states would like to have flexibility in determining what their programs are. i think they're seen as somebody who managed to use what flexibility was being offered with medicaid expansion with the state of indiana and sort of create medicaid expansion on indiana's terms. >> medicaid expansion, every state means basically i'd like to expand and use 100% federal dollars or as they said on the radio yesterday, what governor romney, who i love, the massachusetts wonderful expansion with them with with 100% federal dollars and zero massachusetts dollars so the problem is in the past, you know, medicaid is a great program and i hate to disagree with john but this is going to be a complete and total policy war for the next four or five years. republicans didn't like the expansions, none of the republican states did. i'm a fan of medicaid expansion up to 133% of poverty but a lot of southern states didn't take

it, republican state, northern states did so they'll go -- i don't know if they'll pass it because this will end up being state -- in the end this will be state versus state when republican versus democrat. when you get to medicaid it's about what happens in your state and protecting what you have. so what's happened in the last 25 years do to intergovernmental transfers and disproportionate share of taxes is that the states have largely cashed out their money so there's not one human being in the united states who can tell you what the real match rate is with all 56 states and territories. cms can't tell you that. it's scrambled eggs because all the money is fake, it's phantom matches so now you'll get to the point to say i don't know they'll try to do a block grant the bipartisan policy center support so let's say -- we'll give you a per capita amount that's just for the disabled population, for the aging population, for women and kids

so if you look at what alabama spends versus what maryland does? well, maryland did the expansion, alabama didn't so you cap everybody where they are and all the republicans control the white house, the house and senate and you say those states get capped at artificially low rates and the ones in the north and east and west that took the money get capped at their rate? that won't happen so the obvious answer is just give everybody more money. guess what? these are republicans. they ain't giving anybody more money. it's not going to happen. so what will happen is a massive state by state fight which republicans will be bailing out saying i'm the last republican in new york, i'm a republican in illinois or indiana, i don't want to give that money soup the answer to the past has been every time medicaid has gotten dicey, i did the first 10 care waiver which is also a finance through medicaid scam in 1990, i did a bunch of them. but find a state with medicaid

expansion with 100% federal dollars through obamacare or some baseline where they use transfers, now you're getting back in a world that i think will grow with medical inflation. i think they'll try to cap medicaid. whether they can pass it, i think it will be difficult but then they'll say all of our southern republican states are losers and the big northeastern states and western states and california -- california is a cheap medicaid program in fairness to them, they're winners so we'll find a way to budget neutrally, save this in the eck we in the last 25 years. good luck on that one. i think it will be very, very difficult and very hard. and the easy thing for everybody in those states so if you declare i'm going to be budget neutral and do xyz, we had a lot of magic money floating around that ain't gonna be there anymore. it won't be fun.

>> so leslie, tom talks about -- i'm interested he talks about per capita cap as potential. he used the word scam in medicaid a lot. >> i can document almost every state in the country and tell you stories until the cows come home about -- bipartisan on both sides. >> did your general counsel's office when you were at cms approve this? [ laughter ] so we would not be calling them scams. >> they were scams. and everybody in the audience knows in their state they have a provider tax or donation that's a total scam and as a taxpayer it's outrageous and everybody knows it. but if you're in your state, what the hell? get as much money in your program as you should. >> so in terms of what tom is talking about, i'm focusing on as our potential that we'll go to a per capita cap and tom's explanation is that that might seem attractive. what are your thoughts about where medicaid is going. >> so a couple things.

first it's hard to argue there's going to be a big food fight in congress to figure out if you were to repeal medicaid expansion and you've got 17 states. we'll see what happens there. but in terms of what cms is likely to do, if you look at indiana's healthy indiana plan and so on that was approved in 2015, fema was involved in the development of this so i think it's an important place to start if you're going to say, hey, what might happen on the medical side. the first thing cms could do in terms of working with governors, to john's point, is to develop model waivers and model waivers in this instance i suspect might include something along the lines of a lot more personal responsibility, more premiums, more co-payments. you have to work if you're able-bodied, you need to work in order to qualify for medicaid.

certain populations, for example, if you want to get expansion dollars. you might have fewer mandated benefits. you might have less epsct dollars, so on and so forth, for certain age cohorts, some of the things cms might do to make it easier for gauches who are interested in participating with whatever the legislation turns out to be in terms of changing medicaid dollars, cms can do a lot to make it easier for states to change up how their program works. the other piece they might fold in and this is a piece of leftover from romney care in massachusetts is what is it that you could do with other populations that are above the medicaid 133% of the federal poverty limit and that may be what do you do if they're coming off the exchange and you have exchange -- who knows what the exchange dollars if anything might happen with that expansion population. can you incorporate that into a

medicaid program in a waiver state? can you incorporate state employees, for example? what can you do to increase the poll of individuals who can qualify so that you can reduce some of the adverse selection and some of the concerns that john raised when he talked about what you're dealing with as an insurer these individuals who are often very sick. it would be nice to get healthy people in there, too, to help the -- those who are providing care and paying for it to broad than spectrum. so i think there are a lot of things cms can do and are likely to do without regard to what happens on capitol hill but it's no doubt the food fight on capitol hill will have a large role-playing into who is finally covered and how. >> so one last question on medicaid then i want to transition to other things and this is really kind of back to john. john, leslie talks in terms of okay, the model waivers that we might expect to see from the new administration could include

things that look a lot like what indiana managed to get cms to agree to in the past administration. personal response -- you called it personal responsibility but a hallmark of of that is premiums for beneficiaries in the expanded group of people covered by the waiver. john, from your perspective as somebody who provided over expansion to medicaid as well as now working at care first, what would be your predicted sort of impact if we receive model waivers like that in terms of accessing coverage. >> well, i think to tom's point it will differ by state and each state is going to have their own demands, their own circumstances for those states who are thinking that medicaid is the greatest fiscal drain on their current state budget that you might see coverage declines. the fact is that medicaid has

been the greatest source to new coverage in the country through the affordable care act and so different governors might have presence principles, they want to keep expansions but want more personal responsibility to tom's point and prior premiums, require co-payments that can bridge some degree of more cost sharing too the new population getting coverage so it will giver. and back to tom's point, the dynamic is going to be that when people argue for more flexibility that means waiving certain federal requirements and you get into a congressional debate and a federal debate that the medicaid program has national standards or -- and oversight agencies come in with report saying cms isn't overseeing the programs very well.

but different states, different governors will have different framing to think about medicaid reform. some may come from fiscal discipline standpoint to reduce statement requirements and some may want to shift more federal dollars to the state and some may think other social goals to achieve the program. >> i think the interesting issue you'll find the first year, because i don't think -- you talked about repeal. my guess is if they repeal the aca, next month it will be effective, everything i'm reading is 2019, maybe later so nothing in law is going to change probably for two years it will cut off effective two years out so if you're sitting there as secretary price or the new administrat administrator, do you let these -- whateverer there, 19 southern states that didn't come in for expansion going through creative waivers? indiana took the money under those circumstances because they

wanted the 100% money. they didn't do it without taking more money. theoretically, the republicans didn't like any of that 100% money to begin so are they going to let these guys that didn't, let them come in and get their share, too. or will they say forget it, the bank is closed, we're shutting it off, we think it's fiscally responsible. they probably have the option to do that. how the hill responds to that, whether the bank is open or closed for those waivers will be a big issue and i don't think anybody knows that. >> bank open or closed? >> i was going to say one final thought. if you look at what donald trump is talking about see have see manufacturing and trade and how important it is to keep jobs, particularly manufacturing jobs in the united states, i'm not sure there has been a lot of focus -- and maybe there has, i just haven't seen it -- on the fact that the health care industry is a huge employer and more likely than not the largest

employer in nearly every congressional district in the country unless you have a big university there or big manufacturing plant but chances are the health care sector is it. i wonder if there might be a change of heart with the administration or maybe a softening around something of th this. how can you compare fiscal responsibility and the more traditional tea party republican focus with the we want to have more jobs in this country and the health care sector is a large provider of jobs. how will those two go together in terming what the replace they look like going forward and, of course, when you repeal, as you may well know, the rules around repeal, we won't simply take what was passed in 2010 and have it go away. it won't work that way. we'll repeal through something called a reconciliation process so you can only repeal those things that relate to outlays and revenues which is to say tax

and spend. if it doesn't deal with taxing and spending you can't repeal it. so there are lots of things that are in the affordable care act that will continue, the question i have and i -- you knee, i need to spend time with budget people to figure this out, but once you've repealed the tax and spending portions of the affordable care act, what does that do to something in washington called the baseline? what does that do to the baseline and how might that impact whatever it is the replacement looks like because when you replace you'll be spending more money. so it's more complicated than let's just repeal and replace. i think there will be big consequences for those dealing with what remains and large part insurers who still have pre-existing condition exclusions and guaranteed issue problems on the individual market on the one hand and yet no longer have a mandate for

individuals to have coverage so i think that combined with these are jobs and hospitals in large part -- as a larger employ depend on insurers and the medicare program to keep their employees, nurses, doctors, so forth, to keep them employed. so it's going to be more complicated than simply repeal and replace and it will be interesting to see which wins, fiscal responsibility or jobs. >> let's focus in on some ideas and concepts on what might be in replace and i agree with you, leslie. and by the way, for the uninitiated, when leslie talks about doing it through budget reconciliation, the conventional wisdom is that this is the way in which it will happen. otherwise if you don't use budget reconciliation, there needs to be a filibuster-proof majority in the senate for a repeal of the aca which doesn't

exist so there's an exception to the budget reconciliation process so everybody recognizes this is the likely vehicle. >> i was very involved in the 1909 budg19 1909 -- 1990 budget deal. these are big, big, big budget deals and one of the lessons from obamacare, i hope john agrees with this, is they did it by reconciliation in the one week that they had the right numbers and did it on a party line vote and i think it was a mistake. if they had to do it over again, they would have found a way to pick off two moderate republican senators to make it somewhat bipartisan. when we did part "d" in 2003, thank god we had senator baucus, john was a staffer, we had nine democratic senators we got to go along with medicare part "d" and advantage. including senator kennedy and it took the sting out of it and it was partisan but far less partisan so it just wasn't the knife fight to the next six years. >> i think they will repeal it to kind of create this cliff

where rewe repeal it. but in my opinion, this is going to be not just repeal and replace. it will be a giant tax reform bill, a lot of trade issues, medicaid reform, they're probably going to try to do it the way they did in '97 and do a giant first year reconciliation bill. to do that they have to get a handful of democrats where or i blow up. so i think they will repeal it quickly because they have to because they spent six years screaming "we hate obamacare" and they're going to have a hard time not doing that but if they try to do replace plus other tax policies on a partisan basis it will be -- they're making a mistake and i doubt that will happen in the long run i think they'll pick off a number of democrats and work on a global tax reform bloebl budget thing that takes all year long and i hope they do that. that will moderate everything it it will take the age edges off

what will be a more radical one party reform. >> i think that if you read through the papers you see that a lot of people when they talk what about is the affordable care act they learn that it's actually a fairly complex piece of legislation that has lots of different things including guaranteed issue of insurance product for eliminating the pre-existing condition issues. so what -- tom, we'll start with you and i'll give everybody the answer this question, what do you think are the two or three -- if any -- sort of things from the affordable care act that we may continue to see in future legislation if there's a replace? >> i think preexisting is a mistake from the beginning. they went up to 40% of poverty, that was 60% of the population, that was a problem in the beginning, to subsidize 67% of the population. most democrats i knew -- and john would agree with this --

thought we should go to 300% of poverty and people say that's not a big of a difference. it's 50 million people. it test middle-class between 300% of poverty and 400% of poverty. that set republicans off. they went too far. our view was the benefit structure was too much. they threw in all kinds of stuff about you had to cover everything but the kitchen sink and we felt the benefits were too plush and things that drove insurers crazy like 3-1 rate bands caused chaos in the markets to begin with. most people, including most moderate democrats thought we should do 5-1. that makes a big difference because a 26-year-old marathoner can only pay one-third of what a 64-year-old cancer patient can pay, it screws up your insurance pool. so they have to expand the rate bands, republicans will want to scale back the substy levels, that was intended to be a lower middle-class benefit from the republican povr and i think

they'll scale that back how it happens gently and gracefully, it probably won't be but that's what they'll try to do. you can talk about getting rid of the exchanges and i'll probably get in trouble. the exchanges are dead, obamacare is dead, we'll say and we'll call them health insurance networks that look a lot like exchanges. they'll be back in the same kind of pooling mechanism to give people access. there will be more catastrophic like benefits. subsidy levels will be lower. the income stream will be lower and i think if they'd done that, a little moderation six years ago it would have been more sustainable. but the infrastructure of obamacare looks like the structure of the not very successful 1992 george bush the first plan that i was involved in. we had health insurance networks, and you created insurance pools that work and have risk adjusters and that's a fact of life so the issue had been who do you subsidize, how much and what level of benefits?

my view is once you get above medicaid -- and i think many republicans -- you should have a skimpier benefit that helps lower middle income people and once you start getting to 67% of the population, that's, i60% of population, i think they did subsidies too big. i think this thing will look to names, kill obama care, come back with different insurance pooling, fewer people across the board, probably going to be painful. i think that's what's going to happen but it will take a while. >> leslie, your turn. i think we kind of heard tom's laundry list of what will continue on with the affordable care act. i will summit up, some insurance products regulated, perhaps something, not called exchanges. i agree, everything is in a name. name changes would be important. i'm interested in hearing your sort of top two or three. perhaps would you also and maybe

john can comment on this, too, one of the hall marks of the creation of what's called innovation center. for those who don't know, innovation center is center for medicare and medicaid innovation, another center created. their charges, demonstration and funding authorities to experiment with a lot of different things but alternative payment models for government funded health care. that's scene, i think -- i'll say this. i think alternative payment models are sort of seen as a necessary experiment that we must do in order to address some of the disincentives involved with traditional services, funding, health care insurance. cmmi or innovation center sort

of a dirty word, affordable care, you look through various plans and you'll see repeal of cmmi. but are we going to really see that or is it going to be like, well, we're going to have that stuff, it's just not going to be called cmmi. >> probably that. >> address that. i'm going to hear your two or three things. >> so first of all, since 1973, the medicare program has had the ability to demonstrate things that were certain pieces of the statute you could waive. you couldn't waive some things but some things which was a precursor cmmi. republicans might not like cmmi because republicans didn't like the people controlling the $10 billion. i'm fairly certain that secretary price was talking about how he wanted congress to have more control over cmmi. not sure that would happen.

i do think innovation will continue. republicans tend to not like medicare fee for service program and wan to change all that. not only that, if you think about some of the things cmmi has done, bundled payments, accountable care organizations, a lot of those concepts have been around for decades and certainly supported by the bush administration when i was there and make a lot of sense if you're thinking about moving away in some way from fee for service and doing more, for example, pay for performance. these are all things that could happen at cmmi. likewise you could have programs that focus on the dual eligible, where there are 10 million plus people now eligible and depending on what happens with medicaid expansion, that number could go up or down. i think the need to tib to focus on payment models that change over time will not go away. the question will be who has control over that, what do you

have to do if you're going to make a demonstration or a project permanent in the program. that was one of the interesting things to me about the affordable care act. if you liked it, it could become permanent. therefore you saw chronic care joint replacement program, for example, becoming more of a permanent fixture in 67 msas where it was put out. something, for example, cms could roll out across all providers if they felt so inclined. i think that now that trump is president, they may change their mind about the programs we have, reduce funds available $10 billion, considerably, not surprisingly reduce that and may be less angst. i think the concept cms is testing, whether these or new ones will continue to go for as it needs to. the program created in 1965.

frankly a lot of it doesn't make sense, the medicare program, because one statute after another cobbled things together and payment systems don't necessarily relate to each other. consequently you wind up with very odd incentives for providers to do things that are not really good for the taxpayer and frankly may not be good for beneficiary care either. i do imagine that we'll have these programs in some way, shape, or form going forward although may not be under, quote, cmmi. >> so innovation center gives cms tools are incredible. there's funding to do demonstrations. previously they didn't have funding behind them. they had to be budget neutral. to leslie's point, if the team likes the results of the demonstration they can expand them nationwide without going through congress. tools are incredible. they are powerful. my guess would be that whether you're democrat or republican you want to keep those tools to

fulfill your own priorities. the next team could think about changing how it pays for medicare private plans anden about premium support demonstration through those authorities. there's funding, much more flexibility and certain statutes, requirements previous to the old demonstration authorities. so congress tends, to tom's point, not to like things that are done by the other side, but authorities are tremendously powerful. i think team would want to retain those authorities. >> tom, do you agree with that? >> totally agree. i happen to like a lot of what they have done because they have done a lot of bundling. if you said it wasn't a democratic administration, a lot of stuff republicans pushing for 25 years how to make competition and funneling work better. republicans don't like it because $10 billion fund. when i ran cms we had $80

million, 77 earmarked by committee. we couldn't do anything basically. i think it depends who is running it. republicans won't like -- i think once they get behind the wheel and realize, wow, don't want to spend $10 billion as leslie said. this gives us authority -- we could theoretically do premium support cmi, i'd be shocked if they said let's repeal everything but this and keep it. >> a related question to me involves macro, brought in sgr which was, you know, sustainable growth rate, not quite so sustainable and led to, you know, year after year after year of bailing out the physician, drop in payment. and you know, we're on the cusp of this now starting to become like the way in which doctors are really going to be paid. a significant portion involves alternative payment models. i know this is affordable care act program but do you see macrocontinuing the way it is?

is it going to get potentially changed legislatively. not tinkering one could see in the program as well, throw it out to whoever wants to take that first. >> a couple of things to keep in mind about the future of macro. i think 90 some senators reported to support that. i think it has wide bipartisan support. even if you're not a fan of how it was crafted or wasn't physician friendly, the like, there's tremendous bipartisan support within the house and senate for the direction. to tom's point, the concept built into macro, are things republicans and democrats supported for quite some time. the challenge will be the physician community, based on my own perceptions, doesn't understand what's coming, what's being required by cms. i think if you were to ask the average physician that's

managing a tremendously busy practice, they don't know what this law is or what they have to do to get ready for it. cms has put out models that are well-defined primarily for the primary care community. i don't think there's too many models for a cardiologist to go into or neurologist to go into. this is going to start hitting. physicians are going to have to make a choice, do they stay in the old fee for service world or move to alternative payment systems. those concepts from those positions really haven't been defined yet. i think they will be tremendous pressure to delay, to modify macura, given most physicians don't understand what's in place. agency will think a very first test, do they proceed with macra, or modify to change it, slow it down.

i think there's going to start to be tremendous pushback. some in the physician community see the nomination of congressman price see it as a sign physicians will have a greater voice and macra defined going forward. >> price has already complained about macra. a lot mandated by statute. all of a sudden, what are they going to change. i do totally agree with tom that likelihood of a delay or changes around the margin as to how it's implemented, maybe they redefine how one qualifies for an alternative payment model so you can get out of the varying factors that will relate to frankly how most physicians are paid under macra when they don't qualify for apm. so those things, whether data collection search in january.

you don't have to collect data in january. next year if you're a physician, your data will count towards reimbursement and high likelihood in the future. so i do envision a delay, though it may not be statutorily permissible. i suspect at the margins where cms has flexibility, that there will be a big push to use that flexibility and to alleviate some of the burden and maybe smooth over things for physicians as implementation goes forward. >> tom, anything to add to that. >> i totally agree with these guys. i think most members of congress who aren't in the weeds on this think i ground through that doc fix for 12 years, got it done with, 97 senators voted for it. i don't want to do that again. most think we're moving on from doc payment, i agree, there may be a delay. i just think they will move onto

other issues and not grind back into this legislatively. i don't think this is a major issue legislatively. >> i know it started off saying let's assume those legislative changes talking about medicaid. let's talk a little about, i think everyone knows individual mandate is on the chopping block, but it's sort of, i think, from the obama administration perspective, that was such a key component of that's what they went to the supreme court to defend, of course. i guess i'd like to hear tom and/or leslie talk about what they think -- leslie, you said one of the keys here is getting healthy individuals into the pools, whether we're talking about private insurance pools, whether or not we're talking about medicaid. obviously medicaid can be dealt with in terms of expanding to

groups of individuals. but what you see is possible alternatives for the mandate and what do you think about their potential effectiveness. i'm going to ask tom the same question. >> so if you look at the varying pillars to make insurance work, the key issue for an insurance plan to work, and one of the reasons why i think from the beginning it was not difficult to see that the affordable care act was likely to have issues with something called adverse selection where sick people sign up and not nearly enough healthy people sign up to support those who were sick. while there was an individual mandate, the first year of $25 is simply not sufficient if you're looking at a several thousand dollar insurance premium as an individual. even with subsidies, geez, $95

bucks, i'll take that all day long. if you're 26 or 27 -- if you're 26 you're probably on your parents' plan. if you're 27 years old you think you're invincible, never going to die and never going to need health care services. those are the people you really need to sign up for the plan. if the number one issue to have functioning individual insurance market is to avoid adverse selection, i think there are several things one could do if you want to keep, as i think many republicans do and may not be able to repeal pre-existing physician conditions and guaranteed issue, which is to say insurance company has to offer insurance at least during open enrollment period to anyone who comes in without having a pre-existing system. >> in washington c-span3 back live attending all day conference of american bar association, taking an in-depth look at health care law. >> the theme for the program this year is change. for those of us who spent our

time representing health care companies and individuals in civil and criminal enforcement actions, the change that we've been focused on for a while is the change created by a deputy attorney general sally yates, who last september, september 2015, promulgated individual accountability memo that memo is really more evolutionary than revolutionary, i think. it's the latest iteration in government's ongoing efforts to try and shift focus to emphasizing the role of individuals in alleged corporate fraud and to hold them accountable. we're going to discuss that policy today. we all call it the yates

memorandum. deputy attorney general yates said she doesn't like it to be called that, she would rather it called individual accountability memorandum. defense attorneys like every opportunity to get under government's skin so we keep calling it yates memorandum. my name is david douglas, partner in washington, d.c., office where i specialize in representing corporations and individuals who have been wrongly accused of fraud. in doing that, it's largely my role to protect my clients from people like the gentleman to my right. rick, i'm going to let you introduce yourself. >> i see how this is starting out. my name is rick chartunian. in my 13th year department of justice, first spent as asa,

violent crime cases, white collar crime and all manner of things we do in our office. the last seven years i've had the privilege of being the united states attorney. during that time have a healthy new perspective for all the different kinds of challenges we face in this area. i have also served on the attorney general's advisory committee. that's been a privilege under attorney general holder and lynch and gotten to know a good bit about the department's viewpoint on individual accountability. nice to be here. thank you. >> good afternoon. my name is leo reichert, general counsel of innovative system in atlanta, we have about 11 homgts. we have a large medical group, about 1,000 providers in the medical group, about 200 ambulatory locations around the city and around 10,000 team members total. we had the privilege of

acquiring from the discussion yesterday, went from typhoon hospital to 11 hospitals last year. >> i'm partner at jenner and block in the d.c. office. i've been with the firm for two years. prior to that i had a 25-year career at doj including a stint in health care fraud unit supervising cases in brooklyn, houston, baton rouge and really getting a flavor and including corporate health care fraud matters which is a more recent trend of the health care fraud unit and getting a flavor for what the department wanted to do in the health care fraud context. >> thank you, bill. as the slide cites basic elements of the the yates memo but let me put it in broader context and tell you why it's so important we understand the substance and implications of yates memorandum. what we say to clients,

particularly false claims act investigations, every civil false claims act case is also a criminal false claims act case. both because there is a criminal false claims act statute, though we don't talk about it much but underlying conduct that can lead to false claims liability is criminal, for example, the anti-kickback statute. so in many respects, however, that threat has been more theoretical than real. many times practitioners ignore criminal case saying criminal folks aren't looking at it. what the yates memo is designed to do is require the civil attorneys to cooperate with their criminal counter-parts to make sure department of justice has looked at both civil and criminal liability in every false claims act case and to have a plan for resolving individual accountability be it civil or criminal. so the yates memo, at least in the short-term and we can talk

later about what its long-term implications are. short-term made theoretical very real. if you're handling false claims act case and dealing with civil asa, now as a matter of doj policy there's a criminal asa who will be looking at that case and considering potential criminal liability as well. so there are two important considerations. one, if you're representing the corporation, what does it mean for cooperation credit? then the second, there are ethical concerns that relate to representing the relationship between the corporation, your client, and its employees who are not your clients. so this is something that has changed the way we practice. and it has focused our attention on criminal liability. so with that, let me just start with the basics and ask rick, what is the doj's policy with

respect to cooperation credit for the company. >> the policy, david, is straightforward, and it is this. for the cooperating company to get credit as a threshold matter, it needs to provide all relevant facts relating to the individuals responsible for misconduct. all relevant facts. it's a threshold analysis, not a sliding scale analysis. there's no partial scale given for meeting that threshold. what does that mean all relevant facts? it doesn't mean theories, legal theories or conclusions, it means facts. what happened, who did what, who promoted the conduct, how and when it occurred, who was responsible for approving it, what documents show and describe how it happened and how the

events unfolded. so those are some of the basic things we are looking for when we say that. we are trying to get at the truth of what happened. we're not looking for somebody to be served up. we want to understand the facts, sometimes there's questions or confusion about what we're looking for. i think the deputy attorney general has said, others you should contact prosecutors if you have questions, you should engage in dialogue with us. i know my folks talk routinely with defense counsel. we're as open as we can be. sometimes we can't lay out for strategic reasons. we try to develop a dialogue so we can help let you know what we're looking for. the final point i will say, i don't think this is a new concept as you have alluded to. we have always been interested in what individuals are doing, who is responsible individually. corporations act through their employees, their executives, we

all understand that. it can be difficult sometimes to untangle the different levels of a corporate structure. there can be thousands or millions of documents involved in the corporation's operation. sometimes operations are overseas can be very difficult to obtain witness testimony or information. these are all special challenges in these white collar cases. so that is really, i think, the purpose behind it all. >> when we talked about cooperation credit for years, talk about prosecutions, criminal prosecutions of organizations and what does that mean for credit under sentencing guidelines. as the guide presents the case, is the yates memo limited to criminal investigation? >> it's not. it applies to civil investigations as well. our assistant attorney general -- associate attorney general gave a peach recently and made clear this cooperation

policy is a threshold in civil cases as well. we use it as a determination of whether we should go forward, what charges we should bring, how to determine penaltyies and damages. this is a factor we utilize laid out clearly in the manual important in our analysis. >> rick, in a criminal case, ki get reduction in points under guidelines. in a civil case should i come to you and make my same pitch for getting some kind of reduction in the civil damages and penalties by virtue of my outstanding cooperation? >> absolutely. i think that's clear, and i think we have a record in our office of certainly credit in cooperation and lower damage calculations in situations where we have clear cooperation by the company we're looking at. >> then the question that

naturally leads to, what are the policies and strategies that doj is pursuing that creates this tension between companies and its employees. >> thank you, david. i think the most important one for this group to be focused on is doj is applying traditional investigative techniques, traditional law enforcement investigative techniques to health care fraud whether it be civil or criminal, they are applying techniques such as wiring up cooperators and sending them in to talk to hospital administrators using search warrants, using other investigative techniques such as bugs in offices, cameras, gps trackers, all kinds of deck next traditionally associated with organized crime cases. the section is now taught, and i know that because i taught it when it was -- there are about four years ago a different

investigative techniques to use in these investigations. to give you a couple of recent examples, in a riverside hospital case, a case out of houston, texas, i supervised that case back in the day. in that case, a cooperator was -- that was a data-driven case. i think you heard some other speeches about how is doj finding these leads. it's relaters, data driven analysis. in that case it was data driven and a cooperator was identified, somebody who had a drug problem. that person wasn'ted listed to cooperate to wear a body wire, to go in and have conversation wall street a hospital administrator, which led to incriminating tape recordings. that hospital administrator was subsequently arrested and agreed to plead guilty and cooperate on the very strong tape recording. as rick will tell you in the

good old days doing drug cases they used to call them dry conspiracy cases in drug cases. a historical conspiracy was a very tough case to prosecute, what fbi, dea, all the government agencies wanted to do was go out and do wiretaps, recordings, catch people in the act. that same thought process is now being transferred to corporate health care fraud cases. the other example is attendant hospital case, which i was not personally involved in but did start during my time there. in that case, the agent went out i think with the fraud section trial attorney and in an early morning sort of wakeup confrontation knocked on the door of the suspected kickback recipient and confronted her. and she confessed and agreed to cooperate. similarly they confronted a hospital administrator and this all occurred without the knowledge of the hospital --

counsel for hospital. it was all in the background without anybody realizing what was going on. it's this type of proactive investigation that is occurring in both criminal and civil health care fraud investigations. >> so leo, when bill comes to you in a case and says i've got good news and bad news, i've lobbied rick and he's down to double damages -- i'm sure if phil was doing it would be down to 1.5 -- 1.5 damages, minimum number of penalties. this is well within what we expected. it's a good disposition for the company but he wants you to serve up some of our key people. talk about what that means to you as general counsel and the challenges that presents. >> that's not a good day to have that happen. we have an organization, i

shared yates memo with leadership team when it came out as an example of what's going on. i have it broadcast up and down the organization so everybody knows about it. certainly the leadership team is aware of it. so what's the concern? the concern obviously is they are going to be less inclined to want to cooperate with the investigation. other leaders in the organization, employees may want to lawyer up early in the investigation. it may or may not be something in another case prior to this coming out they would have had that focus on. but now knowing there's a focus on this individual accountability and executives in organizations are being charged, they could be less forthcoming. if they go out and select their own counsel or want to select their own counsel, that can obviously be a problem. if it's not somebody experienced in this area, not that we don't want people who need counsel to have appropriate counsel, these kind of cases are unique and you want somebody who is going to obviously protect their rights. but my duty is to represent

zealously my client. i want someone that's going to cooperate with us, consider joint defense. the other area, some discussion about it yesterday and conversation about upjohn warnin warnings, where i have to be clear talking to an ploy we represent the organization, which inevitably leads to the conversation whether they should get their own lawyer. >> i should have set at the outset we invite questions from the audience during the presentation. unlike me, you all will have to make up your own questions. i want to ask, rick, what is your sense from work on u.s. attorneys committee of where the different offices are in their approach to issues, if you have

any observation. >> i think it's fair to say when i started, i use my office as an example. we were not doing a lot of affirmative health care fraud work. a lot of the smaller offices were not really equipped in their civil divisions to do more than defensive work. so during my tenure, i've actually doubled the size of my civil division and hired affirmative civil enforcement lawyers soho have expertise in this area. i would say i'm not alone. i would say there's a lot of districts. i'm talking about districts other than the districts with which we are most familiar that have been engaged in this work for lengthy period of time. boston, massachusetts, philadelphia, south florida, southern district, eastern district of new york. those are obviously hot spots with lots of resources. i think there's been a redirection of resources and emphasis as well on something individual accountability memo requires now and that is to have

our lawyers in the civil division and criminal divisions work in parallel, work in tandem with each other. that's something that we do now as a matter of routine, a matter of course. i think it has made our work better. our lawyers are working well together. they can bring the tools and techniques from each side of the house to bear on an investigation and they can really drill down more quickly on the facts and get to a quicker resolution at the end of the day that's in the interest of justice and the interest of our department and in the interest of certainly people who are affected. >> i think it may be in the interest of department of justice, i'm not so sure in the interest of justice. that's a cocktail. >> i see how this is going. >> it's interesting, if you actually dig around in the archives, as many as 10, 15 years ago back when massachusetts was really sort of pioneering aggressive

prosecution under false claims act, mike was one of the first, you can actually find an article he wrote in the u.s. attorney's bulletin. i have a newsletter. he was saying i don't know why -- he was saying in their office back then, civil and criminal work hand in hand. he gave examples how it will work and surprised then more u.s. attorneys offices weren't doing it. in particular he was commenting the civil lawyer says i'm going to send a subpoena. a criminal lawyer says i'm going to send an agent with a search warrant. it's taken a while but doj has adopted that approach. >> it really helps us get at, you know, some difficult proof challenges in white collar cases. it is not always easy to prove intent beyond a reasonable doubt. when we have both sides of the house involved in the case, again, u.s. attorney, my supervisory staff, we can help

make assessments i think really are more tailored to the facts of the case and really do bring these cases to conclusion. sometimes white collar cases can languish as criminal lawyers try to develop the evidence it is challenging to get in a corporate settings for the reasons i've described. i think this is a good development. i think we're seeing it kind of be used much more frequently across the country. >> so, bill, a question, should the lawyer who represents the company represent the employees. just give us a little bit of grounding in the conflict of interest rules and why that's such an important question. >> obviously the ethical rules apply here. the predominant ethical rule is 1.7882. i'll preface this by saying i've been out for two years and this question has been asked to me half a dozen times. why don't you represent employees, why do i have to get an outside lawyer, pay that

expense. you know all about the case. i have to pay for them to learn it. why don't we do that. so the conversation i have starts off with, well, there's this ethical consideration that if there's a significant risk that there will be a cob arthritic in the future, then i should not take on that representation. i think yt yates memo, it's obvious -- it's obvious now -- again, prior to the yates memo, we always knew there was focus on employees but now it is so overt that you have to say that i think this is a very likely scenario that there's doing to be an individual conflict here. leo. >> so many of y'all probably followed the penn state investigation into sort of what happened there with the general counsel at the university. it was one of those instances where the general counsel represents the interest of the university. she met with the president of the university, vp of finance, athletic director as part of the

sandusky investigation, there was a subpoena from the attorney general of the commonwealth. she met with those folks and didn't give clear upjohn warnings. she said, look, what you tell me isn't confidential. i may tell the board of trustees. but she didn't give anything akin to an upjohn warning. in her defense, the attorney general's office said, look, i'm not going to ask you about anything privileged. they are not targets. so she also showed up for grand jury testimony and and as their lawyer. she later was called by the attorney general's office to give testimony against those folks. on behalf of the university waved the privilege. she believed she was representing the university at that time and debate represent the individuals. as you can imagine the whole thing sort of blew up. she's no longer with the university and the criminal charges against those three gentlemen that were derived from her grand jury testimony were all dismissed by the appellate court.

got to be very, very careful about that joint representation. that's something i get all the time. i'm in house. they know me. i work with the team every day. it's a unique relationship when you're inside and work with cfo and compliance team and everybody every day and then have you to come and ask those hard questions to understand who they represent. that's why i bring in bill so i don't have to do that. >> obviously the next point. if i can't represent the employee, if i'm representing the corporation, who can and what should the relationship be? >> you shifted the role from panelist to moderator, you're pointing at me. the way we structured to go forward to the corporation and employees who may have separate counsel can work together and share privileged information we enter into common interest agreement, commonly called joint defense agreement. the technically correct an is that it's a common interest

agreement and may not apply only to situations where there are adverse legal interests. a common interest agreement, it's very simplest, parties to the agreement have a common legal interest. it doesn't have to be an identical legal interest, but it has to be a primary interest such that -- so that their interests are sufficiently aligned, it makes sense for them to share privileged information. that's really all it is. most of the ones i frankly do are on a handshake because i know the lawyers that i'm inclined to enter into an agreement with. but i've also done them, there can be multiple pages, particularly in large investigations of multiple corporations where there are many interests to consider, sharing of documents, proprietary information and the like. so the concept is very simple. we simply agree that our interests are aligned.

we agree to protect privileged information we received from the other party under a common interest agreement you're not obligated to provide privileged information but you are entitled to. if i provide it to bill if we work together to forward rick's investigation he has to preserve, even though i wasn't obligated to provide it, if i choose to he has been obligated to preserve. actually, rick, does the doj -- what is doj's view of joint defense agreements? can i just note you clearly are a u.s. attorney because you haven't made that disclaimer. u.s. attorneys really don't care what justice thinks. >> no, that's not true. well, joint defense agreements, i think there are two rules important for our discussion today. one, participation in a joint defense agreement does not make a corporation ineligible to receive cooperation credit.

that's an important point. we do not request that a corporation, second point, refrain from entering into such an agreement. that is a matter for the corporation to determine. we note, however, that sometimes these agreements can complicate a corporation's ability to cooperate, because they may have derived information from an employee, and that employee may be represented and there may be some prohibition from a company then sharing information with the prosecutors that can present a challenge. i think that challenge has to be identified and weighed and assessed by the corporation. >> sometimes it's a little hard to know how that plays out. if i get privileged information that i then can't share with you, it's not as if you're deprived of information. so you're not getting less. so sometimes these kinds of arrangements actually can

complicate both our jobs. so let's turn to sort of one of the difficult issues that arises in these cases. you have the company. you've done your investigation. it's clear that some folks have done something wrong. they are probably also under investigation, or maybe. their value. you have a lot of intellectual capital in those people, particularly who are seniors. you're a publicly traded company. those people have their own market value. a few things bring company moral down more than firing a bunch of people when the company is under investigation. that has ripple effects. so leo, i'm going to dump all that on you. >> so the harder question is the one you didn't ask. if you're earlier in the investigation, and you don't really know what's happened, you

can still have employee now who are getting nervous about things and they are reluctant to talk to you. if you don't know they are a wrong doer, what do you do. how you work through that, they may or may not have counsel. you have to be careful whether they have done something wrong or they don't. we're careful about anything received as retaliation. retaliation on statutes federally, state employment issues around it, so you have to be very careful how you handle those things. we have, like others, i think, looked at different things like suspending somebody administratively and paying them. so if they have gotten nervous early on and we don't necessarily think they are a wrong doer but trying to work through the issues, we might try to put them on administrative suspension. that can be a challenge, if you're paying them, taken them out of their job. you have a lawyer on the other side saying this is ridiculous you couldn't take them out of their jobs because they are

exercising his or her rights. i have to zealously represent corporate interest and not the interest of these employees. you have to look at these things very carefully, a facts and circumstances analysis but there are times you have to do that. >> bill will will open up. what about the employee says i don't want to talk to you. >> that's the $64,000 question, how do you react to this. representing the corporation, i know that i have to talk to doj. i have to report to them what my investigation found and was my investigation a solid investigation. and what do i do about the employer, what did the company do about that employee. i don't think we pointed this out. in addition to accountability memorial -- memo, there's helpful things like speeches and frequently asked questions.

the questions to one of the frequently asked questions is a company, i think rick would echo this, is not required to take specific action against employees. but response to misconduct is something doj will take into consideration. until recently, i think people sort of thought, okay, we can do certain things, interim steps. we might be able to dock a little bit of a pay. but in the recent ember case, fcpa case, doj actually exacted a financial penalty on the company for failing to discipline to the extent doj thought was appropriate a senior executive doj felt was involved in the misconduct. so it's very problematic now what to do about and employee. if they are a whistleblower and you don't know who the

whistleblowers are, you take action against them, that's retaliation. if you don't take action and they are culpable, you may have a financial penalty. they may be one in the same person. the whistleblower may be culpable or most culpable involved, what do you do in that case. i think i'm supposed to answer those questions. i'm posing them because there's no easy answer. it's a very difficult situation we find ourselves in. >> in house when we do something like this, you talk to audit committee, board about you what found, they are going to ask you what are you going to do with the person if you identified a wrong doer, this wasn't an accident, mistaken interpretation, this is somebody doing something deliberately wrong, in this case it's an easy decision. the board is going to expect you to do that given the government vision, if you have a wrong doer in an organization you're going to want to get them out.

organization. sometimes there can be risk of retaliation. that game is going to be made whether it's a good one or bad one. you can go ahead and try to excise the problem from your corporation. you have to deal with the consequences later. >> and just to be clear, the department doesn't require that a company take any specific act against an employee in order for it to remain eligible for cooperation. that is obviously one of the factors we look at so it does present a conundrum for the corporation. we want to know what remedial action that been taken, what a company does about a wrongdoing employee says a on the about where the corporation is, what their attitude is. that is a factor that we assess when we're determining what charges to bring, what penalties or damages to assess and the like. >> i want to add a little more gray to this situation, which is when it's not clear, when it's not clear how involved the supervisor was, whether the

supervisor really knew or was negligent, what do you do in that situation, and there's a little bit of a dance that goes on with doj, because they are not going to tell you terminate somebody. they are not going to tell you what to do, but you say i'm thinking of recommending that we keep so-and-so on. then you look for a reaction. if it's okay, or if it's a glum look -- >> my prosecutors are trained not to react. >> but you do, you try to feel this out and try to propose possible solutions to gauge what the doj reaction is so you can advise your client, this seems to be what's going to happen, because at the end of the day in the ember case, why should the corporation pay 10% more,ened that was a multi-million dollar settlement, why should they pay 10% more if they do adequately

consider, okay, maybe we should take more action, greater action against the employee. it's a difficult situation to be in all the way around. >> sounds a little bit, as a practical matter it's going to be very difficult to say to the government we've identified this person as the person who made the false certifications or even this person who seals to be within the zone of misconduct but refused to talk to us. we're keeping them on the payroll. saying not only do you have problems with the prosecutors, broader problems about what it says about the company, board of directors, shareholders, customers if you have someone who engaged in wrongdoing or refuses to explain to you exactly what they did on the company's behalf. >> i would certainly seek counsel on it. if you have investigation and documents that point in a direction and you've got to ask

questions of an employee and that employee refuses to talk to you, they have an obligation as an employee to talk to you. again, recognizing there are risks as the attorney for the organization, i expect them to comply with it. we have had occasion where we had to do it before where someone won't talk to you. they will sometimes ask to bring an attorney in. if we have a conversation, internal conversation, you don't have the right to bring an attorney when we have that interview. so from employment disputes in particular, would not allow to bring an attorney in, come talk to us period, you're an employee. if they don't, that's going to be subject to a sanction probably. >> in some instances i've encountered when i got the person an attorney, when they won't talk. my view, a zealous advocate, not heartless. you fire under cloud of investigation they are never going to work again. so it's not something you want to do precipitously.

sometimes i have recommended let's get that person an attorney and let that attorney clarify the person's thinking about where they are. >> they are absolutely true. there are a lot of times to the company's benefit to have an attorney, frankly to have a good attorney. everything works better when you've got good attorneys involved and folks that know the lay of the land and the likelihood of average consequences to the employer or what information the employee has to share and that it may be in the employee's best interest to share and work together on that. i don't mean the first step is determining, you try and work through it and see if there are ways to get the the cooperation because it's too everybody's benefit to do that. >> touching on that, plus this notion of multiple representation, i generally am of the view that hiring counsel for employees is some of the best money companies can spend, after the money they spend on me, because it's much easier when those employees have their own advocate that frankly helps

them to remember what happened and to be free and to talk with them clearly, but also so that i'm not the bad guy when rick starts asking tough questions and say, well, they have their own attorney. go talk to that person. i think it would be hard maybe for rick to agree i've cooperated if i've not disclosed facts i've got in a privileged way. but if there's an employee with a lawyer and say i'm telling you all i can tell you, go leverage that person, i think it might be harder to make the case i haven't cooperated if i don't represent some of the key individuals. bill. >> i think we all remember the days not too long ago when doj's position was that the company should not pay for the lawyer to represent the employee. that was the thompson memo that was reversed. i think i'll defer to rick on this. i think doj's position is if you

want to pay for employees to have lawyers, god bless you, it's all to the good. they should not hold it against you. >> so now we have all this privileged information, but i'm desperate to communicate it to the public to get a good deal for my client. bill, what do we do? >> well, so the first thing is, we have to decide whether or not to wave the privilege. i think the first question maybe for rick is what is doj's position whether we have to wave privilege. >> well, i think the rule there is clear a waiver of the privilege. we've been directed not to ask for waivers. sally yates in some speeches she's given has challenged defense bar to let her or her office know if some prosecutor asks their client to wave the attorney-client privilege.

that is not something we're going to do. the situation can change, however, if there's an advice of counsel defense raised. in those situations, communications with in-house or outside counsel that occur prior to or contemporaneous with the alleged wrongful conduct, those can be expected to be produced where we're not required to just take on faith some representation that this person absented on advice of counsel. so that situation presents a little different story. i think there's a strong line of cases that kind of support that approach. and you know, we've had cases. bill i know has had experience with this, too, where, you know, an advice of counsel defense is raised. we delve in a little bit, get ahold of the lawyer and find out what the lawyer was told.

lo and behold, the lawyer wasn't told all the facts that were relevant to give the client. we've seen that on a number of occasions. >> really this comes up not so much with the corporation relying on advice of counsel but with corporate employees relying on advice of counsel defense. in-house counsel told me this was okay. does that ever happen, leo? does anybody ever say you told me it would be okay. >> it happens all day every day. you have to be careful about that. >> as rick points out, typically in my experience the situation was the employee thinking that this is okay is different from the this the in-house or outside lawyer might have said was okay. it's that discrepancy that leads to advice of counsel. >> i would note parenthetically, department of justice's position evolved to the point where doj

prosecutors are not to ask for a waiver except in cases of advice of counsel. sec actually reserves the right to ask for a waiver if you're ever involved in a case i think which the sec is involved. they have to go through their own supervisory review but they are clear they do reserve the right to request a waiver of privilege from a company under investigation. >> all right. so how do we go about disclosing these facts, and what are some of the implications? bill? >> there's a fair amount of case law out there. what are the traditional ways. traditional way number one, i conduct the investigation. i have this bunch of associates taking careful notes. we prepare an interview memorandum. i go in to talk to the government. i say here, here are the memoriandiaanda of all the inte we conducted. that's clearly a matter of

privilege. if we do that, some lawyers do that. that's the way they decided to practice. that's what they want to do. of course you need permission from client to waive privilege and tell them what's going to happen. the second way i've seen people do it quite frequently is what people call the oral download. i think people used to think an oral download would not be susceptible to waiver analysis. in acceptance lawyers come in and read the memorial okay to the prosecutor without handing it over. recently that, too, is a waiver. that's effectively the same thing as handing them the memo. the third possibility is an oral download that's not specifically reading each interview memorandum but really giving a general impression, an overall approach. in those cases, that's not a waiver with respect to specific memos or specific interviews you

conducted. but there's another technique that is fast gaining traction and that's the hypothetical professor. in the southern district case where the judge approved it, it's sort of if you were to ask so-and-so, he might say this. i expect that you might hear this if you were to interview someone. at least in the southern district, with that particular judge, that was not a waiver. that was actually basically that the judge said that was a brilliant strategy by the lawyer to communicate the facts the government needed to know and not waive the privilege in connection with it. >> so bill, should the company be concerned about waiving privilege or is that just a lawyer's concern? >> i think that there are

concerns about waiving privilege. we're going to get to the way around that in a second. certainly if you waive privilege and it's a subject matter waiver, then you have to be concerned about everything, a search of your files, everything going over. this would come up in particular if an employee is charged, or if an employee is the subject of the investigation where the employee's lawyer is now asking the company to turn over will their privilege matter because it's a subject matter waiver. there's another concern, leo, right, with shareholder litigation. >> thankfully we're a nonprofit so we don't have to worry about that. shareholder. there can be other collateral consequences. the point is if you decide to waive the privilege or thinking about it, you have to think carefully about potential collateral consequences use of that information either in the court of public opinion or

another court. >> it's important to underscore it's not the form that determines the waiver, whether written or oral. if you disclose privileged factual information it's a waiver. it's two fold, oral hypothetical, sort of the standard, well, you know, if my client told you this, what would happen. there you haven't actually disclosed any privileged facts, it's a hypothetical. to the extent you're relaying facts, this is what our investigation found. it is a waiver. it's harder for third parties to get at. we should talk about federal evidence 502 which was put in place to make it easier for parties investigations or potential litigation to manage

the privilege issues. now, what 502 provides is that in privileged information that is disclosed in the federal proceeding is a waiver only to the extent disclosed. it's not a subject matter waiver. the rule 502 generally was really driven by the scale of ediscovery. and the problem of reviewing thousands, tens of thousands, hundreds of thousands of documents and then you find a privileged one in there. it was completely unmanageable frankly for all parties. i think that was the heart of rule 502. in our context 502, a provides some very valuable protections. >> i think it's important to understand advisory committee notes may clear the the exception if the waiver is intentional typically occur in

internal investigation. here are the interview memoranda. the third criteria, they ought in fairness be considered together, advisory committee notes made clear that what's intended is to do away from subject matter waivers, that the important consideration is it's unfair if misleading. if i turn over a memoranda to rick saying x didn't happen, also have an interview with leo said x did happen, under the rule that would be misleading and misleading attempt.

what you actually either-orally or in writing produce. there's another component to 502, 502d which really seals the deal. 502 d allows you to -- allows the parties to obtain a court order, which is binding and definitive in state and federal litigation that a particular waiver is simply a waiver as the documents provided. >> couple of quick notes on 502, provides mechanisms for regulating how you handle the disclosure of privileged information. one is a clawback. >> you allow the other side to

look and then if they say we're interested in that, you say that's privileged and decide where to go from there. the difference between clawback and peak, shi-- quick peeks, wh bears the responsibility or cost in identifying and managing the privilege issue. in a clawback, the burden is on the party producing the information to be vigilant and say we want it back. in the quick peek it goes to the other side, i think. so how do you get rule 502 order. >> rule 502 says litigation, if it's pending before the court, then you can get a court order. you say to your self how does that apply to me. certainly if you get a grand

jury subpoena, a grand jury proceeding is a type of proceeding that is pending before the court. i have successfully obtained with the consent of the government 502 d orders that disclosure of certain things are not subject matter waivers. there are other examples, rick will be able to fill us in. >> grand jury, can matter under seal. sometimes difficult to know sus there are circumstances we might get a partial seal lift. to allow the order to be obtained. >> if i was negotiating with a u.s. attorney's office or doj in a case where i wanted a 502d order, and of course they don't tell you that there's a seal ktn but you have enough experience to figure out that's probably the case, again the dance, well if you could get a judge to sign this then we would be happy to

provide you with this material and lo and behold a signed order appears and you can move forward with this. >> so let's go to the big quick picture, big question of cooperator or not to cooperate? rick, from the view of the u.s. attorney can or should a company decline to cooperate with the government? >> this is the $64,000 question. i think the bottom line here is it's up to the company to decide, just like it's up to any client or any target or defendant to decide whether cooperation is in their best interest. typically that decision is made as a result of consultation with their lawyer, communication with our office and it works out one way or another. we can't force or compel any

person or corporation to cooperate. if someone doesn't cooperate that, doesn't necessarily mean we're going to be punitive or we're going to seek an indictment because they're not cooperating. we're, again, going to make an individualized assessment of the facts and weigh the federal principles of prosecution, take a look at the nature of the conduct. we're going to take a look at the background of the defendant, and we're going to take a look at the strength of the evidence and we're going to make that decision upon an analysis of all the factors that we need to think about when we're making those hard decisions. >> leo? >> i was going to say depends on what you mean by cooperate we would certainly, we have policies. our policy is to cooperate with an investigation if somebody shows up we are going to respond to document requests, we're going to do what we need to do. we will certainly, if there are individuals who need to be interviewed and they may or may not have counsel we may or may not have paid for. we may ultimately disagree on

what that leads to. we may do the investigation and think, hey, this was not reckless. maybe there was a mistake made. you can disagree about the ultimate outcome, but cooperate during the course of the investigation. >> i think the department made clear, though rick stated benignly what the consequences are for cooperate or not cooperating. you can look at it in the difference in these cases, but find examples in health care cases of petro tiger versus alsoton where in speeches the department, various officials pointed out, look what happened to petro tiger, they did not cooperate. they got a fine that was in the middle of the guideline range. i'm sorry, petro tiger did cooperate, alstom did not cooperate. they got a fine in the middle of the guideline range. petro tiger got a 20% discount from the bottom end of the range to really make you think, okay,

you have to cooperate. you always have to ask yourself this question. the 20% discount off of what and that's, you know, that's the elephant in the room. what is the what we're talking about? if we're talking about $5 billion or $500 million was the elephant in the room and you can have serious disagreement about whether it should be $500 million or $200 million or $100 million, and it's a difficult one. so i would say it's obvious once you have arrived at a number, you're much better off cooperating and getting the discount, but if to arrive at the number to cooperate you have to agree to some inflated or what you believe to be inflated number, you're not getting much of a benefit at all. >> it's interesting. i think as a practical matter, it's hard for a company to just flat-out tell the government to go pound sand. particularly for health care

providers apart from doj you have permissive exclusion issues if oig decides you're not doing the right thing. it can be different with individuals, however. paw these rules are so complex. the regulations are arcane. the e-mails may be unclear. the government needs an individual and it can be that there are cases where you simply say to the government, i'm sorry, i'm not going to talk to you. good luck to you. if you get something, come back and talk to me. maybe i'll cooperate with immunity. we all like immunity. i'll talk your ear off once i get immunity. but i don't know that it makes sense -- it does not always make sense for individuals to cooperate. and in the context here of these multiple representations as a corporation, i would expect to be in close communication and coordination with company counsel saying here's where i am. it might be bill's representing

the company. he's saying, i didn't tell you to do that, but good. >> i think it's clear in the government's view to cooperate includes an admission to whatever the government says the facts are and whatever the government says the number is. now there may be negotiation over the facts in the number, but the end document that you're going to see is going to be an admission. again, going back to the good old days, it used to be you could enter into settlements where it could say government contends that and the defendant or the company disputes that, but in order to resolve this, we agree to this. that is becoming less and less frequent. it's still, there are still districts where you can get that. there are districts that will not enter into this position that do not contain a definite admission of either guilt or wrong doing, whether it be criminal or civil.

>> we require clear admissions, clear statement of conduct. we think it's in the interest of transparency and the public understanding the nature of the investigation and why we arrived at a resolution. there are negotiating points certainly throughout these cases. we think it's very important that we be clear about why we're doing what we're doing. we want to inspire confidence in the justice system and the work of the prosecutors and so that's really the reason behind this requirement. >> it is difficult in a civil investigation where the potential damages under the false claims act are add as many zeros as you want to if it's a claim that goes out a lot. you're trying to make a business decision that i'm not going to risk the future of my company because we did a lot of x-rays or whatever you think of some claim that gets submitted a lot of times. only takes 50 claims to get $1 million under the new false claims act penalty. you're making a business

decision to resolve it even if you don't think you acted recklessly and the regulation or code was vague, whatever. sometimes you're being forced to confront do i have to admit this or make a business decision? it is difficult when you have a district that might not allow you to do that. i'm certain you would be willing to consider the facts and circumstances of every case with an open mind. i do think that creates difficulty. it is a business decision how you settle these things. >> now what the yates memo required is when there is a resolution the asa resolving the case have clear liability of implicating individuals. if you charge the company but not charging the individuals, you're going to have to prepare a memorandum explaining my plan or here is why i'm not going

after them. >> and documentation of declinations, we do normally. this has been a focus by the deputy attorney general requiring there to be supervisory analysis interaction about these decisions. no sign-off, no passes for culpable individuals without high level u.s. attorney or aeg approval. so these are things that are built into the policy that are going to affect a more rigorous analysis of how we're handling these cases. i think it's a good thing. it's something we have required for the most part during my tenure as u.s. attorney. requires our asas to focus on the conduct of the people involved in the case and to be clear, as they approach their supervisors about how they are going to reach a disposition, be clear about the reasons for the settlement or disposition. >> that's what i really hate

when asa is really focused. but the practical problem and something to keep in mind is what i find in dealing with justice, if you have to get someone to write a memo to get approval for them to get approval to do what your client wants, you're in a lot of trouble. here is a place where particularly if you're -- whether representing the company or the individuals, you can help your client by preparing a memo. saying here's all the reasons i think you should not prosecute any individuals here. you say it may be true for the company that you have a basis to prosecute, but my client's 45 years old, has always obeyed the law, was operating, i don't think a jury is going to convict this person beyond a reasonable doubt, particularly after i bring in three experts to say this is routinely done and ambiguous and blah, blah, blah. i have now given you something you can turn around into the memo you need.

>> the kind of information you describe get a hard look from us. i frequently require it. i did so recently in a case. significant responses to the defense submissions beyond the original material that i had been given to review it, challenging a white collar case. i say go back, answer every one of these arguments and i want to see it in writing. then i'm going to weigh it and assess it with my supervisory team. lest you think these submissions get ignored or given short shriff, that's not the case. >> i'll let you wrap up the last word about compliance. >> the time has run out on the shot clock. very quick point about compliance. the question is does a pre-existing compliance program help you? the answer is sometimes. in the case of olympus

corporation, the doj determined their compliance program was inadequate. they were then punished really a higher fine was imposed under the guidelines than otherwise would have been in place or imposed because, again, doj's judgment, their compliance program was not up to snuff. >> we are looking for effective compliance programs here. i think leslie caldwell called it, "ticking the tire particul" regularly." the senior leadership provides support for it. there is a compliance officer have authority? does the compliance office have resources? are training programs accessible? are they frequent, comprehensive? are there rewards for compliance and disincentives for noncompliance? these are things we drill down on to get at whether compliance is real or not. >> i heard the phrase paper tiger which is the prosecutor's

way of sloughing off the compliance program. that's a paper tiger. it didn't catch this. how good could it be? which is a challenge because if it's a good program, why didn't it catch this particular type of misconduct? you have to be prepared to answer that question. a skeptical prosecutor will always ask that question. >> thank you all for your attention. i'm sure if you have questions, the panel will be happy to answer them afterwards. thank you, panel.

good afternoon. we'll go ahead and get started for our session since we are behind time. welcome to going micro with mack rah. we'll talk about the rule, implementation and realities.

j.p. has tremendous experience and relevance for today's topic having been intimately involved in the drafting on the apm side of macra. he's going to kick it off for us to cover the apm and the mps piece of it. he has a joint jd and mph. he joined cms in 2014 and is leading the innovation center team developing the macra apm policy. in the seamless care models group he developed the next generation aco model and led legal and compliance monitoring activities for the pioneer aco model as well. before working at cms, he clerked at the henry ford health systems in the office of general

counsel at university of michigan health system. he received his jd from the university of michigan law school and mph from university of michigan and is a graduate with an underdegree, graduate degree in psychology for harvard universe. originally a native of texas, which will be relevant to many of you in the audience. larry is the principal at kpmg of their center for health care regulatory insight. larry has again particular substantive relevance and expertise in this area, not only having served as former senior advisor to the administrator of the center for medicare and medicaid services at hhs, but larry also was instrumental in working with the american medical association in the development of their macra implementation piece which he may comment a little on that, as well. before kpmg, he had a dark side

to his career having practiced law in d.c., and then he was also visiting fellow at economic studies program at brooking institutions and his accolades go on and on and on. but welcome to both of them and hopefully our insights today will be helpful to those of you who want to know about macra, what does it mean and how do we get the ball rolling. >> okay. thank you. what i'm going to do here is go through these slides. these will give us an overview of what macra is, the quality payment program, both on the mip side. then we'll have more interesting questions and conversation to follow up on particular areas we think are of interest to all of you. with that i will hop into this overview. this is what we'll talk about just what it is overall.

and what to expect from it coming up. very broad overview first. the real impetuous behind macra was the repeal of sustainable growth rate. everybody could get behind repealing that. that was this looming cuts to medicare payments, which we regularly had a doc fix bill to make sure they did to the go into place. those no longer exist and no longer have that cycle of correcting these potential cuts. instead what macra does is replace it with these two new programs. so we have on one hand the merit-based incentive payment system or mips. what that does is change part b payments in a way where we have payment adjustments associated with performance on cost, quality, improvement activities

and hr use. we'll talk a little about that. on the other hand are advanced alternative payment models. that is a new term that's come up in the past couple of year, apm. what this does is support the participation in certain types of apms. collectively, they are really focused on improving the quality of care and reducing the cost of care. they do that in a variety of ways. we'll talk about that near the end of these slides here. just stepping back the goals when talking about macra and the quality payment program, what are the perspectives we are taking into this from cms angle? what are we trying to do with this tool? this is really a piece of legislation that allows us to fundamentally change what it we pay for care in medicare and set the stage for the country in general. what we want to do is have this cycle where it's evidence-based,

we are looking at our stake holder communities and how each move we do affects them, and we want to be sensitive to that so we can all get behind the same goals that we are improving the care and the cost of care for our beneficiaries. there are a lot of ways to do that. we want to make sure we are bringing everybody along as we go. so these are strategic goals we've set out as well. i'll highlight a couple of them. i won't read through all of them. one i will talk to near the end is the improvement in the advanced apm participation. this law came out, it's really supporting with these additional incentives, participation and certain types of apms, everybody says i want to be in one of these, where are they all? show them to me. we have a few that were ready made we also want to show we are actively working on developing more of these in the future to have more opportunities for people to get in these.

we'll talk about a few more of these in particular in our conversations later. i'm going to skip over the rest of them. i think they are good topics for us to touch on. this is mips. leading into mips is the s sunsetting of current reporting programs. you have value modifier, incentive program, disparity programs that adjust payments based on performance, quality and cost performance and ehr use, but they were independent of one another. those will sunset. this year 2016 is the last performance year for those programs. so those payment adjustments will go into effect in 2018. after that -- so starting in

2017, payment adjustments in 2019 we have mips. you see those old programs have some legacy components that will still live on in mips. in general, what mips is is a consolidation into one program all these different measurement elements so that there's one score, one payment adjustment instead of three separate ones. these are the four performance categories that comprise mips. you'll see the corollaries between the programs and advancing care information is the ehr use piece. the new one is improvement activities. that is a novel piece. that's focusing on actual clinical practice activities that we know are associated with better outcomes. so there is a little bit of reward in the mips program for undertaking these types of activities. what you'll see is with improvement activities in

particular that we want to tie all these performance categories together. so they're not siloed. if you perform in a certain way in improvement activities using your certified dhr technologies, there should be synergies there. we want to represent that in the scoring. i think the way to look at this we are taking a step back saying what makes sense? we have this new opportunity to build this new system that affects part b payment across the board. has all these different moving pieces, but we want it to come together in one cohesive piece at the end of the day. that's what we get with mips and the general goals behind it. all these different performance activities, want to get to the core pieces. what mags the practice of medicine better for our beneficiaries? how do we represent that in a final score that then will give

more, higher payment adjustment rate to those practices and physicians who perform highly on these measures, and reduce those in a correlating matter in the future for those who do not perform as well. those will balance out. we'll talk about the transition into those payment adjustments as well. this is the time frame. don't need to read all the fine print there if you don't want to. this is just the general step by step approach that you'll see from performance to payment under mips. saying the first performance period is in 2017. starting january 1, mips is live, performance we can start measuring your performance under those measures starting then. what you do in 2017, you will report on at the beginning of 2018, so there is a reporting submission period at the beginning of 2018. then those first payment

adjustments associated with that performance and payment will go into effect so those will be plus or minus percentage adjustments on part b claims starting in 2019 and go for that year. then that will be the cycle. 2018 performance, 2019 submission, 2020 payment adjustments. so this is a key part of it. who are we talking about when we're saying mips? who is affected by mips? one, it's important to note it is a clinician program based in part b, and it's focused on medicare enrolled practitioners. hospital and medicaid components of the hr program, for instance, continue as they otherwise have been. so this is really just with respect to part b clinicians. then you see at the bottom here which is key is that only certain clinician types will be

eligible for mips. right off the bat, there are certain clinician types, registered dieticians are not on that list. ot/pt. you'll notice we start off with these. starting the third year of the program, we have the opportunity to expand mips to cover everybody in medicare. you can look out for that the third year of the program to enlarge that group from the types of clinicians we see here to everybody that medicare has in their systems. the second one i'll move to this piece. this is a key part. there are certain exclusions that were set in the statute for participation in mips. certain types of clinicians, even if you are a physician, you could still be excluded from mips. first, newly enrolled in medicare. if it's your first year in medicare, you won't be subject to mips adjustments.

the second one is really key. this is something i think we'll talk a little bit about. it's a change from the proposed to the final rule that we did based in this area in particular. low volume will exclude you from mips. if you only do a little bit of medicare business, you will not be participating in mips. the rationale behind that if you only have a little bit of medicare business, we don't need you to jump through the same reporting hoops to make sure you've been doing these same activities because there is a cost to that reporting. it's balancing the participation that we want everybody to participate, but we understand that it's not feasible for people who don't do much medicare business. the last one is the tie-in to the apm start. this is where mips and apm overlap with one another. if you're in certain advanced apms, you're excluded from the

mips reporting requirements and payment adjustments because they have their own rigorous requirements we want you to focus on these specific advanced apm type of activities as opposed to what mips is asking to you do so they are not dupclicative reporting. this is our strategy transitioning to this program. is there a variety of options to how to participate in the quality payment programming. we want to highlight those and make sure we recognize every time we do a change, particularly with the final role coming out in the fall in the first performance year starting the accident year, we want to

make sure people are prepared and able to succeed instead of having to quickly scramble to get their stuff together for the year. that's what this is about. there should be a transition from our legacy reporting programs into this new mips landscape and quality payment program. there are a variety of ways to dip your toe in mips and avoid a negative adjustment or go for higher payment adjustment. we'll talk about the transition there. on the left hand you'll see that advanced apm part. instead of participating in mips, you're raring and ready to go in advanced apms and take on those challenges and that's also an option. that's what i'll talking about here for a few minutes. then we'll get into discussion. the apm part is something new. there is no legacy aspect to

this. this is looking at new payment models and providing additional incentives for participating in certain types of these payment arrangements. starting with the innovation center, but also looking at the shared savings program and other federal demonstrations, we have this body of things we call alternative payment models. they can touch payment in a variety of ways. they can look at clinical conditions, episodes of care, certain clinician types, total cost of care for beneficiary populations, they can partner with other nonmedicare enrolled entities to accomplish these health goals of reducing costs and improving quality. that's really what ties apms together is they have this core goal of improving our health care system and testing a variety of options in doing that. that's what you've seen building out of the innovation center

over the past six years is this portfolio of alternative payment models to look in a variety of directions and see what works. and the core tenet of the innovation center is to find those things that work and have the authority to expand. if something is proven to reduce costs and improve quality or reduce costs and keep quality neutral, one of those three categories, we can expand in duration and scope one of these tests we are doing. that's what we were trying to do. what the quality payment program does, it doesn't change those apms themselves, but it adds this additional layer of insensitives on top of them. for income the most rigorous of these apms, you get this additional 5% lump sum bonus just for participating, for being one of those early adopters in these models where we are figuring out what works

best for medicare and the health care in the future. when you see apms and advanced apms, they are slightly different things. advanced apms are the subset. we say apm, toss that word around, but when talking about these specific incentives in the quality payment program, talking about advanced apms. i'll talk about the criteria for them. these are the insensitives. this this is just a summary of what you get in the quality payment program. you get those advanced apm specific rewards. the advanced apms, they don't change. the terms and conditions, the way we change care, the clinicians or the diseases we focus on, that doesn't change, but we add this 5% lump sum

bonus on to it. so those clinicians participating in the advanced apms have the opportunity within the apm itself to earn rewards. like shared savings or quality performance bonuses. those exist plus you get this bonus on top of it. this just defines the advanced apm. this is what a large amount of the apm, part of the final rule delved into. there is a lot of meat on this i won't go into great detail. when we look at apm, that universe of payment models. so anything out of the innovation center, shared savings program, other federal demos, we look at each of those and we ask these three questions. can we check these three boxes based on the terms and conditions of those payment models? if so, it's an advanced apm. then the participants can get those bonuses.

so the goals for an apm to be an advanced apm is they must require their participants to use certify ied ehr technology, must tie payment to quality measures comparable to those in mips. payment tied to quality, the third one is the trickiest. this got the most attention we distinguishing between the world of apms and advanced apms. it's about financial risk. it's an either/or. the one i'll focus on is that number two. it's that participating entities must bear a more than nominal amount of financial risk for monetary losses. what that means, we have many pages and lots of ink spilled on that, but we are looking at how much financial risk are these participants under when participating in these models? and what we distinguished the main distinction is there is a down side risk models or

two-sided models and one-sided models or only up side models. so that's saying certain payment arrangements, you only get bonuses. if do you well, we'll give you more payment. others you have a risk involved. meaning you must repay cms if 2 you go over cost performance measures, or you can have withholds of payments or reductions in your payment rates, something like that. that's considered financial risk. that's what we are looking at, are these models based on some sort of financial risk? so that distinguishes between a lot of apms and advanced apms. what we do though, we provide the answers. we have a lot of criteria there, technical details about how we assess which apms are advanced apms. we do those basic assessments for you and we post them on this new qpp.cms.gov website to see

our comprehensive list of apms there. you can see all the apms that cms runs. which are advanced so where you can participate and get that 5% lump sum bonus. i'll also note because it's on the screen is that qpp.cms.gov website, if you have not been there, there is a good overview of the quality payment program, but also an education and tools section where you can see an executive summary of the final rule. a bunch of our fact sheets we published, various determinations we made. that's a very useful tool. it actually looks pretty slick. i recommend you take a look at that. something else that we focused on with the final rule and that i mentioned earlier on the goal to improve the opportunities for participating in advanced apms. so we want to express what we

are working on right now for more opportunities for advanced apm participation starting in 2018. our portfolio is set for 2017. we have a lot of things in the works. so we just want to let everybody know some of the directions that we're going. this is not the only things we are working on, but these are a few that we've highlighted. so you have things like comprehensive care for joint replacement. that's already operating. we just made a proposed change to allow a track of it to be an advanced apm. you have a new voluntary bundles model like the current bundles we have going on that will end this year. then you have a few new episode payment models. those are more options like the joint replacement model. so focusing on particular conditions and episodes of care. and then you have things like

vermont aco model or track one plus. those are like our current acm models with different scopes. those are total cost of care models for beneficiary populations. that it's gold standard for, are you taking care of your entire beneficiary population that you touch and see? so that's kind of the variety of things that will be coming out as additional opportunities. the last thing i'll say before we get into our discussion is that there is additional hurdle that the law set forth. again, there's a lot of complicated methodology lining this up with the existing apms and how we calculate denominators for this stuff. the main point you have to have a sufficient amount of participation in these advanced apms in order to receive those incentiv incentives. if you're in an advanced apm, this is mainly what you need to focus on. you don't need to worry about the criteria of what makes an

apm an advanced apm we give that you answer. then we need to mike sure that you are actually committed to that apm and you have enough of your medicare practice associated with that advanced apm for us to give you those bonuses we look at part b. like mips this is focused on part b. we look at both your payments through that advanced apm and your patients you see through that advanced apm. there are two parallel options. you can meet these thresholds of sufficient participation through either one of those options. we'll take the better one. that's how we'll evaluate it. are you seeing a high enough percentage of your patients or having a high enough percentage of your payments through that advanced apm? if so, you get that 5% bonus, you're excluded from mips. so with that, i'll flash up some of our technical assistance opportunities we are focused on.

also once again recommend going to qpp.cms.gov for details. then i want to jump into some of the juicy discussion we've got here. >> thanks, j.p. is the sound projecting in the back? wanted to kick start by the conversation around the changes we saw between the proposed and final role. i think for a number of us in a consulting capacity or legal capacity advise physicians and other providers who house physicians and these other clinicians that are covered by macra when we originally read the proposed rule which was, as you will remember, replacing sgr, many asked the question of, what mess have we gotten ourselves into? have we created a bigger problem? so in the 4,000 plus comments i believe that were received, there were a lot of them as j.p. probably knows all too well and

intimately, there was those comments clearly were heard because the changes that appeared in the final role liberalized some of the fashions pointed out by j.p. in his presentation. things to make it easier on many providers, particularly physicians in participation. i think many of them were just struggling with, well, what does this mean operationally for me? how am i ever going to begin to get over this hump? so for those again working in the space, it's a huge educational curve. larry will talk a little about those efforts that he's participated in. and that we assisted on. just trying to get over what does that mean for us? there is a sigh of relief when the final rule came out and we saw things that were going to make it a little bit easier on the small and solo practices. you may remember press headlines that said to the effect death knell for solo and small

physician practices. it was doom and gloom. i think the temptation perhaps we see on many physicians' part is to rest on their laurels. there is this tension that exists between now we have a smaller time here we can take the 90 consecutive days reporting period for the first year in 2017 rather than gathering our data over the full 2017 time period. maybe you'll wait till last quarter q4 of 2017 and see how it's looking for us. we don't have to report on cost, we don't have to worry about that for the first year. so we'll let the chips fall where we may. particularly in the current political environment with repeal of aca and other things under way, all of that has implications, i think, for how providers globally are looking at some of these challenges. larry, you want to talk about that? >> yeah. i guess -- thank you for having me here, sydney.

thanks, j.p. for being here, as well.idney. thanks, j.p. for being here, as well. you mentioned i work wied with , we also did work with the committee in terms of crafting the theory and the methodologies behind macra. really to take it a step back. one of the things that macra tries to do is to create a glide path to create a continuum that all providers could be on, which is to bring them from a volume-based world to a value-based world. if you frame it like that, it's easy to put this in perspective. one of the difficulties we had as we looked at the way the legislation was drafted was it had a tendency to treat physicians the same. in other words, physicians are very different in terms of their sophistication, size and orientation. it was always a concern even with the drafting of the legislation we would leave the smaller physicians behind.

indeed, when we came out, when you came out with the -- i was at cms so it's always the "we," the grand "we." i've been away from it for a while. when the proposed rule came out there was a cry from many small physicians that said, look what you've done. mips is where we start. we're not ready to get to advanced apms. we're in mips. mips is a budget-neutral program. for all of us that don't do well, some will do well, it will be taken from those who don't do well. people were starting to call it the "hunger games." all sorts of things. there was this awful human cry we were leaving people behind and were going to kill small physicians. cms certainly did listen and should be commended for this first thing they did, you adjusted the -- first of all,

making it easier for small groups to get acclimated was one of the goals of the final rule. cms increased the fresh hold of physicians exempt from $30,000 in medicare billings or less than 100 part b patients -- they are all "ors." that means 32% of physicians in this first year won't have to do anything. building on what sidney said, they shouldn't view it that way. but they will not be affected this year. cms took steps to ease the burden on quality reporting. they did make them easier to participate, particularly for small end physicians. they tried to make it easier in 2017 and 2018 as j.p. mentioned to qualify for advanced apms. creating more advanced apms in 2018. finally cms announced four

alternative reporting options to minimize payment impacts and ease that physician transition into macra. the pick your own pace program. virtually, every physician can do minimal reporting and get at least a zero percent update. that means in effect every physician has an opportunity to not lose in this in 2017. kind of like where we were with the "hunger games," now in the final rule it's the "hunger games" meets "lake woebegone" where everybody is above average. nobody loses. that brings to mind something i wanted to ask you. we are going into 2017 and giving a lot of tools to physicians, teaching them that this is not that complicated if they report, they will do well in 2017. as we move into 2018, as we always have in these programs, there will be the same group of people who in 2017 were complaining they weren't ready. we now enabled them to complain they are not ready in 2018.

what is cms prepared to do in 2018 so we don't leave these folks behind? >> thanks, larry. that's a great question. that's something one we can answer part of that now. you can certainly see that we will have another rule-making cycle to figure out the rest of that glide path. we set that first stage to say, initial step we recognize people were not ready to jump into this new program right off the bat. next step is we see the end point. that's really what the statute hard coded in saying we need this to be a budget-neutral program, assessing all these components on this scale and paid people accordingly. so there's going to start point now and end point there. i thing you can expect to see a little bit move towards that end point in 2018. maybe not all the way there. that's kind of what expect to

see in that next rule-making cycle. i'd like to step back also about the small and rural practices and how we envision that because again, we really did listen to all these comments and appreciate them. they were actually very substapt i substantive. that helps cms move forward saying here is a suggestion we think can put us in the right place as an industry. there was this infamous table 64 in the proposed rule. it was among the few tables people know the number of. that's where it's showing that predicted that small practices would be disproportionately getting negative payment adjustments as opposed to big practices. redid n we did not want that outcome. we drilled down into why that was the case. it was based on participation rates. you can see one of our big strategic goals is to increase

participation because once those small practices actually did the reporting, they were comparable in quality and the actual scoring with bigger practices. so that's what we wanted to look toward the future. how do we get those small practices incorporated because they are very important and doing just as well as the big practices. >> and related to that, obviously, gathering the quality information is going to be a big piece on the mips side of things as well as apm side. but that infrastructure of the gathering, the data and the indicators being so critical. many of the smaller physicians practices, less sophisticated ones or if you're in a large health system, the huge costs associated with electronic health records or gatherer of that information which feeds into the quality measures. thoughts and comments on that, either one of you as to how all

that sorts out over the next couple of years and how that problem gets solved or challenge? >> so i think one thing you've seen us introduce a little bit is on the ehr front. that's the main point to where we understand the smaller practices have an investment to make to meet these requirements. you have to buy this technology, certified ehr technology implements that. there is an expense to that. that is a barrier of entry to participating successfully in these programs. so something a little through the regulation to make sure we transition into that, but i think outside of that space you'll see us really encouraging the vendor community, but also opening up with new tools. you may have seen announcements about our pursuit of api work to really make the transition or the movement of information

through our systems a lot lower costs and more accessible for more players to come in and sync this up with smaller practices in a cost-effective manner. >> one of the real positive things that you did in the final rule jp was that you made the focus on reporting and not the cost. you have excluded cost or whatever we're calling it for the final rule, but that gives them on opportunity not to be judged on the modifier. you will be providing them on what the cost would have been attributed as you would have used it for the scoring purposes. that's going to be really important in the first year for the physicians to see how they're doing cost wise. how are you going to facilitate that reporting?

>> yeah, so the cost piece in particular so there's no reporting associated with cost. that's kind of the low burden option, but why we did not include it in the first year so we waited that category to zero in this fist transition here is because of that volume modifier in the past. we wanted to step back and take a little bit of fresh air and look at the cost assessment and make sure that we're getting it in the right place and looking at the right episodes and atributing the right beneficiaries to the right doctors and accessing them in the right way. that's part of the part of the cost pcomponent. we want to make sure at the end of the day that it's meaningful. the higher cost people are on one end and the lower cost are on the other end instead of the value modifier and it's

confusing to help you understand. we have these resource reports that would go out and they're really useful, but they're also very dense. that's the kind of space that we need to work on is how do we help practices translate this and understand what they need to do to be successful. that's the quality measures as well and pointing people to the right quality measures and say if you do this, then you're likely to end up on the positive side of the scale just so that it's very clear instead of amazthe maize that people have to navigate. >> we all tepid to focus on the amount of work that has to be done from the providers perspecti perspective. to tie the components, any

thoughts or comments on the cost side of things when we have done the other projects and we have got the information on and performance on. it seems that quality is typically sweeping the generalization and it's easy for folks to make adjustments and changes to it to provide for the providers standpoint. the cost is a little bit more of a challenge. did that enter into the delay factor or the cost standpoint? >> yeah, ei think it did. there's a little bit of learning that we do from the apm and apm's are aren't operating in isolation from the rest of the medicare program. a lot of what we do there is focussing on the cost assessment and performens there. what you will see is more of the learning from the apm experiences that we have will be

trance lated. there's not an expanded apm to use the things that have been successful in those programs. i think some of those elements particularly in the cost performance where we have some really useful measures there can be translated over to the medicare program. >> i would suspect that the quality measures have a similar refinement as we have struggled to get over this transition on how we're defining quality and going back to the chart review and the level that we're starting and now we're looking at affective quality measures and what they were. i know that some of the reactions around the quality measures are they're 90 of them and centered around where they hospital focused measures? what was the dynamic and the specialty care? it's not a one size fits all, and then in the final rule we

saw the measurement is going to be published on a basis that is pluses or minuses. it may change the goal post for one perspective and certainty of people and that's what the measures are. it may allow for the input during that time period on an annual basis for the providers to come in and comment on thing that is they're seeing and changes that they would like to propose. >> well, we all have the quality of measures and i think we continue to find out that we have a lot of work to do in that area. similar erie on the cost i think part of the theory is that you get people into the payment models and the mists of the alternative models where they're somewhere along that path to advanced alternative model and they will start to look

naturally at their own cost and then the cost caulk lus is going to become better as they're more mature. we still have a ways to go. we really told physicians that we're going tuberculosis rewarding them the most. the reality is that we don't have the models out there that are ready for prime time. cms has done a good job of putting some to the test and testing through cmi and so forth. there's still a lot in the pipeline and even the ones and some of the once that are up there that are eligible have not been evaluated and expanded. we're catching up and trying to drive people. this is a work in process. >> yeah, absolutely.

so the stat you which you even recognizes that and says there's a process every year that's going to go through the quality of measures and that's very public. it's just, you know, the to recognize and having that in a regular cycle of accessing the current quality measures and bringing in the new quality measures and there's, you know, it takes time to get the evidence based on the particular measures and making sure that it's reliable and valid and getting that and putting it through that ringer to make sure that it's accessing what we want it to access and that putting it in the mix is going to add value to medicare and to to clinical practice and the beneficiaries. so, you know, it's on a measure by measure basis, but at least i think we set this platform up. that's what this is and we set the stage so that the process is

there and it becomes better and better in the future. >> i think when we talk about the impact here and one last question before we turn it over to questions for the group, but clearly this has a physician and answer provider focus piece to it. it has implications and all sort of structure models. can you comment on the implications that are thought and process and maybe the dialogue that's gone on about the providers and how do you sort out which entity is going to be the reporting entity if they're independent contractors or have a service aagreement or employed by another on a part time basis and all of the pieces to the puzzle. >> yeah, so that's exactly where we are right now and that's the implementation part.

we set the palsy and say how does this relate to actual practice on the ground? it's a lot complicated that any final rule can envision or what a statue can portray, and so yeah, you have one operating in multiple sites and one being in a hospital or an office and so it's the reality of the clinical practice where we need to make sure we think the rule is in place that the policy exists there too and encompass the different ways that people practice and how do we make sure that the tools are clear and that people know what and how is it going to affect them if they are practicing in this way? that's a huge focus of ours now and also things that we're working on through that cms.gov site is the front end for the portal where people actually go in and interact with the quality

program there and so that will be a place where you can go for the truth of the medicare. what you will have to do and when and how. giving you a variety of ways that you practice. that's a way that we address that. >> this just emphasizes how important and necessary and court grenading with cms to make sure that the messages is consistent. there's a lot of questions and you don't learn the questions until people ask them. you have not thought of all of the answers. that's something that cms will experience more and more. that's a natural part of the implementation process if you

have clients, i'm sure that they want to listen to that and have the questions. this is going to be a journey and it's going to have some twists and turns along the way. we're going from one system that's better than the last one. the economy depends on it. >> this is the domino affect and then the compensation and then leading to the cross agency conversations on how that conversation measures up to fair market value. is that the rite behavior and with that, we can go on and on. we will take a pause and take any questions. there are two that are set up if you would use those, that's very helpful. >> thanks for a great presentation on a subject that's informative and my question is unfair and maybe this is for you

and can you maybe try to anticipate how this payment model is adapted by commercial health plans and how down the road this may start to set the stage for not a new par dine but can you elaborate a little bit on how you think that it will impact the private insurers? >> yeah, absolutely. i think that larry has thoughts on that as well. i would say that it's all intertwined and what is new is old, so a lot of this is what we're seeing coming back around and so we're already seeing in the private payer world things that are being done that are very similar to this, so that's the short answer to the question. larry, do you have -- >> yeah, obviously private payers are moving ahead to the

reforms. they were part of macro and cms has recognize that had they will give credit to providers for participating in the models and commercial sector. we have a lot of things that we have to work through on that and for example how does -- how do we deal with some of the abuse laws for example when you get a mix of commercials and cms payment. that's the disquality and then that's a whistleblower program in terms of reporting. there's a ton of things for lawyers to think about and how that works together. this is all new grounds. we're going have new issues that come up. a lot of of legal issues. >> typically they feed hand and hand-off one another. >> so just to tag on to that and the other payer for apm's that's

not going o to be kicking in to 2021 if i'm correct? e i want to get a confirmation of how that's working. >> yeah, that's a piece that we did not dial into. there's a way to get those apm incentives through the other payer aarrangements that's the advanced apm and performance year 2019 for the payment year 2021 is when that will start or later. >> and mixed is going to be beginning. knees are weeds that we need tot go into. it's something that's starting immediately or is that starting also delayed? >> yeah, that's starting immediately and then that's a flavor and you can get the special scoring and we will really recognize the cost and quality and done under the apm's. the burden is reduced for the

practitioners. that's starting right away. >> that's getting players to join them you want to give them the bridge and not give the incentives and that's going to go along that path. >> thank you very much. >> the positions are considered under the options and the programs. what's the best choice for the practice? >> maybe i will let larry. you i think we can kind of describe it. it looks like from advice perspective, i will let larry. >> yeah, i think that the ama and other societies are encouraging. you need to do something. if you do smrks you will not get nothing. those that do nothing will be left in that bottom percentile

of you will get a negative four percent adjustment if you do nothing. you can avoid a negative four percent and get to zero or a little bit better. you can do reporting but there's stages in this and if you report the data, it's like you're going to get zero. if you report two. >> if you move from one to two, you move into positive per spen takes, so it's really not that hard to accomplish. >> yeah, if they start with the mind set that you have to report something and if they fail, you're going to get a 0 percent update in addition to that. >> we did not spend a lot of time on the deep dive of all of this because it would take three hours to cover all of that information. when you start to look at many of the measures and many of them are things that practices and physicians within the health

systems are already doing. you really have to scroll through the measures and see what's the low hanging fruit and then on a forward basis. it's really a soft transition and this is helping to ease and the risk models. i think that we're at the end of the time. i want to say thank you to everybody. we're were on to the next one. final session for the day. >> thank you. this conference taking a short break. we will be back live with when

the conference resumes. we will have a conversation on ethical guidelines for the lawyers use of social media. while we wait for 2 conference continue, the conversation from this morning on the physician assistant suicide. >> so i want to talk to you a little bit about this very decided movement. we have five states that have statues and one that has a case law supporting the right of a thermally ill dumt to take his over her life through the use of add or dying drugs. i practice in california, but not exclusively in california. my clients are throughout the country. the trend setter was oregon and if you want to learn more about it, you can chat with him. so the first was called the

death with dignity act. it took affect in 1998 and was a voter initiative. interestly it was considered by the united states supreme court because then general ash craft was trying to prosecute pharmacies that are participating and that's the magic word participating and the supreme court determined that the controlled act would not be used to and it was more of whose turf it was. that got the sur presume court and that was interesting. followed by that was washington and that took affect in 2009. ver mount in 20 13 and that was through ledge ration and the governor part it part of his

campaign platform before the 2012 election. that was noteworthy montana has its under case law and you may disagree with the statement and the court in that case said that there's little difference between removing the life support and taking aide in dying drugs. i think people would disagree with that statement and there have been many efforts to cut identify that or to over turn it and that's in cal skpal by the way in november and california also and allows the and then the

transition and then that's for me to say and the con junction and then that's going to to put forward the law and put and then in washington and vermont and california and most recently california. they keep on removing the knits and it's more and more refined law then we have a reduced coma and then the drug intake. i'm not a pharmacologist but i have talked to those that describe that. you have to have a physical act of administering and ingesting

the drug. the spouse, partner or sibling cannot request it for you. so in california and this is indicative of the other states, you have to be a residence. that's a lot easier than it sounds. you can die in california more quickly than you can get married or divorced as long as you can show that there's an id or a voter were id or drivers license you must be 18 and understand the nature of the decision. i think and the benefits and the disadvantages and that's pretty

evident and we all know that's an art and not a science. we know there's a book written about the experience in spis there's a lot of procedure in this and it reflecting the tremendous tension in the supporters of the law and de tractors. that's including two maybe obvious and one less obvious

group to fund any kind of assistant suicide. this is not about yeepth naz octavia, but that's a fear that they have. to address the balance and tension between the two groups, there's a enlarge amount of process that you have go through. just to give you the highlight itself, you have to make two oral requests 15 days apart for the drugs. you have to make a written requests. people that stand to benefit

from the will, spouses, siblings and so on. you then have to go to a cast of potentially three characters. and the conformed concept. the doctor must tell you that you have the right to change your mind. must tell you that there are other options such as hos spice and this has created a lot for the clients because their resident do not plan to tell them. a big part of my practice is trying to my clients to have an

open discussion. unlike a hospital where you go in for a few days, this is home for my clients clients. both doctors if they sense a mental issue have to recommend that you go to a specialist. if i went to the doctor today and found that i had six months to live, i would feel a awhole bunch of emotions and one of them would be depression. >> we're trying to see what's happening in the new add aminute administration and what can be more useful than talking about

tweeting. that's how everything is going to happen over the next four years. this is a timely program. i am bill horton and partner with the jones walker law firm in birmingham, alabama and on my left is the chief compliance officer in st. louis, missouri. we're going to hopefully have some fun and talk about some ethics over the next hour. i do want to acknowledge that the power point that you're going to see and that's in the material is largely the work of kim looney with a little help from me with a presentation earlier in the year. she was not able to be with us today but i want to acknowledge her for the details and the result of her good research.

>> how many of you are on social media? i want to take a poll. twitter? linkdin? awesome. 24 percent of law firms have laws. all of these are probably higher in 2016 and going into 2017. 62 percent of law firms use special media and 90 percent of law firms are on linkedin and i am on that and twitter. i am hoping to get all of the section on twitter. 96 percent is on linkedin and 19 percent of law firms use twitter and 14 percent of lawyers use twitter. all of the numbers are probably higher now like i said.

what's the good thing about social media use? well, it's a great thing for lawyers. it has been for me. we share news, personal news, legal development and then i follow bill quit a bit on social media because he is always tweeting or posting something on li linkden and then establishing yourself as an expert. social media can be a bad thing for lawyers too. you can release confidential information, wave attorney client privilege and you have to know the states and bars and rules. it could lead to a disciplinary action. also a social media has implications for client representation as welch client

social media and can be damaging and litigation. if you're a client and you have a client that's on o social media, you should always check their page s and client statements on the social immediate kwla that's inconsistent with the legal requirements and client statements on social media that are inconsistent with the contracts, so always as you're attorneys and health care attorneys, we should check the clients postings as well when starting the representation. >> all of these things are things that we will come back to when we come back to the course of the hour. this is a -- it's really changed the way that a lot of us communicate and do business and a will the of the ways in which we communicate with each other and the clients and reach out to others and one of the challenges for lawyers is it's really so easy. i was sitting out in the lobby

mere moments ago and had a story, a news story and then three clicks of my phone, i have this going out to lots and lots of folks. this is really handy unlease you did it with something that you did if the mean to or had not thought about the implications for. that's where our ethical and professional responsibilities fit in you will hear the presentation and then it's the aba. they're not the same in every state. some states have adopted earlier versions of the rule and have not adopted all of the amendments. some have the rules but not the commentary and that's very

importa important. cannot take away the license but the state that gave you the license can. when you're confronts the issues in real life, be sure that you pay attention to the rules that are in affect in your state. they maybe the fist one of those is the rule. model rule 1.1 is the duty of confidence and is the rule that as the lawyers we have an

obligation to provide representation to a client. what you're seeing from the state bar is that we as lawyers have an obligation to stay on top of the changes and prang tis the way that the clients do business and changes in technology. specifically if you're not a facebook poster or whatever you want to attach to that, you have to understand how the social media sites work and what the risks are associated with them for yourself & also avoid

stepping in the potholes. rules number one is that you have to be confident. hard to argue with that. another one is rule 4.2 and 4.2 is familiar in the concept to most of us and it's the rule that says that you cannot communicate with someone that's represented by counsel about something having to do with the suspect of the representation without the concept of the person's lawyer or a court order. in the old days you knew if you were picking up the phone or calling a witness that was represented by counsel.

we have to think of communications & that's misrep sensati sensation. where do this come up? we will talk about it more. and what we have to disclose if you have a broad brush means such as twitter or facebook or any of the other sites.

and that says that you can not communicate without going through counsel and 4.3 say that is when you're acting on behalf of a client, you cannot miss lead an aunrepresented person or take advantage of a person's misunderstanding on what the role is in the matter. you have seen this before and without disclosing that they're working for a lawyer. well, now the internet and

something that we have to be cautious about to avoid 4.3 and what we tried to do and we're not going to read through the small print to tell you but what we try to do is pull out a number of ethics, o opinions from state and local bars around the country and this is one thing that you really have to be careful f about. and they're going to aadopt to the changing times.

and then they're not all the same. and that's where we remember the local bar association. we're not going to go through those. interest then you have unless you have been cautious about the privacy settings, my wife joined facebook to keep up with the kids and had her profile set up that she was on facebook and

totally incapable of being communicated with. we had to explain that was not the point. anybody can see that and you assume the post what if you want the to see the parts that they have not made i think the general principal that's emerging is you're welcome to whatever you can see on the public portions of the media profile and site, but you cannot

see a friend request on twitter to someone who is and in some way communicating why you're seeking access and in other words i can just in the send cathy a friend request if the reason that i'm sending the friend request is and if i'm going to help me in the lawsuit where she is suing my client. you can look at these opinions and they're kind of all over the

map. you cannot disclose the purpose of the request and cannot make a false rep sensation and by the way anything that you say can and will be held against you. any thoughts or reactions to that? >> yes. so where i find that we're discussing this is in private and using third parties and private investigators, so to access a person's private social networking sites, there's several gaining access to the special media sites and then how

to go about doing it. one of the things that really comes up is that you get the request. you as an attorney can decide if you're going to friend that person or not. a client especially. then one of the other issues is deceit when using social media and the issue is that you cannot pretend to be somebody that you're not. and i read somewhere and i can't think of where i read it where a wife that happened to be a lawyer friend requested the mistress of the husband so she could get information on pending their divorce she could get information on her husband and

obviously that had some ethical issues and she pretended to be someone else be friending that mistress. that's a big no. no. >> now, this is the first place that i they we mentioned something and if you're interested in this, there are a couple of things that have come out and the dc bar has just in the resent past like last month put/two ethics opinions 3 70 and 371 that address the issues in a comprehensive way and they're worth reading because a lot of the ethics o o pin kwlons that we saw here are single opinions and the dc bar and then also a new york state bar section that we will get to in a minute is going put out more examinations and one of the points here that's referred to is that you cannot use the pretexting to

access the media sites. you cannot pretend to be someone that you're not or seeking access for a reason other than the real reason. and then there's things that go to if you're trying to contact a person in the matter in which your client has an interest that you have to disclose that purpose in some fashion, and it's not simply enough to say that your profile identifies you. f to communicate and say that i'm a lawyer and represent so and so. and you're not going to have a lot of people accept the connection requests.

although it's a strange world out there and it's the same principle that you have had under 4.3 that you cannot basically pray on the confidence of a person to try to get information from them that you're not entitled to get. let get back to some of the more stuff but there are a number o of opinions out there and the online referral sources and then the question comes up to the lawyer advertising rules in general they seem to come down along the line and it's okay to participate in those if they charge a flat free. it's not okay to participate them on a bounty hunting basis or a percentage basis.

simil similarly. >> it's like avo. i get a call from them almost every week and one of the issues there is that, you know, how do they charge. how do they charge for lawyers and getting you the lawyer referrals. are they a good source? before you go on to a lawyer advertising and kind of social media site for lawyers, make sure that the way that they build you ask not in conflict with ethics. >> some things that come up is the issue of participation in gropon deals and most of us as health care lawyers keep part of

the business mechanism and don't want to talk about it there. it's an issue that you have to think about if you're participating in those things and most of us know about the doctors and it's a bad thing in the context of lawyers. generally the opinions come down and if you're going participate in these, it can't be on a percentage basis and then that has to bare some reasonable relationship to the cost of advertising and not be a most say that lawyers can advertise and that's social media posting and text messaging providing it implies with the ethics rules. so in a lot of states for examples you will have a requirement that there's a

disclaimer on a lawyer advertising and no guarantee of the future results made and in alabama we have the requirement that you post one that says no representation is made that the quality of legal services is quality provided by another lawyer and that defeats the point of advertising. so generally be sensitive to the good old fashion print media lawyer advertising issues and sometimes they apply and sometimes they don't. you need to think about that and sort of imply that to the particular situation.

>> we're going to be talking about that and then that's the endorsements by the clients or colleagues or for me random people that i i don't know that think that they know that i can do this work. i tend to take off the endorsements because it's portraying that kprour an expert in the certain area. i i may not be an expert in the area. make sure that you follow the statement ethics rules on endorsements on linkden. >> related issue toss the concepts of the solicitation and most of us of a certain age came up learning the rules and taking the mpre and learning the rules about how you're not supposed to

go around handing out the business card at car wrecks and things like that. we don't think about it again because the computers are at the desk and it's easy to put stuff out there. you have to be careful of the communication and running a foul of the good old fashion client solicitation rules. if you look at the states that have been addressing this, typically the focus is on sort of the immediacy of the response and the ability of the recipient of the communication to differ responding the to it. so you have for example new york state says a tweeted most f f us

get a tengs message and we feel that we have to respond to it. one sort of big picture thing that you want to think about there is how much your communications through social media look like solicitations. i do a lot of social media posting and linking to developments primarily in health care law and regulation and policy. that's typically not going to be a solicitation problem. on the other hand if i put out something that says, you know, just racked up a huge victory as relay tornadand false -- -- who to be a millionaire? that can be a problem. you have to think of the summit

matter and the form of the communication and what you say and how much it looks like a specific solicitation opposed to the general information out there. >> and solicitation can come from another law firm to you. for example, and i was given this example to bill earlier today. it was not per say a ethically maybe wrong, but i had a personal injury law firm contact me because former client of mine was in a catastrophic multi-car accident, ask they wanted to represent him. i had not represented that client in two years, so they found me because of the case management software in missouri that i had represented the client two years or. maybe longer than that. they contacted me and said that

they would split fees with me and the third of the recovery if i could contact the client and sign them up. i basically said no, i would not do that. those are the kind of things that you would have to think through before taking on what is a solicitation of a client. >> other issues before we circle back into some more details on social media stuff is that metadeda we all know what it is and anything that we communicate may carry with it all kinds of information about, you know, where the document was created and when it was created and how it was edited and things like that. there's been an emerging scholarship of the lawyers to be aware of the metadata risks, and we mentioned on the slides but

you have to bare in mind the model rule 1.6 and that's the general rule and says that as lawyers we can not disclose confidential information obtained in the course of representing a client unless the client consents or unless the disclosure is required in to the representation and then subject to other exceptions not here. confidential information is a much broader concept. people get them confused, but attorney client privilege have a narrow thing and it's a testimonial privilege and only covers communication between the lawyer and the client in the course of seeking and providing legal advice. confidential information under 1.6 is a broader consent. it's any information that we obtain in the course of representing the client whether it's from the client or a third

party or whether it's from some other source, and most of us who are not, you know, sort of real geeks are not sensitive to the fact that we may be transmitting things that do reveal to the right set of eyes confidential information and then so the rules, you know, have developed to basically say that you have some duty to be aware of the risks of the transmitting data and to use reasonably means to remove it before sending a document and that's a hard and fast rule. a lot of organizations and law firms now have e-mail sellings that will either automatically scrub that and the one that my firm uses also tend toss take the red lines out of word

documents and that can be a problem. you have to be aware and think of this with the sensitive communications in mind. >> and to talk on metadeta, i got this today and a law firm in chicago was hit with a lawsuit after not taking enough assets and keeping information online and they were hit with a class action lawsuit. it's very important that you're aware of the issues and you have your firm or company takes those things seriously. >> this goes without saying but for those of us in the room you always have the risks of transmitting either in the clear or through the metadata the things that are medical related and we have all seen now as we

moved into the phase two audit phase an increasing focus including law firms for miss handling confidential data under hipa. this is yet another thing to worry about and another thing that you have to pay attention the it department even if you don't want to. maybe that's just me. virtual law offices and other communities and ranging from the old fashion e-mail lists to more modern and they can communicate with each other and with the clients and other interested folks and you have a duty to be confident and exercise the reasonable care for those communications and how you can do that client information and

one thing to think about is the concept that i refer to as a lawyer by stopple. the restatement third of the law governing lawyers -- how many knew there was a statement? no need to hold up the hand. it says that a relationship is when a person's intent that the lawyer provide legal services to that person in either a the lawyer manifest toss the person concept to do so or b the lawyer fails to manifest the lack to do so and the lawyer knows or should know that the person relies on the lawyer to provide the services. i was thinking through this and an example that i love to share in this context and many of us in the room are members of the american health lawyers association and that's over the years maintains some big risks and they sort of have died down

a little bit. we do that in the section and not quit as it but it's done and a few years ago somebody comes in one of the lists or poerss a question about a security law issue and that's something that i did. i posted a response. a nice thing to do. the person comes back with a follow up question. a little bit more entail. the person comes back with a third question. i said this is a technical thing and it's probably something that you want to consult the security's lawyer about. the past section chair was in the room earlier and sent me an e-mail and said e i think you are his security lawyer. that's one of the things that we have to be careful of doing things that may case people on the other end of communication to believe that we're giving them legal advice on which they can rely. there's a lot of reasons that's

a problem. it's hard to send them a bill if you only know them as jack 37 at o so and so.com. two, when you are you have pro obligations to them that you don't typically want to undertake what you've done so. three, you can conceive of circumstances where those kinds of xhun cakeses might conflict you out of representing a real client. you want to be sensitive to that. >> also, on your social media sites, as bill alluded to earlier on linkedin or twitter, for example, always put in these are your opinions and not endorsement, or this is not lawyer advertising. one of the things is i'm a vice chair on web technology. we do tweet chats for each of our igs here at the aba. and one of the things is that we do a monthly tweet chat and show we're experts in a certain area. with doing that, that can lead to exactly what bill said

earlier, where someone outside of the twitter -- outside of our aba says, oh, i'm taking that as legal advice, and they start tweeting you, then do you answer their questions or not? so be very careful on those kind of things in the twitter universe. >> we want to circle back to the narrower concept of social media now and drill down on a few more specific issues that have come up. a couple of good places to look, if you want to get a grounding to this, the commercial and federal litigation of the new york state bar put out a year or so ago, the set of social media guidelines. there's a link to it in the slide of materials, that are very useful, very well thought out. and so a start for the proposition that even if you yourself as a lawyer are not active on social media, you have a duty, again, under rule 1.1, to at least know something about

it, and know the risks and benefits so that you can advise your clients. and when you're using it yourself, again, you have to be aware of the risks in those communications. some of the things we talked about, the other thing, again, i didn't put the link that you can get these online, if you just put the ethics venue numbers in the d.c. bar website. they put out these opinions in the last two weeks, 370, 371. 370 deals with essentially lawyer marketing and other personal communication through social media. and the other is actual use of social media to provide legal services that are both worth reading. >> trump's lawyer's going to have a really tough shot. >> indeed. a number of state bars as we've alluded to before have expressed the view that social media activities are subject to the same rulings as traditional lawyer advertising.

again, california takes a pretty strict view on that. florida takes a pretty strict view on that. a couple of large states with a lot of health care lawyers. you have to think about how those restrictions that evolved in the area of traditional advertising might apply to your social media activities. for example, and we keep coming back to linkedin, linkedin lets you claim certain skills. at one point linkedin called that specialties. and lawyers got into -- i don't know if they actually got into trouble, but they did sort of get admonished they could get into trouble because a number of state bars said you can't claim to be an expert in something if you have not been certified under a bar-approved certification program. similarly, you've got to be concerned about endorsement as has already been mentioned. and particularly being vigilant,

if you let endorsements show on your linkedin profile, to make sure that you're being endorsed for things that you actually have some competence in. because what will happen, it's easy to endorse somebody, you just go linkedin will suggest things and you click boxes. not infrequently, someone will end up endorsing you for something that you have no skill or ability or knowledge in whatsoever. and the bars that have looked at this have said, you've got to keep up with this, remove endorsements that don't in fact reflect competence that you have. again, concepts from traditional advertising guarantees of success, you know, just won a great victory, who wants to be next, call my 800 number. client solicitation issues, coming back to the communities we talked about before. somebody will post a question. you see these all the time in online communities. i've got a problem with this

legal issue, does anybody know the answer. and in general, it's okay to come on and say, you know, generally this is the rule. or some states hold this. or whatever. but when you say, you know, the law is x, you've got more questions about this, give me a call, you know, that is likely to be regarded as a client solicitation and be subject to your state's rules on client solicitation. you also have to be concerned whether that is advising an unrepresented party, or perhaps advising a represented party that you may not know is represented. sometimes people show up on lists and in communities to ask questions, legal questions because they don't like the answers they're getting from the lawyers they've actually re taped and paid money to. and you want to be sensitive to the risk that you may be advising someone who already has a lawyer. it may even be someone who has an interest adverse to your

client. the other jurisdictions look at this in different ways. you really have to be particularly, when we're doing things, websites, facebook profiles, linkedin profiles, that can be seen by anybody anywhere, you have to be somewhat concerned about, well, what's going to happen if somebody in, you know -- if i'm doing something that looks like practicing law online and new york state sees that and i don't have the new york state disclaimer in there about lawyer advertising. not usually huge worries, but things to be sensitive to, particularly if you're really active in this area, and kind of affirmatively creating, you know, a brand identity for yourself on social media. >> and to go back to being an expert in linkedin as used by professionals around the world, so you're putting out advertising that you are indeed who you are, you can write about certain things. you can blog post on linkedin.

and, you know, get a ton of views. you can get followers now on linkedin. they follow all your posts on what they find interesting. so just be careful. just because we graduated from law school doesn't mean that we're all trial attorneys or we're all health care attorneys, or we can do an estate plan or whatever. i always get endorsements, and i have to take the endorsements and say, you don't even know me, so how can you endorse me for my work. just be careful when you're on linkedin for that. >> some other specific issues that come up, one, we've already talked about the idea that you've got a duty to monitor and update or remove information on social media profiles, maintained by yourself, or on your behalf. even if it's posted by somebody else. and this is one of the reasons i think you want to be very sensitive. there are a number of sites out there, abo is one of them, there are others, that will put up

profiles for you. and essentially invite you to claim them. i think the general consensus is, if you don't claim them, if you don't interact with them, then you're not responsible for that. just because abo and, you know, pick your other vendor has put up your contact information somewhere. but if you start editing that, providing more information, then you're going to be responsible for monitoring that, and ensuring that anything that's inaccurate or misleading is removed. similarly with linkedin endorsements we talked about. if you communicate with clients through social media, and sometimes that happens, then you want to treat that like any other business communication. i mean, i don't mean if you're just shooting the breeze with somebody about the football game this weekend. but if you happen to be conducting any sort of business communication, through social media with a client, then you're going to want to keep a copy of that and preserve it as you would any other record and

preserve it if you deactivate that social media account. the d.c. bar ethics opinion 370 has said something that i haven't really seen, and i'm not sure that i entirely agree with it, but i do agree with it somewhat, that you've got to exercise caution when you're on social media stating positions on issues, because those stated positions could be adverse to the interest of a client. thus inadvertently creating a conflict. so that if, for example, you are in the habit, not that i would personally know anybody who does this, but if you're in the habit of posting information critical about government regulators on your facebook pages, you may want to think about, gee, is this going to be something that in some way is going to create an issue with my clients that have to deal with those people. and in general, i think that's not going to be so much a risk with generalized statements. but if you're taking positions

on kind of narrow issues, or specific issues, conceivably that could create, if not a technical conflict, at least a potentially embarrassing issue for your client. and the d.c. bar has really kind of honed in on this in a way that i haven't really seen anyone else do. we talked about 1.6. the rule of confidentiality. the d.c. bar has taken an advanced school of thought on that, and they've said, you've got to be careful when you're using social media sites that can access your online address book. again, in facebook, linkedin, even twitter, offer you the chance to dump your contact list in and try to match you up with people. and then they'll suggest friends and connections and whatnot for you on that. the d.c. bar said, they've got to be careful with that, because the connections in your address book could potentially identify clients or divulge other

information that you might not want an adversary or member of the judiciary to see, 57d the lawyer is obligated to protect from disclosure. and also that this information like facebook keeps up with the frequency of your interactions with people. the d.c. bar admonishes you that that kind of information might in itself at least conceivably result in the disclosure of confidential information, or information that would be useful to someone who doesn't have your client's best interest at heart. i think the d.c. bar is overthinking this a bit, but they have thought it about it, and it is certainly worth at least asking yourself the question about before you dump that address book in. >> and with the address book as well, there cob considerations of privacy law issues.

if you have, for example, the e-mail addresses of several health care ceos of hospitals, and, you know, somehow a hacker got into that account, and through the hospital, it really could lead to some hipaa violations as well in their security and privacy law issues. >> we sort of talked about the linkedin issues. i won't go over this again, except to really admonish, you've got to be sensitive to the skills and specialties and expertise. you could easily get crossways on state bars about that. as we get down to the end of this. a couple of thoughts on advising clients on social media issues. there's some state bars that have -- you know, one question that comes up is advising a client on taking a step down from their website or social media post, or changing the

privacy settings. and one, the bars, new york county state bar came out strongly and said, you have -- you actually have an ethical duty to advise clients on how to mitigate adverse effects that might arise in their position using social media. the bars have looked at this, and the emerging consensus seems to be that before there is, you know, pending, or, you know, seriously concretely threatened administration action, it's okay to advise a client to change the privacy setting, it's even okay to advise a client to take a step down. but just as with paper evidence or other type of electronic evidence, the closer you get toward having an actual lawsuit or claim, the more dangerous that is, and if you advise a client to change this, you also have to advise them to keep a record of whatever they have

taken down in case it does prove to be discoverable. new york also says, it's appropriate for the lawyer to provide advanced review of social media postings and publish information favorable to the client's position. they've got a choice. in d.c. bar ethics opinion 371, the d.c. bar again sort of made some points that you haven't really seen other state bars make, suggesting that you may have an ethical duty to actually affirmatively review a client's social media postings relative to the representation. and the d.c. bar makes the point that they could be posting stuff on social media that is inconsistent with claims or defenses that they're asserting

or pleading that they filed in litigation or administrative actions. and we all know the classic example of, you know, the workers comp type case where, you know, somebody has been totally and permanently disabled and you go on facebook, and they're down parasailing at the beach, and knocking back margaritas. but the d.c. bar said think about that in the corporate context, where you may be saying things, fluffy things in social media that are inconsistent with the dire and dismal defenses you're raising in a piece of litigation that could be a problem. and that in fact if you know about these inconsistencies, and you may run into rule of evidence issues by allowing clients to assert claims or defenses that are not merit orrious. the bar says, look, you've got to look at these things because your client may be making representations and warranties

in an acquisition agreement or financing agreement that are inconsistent with the things they're saying about their business on social media. this is something that as security lawyers we worried about for a long time. but the d.c. barrel i says you have to look at it more generally in the context of commercial representation. the first time i've seen some bar associations come forward and say you may actually have an affirmative duty to go out and look at this stuff, not just waiting for your client to ask you to do it. the d.c. bar is silent on what's going to happen when you bill your client a few thousand dollars for reading all their tweets just to stay on top of what they're doing. but we all have goals we aspire to. >> luckily i represent one in-house now, but i represented quite a few startups, and they are really proactive in seeking out counsel for their social media policies and creating best practices on posting on twitter,

linkedin and also google plus, facebook, all of the above. i'm lucky in that manner. >> we'll open it up for questions in just a second. there's a bunch of slides in the material about the mccool case out of louisiana, which is worth reading. it's worth reading the slides. you don't really have to read the case, to get a sense of how this stuff can go wrong. in this case, ms. mccool was a lawyer who had a friend who was in the midst of a messy divorce and child custody proceeding that was going on, actually in two separate proceedings, one in louisiana and one in mississippi. she was in louisiana, not mississippi. and she took to twitter basically exhorting people to write the judges and demand justice for these kids, and essentially trying to affirmatively put public pressure on the judges who were state court judges and who had to run for office, and posted these tweets like i thought you were supposed to have evidence in court.

doesn't anybody know that? stuff like that. we're not going to take your time today to go through that, but read through these slides at your leisure. it can really show you how the failure to exercise sort of basic good judgment can really spiral out of hand on social media. with that, we have to ask -- we have to give our webinar audience to ask questions. we don't have any? okay. we'll let our in-person audience that has actually sat through this, questions, thoughts, commentaries? >> for linkedin and twitter and facebook, a lot of your personal information, your title, your firm, your job title is all posted explicitly. but there are also a lot of social media where you have a degree of anonymity. i'm thinking specifically of like redity where there is a sub community for legal advice.

my question is, could that relative anonymity provide any role in the ethics of providing legal advice over social media? >> the question for -- in case the webinar audience couldn't hear it, you have sites like facebook and linkedin and twitter that will all require you to disclose some sort of information about who you are, and on the professional side, you're likely to have your name and your firm. this is a side note, by the way. there are some organizations that will not let you identifiure employer on linkedin. there's an investment banking firm in birmingham that for some reason doesn't want their employees to put the name of the firm on there. so the general counsel at one point had his position listed as executive vice president and my company won't let me say who it is. the question is, what about things like reddit and other communities who let you post

anonymously, or hide behind pseudonyms that are not readily traceable back to who you are, at least by the common observer, and how do the rules apply there. my answer, that's a very good question. i hadn't thought about it. but i think my answer is typically the ethics rules will not let you do anonymously that which you could not do, you know, out in the open. now, i think if you go into questions like expressing opinions on particular legal matters, you know, you may have a little more flexibility in the sense that you don't have at least a level of risk of your position being associated with your client. again, my basic rule of thumb, and as some of the people in the room can tell you, i spend much more time than i should on social media. my basic rule of thumb is if it's not something that i would want, you know, my mother or my pastor or my managing partner to

read, i really think long and hard about putting it up. you have to assume no matter how private you think your communications are, how anonymous you are, you have to assume it will come back to bite you. i would certainly -- i haven't seen a bar specifically address that, but i would approach it -- frankly, i would approach it the same as if my name were up in lights and my phone number and social security number. >> i was going to say, just consider it good judgment. i know we all fail sometimes in that judgment category. but -- and i have, too. but just have good judgment. and one of the things is that i always advise even my company, is we all have twitter accounts. we all have linkedin accounts, to state opinions are my own and do not mean an endorsement by my company. i always state that my opinions are my own. that is a good practice to have

on all your social media accounts. >> other questions? somebody must have another question. let's try to recap for a minute here. i'll pause for a second so you can read some of the tweets from the mccool case. shouldn't judge decisions based on evidence. judges are supposed to know stuff about the law like evidence and stuff. linking to an online petition urging the judges to reach a particular decision. that's the kind of stuff you want to be careful with. ultimately, ms. mccool was disbarred for violation of a variety of rules. you can kind of read about it online. let's kind of close out here, recapping some basic tips. one, you know, when you are -- and this is not -- i would not

refers to every tweet or every thing you share on linkedin, but when you're doing social media postings, you know, that could reasonably be construed to be advertising or solicitation, you want to think about keeping a copy of that so that you can demonstrate if the bar ever has questions, that you did in fact comply with bar guidelines. again, certainly wouldn't keep copies of everything you put. but like your linkedin profile, or if you're posting something that is more specifically targeted, like a traditional advertisement, keep copies of that. avoid oversharing. that is, kind of a self-explanatory thing. how many people in this room have teenagers? you know, if they're like my teenagers, their belief is not only if they don't see what their friends did online, that it didn't happen. but if they don't share what

they're doing online, it didn't happen. and i will have discussions with my 16-year-old to explain that you don't actually have to post how you're feeling or what you did at this particular moment. and it's still okay. but this can be for -- if you get -- this can be addictive. you really kind of get into it. i have days when i think, gee, i haven't put anything on facebook today. my public will be disappointed. i have to come up with something. you want to always have that governor. don't post false statements or disparaging comments. and don't contradict what you're telling the court, or oig, or cms, or whoever you're dealing with in real life. some examples there. don't discuss sensitive client matters. and this can even go to things like, you know, so proud to have closed a deal for regional care hospital partners.

last week. what a great bunch of people. you might want to talk to howard wahl and see if it's okay that you post that before you do it. some clients are understandably sensitive about how their communications are controlled. if you have a law firm or work in a law firm or work for an organization, the organization should adopt social media policies. and i would suggest they need to be constructive and realistic social media policies. some law firms, our lawyers should not post anything on social media, or they're going to, or lawyers should not post things on social media unless it was the same way they would write it in a memorandum to the client or the court, well, that's not going to happen. >> i want to add to that, social media is a great, great way to market yourself, and create your own brand identity, and your brand identity for your law firm. or even your client.

so just be conscience of what you post. and who you're posting to. and make sure that to create some best practices within your firm. and be -- as bill just said, you know, blogs aren't supposed to be memorandums of law, it's supposed to be, you know, non-legalese ways to tell -- get your information and expertise out there. just be careful the way you post and how you post. >> again, try to stay away from giving fact-specific legal advice. if you're talking about the law, do it in general terms, and make it clear you're not in fact giving legal advice. make sure you include a conspicuous disclaimer that your state requires. or whatever form prudence requires, like, you know, this is just my opinion, you should talk to your lawyer. or you should talk to a lawyer that you're paying, or something.

anyway, with that, we are at the end of our time for our listening audience on the webinar. if you want to see the credits, don't hang up and you'll get the information for your cle certificate. i want to thank you angelina for putting up with me today on this. thank you all for sticking around. i hope you got something out of it. and let's all thank the great planning committee and faculty for what i think has just been an outstanding conference. it tailed off a little right at the end, but up until then it has been a great program. i'm so glad you're a part of it. [ applause ] >> on behalf of my co-chair, joe, our planning committee and the section as a whole, thank you for coming. we encourage you to fill out your surveys. we take them into account for

planning for next year. safe travels. thank you, bill, thank you, angelee. [ applause ] rapper and entertainer kanye west met with donald trump at trump tower in new york. after their meeting with the president-elect and the rapper they spoke briefly with the reporters in the lobby of mr. trump's manhattan skyscraper. >> kanye? what did you discuss in your meeting today? >> just friends. just friends. he's a good man. i've known him for a long time. we've been friends for a long time. >> what did you discuss? >> life. we discussed that.

>> [ inaudible ]. >> i just want to take a picture right now. >> take care of yourself. i'll see you soon. all right? follow the transition of government on c-span, as president-elect donald trump selects his cabinet. and the republicans and democrats prepare for the next congress. we'll take you to key events as they happen. without interruption. watch live on c-span, watch on demand at c-span.org or listen on our free c-span radio app.

the senate judiciary subcommittee on antitrust recently held a hearing on the proposed merger of at&t and time warner. that committee is looking at whether that merger would be anti-competitive or whether it would result in innovation. welcome to the subcommittee on antitrust competition policy and consumer rights. before we start, i'd like to thank ranking member klobuchar for her staff in preparing for this hearing today. i'd also like to thank the chairman of the full committee, senator grassley, for his support for the hearing. after i and senators klobuchar, grassley and leahy give their opening remarks about this hearing, we'll hear from our

panel of witnesses, and i will introduce those witnesses shortly, and then we will have seven-minute question rounds from members of the subcommittee. we're living in what some might describe as sort of a golden age of television. one tv writer recently commented that for the first time i've begun to feel like there may in fact be too much good tv. if that were possible. from "game of thrones" to house of cards, and so many other programs across so many television networks and so many different platforms, the quantity and quality of programming content may well be greater today than it ever has been in the past. or ever could have been predicted. the creativity, however, is not limited to content creators. networks and distributors are

also innovating to allow consumers new and unprecedented access to their content of choice. no longer are consumers limited to whatever bundle their local cable operator might have put together for them. dish, sony and directv all offer cable bundles allowing consumers to stream live television over the internet. netflix, amazon, hbo, cbs, among others, allow consumers to purchase programming directly. and more innovation is on the horizon, and coming at us very quickly. as many industry participants expect 5g wireless technology to provide even more competition to broadband and land line cable, opening up even more possibilities to content creators and to distributors. this brings us to the very reason why we're here today.

to discuss the proposed acquisition of time warner by at&t. and ensuring this flourishing marketplace for creative content retains its vibrancy, regardless of the outcome of this proposed acquisition. at&t is the second largest wireless carrier in the united states. and through its directv and u verse subsidiariesubsidiaries, satellite provider time warner is the third largest television network in film, tv, entertainment company. in late october, at&t announced that it reached a deal to purchase time warner for $85 billion. the proposed transaction would combine at&t's millions of wireless and pay television subscribers with time warner's media lineup which includes cnn, tnt, hbo, and warner brothers film and television studio. now, the companies claim this

acquisition will result in significant benefits for consumers. the combined company will provide, quote, stronger competitive alternatives to cable and other video providers. and, quote, better value, more choices, and enhanced customer experience for over-the-top in mobile viewing. additionally, by controlling the customer experience from content creation through distribution, the combined company says it will be able to innovate its advertising practices, and introduce customized advertising, improved customer experience and significant competitor to digital advertising giants like google and facebook. this transaction involves no horizontal overlaps. however, if this fact ended the antitrust analysis, then this would be a very seinfeld-ian hearing about nothing. although it raises fewer

concerns than do their horizontal counterparts, such deals nevertheless may still tend to substantially lessen competition. the key analysis takes place under the clayton act. the principal concern with vertical integration is foreclosure, or denying access of competing firms to suppliers and customers. a key question thus becomes, will -- what will the incentives and opportunities be for the combined firm after the transaction takes place. many critics of the deal have posited that many the combination of at&t and time warner could create at&t could increase the price of or reduce access to time warner content to rival television distributors, thereby not only raising its rival's costs, but also making its directv products appear more

attractive to consumers. this risk is particularly acute in the online video services market. over the past few years we've seen the development of products like sling, and like play station view, which allow customers to watch a live stream of cable channels via their internet connection, and directv has just begin its own similar service called directv now. at&t's ownership of hbo, cnn, and the other must-have television products of time warner could give directv now a significant competitive advantage over its competitors. at&t's ownership of these channels could also potentially force a hobson's choice of higher prices or limited time warner content knowing that many customers would migrate to directv if its rivals refuse to pay the higher time warner prices that they would have to

pay in that circumstance. the potential anti-competitive favoritism that the combined firm could bestow on its own products is not limited to price or access. but extends to the quality of the offerings as well. it's here that we get to the zero rating, whereby a wireless or broadband distributor excludes particular data from counting towards its customer data consumption caps. on its face, zero rating appears to be customer friendly. the content is free for subscribers and helps them avoid having to pay overage when they exceed the applicable data caps. however, critics argue that zero rating transforms internet service providers or wireless carriers from relatively neutral conduits into gatekeepers. the fcc recently expressed concern that at&t's zero rating practices may obstruct competition and harm consumers by constraining their ability to

access existing and future mobile services, not affiliated with at&t. critics say that such concerns would only be exacerbated if at&t were able to bring time warner content under its fold. and under its ownership. however, as the fcc letter itself illustrates, in regard to this merger, we also have a regulatory framework that's designed at least to minimize, if not to eliminate, many of the positive anti-competitive concerns that have been expressed. the issues raised by this deal are complicated. and like most antitrust analysis, particularly most antitrust analysis in a deal that's this big, and that's this complex, they're necessarily very fact intensive.

the focus of the analysis should remain on maximizing consumer welfare, and consumer welfare is in tern maximized when we focus on protecting competition. rather than protecting individual competitors from competition. the final determination regarding the competitive impact of the deal will be made by the department of justice, i believe we can make a valuable contribution to the conversation today by closely examining the questions raised by this unique and significant transaction. i look forward to hearing from and engaging with our uniquely talented and capable panel of witnesses today. and covering any issues that might come up. senator klobuchar will now give her statement. >> thank you very much, mr. chairman. thank you for holding this important hearing. like you, my initial statement here started out with examples of these great new offerings,

and we seem to have the same ideas. i was going to mention "game of thrones," or as you once called this hearing game of phones, right? and instead, i now will switch to west world to show how flexible i am in this new era in washington. so examples of the content we are seeing from a variety of sources, hbo's west world to netflix house of cards to espn's 30 for 30 documentaries, we see popular content coming from a wider range of networks and video on demand services. perhaps even more important, we see diverse voices being heard, with networks representing different viewpoints and interests. this has been referred to by both of us as the golden age of television. however, it really is actually not quite accurate. increasingly, we stream shows on our computers, tablets and mobile phones rather than simply watching them on televisions.

and consumers are relying on their broadband or wireless connections instead of their cable connections to receive that content. this competition has increased consumer demand for video content which has benefited the content creators, according to the writers guild. there were 305 comedy/drama series during the 2015/2016 season compared to 204 in 2010/2011. the writers have grown from 570 million to 854 million in the same time period. there are still problems. we know what they are, because as u.s. senators, we hear about them when constituents talk to us on the street, or call our offices. the cost of cable television continues to be a burden on too many consumers. according to a report released just this morning, by consumer federation of america, the typical household, which is in

america now two cell phones, one land line and video internet bundle, spends about $2,700 per year on these services. when you think of a middle class income, that is a chunk of change. we have seen this plot before. like a tired movie franchise, we can predict the ending before it begins. the promise of thriving competition collapses, replaced by dominant firms with monopoly power. we saw it in radio and television, with the development of centralized networks, and finally in cable with the rise of cable distributors, and their local monopolies. this is a central question of this hearing, will this transaction accelerate the disruptive forces that will increase competition, spur innovation and improve quality and lower costs, or is this one step on the road to a few dominant firms controlling content and distribution. one school of thought believes that vertical transactions in which a distributor of content

acquires a supplier rarely if ever undermines competition. i reject that approach. whether an acquisition will harm consumers depends on factual investigation and careful analysis, not ideological assumptio assumptions. the antitrust division of the department of justice has largely followed this practical approach in reviewing mergers and acquisition in this industry. in the interest of american consumers, i hope that the new administration continues that tradition. at&t's acquisition of time warner combines one of the world's largest wireless cable, including satellite tv, and broadband providers with one of the world's largest media and entertainment companies. there are three broad questions that i think we need to look at. first, will the acquisition increase at&t's incentive and ability to suppress competition. various distributors of video content have raised concerns

that at&t will increase the prices that competitors pay for time warner content, or deprive its competitors of access to that content. independent content providers raise similar concerns. will at&t post transactions over independent content. if pursued, such tactics could increase the costs of distributors charging consumers or undermine the development of innovative distribution models. even more troubling, the merger could stifle the diversity of viewpoint. independent contact providers are responsible for much of the innovation and diversity in programming today. but they already face a tough landscape, having to negotiate with large distributors. the second question, will the merger produce benefits? according to the parties and supporters of the transaction, combining programming content with video distribution would

allow at&t to develop new innovative offerings for consumers, improve content creation, and allow at&t to better compete with facebook and google. i appreciate that at&t just last week launched directv now which allows customers to access directv's programming through the internet. these potential benefits need to be examined. but i want to be clear, if this transaction is found to be anti-competitive, the need to compete with other companies is not a jusification. the solution for less competition is not even less competition. finally, if concerns exist, will conditions remedy these problems? conditions have been used in the comcast/nbc/universal merger which shares some similarities with this deal. there is, however, disagreement with the effectiveness of those conditions. further, there's growing skepticism that the conditions

that attempt to limit a company's conduct can ever work. mr. chairman, i've received a statement from consumers union articulating their concerns about the transaction. i move that this statement be included in the record. and this is a very important transaction. i'm glad that we are taking a close look at it today, and i look forward to hearing from the witnesses. >> thank you. those will be submitted into the record without objection. we're now going to hear opening statements from the chairman and ranking member respectively of the judiciary committee as a whole. this, of course, is a subcommittee of that committee. chairman grassley? >> also, instead of saying at the end, i may have questions for the record, because after 11:00 i may not be able to be here. thank you, mr. chairman, for holding this hearing on the biggest transaction of the year. the proposed at&t-time warner

merger. this deal would combine one of the nation's largest phone and internet providers with a media entertainment titan that among other things owns hbo, cnn, tbs, tnt and warner brothers studio. at&t strengthens its existing wireless, internet and pay tv business, and also becomes a premier content owner. the justice department and possibly the federal communications commission will determine whether to approve or reject this merger. and decide whether or what conditions should be in order for the parties to proceed with a transaction. nonetheless, this committee's oversight responsibilities is an important one, where the committee can flesh out potential issues and highlight possible impacts of the merger on the market and consumers. it's an understatement to say

that this industry is undergoing tremendous change. people are constantly reevaluating what, when and where and how they access the media, entertainment and content. technologies are quickly evolving, and delivery platforms are converging. companies are improving their technologies, so that customers can enjoy better and faster connectivity. innovation is creating more options and allowing for multiple combinations. the creativity of programming content, and di vice apps is flourishing to satisfy any and every consumer taste young and old. consumers are becoming increasingly knowledgeable about content offerings, and their data consumption needs. no doubt this industry is going through a transformation and a disruptive time and consumers are going to enjoy and are

enjoying the ride. so we want to make sure that this revolution in technologies and content continues to thrive and evolve to the benefit of all consumers all over the country, including rural communities like mine in iowa. more content choices, and accessibility options, better quality and affordable prices make for a happy consumer. at&t and time warner say that this vertical merger will in their words benefit consumers, strengthen competition and encourage innovation and investment. end of quote. they claim that by consolidating the assets of the two countries -- the two companies, it will be able to better compete nationwide and meet expectations of consumers. now, however, critics of the merger say that this deal will have a negative impact on competition and innovations.

there's concerns there that a combined at&t, time warner will block competitor access to popular time warner content. there's concern that a combined company will give preferential treatment, for example, favorable channel placement, and zero rating pricing. to time warner's premium entertainment programming, then to the disadvantage of other content producers, particularly small independent producers. there's also a concern about at&t-time warner's ability to leverage their assets to negotiate better licensing arrangements, or raise the price of their content to the detriment of other distributors. there's concern about the merged company's ability to em employ bullying tactics, to dictate rates and terms to other networks. there's concern that this

acquisition will concentrate too much power into one conglomerate, resulting in higher prices, and fewer programming options for consumers. there's also concern about the merger's implication for a free and diverse media. this is something that i recently experienced because on weekends, when i'm at the farm, i always watch channel 349 on directv. i found out that it wasn't there anymore. i asked why. and found out what is going on is an unfair contract negotiation. now, these are all serious concerns, which should be scrutinized carefully. by antitrust regulators tasked with reviewing this transaction. at the same time, some warn that we should be careful about how the at&t-time warner deal should be examined because of the dynamic nature of the industry, complexity of the marketplace,

and fast-paced innovation and changing consumer wants and demands. they question whether the current merger analysis methods are well suited to tackle this transaction. and urge caution when determining the competitive effects of mergers between different complex interconnected platforms. secondly, they suggest that they may need to redefine market power, and reassess how to analyze it in a fast shifting industry with multi-side the platforms. with tech giants like google, facebook, amazon, netflix, and others, changing the way consumers access content, it's legitimate to ask whether as one aiei scholar recently said, quote, what looks straightforwardly anti-competitive in the old industrial merger models might not be so simple in the mergers

of modern media platforms, end of quote. certainly the at&t-time warner deal warrants close and careful scrutiny because it raises all these complex irs and concerns. we want to ensure that the proposed merger doesn't allow an unfair advantage over competitors or facilitate anti-competitive practices with anti-competitive effects. yet, we also need to be thoughtful, forward looking analysis of the market that takes into account the complexities of modern interconnected media content and telecom platforms and relationships. ultimately, we want to ensure that competition thrives in this critical market, and we don't stifle innovation or deter emergence of cutting-edge technologies that consumers demand. ultimately, we want to ensure that our policies don't lead to higher costs, fewer choices, and worst services for consumers. i look forward to our discussion

today. thank you. >> thank you, senator leahy. >> thank you, mr. chairman. i'm glad that senator lee and senator klobuchar are having this hearing. i'll resist the temptation to go through the list of which shows i like the most and which things i use the most. i see too many people i know in the audience that i'm afraid i'll either make some happy or unhappy, depending on what i include or leave out. but i think it is an important hearing, because the proposed -- we have to agree the proposed $85.5 million merger can dramatically transform our nation's telecommunications and

media landscape to combine two titans of industry. this kind of a massive consolidation of distribution and content, it raises serious questions. what does it do for competition, or consumer choice, or privacy across the media, or pay tv, wireless, broadband industries. we have to look at that carefully. 130 million americans depend upon at&t for their wireless internet access. last year, the acquired directv satellite television service, how is it going to acquire time warner's content. these raise the questions, the obvious questions about whether at&t could begin to act as a biassed gatekeeper for its own content services. we know from the questions

raised about the decision not to charge wireless customers for data used to view directv on their phones. anti-competitive and anti-consumer actions by gatekeepers can be prevented under the fcc's 2015 open internet rules. establish clear, forceful prohibitions of blocking or throttling, discriminating unlawful content on the internet. meaningful neutrality protection to ensure the internet remains an open platform, one that has innovation and free speech. strong net neutrality rules negate concerns about a post-merger, at&t's ability to harm competitors and consumers. but the net neutrality rules which i believe currently protect consumers appear to be under serious threat by the incoming administration.

the president-elect has been openly opposed to net neutrality. he's formally named three staunch net neutrality opponents over the fcc transition. and i think a weakening of these rules are going to cause serious harm to consumers. a harm that would only be exacerbated by these further mergers in the industry. and not limited to this transaction. it will impact all americans who rely on the free exchange of ideas and information on the internet. as chairman, i'm going to submit questions for the record. i have duties involving appropriations at the moment, but i'm very concerned about this. i know you are, i know senator

klobuchar is. >> thank you. >> thank you, senator leahy. your questions will be submitted by senator grassley and others will be submitted without objection. okay. we're now going to turn to our witnesses. i'm going to introduce them. then we'll swear them in and hear from each of the witnesses. we'll start from my left and move to my right. randall stevenson is the chairman and ceo of at&t. mr. stevenson was named to his current position in 2007. since then, at&t has invested to become a global leader in providing integrated communication services, to businesses and consumers. hang on. i've got to make sure that i don't mess yours up with someone else. high-speed internet and mobility to ip network services and internet of things. mr. stevenson began his career with southwestern bell telephone company in 1982 in oklahoma.

he served as the senior vice president and chief financial officer from 2001 to 2004, and from 2004 to 2007 he served as the company's chief operating officer. he was appointed to the board of directors in 2005. he's a member of the pga policy board and national president of boy scouts of america. he received his b.s. in accounting from the university of oklahoma. jeff buks was elected chairman of the board of directors in january 2009, having served on the board since january 2007. he was elected ceo of a company january of 2008. part of being named chairman and ceo, mr. buk served as time warner from ceo from january of 2006 to 2007.

before joining the corporate management of time warner, mr. buks serve the as chairman and ceo of hbo, and coo of hbo. mr. burks of yale university and the partnership for new york city and serves on the advisory board for the creative coalition. he's also a member of the business council. mr. bewkes has a ba from yale and mba from stanford. mark cuban is an entrepreneur and investor and owner of the dallas mavericks, landmark theaters and magnolia pictures and is the chairman of the hd tv cable network axs tv. also one of the "shark" investors on "shark tank." in 1995 mr. cuban and todd wagner started audionet, combining mutual interest in indiana hoosier college basketball and web casting. with a single server and isdn

line, audio net became broadcast.com in 1998. by 1999, broadcast.com had grown to 330 employees and $13.5 million in revenue for the second quarter. in 1999, broadcast.com was acquired by yahoo! for $5.7 billion in yahoo! stock. gene kimmelman is the president and c.o.o. of public knowledge. previously he served as director of the internet freedom and human rights project at the new america foundation. and is chief counsel for the u.s. department of justice's antitrust division. he served as vice president for financial and international affairs at consumers union. also chief counsel and staff director for the antitrust subcommittee of the senate judiciary committee and legislative director for the consumer federation of america. mr. kimmelman began his career as a consumer advocate and staff attorney for public citizens congress watch.

mr. kimmelman is a graduate of brown university and holds a jd from the university of virginia where he received the fordsman fellowship. also a fulbright fellow. he presently serves as senior fellow at the silicon flat iron center for law, technology and entrepreneurship at the university of colorado and his senior associate with global partners digital. daphna ziman is a filmmaker, founder of a music label philanthropist and author living in beverly hills, california. she's the president and chief creative officer of cinemoi, a television network focusing on film, fashion and international style. founder of a music label unicorn ssd records. writer, director and award-winning author and philanthropist. she works as a writer/producer and director. her latest film "footsteps" debuted on showtime. ms. ziman also serves on the advisory board of the philanthropic arm of the state

department irex as well as the board of trustees of children's institute international. a chair person of abc love, adoption brings children love. before we begin, i'd like to swear in the witnesses. if you'd all stand and raise your right hands. do you swear that the testimony you're about to provide to the subcommittee will be the truth, the whole truth and nothing but the truth? thank you. mr. stephenson, you'll be up first. and you may begin. if you could push the button until it turns red, we can hear you better. >> and the rest of the members of the committee, i appreciate the opportunity to talk about the benefits of combining at&t's distribution with the world class content of warner brothers, hbo and turner. and for your constituents, we believe the benefits are straightforward and substantial. they will give more choices and lower priced options and that

means more nation wide competition against the cable companies and each of your respective states. what this merger is not about is consolidation either in media or in telecom. at&t is a communications company. we distribute content. time warner is a media and entertainment company. they create content. and this is a classic vertical merger and it eliminates no competitor from any market. in fact, it increases competition, particularly against the cable companies. and our intent is to disrupt the existing pay tv model. we want to get the most content to the most people at the lowest prices. and we want consumers to pay for their content once and then watch it anywhere at any time. every episode, every season, on whatever device they choose. but disrupting entrenched business models is hard, and it generally takes bold steps.

and combining scale distribution with scaled content creation, it is such a step. it's going to allow us to accelerate innovation and without exception, when one company accelerates innovation in a market, everyone accelerates innovation. faster innovation in content delivery william naturally accelerate deployment of 5g mobile networks with greater than one gig speeds. we've seen this happen before. it's important to recall that we launched the first iphone at at&t on a 2g network. and as demand for the iphone and more bandwidth exploded, the u.s. mobile industry accelerated deployment of 3g and then 4g mobile networks. and this drove two multibillion-dollar network upgrades in the course of five years. and we're about to experience this again. directv now and other planned innovations with time warner are 5g services that are going to be launched on 4g networks.

as we witnessed with the iphone, we expect 5g deployments to accelerate. not just for at&t. we think it will accelerate across the industry creating more competitors for cable. this is exactly what we believe consumers want. new, lower priced options and the power to decide themselves. and a good example as has been referenced in the earlier comments is our new directv now product we launched last week. this is 100 channels starting at $35 streamed to any device. the customer has no contract requirements, no credit check, no installation, no set-top box, and the price includes the data charges for mobility at&t customers. and during our first week in the market, the uptake of this new service has exceeded all expectations. and as predicted, the industry has already begun responding. in fact, just last week, shortly after we announced this product,

cbs added the nfl to its all-access streaming service at no additional cost. innovation by one invariably begets innovation by all. i've talked a lot about what will change because of this merger and i want to really quickly talk about what will not change. at&t will continue to be a leading investor in america. we've invested more in the united states than any other company each of the past five years. you should expect that to continue. we will continue to do our part in keeping america the global leader in two specific areas. innovation and deployment of advanced communication networks and creating content people want to watch. it will encourage and support independent journalism, and we will not withhold content to disadvantage somebody else. time warner was built on a platform of broad distribution of its content into every home, and it would be illogical for us to change that.

and finally, you should expect at&t to continue doing what we've always done. that's distributing a wide array of diverse, high-quality content across all of our platforms. so in conclusion, this merger is going to drive investment. it's going to drive innovation in an industry that we believe is begging for both of those. so mr. chairman, i thank you for the opportunity. i look forward to your questions. >> thank you, mr. stephenson. mr. bewkes? >> chairman, thank you, chairman lee, ranking member klobuchar and members of the subcommittee. thank you for inviting me. i'm jeff bewkes, chairman and ceo of time warner inc. i appreciate the opportunity to talk to you about why a combination with at&t not only makes sense for time warner but also is good for consumers. in short, combining time warner's video content with at&t's distribution will accelerate the development and delivery of the next generation of video services, providing consumers with greater choice,

convenience, value and importantly, better affordability. before i talk more about that, let me briefly tell you about time warner. since 2009, we've been focused on producing and distributing video content, film, television and video games at the wholesale level across a wide range of outlets. we do this through three divisions. warner brothers, home box office and turner broadcasting. we do not own any cable, satellite, telephone, broadband or wireless distribution business. and as a video content company, our success depends on achieving the broadest distribution of our content and on embracing innovative ways for consumers to enjoy what we have to offer. warner brothers is a great example of this. it's the leading television studio in hollywood because the most talented producers, directors and writers come to us

to make their shows. the reason they do that is they know that warners will find the best home for their shows on any network or over the top service. warner supplies shows to every broadcast network while also producing for basic cable networks, premium cable services, including both hbo, its competitor showtime and services like netflix and hulu. warner has also been a leader in innovation, including making it possible for viewers to watch the full season of its shows on demand on broadcast networks. those principles of broad distribution and innovation hold true at hbo whose success depends on reaching and passionately engaging viewers, whether they subscribe to a pay tv service or only have broadband. that's why we launched hbo now, which offers hbo's programming without the need for a pay tv subscription. the same is true at turner. turner must distribute its networks which depend on subscription and advertising

revenue broadly across all platforms and devices. that's why turner's licensed its networks to new broadband delivered bundles offered by dish, sony, directv and hulu. we're proud of what time warner has accomplished but today we're competing for attention not just with other tv networks but with everyone from netflix and amazon to youtube and facebook. great content is not enough. you need to deliver great consumer experiences and that's what joining with at&t will allow us to do. we'll continue to work with all distributors, both, but combining with at&t will make it easier and faster for us to innovate for consumers. including offering more choice in network bundles which great interfaces, great on-demand content and interactive features. more over the top services like hbo now and film struck. more short form content, particularly on broadband and mobile.

currently, when we try to introduce innovations for consumers, we often need to roll them out distributor by distributor as part of lengthy affiliate agreement negotiations that take place only every few years. tv everywhere is a pretty good example of this. we introduced tv everywhere in june of 2009 based on the simple idea that if you subscribe to a pay tv service, you ought to be able to watch your favorite programs not just on tv and on the tv set, but on any connected device of your choice at no extra charge. it's now seven years later. and tv everywhere still isn't fully embraced by all the cable distributors. by combining with at&t, we can accelerate the process of introducing innovations on a nationwide basis, and we can have more flexibility to adjust to changing consumer expectations. providing consumers with more choices and better experience at more attractive prices while

spurring industry wide competition and innovation. that's why we believe this transaction is right for our company and good for consumers. thank you. i'll be happy to answer questions on any of these points. >> thank you, mr. bewkes. mr. cuban? >> thank you for inviting me to give my testimony and speak before you today. my name is mark cuban. i've been an active entrepreneur in many fields throughout a career spanning over three decades having started or invested in more than 200 companies creating thousands of jobs. i'm also proud of the fact that a tv show i'm part of "shark tank" helps inspire millions of potential entrepreneurs every week. the media world has changed. in 1995 i started audionet and billed ourselves as the broadcast network on the internet. we were one of if not the very first streaming content aggregator and distributor on the net. back then, the biggest competitors to our online streaming and consumption of

content were radio and tv. the world has changed quite a bit since then. but maybe not in ways that are obvious. historically, tv had been the dominant media. we all used to wonder why we spent so much time watching tv. when asked why tv, my answer was all the same. tv is the best alternative to boredom. it's the closest we can come to doing nothing while thinking we're doing something. it was always our go-to way to kill time. those days are gone. and in the past, we went to our media. we came home, turned on the tv, plopped down on our favorite chair or couch and vegged out, pulled out a cold beverage. today, our media comes to us. how content comes to us is changing almost daily. and has become an important subject in a world of antitrust and media distribution. today our best alternative comes from an app. fire up an app on whatever device you have in your hand no matter where in the world you

are is how we kill time. the idea that tv is the dominant content delivery mechanism no longer is valid. instead we fill our time by consuming content from facebook, instagram, snapchat, messenger, whatsapp, and virtual reality companies. these apps reach more than 1.5 billion users a month. they can deliver any content in any manner the consumer would like be it message, video, vr, post, ad, you name it to populations around the world in a manner that dwarfs television. facebook is without question in a dominant position, if not the dominant position for content delivery. imagine what facebook and their respective competitive landscape would look like if they had not acquired instagram, oculus rift or whatsapp. if those were separate companies competing in the marketplace, the content world would look much different and be far more competitive facebook may be

the biggest competitor now but not the only major content provider. snapchat is taking over millennials as the best alternative for boredom. we all have seen the never-ending stream of selfies, videos and more take over some of our kids' lives. for those younger than the snapchat generation and, yes, they do exist, there's musically and lively with tens of millions of users and growing. or microsoft's minecraft, an acquired property with over 100 million users. from personal experience, i can tell you punishment for my 7-year-old is take away his mine craft. he could care less if he loses tv privileges. tv is experiencing a declining share of content consumption. it is losing viewers to the other dominant content players in netflix, amazon with prime and twitch an acquired property, apple with music, beats is an acquired property and finally with youtube. and google's the ultimate programming guide, their search. given our time constraints i'll

pick another time to discuss the impact of having google and apple that act as the sole gatekeepers to the app ecosystem. you may have noticed i have not mentioned at&t or time warner yet because neither is in any sort of dominant position. by themselves, at&t and time warner will have a very difficult time controlling their own destinies, let alone trying to exert influence on a market. this merger is not only one of survival and opportunity, but one that is needed by consumers. we need more companies with the ability to compete with apple, google, microsoft, amazon and facebook, delivering content to consumers in this app-driven world is not easy. it is very expensive and difficult. apple, google, amazon, microsoft and facebook are five of the seven most valuable companies by market cap in the world, and all have established dominant positions. that is exactly what the time warner acquisition -- why the time warner acquisition for at&t is an important strategic content acquisition. alone it will be difficult if not impossible to compete with

either of the companies i mentioned. together it will still be difficult, but they'll have a chance to battle the dominant players and increase consumer choice and competition for consumer attentions. i've run out of time, but i'd like to also say each of the largest content companies i've mentioned so far -- facebook, google, amazon, microsoft and apple -- present much, if not all of their content algorithmically. at least with good old-fashioned tv we get to pick the channels we want rather than have our feed tell us what we want. thank you, and i'll look forward to answering your questions. >> thank you. mr. kimmelman? >> thank you, mr. chairman, senator klobuchar, on behalf of public knowledge, i'm joined by consumer federation of america, in our statement, i appreciate the opportunity to testify. i'd like to ask the report we released this morning that senator klobuchar referred to could be put in the record. i know it looks like great bedtime reading by its size. >> without objection. >> i start here because this is

about a description of the last 20 years of activity in this industry, which i think is relevant to look at this morning, as you consider the impacts of this merger. all the leadership of the committee pointed out all the potential pros and significant cons of this. i raise this because what it shows is that $2,700 that consumers are paying per month, there's a lot of issues as to why that number is so big. during those 20 years, there were times when lax antitrust oversight allowed substantial mergers of cable and telephone companies and content companies. there were times when there was limited regulation, and what we conclude is, looking, comparing the prices consumers are paying with the actual competitive costs, we're probably being overcharged by at least about $45 per month, your constituents, for those services, because there are too few players already in these markets.

they're massively concentrated. so in that context, adding firms that have more than 130 wireless subscribers nationwide, 25 plus percent of all tv viewers through satellite and wire, bundled services with market power, and the wonderful content that mr. bewkes has described with time warner raises very significant questions for consumers. they've talked about all the wonderful things they can do. i want to highlight they are excellent companies that have begun to compete more aggressively in the over-the-top market. they're doing really good things for consumers. that's wonderful, as separate companies, contracting with each other and others in the marketplace. the question for antitrust review and regulatory authorities is, will that continue?

they've described what they have done very well, and we applaud it as benefits to consumers in many instances, but will that really continue? with these enormous assets coming together, and in a market where there are very few players, just ask your constituents, how many broadband providers do they have, how many cable or other comparable tv providers that can give you a full panoply of services? how many are there? i appreciate mr. cuban's points but the last time i looked google and facebook weren't charging me more than $200 a month to get those apps, to get their content, and the last time i looked, you all may remember this, too, do you remember when you as teenagers or your kids spent more than like an hour on the phone? talking to friends? do they do that anymore? no, snapchat, apps. it's voice service that has gone here, but that is not the same

as professional quality video that mr. bewkes' company produces. that's something different, and every one of those companies mr. cuban referred to relies on the fundamental infrastructure, the plumbing of the internet and telecommunications system that is controlled by very few companies, two dominant cable, two dominant phone, including at&t. it is that market power that concerns us, and is this just hypothetical or possible? well, the department of justice and fcc have already found that in comparable transactions, including comcast, nbcu when you combine this quality content with market power there are enormous incentives to favor yourself and harm competitors, block competitors, raise prices to rivals. and this deal is even bigger. that was a regional cable

monopoly. this is nationwide satellite tv distribution nationwide, wireless, the incentives will be even greater. in that environment, the bottom line is we urge law enforcers to reject this merger unless they can absolutely show that these competitive harms will not arise, that there are actual paths to increase benefits to consumers, and absolutely show that they truly have the regulatory tools in an environment where it appears regulations will be withdrawn and oversight will be limited. this is not just about money, mr. chairman, members of the subcommittee. it is the diversity of programming owned by different people over different platforms that fuels our democracy. no one has said it better than the president-elect. it is in that environment we urge to you look at this carefully and enforcers not to take risk with the transaction that could be harmful to that

democratic process and consumers pocketbooks. thank you. >> thank you. ms. ziman? >> chairman lee, ranking member klobuchar and members of the subcommittee, i want to thank you for inviting me to testify today about the impact of the proposed at&t/time warner merger on minority channels, cultural diversity, gender diversity, and independent programmers. my name is daphna edwards ziman, and as many of you know i've spent the last 20 years of my life coming here to advocate on behalf of women and children. i'm here today as the founder, president and chief creative officer of cinemoi, a women owned 24-hour award winning television network dedicated to curated films, high fashion, international lifestyle, and

environmentally profound programming. cinemoi is an independent network that is trying to make a difference in the media industry. it's designed to lift the image of women. cinemoi is defined by high quality content. originally we launched the channel on directv on september 17th, 2012. cinemoi is available on verizon and frontier and via the internet and reaches millions of subscribers. cinemoi is a true independent. we chose not to be a part of a bundle because doing so would undermine what cinemoi is and would stifle our creativity. cinemoi is also a minority owned channel as it is one of the only two networks majority owned by a woman, the other one is oprah winfrey and she's distributed by discovery. independent programmers are the risk takers that provide

innovative content. today 90% of the content on tv is controlled by six conglomerates. the industry is currently structured to shut out new entrants, which are mostly independent programmers and keep channels like cinemoi from making it and providing competition to incumbents in the industry. independent programmers understand very well the pressures that they face from giant content providers, but more consolidation is not the answer. in the current state of the media industry, the survival of independents is at a significant risk. further consolidation would be catastrophic to diversity, additionally silencing minority and women-owned voices. at&t claims that vertical integration is not harmful.

the fact is, vertical consolidation gives at&t both the means and the incentive to discriminate against independents. for example, cinemoi competes with many cable networks, turner classic movies being one of them, which is owned by time warner. directv's own research showed that two-thirds of tcm's viewers also watched sin he my. in a nonvertically integrated market competition between cinemoi and tcm is in the best interest of the public, but when at&t owns time warner, shutting out competitive channels like cinemoi is not only easier but cheaper. such loss falls upon the american people. at&t argues that ott

distribution offers sufficient opportunity for independence but relying on ott is the one-way ticket to bankruptcy. like other independent networks cinemoi is negotiating deals on these new platforms. however linear distribution, because of its broad reach, remains the most effective way to develop awareness, brand recognition, and consumer demands. the ott market is a maze of confusion and lots of content that's not organized. approximately 20% of television households are cord cutters, not because of preference, but because of the intolerance to the lack of curation bundles offer the repetitive and copycat programming. the remaining 80% should not be denied programming that meets their needs and interests. ott revenue alone will not allow independent networks to compete with incumbent channels that enjoy multiple revenue streams. moreover, at&t controls the

distribution to more than 172 million cable, internet and mobile subscribers and can utilize a variety of techniques to favor its own content, and disadvantage independent networks like cinemoi. these concerns are real. directv and at&t is currently under investigation by the justice department for unfair tactics against programmers. in fact, independent programmers are only offered channel on at&t if they sign a pay-for-play deal with directv. that's precisely what happened to cinemoi. look at the panel testifying today. it is supposed to represent a broad cross-section of the industry, yet it is dominated by white men. the idea that opportunity is lacking for women and minorities in media isn't hypothetical. it is clearly symbolized by this desk.

women are the majority of the population, controlling 14 trillion in wealth, two-thirds of the country's wealth, and 70% to 80% of all household spending, yet only two networks are owned and controlled by a woman. women deserve presence in the media. the airways at&t utilizes belongs to the american people, bestowed upon the mvpds by the people, for the people, and at&t has a fiduciary responsibility to utilize this resource in the best public interest. that obligation includes creating opportunities for cultural diversity and democracy of voices. sadly at&t is doing everything in its power to avoid the review by the fcc, the one agency that could review this merger through the public interest lens. so the question for policymakers

is this -- does a company that will go to any lengths to avoid public interest scrutiny really care about democracy and cultural diversity, the survival of independents, risk takers, or innovation? the american consumer is ultimately the one that will be worse off from further consolidation in this industry. if we learned anything from this last election, it is that the american people are angry about the growing divide between the haves and the have nots. independent programmers are the have nots in the media landscape. diversity of content is in the public's best interest. okay, i have things to say, if you'd like to ask questions. thank you. sorry. >> thank you, ms. ziman. i will now kick off the questioning, mr. stephenson, i'm going to ask you a very simple question.

will this merger, assuming it's carried out to completion, will it result in lower prices for consumers, and if so, how and why? >> i was asked that exact same question in front of this committee a couple of years ago when we were working on the directv transaction, and i represented that yes, it would, by virtue of the innovation, we'd be able to bring lower price capabilities to the consumer, and literally within a year -- >> which wasn't the exact same question because it was a different context. >> it was a very similar transaction in that the lower prices would be a result of the innovation that would follow, and within a year, year and a half of that transaction closing, the innovation has followed, and in fact there have been two significant innovations, if you're a directv customer you can stream all of that content to your mobile

device, no charge. and then we launched as i said last week directv now, a little over a year since we closed the transaction, 100 channels at $35 and i think that is significant innovation that did result in lower prices to the consumer. and the $35 includes the mobile streaming. so as you put two companies together under one umbrella, this is why it's so important, senator, you can speed innovation like you can never do in our relationships and transactions. directv is a classic example of how that happens. what we are talking about doing by combining time warner and at&t is taking the innovation in directv now to a whole different place and a whole different level, because our ambition is to ensure that the customer pays for their content only one time, because today, a customer pays for content if they want to watch it on a mobile device they probably have to pay for it via an app, if they forget to watch a show and want to look at it on over-the-top means they have to pay for it again. our objective is to pay for it

one time, give the consumer the ability to watch it any time, anywhere, on any device they want. we think that will result in lower prices, and lower cost to the consumer. >> mr. kimmelman, what is your response to that? mr. stephenson says it will result in lower prices. what do you say? >> hard for me to see it for sure, mr. chairman because in the directv deal which we had concerns with but which were addressed by regulators and the antitrust officials, there were clear efficiencies of putting together a bundle that a satellite company could not do on its own for transmission. it couldn't really offer both video and broadband. so i am extremely pleased to see mr. stephenson's companies responding to that and taking advantage of the efficiencies to lower prices. i don't see those here in this transaction. they could contract to do the same things that he's talking about as wonderful innovations without the risks of the merger. >> mr. cuban? what's your reaction to the answers given by mr. kimmelman

and mr. stephenson? >> that's not really my wheelhouse. i don't have a comment on it. >> got it, got it. >> mr. bewkes, i would like to turn to you on a slightly different question, you can get back to that if you'd like but i first want to ask you, i'm encouraged to hear that time warner's business model is based on broad distribution for content. other companies obviously have taken a different approach, netflix for example has been a successful company. it's got a market cap, 52$52.9 billion, and that's a viable option to take a different approach. can you tell me how time warner weighs broad distribution versus exclusive content, how do you balance those relative to attractiveness. >> we're been able to build our networks, cnn, hbo, tnt, cartoon network only because we have

broad distribution and if we were to, and we've never done this, if we were to not offer our networks over any of the cable satellite, telco or over-the-top platforms that are now the place where increasing number of americans are choosing which one to get their tv service through we would be cutting off meaningful revenue for our company. there's no incentive to do that. secondly, we invest a lot of money in making these brands relevant. cnn, hbo, if you all think about them. and we'd be doing that in a manner where we'd be hurting the investment we're making and having these brands mean something. third, there's a considerable amount of advertising support behind the turner networks including cnn, and if we didn't have full coverage we can't sell advertising effectively to advertisers. fourth, it's very important, and it's essentially the life blood of our company to attract the best

talent, best directors, the newest movie idea. these come from independent producers, they come to us because we have the resources and distribution reach to put their product in every home. if we didn't have that, we wouldn't be able to get the next hit show, the next hit movie. those are essentially the reasons why we would never even think of doing this and then a final point, which, gene, you might want to comment on. we owned time warner cable for 20 some-odd years, a big piece or minority piece, and we managed it. it never occurred to us to do anything restrictive or different in terms of price position, packaging, access to networks for that company when we owned it versus what we then did after. so there's just no incentive for us to do it and in fact there's really no ability for us to do it.

it would hurt our business. >> there's no incentive. could those incentives change over time, couldn't those incentives result down the road in you taking a different path? >> no, senator, i can't see a case. and i'd invite anybody here to try to propose one where that would make sense at all. >> mr. kimmelman is shaking his head. you want to add to that, sir? >> i understand mr. bewkes' point and description of his business. and it's exactly what nbc said before when they came before you and before being combined with comcast. the antitrust division did not find when the companies merged that the incentives were the same and that there were opportunities. while time warner cable was what 15 million subscribers and certainly made no sense to limit time warner content to just 15 million, here you have 25 million plus from at&t satellite and video, and you've got more

than 130 million now wireless, with that customer base, you have to look at the real combined incentives. this isn't time warner entertainment. time warner's incentive as a content company. this is the merged at&t with content, and i just think the antitrust officials are going to need to look carefully at those. >> okay, i see my time's expired. we want to stay on the clock here. we'll go next to senator klobuchar. >> thank you very much mr. chairman. mr. stephenson, i'll start with your initial question about the prices for consumers, and i know you focused on the last deal with directv and what it come out of that. just to be clear, this acquisition, do you believe that it's going to lower prices for customers for directv, broadband services, and mobile services? do you want to take each one? >> i can and intend to represent to you by virtue of innovation with time warner and going head

to head against the cable providers, with new products and new capabilities, that we will bring the consumer better priced options than what they have today. to take each one of those apart, i find difficult, because the consumer has gotten to a place where they're not procuring each one of those independently. that's the reason why we're pricing at&t right now. think of what we're trying to do, we're going against a cable provider to compete. you buy tv service from a cable provider today, you spend $50 to $100 per month regardless of how much you watch, it does not change what you pay. if you sleep with the tv on all night long it doesn't change what you pay. to compete against a cable provider, we have to bring a mobile service, we're competing with a mobile service that has the same characteristic, can you make it where the consumer does not think about how much they're leaving the content on? as we work with time warner and begin to think about new forms of content, cloud-based dvrs, getting the rights and putting

those capabilities into our product offering, bringing more value to the consumer, giving them the ability to use video over their mobile device just like they do when they're watching cable tv, we think that's a huge value to the consumer. >> mr. kimmelman, you have your new report coming out today, what, 46 a month you say that cable providers, subscribers are paying that they shouldn't pay. how does that fit into what mr. stephenson is arguing, that this is a new kind of offering that could help bring those prices down. >> it is a new kind of offering, extremely welcome to see directv offering and challenging cable which no one has gone out of their historical telephone region or cable region to challenge each other, all good. that's all premerger. i applaud that. the question is what happens when you combine all of these assets, and that's the fear, and again, it may be a wonderful product. mr. stephenson says pay once,

sounds great to the consumer, but if it's, what happens to others who want to get on that service? if it's zero rated, are they all going to get on? what happens to others who want to offer a different product, are they all going to be able to get time warner content under the same terms and conditions or unbundled. >> right. >> so there are a variety of competitive harms that have to be looked at in comparison to what they want to offer. >> i want to end with that but before i get there, i want to talk about the issue mr. cuban raised, with the competition, with potentially the new environment with facebook and google and i'm hoping we're going to have a hearing on some of these broader communications issues next year. that was my little -- okay. so, but on this generally, how do you see this one? mr. cuban says they need this to be able to compete in this new world but you point out that they're not paying money for google or facebook apps, right?

>> senator klobuchar, i would urge the committee to look at every place there is market power in the sector. there could easily be that in the online distribution on the platform, among the platform companies. when i was at the department of justice, we looked at transaction involving google and a company called ita and we were prepared to challenge it, it was airline services online software that we thought would foreclose competition in that market. and consent decree was worked out. there can be legitimate issues in many places. the fact those companies are prosperous and may be doing things that are harmful does not take away from the fact we have very few ways for the consumer to get to their apps, their other services. and at&t is one of the dominant gatekeepers to get there. >> mr. cuban? >> i would disagree with that just on its surface, the directv now is an example, if apple decided they didn't want to distribute it, they have nothing. if google decided they didn't want to distribute it or either decided to give it such

placement that people would have a hard time finding it, they had no business there, and so they really can't even control their own destiny and i think it's an issue that's out of their hands, despite what mr. kimmelman is saying. >> okay, i want to just end here on the content side here with you, mrs. ziman. you described this practice you referred to as pay-to-play and talked about how it harms independent programmers. could you explain that more and do larger networks have to pay to play? >> yes. independents now barely can get on at all. if they do get proposals it's usually free for a period of time, or otherwise pay-for-play, which means they have to pay to access the subscribers, which means that they cannot survive -- >> because they're not part of the bundled package? >> but not just that, because they're not given the bandwidth to be able to access and if they

are, they're sent to siberia. and the reality is that the mvpds are concerned any of the independents may become must-have content, because then they'll have negotiating power. my friend, mr. cuban, has negotiating power because he owns a sports team. the reality is one of the highest executive at directv said to me point blank, the male sports business. so you are dealing with independents that have so much other content that the public wants and is interested in, and they're not getting access to the public, and that's wrong. it's wrong for democracy. >> all right. speaking of sports, mr. stephenson, in your testimony you say that programming is more valuable when distributed to as many eyes as possible. however, "nfl sunday ticket" is only available through directv. during the comcast/nbcu

universal merger, the fcc decided the merged company would have incentive to limit the distribution of content and discriminate against independent content providers. i want to make sure i understand your position. are you saying mergers were a content distributor acquires a content producer can never raise antitrust concerns or is that in this particular situation, there's not an issue, and how do you answer this fact that there's a lot of concern here about with at&t owning content at the same time as distribution that there would be discrimination? >> i'll try to take the question apart and make sure i answer it fully. the nfl is probably a classic example of a content owner who pretty much determines and dictates how content is distributed and they're very strong. they have a great product and they parse the content up significantly and we pay them for whatever rights we can get from them.

so they kind of, not kind of, they determine how the content is distributed. we don't. we distribute it to our customers for what we pay. it's not something that we just exclusionarily put it out there. it's what the nfl contracted with us to do. in terms of, i want to make sure i understood the second part of your question as to a vertical merger. >> right. >> do i think that's just a cookie cutter -- >> right. >> no, i don't think there's such a thing particularly in the world of antitrust. i believe this particular merger when you put it together you see that before the merger and after the merger the competitive market looks identical. the distribution market looks identical. the content creation market looks identical. there are no overlaps, and so it is a classic vertical merger but the department of justice will look at this and to the extent there are concerns we do believe they could be remedied with conditions. as it relates to the comment about independent programmers, though, i'd like to quickly respond. if there is concern about access

of independent programmers to the consumer, the one model that does not work and we're demonstrating that is the present model. the present model needs disruption. it needs a different model. that's what we're trying to do with both this transaction and the prior transaction we did, but the reality is, when we acquire content from content owners, there is a medium by which we if we want the top content they own they say take that plus the other five or six channels that you possess. that is what's filling up this program guide. it's not anybody trying to be exclusionary. it's filling up the program guide with peripheral stuff that you have to take if you want to get the primary content that a content owner wants. directv now is step one, acquiring time warner is step two but directv now is how we're skinnying down a lot of the peripheral stuff getting a smaller bundle that the consumer wants, that's how you get to a $35 price point rather than an $80 price point, where we have the opportunity to keep doing more and more of this in the future.

>> just last, response quickly, could you foresee there would be some bunningels that wouldn't involve sports? >> oh, of course. in fact, there is a huge segment of our market that wants a bundle that does not include sports. sports is probably the biggest driver of the content cost in the bundle today, and to the extent we want to meet a certain price point for the certain segment of our customers, getting sports out is the way you drop the content cost and get a lower price in the market. it's important. >> except for the nba/dallas games. all right, okay, thank you. >> senator hatch? [ inaudible ] >> -- here today and helping to host so i'm thanking you very much for allowing me to go ahead here and my colleagues as well. this is an important hearing and an important subject we're considering today.

i'd like to begin by quoting briefly from an op-ed published yesterday in "forbes" that i believe frames how we should approach the subject of today's hearing. the central question in any merger review is how the transaction will impact consumer welfare, because at&t and time warner are not competitors, concerns about increased market power, or a loss of competition, the sorts of concerns we often see in large mergers apparently do not apply. rather the pertinent inquiry is whether at&t ownership of time warner content will lead to exclusive dealing, improper favoritism or other acts that narrow consumer choice and reduce service quality. at the same time, we should carefully evaluate the party's claims that the merger will benefit subscribers by, for example, expanding the amount of available content that doesn't count against monthly data caps, unquote.

now i hope these principles can guide our discussion today and i ask unanimous consent of the copy of the op-ed i wrote be entered into the record. >> without objection. >> mr. stephenson, you've pushed back pretty strongly on claims that at&t will have an incentive to favor time warner content over non-affiliated content, or to withhold or threaten to withhold time warner content from competing broadband providers. i'd like you to spell out your argument for me. why wouldn't it make economic sense for at&t to use its ownership of time warner content to raise prices or attempt to freeze out competitors, and why wouldn't it make economic sense for at&t to degrade service speeds for non-affiliated content? >> i'll start with why we would have no incentive to preference, if i could paraphrase your question, i think i understood it correctly, time warner content over others, and i think

it's important to understand, and i've thought a lot about this, we're paying including the debt over $100 billion for time warner, investing a lot of our shareholder money to acquire this content. it's very, very unique content, and you heard mr. bewkes earlier explain the business model and how he built a business that is worth $100 billion, which is quite a feat in and of itself. the business model's fundamental premise for attracting talent, for attracting investors into content, the fundamental premise of that is wide and broad distribution of their content into every home, particularly in the united states of america. while one could argue, and i'm sure the justice department will look at this closely, while one could argue it might advantage our distribution business to somehow give proprietary access to time warner, it would make no sense to a $100 billion business

we're acquiring to do that. it would impair the value of that business dramatically and i've received a big education from jeff on this. the clint eastwoods, the steven spielbergs will not bring their talent and their capabilities to a company like this that is limiting the distribution of that content. it is a fundamental basis of the value of the company. so i just don't see first of all the economic rationale nor do i see from our standpoint the customer rationale, because at at&t, if you go back to the distribution side, we have built our franchise on a very open model. if there is content that the consumers demand and want, we want it out there. we have little value, if we start limiting access to content. we are what we call an open source company. we're not smart enough to know everything the consumer wants, whether it be an app, whether it be a smartphone device, whether it be content, so we try to open our network up to all and accommodate all who want to come in and let the customer choose what they want. so limiting the content of what the customers can get in this

day and age of the internet is, candidly, not a smart business move. >> thank you. let me ask this questions to messrs. stephenson and bewkes, on the benefit to consumer, how specifically will this merger benefit consumers and i'd like to you share specifics, not generalities and to give an example, mr. stephenson in your testimony you talk about directv now. how will this merger help you deploy directv now, and how will that service benefit consumers? >> thank you. directv now, it took the directv acquisition to make that reality, to get a relationship with content players and the ability to gain the content rights to distribute their content to mobile devices.

that's how directv now became a reality. what we essentially acquired from the content owners was only the ability to distribute their content, to the extent we want our customers to store their content, once they've paid for it we'd like to call it, we call it a cloud-based dvr, to the extent our customers would like to take that content and interact with their friends on social media with that content, they'd like that. we gained none of those rights in these negotiations to bring directv now to market. as we look towards the day after this closes, and we have ownership of the time warner content, with ownership you can begin to do those kinds of things. we can give our customers the ability to store time warner content, we can give them the ability to interact socially on "game of thrones" and "westworld" that they cannot do today. we are convinced once we got certain content players to come

on board, others began to come on board. i am convinced that model will play out again as we innovate with time warner content giving our customers unique and different capabilities, other content creators will follow. >> mr. bewkes, just to finish with you and your testimony. let me just ask this question of you. in your testimony you say that the tv everywhere initiative you launched in 2009 hasn't grown the way you hoped it would. how will this merger help you deliver more content to more consumers more quickly. and to both of you, how will this merger affect the prices consumers pay? you've somewhat answered that but if you could spend a little more time on it, i'd appreciate it. >> thank you. i think the way that it would advance that effort which is to put video on demand capability on our networks, and we hope that would drive competition to have every network that you have on your television dial be on demand, so you could watch whatever network you want whenever you want. you don't pay again to do it.

you have increasing numbers of shows so if you find a show in the middle of the season, you can go back and watch the first one and you should be able to watch it on your ipad or mobile device without any further charge. we instituted that change and offered it for no charge whatsoever seven years ago. we announced it with comcast back in that day, and we hoped that all the distributors, cable, telcos, would pick that up and offer to consumers full vod across every channel on the dial, just the way hbo had done -- again, for no extra charge -- in the '90s, and is the way netflix or youtube works today. here we are seven years later, a great, in many parts of the country, if people were listening to this, they would say i don't have this in my home. i'm not used to going to channel 4 and looking at nbc or watching fx on demand.

we've, because we, i think, if you look at the directv now offering, we've been saying very publicly for five years, we think that consumers need interfaces that work the way netflix, xfinity and the way the at&t one works, where it's easy to find shows. it's easy to search across networks. it's easy to do all of that again at no extra charge, and we think by putting this competitive offering into the market, where you have full vod on all these networks that are in your directv package, and at a price that's basically, either half or less than half the prevailing price on average in the country, that's going to force competition both at the distributor level, all the other cable and telephone and satellite companies and it's going to force competition at the network level, where other networks that have held it back looking to get price increases out of it realize they ought to just grant it and give people a better deal. >> thank you, thank you, mr. chairman. >> senator franken?

>> thank you, mr. chairman. i'm a little confused about something, this basic premise that hbo, for example, attracts its talent because, because it has the widest possible distribution. no, i don't think that's why talent went to hbo. i think talent went to hbo, as i remember, because it was a very high quality and it was actually exclusive. so it's the opposite. in other words, that when "the sopranos" was on you had to pay to get "the sopranos" and everybody wanted to see "the sopranos," so this idea, which is this basic premise that everybody went to hbo because we guaranteed everybody would see you ain't true.

so i just don't get that. now, mr. bewkes, you were arti concerns about how a combined at&t/time warner could prioritize its own content and restrict other distributors' access to it. you quickly dismissed those fears saying engaging in such behaviors would not be in the company's best interests and said it would be like selling toothpaste and not put itting in duane reade. that's your quote. i'm not sure it's your analogy that makes any sense. it's not like selling toothpaste and not putting it in duane reed. hbo isn't a toothpaste. it's like cvs or could be cvs manufacturing the greatest toothpaste in the world, and not

letting duane reade sell it, or more to the point, it's like selling "game of thrones" and not letting comcast subscribers watch it or very likely, you'll get to answer the question after i ask it. >> i'm sorry. >> okay. making comcast pay more for the privilege of having "game of thrones" or "veep" or the rest of the line-up. i want to be clear what we're talking about here. should this deal be approved? nothing is preventing a combined at&t/time warner from going to any of its competitors in the pay tv market and charging double for access to "game of thrones" and "veep" et cetera, or the combined company could simply restrict access to the programming entirely and wait

for competitors, customers to flock to directv or hbo streaming services. i don't think these hypotheticals are outlandish at all. you'd have every reason to do this, if you could. if that would make more money, and this is also to mr. stephenson, you'd have, you could make more money for at&t in the long run. this is the incentive that's created by the merger. so mr. bewkes, i know you're eager to answer this. do you agree that a combined at&t/time warner will have greater leverage when negotiating program carriage with other content distributors as a result of this deal, and do you agree that a combined at&t/time warner would have a financial incentive to use this leverage for its benefit? >> may i?

okay. i was -- >> there was a long pause there. >> sorry i was so eager to answer. no, i don't agree. it would not have the incentive nor would it have the ability to do that. it may require a back and forth but let me try to answer the first part. all networks, whether it is nbc putting on the show "blind spot." the show is on nbc. it's exclusive to nbc, where you have to go to watch it. if you want to watch "house of cards" -- >> you didn't have to pay to get nbc. >> yes you did, sir. you had to subscribe to $80 to $120 of network fees so that nbc could get paid that way. if you're talking in the case of hbo, netflix, showtime, those are a little different -- >> no, wait a minute. there's a distinction between hbo and nbc. >> yes. >> right? >> yes.

>> and hbo costs you money, you had to pay for that. nbc came with free, with the package, whatever package you have. in fact you used to be able to watch every tv show for free. >> right, we all remember that term pay tv. that was hbo, showtime, netflix, et cetera, where you have as a viewer the choice to either pay to have it in your home or not pay to have it in your home, and when you decide to buy that network for the month, you then get the shows on that network, "house of cards" on netflix, billions on showtime, "game of thrones" on hbo, those are premium services, there's no advertising. if you don't like the content because of its nature, you don't have to have it in your house. it's quite a different business, but what i was saying in the analogy is right on the toothpaste is, it would make no sense and in fact we could go into it to not sell hbo on the

comcast cable system, on the verizon cable system. make no sense not to offer it. >> would it make sense for at&t to use its leverage to charge comcast more? >> no, because we don't have the market power to do something like that, either at at&t or at hbo. the market's way too competitive for that sort of thing, and remember also -- >> i really think mr. kimmelman might disagree with you. >> well there's no history of anyone pulling off something like that, and this company is certainly not big enough at either end to do that. >> mr. kimmelman, do you have any thoughts? >> well, it's this very concern that again nbc, you know, these are wonderful businessmen. i understand their goal as to what they're doing with their business. nbc said the exact same thing. i'll just say the enforcers found that there were these incentives, they imposed limitations or would have blocked the transaction there.

this is even larger. >> and did they live up to the conditions? >> some, but there have been a lot of problems, i think companies like mrs. ziman's company would not have the resources to take even advantage of those tools. i think there are significant difficulties with conditions which we could get into later, but there has clearly been a history of this kind of favoritism and discrimination. i'll just remind you the bipartisan congress in 1992 stepped in and required cable to sell its products, tv networks, they were vertically integrated to satellite in order to allow satellite to get access to the product. you could have made the same argument, why wouldn't we want to have more people getting it, because it was a competitor to cable. i'm not worried about comcast not getting time warner content in this instance. i'm worried about the online distribution that would compete with at&t, that is growing right now, not being able to get exactly what it needs to be a real competitor.

>> i'm hoping there will be a second round of questions. will there be mr. chairman? thank you very much. i'm over my time. i just want to say i remember that people flocked, talent flocked to hbo because it was a premium channel, and that you people had to pay to go there. >> may i respond to mr. franken? >> to the chairman. >> senator i just want to make a point that anybody, though, any household in america and today any person with a mobile device can subscribe to hbo. i think that was the point we were trying to make. it's not exclusive to anyone. it's broad distribution. >> i'm not talking about now. i'm talking about what built the franchise of hbo and it was a completely different premise than what mr. bewkes was presenting in his opening, and i just wanted to make that point, that it was not what attracted great talent to hbo.

it was in a different model, and what built that franchise was a completely different model. i want to get to some other questions later. >> senator perdue? >> thank you, mr. chairman. you know, in my business career, it seems to me that this economic miracle that we've enjoyed here over the last certainly 70 years, 75 years was built on innovation, capital formation, and the rule of law. and this concept that we're talking about today, this vertical integration is not a consolidation. it's plain and we need to remember that in the committee but this economic miracle was built on transactions like this in other industries. vertical integration is nothing new. i personally participated in it, in order to compete. not to dominate. size today doesn't necessarily correlate to dominance. when you talk about innovation and technology changes like we're talking about today in this industry particularly the consumer has benefited from the aggregation of the ability to deliver as mr. stephenson said

in his opening comment, they want to provide the most content to the most people at the lowest cost. that's called capitalism. if they don't do that, they won't be able to compete. mr. cuban, you said something earlier that really resonated with me, commented to watching tv and watching young kids today and how they consume input is totally different than when we all grew up but i think sometimes being in the senate is like watching tv, too, you think you're doing something but you're really not doing much, so i hope today will be a little different. i want to get your perspective because you're in a unique position to have a unique perspective on this transaction. i would have thought you would have been a witness for an anti-position against this deal, and i want to talk about your hd net experience and the road blocks you had to innovation in getting your content out there, and are you concerned about the combination and the size of this deal harming your ability to be creative and innovate?

>> i own access tv and hd net movies. access started off as hd net, the first all high definition tv network, and it was absolutely independent, and we continue to be independent. and let me also add something senator klobuchar suggested that because they own the dallas mavericks, that improved my ability to get carriage for access tv and hd, time warner cable is the incumbent cable network in dallas and i have not been able to get carriage there so i've faced the challenges. i own magnolia picture, which is a movie distribution company, landmark theaters which has 300 screens and geared towards independent movies, and have produced movies through a company called 2929 distribution. some of the movies were "enron: the smartest guys in the room" nominated for an academy award and "good night and good luck." we weren't big enough to distribute it so we worked through warner brothers to get