Electronic Medical Records: Should the SEC Track the Brokerage Accounts of Hospital Clerks?

Study after study suggests that mandatory electronic medical records will raise health care costs without generating significant benefits. Despite this, ObamaCare requires that individual health information be posted to insecure databases in order to facilitate widespread access to extensive detail about every individual’s health. When the person involved is an important figure in a publicly traded company, public disclosure of previously private health information can move markets. Access to that information in advance of a public announcement can create tidy trading profits.

To see how much money even relatively unsophisticated insider trading schemes can create, consider the case of Cheng Yi Liang, an FDA chemist recently arrested for insider trading on FDA drug approval information. Mr. Liang had access to DARRTS, a confidential FDA database that manages, tracks, and reports on the progress of new drug applications. The FDA usually delays the public announcement of its decision for 24 hours after it informs a new drug applicant of its decision.

The SEC alleges that Mr. Liang purchased stock for a profit before nineteen positive announcements and sold stock short for a profit before six negative announcements. He used seven brokerage accounts in the name of family members, with legal residences in the United States, China, and Japan, to conduct the trades. The gains from these trades averaged $135,015. The most profitable trade yielded $1,040,809. His total gains from trade are estimated to have been $3,645,412 from November 2007 to March 2011.

The finance literature includes a number of papers concluding that news of unexpected death significantly affects share prices. On January 15, 2009, Karyn McCormack of BusinessWeek Online reported that when Steve Jobs announced that he would take a six month medical leave, Apple shares closed at $85.33 on the Wednesday before the news broke. Shares fell sharply in after-hours trading. By 8 pm the stock was at $79.30, down 7 percent. An individual who had access to Mr. Jobs’ health record in advance of the announcement could have made a tidy profit by selling Apple short.

The sheer number of people who will have access to one’s personal health information under ObamaCare is generally underappreciated. On April 22, 2010, Britain’s Daily Mail reported that the computerization of NHS patient records has resulted in widespread access to “sensitive” patient medical information. In addition to access by clinical staff, an estimated 140,000 people, ranging from cleaners to receptionists, can access patient records without patient or clinician consent or notification. At the time, private entities were reportedly selling top-secret patient information for up to £300 a transaction.

With unlimited access to medical records and a global market in company shares, it won’t take long for large criminal enterprises to recognize the potential profit available from insider trading on individual health information. Government cannot possibly monitor all of the people who will have access to private health information. In the end, ObamaCare may damage US equity markets as well as US health care.

Comments (6)

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  1. Devon Herrick says:

    I’m surprised this has not occurred before. Anytime someone has access to valuable information there is a natural temptation to act on it.

  2. Vicki says:

    Intersting idea. You could probably make a lot of money buying and selling selective securities if you spend time around the right hospitals.

  3. Larry C. says:

    This is clever. Yes I would like access to the medical recaords of Bill Gates, et. al.

  4. artk says:

    This blog never allows facts to get in the way of criticism of ideas the NCPA dislikes. There are well established and constantly improving methods of maintaining information security. Why would you believe that medical records will be less secure than the records of investment banks or leveraged buyout companies or any other enterprise possessing information that if prematurely disclosed can have a material effect on a stock price.

    If anyone could get the DOE weekly wti and rbob inventory report 1 minute early they could earn 10s of millions over a few weeks. It hasn’t happened yet.

  5. Linda Gorman says:

    artK–maybe because the hospital, government employees, and physician office staff don’t face the same incentives as investment banks and have less incentive to focus on information security? Plus, the relevant health information will be much more widely dispersed on a variety of electronic platforms and available to a lot more people. Finally, similar data are already for sale in the UK.

    The investment banks and hedge funds are not exactly a model. There’s Stephanou, Benhamou and Skowron of FrontPoint Partners, and, of course, the Rajaratnam case.

    The point, of course, is why require electronic medical records when their benefits are uncertain and they will result in known harms including, this post points out, a large expansion in the possibilities for insider trading.

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