(Bloomberg) -- The former head of the government agency that sets Medicare reimbursement rates told a jury he reacted with "extreme concern and extreme anger" when he learned about leaks of planned changes in payments for cancer radiation treatments in 2012.
"This is a criminal offense," Jonathan Blum, the former director of the Center for Medicare said in an internal email in October 2012.
Blum testified Tuesday in the insider-trading case in New York against four people including David Blaszczak, a former government health agency official who's charged with peddling details about government health-spending policy changes while working as a "political intelligence" consultant to hedge funds.
The defendants, including former Centers for Medicare & Medicaid Services employee Christopher Worrall, claim they did nothing wrong in using planned reimbursement-rate changes, citing a Washington culture of information-sharing. Blum told jurors that government employees were frequently trained not to share confidential material that had the potential to move financial markets.
Prosecutors claim Blaszczak used information from Worrall about government plans to reduce reimbursement rates for a certain kind of cancer treatment and to increase payments for kidney dialysis to tip off partners at Deerfield Management, a New York hedge fund that allegedly used the leak to make $7 million dollars in trading profits.
Washington Leak Culture Meets Wall Street's Insider Cops
Under questioning by Assistant U.S. Attorney Brooke Cucinella, Blum told jurors his agency typically released sensitive information only after the stock market closed. Blum detailed steps he took to restrict access to sensitive documents within his office, which employed as many as 800 workers, to try to prevent leaks.
Blum said he also discontinued a practice of briefing investors and Wall Street firms in favor of informing the public and companies that were directly involved in providing health-care services. In addition to providing an illegal advantage to traders, he said leaks often triggered lobbying from companies that would be negatively affected by a change in reimbursement rates.
Blum recounted a "quite heated" conversation with a top aide to Senator Orrin Hatch, chairman of the Senate Finance Committee, over a possible reimbursement rate cut for a genetic test tied to breast cancer. The proposed rule threatened the maker of the test, Myriad Genetics Inc., a company based in Hatch's home state of Utah.
Blum said he told the staffer he couldn't share information until it was publicly announced.
The case is U.S. v. Blaszczak, 17-cr-00357, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net.
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Paul Cox, Peter Blumberg
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