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Three U.S. District judges presiding over legal challenges to the landmark federal health care law have held financial investments in the health care industry, which has a lot riding on the outcome of the cases, according to a Center for Public Integrity review of their latest available financial disclosure forms.

The investments include individual stocks and mutual funds with holdings in private health insurance companies, companies selling health-care products, or pharmaceutical firms, according to the forms the judges filed in 2009 and 2010.

Judicial ethics experts disagree about the significance of the judges’ investments.

As the lawsuits crawl through the judicial system, the first ruling against the health-care reform law came Dec. 13 by U.S. District Judge Henry Hudson of the Eastern District of Virginia, who ruled that the individual mandate requiring people to buy some form of insurance invited an “unbridled exercise of the federal police powers.”

The Huffington Post reported earlier this year that Hudson in 2008 earned between $5,000 and $15,000 in dividends from Campaign Solutions, a political communications firm that did work for health care reform opponents, including Virginia Attorney General Ken Cuccinelli. Hudson earned the same amount in 2009, according to his most recent financial disclosure form.

At least one of the health care lawsuits is expected eventually to land at the U.S. Supreme Court. If the court agrees to take one of the cases, it could have far-reaching implications for the future of health care coverage for millions of Americans.

The federal judges who reported health-related financial holdings include:

  • Senior Judge Gladys Kessler, appointed by President Bill Clinton to the bench in the District of Columbia, reported this year that she owns between $100,000 and $250,000 of shares in Vanguard Health Care Fund, which lists UnitedHealth Group as its sixth-largest holding. Kessler received between $2,500 to $5,000 in dividends last year. She also reported dividends of less than $1,000 from stock in Covidien, a global health care products company. She is hearing Mead v. Holder.
  • Judge Michael Schneider, appointed by President George W. Bush to the bench in the Eastern District of Texas, owns Covidien stock that he valued at less than $15,000, according to his 2008 financial disclosure form filed in 2009, which was the latest available. Schneider is presiding over Physician Hospitals of America v. Sebelius, a suit which claims the health-care law discriminates against physician-owned hospitals and violates constitutional protections for due process and equal protection. Schneider’s office this week declined a request from the Center to release his latest disclosure form.
  • Keith Starrett, appointed by George W. Bush to the bench in the Southern District of Mississippi, owns stock in Laboratory Corporation of America and Medtronic Inc. that he valued at less than $15,000 each, among other health care and pharmaceutical companies, according to the disclosure form he filed earlier this year. LabCorp is one of the leading blood analysis and genetic testing companies in the nation. Medtronic is a medical technology company. Starrett is hearing Walters v. Holder, a lawsuit filed by Mississippi’s lieutenant governor and 10 state residents alleging the mandate for individuals to buy insurance violates several constitutional protections.

Schneider declined comment and Kessler could not be reached for comment at her office. Judges are required to file their disclosure reports only once a year, and the latest forms cover investments through the end of 2009. The judges won’t have to disclose if they still hold the stock until next spring.

Starrett told the Center for Public Integrity that he turned over his portfolio to an investment adviser about five years ago and doesn’t believe his investments pose a conflict.

“They make the call over all of my investments,” he said. “The only time I call them is if it pops up on my conflict check [computer program].” For example, Starrett said he told his adviser to sell John Deere and Pfizer stock when cases involving those companies landed in his court.

“I cannot imagine a federal judge being influenced over a few shares,” he said. “If I had $20,000 worth of Pfizer and I lose $20,000, it doesn’t matter. My portfolio probably goes up and down that much each day, and I don’t even know about it.” His most recent disclosure form indicates that his stock holdings were worth between roughly $2.5 million and $11 million at the end of 2009.

Starrett said the health care law is so complicated it is hard to say which companies will benefit and which will not. “I don’t think anybody would know how it would be affected. Your stock might get the legs cut out of it, or it might benefit,” he said.

Kessler could face the most serious questions about her financial investments.

Monroe Freedman, a Hofstra Law School professor and legal ethics expert, said she should recuse herself from hearing the health care reform lawsuit because of her financial ties to UnitedHealth Group, the nation’s largest private health insurance company. UnitedHealth used its employees and its membership in a trade association in efforts to weaken the healthcare legislation.

Freedman says Kessler should remove herself from the case because she is “heavily invested in an organization that clearly has a financial interest in the outcome of the case.”

“I think it is a conflict under the federal statute and she would be required to recuse herself,” he said. “It is an appearance of impropriety and that is expressly forbidden in very broad language in the federal [judicial] disqualification statute.”

Title 28, section 455 of the U.S. Code requires that any federal judge “shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned,” and specifically, whenever “he knows that he…has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding.” The law doesn’t consider mutual fund investments as a financial interest unless the judge participates in the management of the fund. However, just the appearance of impropriety can expose judges to additional scrutiny.

Kessler is presiding over Mead v. Holder, a case from five plaintiffs challenging the constitutionality of the health-care law on religious grounds. She hasn’t yet ruled on a government motion to dismiss the suit.

Other legal experts aren’t convinced Kessler’s finances pose an ethical dilemma, in part because she doesn’t have a direct investment in UnitedHealth stock, only an indirect link through the Vanguard mutual fund.

The “key fact” is that UnitedHealth isn’t a party in the case before Kessler, said Stephen Gillers, a New York University law professor who has written extensively about judicial ethics.

“Someone has to show a straight line between the ruling and a substantial effect on the judge’s wealth,” Gillers said. “There is no straight line. There is a squiggly and unclear line.”

Charles Geyh, a professor at Indiana University Maurer School of Law who has testified before Congress on judicial ethics issues, also said any financial link between Kessler and UnitedHealth is “fairly remote.”

“The more distant the relationship between the judge and the so-called [financial] interest, the less problematic it’s going to be,” he said.

But Freedman said Kessler’s financial ties to UnitedHealth are problematic in part because of the company’s opposition to health-care reform legislation. The company worked behind the scenes last year to weaken the health care legislation, particularly opposing the “public option” of government-run health insurance, which was later scrapped.

A UnitedHealth spokesman didn’t respond to a request for comment.

Both Freedman and Geyh said they don’t see ethical concerns for the judges with investments in pharmaceutical firms because they are more remotely linked to the health care reform debate and it isn’t clear how drug companies will ultimately be affected by the health care law. Many drugmakers supported the health care legislation with hopes of greater profits if more Americans can afford health insurance or are compelled to purchase it.

But the drug companies aren’t parties to the lawsuits, which Gillers said is key to him.

“It’s hard to disqualify a federal judge,” Gillers said. “It doesn’t happen often. When it does, it’s because of a financial interest in one of the parties.”

Two other judges have mutual funds with small percentages of health and drug related holdings. Joseph Laplante of the District of New Hampshire owns shares in at least five mutual funds with investments in pharmaceutical companies, including Merck and Bristol-Myers Squibb. And Rodney Sippel of the Eastern District of Missouri owns shares in two mutual funds with holdings in drug companies.

Mutual funds typically invest in many different stocks, so any potential conflict for a judge is minimal, Gillers said. “People go to mutual funds just because investments are going to be diverse,” he said. “No mutual fund is going to be top heavy in one company because it goes against the idea of a mutual fund.”

Reporting Fellow Laurel Adams contributed to this report. Banner photo credit: flickr user Joe Gratz.

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