tax incentives. The bulk of the company’s development and production activities will continue to take place in Wuhan, China.

The state says that not all the money is wasted, having invested about $13 million in infrastructure such as roads and utilities, which can be used by other companies looking to operate in the former army base in which Evergreen had located.

Even though state officials said there are claw-back provisions enabling it to recapture some of the monies it gave to Evergreen, the company said that it expects to have to pay back only $3 million to $4 million, less than 10 cents on the dollar.

One lawmaker, Democrat Sen. James B. Eldridge, is pushing the state to take more action against companies that don’t follow through on their promise to provide jobs after taking big aid packages. “I really hope the Legislature takes a hard look at these tax-break strategies for big corporations,” he said.

The Boston Globe

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California Blue Shield announces rate increases of up to 59% for individual policy holders

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Health insurer Blue Shield of California, just dropped a bomb on 193,000 policyholders, saying it will increase premiums on individual policyholders up to 59 percent on March 1, according to an article in the Los Angeles Times.

The proposed increase is startling in light of the furor created last year when another big insurer, Anthem Blue Cross, tried to increase rates in the state by 39 percent for up to 700,000 policy holders. The announcement triggered an investigation by the Department of Insurance, and was widely cited by President Obama to help garner support for his health care reform.

Anthem later backed off of its request after state regulators found substantial mistakes in the calculations provided by the company to support its proposed increases. The insurer ultimately pushed through a rate increase of 14 percent last October, and is planning another hike averaging 9.8 percent for individuals on April 1.

Blue Shield says that its increases are necessary to keep up with quickly rising health care costs, some of which resulted from the passage of the Obama administration’s health care bill. “We raise rates only when absolutely necessary to pay the accelerating cost of medical care for our members,” the nonprofit insurer wrote in a letter to customers last month.

The announced rate hike prompted a flood of complaints to newly-elected Insurance Commissioner Dave Jones.  Jones said the long-term solution to the rate-hike problem is having the Legislature empower the Department of Insurance to regulate health insurance rates, much in the same manner as they regulate car insurance.

“Blue Shield’s increases pose the same problem posed by Anthem Blue Cross last year and other health insurers as well,” Jones said in an interview. “My hope would be that Blue Shield would reexamine these rate hikes, particularly in the face of the impact they are having on individual policyholders.”

Nearly 1 in 4 customers will see their cumulative rate increased by Blue Shield over 50 percent in just five months.

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Drug coupons steering consumers away from generics, driving up costs of healthcare

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Image the predicament of drug company executives when patent protection runs out on their flagship drugs, forcing them to compete with products that are vastly cheaper, yet essentially do the same thing.

All things being equal, consumers will migrate to the generic alternative, instead of paying a large out-of-pocket co-payment for the brand-name version.

In order solve this dilemma, the ever-ingenious drug companies invented a solution to reduce or eliminate the costly co-pay for consumers. Now they simply provide patients with co-payment cards or coupons, according to a story in Sunday’s New York Times.

Pfizer just introduced one such card for its blockbuster drug Lipitor. Instead of a $50-plus co-payment, the card brings the price down to a little as $4, the same amount charged by Wal-Mart for a generic version of the statin.

On the surface it appears as a good deal for consumers, but to the extent it increases the costs that insurance companies pay for medications, the cards and coupons make insurance premiums that much more expensive. Both insurance companies and consumer groups call the coupons marketing gimmicks, that enrich wealthy drug companies at the eventual expense of the consumer, by driving up the cost of providing the prescription benefit.

Drug manufacturer Medicis uses the coupon scheme to push its product Solodyn, a once-per-day formulation of the antibiotic minocycline used to treat acne. A month’s supply of the medication runs about $700, instead of about $40 for the generic version. The only difference is that the generic version of minocycline must be taken twice per day.

The company’s website offers a discount card to consumers, reducing the cost to under $10 per month, providing that patients have health insurance. Good for the consumer, but the insurance company gets stuck with a bill in the hundreds of dollars, instead of the $40.

The Times reported that in a presentation to investors, the company said that the majority of patients use the co-pay card to purchase Solodyn, which recently helped double the number of prescriptions to 26,000 per week.

When insurance companies are presented the bill for brand-name drugs over the generic alternative, the impact on premiums can be exceedingly high.

Take for example the costs paid by the health plan at District 37, a union representing public employees in New York City. During the year ended June 2009, the cost of cholesterol-lowering statins was $17.3 million for 59 percent of such claims, and only $179,000 for the generic version of similar statins representing the other 41 percent of claims.

While drug cards and coupons are freely available and used frequently by patients for expensive drugs, the companies are barred for offering them to patients in federal programs such as Medicare, since they are considered an inducement to use the product and violate anti-kickback laws.

Insurance companies and pharmacy benefit management companies would like to somehow eliminate the coupons and cards, but say that there is little they can do at the moment. The existing system isn’t able to provide them with information on whether the patient or the drug company was responsible for the co-payment.

The New York Times

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Liberty Mutual settles bid-rigging lawsuits

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Insurance giant Liberty Mutual has agreed to pay $5.5 million to New York and $2 million to Connecticut, in a settlement agreement over charges that it had rigged bids and paid contingent commissions to agents who illegally steered business to the insurer’s products.

The charges were part of lawsuits filed by former New York Attorney General Elliot Spitzer and Connecticut Attorney General Richard Blumenthal against a group of insurance companies and brokers in 2006 as part of a nationwide investigation into illegal sales practices in the insurance industry.

The lawsuits alleged that Liberty Mutual paid secret commissions to brokers that steered business to it, even though its quotes were not the lowest available. The practice directly increased the cost of insurance to thousands of customers.

Liberty Mutual was also accused of providing “fake” bids to brokers to insure that other companies, agreed to in advance, would win a contract. The lawsuit said that one such bid allowed American International Group to increase its premium by 20 percent with an existing customer.

Other companies, including Marsh & McLelland, St. Paul Travelers, and Aon Corp. have already reached settlement agreements with authorities.

The company blamed the conduct on two former “rogue” employees. “Unfortunately, two former lower-level employees seriously violated our trust and our standards of conduct in their quotation activity,” the company said. Both employees resigned before the 2006 lawsuit was filed.

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Ex-car czar to pay $10 million settlement with N.Y. over bribes

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New York attorney general and soon-to-be governor, Andrew M. Cuomo, announced today a settlement with Steven L. Rattner, the Obama administrations former car-czar, over an investigation and charges that he engaged in a kickback scheme involving the New York Common Retirement Fund.

Rattner will pay a fine of $10 million fine and will be barred from doing business with any New York pension fund for five years. Sources said that Cuomo was previously seeking a $26 million penalty.

Rattner was accused of paying Hank Morris, an aide to former state comptroller Alan G. Hevesi, for his help in securing business from the $135 billion fund. Morris pleaded guilty earlier this month to providing illegal access to the fund.

Officials said that Morris also arranged for Rattner to funnel $50,000 in campaign contributions to Hevesi’s reelection campaign for state comptroller through third parties, to conceal the true identity of the donor. After making the illegal donations, Quadrangle’s state pension monies under management increased from $100 million to $150 million.

Cuomo also charged Rattner with providing special favors to the brother of a senior pension fund official. The brother, a Hollywood producer, was helped by Rattner in securing distribution of a low-budget film called Chooch, through a DVD company owned by Quadrangle. Rattner also helped the brother secure a deal with IFC, a cable outlet partly owned by Quadrangle. Rattner was also a member of IFC’s board of directors.

“I am gratified that we have been able to reach an agreement in this case, as it resolves the last major action of our multi-year investigation,” Cuomo said in a statement. “The state pension fund is a valuable asset held in trust for retirees and supported by taxpayers. Through the many cases, pleas and settlements in this investigation, I believe we have been able to help restore and protect the integrity of the state pension fund.”

Rattner, who had been openly critical of Cuomo over the charges, said “I am pleased to have reached a settlement with the New York attorney general’s office, which allows me to put this matter behind me. I apologize if during the course of this process there is anything I did that may have made reaching this agreement more difficult. I respect the work of the attorney general and his staff to ensure that the New York State Common Retirement Fund operates properly and in the best interests of New Yorkers.”

Before founding Quadrangle, Rattner was a reporter for The New York Times and an investment banker for Lazard in New York. When he was appointed to the auto czar post in February 2009, he listed his net worth on federal disclosure firms as between $188 million and $608 million.

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Better Business Bureau leader resigns amid pay-for-play scandal

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William G. Mitchell, the controversial head and 26-year employee of the Southern California chapter of the Better Business bureau has resigned. The company’s director of operations, Bob Richardson, said Mitchell has resigned for health reasons. Three months ago, Mitchell underwent open heart surgery.

The entire national organization of the non-profit business rating has been under attack recently for the use of a rating methodology which gives dues-paying members better ratings than others. The system was created under the leadership of Mitchell within the Southern California operation.

Mitchell helped devised the letter-grade system that has been in use for the last five years. Previously, the organization used a “satisfactory/unsatisfactory” BBB rating.

The Southern California operation was caught in a sting by ABC News handing out top ratings for phony businesses that had signed up as dues-paying members.

Businesses have long complained about high-pressure tactics of BBB employees and that the sales tactics amount to a pay-for-play arrangement.

Last month, the charge was underscored when an ABC News investigative team signed up phony businesses for membership in the Southern California BBB, and immediately received A grades. The investigation also looked at businesses that were not members and had very few unresolved complaints, and found that they were given much lower ratings.

The national organization is currently conducting an audit of operations of the Southern California chapter, according to Alison Southwick, a spokeswoman for the National Council of Better Business Bureaus.  Last month the national operation said it would stop giving better ratings to companies on the basis of dues-paying status.

Mitchell was also heavily criticized for the salary paid to him annually by the non-profit. According to its 2008 tax filing, Mitchell was paid $409,490 that year. His salary was far more than any local heads of the BBB, and greater than the organization’s national president.

Ken Berger of the watchdog group Charity Navigator, which tracks non-profits, said it was important to “shine the light of transparency on questionable salaries.” Earlier he said that Mitchell’s salary was out of line with others within the BBB and at comparable organizations.

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Businessman latest to plead guilty in Detroit City Hall corruption scandal

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Andrew Park, 46, is the latest figure in the Kilpatrick city hall corruption scandal to plead guilty to charges in Detroit U.S District Court. Property developer and businessman Park, admitted to hiding income totaling $898,000 from three companies controlled by him: Asian Village, Pangborn Technovations Inc. and Security Communication Alert Network.

Park’s tax evasion charges were a byproduct of an FBI investigation of business dealings with former mayor Kwame Kilpatrick’s high school buddy, Derrick A. Miller.  After Kilpatrick was elected mayor in 2002, he appointed Miller as his chief aide and subsequently chief information officer. Miller resigned in 2007 to start his own firm.

In 2008, FBI agents raided the home of Park taking records and computers, looking for evidence of payments to Miller. Investors in a failed real estate development, Asian Village, told authorities that they believed Park was paying bribes to Miller for his help in steering money and business to Park and his ventures. The city helped fund the Asian Village project, providing a $2.75 million loan from the General Retirement System Fund.

In another transaction involving Miller, Park’s company Security Alert Communication Network was given a $4 million city contract to install security cameras in downtown Detroit using federal funds from the U.S. Department of Homeland Security. His company was paid in full, but failed to complete the project.

Prosecutors say that Park failed to report income from the ventures, and then claimed that the receipts were loans. The unpaid tax amounts to over $300,000. In addition to the taxes, he faces up to $100,000 in fines and five years in prison.

Miller was charged last week as part of group of city hall insiders, including Kilpatrick, Kilpatrick’s father, Bernard, close friend Bobby Ferguson, and former Detroit water chief Victor Mercado. The U.S Attorney’s office announced a 38-count indictment against the men, charging them with extortion, bribery and fraud.

Kilpatrick resigned from office in 2008 after being charged with 10 felonies, including perjury, misconduct in office and obstruction of justice. He pleaded guilty to lesser charges and served 99 days in jail, but was sent back for violating the terms of his parole.  He is currently serving time in federal prison in Milan, Michigan.

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