Executive Discretion on Steroids

Wednesday, May 11, 2011

One of the greatest challenges of government is to find ways to navigate this perpetual constitutional dilemma: government officials must have enough power to enforce the law (by the use of criminal sanctions, if necessary). Yet, every expansion of power that is needed for the efficient enforcement of good laws opens the door to abuse of discretionary government powers.

Controlling discretion is a serious problem, even in a small government regime that seeks to emulate the nineteenth century vision of the night watchman state. The chief function of such a state is to ensure that individuals do not trespass on the rights of others as they go about their business. But in a government that takes a capacious view of its powers, the problem of discretion becomes ever more acute.

Illustration by Barbara Kelley

In dealing with the abuse of power, it is important to recall that each branch of government has its own defined responsibilities. On the legislative side, clear statutory commands should give fair notice to individuals, allowing them to conform their conduct to the dictates of the law. In the executive branch, the great challenge is to install managerial safeguards ensuring that the immense reservoir of discretion accorded to public officials is exercised in consistent and determinate ways. On the judicial front, it is critical to develop procedures that provide an individual with sufficient notice of charges, and an opportunity for a hearing before an impartial decision-maker prior to being subject to any criminal or civil sanctions.

One of my constant concerns with the Obama administration is that its vision of executive power means that it has not recognized the need to rein in its discretion. Quite the contrary, in a variety of areas it seems only too eager to use its discretion to maximum advantage, often to support its own political agenda. That is the chief charge against the way Obama’s National Labor Relations Board has instituted litigation against The Boeing Company for imagined unfair labor practices when the company decided to open up its new assembly plants in management-friendly South Carolina.

That same tendency toward mischief has been revealed in two of its other recent actions, each of which sheds light on the risks of the abuse of discretion. I speak here of criminal punishment for off-label drug uses and mandatory disclosures of campaign contributions by prospective government contractors.

The abuse of discretionary government powers is particularly pronounced in the Obama administration.

The off-label drug issue arose in connection with recent actions in the Office of the Inspector General. That office is charged with the unenviable task of dealing with fraud and false claims within Medicare and Medicaid. In one sense, it is hard to take issue with any antifraud program, given the way in which fraud undermines a sound libertarian order. But in many cases, the devil lies in the details. Thus, one question in all of these cases is: what counts as fraud? Stealing from the government by supplying fake bills for services not rendered surely qualifies. But Lewis Morris, Chief Counsel to the Inspector General, has used a rather expansive definition of fraud. In particular, under Morris’s definition, any pharmaceutical company that promotes an approved drug for an off-label use is guilty of fraud, even "on a grand scale," under the current food and drug law.

To back up for a moment, the Food and Drug Administration (FDA) has statutory powers to determine what drugs may be let on the market and how they may be promoted. Under the FDA’s view, the only uses for which drugs may be promoted are those for which the pharmaceutical company has received explicit government approval. Yet, by the same token, the FDA does not have the power to regulate the practice of medicine, which includes the ability to prescribe any drug lawfully on the market for both approved and unapproved uses.

The current law thus creates a peculiar tension because for many conditions, including some of the deadliest cancers, the large majority of prescriptions are written for uses that the FDA does not allow. Instead, what happens is that a complex network of physicians and physician groups screen various drugs to see how and where they work. Their recommendations often set the standard of care for medical malpractice liability and, most ironically, for Medicare and Medicaid reimbursement. It is an instance where the voluntary market is far more efficient than the lumbering FDA.

Nonetheless, many pharmaceuticals have had to pay hundreds of millions of dollars in fines for marketing off-label drugs which may, when all is said and done, advance social welfare by helping more sick people escape the clutches of the FDA. But the government is not only imposing criminal fines on these firms, it is also going after senior management within those firms. On this issue, Lewis Morris makes it clear that his office has the discretion to force firms guilty of over-promotion to dump key executives if they wish to keep their business with the government.

The government is insisting on the dismissal of Forest Pharmaceuticals’ CEO.

Just that threat has been imposed on Forest Pharmaceuticals, which has agreed to pay out about $313 million in assorted fines and repayments for the illegal over-promotion of three key drugs: Levothroid, Celexa, and Lexapro. Beyond the fines, the government is insisting on the dismissal of Forest Pharmaceuticals’ CEO, Howard Solomon, who deserves most of the credit for Forest’s successful expansion as a business.

As Diana Furchgott-Roth of the Hudson Institute reminds us, this crusade is a mixed blessing given the level of discretion conferred on high government figures. Why this executive from this firm? Why not other executives from the same firm? Or, indeed, all the senior executive staff? And should other firms be treated in the same fashion? Pushed to an extreme, the entire firm could be decimated in its senior ranks if the Office of the Inspector General goes to the limits of its powers, which works to the long-term advantage of no one.

But unless and until someone explains what forms of conduct deserve what sorts of sanctions, the dangers of prosecutorial discretion are compounded. It is well known today that no corporation that does business with the government can afford to spurn its nose at its largest customer. So what the government proposes, the firm will accept. At this point, someone must clarify which moves are in the government playbook and which are excluded. With Forest Pharmaceuticals, we have a vast power asserted in support of a questionable cause, without any clear sense of mission.

The dangers of executive discretion are, if anything, greater in the Obama administration’s proposal to require key federal contractors to disclose political contributions that they have made to various parties. As reported by the Wall Street Journal’s Kimberly Strassel, the Obama administration is about to sign an executive order requiring all contractors that do business with the government to disclose contributions that they and their chief officers have made to political parties during the past two years as a condition of getting government business. Needless to say, this restriction does not apply to the president’s favored clientele, including unions and environmental groups.

Just as it is easy to be against fraud, so it is easy to be in favor of disclosure, which often does serve as the disinfectant for certain kinds of fraud. But, once again, the devil is in the details. Political disclosures on contributions do not simply, as the Obama administration naively maintains, give the taxpayers knowledge about which political parties various groups have supported. Instead, that information goes to anyone who cares to look at it, including those in government.

It’s not that Democrats are inevitably corrupt while Republicans are undyingly noble. It’s that all government officials will pursue their own political ambitions.

When a government official knows that a business bidder or its top officials have supported the opposition candidate, that information can be used to steer lucrative contracts toward those organizations whose political contributions line up with the Obama administration’s own political agenda. The point here is not that Democrats are inevitably corrupt while Republicans are undyingly noble. Rather, it is that sensitive information often can do harm when it is put in the hands of government officials who use it in pursuit of their own political ambitions.

My colleague on the Hoover Institution’s Property Rights Task Force, James Huffman, knows this fact all too well. On more than one occasion during his recent unsuccessful effort to unseat Senator Ron Wyden of Oregon, Huffman encountered potential supporters who told him that they feared that Wyden’s people would not look kindly on their contributions to an opposition candidate.

What makes this implicit threat more potent is that so many people in so many different ways necessarily have done business before government agencies at all levels. They are right to be skittish that their support for opponents will lead to a form of disguised retaliation, against which there is no effective or timely legal remedy. The Obama administration clearly understands this as well, which is why it has selectively released its own supporters from this onerous disclosure requirement. As a matter of general constitutional theory, the highest scrutiny is always reserved for those selective measures that bind one group without touching its direct enemy. In the case of Obama’s disclosure requirement, the situation is made still worse when that selective enforcement is imposed by executive order without any Congressional input.

It is always dangerous to predict the outcome of constitutional challenges to either legislation or administrative regulations. But unlike the situation with off-label uses, in these disclosure cases we have no overtones of criminal responsibility that, in the eyes of most courts, help justify the additional use of government power. In the end, it will not make one whit of difference that the real constraint under any such executive order is done through use of its contracting power, rather than direct regulation.

The government has too large a presence in too many markets for it to be treated just as another market participant entitled to do business with whomever it chooses, and then only on the terms and conditions it sees fit. Surely the government could not limit contract bids to registered Democrats. And if it cannot do that, it cannot impose a set of regulations that everyone well understands is calculated to upset the political balance between the parties. The betting here is that this regulation will be challenged and then struck down on First Amendment grounds, given the way it stifles freedom of speech. But why should anyone have to go to the constitutional mat to sort these issues out? It would be far, far better for government officials to exercise political discretion prudently. But as government relentlessly expands, the problem of controlling discretion seems to be getting worse, not better.