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How Companies Value Body Parts?

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Injured workers are entitled to compensation for permanent disabilities under state workers’ comp laws.

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But – Texas has long allowed companies to opt out and write their own benefit plans.

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Benefits for the same body part can differ dramatically depending on which company you work for.

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Health Data Breaches Multiplying

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How the IRS’s Nonprofit Division Got So Dysfunctional

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The IRS Controversy

By Kim Barker and Justin Elliott

ProPublica, May 17, 2013, 5:14 p.m.

The IRS division responsible for flagging Tea Party groups has long been an agency afterthought, beset by mismanagement, financial constraints and an unwillingness to spell out just what it expects from social welfare nonprofits, former officials and experts say.

The controversy that erupted in the past week, leading to the ousting of the acting Internal Revenue Service commissioner, an investigation by the FBI, and congressional hearings that kicked off Friday, comes against a backdrop of dysfunction brewing for years.

Moves launched in the 1990s were designed to streamline the tax agency and make it more efficient. But they had unintended consequences for the IRS’s Exempt Organizations division.

Checks and balances once in place were taken away. Guidance frequently published by the IRS and closely read by tax lawyers and nonprofits disappeared. Even as political activity by social welfare nonprofits exploded [1] in recent election cycles, repeated requests for the IRS to clarify exactly what was permitted for the secretly funded groups were met, at least publicly, with silence.

All this combined to create an isolated office in Cincinnati, plagued by what an inspector general this week described [2] as “insufficient oversight,” of fewer than 200 low-level employees responsible for reviewing more than 60,000 nonprofit applications a year.

A Major Mistake

In the end, this contributed to what everyone from Republican lawmakers to the president says was a major mistake: The decision by the Ohio unit to flag for further review applications from groups with “Tea Party” and similar labels. This started around March 2010, with little pushback from Washington until the end of June 2011.

“It’s really no surprise that a number of these cases blew up on the IRS,” said Marcus Owens, who ran the Exempt Organizations division from 1990 to 2000. “They had eliminated the trip wires of 25 years.”

Of course, any number of structural fixes wouldn’t stop rogue employees with a partisan ax to grind. No one, including the IRS [3] and the inspector general [4], has presented evidence that political bias was a factor, although congressional and FBI investigators are taking another look.

But what is already clear is that the IRS once had a system in place to review how applications were being handled and to flag potentially problematic ones. The IRS also used to show its hand publicly, by publishing educational articles for agents, issuing many more rulings, and openly flagging which kind of nonprofit applications would get a more thorough review.

All of those checks and balances disappeared in recent years, largely the unforeseen result of an IRS restructuring in 1998, former officials and tax lawyers say.

“Until 2008, we had a dialogue, through various rulings and cases and the participation of various IRS officials at various ABA meetings, as to what is and what is not permissible campaign intervention,” said Gregory Colvin, the co-chair of the American Bar Association subcommittee that dealt with nonprofits, lobbying, and political intervention from 1991 to 2009.

“And there has been absolutely no willingness in the last five years by the IRS to engage in that discussion, at the same time the caseload has exploded at the IRS.”

IRS

Stone Walling

The IRS did not respond to requests for comment on this story.

Social welfare nonprofits, which operate under the 501(c)(4) section of the tax code, have always been a strange hybrid, a catchall category for nonprofits that don’t fall anywhere else. They can lobby. For decades, they have been allowed to advocate for the election or defeat of candidates, as long as that is not their primary purpose. They  also do not have to disclose their donors.

Social welfare nonprofits were only a small part of the exempt division’s work, considered minor when compared with charities. When the groups sought IRS recognition, the agency usually rubber-stamped them. Out of 24,196 applications for social welfare status between 1998 and 2009, the exempt organizations division rejected only 77, according to numbers compiled from annual IRS data books.

Into this loophole came the Supreme Court’s Citizens United decision in January 2010, which changed the campaign-finance game [5] by allowing corporate and union spending on elections.

Sensing an opportunity, some political consultants started creating social welfare nonprofits geared to political purposes. By 2012, more than $320 million in anonymous money poured into federal elections.

A couple of years earlier, beginning in 2010, the Cincinnati workers had flagged applications of tiny Tea Party groups, according to the inspector general, though the groups spent almost no money in federal elections.

Main Question

The main question raised by the audit is how the Cincinnati office and superiors in Washington could have gotten it so wrong. The audit shows no evidence that these workers even looked at records from the Federal Election Commission to vet much larger groups [6] that spent hundreds of thousands and even millions [7] in anonymous money to run election ads.

The IRS Exempt Organizations division, the watchdog for about 1.5 million nonprofits, has always had to deal with controversial groups. For decades, the division periodically listed red flags that would merit an application being sent to the IRS’s Washington, D.C., headquarters for review, said Owens, the former division head.

In the 1970s, that meant flagging all applications for primary and secondary schools in the south facing desegregation. In the 1980s, during the wave of consolidation in the health-care industry, all applications from health-care nonprofits needed to be sent to headquarters. The division’s different field offices had to send these applications up the chain.

“Back then, many more applications came to Washington to be worked — the idea was to have the most sensitive ones come to Washington,” said Paul Streckfus, a former IRS lawyer who screened applications at headquarters in the 1970s and founded the industry publication EO Tax Journal [8] in 1996.

Because this list was public, lawyers and nonprofits knew which cases would automatically be reviewed.

“We had a core of experts in tax law,” recalled Milton Cerny, who worked for the IRS, mainly in Exempt Organizations, from 1960 to 1987. “We had developed a broad group of tax experts to deal with these issues.”

In the 1980s, the division issued many more “revenue rulings” than issued in recent years, said Cerny, then head of the rulings process. These revenue rulings set precedents for the division. Revenue rulings along with regulations are basically the binding IRS rules for nonprofits.

“We would do a revenue ruling, so the public and agents would know,” Cerny said. “Over the years, it apparently was felt that a revenue ruling should only be published at an extraordinary time. So today you’re lucky if you get one a year. Sometimes it’s less than that. It’s amazing to me.”

Other checks and balances had existed too. Not only were certain kinds of applications publicly flagged, there was another mechanism called “post-review,” Owens said. Headquarters in Washington would pull a random sample every month from the different field offices, to see how applications were being reviewed. There was also a surprise “saturation review,” once a year, for each of the offices, where everything from a certain time period needed to be sent to Washington for another look.

So internally, the division had ways, if imperfect, to flag potential problems. It also had ways of letting the public know what exactly agents were looking at and how the division was approaching controversial topics.

For instance, there was the division’s “Continuing Professional Education,” or CPE, technical instruction program. These articles were supposed to be used for training of line agents, collecting and putting out the agency’s best information on a particular topic — on, say, political activity [9] by social welfare nonprofits in 1995.

“People in a group would write up their thoughts: ‘Here’s the law,’” said Beth Kingsley, a Washington lawyer with Harmon, Curran, Spielberg & Eisenberg who’s worked with nonprofits for almost 20 years. “It wasn’t pushing the envelope. It was, ‘This is how we see this issue.’ It told us what the IRS was thinking.”

The system began to change in the mid-1990s. The IRS was having trouble hiring people for low-level positions in field offices like New York or Atlanta — the kinds of workers that typically reviewed applications by nonprofits, Owens said.

In Cincinnati

The answer to this was simple: Cincinnati.

The city had a history of being able to hire people at low federal grades, which in 1995 paid between $19,704 and $38,814 a year — almost the same as those federal grades paid in New York City or Chicago. (Adjusted for inflation, that’s between $30,064 and $59,222 now.)

“That was well below what the prevailing rate was in the New York City area for accountants with training,” Owens said. “We had one accountant who just had gotten out of jail — that’s the sort of people who would show up for jobs. That was really the low point.”

So in 1995, the Exempt Organizations division started to centralize. Instead of field offices evaluating applications for nonprofits in each region, those applications would all be sent to one mailing address, a post-office box in Covington, Ky. Then a central office in Cincinnati would review all the applications.

Almost inadvertently, because people there were willing to work for less than elsewhere, Cincinnati became ground zero for nonprofit applications.

For the time being, the checks remained in place. The criteria for flagged nonprofits were still made public. The Continuing Professional Education text was still made public. Saturation reviews and post reviews were still in place.

But by 1998, after hearings in which Republican Senator Trent Lott accused the IRS of “Gestapo-like” tactics, a new law mandated the agency’s restructuring. In the years that followed, the agency aimed to streamline. For most of the ‘90s, the IRS had more than 100,000 employees. That number would drop every year, to slightly less than 90,000 [10] by 2012.

Change Will Come

Change also came to the Exempt Organizations division.

The IRS tried to remove discretion from lower-level employees around the country by creating rules they had to follow. While the reorganization was designed to centralize power in the agency’s Washington headquarters, it didn’t work out that way.

“The distance between Cincinnati and Washington was such that soon Cincinnati became a power center,” said Streckfus, the former IRS lawyer.

Following reorganization, many highly trained lawyers in Washington who previously handled the most sensitive nonprofit applications were reassigned to focus on special projects, he said.

Owens, who left the IRS in 2000 but stayed in touch with his old division, said the focus on efficiency meant “eliminating those steps deemed unimportant and anachronistic.”

In 2003, the saturation reviews and post reviews ended, and the public list of criteria that would get an application referred to headquarters disappeared, Owens said. Instead, agents in Cincinnati could ask to have cases reviewed, if they wanted. But they didn’t very often.

“No one really knows what kinds of cases are being sent to Washington, if any,” Owens said. “It’s all opaque now. It’s gone dark.”

By the end of 2004, the Continuing Professional Education articles stopped [11].

Recommendations [12] from an ABA task force for IRS guidelines on social welfare nonprofits and politics that same year were met with silence.

Even the IRS’s Political Activities Compliance Initiative, which investigated [13] complaints of charities engaged in politics — primarily churches — closed up shop in early 2009 after less than five years, without any explanation.

Both before and after the changes, the Exempt Organizations division has been a small part of the IRS, which is focused on collecting money and chasing delinquent taxpayers.

US capitol

IRS Employee Count in 2012

Rulings and Agreements, the division that handles applications of all nonprofits, accounted for less than 0.5 percent of all IRS employees in 2012.

Source: IRS Data Books [14], IRS Exempt Organizations Annual Report [15]

Of the 90,000 employees at the agency last year, only 876 worked in the Exempt Organizations’ division, or less than 1 in 1,000 employees.

Of those, 335 worked in the office that actually handles applications of nonprofits.

Most of those — about 300 — worked in Cincinnati, Streckfus estimates. The rest were at headquarters, in Washington D.C.

In Cincinnati, the employees’ primary job was sifting through the applications of nonprofits, making determinations as to whether a nonprofit should be recognized as tax-exempt. In a press release [16] Wednesday, the IRS said fewer than 200 employees were responsible for that work.

In 2012, these employees received 60,780 applications. The bulk of those — 51,748 — were from groups that wanted to be recognized as charities.

But the number of social welfare nonprofit applications spiked from 1,777 in 2011 to 2,774 in 2012. It’s impossible to say how many of those groups indicated whether they would engage in politics, or why the number of applications increased. The IRS said Wednesday that it “has seen an increase in the number of tax-exempt organization applications in which the organization is potentially engaged in political activity,” including both charities and social welfare nonprofits, but didn’t specify any numbers.

Total 501(c)(4) [17] Nonprofit Applications from 2002 to 2012

From 2011 to 2012, applications increased by more than 50 percent.

Source: IRS Data Books [14]

On average, one employee in Cincinnati would be responsible for going through roughly one application per day.

Some would be easy — say, a local soup kitchen. But to evaluate whether a social welfare nonprofit has social welfare as its primary purpose, the agent is supposed to use a “facts and circumstances” test. There is no checklist. Reviewing just one social welfare nonprofit could take days or weeks, to look through a group’s website, track down TV ads and so forth.

“You’ve got 60,000 applications coming through, and it’s hard to do that with the number of agents looking at them,” said Philip Hackney [18], who was in the IRS’s chief counsel office in Washington between 2006 and 2011 but said he wasn’t involved in the Tea Party controversy. “The reality is that they cannot do that, and that’s why you’re seeing them pick stuff out for review. They tried to do that here, and it burned them.”

As we have previously reported, last year the same Cincinnati office sent ProPublica [19] confidential applications from conservative groups. An IRS spokeswoman said the disclosures were inadvertent.

The Commissioner Speaks

Mark Everson, IRS commissioner for four years during the George W. Bush administration, said he believed the fact that the division is understaffed is relevant, but not an excuse for what happened. “The whole service is under-funded,” he pointed out.

And Dan Backer, a lawyer in Washington who represented six of the groups held up because of the Tea Party criteria, said he doesn’t buy the notion that low-level employees in Cincinnati were alone responsible.

“It doesn’t just strain credulity,” Backer said. “It broke credulity and left it laying on the road about a mile back. Clearly these guys were all on the same marching orders.”

The inspector general’s audit was prompted last year after members of Congress, responding to complaints by Tea Party groups, asked for it.

Like former officials interviewed by ProPublica, the audit suggests that officials at IRS headquarters in Washington were unable to manage their subordinates in Cincinnati. When Lois Lerner, the Exempt Organizations division director in Washington, learned [20] in June 2011 about the improper criteria for screening applications, she instructed that they be “immediately revised.”

But just six months later, Cincinnati employees changed [21] the revised criteria to focus on “organizations involved in limiting/expanding government” or “educating on the Constitution.” They did so “without executive approval.”

“The story people are overlooking is: Congress is complaining about underpaid, overworked employees who are not adequately trained,” said Bryan Camp, a former attorney in the IRS chief counsel’s office.

Assessment

In the end, after all the millions of anonymous money spent by some groups to elect candidates in 2012, after all [22] the groups [23] that said in their applications that they would not spend money to elect candidates before doing exactly that, after the Cincinnati office flagged conservative groups, the IRS approved almost all the new applications. Only eight applications were denied.

Source: http://www.propublica.org/article/how-irs-nonprofit-division-got-so-dysfunctional

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How Bad Is Our National Debt Problem, Anyway?

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And … Will a Deal Fix It?

By Theodoric Meyer
ProPublica, Dec. 28, 2012, 12:34 p.m.

President Obama will meet with congressional leaders today [1] in another attempt to avert the fiscal cliff — the automatic tax increases and spending cuts set to take effect Jan. 1st unless Congress can strike a deal. The cuts and tax hikes, which total more than $500 billion, are so large and so sudden that many economists fear they would plunge the country back into recession.

As Washington tries to hash out a deal, we’ve taken a step back to break down the numbers behind our deficit — how it grew so big, why it is actually shrinking and whether a deal can bring it under control.

How much are we in debt?

The federal debt is just shy of $16.4 trillion [2] at the moment, which also happens to be the debt limit that Congress set in 2011. Treasury Secretary Timothy F. Geithner announced on Wednesday [3] that the nation would hit the limit on Dec. 31. The Treasury can take some “extraordinary measures” to keep paying its bills for a few weeks, but it’ll run out of cash by February or March unless Congress raises the limit again.

And that’s different from the deficit, right?

Yes. The debt is the total amount of the government’s outstanding obligations. The deficit is how much the government is in the red in a given year. In the 2012 fiscal year, which ended Sept. 30, the deficit amounted to $1.1 trillion [4].

That seems like a huge number. How did the deficit get so big?

The 2012 deficit was actually the smallest one since 2008. But it’s still a giant shortfall.

As Binyamin Appelbaum noted in The New York Times [5], the federal government has run a deficit in 45 of the last 50 years. (The exceptions were 1969 and 1998 through 2001.) The financial crisis in 2008, however, caused the deficit to skyrocket, as tax revenues fell because of the slump in incomes and production, and government spending on the stimulus and safety net measures such as unemployment insurance shot up. The deficit for the 2008 fiscal year was $455 billion. In 2009, it surged to more than $1.4 trillion.

Since then, the deficit has been falling, albeit very slowly. The government took in 6.4 percent more in taxes in 2012 than in 2011, as the economy improved a bit and several tax breaks expired. And it spent less on Medicaid, unemployment insurance and the continuing operations in Iraq and Afghanistan.

What about the total debt? How much of that is President Obama’s fault?

The debt has grown by nearly $6 trillion since Obama took office, from $10.5 trillion to $16.4 trillion.

Figuring out how much of that is due to Obama is tougher. The Washington Post’s Ezra Klein, working with the Center on Budget and Policy Priorities, calculated in January [6] that the legislation Obama had actually signed — as opposed to factors like the economy — had added about $983 billion to the debt.

Klein has also rounded up several charts [7] that break down exactly what’s caused our debt to grow so large. The biggest single factor has been the weak economy; President George W. Bush’s tax cuts and the wars in Iraq and Afghanistan also fueled the debt buildup, as did President Obama’s stimulus.

Have debt levels ever been this high before?

Yes, proportionally. Economists like talk about a country’s debt in relation to its gross domestic product (a measure of the economy’s total annual output). And instead of using a country’s total outstanding debt to calculate this debt-to-GDP ratio, economists typically use the amount of debt held by the public. (Somewhat confusingly, the federal government holds about $5 trillion in obligations to itself, most of which is money owed to the funds that support Social Security and other programs.)

Using this measurement, our debt was about 67.7 percent of GDP last year. As this chart compiled by Quartz’s Ritchie King shows [8], that’s the highest our debt-to-GDP ratio has been since the 1940s, when the need to finance World War II caused the debt to surge to 112.7 percent of GDP. But the economy grew fast enough after the war that the debt soon became a much smaller percentage of the country’s GDP.

It’s worth noting that a number of other developed countries have higher debt-to-GDP ratios [9] than the U.S. Germany’s public debt is 80.6 percent of GDP, and Canada’s is 87.4 percent. The euro zone’s most troubled countries fare even worse: Italy’s debt is 120.1 percent of GDP; Greece’s is 165.3 percent.

US Capitol

At least we’re not Greece. How much longer can we keep borrowing?

That’s a tough one. Some commentators — including Paul Krugman, the Nobel-winning economist and columnist for The New York Times — have argued that our current deficits are mostly a product of the sluggish economy. The deficit, Krugman wrote last week [10], “is a side-effect of an economic depression, and the first order of business should be to end that depression — which means, among other things, leaving the deficit alone for now.”

Other economists — including Carmen Reinhart and Kenneth Rogoff, who studied eight centuries’ worth of financial crises for their book “This Time Is Different” — argue that countries with debt-to-GDP ratios above a certain level tend to experience slower economic growth. Reinhart and Rogoff suggest the level is around 90 percent of GDP [11] — which the U.S. is rapidly approaching. A recent Congressional Research Service report [12] concluded that while the debt-to-GDP ratio can’t keep rising forever, “it can rise for a time.” The report continued:

It is hard to predict at what point bond holders would deem it to be unsustainable. A few other advanced economies have debt-to-GDP ratios higher than that of the United States. Some of those countries in Europe have recently seen their financing costs rise to the point that they are unable to finance their deficits solely through private markets. But Japan has the highest debt-to-GDP ratio of any advanced economy, and it has continued to be able to finance its debt at extremely low costs.

How does all this fit into the fiscal cliff?  Would a deal to avert it fix our debt problem?

Actually, going over the fiscal cliff would almost singlehandedly erase the deficit. Tax rates would shoot up, and the fiscal cliff’s indiscriminate budget cuts would slash military and safety-net spending alike.

The problem is that all those tax increases and spending cuts would likely throw the economy back into a recession, causing the deficit to balloon again. “The economy will, I think, go off a cliff,” said Ben Bernanke [13], the Federal Reserve chairman.

(For more detail, see The Washington Post’s exhaustive fiscal cliff explainer [14].)

What the two sides are trying to do is identify cuts that are ultimately deep enough to bring down the deficit — and thus, eventually, the debt — without stalling the economy. But negotiations collapsed last week [15] after John Boehner, the Republican House speaker, tried and failed to pass a “Plan B” alternative to the president’s proposal in the House. Obama is set to meet with congressional leaders today to try to strike a deal to block at least some of the cliff’s impact by Monday night. But its prospects seem dim.

“I have to be very honest,” Sen. Harry Reid, the majority leader, said on Thursday. “I don’t know timewise how it can happen now.”

Assessment

Of course, some analysts have pointed out that people on both the Republican and the Democratic sides may actually want to move the cliff just slightly down the road into the next Congress, which convenes Thursday, Jan. 3. The advantages: Boehner can be safely re-elected as Speaker before he has to do serious twisting of arms of fellow GOP House members to get their votes for any compromise plan. And there will be a few more Democrats in the House and the Senate for the White House to rely on in enlisting the votes it needs to ratify any such deal. The disadvantage: Delay makes the risk of miscalculation greater for either or both sides — and for the public.

Link: http://www.propublica.org/article/how-bad-is-our-debt-problem-anyway-and-will-a-deal-fix-it

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Where the Presidential Candidates Stand on Medicare and Medicaid

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The Big Picture View

By Suevon Lee ProPublica, Sept. 14, 2012, 2:26 p.m.

Medicare and Medicaid, which provide medical coverage for seniors, the poor and the disabled, together [1]make up nearly a quarter [1] of all federal spending. With total Medicare spending projected to cost [2] $7.7 trillion over the next 10 years, there is consensus that changes are in order. But what those changes should entail has, of course, been one of the hot-button issues [3] of the campaign.

With the candidates slinging charges [4], we thought we’d lay out the facts. Here’s a rundown of where the two candidates stand on Medicare and Medicaid:

THE CANDIDATES ON MEDICARE

Big Picture

Earlier this year, the Medicare Board of Trustees estimated [5] that the Medicare hospital trust fund would remain fully funded only until 2024. Medicare would not go bankrupt or disappear, but it wouldn’t have enough money to cover all hospital costs.

Under traditional government-run Medicare, seniors 65 and over and people with disabilities are given health insurance for a fixed set of benefits, in what’s known as fee-for-service [6] coverage. Medicare also offers a subset of private health plans known as Medicare Advantage, in which roughly one-quarter [7] of Medicare beneficiaries are currently enrolled. Obama retains this structure.

The Obama administration has also made moves that it says would keep Medicare afloat. It says the Affordable Care Act would extend solvency [8] by eight years, mainly by imposing tighter spending controls on Medicare payments to private insurers and hospitals.

In contrast, Rep. Paul Ryan, Mitt Romney’s running mate, has proposed a more fundamental overhaul of Medicare, which he says [9] is on an “unsustainable path.” On his campaign website [10], Romney says that Ryan’s proposals “almost precisely mirrors” his ideas on Medicare. But he’s been fuzzy on other aspects of the plan.

A Romney-Ryan administration would replace a defined benefits system with a defined contribution system [11] in which seniors are given federal vouchers to purchase health insurance in a newly created private marketplace known as Medicare Exchange. In this marketplace, private health plans, along with traditional Medicare, would compete for enrollees’ business. These changes wouldn’t start until 2023, meaning current beneficiaries aren’t affected – just those under 55.

Under the Romney-Ryan, the vouchers would be valued [12] at the second-cheapest private plan or traditional Medicare, whichever costs less. Seniors who opt for a more expensive plan would pay the difference. If they choose a cheaper plan, they keep the savings.

Who’s Covered

In the current system, people 65 and over are eligible for Medicare, which Obama has said he would keep [13] for now.

Romney has proposed [14]raising the eligibility age for Medicare beneficiaries from 65 to 67 in 2022, then increasing it by a month each year after that. In the long run, he would index [15] eligibility levels to “longevity.” Ryan’s budget plan proposes [16] raising Medicare eligibility age by two months a year starting in 2023, until it reaches 67 by 2034.

Many others looking to keep Medicare solvent have also proposed [17]raising the age of eligibility.

The Congressional Budget Office estimates [18]that raising the minimum age from 65 to 67 would reduce annual federal spending by 5 percent.But it would also result in higher premiums and out-of-pocket costs for seniors who would lose access to Medicare.

Obama’s health care law also adds [19] some benefits for seniors, such as annual wellness visits without co-pays, preventive services like free cancer screenings and prescription drug savings.

Proposed Savings

The Affordable Care Act is projected to reduce Medicare spending by $716 billion over the next 10 years. These reductions, as detailed [20] by Washington Post’s Wonkblog, will come mostly from reducing payments to hospitals, nursing homes and private health care providers.

While Ryan criticized [21] such spending cuts in his speech at the Republican National Convention, his own budget proposed [22] keeping these reductions.

“The ACA grows the trust fund by giving more general revenue to the Treasury, which then gives the trust fund bonds. But it then uses the money from those bonds to expand coverage for low- and middle-income people,” explains [23] Dylan Matthews on Washington Post’s Wonkblog.

Romney hasn’t really come up with a solid answer: he previously said he would restore [24] the $716 billion savings that the health care law imposes. Per this New York Times story [24], the American Institutes for Research calculates this would increase premiums and co-payments for Medicare beneficiaries by $342 a year on average over the next 10 years.

For more on where the candidates stand on the $716 billion, the private health policy Commonwealth Fund offers this helpful explanation [25].

Caps on Spending

Both Obama and Ryan have set an identical target rate [26] that would cap Medicare spending at one-half a percentage point above the nation’s gross domestic product.

But they have different ideas on mechanisms to achieve it.

The Affordable Care Act establishes a 15-member Independent Payment Advisory Board [27] that, starting in 2015, would make binding recommendations to reduce spending rates. As Jonathan Cohn points out [28] in the New Republic, the commission is prohibited from making any changes that would affect beneficiaries.

Ryan has proposed hard caps on spending and derided [29]this panel of appointed members as “unelected, unaccountable bureaucrats.” When laying out his plan in a 2011 memo [30], Ryan wrote that to control spending, “Congress would be required to intervene and could implement policies that change provider reimbursements, program overhead, and means-tested premiums.”

Romney hasn’t stated [31] clear proposals for imposing a cap on spending.

THE CANDIDATES ON MEDICAID

Big Picture

Though, it’s far less discussed [32] on the campaign trail, Medicaid actually covers more people than Medicare. The joint federal-state insurance program for the poor, the disabled, and elderly individuals in long-term nursing home care currently covers about 60 million Americans. The Affordable Care Act hasexpanded [33] Medicaid coverage further. Beginning 2014, Medicaid will include [34]people under 65 with income below 133 percent of the federal poverty level (roughly $15,000 for an individual, $30,000 for a family of four). This was estimated [35] to cover an additional 17 million Americans as eligible beneficiaries.

In June, however, the U.S. Supreme Court ruled [36] that states could opt out of the Medicaid expansion. A ProPublica analysis estimated [37] that the 26 states that challenged the health care law, and thus may possibly opt out, would account for up to 8.5 million of those new beneficiaries.

Romney and Ryan would overhaul this current system by turning Medicaid into a system of block grants [38]: the federal government would issue lump sum payments to the states, who would determine eligibility criteria and benefits for enrollees. These grants would begin in 2013.

Effects on spending

The Congressional Budget Office estimates [39] that Medicaid expansion under the new health care law would cost an additional $642 billion over the next 10 years.

Under the Ryan plan, federal Medicaid grants would be adjusted only for inflation, but not health care costs, which grow at a much higher rate. The CBO estimates [40] Ryan’s plan would save the federal government $800 billion over the next 10 years. Another study conducted by Bloomberg News shows that the block-grants could decrease Medicaid funding by as much as $1.26 trillion [41] over the next nine years.

Actual Impact

The New York Times points out [42] that more than half of Medicaid spending goes toward the elderly and disabled. An Urban Institute analysis estimates [43] the Ryan plan would result in 14 million to 27 million fewer people receiving Medicaid coverage by 2021.

Assessment

Though rarely mentioned by any of the candidates, Medicaid costs are soaring to cover the elderly who require long-term nursing care. As the Times’ details [44] how, states saddled by high Medicaid costs have begun turning to private managed care plans to blunt the cost.

Conclusion

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Death Takes a [Variable Annuity] Insurance Policy

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How a Lawyer Exploited the Fine Print and Found Himself Facing Federal Charges

By Jake Bernstein / @Jake_Bernstein / ProPublica

The Industry

The life insurance industry tried to make variable annuities irresistible to investors and was enraged when a Rhode Island lawyer exploited the fine print for his own profit.

The Story

This story was co-reported with This American Life from WBEZ Chicago and NPR’s Planet Money.

Video: Excerpts of Video Depositions in the Case Against Joseph Caramadre

Link: http://www.propublica.org/article/death-takes-a-policy-how-a-lawyer-exploited-the-fine-print

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How Health Reform Could Expand Medicaid

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PP-ACA Results State-by-State

By Lena Groeger
ProPublica

Experts estimate that nearly 16 million Americans could be added to the Medicaid rolls by 2019 under an expansion in the Affordable Care Act. But, the Supreme Court ruled last Thursday that states can opt out without risk of losing federal support for Medicaid, raising the stakes that some may do so.

The Big Picture

Here is a look at forecast growth in state Medicaid rolls under the expansion. Twenty-six challenged the act in court.

IMAGE LINK: http://www.propublica.org/special/state-by-state-how-health-reform-could-expand-medicaid

Related: Mystery After the Health Care Ruling: Which States Will Refuse Medicaid Expansion?

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Introducing the ProPublica Patient Harm Community

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By Daniel Victor and Marshall Allen
ProPublica, May 21, 2012, 2:32 p.m.

On Facebook

You could fill a baseball stadium many times with the people who experts say die each year from an error [1], injury or infection [2] suffered while undergoing medical treatment. Many more are harmed.

Using Facebook, we’ve created a space to bring together those who have been harmed and others concerned about the problem. Join the community or follow the conversation here. [3]

Shared Stories

Group members have already shared stories of personal disability or the death of a loved one due to surgical mistakes, becoming infected with deadly drug-resistant bacteria and dental mishaps — including cases they claim were not properly addressed by health care providers.

For example, some of ProPublica’s past health-care reporting focused on gaps in nursing oversight [4], drug company payments to doctors [5] and abuses at psychiatric facilities [6]. With Facebook, we want to build a community of people — patients as well as doctors, nurses, regulators and health-care executives and others — who are interested in discussing patient harm, its causes and solutions. Among other things, we’ll post Q&As with experts and provide links to the latest reports, research and policy proposals. Your suggestions are welcome along the way.

Please Join Us

Share your story, ask questions and provide your perspective with other members. Your contribution may help shape our reporting.

The community is moderated by ProPublica reporters Marshall Allen [7] and Olga Pierce [8].

Marshall has covered patient harm since 2006. While at the Las Vegas Sun, Marshall’s series, “Do No Harm: Hospital Care in Las Vegas,” [9] won a Goldsmith Prize for Investigative Journalism and was a Pulitzer Prize finalist.

Assessment

Olga specializes in health policy, insurance issues and data journalism. She is a graduate of the Stabile Investigative Journalism Seminar at Columbia University and a finalist for the 2011 Livingston Awards.

Daniel Victor [10] and Blair Hickman [11], ProPublica’s social media team, try to also keep an eye on things.

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The Best, Most Revealing Reporting on Our Healthcare System

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Reading and Reviewing

By Blair Hickman and Cora Currier

ProPublica,  March 30, 2012, 1:44 pm

As we wait for the Supreme Court to issue its verdict on the health-care reform law  we rounded up some of the most revealing reporting on the issues.

They’re grouped roughly into articles on high costs and those on insurance.

Assesment

Link: http://www.propublica.org/article/top-muckreads-the-best-most-revealing-reporting-on-our-healthcare-system

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What’s at Stake in the Supreme Court’s Health Care Decisions?

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On the PP-ACA

By Lena Groeger ProPublica

Yesterday, the Supreme Court began hearing arguments on the health care reform law. So, in this essay, we made a map of the possible outcomes following the Court’s schedule over the next three days.

The Court will hear all three days of arguments, even if they eventually decide not to decide the bulk of the case, and is unlikely to issue a decision on the case until late June or early July.

Assessment

Link: http://www.propublica.org/special/mapping-the-supreme-courts-health-care-arguments

For more information on different states’ progress implementing health care reforms, see this comprehensive list.

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Physicians Taking Stock of the “Stock Act”

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A Side-by-Side Comparison

By Lena Groeger
ProPublica

The Stop Trading on Congressional Knowledge Act, or Stock Act, recently passed in both the House and Senate. The new law would make it easier for the SEC to prosecute federal officials from all three branches who trade equities like stocks based on nonpublic information they receive in the course of their duties.

The versions passed in each chamber are similar, but have notable distinctions that will have to be hashed out when legislators from the two chambers eventually meet.

Assessment

Here, we break down the main differences, with real-life scenarios that illustrate activities the bill targets

Full link: http://www.propublica.org/special/taking-stock-of-the-stock-act-a-side-by-side-comparison

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Drug Companies Reduce Payments to Doctors as Scrutiny Mounts

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Dollars for Doctors [How Industry Money Reaches Physicians]

Part of a year-end series on major investigations

By Tracy Weber and Charles Ornstein
ProPublica, January 3rd, 2012, 2:55 p.m.

Some of the nation’s top medical schools cracked down on professors who give paid promotional talks for drugmakers last year, and the firms themselves cut back on such spending in the wake of mounting scrutiny.

Examples

Last year began with the University of Colorado Denver and its affiliated teaching hospitals launching an overhaul of conflict-of-interest policies [1] after ProPublica found that more than a dozen of its faculty members had given paid promotional talks.

“We’re going to just have to say we’re not going to be involved with these speakers bureaus because they’re primarily marketing,” Dr. Richard Krugman, vice chancellor for health affairs, said in an interview in January 2011.

A few months later, Stanford University took disciplinary action against five faculty members [2] identified by ProPublica who had taken money to deliver drug company speeches, a violation of university policy.

And by last fall, there were indications that pharmaceutical companies were also reducing the money [3] they spent on doctor speakers.

Enter ProPublica

ProPublica first published its Dollars for Docs database [4] in October 2010 listing payments to doctors from seven drug companies. When we updated it this September [3] — with data from five additional companies — spending by some of the firms was down.

Cephalon, a relatively small Pennsylvaniacompany that specializes in pain, cancer and central nervous system drugs, paid physicians nearly $9.3 million in 2009 for speaking and consulting. That figure dropped to $5 million in 2010.

AstraZeneca cut its spending on speakers from roughly $22.8 million in the first half of 2010 to about $9.2 million in the second half. Both companies cited business reasons for the decline.

The Year 2011

Throughout 2011, ProPublica also examined the hefty financial support drug and medical-device makers give to medical societies and health advocacy groups and the impact it has on the groups’ positions.

At the national conference of the Heart Rhythm Society [5] in San Francisco, companies sponsored much of what doctors saw — hotel key cards, bus banners, ads on staircases, even motorcyclists driving mini-billboards in a continuous loop around the Moscone convention center. Nearly 50 percent of the society’s funding in 2010 came from the drug and medical device industry. (We even created a neat interactive graphic [6] that allows you to virtually tour the hotel and exhibit hall.)

The society, which represents doctors who treat abnormal heart rhythms, said its funders don’t influence its positions, but it unveiled a new policy requiring more detailed disclosure of board members’ industry ties.

Then, last month, ProPublica reported about the extensive ties between makers of narcotic painkillers and the American Pain Foundation [7], which bills itself as the nation’s largest organization representing patients afflicted by pain. The foundation received nearly 90 percent of its income in 2010 from drug and device makers and takes positions that closely align with the companies.

Despite a steep rise in overdose deaths tied to the drugs, the foundation has said the risk of addiction to the drugs has been over-hyped and that, if anything, they are underused.

Like the heart society, the pain foundation said its’ funders have no influence on its positions.

Assessment

ProPublica also investigated why physicians were not disciplined or prosecuted [8] after they were accused in federal lawsuits of taking kickbacks from drug or device companies or pushing drugs for unapproved uses. We reviewed lawsuits against 15 drug and device companies that were settled since 2006. None of the more than 75 doctors named as participants in alleged schemes were sanctioned by state medical boards or pursued by prosecutors, ProPublica found.

Last year, dozens of news outlets around the country used our data [9] to localize stories about conflicts of interest in medicine — bringing the discussion to communities large and small.

Link: http://www.propublica.org/article/drug-companies-reduce-payments-to-doctors-as-scrutiny-mounts

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Pfizer’s Latest Twist on ‘Pay for Delay’

Protecting Brand-Named Drugs

By Marian Wang
ProPublica, November, 14th, 2011, 2:41 pm

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Pharmaceutical companies have sought for years to protect their expensive brand-name drugs by paying generic rivals [1] handsome sums of money to put off efforts to introduce cheaper, generic alternatives that could steal market share.

Pay for Delay

The controversial practice, known as “pay for delay,” occurs as part of patent litigation settlements and typically buys a brand-name drug company more time to sell its blockbuster drug exclusively until its patent on the drug expires. Federal Trade Commission regulators have said the practice costs consumers an estimated $3.5 billion each year [2], and have pushed for a ban.

But now it appears the drug company Pfizer is adding yet another twist to its efforts to delay generic competitors. As The New York Times reports, the company seems to have struck a deal with certain pharmacy benefit managers — the middlemen in the pharmaceutical industry — to block generic versions [3] of Lipitor.

The Block Buster

Lipitor, Pfizer’s blockbuster cholesterol-lowering drug, is among the world’s best-selling pharmaceuticals, and this isn’t Pfizer’s first attempt to protect it.

In 2008, the company settled patent litigation [4] with Ranbaxy, an Indian generic manufacturer, striking a deal that guaranteed that Pfizer would not have to face challenges [5] from Ranbaxy’s generic version of Lipitor until the end of November 2011. Pfizer granted Ranbaxy some incentives [6] as part of the bargain but said it made no payments. Nonetheless, a group of pharmacies filed suit [7] against Pfizer and Ranbaxy last week over the deal, calling it “an extraordinary ripoff” and alleging price-fixing between the two companies.

Big Discounts

Now that it’s November 2011, Ranbaxy and other drugmakers are gearing up to offer cheaper versions of Lipitor. As The Times reports [3], Pfizer has tried to counter this competition by offering big discounts on Lipitor to the middlemen that process prescriptions [8] for pharmacies and other buyers, giving them discounts in exchange for having them block generic versions of Lipitor for another six months. Here’s The Times:

Many drugstores are being asked to block prescriptions for a generic version of Pfizer’s Lipitor starting Dec. 1, when the company loses its patent for the blockbuster cholesterol drug and generic competition begins.

Medco Health Solutions, among the nation’s largest pharmacy benefit managers, is one of the companies issuing instructions, seeking to have pharmacists keep filling prescriptions with the more expensive Lipitor for six months.

See some of those instructions [9] sent to pharmacies by the pharma middlemen. The documents were released by Pharmacists United for Truth and Transparency, a group of independent pharmacists. (We first noticed them posted at the blog Pharmalot [10].)

According to the group, Pfizer’s plan would mean that customers at the pharmacies serviced by these middlemen would receive Lipitor even when they’ve been prescribed a generic version. Because Lipitor co-pays would also be reduced to the level of generic co-pays, customers might not notice, but employers and Medicare Part D would pay the same amount as before, despite the availability of a cheaper alternative.

Assessment

A Pfizer spokesman gave The Times a statement saying that the company was committed to ensuring that customers had access to Lipitor but declined to answer additional questions. We’ve also asked Pfizer for comment and will update when we hear back.

Conclusion

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Injured War Contractors Sue Over Health Care

And … Disability Payments

By T. Christian Miller
ProPublica, September 27, 2011, 10:11 am

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Private contractors injured while working for the U.S. government in Iraq and Afghanistan filed a class action lawsuit [1] in federal court on Monday, claiming that corporations and insurance companies had unfairly denied them medical treatment and disability payments.

The Law Suit

The suit, filed in district court in Washington, D.C., claims that private contracting firms and their insurers routinely lied, cheated and threatened injured workers, while ignoring a federal law requiring compensation for such employees. Attorneys for the workers are seeking $2 billion in damages.

The Defense Base Act

The suit is largely based on the Defense Base Act, an obscure law that creates a workers-compensation system for federal contract employees working overseas. Financed by taxpayers, the system was rarely used until the wars in Iraq and Afghanistan, the most privatized conflicts in American history.

Hundreds of thousands of civilians working for federal contractors have been deployed to war zones to deliver mail, cook meals and act as security guards for U.S. soldiers and diplomats. As of June 2011, more than 53,000 civilians have filed claims for injuries in the war zones. Almost 2,500 contract employees have been killed, according to figures [2] kept by the Department of Labor, which oversees the system.

An investigation by ProPublica, the Los Angeles Times and ABC’s 20/20 [3] into the Defense Base Act system found major flaws, including private contractors left without medical care and lax federal oversight. Some Afghan, Iraqi and other foreign workers for U.S. companies were provided with no care at all.

Assessment

The lawsuit, believed to be the first of its kind, charges that major insurance corporations such as AIG and large federal contractors such as Houston-based KBR deliberately flouted the law, thereby defrauding taxpayers and boosting their profits. In interviews and at congressional hearings, AIG and KBR have denied such allegations and said they fully complied with the law. They blamed problems in the delivery of care and benefits on the chaos of the war zones.

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Health-Care Reform Rules Would Restrict Public Reporting

 Information Restricted to “qualified entities” Only

By Marshall Allen

ProPublica, Sept 15th, 2011, 10:46 am

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It’s estimated that hundreds of thousands of patients die annually from preventable harm suffered while undergoing medical care. The infections, injuries and errors could rank as a leading cause of death in the United States.

The PP-ACA of 2010

Last year’s sweeping health-care reform law — the Patient Protection and Affordable Care Act — promised to improve the problem by allowing outside groups to use Medicare billing records to analyze and publicly report on the quality of care. But proposed rules that would guide the release of the data are being criticized by consumer groups that say the rules would make independent accountability impossible.

CMS  

Agencies typically adopt rules to administer laws like the health-care act. The rules being developed [1] by the Centers for Medicare & Medicaid Services (CMS) propose restricting the release of Medicare billing data to “qualified entities.” To qualify, a group would have to:

  • Pay up to $200,000 for the data.
  • Have its methods pre-approved before obtaining the data.
  • Already possess billing information from other sources to combine with the Medicare data — an advantage to insurance companies.
  • Limit public reporting to quality measures approved by the health-care industry.
  • Present its reports and findings to every doctor and facility being measured before they are released to the public — a requirement that would make large-scale reports difficult.

Medicare officials declined to discuss the proposed rules because they are being finalized after a public comment period ended Aug. 8th. But interviews and a review of comments show that the rules have sharply divided consumer-oriented groups and health-care providers.

Safe Patient Project

Lisa McGiffert, director of the Safe Patient Project run by Consumers Union, the nonprofit publisher of Consumer Reports magazine, said the new law was seen as “a real opportunity” because, for the first time, Medicare data could be used to tell the public about the performance of doctors. But the proposed rules would make it impossible for Consumers Union to use the data, she said.

“The best-kept secret inAmericais what doctors are doing,” McGiffert said. “People should be able to find out information about outcomes of care, whether their docs are using appropriate practices and whether they’re providing too much of something that people don’t need.”

Bruce Boissonnault, president and CEO of the Niagara Health Quality Coalition, a nonprofit that’s been independently measuring the quality of health care since 1995, said the rules are needlessly complex and designed to suppress freedom of information. He said the rules would make it impossible for all but industry insiders to access the new data, giving them control over what’s released.

“We will only see the scraps of information that the industry wants us to discuss,” Boissonnault said. “It’s advertising wrapped in a lab coat.”

Boissonnault [2] and Consumers Union [3] submitted public comments, urging Medicare to reconsider the restrictions.

Enter the AMA

The American Medical Association submitted comments [4] mostly supporting the access limitations and in some cases urging more restrictive rules. For instance, the proposed rules say doctors would need 30 days to review any analysis before it’s publicly reported, but the AMA wants that review period increased to 90 days. The AMA also wants Medicare to consider complaints by physicians against an organization before allowing the organization access to the data.

Assessment

The Federation of American Hospitals, which represents investor-owned health-care facilities, said in its comment [5] that it is “very troubled” by the proposed rules, despite the increased restrictions, because billing data have a limited ability to measure quality. The federation wants a limit on the number of qualified entities that have access to the data.

Link: http://www.propublica.org/article/health-care-reform-rules-would-restrict-public-reporting

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Does Financial Regulation Kill Jobs?

Perhaps Not!

By Marian Wang
ProPublica, Sept. 12, 2011, 1:20 pm

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With the presidential campaign in motion, and President Obama urging immediate passage of his new jobs bill, the attention in Washington has shifted almost exclusively to the economy and job creation. And, that means a shift away from regulation, right? Not necessarily.

Growth Spurts?

Some regulators and financial industry experts are predicting the opposite—that new financial regulations will spur some growth.

For example, The New York Times’ DealBook blog cited derivatives regulation [1] as one example. Dodd-Frank requires a substantial chunk of the $600-trillion derivatives market to trade on exchanges or on new electronic trading platforms.

“I have no doubt that these new regulations, instituting new types of clearing, trading and reporting platforms, will foster a landslide of hiring in the financial sector,”

Bart Chilton of the Commodity Futures Trading Commission said in a recent speech cited by the Times. As another New York Times piece noted, previous financial regulation laws have resulted in additional jobs for accountants and lawyers [2], at least.

But, separate from the jobs created to actually handle new regulation, others have pointed out that regulations can have a long-term, positive effect on overall economic growth by preventing the types of crises that put an industry on life-support.

The Studies

Last year, two studies by central bankers and regulators found that the short-term impacts of stricter capital requirements were “significantly smaller” than the estimates published by banking groups, the Times reported.

Rather, the studies said that stricter regulation would lead to more long-term growth [3] by preventing future crises.

Banks see higher capital requirements

  • Which require them to have more financial cushion to balance out risk-taking as a damper on profits.
  • And, they have repeatedly warned that tougher rules will hamper lending, reduce investment and slow economic growth.

Assessment

But, not everyone sees it that way. Swiss regulators, for instance, indicated last year that they would impose even tougher capital standards on their country’s banks on the premise that investors would rather put their trust [4]—and their dollars—in safer banks.

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Doctor’s Lawsuit Targets Parents of Patient Who Overdosed

By Marshall Allen
ProPublica, Aug. 26, 2011, 10:57 am

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The dramatic rise in prescription narcotics use [1]—and the subsequent increase in overdose deaths—has led to a spate of lawsuits around the country targeting doctors for malpractice or running pill mills [2]. But legal experts say the case of one family physician in Henderson,Nev., stands out.

The case of Kevin Buckwalter

Dr. Kevin Buckwalter has turned the tables, filing a lawsuit against the parents of a young woman who died from an overdose of narcotics that he prescribed.

Buckwalter’s suit accuses John and Maggie DeBaun of abusing the legal process, intentionally inflicting emotional distress and interfering with his ability to do business by filing a medical malpractice case against him for the death of their daughter.

“I’ve never heard of such a lawsuit,” said Stacey Tovino, a professor at the William S. Boyd School of Law at theUniversity of Nevada, Las Vegas. Tovino and otherNevada legal experts said it appears to them that Buckwalter abused the legal process in an attempt to intimidate the DeBauns.

Buckwalter did not respond to a call for comment. His brother Bryce, who serves as his attorney, declined to comment about the lawsuit. In an email, he accused this reporter of harassment for attempting to contact his brother, said he would seek a restraining order and threatened to sue ProPublica.

A Controversial Subject?

Buckwalter has been a subject of controversy for several years. A 2008 Las Vegas Sun investigation [3], also by this reporter, highlighted the opinions of four pain-management specialists who reviewed Buckwalter’s care of patients and said it appeared to be negligent.

Staci Voyda, a teenager addicted to prescription narcotics, wrote in her journal that she went to Buckwalter to get off drugs. But his treatment included ramping up her dosages of narcotics. She killed herself in August 2007, and family members say the drugs pushed her over the edge.

Another Buckwalter patient, 69-year-old Barbara Baile, was prescribed large doses of narcotics, which caused constipation so severe it ruptured her bowels. A subsequent infection killed her.

These are prescriptions for Xanax and morphine written by Dr. Kevin Buckwalter for Andrea and Clint Duncan. (Sam Morris/Las VegasSun) | See Las Vegas Sun’s full investigation on Painful Painkillers [4].

The DeBauns’ daughter, Andrea Duncan, died in 2005 from intoxication with opiates and benzodiazepines [5], a class of drugs that includes Valium and Xanax. Four days earlier, her husband Clint, also a Buckwalter patient, had overdosed on prescription narcotics and died.

In a 2007 videotaped deposition [6] for an unrelated lawsuit, Buckwalter described the treatment he provided Duncan. Under oath, Buckwalter said he did not examine Duncan on her first visit because he “did not have time,” yet prescribed her 300 tablets of Xanax, an anti-anxiety medication, and the painkiller hydrocodone, a synthetic opiate.

The following year, the U.S. Drug Enforcement Administration and Nevada State Board of Medical Examiners stripped Buckwalter of his license to prescribe controlled substances. The DEA attributed at least eight overdose deaths [7] to Buckwalter. The medical board blamed him for four cases of malpractice [8], including one in which the patient died. Buckwalter closed his practice.

Dallaslawyer Kay Van Wey, who specializes in pill mill cases, filed six lawsuits against Buckwalter on behalf of patients who died or were harmed. The DeBaun case was filed in April 2009, past the statute of limitations in Nevada. But Van Wey argued in the complaint that the deadline should be extended because Buckwalter allegedly concealed his negligence and altered medical records.

A judge didn’t buy the argument and dismissed the case. Buckwalter claims in his lawsuit that the DeBauns sued to harass and annoy him.

Buckwalter has denied all of the allegations that he provided substandard care. His lawsuit against the medical board to get his prescribing privileges reinstated was unsuccessful.

Jeffrey Stempel, a professor at the UNLV law school, said that for the DeBauns’ lawsuit to be considered an “abuse” of the legal process, there would have to be some ulterior motive other than seeking damages for their daughter’s death.

Assessment

Ann McGinley, another professor at the UNLV law school, said it takes more than simply filing a lawsuit to support a claim of intentional infliction of emotional distress. And given that Buckwalter lost his ability to prescribe controlled substances in 2008, it’s difficult to see how the DeBauns interfered with Buckwalter’s ability to conduct his business, she said.

McGinley said that if lawsuits like Buckwalter’s became more common, they could have a chilling effect, discouraging patients from pursuing legitimate malpractice claims. “My concern is that other doctors will take this on as something that they will do regularly,” she said.

Link: http://www.propublica.org/article/doctors-lawsuit-targets-parents-of-patient-who-overdosed

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What Does the S&P Downgrade Mean?

If France Is Rated Higher Than the US!

By Marian Wang
ProPublica, Aug. 8, 2011, 5:38 p.m.

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The decision by credit rating agency Standard & Poor’s to downgrade the United States [1] after markets closed on Friday may have kicked up political [2] consternation [3] and triggered a market plunge [4], but it also raises important questions about the reliability of credit ratings and, for that matter, the firms that bestow them.

Just over a dozen countries currently have an AAA [5]—or lowest-risk—rating from each of the three main rating agencies: Moody’s, Fitch, and Standard & Poor’s. Until this weekend, the United States was among them. (It’s now roughly on par with Australia, which also has two AAAs and one AA+.)

So, which countries are among the lucky few that still have perfect ratings from all three firms? The United Kingdom and France, just to name a couple. S&P apparently thinks that both the U.K. and France are safer investments than the United States.

The United States still has a higher per-capita GDP [6] than most countries, including both the U.K. and France. Last year, the U.S. GDP grew 2.9 percent [6]—almost double the U.K.’s 1.4 percent and France’s 1.5 percent. Between April and June of this year, the U.S. GDP grew 1.3 percent [7] while the U.K. economy grew 0.2 percent [8]. A June forecast from the Bank of France estimated that the country’s economy would grow 0.4 percent [9] in the second quarter. (U.S. growth, granted, is still slower than it used to be [10].)

As a percentage of GDP, both the U.K. and France have a higher percentage of external debt [11], or debt owed to outside bondholders. In 2010—the latest year for which the Organization for Economic Cooperation and Development has numbers—U.S. external debt was 61 percent of GDP, compared to France’s 67 percent and the U.K.’s 86 percent. Austria also maintains a lowest-risk rating from all three firms, and its external debt was 66 percent of GDP last year. 

Let’s not forget unemployment. Our July 2011 unemployment rate figure was 9.1 percent [10]. That’s higher than the U.K.’s, which has hovered around 7.7 percent [6], but it’s lower than France, which had 9.7 percent unemployment in June.

S&P, in explaining the historic downgrade—the first in U.S. history—cited both the U.S. debt burden and the political brinksmanship over the debt ceiling as reasons it lowered the credit rating of the United States to AA+, with a negative outlook.

So, what do the ratings mean, really? It seems to be a question that economists and investors are asking, too.

“France is not, in my view, a AAA country,” a UBS economist told Bloomberg [12]. And yet there are no indications [13] that France will face a downgrade, the Wall Street Journal reports. In fact, all three of the rating agencies recently affirmed France’s triple-As [12].

Credit rating agencies have taken a collective hit to their reputations for issuing flimsy triple-A credit ratings on securities that collapsed and helped trigger the financial meltdown. A Senate investigation earlier this year identified the firms as “a key cause [14]” of the financial crisis. Documents released by congressional investigators also pointed to serious conflicts of interest [15] that caused some ratings firms to bend to the wishes of the banks that paid for their ratings. 

Assessment

As we’ve written, some of the same problems with company culture [16] and inaccurate ratings [17] have persisted. Meanwhile, the Office of Credit Ratings—an office created by Dodd-Frank, the financial reform bill, to oversee these firms—hasn’t even been set up because Congress didn’t allocate funds for it. Other efforts written into the measure to lessen U.S. reliance on ratings and open up the firms to more liability have been slowed or stalled altogether.

Wiping out the references to credit ratings in U.S. law is a “harder task than the legislation assumes,” said Barbara Roper, director of investor protection for the Consumer Federation of America. The downgrade, she thinks, may provide just enough impetus to keep those efforts moving. 

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Merrill Lynch Investigated for CDO Deal Involving Magnetar

Hedge Fund Probed

By Marian Wang

ProPublica, June 15, 2011, 3:10 pm

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The Securities and Exchange Commission is investigating whether Merrill Lynch short-changed investors and gave undue influence to the hedge fund Magnetar in the creation of a $1.5-billion mortgage-backed security deal.

The investigation, which was first reported [1] by the Financial Times ($), appears to be the agency’s first probe of Merrill Lynch’s CDO business since the financial crisis. (Check our bank investigations cheat sheet [2] for which other firms are being probed.) Here’s the FT:

The investigation is one of several SEC probes into banks that helped underwrite billions of dollars of collateralised debt obligations, securities comprised of mortgages or derivatives linked to them.

It also marks a broadening of the SEC’s investigation into the role of collateral managers, institutions that help select the assets included in CDOs.

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The deal that the SEC is investigating—a collateralized debt obligation, or CDO, called Norma—was detailed both in our reporting last year [3] and in a report [4] by the Financial Crisis Inquiry Commission released in January. Norma was one of more than two dozen CDO deals [5] done by Magnetar, whose bets against a number of CDOs earned it billions in the waning days of the housing boom.

As the FCIC detailed, Magnetar helped select the assets that went into Norma even though it had a $600 million bet that would pay off substantially if the CDO failed. As we reported [6], Magnetar often invested in the portion of the CDO that was riskiest and hardest for the banks to sell. Banks typically gave such investors—equity investors—more say in how the deal was structured. (Magnetar isn’t named as a target of the investigation and had no responsibility to investors. It has also maintained that it did not have a strategy to bet against the housing market.)

In the offering documents for Norma, there’s no mention of Magnetar’s role in asset selection, according to the FCIC. Investors were told that an independent collateral manager, NIR Capital Management, would be selecting the assets with their best interest in mind. The report concluded: “NIR abdicated its asset selection duties… with Merrill’s knowledge.”

Bank of America

Bank of America, which took over Merrill Lynch in 2008, declined our request for comment. The firm’s general counsel told [4] the Financial Crisis Inquiry Commission that it was “common industry practice” for equity investors to have input during the asset selection process, though the collateral manager had final say.

NIR Capital Management

NIR Capital Management is also being investigated by the SEC, according to the FT. The firm did not immediately respond to our request for comment. (The Wall Street Journal did an impressively detailed story in 2007 on how NIR came to be manager [7] of the Norma deal.)

Magnetar declined our earlier requests for comment on Norma, but FT reports it has denied claims [1] that it selected the assets for Norma.

Assessment

As we reported, the SEC had launched a probe of Merrill’s CDO business 2007, but that investigation petered out without resulting in any charges.

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Misdirection in Goldman Sachs’s Housing Short

Goldman Sachs appears to be trying to clear its name

By Jesse Eisinger

ProPublica, June 15, 2011, 3:10 pm

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The compelling Permanent Subcommittee on Investigations report on the financial crisis [1] is wrong, the bank says. Goldman Sachs didn’t have a Big Short against the housing market.

About The Trade

In this column, co-published with New York Times’ DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at jesse@propublica.org

But the size of Goldman’s short is irrelevant.

No one disputes that, by 2007, the firm had pivoted to reduce its exposure from mortgages and mortgage securities and had begun shorting the market on some scale. There’s nothing wrong with that. Don’t we want banks to reduce their risk when they see trouble ahead, as Goldman did in the mortgage markets?

Nor should shorting itself be seen as a bad thing. Putting money behind a bet that a stock (or bond or commodity or derivative) is overpriced is necessary for the efficient functioning of capital markets. Short-sellers can keep prices from getting out of whack and help deflate bubbles.

The problem isn’t that Goldman went short and reduced risk — it’s how.

It is How … Short?

To establish many of its short positions, the Senate report says, Goldman created new securities, backed them with its good name, and then strung together misleading statements to its customers about what it was actually doing. By shorting the way it did, the bank perverted the market instead of correcting it.

Take Hudson Mezzanine, a $2 billion collateralized debt obligation created by Goldman in 2006 [2]. In marketing material, the firm wrote that “Goldman Sachs has aligned incentives with the Hudson program.”

I suppose that was technically true: Goldman had made a small investment in the C.D.O. and therefore had an aligned incentive with the other investors. But the material failed to mention the firm’s much larger bet against the C.D.O. — a huge adverse incentive to its customers’ interests.

Goldman told investors that the Hudson assets had been “sourced from the Street,” which most investors would understand to mean that Goldman had purchased the assets from other broker-dealers. In fact, all the assets had come from Goldman’s own balance sheet, the Senate report found.

In his April 2010 testimony to the Senate, Goldman’s chief executive, Lloyd C. Blankfein, argued that Goldman was merely making a market in these securities and derivatives, matching willing and sophisticated buyers and sellers. But, Goldman was acting like an underwriter, not a market maker.

As the underwriter, Goldman threw its marketing muscle behind Hudson Mezzanine and other C.D.O.’s. When the bank’s salespeople ran into trouble selling the securities, they begged for help from the executives who created them. One requested material to give to clients about “how great” the sector was. One needed the aid to get a client to invest, to be “THERE AND IN SIZE,” according to e-mails cited in the report.

Sometimes, Goldman took advantage of the opaque markets. According to the Senate report, Goldman executives had extensive concerns about the prices of its 2007 Timberwolf C.D.O. Goldman sold the C.D.O. securities anyway, often at higher prices than it had them recorded on its books. In summer 2007, Goldman marked some Timberwolf assets at 55 cents on the dollar, but sold similar securities to an Israeli bank at 78.25 cents at the same time, according to the report. Oh, well, tough luck!

Goldman’s Famous Mantra

For decades, Goldman’s famous mantra was to be “long-term greedy” and a central element of that was putting customers first. In these C.D.O.’s, the bank’s customers were “only first in the same way that on Thanksgiving, the turkey is first,” a former C.D.O. professional told me.

Goldman declined to address these specific disclosures from the report. A spokesman maintained the firm fulfilled its obligations to buyers of these kinds of C.D.O.’s, which were made up of derivatives. The customers were large and sophisticated investors who knew that one side had to be long while the other was short. And they knew, or should have known, that Goldman might be on the other side.

“It was fully disclosed and well known to investors that banks that arranged synthetic C.D.O.’s took the initial short position,” a spokesman wrote in an e-mail.

True, but few thought that the bank that had created and hawked the C.D.O.’s expected them to fail.

Goldman’s techniques harmed the capital markets. Goldman brought something into the world that didn’t exist before. Instead of selling something — thereby decreasing the price or supply of it — and giving the market a signal that it was less desirable, Goldman did the opposite. The firm created more mortgage investments and gave the world the signal that there was more demand, for C.D.O.’s and for the mortgages that backed them.

Assessment

By shorting C.D.O.’s, Goldman also distorted the pricing of the underlying assets. The bank could have taken the securities it owned and sold them en masse in a fairly negotiated sale, though it likely would have gotten less for them than it was able to make by shorting the C.D.O.’s it created.

Because of Goldman’s actions, the financial system took greater losses than there otherwise would have been. Goldman’s form of shorting prolonged the boom and made the crisis that followed much worse.

Goldman executives surely hope to change the subject from the firm’s specific actions to a more general discussion of how much and when it shorted. We shouldn’t let them.

Link: http://www.propublica.org/thetrade/item/misdirection-in-goldman-sachss-housing-short/

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At a Time of Needed Financial Overhaul

A Leadership Vacuum

By Jesse Eisinger
ProPublica, May 18, 2011, 3:10 p.m.

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After the worst crisis since the Great Depression, President Obama has unleashed an unusual force to regulate the financial system: a bunch of empty seats [1].

With Sheila C. Bair soon to leave her post at the Federal Deposit Insurance Corporation, the Obama administration will have five major bank regulatory positions either unfilled or staffed with acting directors.

About The Trade

In this column, co-published with New York Times’ DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at jesse@propublica.org

The administration has inexplicably left open the vice chairman for banking supervision, a new position at the Federal Reserve created by the Dodd-Frank Act, despite having a candidate that many people think is an obvious choice: Daniel K. Tarullo [2]. The new Consumer Financial Products Board chairman is unnamed. There are some lower-level positions that don’t have candidates, including the head of the Treasury’s Office of Financial Research and the Financial Stability Oversight Council insurance post.

Perhaps most important, the Office of the Comptroller of the Currency, is being headed by an acting comptroller, John Walsh, who took over the agency last August. Nine months have passed without a leader who might better reflect the Obama administration’s views on banking regulation, a time lag made worse by the office’s coddling of the banks [3] even as they have acknowledged rampant abuse and negligence in the foreclosure process.

The vacancies come at a time that calls for stiffer regulatory examination. The financial regulatory system was remade under Dodd-Frank and requires strong leaders to put the changes into effect. Though the acting heads insist they feel empowered to make serious decisions, they have roughly the same authority as substitute high school teachers.

The Obama Administration

Supposedly, the Obama administration is getting close to naming people to head the comptroller’s office and the F.D.I.C. But we’ve been hearing that for a while. In April, Barbara A. Rehm of American Banker wrote that the administration was working on a big package of nominations to send to the Hill all at once. A month later, we’re still twiddling our thumbs in anticipation.

So what’s going on?

In a vacuum of leadership, conspiracy theories arise. One is that Treasury Secretary Timothy F. Geithner is making a power grab and doesn’t mind that these roles aren’t filled. The idea is that he is asserting his influence over the Dodd-Frank rule-making process. A former adviser to Mr. Geithner dismissed that notion as ridiculous, and that’s persuasive to me. It seems too Machiavellian by half.

If it’s not Mr. Geithner, then who or what is responsible for the vacancies? Not surprisingly, people close to the administration blame Republicans. The nomination process has become hopelessly broken in Washington. Even low-level appointments are now deeply partisan affairs, the playthings of score-settling senators with memories like elephants and the social responsibility of hyenas (which probably insults hyenas).

The Obama administration put up Peter A. Diamond for a position on the Federal Reserve board. Winning a little something called the Nobel Prize [4] hasn’t helped him with confirmation, however Sen. Richard Shelby, the powerful Alabama Republican and ranking member of the banking committee, is standing in his way. The senator also quashed the nomination [5] of Joseph A. Smith Jr. to head the Federal Housing Finance Agency.

Blame Game

But much of the blame for this situation lies with the Obama administration. It’s almost as if the president and his staff have thrown up their hands. The administration has had trouble finding good candidates who are willing to go through the vetting process and has shied away from fights. It also hasn’t seeded the ground or supported the nominations it has made, people complain.

A Democratic Senate staff member confided worry to me about the fate of Mark Wetjen, whom the administration nominated last week as a candidate for a seat on the Commodity Futures Trading Commission. “They didn’t shop it and they didn’t get buy-in,” the staff member said. “The administration doesn’t seem to be putting any sort of effort into it.”

Making these appointments will help answer a question: Where does Mr. Obama stand on financial regulation?

With the Geithner appointment, the president chose early on the path of continuity over muscular regulation. Immediately, the Treasury secretary became the personification of every Obama financial policy. Mr. Geithner remains the most politically costly appointment Mr. Obama has made, saddling him with all the Bush presidency’s financial crisis decisions. After all, Mr. Geithner, as head of the Federal Reserve Bank of New York, was intimately involved in the emergency actions of September 2008. Republicans made great hay tying Democrats to the Wall Street bailouts in the 2010 midterm elections. Now, of course, Republicans are leading Democrats in Wall Street campaign donations [6].

With these positions unfilled, Mr. Obama is losing out on a political opportunity to draw a line between himself and his opposition.

Assessment

But it’s more important than that. Allowing these vacancies to linger drains leadership from the financial overhaul at the exact moment when it is needed most.

Link: http://www.propublica.org/thetrade/item/at-a-time-of-/0763745790

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Life and Death Choices as South Africans Ration Dialysis Care

Dialysis Unit at Tygerberg Academic Hospital – Near Cape

By Sheri Fink, Special to ProPublica Dec. 15, 2010, 3:18 pm

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Late last August, 41-year-old Amos Phillips arrived by ambulance at Tygerberg Academic Hospital near Cape Town, South Africa. His kidneys had failed. He was confused, struggling to breathe, and desperate enough to ask doctors to end his life.

The same month, a 43-year-old widow with three children was also treated at Tygerberg for kidney failure. The patient, Karen MacPherson, desperately wanted to live. She said she had been plagued by high blood pressure, a risk factor for kidney disease, since her children’s birth. “It’s because of the high blood [pressure] the kidneys don’t want to work anymore,” she said.

Kidney failure can come on suddenly and affect anyone. Some forms are partial or reversible. Others are permanent and fatal without treatment.

To live, both Amos Phillips and Karen MacPherson would need ongoing dialysis treatment to filter toxins from their blood, sustaining them until they received a kidney transplant. But needing treatment didn’t mean they would get it.

Public hospitals in South Africa strictly limit the number of expensive dialysis treatment slots for chronic kidney failure to save money for other pressing health priorities. It falls to the medical staff to do the rationing.

The situation in South Africa is strikingly similar to that of the United Sates in the 1960s, when dialysis first became available. Demand for the procedure was far greater than the supply, and hospital-based committees quietly rationed dialysis—much as they do in South Africa today.

In the United States, committees granted or denied dialysis in large part by judging how much a particular patient’s life was worth. A 1962 article in LIFE magazine exposed the selection process at one Seattle clinic, triggering public outcry. Lawmakers created a program that now entitles almost anyone diagnosed with kidney failure to dialysis treatment under Medicare.

A few kidney doctors have argued publicly that access in the United States has become too broad, including patients who are unlikely to benefit from the expensive therapy. They have called for limits on which types of patients should receive dialysis.

But where to draw the line? The scenes that unfold each week in Cape Town, South Africa, where committees meet to choose dialysis patients, are a reminder of how difficult any selection process can be.

I was granted access to closed dialysis selection committee meetings at the two hospitals that provide public dialysis services to adult kidney patients in the Cape Town Area. It is the first time a reporter has been allowed to attend a committee meeting at Tygerberg and report on the process.

An investigation by ProPublica [1] recently highlighted the high cost of the massive, rapidly expanding kidney disease program in the United States and the poor outcomes experienced by many dialysis patients.

The challenge for the United States is to address systemic flaws and achieve the superior results that patients in other wealthy countries, such as Italy, enjoy. In less-affluent countries like South Africa, the central question is a different one: How can these nations expand access to dialysis—and in the interim bring some modicum of consistency and transparency to the heartbreaking task of rationing lifesaving care.

Global inequities

When it comes to expensive, chronic therapies like dialysis, there is still a stark divide between wealthy nations and much of the rest of the world. In the United States, Western Europe and Japan, there is widespread access to dialysis care, most of it paid for publicly. But in many countries, the vast majority of patients with kidney disease don’t have access to dialysis [2].

In South Africa, only the roughly one out of five patients who have a form of health insurance or the small proportion of patients who can afford pay are able to get dialysis at private clinics or hospitals based on medical need alone. The cost of paying out of pocket—about $20,000 per year— is nearly double the gross domestic product per capita.

The remaining patients rely on an overburdened public health system in which an increasing number of chronic kidney disease patients are denied dialysis.

“Probably in the middle of the last decade we were turning away 50 percent of the patients,” said Dr. Rafique Moosa, a kidney specialist at Tygerberg Hospital and head of the Department of Medicine at the University of Stellenbosch. According to him, as of August they were turning away 80 percent, and in November, only two out of 20 patients were accepted. “We just don’t have the resources to deal with the patients,” Moosa said. But deciding to reject patients for the program can feel like issuing a “death sentence,” he said.

“In a court of law, you have courts of appeal and you have a higher court and all those kinds of processes before the death sentence is eventually applied,” Moosa said. “Here, essentially if we say no, the process is essentially terminated.”

So, the doctors have adopted a firing-squad-like approach to share the responsibility and the burden. “It’s a tough process having to decide who lives and who doesn’t,” Moosa said. “One of the ways of dispersing the guilt and the blame and all the badgering that goes with this is to do it as a group rather than an individual.”

The question of how groups of medical professionals choose who lives is particularly important given South Africa’s history. Tygerberg was built during the apartheid era, when the government mandated racial segregation. The vast hospital has hallways that stretch out east and west, in wings that are mirror images. One side used to treat white patients. The other treated nonwhites.

For decades, a committee at the hospital has decided who gets dialysis treatment. In a recent study of historical data from Tygerberg’s program, Moosa found that patient selection often fell along racial lines. “What we clearly discovered in that initial paper was that black patients were disadvantaged,” he said.

The apartheid era ended with the first multiracial, democratic elections of 1994. However, between 1988 and 2003, Moosa’s study found, white patients were nearly four times more likely to be accepted for dialysis treatment than nonwhites at Tygerberg. (In recent years, the vast majority of white kidney disease patients have shifted to the growing private dialysis sector for care, and their cases are no longer subject to review by Tygerberg’s dialysis selection committee.) During that period, there was little in the way of detailed guidance governing the selection process. That left patients and the public with limited insight into the basis for the committee’s decisions.

Several years ago, the government announced cutbacks that would further squeeze the dialysis program. At the same time, the number of new kidney patients was skyrocketing thanks to a growing rate of diabetes and other risk factors.

Moosa protested the budget cuts and sought to have government officials in charge of his hospital take more public responsibility for rationing.

“We were making these clinical decisions that would have economic benefit to the hospital, and the hospital managers played absolutely no role in this,” he said. “We felt that was blatantly unfair.”

Provincial officials agreed to work with the medical professionals to establish official guidelines [3] for patient selection—essentially a more standardized and explicit rationing system. Ethicists and several patients with kidney disease also provided input.

Participants differed somewhat over the criteria for allotting dialysis treatment—there are no universally accepted methods to ration health care. However, they worked to ensure that the selection guidelines were developed in a just way and that the selection process would be more accountable.

“The main thrust of this was to be fair and equitable and transparent,” Moosa said. The provincial government adopted the new system earlier this year. It calls for the dialysis selection committees at public hospitals to place patients into three prioritization categories based on a variety of medical and social factors.

This was the system that was in place when Amos Phillips and Karen MacPherson, two of the recent patients at Tygerberg, were considered.

The Committee

On a recent Tuesday morning, about a dozen medical professionals, stethoscopes dangling from their necks, gathered in a small conference room at the hospital. The committee meets weekly to decide who will be accepted into the dialysis treatment and transplant program.

The hospital’s longtime social worker for kidney patients, Marietjie Swart, presided. She projected a photo of Amos Phillips onto a large screen.

The image showed a man with closely cropped brown hair lying in his hospital bed.

Phillips’ doctor outlined his medical condition, and then Swart reviewed other aspects of his life that might have a bearing on the committee’s decision. She began with his age and where he lives. “He can read and write,” she added. “He speaks Afrikaans and Xhosa, as well.”

Phillips “never smoked, never used any drugs,” Swart continued. “He only drank over weekends with his wife, but they would only buy about four bottles, 750 ml, between the two of them.” Phillips was, Swart said, “not a party animal.”

That was a point in his favor. Under the guidelines, active substance abuse automatically excludes a patient from receiving dialysis.

Swart also discussed Phillips’ living conditions. “It’s a one-bedroom house, with a lounge, kitchen and a bathroom,” she said. The bathroom had a tub, sink and a toilet.

The guidelines call these “good home circumstances,” and they, too, improved Phillips’ chances of being chosen for dialysis. Running water, sanitation and electricity are important for performing a form of dialysis safely at home. However, these criteria can disadvantage the poorest South Africans, who often lack such utilities.

Swart offered more personal details. “He is employed on a farm,” she said. “His income is more or less 1,200-1,500 rand ($175-$220) a month.” He had “no criminal record” and was married to a 33-year-old woman. “They’ve got three children of 13, 9, and 4 years old, all three living with them.”

These factors—criminal and employment history, whether the patient is a parent—have little to do with the chances of benefiting medically from dialysis. They are, instead, measures of social worth.

Dr. Moosa said the committee used to weigh these factors heavily when considering patients for dialysis. “I suppose we used a utilitarian approach,” he said. “The question that we used to ask ourselves—you know, if we put this patient onto our program, of what benefit can he be to the society?”

According to the new guidelines, those factors are no longer considered. The ethicists who helped draw up the guidelines argued that medical practitioners should not judge which patients are the worthiest contributors to society.

Judgments are often wrong. For example, former prisoners might have been falsely convicted, especially during the apartheid years. Patients who lack their own children might be helping to raise others.

Most important, the ethicists said, are medical criteria. Is the patient healthy enough to undergo a kidney transplant? If so, he or she might someday no longer need dialysis, and that would free up a slot for a new patient.

The problem is, few actually are able to get transplants. There are far more good medical candidates than there are dialysis slots. Therefore, the committee falls back on subjective criteria—does the patient seem motivated? Does he or she have a good social support network?

The committee still discusses some social factors that are no longer included in the government-approved priority setting guidelines Moosa helped to develop for the province. For example, the checklist still used by the committee penalizes those who’ve been convicted of serious crimes and requires gainful employment for a patient to be accepted into “Category One,” the only category of patients guaranteed access to the dialysis program. Both of these “social worth” factors are missing from the new guidelines.

Moosa said in an interview that he had not had time to update the checklist tool to conform with the new guidelines, but that those factors are mentioned at committee meetings “more out of habit” and are “not something we pay a lot of attention to anymore.”

The assessment committee weighed the factors in Amos Phillips’ case, deciding whether he should be ranked “Category One” and guaranteed dialysis.

“I think he would almost be a Category One patient if it wasn’t for his late presentation,” Moosa said to his colleagues at the committee meeting.

By “late presentation,” Moosa meant that Phillips had arrived at the hospital after his kidneys had already failed. He needed to be put on life support, with a breathing tube and emergency dialysis, until he was stabilized. That bumped him to Category Two—not guaranteed a spot in the chronic dialysis program.

The Case for Karen MacPherson

The same day, the committee members also talked about Karen MacPherson, the widowed mother of three.

Her picture was projected on the screen. Her wide eyes peered at the camera through large plastic glasses. Dr. Yazid Chothia described her medical and social situation.

“She’s the only breadwinner,” he said, and she had been raising several children. Now other family members were caring for her. “Yesterday they brought her in here because she was nauseous, vomiting,” Chothia said. “It sounds like the family is struggling in terms of taking care of her.”

MacPherson’s case had come to the committee before. She had many characteristics that counted in her favor.

She was well below age 60, the cutoff for initiating dialysis under the government-approved guidelines used at the hospital. She didn’t have any other serious medical or psychiatric disorder, which could disqualify her. She had a home near the hospital with running water and electricity.

Before the new guidelines were adopted, the selection committee might have given great consideration to the fact that she was a mother with a steady job and no criminal history. But the committee had recently turned her down.

“We didn’t accept her for the program?” Moosa asked his colleagues. He had been on vacation when the case had come up before.

“It was mainly based on her BMI, prof,” Chothia said. “Her BMI was 39.”

BMI is body mass index. MacPherson’s was high. She was obese.

Although obese patients do better than average on dialysis, they have a poorer prognosis when it comes to a kidney transplant. That, according to the new rationing guidelines, takes precedence.

Moosa accepted the committee’s previous decision. MacPherson had been assigned to Category Three—automatically excluded from dialysis treatment. She was already very sick.

“It probably won’t be for very much longer,” Moosa said. “Shame.”

The committee members took some steps to help her. They agreed to provide a letter that could be used to relieve a debt. They also referred her to Eagle’s Rest, an inpatient hospice located on the grounds of an evangelical church.

Grasping for Hope

The next day, MacPherson lay in bed at the hospice beneath a pink blanket. She trembled when she sat up. She was too nauseated to keep down her food.

Her father came to visit, and she asked him about her prognosis. “Did the doctor tell you how much longer I’ve got to live?”

“You’re going to live long enough,” her father, Richard MacPherson, answered. “Don’t you worry about that. You just get well. That’s all.” He smiled at her. “There’s no limitation. The doctor can’t say that.”

With her family’s support and the nurses’ prayers, Karen MacPherson tried to stay hopeful.

“I want to get better, I want to get out of here, get my life back on track—get back to my kids,” she said. “My daughter needs me.”

As she spoke, she seemed unaware that she had been turned down for dialysis, or even that dialysis could help her. Her doctor later confirmed that he didn’t tell Karen MacPherson about the program, although he said he informed her father.

According to the prioritization guidelines, patients or their family membersare supposed to be fully informed of the committee’s decision and the reasons for denial and given the opportunity to appeal.

“It’s an ethical obligation to actually communicate openly, truthfully, and sincerely with one’s patients,” said Dr. Keymanthrie Moodley, a bioethics professor at Tygerberg and Stellenbosch University. Moodley said this can prevent the misconception that a patient was rejected for reasons of race or socioeconomic status. “To create a healthier society from both a physical and a mental and psychological perspective, an open line of communication is absolutely critical.”

Dr. Moosa said the guidelines require informing patients or their family members however challenging that may be.

“The reality is that it’s very difficult to go to a patient and inform them, well look, there is this particular form of therapy which is available to you which will help you live another reasonably healthy life for another five to 10 years, and then in the same breath say, well, unfortunately I can’t offer it to you,” he said. “I think it’s actually cruel to dangle that almost as a carrot in front of the patient.”

Pushing the Boundaries

South African physicians are looking to expand public dialysis programs by partnering with private clinics, campaigning for more funding and trying to cut costs. Still, any such plans will come too late for today’s kidney patients. Tygerberg Hospital has no free slots for dialysis.

Sometimes, however, room is made for exceptions.

Several months ago, one of the patients who had received a kidney transplant at Tygerberg in the mid-1990s experienced rejection of her organ and developed kidney failure again. She was brought before the committee to be reconsidered for dialysis. She was now 59 years old and experiencing heart failure­—no longer a candidate for kidney transplant under the guidelines, and therefore no longer a candidate for dialysis at the public hospital.

“If you look at the criteria, she should not be [accepted to] our program,” Swart said. But the woman had provided many years of service to the hospital’s patient-support group overseen by Swart. By this point, the woman had secured private health coverage, known as “medical aid,” but she wanted to continue being treated at Tygerberg, which no longer accepts such patients.

“I just said, ‘Guys, there’s no way that you’re going to turn down this lady,’ ” Swart recalled. “ ‘She’s my left and my right hand.’ ” The committee approved her, and she currently performs dialysis at home that is overseen by the clinic at Tygerberg. “She’s just a very, very special case,” Swart said.

She is not the only one for whom extraordinary efforts have been made.

The day after the recent committee meeting, Dr. André Nortje went to the bedside of kidney patient Amos Phillips. “Mr. Phillips, we discussed you yesterday in our meeting,” Nortje informed him.

The committee had classified Phillips as a Category Two patient— eligible for dialysis only “provided resources allow.”

The program was full, but Phillips was borderline. The committee members thought he had a good chance of benefitting from dialysis, and they hate turning anyone away. They had accepted him for dialysis.

“We decided at our meeting yesterday morning that we will support you in terms of that,” Nortje said. “What I mean by that is that we will offer you, in future, a kidney transplant.”

Phillips looked up at the doctor from his hospital bed. “Yes. I understand.”

“You understand?” Nortje asked.

“I understand and am very happy.”

Phillips began receiving regular dialysis and soon returned home to his family.

Karen MacPherson was buried two weeks after the committee meeting—on what would have been her 44th birthday.

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Weak Laws and Lenient Enforcement Plague Missouri’s Oversight of Dangerous Doctors

Understanding the Faulty Oversight of Dangerous Doctors?

By Karen Weise
ProPublica, Dec. 13th, 2010, 11:36 am

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Patients in Missouri face a double whammy of the state’s faulty oversight of dangerous doctors — Missouri law limits the state medical board’s authority to disciple them, and the board doesn’t fully exercise the rights it does have.

St. Louis Post-Dispatch’s Series

These are latest [1] findings in the St. Louis Post-Dispatch’s series looking at the lack of information available to patients [2] about the doctors and hospitals that treat them. “Leniency and secrecy are the rule when it comes to policing Missouri’s 22,000 doctors,” the paper wrote.

The state’s Board of Registration for the Healing Arts makes public little information on doctors [3]. The board doesn’t release information on its own warning letters, on malpractice cases, on restrictions by hospitals or even where a doctor went to medical school. It seldom researches cases that challenge the quality of care, and it never uses its power to immediately suspend doctors, the paper found.

State laws also hamper the board’s oversight. It’s hard to discipline a doctor for one negligent incident, and unlike in most states, Missouri law does not give the board absolute authority over discipline. Instead, it must reach a settlement with a doctor or bring the case before commission in a litigious process that can drag on for years. Meanwhile, doctors continue to practice. Because the process is so long, the board often settles, the paper said.

A Longstanding Problem

This isn’t a new problem for Missouri. The paper wrote: A Post-Dispatch investigation 30 years ago found Missouri was lax in its policing of doctors. Soon after, the legislature changed the board’s makeup to include one non-physician — a “public” member — to represent patients’ interests. For a time, the board became more stringent, but the trend seems to have reversed, and the board is among the least active in the nation.

Assessment

No board members would comment to the Post-Dispatch, though board staff told the paper that it hands were generally tied by the state’s laws. The problematic oversight of doctors echoes much of what ProPublica found in our series looking at the lack of discipline of nurses [4] around the country.

Link: http://www.propublica.org/blog/item/weak-laws-and-lenient-enforcement-plague-missouris-oversight-of-dangerous-d

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Where Are the Financial Crisis Prosecutions?

The White Collar Slump?

By Jesse Eisinger
ProPublica: jesse@propublica.org

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You may have noticed that prosecutors in this country are in something of a white-collar slump lately.

The stock options backdating prosecutions have largely been a bust [1], not because it wasn’t a true scandal. The Securities and Exchange Commission and the Justice Department investigated more than 100 companies. Over a hundred took accounting restatements. Yet only a handful of executives went to prison, with some high-profile cases fizzling out. Prosecutors also stumbled in other high priority corporate fraud prosecutions, like the KPMG [2] tax shelter and the stock-exchange specialists [3] cases.

Bear Sterns

The most spectacular prosecutorial flameout [4] was the case against the Bear Stearns hedge fund managers. The consequences of that disaster are still reverberating. The United States attorney’s office in Brooklyn rushed to haul low-level executives in front of a jury based on a few seemingly incriminating emails. The defense was easily able to convince jurors that these represented only out-of-context glimpses of fear as markets swooned, not a conspiracy to mislead. But, now we have a supposedly new push: the insider trading scandal.

Insider Trading

The United States attorney in Manhattan, Preet Bharara, and the United States Attorney, General Eric H. Holder Jr., are hyping their efforts. “Illegal insider trading is rampant and may even be on the rise,” Mr. Bharara dubiously pronounced in a speech [5] in October. The Feds are raiding [6] hedge funds and publicly celebrating their criminal investigations related to insider trading.

The storyline is that Wall Street now lives in fear. Hedge fund managers’ phones might be tapped, any stray remark is suspect, and old trades are being exhumed so that the entrails can be examined.

In fact, plenty of folks on Wall Street are happy about the investigation. A scant few — the ones with clean consciences — like the idea that the world of special access to favorable tips is being cleaned up.

But others are pleased for a different reason: They realize the investigation is a sideshow.

All the hype carries an air of defensiveness. Everyone is wondering: Where are the investigations related to the financial crisis?

Enron, Lehman, Merrill, Citigroup and Others

John Hueston, a former lead Enron prosecutor, wonders: “Have they committed the resources in the right place? Do these scandals warrant apparent national priority status?”

Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything. No top executives at Bear Stearns have been indicted. All former American International Group executives are running free. No big mortgage company executive has had to face the law.

How about someone other than the Fabulous Fab [7] at Goldman Sachs? How could the Securities and Exchange Commission merely settle with Countrywide’s Angelo Mozilo [8] — and for a fraction of what he made as CEO?

The world was almost brought low by the American banking system and we are supposed to think that no one did anything wrong?

The most common explanation from lawyers for this bizarre state of affairs is that it’s hard work. It’s complicated to make criminal cases in corporate fraud. Getting a case that shows the wrong-doer acted with intent — and proving it to a jury — is difficult.

But, of course, Enron was complicated too, and prosecutors got the big boys. Ken Lay was found guilty (he died before he served his time). Jeff Skilling is in prison now, though the end result was bittersweet for prosecutors when much of his conviction was overturned by the Supreme Court. WorldCom’s Bernie Ebbers and Tyco’s Dennis Kozlowski are wearing stripes.

Complicated Cases

Sure, it takes time to investigate complicated cases. Many people think that the SEC, at the least, will bring some charges against top executives at Lehman Brothers. The huge, ground-breaking special examiner’s report [9] on Lehman Brothers laid bare problems with Lehman’s accounting. But that report came out back in March — on a bank that blew up more than two years ago. That seems awfully slow.

The most popular reason offered for the dearth of financial crisis prosecutions is the 100-year flood excuse: The banking system was hit by a systemic and unforeseeable disaster, which means that, as unpleasant as it may be to laymen, it’s unlikely that anyone committed any crimes.

Stupidity is No Crime

Or, barring that wildly implausible explanation (since, indeed, many people saw the crash coming and warned about it), the argument is that acting stupidly and recklessly is no crime.

As I ride the subway every morning, I often fantasize about criminalizing stupidity and fecklessness. But alas, it’s not to be.

Nevertheless, it’s hardly reassuring that bankers, out of necessity, have universally adopted the dumb-rather-than-venal justification. That doesn’t mean, however, that the rest of us need to buy it. It’s shocking how pervasive and triumphant this narrative of the financial crisis has been.

Link: http://www.propublica.org/thetrade/item/where-are-the-financial-crisis-prosecutions/

Assessment

Just as it’s clear that not all bankers were guilty of crimes in the lead-up to the crisis, it strains credulity to contend no one was. Corporate crime is usually the act of desperate people who have initially made relatively innocent mistakes and then seek to cover them up. Some banks went down innocently. Surely some housed bad actors who broke laws.

As a society, we have the bankers we deserve. Sadly, it’s looking like we have the regulators and prosecutors we deserve, too.

Conclusion

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1 in 7 Hospitalized Medicare Beneficiaries Harmed by their Health Care?

According to a New Government Report

By Marian Wang

ProPublica, Nov: 16, 2010, 3:30 pm

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One out of every seven hospitalized Medicare beneficiaries experiences an “adverse event,” which means the patient is harmed as a result of medical care. That’s according to a study released today [1] by the Department of Health and Human Services’ inspector general. The “adverse events” contribute to an estimated 15,000 patient deaths [2] each month and add at least $4.4 billion [3] to the government’s annual Medicare expenses, the report projected. These findings were based on a nationally representative random sample taken from the nearly 1 million Medicare beneficiaries discharged from hospitals in October 2008.

The report’s findings were “consistent with previous studies” but “nonetheless disturbing [4],” Carolyn Clancy, director of the Agency for Healthcare Research and Quality, said in a written response to the report.

Medicare and Medicaid chief Donald Berwick, in a separate response, said that his agency is working to improve care not only for hospitalized patients, but is also trying to address “issues in dialysis centers and ambulatory and long term care settings.”

Inspector General Report

It’s interesting that he mentions this. Because the inspector general report only covered hospital care, the statistics it contains don’t include many of the adverse events we’ve reported on in a particular subset of Medicare beneficiaries—patients receiving care in dialysis clinics [5].

Examples:

But, the report did highlight the story of one hospitalized dialysis patient who almost died when the tube feeding blood back into his body dislodged—an incident that as we’ve noted, is potentially deadly but also preventable [6]: [O]ne beneficiary had excessive bleeding after his kidney dialysis needle was inadvertently removed, which resulted in circulatory shock, a transfer to the intensive care unit, and emergency insertion of a tube into the trachea (windpipe) to ease breathing. When the tube was removed the following day, the patient aspirated (inhaled foreign material into his lungs), which required a life-sustaining intervention.

Assessment

Of the adverse events it identified, the inspector general’s report judged about 44 percent to be preventable. The inspector general called on both the Centers for Medicare and Medicaid Services and the Agency for Healthcare Research and Quality to broaden the definition of adverse events and better measure such incidents, noting that “to date, no adverse event reporting system exists, and there are no Federal standards regarding State systems.”

Link: http://www.propublica.org/blog/item/read-govt-report-showing-1-in-7-hospitalized-medicare-beneficiaries-harmed-

Conclusion

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Docs on Pharma Payroll Have Blemished Records

Limited Credentials

By Charles Ornstein , Tracy Weber and Dan Nguyen
ProPublica, Oct. 18, 2010, 11:52 p.m.

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The Ohio medical board concluded [1] that pain physician William D. Leak had performed “unnecessary” nerve tests on 20 patients and subjected some to “an excessive number of invasive procedures,” including injections of agents that destroy nerve tissue.

Yet the finding, posted on the board’s public website, didn’t prevent Eli Lilly and Co. from using him as a promotional speaker and adviser. The company has paid him $85,450 since 2009.

In 2001, the U.S. Food and Drug Administration ordered [2] Pennsylvania doctor James I. McMillen to stop “false or misleading” promotions of the painkiller Celebrex, saying he minimized risks and touted it for unapproved uses.

Still, three other leading drug makers paid the rheumatologist $224,163 over 18 months to deliver talks to other physicians about their drugs.

In Georgia

And in Georgia, a state appeals court in 2004 upheld [3] a hospital’s decision to kick Dr. Donald Ray Taylor off its staff. The anesthesiologist had admitted giving young female patients rectal and vaginal exams without documenting why. He’d also been accused of exposing women’s breasts during medical procedures. When confronted by a hospital official, Taylor said, “Maybe I am a pervert, I honestly don’t know,” according to the appellate court ruling.

Last year, Taylor was Cephalon’s third-highest-paid speaker out of more than 900. He received $142,050 in 2009 and another $52,400 through June.

Leak, McMillen and Taylor are part of the pharmaceutical industry’s white-coat sales force, doctors paid to promote brand-name drugs to their peers — and if they’re convincing enough, get more physicians to prescribe them.

Drug companies say they hire the most-respected doctors in their fields for the critical task of teaching about the benefits and risks of their drugs.

ProPublica Investigates

But an investigation by ProPublica uncovered hundreds of doctors on company payrolls who had been accused of professional misconduct, were disciplined by state boards or lacked credentials as researchers or specialists.

This story is the first of several planned by ProPublica examining the high-stakes pursuit of the nation’s physicians and their prescription pads. The implications are great for patients, who in the past have been exposed to such heavily marketed drugs as the painkiller Bextra and the diabetes drug Avandia — billion-dollar blockbusters until dangerous side effects emerged.

“Without question the public should care,” said Dr. Joseph Ross, an assistant professor of medicine at Yale School of Medicine who has written about the industry’s influence on physicians. “You would never want your kid learning from a bad teacher. Why would you want your doctor learning from a bad doctor, someone who hasn’t displayed good judgment in the past?”

To vet the industry’s handpicked speakers, ProPublica created a comprehensive database [4] that represents the most accessible accounting yet of payments to doctors. Compiled from disclosures by seven companies, the database covers $257.8 million in payouts since 2009 for speaking, consulting and other duties. In addition to Lilly and Cephalon, the companies include AstraZeneca, GlaxoSmithKline, Johnson & Johnson, Merck & Co. and Pfizer.

Although these companies have posted payments on their websites — some as a result of legal settlements — they make it difficult to spot trends or even learn who has earned the most. ProPublica combined the data and identified the highest-paid doctors, then checked their credentials and disciplinary records.

Not all Companies Comply

That is something not all companies do.

A review of physician licensing records in the 15 most-populous states and three others found sanctions against more than 250 speakers, including some of the highest paid. Their misconduct included inappropriately prescribing drugs, providing poor care or having sex with patients. Some of the doctors had even lost their licenses.

More than 40 have received FDA warnings for research misconduct, lost hospital privileges or been convicted of crimes. And at least 20 more have had two or more malpractice judgments or settlements. This accounting is by no means complete; many state regulators don’t post these actions on their web sites.

In interviews and written statements, five of the seven companies acknowledged that they don’t routinely check state board websites for discipline against doctors. Instead, they rely on self-reporting and checks of federal databases. Only Johnson & Johnson and Cephalon said they review the state sites.

ProPublica found 88 Lilly speakers who have been sanctioned and four more who had received FDA warnings. Reporters asked Lilly about several of those, including Leak and McMillen. A spokesman said the company was unaware of the cases and is now investigating them.

“They are representatives of the company,” said Dr. Jack Harris, vice president of Lilly’s U.S. medical division. “It would be very concerning that one of our speakers was someone who had these other things going on.”

Leak, the pain doctor, and his attorney did not respond to multiple messages. The Ohio medical board voted to revoke Leak’s license in 2008. It remains active as he appeals in court, arguing that the evidence against him was old, the witnesses unreliable and the sentence too harsh.

In an interview, McMillen denied nearly all of the allegations in the FDA letter and blamed his troubles on a rival firm whose drug he had criticized in his presentations.

“I’m more cautious now than I ever was,” said McMillen, who said he also does research. “That’s why I think a lot of the companies use me. I’m not taking any risks.”

Taylor said that the allegations against him were “old news” from the 1990s and that regulators had not sanctioned him. “It had nothing to do with my skills as a physician,” said Taylor, noting that he speaks every other week around the country and sometimes abroad. “Even my biggest detractors in that situation lauded my skills as a physician. That’s what’s most important.”

Disclosures are just the start

Payments to doctors for promotional work are not illegal and can be beneficial. Strong relationships between pharmaceutical companies and physicians are critical to developing new and better treatments.

There is much debate, however, about whether paying doctors to market drugs can inappropriately influence what they prescribe. Studies have shown that even small gifts and payments affect physician attitudes. Such issues have become flashpoints in recent years both in courtrooms and in Congress.

All told, 384 of the approximately 17,700 individuals in ProPublica’s database earned more than $100,000 for their promotional and consulting work on behalf of one or more of the seven companies in 2009 and 2010. Nearly all were physicians, but a handful of pharmacists, nurse practitioners and dietitians also made the list. Forty-three physicians made more than $200,000 — including two who topped $300,000.

Physicians also received money from some of the 70-plus drug companies that have not disclosed their payments. Some of those interviewed could not recall all the companies that paid them, and certainly not how much they made. By 2013, the health care reform law requires [5] all drug companies to report this information to the federal government, which will post it on the Web.

The busiest — and best compensated — doctors gave dozens of speeches a year, according to the data and interviews. The work can mean a significant salary boost — enough for the kids’ college tuition, a nicer home, a better vacation.

Top Paid Speakers

Among the top-paid speakers, some had impressive resumes, clearly demonstrating their expertise as researchers or specialists. But others did not –contrary to the standards the companies say they follow.

Forty five who earned in excess of $100,000 did not have board certification in any specialty, suggesting they had not completed advanced training and passed a comprehensive exam. Some of those doctors and others also lacked published research, academic appointments or leadership roles in professional societies.

Experts say the fact that some companies are disclosing their payments is merely a start. The disclosures do not fully explain what the doctors do for the money — and what the companies get in return.

In a raft of federal whistleblower lawsuits [6], former employees and the government contend that the firms have used fees as rewards for high-prescribing physicians. The companies have each paid hundreds of millions or more to settle the suits.

The disclosures also leave unanswered what impact these payments have on patients or the health care system as a whole. Are dinner talks prompting doctors to prescribe risky drugs when there are safer alternatives? Or are effective generics overlooked in favor of pricey brand-name drugs?

“The pressure is enormous. The investment in these drugs is massive,” said Dr. David A. Kessler, who formerly served as both FDA commissioner and dean of the University of California, San Francisco School of Medicine. “Are any of us surprised they’re trying to maximize their markets in almost any way they can?”

From Drug Reps to Doc Reps

For years, drug companies bombarded doctors with pens, rulers, sticky notes, even stuffed animals emblazoned with the names of the latest remedies for acid reflux, hypertension or erectile dysfunction. They wooed physicians with fancy dinners, resort vacations and personalized stethoscopes.

Concerns that this pharma-funded bounty amounted to bribery led the industry to ban most gifts voluntarily [7]. Some hospitals and physicians also banned the gift-givers: the legions of drug sales reps who once freely roamed their halls.

So the industry has relied more heavily on the people trusted most by doctors — their peers. Today, tens of thousands of U.S. physicians are paid to spread the word about pharma’s favored pills and to advise the companies about research and marketing.

Recruited and trained by the drug companies, the physicians — accompanied by drug reps — give talks to doctors over small dinners, lecture during hospital teaching sessions and chat over the Internet. They typically must adhere to company slides and talking points.

These presentations fill an educational gap, especially for geographically isolated primary care doctors charged with treating everything from lung conditions to migraines. For these doctors, poring over a stack of journal articles on the latest treatments may be unrealistic. A pharma-sponsored dinner may be their only exposure to new drugs that are safer and more effective.

Oklahoma pulmonologist James Seebass, for example, earned $218,800 from Glaxo in 2009 and 2010 for lecturing about respiratory diseases “in the boonies,” he said. On a recent trip, he said, he drove to “a little bar 40 miles from Odessa,” Texas, where physicians and nurse practitioners had come 50 to 60 miles to hear him.

Seebass, the former chair of internal medicine at Oklahoma State University College of Osteopathic Medicine, said such talks are “a calling,” and he is booking them for 2011.

The fees paid to speakers are fair compensation for their time away from their practices, and for travel and preparation as well as lecturing, the companies say.

Dr. Samuel Dagogo-Jack has a resume that would burnish any company’s sales force: He is chief of the division of endocrinology, diabetes and metabolism at the University of Tennessee Health Science Center. Dagogo-Jack conducts research funded by the National Institutes of Health, has edited medical journals and continues to see patients.

While most people are going home to dinner with their families, he said, he is leaving to hop on a plane to bring news of fresh diabetes treatments to non-specialist physicians “in the trenches” who see the vast majority of cases.

Since 2009, Dagogo-Jack has been paid at least $257,000 by Glaxo, Lilly and Merck.

“If you actually prorate that by the hours put in, it is barely more than minimum wage,” he said. (A person earning the federal minimum wage of $7.25 would have to work 24 hours a day, seven days a week for more than four years to earn Dagogo-Jack’s fees).

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Big Pharma Benefits

For the big pharmaceutical companies, one effective speaker may not only teach dozens of physicians how to better recognize a condition, but sell them on a drug to treat it. The success of one drug can mean hundreds of millions in profits, or more. Last year, prescription drugs sales in the United States topped $300 billion, according to IMS Health, a healthcare information and consulting company.

Glaxo’s drug to treat enlarged prostates, Avodart — locked in a battle with a more popular competitor — is the topic of more lectures than any of the firm’s other drugs, a company spokeswoman said. Glaxo’s promotional push has helped quadruple Avodart’s revenue to $559 million in five years and double its market share, according to IMS.

Favored speakers like St. Louis pain doctor Anthony Guarino earn $1,500 to $2,000 for a local dinner talk to a group of physicians.

Guarino, who made $243,457 from Cephalon, Lilly and Johnson & Johnson since 2009, considers himself a valued communicator. A big part of his job, he said, is educating the generalists, family practitioners and internists about diseases like fibromyalgia, which causes chronic, widespread pain — and to let them know that Lilly has a drug to treat it.

“Somebody like myself may be able to give a better understanding of how to recognize it,” Guarino said. Then, he offers them a solution: “And by the way, there is a product that has an on-label indication for treating it.’’

Guarino said he is worth the fees pharma pays him on top of his salary as director of a pain clinic affiliated with Washington University. Guarino likened his standing in the pharma industry to that of St. Louis Cardinals first baseman Albert Pujols, named baseball player of the decade last year by Sports Illustrated. Both earn what the market will bear, he said: “I know I get paid really well.”

Is Anyone Checking Out There?

Simple searches of government websites turned up disciplinary actions against many pharma speakers in ProPublica’s database.

The Medical Board of California filed a public accusation against psychiatrist Karin Hastik in 2008 and placed her [8] on five years’ probation in May for gross negligence in her care of a patient. A monitor must observe her practice.

Kentucky’s medical board placed Dr. Van Breeding on probation [9] from 2005 to 2008. In a stipulation filed with the board, Breeding admits unethical and unprofessional conduct. Reviewing 23 patient records, a consultant found Breeding often that gave addictive pain killers without clear justification. He also voluntarily relinquished his Florida license.

New York’s medical board put Dr. Tulio Ortega on two years’ probation [10] in 2008 after he pleaded no contest to falsifying records to show he had treated four patients when he had not. Louisiana’s medical board, acting on the New York discipline, also put him on probation [11] this year.

Yet during 2009 and 2010, Hastik made $168,658 from Lilly, Glaxo and AstraZeneca. Ortega was paid $110,928 from Lilly and AstraZeneca. Breeding took in $37,497 from four of the firms. Hastik declined to comment, and Breeding and Ortega did not respond to messages.

Their disciplinary records raise questions about the companies’ vigilance.

“Did they not do background checks on these people? Why did they pick them?” said Lisa Bero, a pharmacy professor at University of California, San Francisco who has extensively studied conflicts of interest in medicine and research.

Disciplinary actions, Bero said, reflect on a physician’s credibility and willingness to cross ethical boundaries.

“If they did things in their background that are questionable, what about the information they’re giving me now?” she said.

Sanctions Found

ProPublica found sanctions ranging from relatively minor misdeeds such as failing to complete medical education courses to the negligent treatment of multiple patients. Some happened long ago; some are ongoing. The sanctioned doctors were paid anywhere from $100 to more than $140,000.

Several doctors were disciplined for misconduct involving drugs made by the companies that paid them to speak. In 2009, Michigan regulators accused one rheumatologist of forging a colleague’s name to get prescriptions for Viagra and Cialis. Last year, the doctor was paid $17,721 as a speaker for Pfizer, Viagra’s maker.

A California doctor who was paid $950 this year to speak for AstraZeneca was placed on five years’ probation by regulators in 2009 after having a breakdown, threatening suicide and spending time in a psychiatric hospital after police used a Taser on him. He said he’d been self-treating with samples of AstraZeneca’s anti-psychotic drug Seroquel, medical board records show.

Other paid speakers had been disciplined by their employers or warned by the federal government. At least 15 doctors lost staff privileges at various hospitals, including one New Jersey doctor who had been suspended twice for patient care lapses and inappropriate behavior. Other doctors received FDA warning letters for research misconduct such as failing to get informed consent from patients.

Pharma companies say they rely primarily on a federal database listing those whose behavior in some way disqualifies them from participating in Medicare. This database, however, is notoriously incomplete.

The industry’s primary trade group says its voluntary code of conduct is silent about what, if any, behavior should disqualify physician speakers.

“We look at it from the affirmative — things that would qualify physicians,” said Diane Bieri, general counsel and executive vice president of the Pharmaceutical Research and Manufacturers of America.

Some physicians with disciplinary records say their past misdeeds do not reflect on their ability to educate their peers.

Family medicine physician Jeffrey Unger was put on probation [12] by California’s medical board in 1999 after he misdiagnosed a woman’s breast cancer for 2½ years. She received treatment too late to save her life. In 2000, the Nevada medical board revoked Unger’s license for not disclosing California’s action.

As a result, Unger said, he decided to slow down and start listening to his patients. Since then, he said, he has written more than 130 peer-reviewed articles and book chapters on diabetes, mental illness and pain management.

“I think I’ve more than accomplished what I’ve needed to make this all right,” he said. During 2009 and the first quarter of 2010, Lilly paid Unger $87,830. He said he also is a paid speaker for Novo Nordisk and Roche, two companies that have not disclosed payments.

The drug firms, Unger said “apparently looked beyond the record.”

Companies Make their Own Experts

Last summer, as drug giant Glaxo battled efforts to yank its blockbuster diabetes drug Avandia from the market, Nashville cardiologist Hal Roseman worked the front lines.

At an FDA hearing, he borrowed David Letterman’s shtick [13] to deliver a “Top Five” list of reasons to keep the drug on the market despite evidence it caused heart problems. He faced off [14] against a renowned Yale cardiologist and Avandia critic on the PBS NewsHour, arguing that the drug’s risks had been overblown.

“I still feel very convinced in the drug,” Roseman said with relaxed confidence. The FDA severely restricted access to the drug last month citing its risks.

Roseman is not a researcher with published peer-reviewed studies to his name. Nor is he on the staff of a top academic medical center or in a leadership role among his colleagues.

Roseman’s public profile comes from his work as one of Glaxo’s highest-paid speakers. In 2009 and 2010, he earned $223,250 from the firm — in addition to payouts from other companies.

Pharma companies often say their physician salesmen are chosen for their expertise. Glaxo, for example, said it selects “highly qualified experts in their field, well-respected by their peers and, in the case of speakers, good presenters.”

ProPublica found that some top speakers are experts mainly because the companies have deemed them such. Several acknowledge that they are regularly called upon because they are willing to speak when, where and how the companies need them to.

“It’s sort of like American Idol,” said sociologist Susan Chimonas, who studies doctor-pharma relationships at the Institute on Medicine as a Profession in New York City.

“Nobody will have necessarily heard of you before — but after you’ve been around the country speaking 100 times a year, people will begin to know your name and think, ‘This guy is important.’ It creates an opinion leader who wasn’t necessarily an expert before.”

To check the qualifications of top-paid doctors, reporters searched for medical research, academic appointments and professional society involvement. They also interviewed national leaders in the physicians’ specialties.

In numerous cases, little information turned up.

Las Vegas endocrinologist Firhaad Ismail, for example, is the top earner in the database, making $303,558, yet only his schooling and mostly 20-year-old research articles could be found. An online brochure [15] for a presentation he gave earlier this month listed him as chief of endocrinology at a local hospital, but an official there said he hasn’t held that title since 2008.

And several leading pain experts said they’d never heard of Santa Monica pain doctor Gerald Sacks, who was paid $249,822 since 2009.

Neither physician returned multiple calls and letters.

A recently unsealed whistleblower lawsuit against Novartis [16], the nation’s sixth-largest drug maker by sales, alleges that many speakers were chosen “on their prescription potential rather than their true credentials.”

Speakers were used and paid as long as they kept their prescription levels up, even though “several speakers had difficulty with English,” according to the amended complaint filed this year in federal court in Philadelphia.

Speaking to Each Other

Some physicians were paid for speaking to one another, the lawsuit alleged. Several family practice doctors in Peoria, Ill., “had two programs every week at the same restaurant with the same group of physicians as the audience attendees.”

In September, Novartis agreed to pay [17] the government $422.5 million to resolve civil and criminal allegations in this case and others. The company has said it fixed its practices and now complies with government rules.

Roseman, who has been a pharma speaker for about a decade, acknowledged that his expertise comes by way of the training provided by the companies that pay him. But he says that makes him the best prepared to speak about their products, which he prescribes for his own patients. Asked about Roseman’s credentials, a Glaxo spokeswoman said he is an “appropriate” speaker

Assessment

Getting paid to speak “doesn’t mean that your views have necessarily been tainted,” he said.

Plus pharma needs talent, Roseman said. Top-tier universities such as Harvard [18] have begun banning their staffs from accepting pharma money for speaking, he said. “It irritates me that the debate over bias comes down to a litmus test of money,” Roseman said. “The amount of knowledge that I have is in some regards to be valued.”

Related News:

Editor’s Note: ProPublica Director of Research Lisa Schwartz and researcher Nicholas Kusnetz contributed to this report

Conclusion

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Mortgage Investors Join Outcry Against Banks

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Coordinated Strategies Emerging

[By Karen Weise ProPublica: Oct. 18, 2010, 1:18 p.m.]

Homeowners, and at times the government, have long complained that banks and other companies that service mortgages aren’t good at their job of collecting monthly payments, modifying loans and processing foreclosures. Now, a new cast of characters are piling on the criticism: the servicer’s own clients, the investors that actually own the mortgages.

The Servicers

Servicers handle the day-to-day of working with homeowners on behalf of the investors, who bought bundled mortgages from Wall Street. But investors are now threatening servicers with legal action. Just like homeowners, investors are frustrated by the poor job in modifying loans that servicers have been doing. They also say servicers are looking out for themselves, not investors’ interests as their contracts typically require.

For example, Investor Bill Frey, who runs the securities firm Greenwich Financial Services, says servicers view investors as “a Thanksgiving turkey to be carved up and shared among them-selves.” Investors can range from foreign governments and hedge funds to college endowments and pension funds. During the housing bubble, they gobbled up AAA-rated bonds created by pools of mortgages. Now that defaults and foreclosure are mounting, investors argue that flaws in how loans are serviced are costing them billions of dollars.

They say servicers have often dragged out foreclosures to rack up fees and refused to reduce second mortgages to make modifications sustainable. Investors often prefer modifications to foreclosures. But for modifications that won’t ultimately prevent a homeowner from defaulting, investors still prefer quick foreclosures so they can recoup their money and move on.

Of Terminal In-Decision

“Terminal indecision is not good,” says Frey. “If it can be fixed, fix it. If it can’t, nix it.”

Servicers have been slow [1] to modify mortgages—something we’ve written [1] about many times [2] — and when they do modify loans, homeowners are still saddled with other debt from second mortgages and home equity lines. Even after modifications under the government’s program, homeowners typically still must spend almost two-thirds of their income to pay off their mortgage and other loans, like credit cards or second mortgages.

Emerging Paperwork Scandal

The current mortgage paperwork scandal [3] adds more fuel [4] to the fire as major servicers have halted foreclosures because of potential paperwork irregularities around the country. Concerns are also growing that banks may not have properly transferred loans into the mortgage pools in the first place. “This deficient approach undermines the integrity and the operational framework of the housing finance and mortgage system as it exists today,” the Association of Mortgage Investors wrote [5] in a press release.

(For more on the growing scandal, check out our recent explanation of the main players involved.)

The Mortgage Bankers Association, which represents most major servicers, did not respond to ProPublica’s request for comment.

Legal Strategies

Investors from across the country have been coordinating legal strategies for over a year ago, with the effort ramping up in early spring, according to Frey. Since then, more and more investors have formed a loose consortium, gaining momentum “like a snowball going downhill,” he says. In the last month alone, the group added other investors that own an additional $100 billion in mortgage bonds.

They have not filed any suits yet, Frey says, because the group is first trying to grow even more. Also, since each investor group has different, nonmortgage business with the banks, some investors have conflicting interests in how to proceed, he says. The consortium now represents investors that own more than $600 billion in mortgage securities, which is around a third of the entire mortgage securitization market. The group includes 65 major mortgage investors; Bloomberg reported that large investment companies including Black Rock, PIMCO and Fortress are part of the effort, as are the quasi-governmental Fannie Mae and the Federal Home Loan Banks, which both own private securitized loans.

Coordinating investors is no easy task, since the mortgage bonds were sliced and diced to be sold off to investors around the world. To assert legal rights, investors must coordinate to prove that they collectively represent a certain percentage of each mortgage pool, or in some cases, a certain percentage of each slice of each mortgage pool. (The Wall Street Journal [6] and Bloomberg [7] both describe how Texas-based attorney Talcott Franklin is coordinating a clearinghouse to keep track of the various investments.)

Once investors have standing in each pool, they have the legal right to pressure servicers and trustees to improve or face litigation. The group says they have the legal authority to act in over 2,300 deals.

Investors say servicers must reduce or cancel second mortgages entirely before adjusting the primary loan, since that follows the legal pecking order of how loans should be paid off. But investors say servicers have are dragging their feet in reducing second mortgages to protect their own books, since the largest servicers — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — also own almost 60 percent of the $1 trillion second lien market.

Bank

Congressional Oversight Panel

A Congressional Oversight Panel concluded in April that there is “tension” between Treasury’s goal of supporting reductions to second mortgages and Treasury’s interest in ensuring that writing down second liens doesn’t severely weaken banks’ balance sheets. The panel wrote than when a servicer owns the second lien, the “inexorable conflict of interest” will more likely lead to modifications on the first loan, “as it benefits the bank at the expense of the mortgage-backed security investors.”

We’ve previously reported [8] that mortgages servicers frequently tell homeowners that investors are the roadblock to loan modifications, even though few mortgage deals actually restrict modifications.

Servicers are also supposed to act like watchdogs and report back to investors when they identify loans they suspect didn’t meet the lending standards promised when the bonds were initially sold to investors. If the banks did misrepresent the quality of the loans initially, the banks would have to buy back the invalid mortgages from the investors. But in many cases, the servicers are subsidiaries of the banks that sold the bonds, which investors say helps explain why servicers have been dragging their feet. Bloomberg noted [7] an analyst’s report that said mortgage repurchases could total over $179 billion.

Original Link: http://www.propublica.org/article/investors-join-outcry-against-mortgage-servicers

Assessment

According to an investor letter cited [6] in the Wall Street Journal, in some mortgage pools that have high default rates, the banks have not repurchased any loans when the servicers are subsidiaries of the banks that sold the bonds. Investors say this is all no small matter. Since the country’s mortgage market is heavily dependent on government support right now, they insist servicers make good on their contracts before start buying loans and supporting the mortgage market again.

Related Articles:

  1. http://www.propublica.org/article/mod-program-falling-short-of-govts-vague-goals
  2. http://www.propublica.org/article/loan-mod-profiles-runaround
  3. http://www.propublica.org/blog/item/biggest-banks-ensnared-as-foreclosure-paperwork-problem-broadens
  4. http://www.businessweek.com/news/2010-10-13/document-flaws-may-lead-investors-to-fight-mbs-deals.html
  5. http://www.propublica.org/documents/item/association-of-mortgage-investors-press-release-oct.-1-2010
  6. http://online.wsj.com/article/SB10001424052748704814204575508143329644732.html
  7. http://www.bloomberg.com/news/2010-09-23/mortgage-investors-target-banks-using-texas-lawyer-s-novel-clearing-house.html
  8. http://www.propublica.org/article/when-denying-loan-mods-loan-servicers-often-blame-investors-wrongly

Conclusion

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Identifying Suspicious Short Selling

But Not Who’s Behind the Trades

By Karen Weise
ProPublica, July 8, 2010

Last weekend, The Wall Street Journal highlighted new academic research [1] showing that investors may be trading on insider information after companies approach hedge funds for loans.

Researchers found that on average, in the five days before companies announce a loan from a hedge fund, the volume of short sales increases by 75 percent as compared with the 60 days before a deal is announced. There was no comparable uptick in betting against companies that borrowed money from commercial banks instead.

Short Selling

With short selling, hedge funds and other investors make money by wagering that a stock’s price will fall. Borrowing from hedge funds rather than commercial banks can be seen as a sign of distress, as hedge funds tend to charge higher interest rates.

One of the researchers, Debarshi Nandy of the Schulich School of Business at York University in Toronto, told ProPublica that the findings pose an important question of whether hedge funds are using insider information inappropriately.

Working Draft

Here’s a PDF of a working draft of the paper [2]; the final version is not yet published. When companies ask hedge funds to consider giving them a loan, they typically require that the funds sign nondisclosure agreements. That’s because the borrowers divulge confidential financial information in the process of trying to get a loan — information that can provide insight into a company’s future performance. That, in turn, can be valuable to investors.

Examining Changes

In looking at instances when companies made changes to existing loans, researchers found that the short sales on companies amending loans from hedge funds were profitable, whereas similar short sales on companies amending loans from banks resulted in losses. But, the researchers stop short of saying that hedge funds definitely make insider trades. It’s all a little bit hazy because there is little disclosure required for hedge funds and short selling. While the paper identifies “abnormal” shorting activity, the identity of the investors making the trades is a mystery. “If it is truly insider trading by the fund or a ‘tip-ee’ of the fund, it would really be good to get some further data on who is actually doing the trading,” said Anita Krug, an expert in the laws governing hedge funds.

Assessment

Investors are required to notify the  Securities and Exchange Commission when taking large long positions, but there is no equivalent requirement for short bets. During the week that Lehman Brothers collapsed in the fall of 2008, the SEC issued a temporary order [3] requiring investors to report large short positions, but it did not renew that requirement last summer when the order lapsed [4]. The pending financial reform bill also would not require disclosure.

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Conclusion

Short sellers say more regulations would discourage their trading, which they argue helps moderate market bubbles and contributes to market efficiency, says Mark Perlow, an attorney at K&L Gates who represents hedge funds.

Link: http://www.propublica.org/article/identifying-suspicious-short-selling-but-not-whos-behind-the-trades

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On Military Brain Injury Treatment

Leader Steps Down Abruptly

By T. Christian Miller, ProPublica, and Daniel Zwerdling, NPR – June 23, 2010 6:33 pm EDT

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WASHINGTON, D.C.–The leader of the Pentagon’s premiere program for treatment and research into brain injury and post traumatic stress disorders has unexpectedly stepped down from her post, according to senior medical and congressional officials.

Brig. Gen. Loree Sutton told staff members at the Defense Centers of Excellence [1], or DCOE, on Monday that she was giving up her position as director. Sutton, who launched the center in November 2007, had been expected to retire next year, officials with knowledge of the situation said. The center has not publicly announced her leaving.

Tell Us Your Story [2]

Did you or a loved one suffer a traumatic brain injury while serving? ProPublica and NPR want to hear your story. Tell us about your experiences with TBI. [2]

Sudden Departure

Sutton’s departure follows criticism in Congress [3] over the performance of the center and in recent reports [4] by NPR and ProPublica that the military is failing to diagnose and treat soldiers suffering from so-called mild traumatic brain injuries, also called concussions.

It comes just as the Pentagon prepares to open a new, multimillion-dollar showcase treatment facility outside Washington, D.C., for troops with brain injuries [5] and post traumatic stress disorder, often referred to as the signature wounds of the wars in Iraq and Afghanistan.

Late Wednesday, in a sign of disarray within the program, Sutton cancelled a scheduled appearance at the opening of the National Intrepid Center of Excellence [6], a gleaming new facility of waving glass and futuristic virtual reality treatment rooms in Bethesda.

“The war in Iraq and Afghanistan could end tomorrow; our mission to restore health, hope and humanity will endure for decades,” Sutton wrote in her farewell message [7]. “We simply must uphold our commitment to all who have borne the burdens of war on our behalf.”

Sutton did not respond to requests for comment. Her replacement, U.S. Army Col. Bob Saum, also declined to comment.

Adult-Resources

DCOE

Cathy Haight, the acting spokeswoman for DCOE, said Sutton’s departure, though apparently well ahead of schedule, was part of a routine command rotation. Haight said Sutton decided to leave after turning down the Army’s offer to take a new position overseeing the military medical system in Europe.

“If a general officer declines (a new position)…they are in a transition to retire,” Haight said.

In recent months, legislators have questioned Sutton’s ability to carry out the mission of the centers, which is to catalyze research and treatment across the military for soldiers returning with brain injuries and psychological wounds.

Congress directed the military in 2008 to create the brain injury center and other facilities for wounded soldiers. At an April hearing [8] of a House Armed Services subcommittee, Rep. Susan Davis [9], D-Calif., said that the center had failed to carry out its role.

“The Defense Center of Excellence, while having achieved some notable small scale successes, has not inspired great confidence or enthusiasm thus far. The great hope that it would serve as an information clearinghouse has not yet materialized,” Davis said.

“The center has also made some serious management missteps that call into question its ability to properly administer such a large and important function,” Davis continued.

Sudden Scrutiny

Scrutiny of Sutton rose another notch earlier this month, when NPR and ProPublica reported on the military’s problems in handling soldiers with mild traumatic brain injuries. Such injuries leave no visible scars, but can cause lasting mental and physical difficulties.

Military statistics show that about 115,000 troops have suffered such injuries since 2002, but in interviews, Army experts acknowledged the true toll may be far higher. Unpublished research we reviewed suggests that tens of thousands of soldiers may have gone undiagnosed. Our reporting also showed that even when soldiers were diagnosed, at one of America’s largest Army bases, they have had to fight to receive appropriate treatment [10].

Veterans’ Shocked

Still, some veterans’ advocates were shocked and saddened that Sutton was leaving. They said she had been a forceful, visible advocate for wounded troops and their families who had never received the full support of the military’s medical establishment.

Assessment

Critics of the military’s health system have noted a power vaccum at the top of the military medical structure. Four people in just over three years have rotated through the Pentagon’s top health policy position, the assistant secretary of defense for health affairs.

“She was always there for the troops,” said one veterans’ advocate, who did not want to be named for fear of criticizing the military. “She’s become the scapegoat.”

In an April interview with NPR and ProPublica, Sutton shrugged off the criticism. “Leading change,” she said, “is a journey not for the faint of heart.”

“We are very proud of the team that we have built, the concept in terms of the center of centers, the network of networks,” she said. “Are we anywhere close to where we want and need to be? No. Of course not.”

Link: http://www.propublica.org/feature/leader-of-militarys-program-to-treat-brain-injuries-steps-down-abruptly

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GE Violated Danish Drug Reporting Law

In the Omniscan Case

By Jeff Gerth, ProPublica – June 17, 2010 5:59 pm EDT

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General Electric’s health care unit failed to promptly and completely inform regulators about a patient who died after experiencing adverse effects from the company’s MRI drug Omniscan, Danish drug regulators concluded in a ruling last month.

Danish Medicines Agency

The finding by the Danish Medicines Agency comes in the case of a Danish woman who had been injected with Omniscan for a magnetic resonance scan in 2002 and gradually became immobilized and died of a lung embolism the following year. The woman, Birthe Madsen, is believed to be among the first patients whose use of Omniscan and similar medical imaging drugs was associated with a rare and potentially crippling disease now known as nephrogenic systemic fibrosis [1], or NSF. Hundreds of patients became ill after Madsen’s death, before regulators and drug companies learned enough about the risks to begin issuing alerting doctors a few years later.

Government Insurance Agency

Reviewing the reasons Madsen died, a Danish government insurance agency determined in 2004 that Omniscan caused her immobility and in turn her death. Although this was relayed to GE Healthcare, the company did not immediately report it to the medicines agency as required, nor did a follow-up include the insurance agency’s conclusion that Madsen’s death could be attributed to the drug.

Although the reporting lapses violated Danish drug law, the medicines agency told GE Healthcare in a May 21 letter that the statute of limitations had expired and it would not pursue further action against the company. GE Healthcare maintains that its reporting about Omniscan’s side effects has been proper, and spokesman Jeff DeMarrais said in an e-mail that the woman’s death was not initially attributed to Omniscan because the fatal embolism occurred during a lengthy course of treatment “following the patient’s adverse reaction.”

The ruling by the Danish Medicine Agency, coming years after the reporting lapse, appears to have been prompted by an inquiry last October from a member of the Danish parliament about the agency’s response after cases of NSF first came to light in early 2006.

[picapp align=”none” wrap=”false” link=”term=denmark&iid=5207011″ src=”http://view2.picapp.com/pictures.photo/image/5207011/low-angle-view-amalienborg/low-angle-view-amalienborg.jpg?size=500&imageId=5207011″ width=”323″ height=”529″ /]

Contesting Lawsuits

GE currently is contesting more than 400 lawsuits [2] involving U.S. patients who say they contracted the disease after being injected with Omniscan. The company says it acted properly to protect patients and denies its drug causes NSF. Some manufacturers of competing products also have been sued, but in far fewer numbers than GE.

One of the major points of debate in the litigation concerns what GE Healthcare knew [2] and disclosed to regulators about Omniscan’s risks. The company contends it has been proactive and cooperative, while the plaintiffs claim the company failed to disclose damaging information about the drug and put patients in jeopardy.

Critics of GE Healthcare say more forthright disclosure might have helped doctors and regulators respond earlier and more effectively. Among them is Madsen’s son, Casper Schmidt, a Copenhagen lawyer who has carefully documented her case and the actions of various Danish authorities.

“If my mother’s case had been reported more accurately, and if the company had to explain why a patient died,” Schmidt said in an e-mail, “it would have helped enable doctors and regulators to better understand the disease earlier.”

US and European Drug Makers

Drug manufacturers in the United States and Europe are required to promptly report serious adverse reactions so that regulators and medical providers can monitor a product’s safety. They also must update the reports as new information about a case develops. In the U.S., the Food and Drug Administration logs the reports in a database [3].

At the time Madsen was exposed to Omniscan in 2004, tens of millions of patients who had undergone MRIs had been safely injected with such products, known as contrast agents, to enhance the images.

Omniscan [4], approved for use in the United States in 1993, is among a class of such agents that rely on gadolinium, a highly toxic metal. The body normally eliminates the drug quickly after treatment, except in some patients who have impaired kidney function.

Madsen was such a patient. According to Schmidt’s timeline of her treatment, she had at least one dialysis treatment before being injected with Omniscan in January 2002 to evaluate whether her veins were healthy enough for a kidney transplant. She experienced a cascade of crippling symptoms until her death in October 2003 at age 55.

Madsen’s adverse reactions prompted a medical review by a Danish government insurance agency, called Patientforsikringen, or Patient Insurance Agency, to see whether she had suffered drug side effects that might qualify her for state compensation.

The review determined that while Madsen died of a pulmonary embolism, her “immobilization was caused by the acknowledged pharmaceutical injury.”

That conclusion was reported to GE Healthcare on June 1, 2004, but the company failed to relay the information as required, the Danish Medicines Agency said in its May letter. In addition, the agency said a follow-up report from GE Healthcare, while noting several of Madsen’s adverse reactions, was insufficient because it did not repeat the state insurance agency’s finding that she died from an embolism due to being immobilized.

The GE Spokesman

DeMarrais, the GE spokesman, said that at the time, the company’s drug safety experts had a different understanding of Madsen’s death.

“Our filings regarding the case in question reflect that, as of 2004,” DeMarrais wrote, “our (drug safety) unit had not concluded, based on the information available at the time and in good faith, that the patient’s death had been caused by the adverse event that had been linked to the administration of Omniscan, but rather by a pulmonary embolism occurring during a protracted medical course following the patient’s adverse reaction.”

In its May letter, the Danish Medicines Agency said it had combed its files and could find no report from GE about Madsen in June 2004. DeMarrais, however, said the company believes a report was sent that month “at the same time as it was sent to other regulators, as confirmed by the FDA’s receipt of this filing.”

ProPublica Inquiry

At ProPublica’s request, Conor McKechnie, another company spokesman, provided a copy of the FDA filing [5] with Madsen’s name and some other information redacted. (The filing was on the letterhead of Amersham Health, the British maker of scanning drugs that GE acquired in late 2003 and early 2004.)

The filing references “new information” from the Danish insurance agency and states that the patient involved “suffered pulmonary embolism due to immobilization and died.” But it does not quote the insurance agency’s conclusion that “pharmaceutical injury” was to blame for Madsen’s immobility.

McKechnie said the FDA filing is accurate and mentioned immobilization, the embolism and death. DeMarrais said GE Healthcare also has submitted half a dozen more supplemental filings on the case over the last six years. “It would be a mistake,” he added, “to attach unwarranted significance to this particular case at this juncture.”

“It is our position that, consistent with the relevant health risk communication protocols, we provided complete and timely reports to the DMA and other global authorities regarding the adverse events associated with Omniscan that were reported to us,” DeMarrais said in his e-mail.

Dr. Sidney Wolfe, director of the health research group at the consumer watchdog organization Public Citizen, said GE should have been more forthcoming in 2004.

“Incomplete and misleading reports such as this undermine the ability of the government to make decisions more quickly to improve the public health,” said Wolfe, who is on an FDA advisory committee [6] that late last year reviewed Omniscan and other contrast agents.

In May 2006, following the disclosure of 20 NSF cases in Copenhagen, GE Healthcare issued a safety alert to the DMA and regulators around the world. It discussed the new cases and attached a brief description of each one. In the section involving Madsen, the company reported her death as “unrelated to Omniscan.”

By 2007, at the urging of regulators, the manufacturers of gadolinium-based agents put warnings about NSF on their labels. Three years later, much about the disease remains a mystery [7], including the exact cause. Patients experience a painful hardening or thickening of skin around the joints. The disease can be disfiguring and may attack internal organs.

Current Updates

As of last fall, the Patientforsikringen had reviewed 38 cases in which people exposed to Omniscan had suffered injury or death. In 26 cases, the insurance agency determined that GE Healthcare’s drug was the likely cause, according to a spokesman. In those cases, including Madsen’s, the agency made payments to the victims or their relatives.

[picapp align=”none” wrap=”false” link=”term=General+Electric&iid=8962953″ src=”http://view2.picapp.com/pictures.photo/image/8962953/general-electric-ceo-and/general-electric-ceo-and.jpg?size=500&imageId=8962953″ width=”380″ height=”537″ /]

Assessment

GE Healthcare has the opportunity to appeal the insurance agency’s decisions but has not done so, the Patientforsikringen spokesman said in an e-mail last fall. McKechnie said the company did not appeal because it was not a direct party to the agency’s decision.

DeMarrais said the company would respond to the Danish Medicines Agency’s finding of a reporting violation, which can be appealed.

Madsen’s name is redacted in the May 21 letter from the agency, but it was confirmed by her son and by matching the details in the letter with other public information.

Link: http://www.propublica.org/feature/ge-violated-danish-drug-reporting-law-in-omniscan-case

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Financial Reform Amendment Would Address Loan Modification Problems

Proposed New ‘Office of the Homeowner Advocate’

By Paul Kiel, ProPublica – May 7, 2010 11:37 am EDT

An amendment to the financial reform bill filed recently by Sen. Al Franken, D-Minn., and Sen. Olympia Snowe, R-Maine, would create a special office to assist homeowners who are facing problems with the administration’s mortgage modification program. The measure has White House support [1], but is opposed by the financial services industry.

Mortgage Servicers

As we’ve reported, homeowners and housing counselors frequently complain that mortgage servicers frequently lose financial documents [2] and make mistakes [3]—mistakes that can result in foreclosure [4]. Homeowners regularly wait several months [5] for an answer on their application.

About $75 billion has been earmarked for the program from the TARP [6], but very little of that has so far been spent owing to the small number of permanent modifications so far: about 228,000 as of March [7].

The amendment proposes a new “Office of the Homeowner Advocate” that would be devoted to solving homeowner problems with the program. Right now, homeowners with complaints are told to call the HOPE Hotline, which has a staff of counselors to handle escalations—a process that’s been criticized as ineffective [8].

[picapp align=”none” wrap=”false” link=”term=mortgage+reform&iid=1896936″ src=”a/3/e/7/Jesse_Jackson_Rallies_e4dd.jpg?adImageId=12804308&imageId=1896936″ width=”380″ height=”246″ /]

Office of Homeowner Advocate

Under the amendment, all homeowner complaints about servicers would go to this new “Office of the Homeowner Advocate” within the Treasury Department. That would effectively create an appeals process for homeowners who think they’ve been wrongly denied a modification—something that housing counselors and other consumer advocates have long said is desperately needed [9].

“A mandated homeowner’s advocate, built into the process and reportable to Congress, would counteract the servicer unresponsiveness we’ve heard so much about and be able to serve as a recourse for homeowners,” said Richard H. Neiman, superintendent of banks for New York State and a member of the Congressional Oversight Panel for the TARP. Neiman has been pushing for the creation of the office.

The office would have the power to penalize servicers for noncompliance with the program‘s guidelines, but would need the sign-off from Herb Allison, the Treasury official in charge of the TARP, to do so. The Treasury currently has the power to penalize services, but so far has not done so [10].

Financial Services Industry Opposition

The idea has already garnered opposition from the financial services industry. Scott Talbott, a lobbyist with the Financial Services Roundtable, which counts the largest mortgage servicers among its many members [11], said the group opposed the amendment because it would just create “another layer of bureaucracy that could actually slow” the program’s process. He also said there is already adequate oversight of the program.

One of the watchdogs that over-sees the TARP, the Government Accountability Office, reported in March (PDF) that servicers have widely varying ways of dealing with homeowner complaints and some were not systematically tracking them. Several tracked only written ones, the GAO said. Another servicer had closely tracked only those complaints that were addressed to a company executive.

“The unnecessary problems with HAMP are found mostly with servicers who have provided inadequate, inconsistent service to homeowners and delayed or denied homeowner assistance on a mass basis,” said Alys Cohen of the National Consumer Law Center.

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Assessment

The amendment has support from Americans for Financial Reform [12] and a host of consumer advocate groups, including the Center for Responsible Lending, the Service Employees International Union and the United Auto Workers.

The amendment also specifies that any candidate for the homeowner advocate position would have to come from an advocacy background and cannot have worked for a servicer or the Treasury in the previous four years. The advocate’s office would be funded out of the TARP and close down after the federal program ends. The idea is modeled after the Internal Revenue Service’s “taxpayer advocate.” [13] It’s not clear when the amendment might come up for a vote.

Link: http://www.propublica.org/ion/loan-mods/item/financial-reform-amendment-would-address-loan-mod-problems-with-homeowner-a

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Disorganization at Banks

Causing Mistaken Foreclosures

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By Paul Kiel, ProPublica – May 4, 2010 9:20 pm EDT

Millions of people face losing their homes in the continuing foreclosure crisis, but homeowners often have more than the struggling economy and slumping house prices to worry about: Disorganization within the big banks that service mortgages has made a bad problem worse.

ProPublica is matching local journalists with homeowners having trouble getting loan mods.

Are you a homeowner with a story to tell?
Are you a reporter and want to cover it?

Sometimes the communication breakdown within the banks is so complete that it leads to premature or mistaken foreclosures. Some homeowners, with the help of an attorney or housing counselor, have eventually been able to reverse a foreclosure. Others have lost their homes.

“We believe in many cases people are losing their homes when they should not have,” said Kevin Stein, associate director of the California Reinvestment Coalition, which counts dozens of nonprofits that work with homeowners among its members.

In the worst breakdowns, banks — and other companies that service loans — actually work at cross-purposes, with one arm of the company foreclosing on the home while the other offers help. Servicers say such mistakes are rare and result from the high volume of defaults and foreclosures.

The problems happen even among servicers participating in the administration’s $75 billion foreclosure-prevention program [1]. Servicers operating under the year-old program are forbidden from auctioning someone’s home while a modification decision is pending. It happens anyway.

Consumer advocates say the lapses continue because they go unpunished. “We’ve had too much of the carrot, and we need a stick,” Stein says. The Treasury Department has yet to penalize a servicer for breaking the program’s rules. The program provides federal subsidies to encourage modifications.

Treasury officials overseeing the program say they’re aware of the problems and have moved to fix them. But some states are going further to protect homeowners, with recent rules that stop the foreclosure process if the homeowner requests a modification.

Many homeowners, seeing no other option, have gone to court to reclaim their homes. At least 50 homeowners have recently filed lawsuits alleging the servicer foreclosed with a loan mod request pending or even while they were on a payment plan.

Homeowners have long waits for help

In good times, banks and other servicers — Bank of America is the biggest, followed by Chase and Wells Fargo — were known mainly to homeowners simply as where they sent their monthly mortgage payments. But the companies have been deluged over the past couple of years by requests for help from millions of struggling homeowners.

Homeowners commonly wait six months for an answer on a loan mod application. The federal program for encouraging loan mods includes a three-month trial period, after which servicers are supposed to decide whether to make the modifications permanent. But some homeowners have waited as long as 10 months [2] for a final answer.

Communication breakdowns occur because of the way the servicers are structured. One division typically deals with modifications and another with foreclosures. Servicers also hire a local trustee or attorney to actually pursue foreclosure.

“Often they just simply don’t communicate with each other,” said Laurie Maggiano, the Treasury official in charge of setting policy for the modification program. Such problems were particularly bad last summer, in the first few months of the program, she said. “Basically, you have the right hand at the mortgage company not knowing what the left hand is doing,” said Mark Pearce, North Carolina’s deputy commissioner of banks. Communication glitches and mistakes are “systemic, more than anecdotal” among mortgage servicers, he said.

“We’ve had cases where we’ve informed the mortgage company that they’re about to foreclose on someone.” The experience for the homeowner, he said, can be “Kafkaesque.”

“We’re all human, and the servicers are overworked and trying their best,” said Vicki Vidal, of the Mortgage Bankers Association. She said foreclosure errors are rare, particularly if struggling homeowners are prompt in contacting their servicer.

The Human Face

Frances Gomez, of Tempe, Ariz., lived in her house for over 30 years. Three years ago, she refinanced it with Countrywide, now part of Bank of America, for nearly $300,000. The home’s value has declined dramatically, said Gomez, who put some of the money from the refinancing into her hair salon.

Last year, the recession forced her to close her shop. Gomez fell behind on her mortgage, and after striking out with a company that promised to work with Bank of America to get her a loan mod, she learned in December that her home was scheduled for foreclosure.

So Gomez applied herself. She twice succeeded in getting Bank of America to postpone the sale date and said she was assured it would not happen until her application was reviewed. Gomez had opened a smaller salon and understood there was a good chance she would qualify.

She was still waiting in March when a Realtor, representing the new owner of her home, showed up. Her house had sold at auction — for less than half of what Gomez owed. “They don’t give you an opportunity,” she said. “They just go and do it with no warning.”

It’s not supposed to work that way.

Federal Programs

Under the federal program, which requires servicers to follow a set of guidelines for modifications, servicers must give borrowers a written denial before foreclosing. When Gomez called Bank of America about the sale, she said she was told there was a mistake but nothing could be done. She did get a denial notice [3] — some three weeks after the house was sold and just days before she was evicted.

“I just want people to know what they’re doing,” Gomez, now living with family members, said.

After being contacted by ProPublica, Bank of America reviewed Gomez’s case. Bank spokesman Rick Simon acknowledged that Gomez might not have been told her house would be sold and that the bank made a mistake in denying Gomez, because it did not take into account the income from her new salon business. Simon said a Bank of America representative would seek to negotiate with the new owner of Gomez’s house to see if the sale could be unwound.

Simon said the bank regrets when such mistakes happen due to the “very high volume” of cases and that any errors in Gomez’s case were “inadvertent.”

Timeline: How Michael Hill Almost Lost His Home [4]

Even avoiding a mistaken sale can also be a stressful process.

One day in February, a man approached Ron Bermudez of Emeryville, Calif., in front of his house and told him his home would be sold in a few hours. This came as a shock to Bermudez; Bank of America had told him weeks prior that he’d been approved for a trial modification and the papers would soon arrive. He made a panicked phone call to an attorney, who was able to make sure there was no auction.

Last November, Michael Hill of Lexington, S.C., finally got the call he’d been waiting for. Congratulations, a rep from JPMorgan Chase told him, your trial mortgage modification is approved. Hill’s monthly payment, around $900, would be nearly halved.

Except there was a problem. Chase had foreclosed on Hill’s home a month earlier, and his family was just days away from eviction.

“I listened to her and then I just said, ‘Well, that sounds good,’” recalled Hill, who is married and has two children. “‘Tell me how we’re going to do this, seeing as how you sold the house.’” That, he found out, was news to Chase.

Hill was able to avoid eviction — for now. Chase reversed the sale by paying the man who’d bought the home an extra $19,500 on top of the $86,000 [5] he’d paid at the auction.

After the mistaken foreclosure, he began the trial modification last December. He made those payments, but two months after his trial period was supposed to end, Hill is still waiting for a final answer from Chase.

The miscommunications have continued. He received a letter in January saying that he’d been approved for a permanent modification, but he was then told he’d received it in error.

His family remains partially packed, ready to move should the modification not go through. “I’m on pins and needles every time someone’s knocking on the door or calling,” he said.

Christine Holevas, a Chase spokeswoman, said that Chase had “agreed with Hill’s request to rescind the foreclosure” and was “now reviewing his loan for permanent modification.” She said Chase services “more than 10 million mortgages — the vast majority without a hitch.”

HOPE Hotline

To contest a foreclosure under the federal program, Maggiano, the Treasury official, said a homeowner should call the HOPE Hotline, 888-995-HOPE, a Treasury Department-endorsed hotline staffed by housing counselors. Those counselors can escalate the case if the servicer still won’t correct the problem, she said.

That escalation process has saved “a number” of homeowners from being wrongfully booted out of their homes, Maggiano said. Hill, the South Carolina homeowner, is an example of someone helped by the HOPE Hotline.

Of course, the homeowner must know about the hotline to call it. Gomez, the Arizona homeowner who lost her home to foreclosure, said she’d never heard of it.

Many homeowner advocates say the government’s effort has been largely ineffective at resolving problems with servicers.

“I uniformly hear from attorneys and counseling advocates on the ground that the HOPE Hotline simply parrots back what the servicers have said,” said Alys Cohen, an attorney with the National Consumer Law Center. Cohen said she’d voiced her concerns with Treasury officials, who indicated they’d make improvements.

Bank

New rules to offer more protection

Under the current rules for the federal program, servicers have been barred from conducting a foreclosure sale if the homeowner requested a modification, but are allowed to push along the process, even set a sale date. That allows them to foreclose more quickly if they determine the homeowner doesn’t qualify for a modification.

As a result, a homeowner might get a modification offer one day and a foreclosure notice the next. As of March, servicers were pursuing foreclosure on 1.8 million residences, according to LPS Applied Analytics.

Maggiano, the Treasury official, said that’s been confusing for homeowners. Some “just got discouraged and gave up.”

New rules issued by the Treasury in March say the servicer must first give the homeowner a shot at a modification before beginning the process that leads to foreclosure.

They also require the servicer to adopt new policies to prevent mishaps. For instance, the servicer will be required to provide a written certification to its attorney or trustee that the homeowner does not qualify for the federal program before the house can be sold.

Maggiano said the changes resulted from visits to the servicers’ offices last December that allowed Treasury officials to “much better understand (their) inner workings.”

The rules, however, don’t take effect until June. Nor do they apply to hundreds of thousands of homeowners seeking a modification for whom the process leading to foreclosure has already begun. And Treasury has yet to set any penalties for servicers who don’t follow the rules.

Maggiano said Treasury’s new rule struck a balance to help homeowners who were responsive to servicer communications to stay out of foreclosure while not introducing unnecessary delays for servicers. Some borrowers don’t respond at all to offers of help from the servicers until they’re faced with foreclosure, she said.

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States Differ

Some states, such as North Carolina, have recently gone further to delay moving toward foreclosure if a homeowner requests a modification. State regulators there passed a law that requires a servicer to halt the process if a homeowner requests a modification.

Pearce, the North Carolina official, said the rule was prompted by the delays homeowners have been facing and puts the burden on the servicers to expeditiously review the request. “They’re in total control.”

Stopping the process not only removes the possibility of a sudden foreclosure, he said, but also stops the accumulation of fees, which build up and can add thousands to the homeowner’s debt as the servicer moves toward foreclosure.

In California, state Sen. Mark Leno, a Democrat from San Francisco, is pushing a bill that would do something similar. The servicers “should be working a lot harder to keep homeowners in their home,” he said.

Assessment

Original article: http://www.propublica.org/feature/disorganization-at-banks-causing-mistaken-foreclosures-050410

Conclusion

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Geithner Talks Tough about Banks’ Loan Modification Efforts

But – More Bark Than Bite

By Paul Kiel, ProPublica – April 30, 2010 11:30 am EDT

For nearly a year now, we at ProPublica have been reporting on the problems [1] homeowners have encountered when seeking a mortgage modification [2] under the administration’s program [3].

Yesterday, Treasury Secretary Tim Geithner for the first time acknowledged the depths of the problems, but didn’t offer any new solutions. He committed to release more detailed data on how banks and other servicers are faring—a promise Treasury first made six months ago.

Geithner Speaks

“We are concerned by the wide variation in performance we see across servicers and by the countless frustrated phone calls we receive from borrowers,” Geithner testified yesterday before Congress. He added that the Treasury was “troubled” by “reports that servicers have foreclosed on potentially eligible homeowners” and frequent complaints from homeowners that servicers lose their documents. He said servicers are “not doing enough to help homeowners” and that it was not “acceptable.”

From the Treasury Department

This isn’t the first time Treasury Department officials have directed some tough talk [4] at servicers, including vague threats [5] of penalties [6]. But it remains to be seen whether, as Geithner says, the Treasury will follow through and punish servicers that break the program’s rules. Under the program, which involves paying incentives to servicers, investors and homeowners to encourage modifications, the Treasury has the power to punish servicers by withholding those payments. But Treasury has never issued any such penalties. Nor has the government outlined how much such penalties might be.

Geithner did promise to publish within a month or two more detailed information about each servicer’s performance, data that could give a much clearer picture of how servicers are treating homeowners. Treasury officials have actually been promising to release this sort of data since last year [7]. In December, Herb Allison, the official in charge of the TARP, said [8] it would be released in January. Like everything else with the government’s loan mod program, it’s taken several months longer than it was supposed to.

More Granular Data

The new, more detailed data will show how long it takes each servicer to answer calls from homeowners, how long they take to process applications, and the number of customer complaints each receives. A Treasury spokeswoman also said the reports will provide some sort of breakdown of how many people have been denied mods for which reasons, but it’s not clear yet if that data will be made available by servicer.

Up until now, the Treasury has only been releasing basic information for each of the largest servicers. And each month, we’ve transformed that data into an easy-to-digest breakdown [9].

Assessment

One major problem, the data show, has been the large volume of homeowners in limbo (376,000 as of March). A trial period under the program is supposed to last three months, but for those homeowners, it’s stretched longer, sometimes as long as ten months [6]. In total, 1.2 million homeowners have started trials since the program launched a year ago, but only 231,000 have made it to a permanent modification.

Link: http://www.propublica.org/ion/bailout/item/geithner-talks-tough-about-banks-loan-mod-efforts-but-more-bark-than-bite

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Bank Deals Similar to Goldman Sach’s Gone Awry

Other Major Banks Participated, Too?

By Marian Wang, ProPublica – April 16, 2010 1:36 pm EDT

As you may have heard, or read on this ME-P, Goldman Sachs is being sued for fraud [1] by the Securities and Exchange Commission [2] for allegedly misleading investors about a deal that Goldman helped structure and sell. In the civil suit, the SEC specifically faulted Goldman for failing to disclose that a hedge fund was helping create the investment while betting big the deal would fail.

According to the SEC, Goldman Sachs knew about the hedge fund’s bets, knew it played a significant role in choosing the assets in the portfolio, and yet did not tell investors about it. (Goldman Sachs has called the SEC’s accusations “completely unfounded in law and fact.” And in another more detailed statement [3], it said it “did not structure a portfolio that was designed to lose money.”) 

[picapp align=”none” wrap=”false” link=”term=Goldman+Sachs&iid=8541566″ src=”0/4/f/8/The_Goldman_Sachs_7d6f.jpg?adImageId=12513388&imageId=8541566″ width=”380″ height=”568″ /]

In ProPublica

As we reported at ProPublica last week, many other major investment banks were doing a similar thing [4].

Investment banks including JPMorgan Chase [5], Merrill Lynch [6] (now part of Bank of America), Citigroup, Deutsche Bank and UBS also created CDOs that a hedge fund named Magnetar was both helping create and betting would fail. Those investment banks marketed and sold the CDOs to investors without disclosing Magnetar’s role or the hedge fund’s interests.

Here is a list of the banks that were involved [7] in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar’s role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman’s 25 Abacus CDOs — one of which is the basis of the SEC’s lawsuit — amounted to $10.9 billion [8].

One reporter Jake Bernstein explained the investment banks’ disclosure failures on Chicago Public Radio’s This American Life [9]:

On the Magnetar Hedge Fund

The role of Magnetar, both as equity investor and in their bets against the very CDOs they helped create were not disclosed in any way to investors in the written documents about the deals. Not the marketing materials, not the prospectuses, not in the hundreds of pages that an investor could get to see information about the deal was it disclosed that it was in fact Magnetar who’d helped create the deal, and who’d bet against.

That is, of course, along the lines of what the SEC is suing Goldman Sachs for now. The SEC’s suit also says CDOs like the ones Goldman built “contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.”

Notably, the SEC did not sue the hedge fund [10] involved in Goldman’s Abacus deals — Paulson & Co. — or its manager, John Paulson. Instead, it’s going after Goldman. And as we pointed out in our reporting, there’s no evidence that what Magentar did was illegal [11].

Assessment

We’ve called the major banks involved in Magnetar CDO deals to see if they were concerned about similar lawsuits. Thus far, Bank of America, Citigroup, Deutsche, Wells Fargo (which bought Wachovia) and UBS have responded and have all declined our requests for comment. Here is Magnetar’s response [12] to our original reporting.

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How One Hedge Fund Helped Keep the Bubble Going

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On the Magnetar Trade

By Jesse Eisinger and Jake Bernstein, ProPublica – April 9, 2010 1:00 pm EDT

In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe.

Precise Timing

At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund [1] helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

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When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers.

Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began.

The Magnetar Trade

How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade [2]. Nearly all of those approached by ProPublica declined to talk on the record, fearing their careers would be hurt if they spoke publicly. But interviews with participants, e-mails [3], thousands of pages of documents and details about the securities that until now have not been publicly disclosed shed light on an arcane, secretive corner of Wall Street.

According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations — CDOs. If housing prices kept rising, this would provide a solid return for many years. But that’s not what hedge funds are after. They want outsized gains, the sooner the better, and Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.

Chance Enhancement

Along the way, it did something to enhance the chances of that happening, according to several people with direct knowledge of the deals. They say Magnetar pressed to include riskier assets in their CDOs that would make the investments more vulnerable to failure. The hedge fund acknowledges it bet against its own deals but says the majority of its short positions, as they are known on Wall Street, involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs.

Magnetar says it was “market neutral,” meaning it would make money whether housing rose or fell. (Read their full statement. [4]) Dozens of Wall Street professionals, including many who had direct dealings with Magnetar, are skeptical of that assertion. They understood the Magnetar Trade as a bet against the subprime mortgage securities market. Why else, they ask, would a hedge fund sponsor tens of billions of dollars of new CDOs at a time of rising uncertainty about housing?

Key details of the Magnetar Trade remain shrouded in secrecy and the fund declined to respond to most of our questions. Magnetar invested in 30 CDOs from the spring of 2006 to the summer of 2007, though it declined to name them. ProPublica has identified 26 [5].

Independent Analysis

An independent analysis [6] commissioned by ProPublica shows that these deals defaulted faster and at a higher rate compared to other similar CDOs. According to the analysis, 96 percent of the Magnetar deals were in default by the end of 2008, compared with 68 percent for comparable CDOs. The study [6] was conducted by PF2 Securities Evaluations, a CDO valuation firm. (Magnetar says defaults don’t necessarily indicate the quality of the underlying CDO assets.)

From what we’ve learned, there was nothing illegal in what Magnetar did; it was playing by the rules in place at the time. And the hedge fund didn’t cause the housing bubble or the financial crisis. But the Magnetar Trade does illustrate the perverse incentives and reckless behavior that characterized the last days of the boom.

Major Players

Magnetar worked with major banks, including Merrill Lynch, Citigroup, and UBS. At least nine banks helped Magnetar hatch deals. Merrill Lynch, Citigroup and UBS all did multiple deals with Magnetar. JPMorgan Chase, often lauded for having avoided the worst of the CDO craze, actually ended up doing one of the riskiest deals with Magnetar, in May 2007, nearly a year after housing prices started to decline. According to marketing material and prospectuses [5], the banks didn’t disclose to CDO investors the role Magnetar played.

Many of the bankers who worked on these deals personally benefited, earning millions in annual bonuses. The banks booked profits at the outset. But those gains were fleeting. As it turned out, the banks that assembled and marketed the Magnetar CDOs had trouble selling them. And when the crash came, they were among the biggest losers.

Assessment

Of course, some bankers involved in the Magnetar Trade now regret what they did. We showed one of the many people fired as a result of the CDO collapse a list of unusually risky mortgage bonds included in a Magnetar deal he had worked on. The deal was a disaster. He shook his head at being reminded of the details and said: “After looking at this, I deserved to lose my job.”

Magnetar wasn’t the only market player to come up with clever ways to bet against housing. Many articles and books, including a bestseller by Michael Lewis [7], have recounted how a few investors saw trouble coming and bet big. Such short bets can be helpful; they can serve as a counterweight to manias and keep bubbles from expanding.

Magnetar’s approach had the opposite effect — by helping create investments it also bet against, the hedge fund was actually fueling the market. Magnetar wasn’t alone in that: A few other hedge funds also created CDOs they bet against. And, as the New York Times has reported, Goldman Sachs did too. But Magnetar industrialized the process, creating more and bigger CDOs.

Conclusion

Several journalists have alluded to the Magnetar Trade in recent years, but until now none has assembled a full narrative. Yves Smith, a prominent financial blogger who has reported on aspects of the Magnetar Trade, writes in her new book, “Econned,” [8] that “Magnetar went into the business of creating subprime CDOs on an unheard of scale. If the world had been spared their cunning, the insanity of 2006-2007 would have been less extreme and the unwinding milder.”

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How You Can Investigate Your State’s Oversight of Its Nurses

Reporting Recipe

By Charles Ornstein and Tracy Weber, ProPublica – March 3, 2010 5:38 pm EDT

cropped-me-p-mast-head-nurses.jpg

Nursing boards – and other agencies that oversee such professionals as pharmacists, dentists and mortgage brokers – do not get nearly enough scrutiny. These boards are charged with protecting consumers from unscrupulous or incompetent professionals, but some provide almost no public information about what they do or how they’re run. They are sometimes led by ill-qualified political appointees and lack sufficient personnel. But should these boring bureaucracies fail, the implications for your health, finances, and home can be dire.

Assessment

We realize that many newsrooms face competing priorities and limited resources, so we’re making our reporting recipe public.

Visit our special site with our complete how-to investigation guide [1], with information on all 50 states.

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Data Show Little-Known Bank Regulator Goes Easy on Enforcement

Office of the Comptroller of the Currency

By Marian Wang, ProPublica – March 29, 2010 12:51 pm EDT

The New York Times business section had a piece recently about a little-known bank regulator [1] called the Office of the Comptroller of the Currency. It points out that while the Federal Reserve has shouldered most of the criticism directed toward bank regulators, because of its relative obscurity, the OCC [2] has escaped much of the scrutiny.

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John C. Dugan

The Times piece focuses mostly on John C. Dugan, the former bank lobbyist who heads the agency. It highlights criticism that Dugan is too pro-bank, and goes back and forth between criticism and Dugan’s response. Mr. Dugan bristles at the notion that he is too easy on banks and says his agency’s record on consumer protection has been “vigorous and sustained.” He says it is a “cheap shot” to suggest that his lobbying years color his viewpoint and that it demeans his employees and his years of public service. In point-counterpoint situations, what’s often helpful is hard data [3]. The Times brings it into the story later on, with statistics on the OCC’s formal enforcement orders against banks.

Assessment

The OCC has both formal and informal enforcement orders against banks. The Times’ chart shows that the agency rarely takes formal enforcement action against banks, and even more rarely doles out actual penalties to the banks in the form of fines, restitutions or refunds to consumers. The agency defended its small number of enforcement actions, saying it works closely with banks [4] to fix problems while they’re small, so as not to require stronger measures.

Conclusion

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Senior Public Health Official [Dr. Howard Frumkin] is Reassigned

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In Wake of Congressional Inquiries

By Joaquin Sapien, ProPublica – January 22, 2010 5:56 pm EDT

Dr. Howard Frumkin, the embattled director of a little-known but important division of the Centers for Disease Control and Prevention, has been reassigned to a position with less authority, a smaller staff and a lower budget.

Agency for Toxic Substances and Disease Registry

Frumkin had led the CDC’s Agency for Toxic Substances and Disease Registry (ATSDR) and the National Center for Environmental Health since 2005. For the past two years he had endured scathing criticism from Congress and the media for ATSDR’s poor handling of public health problems created by the formaldehyde-contaminated trailers that the government provided to Hurricane Katrina victims. The agency, which assesses public health risks posed by environmental hazards, also was criticized for understating the health risks of several other, less-publicized cases.

Internal CDC e-Mail

An internal CDC e-mail sent by Frumkin on Jan. 15 and obtained by ProPublica said he was leaving his position that day and would become a special assistant to the CDC’s director of Climate Change and Public Health. His old job will be temporarily filled by Henry Falk, who led ATSDR from 2003 to 2005. In the e-mail, Frumkin praised his staff and described more than 20 ATSDR accomplishments during his tenure. They include strengthening the agency’s tobacco laboratory and creating the Climate Change and Public Health program.

A Change of Function

A CDC spokesman said Frumkin’s transfer shouldn’t be considered a demotion but rather a change of function and responsibilities that the CDC’s director, Dr. Thomas Frieden, said would benefit both the agency and Dr. Frumkin, who is a recognized expert on climate change. But Frumkin’s authority has been sharply reduced, even though his salary won’t change. Previously, he oversaw two departments with a combined budget of about $264 million and 746 full-time employees. Now he will be an assistant to the director of a new program that has a budget of about $7.5 million, five full-time employees and five contractors, two of whom are part time. Through a CDC spokesman, Frumkin declined a request to be interviewed for this story.

US capitol

A 2008 ProPublica Report

In 2008, ProPublica reported [1] that Frumkin and others failed to take action after learning that ATSDR botched a study [2] on the trailers provided to Katrina victims. The Federal Emergency Management Agency used the study to assure trailer occupants that the formaldehyde levels weren’t high enough to harm them. ATSDR never corrected FEMA, even though Christopher De Rosa, who led ATSDR’s toxicology and environmental medicine division, repeatedly warned Frumkin that the report didn’t take into account the long-term health consequences of exposure to formaldehyde, like cancer risks. Frumkin eventually reassigned De Rosa to the newly created position of assistant director for toxicology and risk analysis. De Rosa went from leading a staff of about 70 employees to having none. He has since left the agency and is starting a nonprofit that will consult with communities close to environmental hazards.

The involvement of Frumkin and ATSDR in the formaldehyde debacle was the focus of an April 2008 Congressional hearing held by a subcommittee of the House Science and Technology Committee. A report [3] by the subcommittee’s Democratic majority, released that October, concluded that the failure of ATSDR’s leadership “kept Hurricane Katrina and Rita families living in trailers with elevated levels of formaldehyde … for at least one year longer than necessary.”

About six months after the report came out, the same panel, the Subcommittee on Investigations and Oversight, held another hearing [4] that touched on other problems at ATSDR.

Flawed Data

Before that hearing, the Democrats on the subcommittee released a report [5] that revealed other cases in which the agency relied on scientifically flawed data, causing other federal agencies to mislead communities about the dangers of their exposure to hazardous substances.

For example, an ATSDR report about water contamination at Camp Lejeune, a Marine Corps base in North Carolina, said the chemically tainted drinking water didn’t pose an increased cancer risk to residents there. The report was used to deny at least one veteran’s medical benefits for ailments that the veteran believed were related to the contamination. A month after the subcommittee hearing, ATSDR rescinded [6] some of its findings, saying it didn’t adequately consider the presence of benzene, a carcinogen that it found in the water. Eight months later, the agency said it would modify another report that was criticized at the hearing, about a bomb testing site in Vieques, Puerto Rico. For decades, the U.S. military used the site to test ammunition that contained depleted uranium and other toxins. In a 2003 report, ATSDR said that heavy metals and explosive compounds found on Vieques weren’t harmful to people living there. But Frumkin decided to take a fresh look at those findings because ATSDR hadn’t thoroughly investigated the site.

Assessment

Subcommittee investigators acknowledged that Frumkin inherited many of the problems in the report from previous ATSDR directors — the original Vieques and Camp Lejeune reports were both done before Frumkin was named director in 2005. But the investigators said he was aware of the agency’s problems and did little to fix them unless he was under political pressure. A CDC spokesman said that Frumkin’s reassignment had nothing to do with the congressional inquiries.

“Americans should know when their government tells them that they have nothing to worry about from environmental exposure that they really have nothing to worry about,” Rep. Brad MillerHouse Science and Technology Committee, D-N.C., the subcommittee’s chairman, said in a statement to ProPublica regarding Frumkin’s reassignment. “The nation needs ATSDR to do honest, scientifically rigorous work. There are many capable professionals at ATSDR who are committed to doing just that.”

Conclusion

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What’s Next with Health Care?

And, Why the Process was Madness

By Staff Reporters

With the House passing health care reform yesterday, resident ProPublica blogger Marian Wang explains what’s next for the bill, and why the process keeps on changing.

Main Concerns

Sometimes things are a little clearer in retrospect. Now that health care reform has passed in the House, it seems there are two main questions in people’s minds:

  • What’s next?
  • Why, procedurally, was the legislative process so confusing and painful to watch?

So, Marian will answer that second question first with some helpful infographics.

Assessment

http://www.propublica.org/ion/blog/item/whats-next-with-health-care-and-why-this-process-was-madness

Conclusion

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Lehman Brothers Autopsy

Repo 105 and Why Auditors Have Some “Splainen to Do”

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[By Staff Reporters]

According to ProPublica on March 16, 2010 on 9:07 am EDT, a post-mortem report on Lehman Brothers revealed a shady accounting maneuver through which the bank hid its financial troubles for nearly a decade.

Pleading Ignorance

In this repot, Marian Wang takes a closer look at the parties pleading ignorance and the auditors who admit they knew, but insist they did no wrong.

Assessment

Link: http://www.propublica.org/ion/bailout/item/lehman-brothers-autopsy-repo-105-explained-auditors-in-trouble

Conclusion

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GE and Muzzled Radiologist End Libel Case

MRI Drug Omniscan Implicated in UK

By Staff Reporters

General Electric Healthcare has settled its libel lawsuit against Dr. Henrik Thomsen, the Danish radiologist who raised questions about the safety of one of the company’s drugs used for magnetic resonance imaging [MRI] scans.

Press Release: statement

According to Jeff Gerth of ProPublica, the two-year-old suit in London involved a 2007 presentation Thomsen made in Oxford and statements in an article published in his name by a European scientific journal in February 2008. Both contained descriptions of his experiences at a Copenhagen hospital in 2006, when 20 kidney patients, all of whom had been injected with the GE Healthcare drug, Omniscan, developed a crippling and sometimes deadly disease. The rare condition is called nephrogenic systemic fibrosis, or NSF.

Assessment

Link: http://www.propublica.org/feature/ge-muzzled-radiologist-end-uk-libel-case

Conclusion

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Dangerous Healthcare Givers

Names Reported Missing from Federal Database

By Staff Reporters

Writing in ProPublica, and the Los Angeles Times, Tracy Weber and Charles Ornstein report that more than two decades ago, Congress set out to stop dangerous or incompetent caregivers from crossing state lines and landing in trouble again.

So, it ordered up a national database allowing hospitals to check for disciplinary actions taken anywhere in the country against licensed health professionals.

But, this database invoked no fear and dread, like the NPDB for physicians.

Ready for Hospital Use

Now On March 1, 2010– 22 years later – the federal government finally plans to let hospitals use it.  

Defective Database?

But, the database is missing serious disciplinary actions against what are probably thousands of health providers.

Link: http://www.propublica.org/feature/federal-health-professional-disciplinary-database-remarkably-incomplete

Division of Practitioner Data Banks (DPDB)

For physicians, the Division of Practitioner Data Banks (DPDB) is responsible for the implementation of the National Practitioner Data Bank (NPDB) and Healthcare Integrity and Protection Data Bank (HIPDB).  The NPDB and HIPDB are alert or flagging systems intended to facilitate a comprehensive review of the professional credentials of health care practitioners, providers, and suppliers.

One Doctor’s Opinion

“For doctors, the NPDB was always the “elephant in the room” regarding professional liability reporting, according to ME-P Publisher-in-Chief Dr. David Edward Marcinko, MBA. And so, I find this whole care-giver affair most disturbing. To think, this is the same government that wants to socialize medicine, or force implement eMRs. They should “clean their own house”,  first.” 

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Grading the Public Options That Already Exist

Understanding Existing Healthcare Plans

By Sabrina Shankman, www.ProPublica.org

October 28, 2009 12:27 pm EDT

2007 Healthcare Costs

What might a public health option look like in practice? One way to find out is to look at what’s already out there.

Link: http://www.propublica.org/ion/health-care-reform/item/grading-the-public-options-that-already-exist-1028

Assessment

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Stockholder Suit Targets Troubled Mental Health Chain

Psychiatric Solutions, Inc

By Robin Fields, ProPublica – September 22, 2009 5:01 pm EDTCaduceus

Psychiatric Solutions Inc. the nation’s leading provider of inpatient mental health care is being sued by stockholders who claim the company issued “false and misleading statements” about troubles at one of its hospitals.

The Lawsuit

The lawsuit, filed Monday in U.S. District Court in Tennessee, alleges that PSI violated securities laws by downplaying problems at Riveredge Hospital near Chicago and waiting too long to tell shareholders how they had affected the company’s bottom line.

The Investigations

Investigations last year by the Chicago Tribune and ProPublica detailed violence, sexual abuse and neglect at PSI facilities from coast to coast, including Riveredge. In several instances, PSI facilities were cited for not reporting patient deaths and injuries as required, federal and state records showed. In response to the reports, the Justice Department opened an investigation and the Illinois Department of Children and Family Services froze admissions of foster children to Riveredge.

The Allegations

The lawsuit alleges that PSI’s statements – particularly those indicating the admissions hold would end soon and that other regulatory deficiencies had been fixed – inflated the company’s stock price, helping company leaders reap millions from insider sales. In early 2009, PSI announced that its 2008 results had fallen short of estimates. Its share price dropped about 35 percent on the news.

Assessment

Through a spokesman, PSI called the lawsuit “wholly without merit.” “We have at all times operated, and will continue to operate in full compliance with the rules and regulations of the Securities and Exchange Commission,” John Van Mol said in a written statement.

Note: Robin Fields is a reporter for the ProPublica news service, which first published this article.

Conclusion

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