Mark V Pauly

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This article is part of the Tobacco portal on Sourcewatch funded from 2006 - 2009 by the American Legacy Foundation.

Mark V Pauly was a Professor of Economics from the Wharton School, Uni of Pennsylvania. He was a health economist who worked secretly for the tobacco industry for many years.

The Wharton School at the Uni of Penn had a working arrangement with the tobacco industry in the 1970s and '80s. They had plenty of staff who were available to provide 'expert' witnesses of perform dubious studies, and the School itself would run highly controlled and grossly manipulated conferences in exchange for barrow loads of cash.

A large number of economists from the Wharton School and academics from other disciplines at the University of Pennsylvania were on the tobacco industry payroll at any one time. Probably only George Mason University had more, and stronger, tobacco industry connections. Pauly became part of Robert Tollison's Cash for Comments Economists Network operated for the Tobacco Institute by James Savarese.

 

HOW THE NETWORK WORKED

The Cash-for-Comments Economists' Network was run by Savarese through a partnership with Professor Robert D Tollison who used the staff and facilities of the Center for Study of Public Choice at George Mason University to prove cut-out and organisation services. They developed and maintained a network of Economics Professors with at least one on tap in virtually every US state. As one Professor transferred or dropped out (there was a regular turn-over) a new one would be recruited in that State. In all, about 130 university professors were involved in the period 1985-1995, and costs ran to $3 million/year at a time when professor's salaries were in the $30-40,000 pa range. An active network member at a State university could almost double his normal salary.

  The main focus of the group was to write commissioned op-ed articles on a subject determined by the Tobacco Institute. The draft article would then pass back through the network to TI staff, who were essentially public relations experts. Here they were 'improved' and refined; then sent to the Institute's outside lawyers for vetting. Modified articles then returned to the professor, who would then send them to a designated State newspaper as if they were his 'independent expert opinion'. The professors received a base amount for writing and bonuses for successfully planting the article on the newspaper. Some, but not all, received a small (eg.$1000) annual retainer.[2]]

  Published papers would also be copied by the professor and sent to his local Federal Representative and Senator (for a further bonus). Sometimes there were special commissions, but generally the work was writing op-eds and LTE's where they were paid just on results (varied from about $700 to $3000 over the years). Network members could also be called upon to provide witness services and promote the cigarette companies' political/economic line at local ordinance or State legislative hearings. An active professor of economics at a State University could almost double his salary with these activities and with some further appearances, for instance, speaking on the importance of cigarettes in economic terms at major economic conferences, etc.
      Cash for Comments Economists Network   &   Robert Tollison   &   James Savarese   &   Network Document Index

 

Documents & Timeline

1973 March: Pauly comes to the attention of the tobacco industry through his article with Michael Redish, "The Not-for-Profit Hospital as Physicians' Cooperative." American Economic Review. It promote the uber-libertarian idea that anyone concerned about public health issues must have ulterior (rather than altruistic) motives, and identifies him as a potential recruit.

1973 The Economics of the Military Draft, A pamphlet written by Robert Tollison, Ryan Amacher, J. Miller, Mark Pauly, and TD Willett) (Morristown, NJ.: General Learning Press, 1973).
[Tollison and Amacher were both later key operatives in the Cash for Comments Economists Network, and Willett was a close associate of Tollison]

1973 Robert Tollison & Richard Wagner justify their own greed by writing about the greed of others.

For there are several ways in which non-profit hospitals can serve as vehicles for advancing the interests of physicians who staff the hospitals. This was demonstrated by Mark Pauly and Michael Redish (1973), who explained how the non-profit hospital can be used as a vehicle far profit maximization by the physicians who effectively owned the hospitals.

The hospital would have no net income to show. But this does not indicate non-profit status, but only shows that what could alternatively have been shown as income and then distributed to shareholders was captured directly by the physicians in the first place.

Pauly and Redish showed that it would be misleading to treat non-profit hospitals us independent, charitable agencies. While they may be organized on a non-profit basis, they are also essentially owned by the physicians who staff them. Pauly and Redish explained how physicians could use the hospital as an input in their own profit-maximizing activities. [3]

[While this may all be correct, in the hands of Tollison and Wagner, working for the tobacco industry, the implication was that anyone with community or altruistic intentions as part of their personal drive, must necessary by as greedy and self-serving as a Public Choice libertarian if they wish to eat.

The article just pointed out that a non-profit hospital -- or a non-profit university -- can be turned to private profit in the way that these economists were profiting by working for the tobacco industry. The main difference being that the doctors were working for the public good, while the economists were promoting corporate harm.]

1984 The international Journal of Health Economics (published three times a year) has Mark Pauly as one of the Associate Editors. It publishes smoking articles, but there appears to be nothing dubious about the journal. [[4]

[He appears to be considered an expert on containing hospital costs.]

1984 Apr 30: This 109- page DRAFT Tobacco Institute Cigarette Excise Tax Plan' was being developed to covertly battle against a tax proposal being considered by the Reagan Administration; they were facing a budget crisis. The tobacco industry suspected that the Administration (under pressure to create tax cuts for the wealthy) was about to extend the life of a temporary excise tax which had been imposed on cigarettes (16¢ per pack).

They had an urgent requirement for some 'independent' experts to lobby on their behalf at the State level. Their lobbying budget specified the average cost per State worth lobbying:

  • One public finance economist for 10 days @ $1,000, [Total $ 10,000] including meetings with coalition members and/or the Governor's staff; research and preparation; and testimony.
  • One economist for a union workshop on the tax issue, [Total $5,000] including 3 or 4 training sessions over the course of a convention.
  • Six economists @ $5,000 and one senior economist @ $20,000 for a tax symposium, including publishing of the proceedings at $3,000. [Total $53,000] The senior economist would play an oversight/organizational role and would be responsible for editing the proceedings. Such a symposium would be staged for regional or national impact.
  • One economist provided to a public employee union to do original research on the need for adequate services to be funded by broad-based taxes; this would include the final report and testimony. [Total $ 25,000]

Also included in this bundle was draft copy and designs for a couple of different booklets aimed at different States, and others aimed at labor/union and racial groups. It also identifies the Congress Committeemen and state Assemblymen who should be targetted as most likely to be influenced, and it had an appendix which lists economists who can be enlisted to help.

Potential Economic Consultants:
Following is a list of economists in key states who might assist us as consultants. We have begun contacting them to ensure their willingness and expertise. We are asking each about past experience; work with similar issues; previous work with the industry; published articles or research; and speaking availability. As discussed in the body of this program, our intent is to have a group of individuals who we can call upon regularly to testify, conduct special research projects, and discuss their research and/or views on excise taxes with the media.

Tollison is the most influential and prestigious on this list; he was hired to consult on federal tax issues, to publish books promoting the cigarette industry's position, and to oversee efforts of the other cash-for-comments economists throughout the country. See last page

They are already designating key states for the economists to influence through op-eds and politicians, and allocating a recruited academic to perform their lobbying services. Yoram Barzel is the only name on the above list who appears to have had second thoughts. He resisted the Institute's overtures entirely -- although they quoted his papers extensively.

1984 Jul The following month the Tobacco Institute circulated a formal document to the cigarette company members:

Cigarette Excise Tax Plan.
The plan augments our basic lobbying efforts by relying on groups outside the industry -- some not regularly associated with the industry -- to argue against excise taxes for us.

It is an ambitious program, based on the notion that many of the most effective protests against tobacco taxes will come from groups philosophically distant from The Institute. Many such groups agree with us on the excise issue, even though they disagree with us on other matters.

At the federal level, supporting Congressional members from the tobacco states is essential to our lobbyists. The tobacco members consistently vote as a unified group -- something that is rarely seen in Congress today. They are our lobbyists' most important resource.

The program recommends that economic and other consultants assist us in developing, "packaging," and presenting our anti-excise arguments in legislative testimony or meetings with coalition members. Resources:
Economic consultants with different areas of expertise will conduct research and act as spokespersons for The Institute and organizations supported by The Institute. Specific activities with economists are discussed throughout the tactics.

Tactics:

  • Stimulate reputable public finance economists at key state universities to determine the validity of state revenue forecasts, perhaps on behalf of state business organizations and present arguments against excise taxes in various forums; e.g., meetings with potential coalition members or budget officials.
  • Encourage economists to make the case against regressive taxation in meetings with potential coalition members and legislators.
  • Retain public finance economists affiliated with non-profit organizations to research the subject and use their findings in forums such as:
    • Private meetings with state legislators or staff ;
    • formal testimony before government bodies ;
    • targeted media appearances;
    • speeches before business, civic, labor, and other groups ;
    • tax symposia in key states where the proceedings could be published for use in other states ; and
    • articles which raise the visibility of key arguments in the business, academic, and popular press.

Strategies:

  • Presenting specific members of the House Ways and Means and Senate Finance Committees with arguments prepared by economists with whom they share some common interest; e.g college affiliation, service on the same commission.
  • Gaining the support of Citizens for Tax Justice (CTJ), the most influential labor/liberal tax reform group in the country, in opposition to excise taxes.
  • Relying on the AFL-CIO -- via The Bakery, Confectionery, and Tobacco Workers Union -- to ensure that the labor/liberal tax package that emerges in the next session of Congress does not include tobacco.

Appendix: A list of economists in key states who may be willing to act as industry and third-party spokespersons on the tax issue. Following is a list of economists in key states who might assist us as experts receiving honoraria. We have begun contacting them to ensure their willingness and expertise. We are asking each about past experience; work with similar issues; previous work with the industry; published articles or research; and availability.

Cash-for-Comment Economists
State Economists   and their institutions
California Thomas Borcherding, Claremont College
Connecticut William McEachern, University of Washington
Florida Richard Wagner, Florida State University
Georgia Fred McChesney, Emory University Law School
Illinois James Heins, University of Illinois
Mass. Harlan Platt, Northeastern University
Minnesota Thomas Stimson, University of Minnesota (St.P)
New York Harold Hochman, City University of New York
Ohio David Klingaman, Ohio University
Penn. Mark Pauly, University of Pennsylvania
Texas Charles Maurice, Texas A&M University
Wash.DC. Robert D Tollison, George Mason University.
Wisconsin Burton Weisbord, University of Wisconsin
"Our intent is to have a group of individuals whom we can call upon as needed to testify, conduct special research and discuss their research projects and/or views on excise taxes with budget officials, potential coalition members, legislators and the media."[5]
[The only change here is that Yoram Barzel from the University of Washington, had dropped out. (There was always a regular turnover)
This was the core Cash for Comments Economists' Network. Over the years they recruited over 160 professors of economics.]


1988 Mark Pauly is the Director of the Leonard Davis Institute of Health Economics at the Wharton School at the University of Pennsylvania. He has just co-authored An Analysis of "Medigap" Enrolment: Assessment of Current Status and Policy Initiatives, " which is published as Chapter 7 of Lessons from the First Twenty Years of Medicare (Eds. Mark V. Pauly and William L. Kissick), University of Pennsylvania Press,


QUOTE:   The quality of life can also be measured by the amount of money left in a patient's pocket

Mark V Pauly

1989 Jul 5 James Savarese advises the Tobacco Institute (TI):

Attached is a revised version of Bob Tollison and Dick Wagner's Phase II research project. They have incorporated Tl's changes and revisions.

This became Chapter 11 ( Self Interest, Public Interest, and Public Health ) in the book the Economics of Smoking published in 1991. [6]

1990 Jun/E Excise Tax Letter-Writing Fact Sheet. This is a list of points that the Tobacco Institute wanted the economists to include in their op-ed articles.

  • Excise taxes are regressive
  • Excise taxes are fundamentally inequitable
  • Excise taxes are an unfair burden on minorities
  • Government data demonstrates the unfairness of excise taxes.
  • Excise taxes are arbitrary
  • Excise taxes are hidden taxes
  • Excise taxes are an unfair burden on businesses
  • Excise taxes are bad economic policy
  • Excise taxes are historically controversial.

This was followed by ...

  • pages of data so that the economists got their facts right,
  • a series of quotes that could be incorporated into the article.
  • pages of State-by-State data including the number of jobs that the Tobacco Institute estimated would be lost by higher cigarette excises
  • lost revenues for each State, due, it was claimed, to cross-state bootlegging and smuggling.
  • a list of Congressmen to be contacted in every region.
  • Tollison's C/V [7]

1991 Feb 5 James Savarese who runs the Cash for Comments Economists Network writing to Carol Hrycaj at the Tobacco Institute.

I've enclosed a final draft copy of Bob [Tollison] and Dick [Wagner]'s book, Economics of Smoking: Getting It Right. Let me know if you have any questions. [8]

Even their commissioned book was handled by the lobbyists at James Savarese & Associates.

1991 Mar /E Robert Tollison and Richard Wagner publish "The Economics of Smoking" written by themselves to counter the "Social Cost" argument being levied against the cigarette companies:

Chapters:

  1. Tobacco Warfare In America: An Overview
          [A Battlefield Tour]
  2. Welfare Economics, Public Policy, and Smoking
  3. The Taxation And Regulation of Smoking:
          [Principle vs. Expediency]
  4. Smoking and the Economic Cost of Lost Production
          [Absenteeism isn't a problem!]
  5. Markets, Insurance, and the Medical Costs of Smokers
  6. Medicare, Medicaid, and the Social Cost of Smoking
          [Principle, Expediency, and Wealth Transfers]
  7. Smoking, Business Costs, and Social Cost
  8. ETS And Governmental Protection Of Consumers And Workers
          [An Alternative Explanation]
  9. Advertising, "Addiction," And The Denial Of True Choice
          [Consumer Sovereignty or Health Fascism?]
  10. Self Interest, Public Interest, and Legislation
  11. Interest Groups And The Public's Health
          [Self Interest in Public Interest Organizations]
  12. Principle And Expediency In Public Policy

[9]

Pauly is quoted in Chapter 11 on Interest Groups and Public Health, which discusses the libertarian 'projection' idea that personal financial greed is the sole motivation of men -- not just grubby little economists from the Randian side of the Public Choice cult. This comes from "The Not-for-Profit Hospital as Physicians' Cooperative." American Economic Review 63 (March 1973)

[T]here are several ways in which non-profit hospitals can serve as vehicles for advancing the interests of physicians who staff the hospitals.

This was demonstrated by Mark Pauly and Michael Redish (1973), who explained how the non-profit hospital can be used as a vehicle far profit maximization by the physicians who effectively owned the hospitals. The hospital would have no net income to show. But this does, not indicate non-profit status, but only shows that what could alternatively have been shown as income and then distributed to shareholders was captured directly by the physicians in the first place.

Pauly and Redish showed that it would be misleading to treat non-profit hospitals us independent, charitable agencies. While they may be organized on a non-profit basis, they are also essentially owned by the physicians who staff them. Pauly and Redish explained how physicians could use the hospital as an input in their own profit-maximizing activities.

Something similar might be said about the public-health bureaucracy, including such private components of that bureaucracy as the Cancer, Lung, and Heart Associations. For instance, the American Lung Association might be seen as an agency that increases the aggregate demand for pulmonary services, just as the American Cancer Society operates to increase the demand for oncological services. [10]

1991 Mar 14 A press release from The Health Technical Panel,, appointed by the Advisory Council on Social Security (Wasnington DC),

The panel has completed its report on Medicare projections and submitted it to the Council.

As part of the Council's review of the status of the Hospital Insurance (HI) and the supplementary Medical Insurance (SMI) Trust Funds in relation to the long-term commitments of the Medicare Program, it convened this group of eminent economists and actuaries to provide an independent evaluation.

The Panel was chaired by Dr Judith Lave, from the Graduate School of Public Health of the University of Pittsburgh. Other economists were: Mark Pauly, University of Pennsylvania and Kenneth Thorpe, University of North Carolina School of Public Health. [11]

1991 Apr (Spring) Health Affairs published "A Plan for 'Responsible National Health Insurance'" by Mark Pauly and three others. The preface harkens back to a 1975 hearing by the House Subcommittee on Health and Environment which was considering a national health insurance scheme.

How to provide universal access to medical care to all Americans at a politically, acceptable cost?

During that fifteen-year period, the confidence in the capacity of government to effectively administer a national health plan has diminished, thus giving proposals that rely on alternative approaches greater weight.

One such proposal is that offered by

  • Mark Pauly and Patricia Danzon, both of whom are economists at the Wharton School and the Leonard Davis Institute of Health Economics, University of Pennsylvania,
  • Paul Feldstein, an economist at the University of California, Irvine, Graduate School of Management; and
  • John Hoff, a lawyer in private practice in Washington, D.C.

Their plan is based on a belief that the allocation of resources to health care should rest on individuals' choice of insurance

Someone at the Tobacco Institute has marked sections with approving ticks, and written indecipherable notes in the margins. Their conclusions favour the status quo

The approach to national health insurance we have outlined has emphasized responsible choice at several levels. It emphasizes the responsibility of all Americans to obtain insurance, and of nonpoor citizens to pay for medical care services to the extent of their ability to do so. It emphasizes as well the responsibility consumers have to choose whether they want to buy more comprehensive medical care and medical insurance or whether they want to save more to spend on other goods. [12]

1991 May 9 The New England Journal of Medicine (NEJM) publishes a 'Sounding Board' section:

Avoiding Bias In The Conduct And Reporting Of Cost-effectiveness Research Sponsored By Pharmaceutical Companies
Because of the growing focus on containing health care costs, pharmaceutical companies are trying to demonstrate the cost effectiveness of their products relative to alternatives. In Europe and Australia, economic analyses are often required for government approval and pricing of new pharmaceuticals.

In the USA this analysis is done by the drug companies themselves using...

... academic researchers -- especially young, unestablished investigators -- eager for new sources of funding.

At the same time, pharmaceutical marketing benefits from the imprimatur of research published by respected independent academic researchers.

We have performed 33 economic analyses for 15 pharmaceutical companies since 1978. Our experience indicates that the partnership between academia and industry in this research is often exemplary, generating important and valid new information.

Sometimes, however, we have encountered difficulties that threatened to bias the conduct and results of an analysis. These problems represented potential conflicts of interest, because the sponsors of the studies benefit most from favorable results.

The authors of this excellent study on conflict of interest are

  • Doctors: Alan L. Hillman, MD, MBA and John M. Eisenberg, MD, MBA.
  • Economist: Mark V. Pauly, PhD. Leonard Davis Institute of Health Economics, University of Pennsylvania
  • Others: Bernard S. Bloom, PhD., Henry Glick, MA., Bruce Kivosian, MD.,J. Sanford Schwartz, MD. [13]

1992 Mark Pauly was actively promoting a tax credit plan for health care, similar to that of the Heritage Foundation.

The Heritage Foundation would require all Americans to buy insurance and would end the tax exclusion for company-based insurance plans in favor of a system of tax credits. The amount of the credit would be based on the income consumed in paying for insurance or out-of-pocket expenses. Heritage's approach would "provide portability of benefits and put consumers in the driver's seat of the health care system." says Edmund Haislmaier, Heritage's health care policy analyst.

Like Heritage, economist Mark Pauly of the University of Pennsylvania Wharton School of Economics has offered a plan that would replace the tax exclusion with tax credits and would require individuals to obtain coverage. Those who failed to obtain coverage would automatically be enrolled in a "fallback" plan.

Under the Bush plan, low- and middle-income people who are not covered by other federally subsidized programs would get tax credits or deductions of up to $3,750, depending on household size and income.

The lowest-income would get vouchers, while higher-income families would get deductions. All the subsidies would be reduced by any employer contributions toward a policy.

The Bush plan differs in two important ways from those advanced by Pauly and Heritage. First, Bush would not mandate consumer purchase of insurance. Second, the President would retain the exclusion for employer-paid insurance; both Pauly and Heritage would repeal it, and would use the new revenue to extend coverage to the uninsured.

Pauly argues that everyone should be required to have health insurance for the same reasons that many states mandate that all drivers have liability insurance. Unless everyone is required to have insurance, those who don't have it will shift their costs to those who do. And he says doing away with the tax exclusion is "the main cost control feature of the plan," Pauly says. "If you choose to purchase a more economical policy, you get to keep the savings."

HHS Deputy Secretary Kevin Moley says the debate over an insurance mandate is ideological. "It is a deeply held, strongly principled view that we don't have nationalized things in this country...If a state wants to do that, I don't think we would have a problem. But we like decisions to be made further away from Washington." [14]

1993 Mar 6-7 Substance Abuse Coverage & Health Care Reform Group meeting. The lone cash-for-comment economist among the 26 members was:

Mark V. Pauly, Ph.D.
Bendheim Professor and Chairman, Health Care Systems Department
Director of Research at the Leonard Davis Institute of Health Economics
Wharton School
University of Pennsylvania [15]

Independent Institute
2013: The Independent Institute, which is itself a component of the Atlas Group of ultra-free-market think tanks with links to the Alexis de Tocqueville Institute [all heavily dependent on commissioned corporate funding] appears to have taken over the role of administrator of the Tobacco Institute's cash-for-comments network at the end of the 1990s.

Their research director and journal editor, Robert Higgs, was already a member of the network. Tobacco funding continued to flow to the Independent Institute which appears to have taken on the role of 'warehousing' these academic supporters to insulate them from discovery. The Institute acquired the bulk of the cabal of cash-for-comments economists who were still operating, and some who had been retired:

Senior Fellows Research Fellows Also dozens of other academics and writers who provided independent contract services to the tobacco industry -- like Richard Epstein, John Goodman, Peter Huber, Paul Craig Roberts, Paul Rubin, Peter Samuel, S Fred Singer. Russell Sobel, etc. [16]

2013 He is still at Wharton with the Health Care Managment Department, University of Pennsylvania as Professor of Health Care Management and Professor of Business Economics and Public Policy. [17]

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