Industry Outlook: Organic and Wellness Food Products

by

Danny Restivo, 2/21/17

The organic food market hit a record $43.3 billion in 2015, increasing more than 11 percent since 2014. In one year, the entire market grew by $4.5 billion, the largest year on record, according to the Organic Trade Association’s 2016 survey.

The last several years have signified an ever-increasing appetite for healthy and ethically produced food among consumers and suppliers. Whether its fruits and vegetables (which account for more than a third of organic subcategories in 2015) dairy products, fish and meats or condiments, large commercial stores have taken note, creating greater access to food that meets the demands of consumers focused on health and wellness.

Consumers have cited a variety of reasons for purchasing food that increase transparency in the production process; some are increasingly health conscious and concerned with chemicals and preservatives, while others have trepidations about animal welfare. As food producers harness the merits of an organic label, ethically-minded and health-conscious consumers have been bombarded with different labels as providers attempt to carve out a niche. “Non-GMO,” “cage free,” “grass fed” and “pasture-raised” have become frequent labels appearing on packages. However, many producers have neglected the essence of these labels and applied them under extremely loose guidelines.

In an effort to cement a benchmark for poultry and livestock, the United States organic4colorsealgifDepartment of Agriculture published its own organic rules on January 19. The rules apply to the USDA’s National Organic Program, which stipulates indoor and outdoor space requirements, clarifies treatment of poultry and livestock, and places limitations on the alterations to cages and pens for animals classified as organic. The regulations also define the soil and vegetation organically-classified chickens and livestock must use.

The USDA’s mandate comes six months after President Barack Obama signed a law that requires food producers to label items produced with genetically modified ingredients. However, the law allows producers to skirt the written label in favor of a barcode that customers can scan with their phone to learn about GMOs in the product. The legislation also allows producers to include a phone number in lieu of a label, giving consumers the option to call for GMO information. The bill, which received bipartisan support from democrats and republicans, pre-empts a similar law in Vermont requiring disclosure of GMO’s on labels. Furthermore, the bill ensures a federal framework, preventing a patchwork of state laws from cropping up.

Organizations like the Organic Consumers Association, and Sen. Bernie Sanders (D-VT) criticized the bill for giving large corporations a loophole. They argued that low-income consumers don’t necessarily have technology to access GMO information. Supporters of stricter GMO labels point to Europe where their use is rare and heavily regulated. These criticisms come after the United States Food and Drug Administration, as well as the National Academies of Sciences, Engineering and Medicine, released comprehensive studies saying GMOs would cause “no differences that would implicate a higher risk to human health.” Furthermore, their studies offered no evidence that GMO’s consumed in North America caused higher rates of diabetes, kidney disease, cancer and other ailments compared to GMO-regulated Europe. After their reports, the FDA announced it would monitor non-GMO labels that promoted products as healthier or safer.

In light of these regulatory measures and research, a desire for accountability and transparency in food production among consumers remains. According to an analysis from Credit Suisse, the top 25 food and beverage companies have lost a combined total of $18 billion in market share since 2009. The loss highlights fear over large producers selling items packed with preservatives and questionable techniques. Instead of grabbing canned fruits or cereal boxes from the grocery stores middle aisles,  millennials have turned to the perimeter aisles where a great deal of organic and locally-sourced produce is found.  Whilesimple-truth-front large box stores like Target, Kroger, Wal-Mart and Wegmans have tapped smaller producers, rather than the traditional large players. Some grocery chains have even started their own “natural” food lines. Kroger’s Simple Truth Food Line grew by $1.2
billion in just two years. According to one research firm, the shift to “wellness” food has resulted in 1 percent drop in packaged food per year since 2014. It may seem like a slim margin, buy producers have taken note.

Major companies like General Mills, Campbell’s, ConAgra and other large-scale food companies have started acquiring smaller health-conscious companies, while reshaping their production models. In 2015, General Mills announced it would stop using GMOs in Cheerios, while also reducing the amount of sugar in its cereal by 25 percent. Kraft also announced it was removing synthetic colors and artificial preservatives from its iconic macaroni and cheese. However, the trend aimed at making food production more transparent has bordered on misleading. For example, Hunt’s, the famous producer of tomato paste, tomato sauce and ketchup, released a statement and created a social media advertisement touting its use of non-GMO tomatoes. Unfortunately, there are no GMO tomatoes on the market. Hunt’s received a great deal of criticism for pandering to misinformed customers, while also antagonizing a belief that large food producers can’t be trusted. The advertisement also furthered the myth that genetically engineered food is unhealthy.

As companies look to capitalize on a market  eager for labels describing “no preservatives,” “non-GMO,” “organic,” or “no antibiotics,” labels from different organization’s guaranteeing healthy ingredients have proliferated. The USDA offers tips to meat producers who use labels that say “humanely raised,” or “treated with care.” Producers must submit applications before using such labels, but critics claims the benchmarks are too low. Therefore, several nonprofits aimed at increasing animal welfare have filled the void. The American Humane Association, Humane Farm Animal Care and A Greener World have set their own standards to make animal welfare at the forefront of a consumer’s mind. Whole Foods has even provided a 5-step certification process before it contracts with a meat supplier. However, these certified labels vary in their guidelines, including differences in access to pasture for cattle, ammonia levels in cages for chickens and space for pigs.

As President Donald Trump enters office with a pledge to rollback two regulations for every one that is implemented, federal food policy could come under scrutiny. Trump had tapped former Georgia Governor Sunny Perdue to serve as his agricultural secretary. Perdue grew up on a farm and holds a doctorate in veterinary science, before serving as the Peach State’s republican governor from 2003 to 2011. As a governor who oversaw the executive branch of state with 42,000 farms and a strong stake in the cattle industry, Perdue now takes charge of an agency with a $155 billion budget that includes the Animal and Plant Health Inspection Service (while the agriculture department oversees the processing of meat, the Food and Drug Administration handles food safety for fruits and vegetables).  Perdue takes office as farm incomes have dropped be nearly a half, from $120 billion in 2013, to a projected $66.9 billion in 2016. His agency could try and roll back regulations in an effort spark growth in a sluggish industry.

 Statements on New Federal GMO Labeling Law

 Zippy Duvall, President of The American Farm Bureau Federation:

“President Obama’s signature today will put a stop to the harmful patchwork of state GMO labeling laws and set in place a uniform, national disclosure system that will provide balanced, accurate information to consumers. For decades, biotechnology has made it possible for farmers to grow safe and healthful crops while reducing their environmental impact. We are pleased that Congress and the administration have moved swiftly to prevent consumer confusion and protect agricultural innovation.”

 Sen. Bernie Sanders (D-VT)

“Under Vermont’s law and my amendment, consumers can glance quickly at a product and be able to determine the GMO contents with no need for a smartphone or internet connection.” He added, “What makes sense is to build on what Vermont has done, not come up with an unenforceable, confusing, weak piece of legislation paid for by the large food corporations in this country.”

President Rihard Wilkins, American Soybean Association President

“The passage of this bill allows for both consumers and producers to move on from this fight, and benefit from a uniformed, standardized labeling law across the country. We believe this thoughtfully-crafted compromise provides consumers with the information they need, without stigmatizing a safe and sustainable food technology. We appreciate the support from House leaders to get us to this point. ASA and its state and regional affiliates now encourage President Obama to sign this bill into law. Its enactment will stop a potential patchwork of state labeling and providing farmers, producers, manufacturers and consumers peace of mind as they continue to enjoy America’s safe and affordable foods.”

 Gary Hirshberg, Chairman of ‘Just Label It’ Initiative

“Consumers have already begun to see GMO labeling disclosures on many familiar food packages as companies prepared to comply with Vermont’s groundbreaking law,” said Hirshberg. “In the wake of the creation of a national, mandatory labeling system, Campbell’s, Mars and Dannon have already publicly committed to keeping this simple disclosure on their packages as USDA sorts out the rules for implementation of this new law. I have sent a letter to other industry leaders asking them to publicly commit to keeping consumers out of the dark when it comes to GMOs in our food.”

Chip Bowling, The National Corn Growers Association

“This achievement was made possible as members of the food and agricultural value chain came together as never before to advance a solution that works for farmers, food companies and, most importantly, consumers.” Bowling adds, “S. 764 ensures consumers have the access to product information without stigmatizing this safe, proven technology that America’s farmers value. Now that both houses of Congress have come together to address this important issue, we ask that the President take the final step by signing this legislation into law.”

 National Association of Wheat Growers

This bill is a crucial step forward in informing customers about a safe and sustainable technology to ensure access to affordable food for consumers. The labeling options allowed in this law will encourage public acceptance of this reliable technology, while preempting the state-by-state patchwork that Vermont’s law alongside other potential future state laws could cause. This technology, which has been proven safe for human consumption, is one of the most reliable ways forward in assuring global food security and access to sustainably-produced food.

Ken Cook, Environmental Working Group President

EWG does not support the Roberts-Stabenow GMO labeling proposal. While we support a national, mandatory GMO labeling system and recognize that more foods would be covered by this proposal than are covered by state labeling laws, we cannot support this proposal because food companies would be permitted to make a GMO disclosure through a means that is unavailable or unfamiliar to many Americans. Food companies have already changed their labels to comply with Vermont’s groundbreaking GMO labeling law. If the Roberts-Stabenow proposal becomes law, EWG will do everything in our power to pressure food companies to continue to make a GMO disclosure on the package.

Statements on USDA’s National Organic Program

 National Pork Producers Council

The U.S. Department of Agriculture’s amendment to the Organic Food Production Act of 1990 would strictly dictate how organic producers must raise livestock and poultry, including during transport and slaughter, and specify, without scientific justification, which common practices are allowed and prohibited in organic livestock and poultry production, thereby eliminating producers’ discretion to make sound decisions about animal care. It also would establish unreasonable indoor and outdoor space requirements for animals. The regulation was cleared by the Office of Management and Budget Wednesday, the last step before becoming final.

Tracy Brunner, National Cattlemen’s Beef Association

“The Obama Administration has bowed to the whims and demands of animal activists rather than talking to the industry as a whole to see what is best for the program and for consumers. This rule sends a clear signal that an activist agenda is more important to the outgoing Administration than any true attempt to clarify a consumer’s perception of what ‘organic’ means.” Brunner added, “NOP is a marketing program, not an animal health, welfare, or safety program and certainly not a place to set animal welfare requirements. Cattlemen and women have worked diligently over the past 30 years to develop and improve animal care and handling standards through the Beef Quality Assurance Program, which is continuously reviewed and updated as new science becomes available.”

 American Society for the Prevention of Cruelty to Animals

Consumers, responsible farmers who provide meaningful welfare and the organic industry should celebrate this landmark victory. Since the USDA began regulating organic agriculture in 2000, consumers have expected—and paid a premium for—an idyllic version of “organic” animal welfare. But in many segments of the organic market, a grimmer reality prevails. Exploding demand for organic products and the absence of clear organic animal welfare standards have allowed the organic market to be flooded with large-scale, industrial producers who profit from the public’s desire for higher-welfare animal products while still employing the terrible practices found on typical factory farms.

The Organic Trade Association

Producing food that meets the USDA Organic label is a choice for farmers and consumers. An ongoing review process by the National Organic Standard Board and USDA keeps that standard strong. Animal welfare, which includes healthy living conditions and the best animal husbandry practices, has always been a high priority of organic producers. In fact, USDA’s National Organic Program’s final rule was the first USDA regulation to mention animal welfare, requiring outdoor access for all organic poultry and livestock and living conditions that accommodate for the health and natural behaviors of animals.

Kansas Senator Pat Roberts, Chairman of the Senate Committee on Agriculture, Nutrition and Forestry

“This rule has serious potential to force organic farmers and ranchers out of business and is widely opposed by those very folks who are affected the most by this rule. Prices for consumers could rise, and animal health could be put at risk, which may decrease food safety. I will work with USDA under the new Administration to see what can be done to ease this overregulation on our hard-working farmers and ranchers.”

 Mike Leventini, Vice President and General Manager at Perdue Foods (statement made during NOP Public Comment Period)

“Perdue supports the NOP’s desire to strengthen what it means to carry the Organic seal.  These proposed standards will significantly differentiate organic growing practices from conventional operations and meet consumer expectations that Organic production meet a uniform and verifiable animal welfare standard.  We are with you; we need the 3 year timeframe to make it happen.”

Federal Health Care Policy Update

Insurers May Get More Time to Opt Into Obamacare in 2018

The deadline for health insurers to apply for the 2018 Obamacare federal exchanges would be extended from May 3 to June 21, the HHS proposed Feb. 17.

Health plans are in the process of deciding whether to participate in the 2018 exchanges, and many health-care stakeholders have said the 2018 exchanges are in jeopardy of further premium increases and withdrawals as Republicans prepare plans to repeal and replace the Affordable Care Act.

Humana Inc. was the latest to withdraw from the 2018 exchanges, and Molina Healthcare Inc. also indicated it might not participate. Most of the health plans participating in the ACA exchanges are losing money due to a sicker-than-expected population of enrollees.

In addition to the draft bulletin that would revise the timing for qualified health plan submissions, the Health and Human Services Department’s Centers for Medicare & Medicaid Services released a document of revised key date filings for qualified health plan certification in the federal exchanges and an addendum of technical guidance. Plans can file their applications as early as May 10 under the proposal, on which the CMS requested comments no later than March 7. The CMS would send final certification notices to insurers by Oct. 12, instead of Sept. 22. The 2018 open enrollment period is to start Nov. 1.

Senate Republicans Ready to Repeal ACA without Democrats: McConnell

The Senate is ready to repeal the Affordable Care Act without any help from Democrats, Senate Majority Leader Mitch McConnell (R-Ky.) said.

McConnell said he hopes to move forward on dismantling the ACA “just as soon as we have the votes,” and said he expects little to no cooperation from Democrats on a replacement plan. Senate Republicans plan to pass a repeal bill using filibuster-proof reconciliation, meaning they can lose two Republican votes and do not need Democratic support to move it.

“It’s clear that in the early months it’s going to be a Republicans-only exercise,” he said during a Feb. 17 news conference.

The admission comes a day after House Republicans met to rally around a plan to dismantle the law. Republican leadership distributed a briefing paper to conference members that says the GOP conference is committed to offering monthly tax credits and loosening restrictions on tax-favored health savings accounts as part of their overhaul.

Congress is out for the next week. House Speaker Paul D. Ryan (R-Wis.) said Republicans would introduce a repeal-and-replace bill upon their return. Over the break, many lawmakers will hold town halls in their districts, which have become for the past several weeks a battleground for voters’ ire over efforts to dismantle the law.

McConnell said he was not concerned about town hall protesters, adding, “I can’t think of anything we’ve talked about more on both sides than Obamacare.”

Conservatives Object to Obamacare Replacement’s Tax Credits

Some conservative House Republicans are objecting to a major part of the Obamacare replacement outline presented to them by party leaders, underscoring the party’s continuing inability to agree on an alternative health plan. The proposal would allow Americans who lack insurance to buy coverage with refundable tax credits they can receive before the end of a tax year. House Ways and Means Chairman Kevin Brady said he and other leaders presented the idea during Thursday’s private conference of the House GOP.

Some conservatives say they oppose the idea because it could amount to a new government subsidy by allowing people to receive a larger credit than they pay in taxes. They prefer a mechanism that would preclude people from getting any more money than they paid in taxes. “I don’t like the refundable tax credit,” says Representative Ted Yoho of Florida. “I don’t want people getting money back.” Representative Trent Franks of Arizona said tax credits “should be predicated on those taxes paid in, not a refundable tax credit, because it can so easily become a major and unstoppable entitlement.”

The dispute over tax credits is one of many issues facing Republican leaders as they seek agreement on how to fulfill their promise to repeal and replace Obamacare. Also discussed Thursday were a proposal to cap the tax break for employer-provided health insurance, and efforts to restructure Medicaid. Republicans are set to face their constituents during a weeklong congressional recess next week.

There is no legislative language yet, so it is too early to count votes for or against a health care plan. However, with 239 Republican members in the House and virtually no hope of Democratic support, the GOP can only afford to lose 21 of their own lawmakers on a bill.

“I think there’s not the votes there to pass refundable tax credits,” said Representative Mark Meadows of North Carolina, chair of the Freedom Caucus of about 40 conservative members. He said it could be a “new entitlement program” and may be subject to fraud. Asked if that calculus would change if President Donald Trump backs refundable tax credits, Meadows said, “No, it does not.”

Representative Dave Brat of Virginia said, “The refundable tax credit piece is problematic because then you’ll have health care run at the federal government level where everything is insolvent.” And he said Democrats will “bid up” the tax credits over time.

Democrats Hit Back at Republican Health-Care Proposals

Congressional Democrats Feb. 16 called for adding a public health insurance option to Obamacare markets and making subsidies more generous.

Speaking to about 600 people at an annual Washington conference held by Families USA, an organization that strongly supports the Affordable Care Act, Democratic members of Congress criticized Republicans for offering “failed ideas,” such as high-risk pools, to replace the ACA. A few hours later, former Obama administration officials also criticized Republicans for not being able to offer a replacement after years of calling for repealing and replacing the 2010 law.

Republicans are moving forward with their plans to repeal and replace the ACA, with the party’s congressional leadership presenting their members talking points of their plans. ACA supporters took aim at the proposals, saying they would not come close to covering the approximately 20 million people who have gained coverage under the ACA.

Trump Pick to Run Medicare and Medicaid Demurs on Key Questions

Seema Verma, President Donald Trump’s pick to run U.S. health programs for the elderly, poor and disabled, gave little detail on her views on key pieces of those programs.

At a hearing before the Senate Finance Committee on her confirmation to run the Centers for Medicare and Medicaid Services, she said questions ranging from future funding to drug benefits to seniors are up to Congress, and that she’ll implement the laws they pass. She did give insight into her philosophy, which is that more flexibility should be given to states and individuals to make choices about health care, and the federal government’s role should be more limited.

“I will work toward ushering in a new era of state flexibility and leadership,” Verma said in her prepared introductory remarks. “We need to ensure that people have choices about their care.”

On Medicare, the government program for the elderly and disabled, Verma said she was opposed to the idea of turning it into vouchers, which could lead to more limited funding. However, she said she is open to ideas to shore up its financial stability.

Medicare Part D

Republicans, who control Congress, are working at a strategy to repeal Obamacare, the signature health-care law of Trump’s predecessor. Undoing the Affordable Care Act could increase the amount seniors have to pay for drugs in the Part D piece of Medicare, which subsidizes the costs of prescription drugs for its beneficiaries. Again, Verma would not give her opinion on the issue.

“It’s important to help seniors get the most affordable drug prices,” she said.

When asked whether Medicare should have more authority to negotiate prices — something that drugmakers strongly oppose and about which Trump and his administration have send mixed signals — she praised the role of private firms known as pharmacy benefits managers. PBMs, which negotiate with drugmakers to get discounts for clients including government programs and insurers, have been in the cross hairs lately in the debate over who’s responsible for high drug prices in the country,

“I’m thankful that we have the PBMs and the Part D program that are performing that negotiation on behalf of seniors,” Verma said.

Medicaid

On Medicaid, the program for the poor, Verma repeatedly endorsed the idea of giving more control to states. She backed the Medicaid expansion that she worked on in Indiana as a consultant, including to then-governor Mike Pence, who is now vice president. She was asked about policy under consideration by Congress that could limit Medicaid funding, including block grants and per-capita caps.

“What I support is the program working better, and whether that’s a block grant or a per-capita cap, there are many ways we can get there,” she said.

After the hearing, Senator Ron Wyden, the Oregon Democrat who is the ranking member on the Senate’s Finance Committee, called those policies “a Trojan horse for cutting spending.” He said Verma avoided questions on Medicare, and that he is awaiting her written responses before deciding how he will vote.

During the hearing, Verma was pressed on whether the Medicaid proposals would lead to individuals losing coverage. She said, “I strongly do not want to see anyone not get health services.”

Vulnerable Populations

That built on a theme she returned to throughout her hearing, that she has fought for coverage for vulnerable populations throughout her career.

“I started my career working on national policy on behalf of people with HIV and AIDS, as well as low income mothers,” she said in her prepared opening remarks. “I fought for coverage, for greater health care access and for improving the quality of care — and have continued to fight for these issues.”

In the individual market, Verma said health plans should be able to offer skimpier packages of benefits than what the Affordable Care Act currently allows. At one point, she declined to answer a question on whether insurance should cover autism treatment for children, because she had been advised by the Office of Government Ethics not to address the topic because her husband is a psychiatrist.

At another point, she said that she would give adults more choices in their insurance plans. That came in response to questions from Senator Debbie Stabenow, a Michigan Democrat, about whether her plan would amount to charging women more for benefits such as maternity care.

“Women have to make the decisions that work best for them and their family,” Verma said. “Some women might want maternity coverage. Some women might not want it, might not choose it, might not feel like they need that.”

HHS Moves to Stabilize Obamacare Markets

Health insurers got help from the Trump administration Feb. 15 to make their Obamacare exchange plans more profitable, but the proposed regulation did not include changes in the premium differential that can be charged for older enrollees.

The Department of Health and Human Services market stabilization proposed rule (RIN:0938-AT14) would make changes in 2018 to the Affordable Care Act special enrollment periods, the annual open enrollment period, guaranteed availability, network adequacy rules, essential community providers and actuarial value requirements. It also announces upcoming changes to the qualified health plan certification timeline.

The proposed rule follows the announcement Feb. 14 by Humana Inc. that it is leaving the marketplaces in 2018 because the company’s plans are losing money. Humana followed UnitedHealth Group Inc. and Aetna in pulling back from the marketplaces. Most plans have lost money in the exchanges due to a sicker than expected population of enrollees, and both supporters and critics of the 2010 health-care law are grappling with ways to make the individual and small group health insurance markets sustainable.

The proposal is HHS Secretary Tom Price’s first attempt to stabilize the troubled ACA markets since he took office. The proposal is scheduled to be published in the Federal Register Feb. 17, with comments due March 7.

IRS Easing ACA Individual Mandate after Trump Order

The IRS will not require people to mark whether they have health insurance when filing their tax returns, a shift from current requirements under the Affordable Care Act’s individual insurance mandate.

The agency walked back a previous decision to require an indication of coverage on tax returns after President Donald Trump signed an executive order Jan. 20 requiring federal agencies to reduce the burden of the ACA. The law, which Republicans are jockeying to dismantle, requires individuals to maintain health coverage or pay a penalty.

After accepting returns that didn’t indicate coverage in 2014 and 2015, the Internal Revenue Service had set up a system for this year that would reject tax returns during processing if an individual didn’t provide health coverage information. The agency decided to continue accepting electronic and paper returns for processing, even if they lack the coverage information, following the executive order, according to an agency statement.

While the step may be seen to be a weakening of the ACA’s mandate, the IRS makes clear that the law is still in force and “taxpayers remain required to follow the law and pay what they may owe.” IRS Commissioner John Koskinen has previously said despite the flurry of activity on the Hill regarding the ACA, taxpayers should follow current law until there is a new one.

John Zang contributed to this report

Washington DC/Administration Update

Trump Cabinet, Court Pick to Dominate Spring Work Period: McConnell

Action on President Donald Trump’s plans for an Affordable Care Act repeal and tax code overhaul are likely months off, and instead, the Senate will use the upcoming spring work period to confirm Trump’s remaining appointments and upend Obama-era rulemakings, Senate Majority Leader Mitch McConnell (R-Ky.) said.

The Republican leader said Feb. 17 as the Senate prepared to depart for the Presidents Day recess that lawmakers’ priorities when they return Feb. 27 will be confirming remaining Cabinet nominees and taking up more House-passed Congressional Review Act bills to repeal regulations. The days leading up to the two-week spring recess starting April 7 will be for debate and approval of Judge Neil Gorsuch to serve on the Supreme Court, McConnell said.

The only major legislative initiative likely to come to the Senate floor during early spring is a supplemental spending bill to provide the Pentagon more money, a priority for Trump and the Republican-controlled Congress, McConnell said. The Defense Department supplemental is also expected to be the vehicle for funding Trump’s border security initiatives.

But McConnell suggested that item—along with work on the 11 unfinished fiscal year 2017 appropriations bills—could slip into April, closer to the April 28 deadline when current government spending lapses.

Trump saw 13 top-level nominees approved in the past month, including his national security team, but still is without leadership at many agencies that oversee domestic programs. Still to be confirmed are his picks for the Commerce, Energy, Interior, Housing and Urban Development, Labor, and Agriculture departments.

  • Elaine Chao as Secretary of Transportation
  • Betsy DeVos: as Secretary of Education
  • John Kelly as Secretary of Homeland Security
  • James Mattis as Secretary of Defense
  • Linda McMahon as Small Business Administration administrator
  • Steven Mnuchin as Secretary of Treasury
  • Mick Mulvaney as Director of Office of Management and Budget
  • Tom Price as Secretary of Health and Human Services
  • Scott Pruitt as Head of Environmental Protection Agency
  • Jeff Sessions as Attorney General
  • David Shulkin as Secretary of Veteran’s Affairs
  • Rex Tillerson as Secretary of State
  • Ben Carson awaits confirmation for Secretary of Housing and Urban Development
  • Linda McMahon awaits confirmation for Head of Small Business Administration
  • Rick Perry awaits Confirmation for Secretary of Energy
  • Wilbur Ross awaits confirmation for Secretary of Commerce
  • Ryan Zinke awaits confirmation for Secretary of Interior

No hearings scheduled yet on Alexander Acosta, nominated Feb. 16 to be secretary of labor (Andrew Puzder withdrew from consideration as secretary of labor Feb. 15)

No hearings scheduled on Sonny Perdue for Secretary of Agriculture .  Senator McConnell declined to give a timetable for the ACA repeal and tax code overhaul. Both, he said, remain the subjects of intense conversations among House and Senate Republicans.

“[W]hat we have is a pretty overwhelming desire to do that, and if we do that, and we change this awful health-care law, and if we do the first comprehensive tax reform since 1986, those will have been really big lifts,” McConnell said. “We’re committed to doing that.”

Trump Picks Outspoken Army ‘Rebel’ as National Security Adviser

Donald Trump’s pick of H.R. McMaster for national security adviser puts a key job in the hands of a decorated officer with a record for speaking his mind, reassuring administration critics who have been increasingly vocal about their differences with the U.S. president.

Trump on Monday selected the Army lieutenant general to replace Michael Flynn, who resigned last week following revelations he misled the vice president about contacts with a Russian envoy. Keith Kellogg, who stepped in as acting national security adviser and was considered for the post, will remain as chief of staff for the national and homeland security councils.

While Trump has tapped a number of military officers for key administration posts, the new national security adviser has a reputation for speaking truth to authority, a trait that hasn’t always been welcome in a White House where loyalty to the president is prized most of all. Scores of Republican foreign policy officials have been passed over for top jobs after signing letters or speaking out against Trump during the campaign.

Trump’s decision prompted Senator John McCain of Arizona, who heads the Armed Services Committee and has been perhaps the president’s loudest Republican detractor on Capitol Hill, to call the 54-year-old McMaster “an outstanding choice,” adding that he gives “President Trump great credit for this decision.”

Pence Pledges U.S. Commitment to EU on Last European Tour Stop

Vice President Mike Pence said the U.S. commitment to the European Union remains strong and the new administration would seek ways to bolster the relationship, just a month after Donald Trump questioned the bloc’s viability and said NATO was “obsolete.”

“It is my privilege on behalf of President Trump to express the strong commitment of the United States to continued cooperation and partnership,’’ Pence said Monday in Brussels. “Whatever our differences, our two continents share the same heritage, the same values and above all the same purpose — to promote peace and prosperity through freedom, democracy and the rule of law.”

On the final day of his first trip overseas since taking office, Pence sought to allay concern that the trans-Atlantic partnership was beginning to fray by giving reassurances to European Council President Donald Tusk, European Commission President Jean-Claude Juncker and the EU’s foreign affairs chief Federica Mogherini. Pence’s trip capped Secretary of State Rex Tillerson and Secretary of Defense James Mattis’s own international debuts in Europe as the administration tries to set its foreign policy agenda.

Tusk, standing next to Pence after their meeting at the European Council, told reporters that the two leaders did not try to paper over their differences. “The idea of NATO is not obsolete, just like the values that lay at its foundation are not obsolete,” Tusk said. Pence was expected to meet with Jens Stoltenberg, secretary general of the North Atlantic Treaty Organization, later on Monday.

Puzder Withdraws as Labor Secretary Nominee

Andrew Puzder withdrew as President Donald Trump’s labor secretary nominee Feb. 15, amid rising controversy over his personal life and private sector background.

“I am withdrawing my nomination for Secretary of Labor. I’m honored to have been considered and am grateful to all who have supported me,” Puzder said on Twitter.

Puzder is the chief executive officer of CKE Restaurants Inc., parent company of the Hardee’s and Carl’s Jr. brands. His withdrawal came hours before a Senate Health, Education, Labor, and Pensions Committee confirmation hearing, which had been scheduled for Feb. 16. That hearing was delayed four times over the past five weeks, allowing new revelations about Puzder to surface.

Puzder ran into trouble on Capitol Hill over his admission that he employed an undocumented housekeeper. A decades-old divorce that included a domestic-abuse allegation also cast a shadow over his nomination. Some conservatives, likewise, had questioned his pro-immigration stance.

At least six Republicans have said they were not ready to back Puzder and were waiting for his confirmation hearing. Three GOP defectors would have been needed to sink him in the 52-48 Republican majority Senate.

John Zang contributed to this report

 

Congressional and Administration Health Care Update- Week of 2/13/17

Senate Confirms Price as Health Secretary as ACA Fight Nears

The U.S. Senate confirmed Tom Price, a congressman and physician, to head the Department of Health and Human Services, a post where he’ll have a leading role in Republican efforts to dismantle Obamacare and implement its replacement, and oversee a budget of more than $1 trillion.

The vote was 52-47, making Price the most contentious nominee for the position since at least President Jimmy Carter’s administration. Democrats opposed him because of his free-market, limited-government views on how the American health-care system should operate, and his past efforts to privatize Medicare by turning it into a voucher system. They also strongly criticized him for leaving questions unanswered about stock purchases in medical companies he made while handling health-care legislation.

“President Trump is setting up his cabinet to run our country in a way that benefits those at the top and their allies, but really hurts the workers and families we all serve.” Senator Patty Murray, a Washington Democrat, said on the Senate floor during Thursday’s debate on Price. “It’s hard to imagine who in America would be better off under Congressman Price’s leadership at HHS.”

Senator Orrin Hatch, a Republican from Utah, backed the nominee, who was an orthopedic surgeon before being elected to Congress.

“Dr. Price has extensive insight into our nation’s health-care system, having practiced medicine for two decades in a variety of settings,” Hatch said. He “will put this vast experience to good use and be decisive not only in working with Congress to find solutions but implementing them.”

Guidance Helps Explain One-In, Two-Out Regulatory Order

The Office of Information and Regulatory Affairs quickly issued interim guidance for agencies grappling with President Donald Trump’s new executive order requiring two regulations to be eliminated for every one issued.

All regulatory activity was frozen on Jan. 20 by a memorandum issued by White House Chief of Staff Reince Priebus. Once the freeze is lifted, the new order’s requirements will apply to all significant regulatory actions by agencies between noon on Jan. 20 and Sept. 30, the end of the fiscal year.

In general, executive departments and agencies may comply with the order’s requirements by issuing two “deregulatory” actions for each new significant regulatory action that imposes costs, said the guidance document signed by Dominic Mancini, acting administrator of OIRA.

OIRA requested public comment on the guidance, which should be sent to reducingregulation@omb.eop.gov by Feb. 10. It is likely the guidance, which was presented in a question-and-answer format, will be updated following the comment period.

It is also possible that the guidance could change once the new director of the Office of Management and Budget is confirmed. Trump’s nominee to lead the OMB, Rep. Mick Mulvaney (R-S.C.), is awaiting Senate confirmation.

Medicare Equipment Bidding Stalled by Administration

The Trump administration is temporarily halting an upcoming round of the Medicare durable medical equipment competitive bidding program.

The next steps of the Round 2019 bidding program, which was announced Jan. 31, will be temporarily suspended “to allow the new administration further opportunity to review the program,” the Centers for Medicare & Medicaid Services said Feb. 7 in a brief announcement.

The Medicare agency has said the program saved billions of dollars from the former fee schedule payment since it began in 2011. The program hasn’t been popular with the DME supplier industry due to reimbursement cuts which they say have driven suppliers out of business.

Lottery Winners May Have to Scratch Off Medicaid

Lawmakers cracked down on lottery winners using Medicaid health-care benefits, sending two proposals Feb. 7 to the House Energy and Commerce Committee and moving forward with early Republican efforts to curb what they see as misspending in the $550 billion program.

The proposed legislation would limit Medicaid eligibility for recipients of lump-sum payments by factoring the dollars into their income over a matter of months, as well as close a Republican-deemed “loophole” by including a spouse’s annuity income into Medicaid long-term care eligibility determinations for an institutionalized partner.

The bills, H.R. 829 and H.R. 181, were widely supported by GOP members of the health subcommittee, who called them “first, small steps” in improving Medicaid and noted possible savings for the most vulnerable beneficiaries. But Democrats bristled in a highly partisan vote, calling the proposals trivial at best—masking the ultimate goal of stripping dollars from the safety-net health insurance program—and harmful at worst, chipping “away at the program around its edges” and jeopardizing “hard-working” spouses of patients in need of long-term care.

Sent to the full committee with 20-to-12 and 19-to-13 margins, they represent the first targets for reforming and reining in Medicaid spending, which the Congressional Budget Office estimates could reach $1 trillion annually by 2026. With some members surprised about the lack of consensus, the votes underscore how controversial tweaks to a health insurance program that covers more than 70 million seniors, disabled and children will be.

“We never claimed this was going to fix everything, but this is a starting point,” Rep. Markwayne Mullin (R-Okla.), who authored H.R. 181, the annuities bill, said.

“Let’s just move forward, try to come up with small problems that can be solved,” he said.

Rep. Fred Upton (R-Mich.) was the sponsor of H.R. 829, the lottery bill.

Trump Administration Says Obamacare Failed as Sign-Ups Decline

Fewer people in the U.S. signed up for Obamacare coverage for this year, according to a preliminary report, as enrollments slowed after the Trump administration vowed it would do away with the health law.

In the 39 states where Affordable Care Act sign-ups are done on the HealthCare.gov website, 9.2 million people enrolled in individual insurance plans — about 400,000 fewer than last year. States like New York and California that run their own sign-up systems are reporting their data separately. The deadline to enroll was Jan. 31.

Even before the data came out, Democrats were claiming that the Trump administration had undermined the law, partly by halting some outreach efforts. While it now runs the health program, the Trump administration called the report another sign of the law’s shortcomings, pointing to a 25 percent increase in premiums and a decline in insurer participation.

“Obamacare has failed the American people,” Matt Lloyd, a spokesman for the Department of Health and Human Services, said in a statement. “We look forward to providing relief to those who are being harmed by the status quo.”

Until Trump took over in January, sign-ups had been trending higher. Then, on the day he was inaugurated, he signed an executive order declaring he’ll seek a prompt repeal of Obamacare and directing federal agencies to work to minimize the law’s burdens. There was also a partial halt to efforts to push people to sign up for coverage, though some of those efforts later resumed.

States with the biggest declines in sign-ups included ones where health insurers pulled out of the markets, leaving consumers with fewer choices. In Mississippi, Alaska, Georgia, Missouri and other states, insurers left the program or scaled back, while premiums climbed.

Obamacare also expanded eligibility for Medicaid and let children stay on their parents’ health plans to age 26. Including those changes, the U.S. estimates that about 20 million people have gained insurance under the law, helping lower the uninsured rate to 8.9 percent.

Medicare Must Do More Outreach on Home Health Coverage

A new website, corrective statement and national call to providers are part of a court-ordered educational outreach program the CMS must conduct to ensure Medicare providers apply the correct home health coverage standard (Jimmo v. Burwell, 2017 BL 31713, D. Vt., No. 5:11-cv-17, 2/1/17).

The U.S. District Court for the District of Vermont Feb. 1 ordered the Centers for Medicare & Medicaid Services to conduct additional educational outreach by notifying Medicare providers and contractors that the program will pay for home health services designed to maintain or slow the decline of a beneficiary’s health. The order comes in litigation brought to force CMS to rectify a prior coverage policy that excluded coverage for treatment that merely maintained a beneficiaries condition.

The court accepted the majority of the CMS’s proposed corrective plan, including language provided by the Center for Medicare Advocacy (CMA), which represented the plaintiff class of Medicare beneficiaries, for a public corrective statement. The court also insisted that the agency hold a national call to disseminate the statement and provide clarification about the correct home health coverage standard.

One key provision that the CMA pushed for was to characterize the new “maintenance standard” for Medicare coverage as a change rather than a clarification of the prior standard, which the CMS originally suggested. Judith Stein, executive director of the Center for Medicare Advocacy, said in a Feb. 2 statement that using the word “change” in the forthcoming outreach initiative, along with “the imprimatur of CMS,” means that “Medicare adjudicators and providers should have no doubt about what the correct coverage policy is.”

The order comes after Judge Christina Reiss found in an Aug. 17, 2016, ruling that program outreach mandated by a settlement between the CMS and Medicare advocacy groups fell short of the parties’ settlement agreement, and ordered the parties to come up with a new plan to correct continued incorrect application of home health coverage standards (25 HLR 1262, 8/25/16). Medicare advocacy groups previously alleged that the CMS was improperly covering only home health services designed, or later found, to improve a beneficiary’s health (the “improvement standard”), and the parties agreed in 2013 (the Jimmo settlement) to conduct an educational campaign that alerted providers, contractors and adjudicators that the improvement standard was too narrow and erroneous.

Medicare Advantage Payments for 2018 to See ‘Modest’ Rise

Medicare managed care plans should expect a “modest” 0.25 percent average increase for 2018, but revenues should go up 2.75 percent when coding trends are considered, the CMS said Feb. 1.

The “moderate growth” is consistent with last year’s payment update and reflects a similar pattern to Medicare fee-for-service payments, the Centers for Medicare & Medicaid Services said in a release announcing the 2018 Medicare Advantage and Part D Advance Notice and Draft Call Letter. Comments must be submitted by March 3, and the 2018 final announcement will be published April 3.

The CMS is proposing updates to the methodologies used to pay Medicare Advantage and Part D prescription drug plan sponsors. However, a Jan. 19 Government Accountability Office report found the new system isn’t ready for prime time, calling into question “the soundness of billions of dollars in Medicare expenditures.”

John Zang contributed to this report

Legislative Outlook: Telehealth Services

By Duane Morris Government Strategies, (Originally published 2/1/17; updated 4/7/17)

On December 14, 2016, former President Barack Obama signed the Expanding Capacity for Health Outcomes (ECHO) Act, expanding the implementation of healthcare technology. The law, which was sponsored by Sen. Orrin Hatch (R-UT), requires the Department of Health and Human Services to report on technology-enabled learning procedures and models that help specialists work with primary care providers. The law is geared toward disseminating best healthcare practices with telehealth serving as a key platform.

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Framed off an initiative that begun at the University of New Mexico’s Health Science Center, the ECHO Act supports the expansion of healthcare technology that can connect undeserved communities with specialty healthcare services. It also educates primary care providers and nurses in an effort to increase the availability of specialty care. ECHO creates “hubs” that deliver specialized education and feedback to other healthcare professionals located at the local level. ECHO addresses disparities in healthcare access, rising costs, systemic inefficiencies and the slow diffusion of best practices. While the law does not expound upon telehealth services, it does underscore the need to improve technology-based services.

Besides the ECHO Act, several other pieces of telehealth legislation have been introduced into the House and Senate. The Reaching Underserved Rural Areas to Lead Telehealth Act of 2015, sponsored by Sen. Roger Wicker, (R-MS), directs the FCC to remove regulatelemedicine_consulttions on Medicaid reimbursements non-rural hospitals receive from the Healthcare Connect fund, which provides funding for healthcare facilities internet service.  The Telehealth Innovation and Improvement Act of 2015, sponsored by Sen. Cory Gardner (R-CO), would require the Center for Medicare and Medicaid Innovation to test the impacts of a telehealth delivery system. In 2015, Rep. Doris Matsui (D-CA) introduced the Telehealth Modernization Act of 2015 to help create a federal standard for telehealth procedures. However, all three bills never moved passed their congressional committees.

As federal lawmakers seek a telehealth regulatory policy, 47 states and the District of Columbia have established some sort of Medicaid reimbursement policy for telehealth (Massachusetts, Rhode Island and Utah do not have a policy). Meanwhile, 29 states and the District of Columbia have telehealth mandates for private insurers.

The Federation of State Medical Boards said telehealth was the primary healthcare regulatory issue in 2016, but comparing state laws for telehealth remains difficult because requirements, polices and licenses vary. Moreover, 150 pieces of telehealth legislation were introduced in 44 statehouses in 2016, while 42 states proposed more than 200 pieces of legislation related to telehealth in 2015.

In an effort to increase interstate collaboration and provide a uniform framework for telehealth, several states have introduced licensing compacts that allow out-of-state healthcare providers to treat patients. While not specifically designed for telehealth, the compacts create a roadmap for a strong regulatory policy. Nine states have implemented policies specific to telehealth, while nine other states have created mandates for Medicaid reimbursement for store and forward telemedicine.

As federal and state legislatures try to smooth out details, several issues remain. Concerns about doctors writing prescriptions for patients via telehealth linger. Specifically, whether a proper patient-doctor relationship can support an adequate diagnosis and prescription over an electronic platform. Doctors also have concerns over malpractice and what that means in a telehealth market. If telehealth continues to gain popularity, a legal framework over consent for doctors and patients interacting via the internet is paramount.

Last year, the Department of Health and Human Services created the National Quality Forum Telehealth Multistakeholder Committee to help measure and quantify telehealth-delivered care, before identifying best practices. Meanwhile, other organizations, like the American Heart Association, is advocating Medicare to cover telehealth services for cardiovascular disease.

“As the conversation surrounding Healthcare in the US evolves—especially following the AHCA debate last month–telehealth will almost certainly remain a top issue in 2017 as more consumers look to it as a low cost alternative to the doctor’s office” says Brett Goldman, DMGS Manager of Special Projects.

Telehealth: New Jersey

In September 2016, the New Jersey Senate Health Committee approved bipartisan telemedicine legislation (S. 291) sponsored by Sen. Joe Vitale (D-Middlesex), but the state assembly awaits a vote on the bill’s companion legislation.

The legislation has several provisions:

  • Ensures health insurance companies provide coverage and payment for telemedicine services at the same rate as provided in person.26345818294_140a6b5500_b
  • Doctors must meet with a patient in-person before receiving a written prescription for potentially addictive substances.
  • The State Board of Medical Examiners will write and adopt specific rules for practicing telemedicine.

The bill also allows out-of-state providers to treat New Jersey residents via telemedicine, while ensuring New Jersey’s Medicaid and NJ Family Care plans reimburse for telehealth at the same rate as in-person care. Some physician’s organizations, like the New Jersey Association of Health, say the proposed legislation offers little flexibility in payment structures. The bill’s supporters say eliminating uniform payment will only deter doctors from using telemedicine.

The bill does exclude audio, email and text message communications from approved telehealth platforms, meaning most telehealth in New Jersey will primarily rely on FaceTime and other video interfacing technology.

While legislators shape the state’s telemedicine framework, the New Jersey Department of Health announced a $290,000 grant in January for a telehealth company providing care for military veterans seeking behavioral healthcare but experiencing transportation challenges. The grant aims to help veterans suffering from depression, anxiety, post-traumatic stress and other psychiatric disorders, but have trouble traveling to a Veteran’s Affairs clinic.

In April, Plushcare, a San Francisco-based telehealth services provider operating in 17 states, announced it would begin providing services to New Jersey residents. Plushcare, which specializes in sinus infections, pink eye, STD’s and other ailments, started in San Francisco in 2014 before expanding to Ohio, Pennsylvania and New York. The company has partnered with roughly 50 primary care specialists, including several in New Jersey, for patients requiring a doctor’s visit.

However, with the state’s telemedicine law pending, New Jersey residents and physicians don’t have any protections in place, which has hindered telehealth’s delivery. According to a survey of physicians released in March by SERMO, a social network for doctors with more than 600,000 worldwide, only 15 percent of U.S. physicians rated their state’s telehealth programs favorably. A significant number of the survey’s participants were from New York, New Jersey, Ohio and California. Unfortunately, of the 1,651 U.S. physicians surveyed, 59 percent ranked New Jersey’s telehealth implementation as “poor” to “very poor,” while Ohio and California received relatively high approval marks. New York managed slightly better than New Jersey.

State Legislative Overview

States Enacting Interstate Medical Licensures

Alabama, Arizona, Colorado, Idaho, Illinois, Iowa, Kansas, Minnesota, Mississippi, Montana, Nevada, New Hampshire, South Dakota, Utah, West Virginia, Wisconsin and Wyoming.

States with Telehealth Specific Licenses

Alabama, Louisiana, Maine, New Mexico, Ohio, Oklahoma, Oregon, Tennessee and Texas

Medicaid Reimbursement for live Video

States with Medicaid Reimbursement for Live Video47 states have some sort of Medicaid reimbursement for telehealth video, but three do not, Massachusetts, Rhode Island and Utah.

Store and Forward Medicaid Reimbursement

Alaska, Arizona, California, Illinois, Minnesota, Mississippi, New Mexico, Virginia and Washington

Danny Restivo, DMGS Pittsburgh, Contributed to This Report

Industry Outlook: Telehealth Services

By Danny Restivo, 2/1/17

Healthcare remains a controversial topic among a wide swath of America. As a new administration pushes to repeal and/or replace Obamacare, millions are left wondering what future treatment will look like in the coming year. While lawmakers debate the best path forward, the demand for lower costs and increased efficiency has intensified.

In light of the acrimony, telehealth has surfaced as a potential remedy.

The Federal Health Resource and Services Administration has classified telehealth as “the use of electronic information and telecommunications technologies to support and promote long-distance clinical health care, patient and professional health-related education, public health, and health administration.”

Whether it’s over the phone, via email, or Facetime, technology now allows doctors and nurses to treat patients in a quick and convenient manner. Obviously, many patients require a healthcare professional physically present, but a large number do not. A recent medical study conducted by the University of Pittsburgh and the Harvard Medical School revealed that patients only spend 17 percent of their healthcare visits with a doctor. Furthermore, with the average out-of-pocket cost at $32 (on average, insurance pays $250 per visit), Americans spend roughly 2.4 billion hours a year on doctor’s visits, or roughly $52 billion in lost wages.

Visits to the doctor’s office monopolize our time and our money, which is why providers and customers have begun to view telemedicine as a viable option. Video-based telemedicine requests increased from seven percent in 2015 to 22 percent in 2016, according to Rock Health Survey. The survey found that 83 percent of patients found their service satisfactory, with a majority of users between the ages of 25-34. Those who were 55 or older were least likely to use telemedicine, but more than half had contacted a doctor via phone. Telemedicine can also serve as a practical option compared to costly emergency room visits. According to a 2013 study published by the Society for Academic Emergency Medicine, of 1,500 cases of acute care surveyed, more than a third were appropriate for telemedicine. Moreover, a 2016 HealthMine survey of 500 customers using telehealth revealed that 93 percent experienced a cost reduction compared to a traditional healthcare visit.

In light of these findings, The American Telemedicine Association predicts the worldwide telehealth market will expand at a compound annual growth rate of 14.3 percent, reaching $36.2 billion in 2020. In 2014, telehealth accounted for $14.3 billion. Increased demand for convenience, innovation and personalized healthcare are among the driving factors.

Healthcare professionals can use telemedicine to diagnose a number of ailments via phone or video chat. In a process known as store and forward, doctors and nurses can transmit X-rays, MRI images, and other digital content to help remote specialists make a proper diagnosis. For example, a cardiologist can receive an electrocardiogram on his phone and diagnose a heart attack without ever meeting the patient. In one case, a doctor in California used a high-resolution ultrasound on a flight to produce an image of a passenger experiencing chest problems. The physician determined the issue was not life-threatening and emergency landing was unnecessary.

More customers are demanding telehealth as an option on their health plan and insurance companies have obliged. According to a report from the National Business Group on Health, nine in ten employers said they plan to make telehealth available where it’s allowed. However, as telehealth increases in popularity, ensuring internet access in austere locations (where telehealth is most pertinent), as well as a viable pool of healthcare workers remains a hurdle.

With more demand, private insurers have started to tap into the telehealth market. Anthem, one of the country’s largest healthcare providers, has created a 24-hour a day, seven days a week portal for telehealth services. American Well, a telehealth company that supports Anthem’s online efforts, has created an online market where patients can select from a menu of doctors. Anthem is now offering telehealth plans to customers in Pennsylvania, Ohio and West Virginia. A number of other healthcare providers have also partnered with American Well, including the Cleveland Clinic and CVS Health, to expand their service options.

Reimbursement policies from insurance providers may also indicate the future of telemedicine. Mercer, a global healthcare consultation agency, reported 59 percent of large employers offered telemedicine policies in 2016, compared to only 30 percent in 2015. Mercer also stated that telemedicine could significantly cut costs as deductibles increase and healthcare providers try to improve transparency on prices.

Financial arrangements regarding patient needs and healthcare providers requires further streamlining. Ultimately, customer behavior may have the largest effect on how the telemedicine market evolves, but lawmakers and regulators could facilitate a stronger or weaker telehealth sector.

Up next: Telehealth Legislative Overview

DMGS Tech Brief: Cryptocurrency and Blockchain

By Danny Restivo

January 25th, 2017

For the first time in three years, the cryptocurrency Bitcoin topped the $1,000 mark, setting the stage for a banner year in 2017. The digital money hit $1,029 on January 2, according to Coindesk, a news organization that offers a price index for digital currenopengraphcy. Like all fiat currencies, Bitcoin’s value is determined by how much people are willing to trade. With the new price determination– as well as 12.5 bitcoins added into circulation every 10 minutes–the estimated value of all Bitcoins is $10 billion.

Launched in 2009, Bitcoin is the world’s most widely used cryptocurrency. It was created using an open-sourced software by an unidentified programmer, or programmers, in an effort to create a decentralized currency. A decentralized currency means that no single institution (such as a bank) or entity (country) controls Bitcoin. While similar digital currencies were launched during that same period, Bitcoin remains the dominant player and the most stable cryptocurrency investment. Its recent success has also boosted other digital money as well. The cryptocurrency Ethereum increased by 55 percent from December 28 to January 5, while Monero went up 27 percent during the same time period.

Part of Bitcoin’s rise, as well as the other cryptocurrencies, originates from blockchain technology. The technology provides a decentralized online platform to help facilitate transactions while maintaining anonymity for both parties. Whereas traditional transactions often involve a bank or financial exchange to verify and validate, blockchain technology allows Bitcoin users to account for all transactions. Using a number of complicated mathematical permutations and algorithms, a shared group of servers helps verify and validate transactions in a process called mining. Any server can help mine for Bitcoins and verify blocks within the chain of transactions while receiving bitcoins for doing so.

However, several high profile issues stemming from fraudulent transactions have plagued Bitcoins and other digital currencies. The most prolific occurred in Tokyo after a virtual currency exchange declared bankruptcy in late 2014. The exchange lost more than 100,000 Bitcoins, or more than $450 million for 750,000 customers. The company’s CEO, a Frenchman named Mark Karpeles, was ultimately charged with embezzlement before spending a year in Japanese jail. He’s now out on bail, but must remain in the country. Kareples’ incarceration comes on the heels of the arrest of two other Bitcoin pioneers. Charlie Shrem and Robert Faiella were both charged with laundering more than $1 million in Bitcoins to help make illegal purchases on the Silk Road, a now defunct black market site.

In 2013, Silk Road founder Ross Ulbricht was arrested for hacking, money laundering, narcotics trafficking and procuring murder. The FBI collected more than 144,000 Bitcoins worth more than $28.5 million before they were auctioned off. Ulbricht was sentenced to life in prison in May 2015 without the possibility of parole.

Despite issues related to criminal activity, Bitcoin has become a valued commodity matching the price of gold. Like other valuable minerals, Bitcoin’s worth stems from scarcity (only 21 million Bitcoins will ever be created, but they can be fractioned down to .000001). Bitcoin’s increasing popularity has come while countries like Venezuela, India and China place restrictions on their currency. Moreover, central banks in China, Russia, Canada and England have begun researching and implementing elements of blockchain technology.

video_wucIn September, a collaboration of Investment Banks and Tech Companies announced they would collaborate on a blockchain platform for trading. In October, other investment banks also announced that they were developing blockchain technology to create a shared ledger of all transactions while maintaining privacy for traders and transparency for regulators. Major investment banks have also been linked to technology firms that specialize in distributed ledger infrastructure, including Digital Asset Holdings (DAH), a blockchain startup that’s now working with the Australian Stock Exchange to replace its current system. DAH has already raised $60 million from Goldman Sachs, CME Group, Deutsche Borse, and Citigroup, among others.

While the financial sector is primed for blockchain investments, other industries like consumer manufacturing, healthcare and media expect to introduce the technology in some form.  “Companies in a variety of industries see blockchain’s ability to provide transparency, accountability and automation as huge benefits” says Brett Goldman, DMGS Manager of Special Projects. “However, Goldman adds, as the early developers and adopters of Bitcoin found out, blockchain technology is only as good as the people implementing it. therefore, companies and institutions that use blockchain must have a solid understanding of its technology, as well as its applicability before they will truly see an impact.”

For more information on Bitcoin and Blockchain Technologies, please contact us.