The Yaz Men: Members of FDA panel reviewing the risks of popular Bayer contraceptive had industry ties

By Jeanne Lenzer and Keith Epstein

Last month, the U.S. Food and Drug Administration convened a committee of medical experts to weigh new evidence concerning the potential dangers of drospirenone, a synthetic hormone contained in popular birth control pills including Bayer AG’s Yaz and Yasmin. In a decision that helped ensure the continued presence of these drugs on American pharmacy shelves, the committee concluded by a four-vote margin that the benefits of drugs with drospirenone outweigh the risks. However, an investigation by the Washington Monthly and the British medical journal BMJ has found that at least four members of the committee have either done work for the drugs’ manufacturers or licensees or received research funding from them. The FDA made none of those financial ties public.

Yaz and Yasmin are among Bayer’s top selling pharmaceutical products. According to the German drug manufacturer, over 4 million women worldwide use Yasmin alone. But the drug has also sparked growing controversy in recent months. A series of studies published in BMJ have shown that users of pills containing drospirenone have an increased risk of blood clots, which can cause deep vein thrombosis, pulmonary embolism, stroke, heart attack and death. And thousands of women have filed a lawsuit against Bayer, saying they were injured by Yaz or Yasmin.

Other Bayer products containing the hormone drospirenone are Beyaz and Safyral. In addition, four companies—Bayer, Teva, Watson and Sandoz—sell five generic versions of the drugs evaluated by the committee last month.

The FDA’s decision not to reveal its advisors’ relationships with the drugs’ manufacturers and Bayer raises serious questions about the agency’s treatment of potential conflicts of interest, a historically problematic area for the department. In 2004, controversy erupted over another FDA advisory hearing—involving the painkiller Vioxx—when it became clear that advisors with financial conflicts of interest were more likely than those without conflicts to vote that Vioxx was safe and should be allowed to stay on the market. The drug was ultimately withdrawn after a study showed it was associated with approximately 60,000 deaths. In 2008, partly in response to this uproar, the agency issued a new guidance on how to handle conflicts of interest among its advisors, stating that it wanted to reduce “bias” and to be more “transparent.”

The agency’s handling of the drospirenone hearings casts major doubt on how far it has gone to attain those goals.

What’s more, interviews and records also show that the drospirenone advisory committee, when it voted last month, lacked significant information about increased risks to the health of women using contraceptives containing drospirenone.

The FDA ordered the safety review of drugs containing the hormone after three articles published in the BMJ found an increased incidence of blood clots among users of the pills. The advisors were given these studies prior to the December 8 meeting. However, the panel was not shown documents from a report by David Kessler, a former FDA commissioner and an expert witness in the lawsuit filed against Bayer on behalf the women who say they were injured by Yaz and Yasmin. Kessler’s report cites internal Bayer corporate documents that suggest the company had withheld safety data from the FDA.

The documents show that in 2004, Bayer scientists reported in a draft analysis that Yasmin incurs a “several-fold increase” in reporting rates for blood clots compared to three other oral contraceptives, and that Yasmin’s rate of all serious adverse events was “10 fold higher” than that of other products.

In his report, Kessler writes that Bayer failed to report safety data to the FDA, engaged in off-label promotion of the pills, and paid $450,000 to a high profile gynecologist to sponsor her book tour in which she promoted such off-label uses.

Kessler’s report, originally under seal, was not released until December 6, two days prior to the advisory meeting. The FDA said it could not give the advisors the information because the date to submit documents had passed.

***

The FDA relies on some 50 advisory committees to obtain “independent” expert advice and “maintain the public trust.” Recommendations on evidence for safety and efficacy can lead to drug approvals and withdrawals; while nonbinding, recommendations by such committees can move stock prices and are generally regarded as indicators of official FDA action.

Under FDA guidelines, when advisory committee members have a financial relationship with a drug company whose product is under review, the agency can issue waivers that acknowledge the advisors’ links to industry but allow them to vote if their expertise is needed and no other specialists are available. Such waivers often serve as the only public signal that advisors have financial conflicts of interest. In the hearings on drospirenone, the FDA issued none.

And yet, according to public records, recently unsealed court documents, and interviews with some of the FDA advisors, at least four of the advisory committee members in this case have served as paid researchers, consultants, “key opinion leaders,” or speakers for Bayer or other manufacturers or licensees of drospirenone. A fifth advisor agreed to serve as a consultant but never executed the agreement. A sixth received consulting fees from a law firm representing Bayer.

In a 15-to-11 vote, the committee decided that the benefits of drospirenone outweighed its risks.Had those members with undisclosed conflicts of interest voted the other way, the committee would have come to the opposite conclusion. The committee also voted 21 to 5 to change the drug labels to warn that the hormone can cause blood clots. But the panel stopped short of recommending that the labels should warn that they are more likely than other contraceptive pills to cause blood clots. Instead the experts suggested that the labels say that the evidence about blood clots is “conflicting.”

Ironically, while the FDA allowed voting by advisors with business connections to drospirenone, the agency did bar another advisor—Sidney M. Wolfe, the panel’s lone consumer advocate—on the grounds that he has an “intellectual conflict of interest.” Wolfe, a former researcher, is a frequent critic of FDA practices on behalf of the advocacy group Public Citizen. Wolfe, the author of the consumer guide Good Pills, Bad Pills, had marked Yaz with a “do not take” advisory to readers. Jerome Hoffman, professor emeritus of medicine at UCLA, questioned Wolfe’s exclusion from the panel: “The idea that because he has an opinion on data that already exist he should be prevented from voting is nutty.”

Each of the advisors with ties to manufacturers told the Washington Monthly and BMJ that they fully disclosed their ties to the FDA, and there are no indications that the advisors failed to make required disclosures to the agency. The FDA, however, has declined to make public advisors’ financial conflict of interest forms, explaining that the forms are “confidential” and no information from them can be shared under a section of the Ethics in Government Act.

When asked whether the agency was aware of any financial ties between its advisors and manufacturers or distributors of drospirenone, FDA spokeswoman Morgan Liscinsky said, “No waivers were issued.”

But the committee’s financial ties to Bayer begin with no less than its acting chair. Julia Johnson, a professor of obstetrics and gynecology at the University of Massachusetts Medical School, conducted four clinical trials—including one of drospirenone as hormone replacement—for Bayer or its subsidiary Berlex, a manufacturer of drospirenone. She said in an e-mail, “The FDA is very vigilant on examining potential conflicts of interest and was aware of all my research.” When asked for an interview, she said, “The U.S. FDA states that I cannot speak about the meeting.”

Another advisor with ties to industry is Paula Hillard, a professor of obstetrics and gynecology at Stanford School of Medicine who has served as a paid consultant to Bayer Schering. Dr Hillard said she had fully complied with all FDA disclosures and referred the Washington Monthly and BMJ to the FDA for further questions. The FDA declined to respond to any questions, again citing the confidentiality clause of the Ethics in Government Act.

Elizabeth Raymond, a senior medical associate at Gynuity Health Projects in New York and another member of the committee, conducted studies funded by Barr, which has a licensing agreement with Bayer for generic versions of Yaz. Dr Raymond said that the FDA was “fully aware of all of my relevant current and past activities.”

Anne E. Burke, an assistant professor of gynecology and obstetrics at Johns Hopkins University in Baltimore, has received research funding from Bayer-Berlex and Duramed, which has a licensing agreement with Bayer for generic Yaz and Yasmin. Dr Burke said that she fully disclosed this to the agency.

According to Dr Kessler’s report, an internal Bayer document indicated that a fifth advisor received payment from Bayer, but that advisor told the Washington Monthly and BMJ that although she initially agreed to serve as a consultant for Bayer, the company never pursued the agreement. She said FDA records indicated that she had ties to Bayer due to her disclosure about her agreement, but after she was nominated to be on the drospirenone advisory committee, she corrected the error.

A sixth advisor, meanwhile, confirmed that he received consulting fees from a law firm representing Bayer in 2006. He told BMJ and the Washington Monthly that he did not disclose the information to the FDA because the FDA “did not require information for that time frame for consulting unrelated to the meeting topic.”

Bayer spokesperson, Rosemarie Yancosek, said in an e-mailed statement: “Bayer had no input on who serves on the U.S. FDA Advisory Committee panel as the FDA has its own process for selecting panel members. Furthermore, it is Bayer’s understanding that the FDA has a procedure for determining conflicts of interest for potential panel members.”

The FDA does indeed have such a procedure, but critics argue that its guidelines define conflicts of interest too narrowly and provide too much flexibility in how they are applied. The guidelines are technically “suggested or recommended, but not required” provisions (http://www.fda.gov/downloads/RegulatoryInformation/Guidances/UCM125646.pdf). Whether an advisor can participate depends on “whether the discussion at the meeting or outcomes of the meeting will have a direct and predictable effect on the individual’s interest.” For instance, someone who was previously involved in another role for a manufacturer, or whose university received money from a manufacturer, may be allowed to participate. Even having a contract for $100,000 over a five-year period would not necessarily exclude an advisor, according to the guidelines.

Despite the FDA’s frequent claims that there aren’t enough experts independent of industry, a list of over 100 industry-independent experts has been presented to the agency – yet none of those experts has been tapped as an advisor.

The Project on Government Oversight, a Washington-based nonpartisan watchdog group, plans to raise concerns about the FDA’s conflict of interest policies in a letter to the agency’s top official, Margaret Hamburg.

“It shouldn’t require a lawsuit and investigative journalism to learn about these kinds of conflicts,” said the group’s executive director, Danielle Brian. “The Yaz case puts FDA’s feckless ethics policy into stark relief. It also reveals the human impact of conflicts of interest and why we need an FDA that shuns even the appearance of such conflicts.”

The organization intends to urge the FDA to routinely disclose industry ties and more aggressively determine whether an advisor has a conflict. “Right now,” said Brian, “the bar for considering whether an advisor has a conflict is too high.”

A version of this story, “The Yaz Men,” also appeared in Washington Monthly

The British Medical Journal, BMJ

10 January 2012

Jeanne Lenzer – New York

Keith Epstein – Washington, DC

At least four members of a key committee advising the US Food and Drug Administration on the safety of a top selling drug have had financial ties to its manufacturers, raising questions about the rigor with which the agency minimises potential conflicts of interest.

Court documents reviewed by the BMJ and Washington Monthly show that at least four advisers conducted research for Bayer AG or other manufacturers or licensees of drospirenone, the synthetic progestogen contained in several oral contraceptive pills whose safety was under review. Another adviser agreed to conduct research for the company but never did. The advisers served as paid key opinion leaders, researchers, consultants, or speakers for Bayer and other manufacturers of drospirenone.

Each of the advisers with ties to manufacturers told the BMJ that they fully disclosed their ties to the FDA, although the FDA declined to release advisers’ financial conflict of interest forms, saying that they are “confidential” and cannot be shared.

There is no reason to that think the advisers did not make the requisite disclosures. However, when asked whether the agency was aware of any financial ties between its advisers and manufacturers or distributors of drospirenone, the FDA spokeswoman Morgan Liscinsky said, “No waivers were issued.” Waivers can be issued to allow advisers with ties to industry to vote if the agency believes that their expertise is required and no suitable alternates are available. Waivers often serve as the only public signal that an adviser has a financial conflict of interest.

The committee met on 8 December to analyse the safety data of drospirenone, which is found in several branded oral contraceptive pills, including Yaz, Yasmin, Beyaz, and Safyral (all made by Bayer) and generic pills. Yaz and Yasmin were among the top sellers of the German based company. Over four million women worldwide use Yasmin alone, Bayer says.

The FDA ordered the review after three articles published in the BMJ found an increased incidence of venous thromboembolism among users of drospirenone (2011;343:d6423, doi:10.1136/bmj.d6423; 2011;342:d2151, doi:10.1136/bmj.d2151; 2011;342:d2139, doi:10.1136/bmj. d2139).

However, the committee did not see internal Bayer documents in which Bayer scientists determined that Yasmin’s rate of all serious adverse events was “10 fold higher than that with the other products” (BMJ 2011;343:d8104, 13 Dec, doi:10. 1136/bmj.d8104)

In a 15 to 11 vote the committee decided that the benefits of drospirenone outweighed its risks.

The first public sign that advisers may have had ties to industry came in a court filing by the former FDA commissioner David Kessler (http://bit.ly/yzYccr), who reviewed internal Bayer documents that are not available publicly but that, he says, reveal payments from Bayer. Dr Kessler is a paid expert witness for thousands of plaintiffs claiming harm from drospirenone.

The advisory committee’s acting chairwoman, Julia Johnson, professor of obstetrics and gynaecology at the University of Massachusetts Medical School, conducted four clinical trials, including one of drospirenone as hormone replacement, for Bayer or its subsidiary Berlex, a manufacturer of drospirenone. She said in an email, “The FDA is very vigilant on examining potential conflicts of interest and was aware of all my research.” When asked for an interview she wrote, “The US FDA states that I cannot speak about the meeting.”

Other advisers with ties to industry include Paula Hillard, a professor of obstetrics and gynaecology at Stanford School of Medicine who has served as a paid consultant to Bayer Schering. Asked about her ties to Bayer, Dr Hillard said that she had fully complied with all FDA disclosures and referred Washington Monthly and the BMJ to the FDA for further questions. The FDA declined to respond to any questions, citing the confidentiality clause of the Ethics in Government Act.

Elizabeth Raymond, senior medical associate at Gynuity Health Projects in New York, conducted studies funded by Barr Pharmaceuticals, now part of Teva, which has a licensing agreement with Bayer for generic versions of Yaz. Dr Raymond said that the FDA was “fully aware of all of my relevant current and past activities.”

Anne Burke, assistant professor of gynaecology and obstetrics at Johns Hopkins University in Baltimore, has received research funding from Bayer-Berlex and Duramed, which has a licensing agreement with Bayer for generic versions of Yaz and Yasmine. Dr Burke told the BMJ that she fully disclosed this to the agency.

According to Dr Kessler’s report, an internal Bayer document indicated that another adviser received payment from Bayer, but that adviser states that although she initially agreed to serve as a consultant to the company, the company never pursued the agreement. She said that FDA records indicated that she had ties to Bayer because of her disclosure about her agreement, but after she was nominated to the 8 December advisory committee she corrected the error.

Meanwhile a sixth adviser confirmed that he received consulting fees from a law firm representing Bayer in 2006. He told the BMJ and Washington Monthly that he did not disclose the information to the FDA because the FDA “did not require information for that timeframe for consulting unrelated to the meeting topic.

Bayer told the BMJ in an emailed statement, “Bayer had no input on who serves on the US FDA Advisory Committee panel as the FDA has its own process for selecting panel members. Furthermore, it is Bayer’s understanding that the FDA has a procedure for determining conflicts of interest for potential panel members.”

The Project on Government Oversight, a non-partisan watchdog group based in Washington, DC, plans to raise concerns about the FDA’s policies on conflicts of interest in a letter to the agency’s top official, Margaret Hamburg.

“It shouldn’t require a lawsuit and investigative journalism to learn about these kinds of conflicts,” said the group’s executive director, Danielle Brian. “The Yaz case puts FDA’s feckless ethics policy into stark relief. It also reveals the human impact of conflicts of interest and why we need an FDA that shuns even the appearance of such conflicts.”

The group intends to urge the FDA to routinely disclose advisers’ ties to industry and more aggressively determine whether an adviser has a conflict.

“Right now,” said Ms Brian, “the bar for considering whether an adviser has a conflict is too high.”

David Kessler’s expert report is at http://bit.ly/yzYccr.

Cite this as: BMJ 2012;344:e244 © BMJ Publishing Group Ltd 2012

Published on The Huffington Post Investigative Fund 2 March 2010

By Keith Epstein

The influential $42 billion-a-year payday lending industry, thriving from a surge in emergency loans to people struggling through the recession, is pouring record sums into lobbying, campaign contributions, and public relations – and getting results.

As the Senate prepares to take up financial reform, lobbyists are working to exempt companies that make short-term cash loans from proposed new federal regulations and policing. In state capitals around the country, payday companies have been fighting some 100 pieces of legislation aimed at safeguarding borrowers from high interest rates and from falling into excessive debt.

Last year, as the U.S. House drew up a financial reform bill, some lawmakers who were courted by the companies and received campaign contributions from them helped crush amendments seeking to restrict payday practices, a review by the Huffington Post Investigative Fund has found.

The failed amendments would have capped payday interest rates – which reach triple digits on an annualized basis — and would have limited the number of loans a lender could make to a customer. Working largely behind the scenes, the industry ended up dividing the Democratic majority on the 71-member House Financial Services Committee.

GRAPHIC: Paying for Influence »
Over the last decade, lenders specializing in short-term loans, along with company executives and others associated with them, have spent millions of dollars to win influence in Congress, according to an analysis of campaign finance data and lobbying records.

Lobbyists swayed not only conservative, free-market-minded “Blue Dogs” but liberals from poorer, urban districts where payday lenders are often most active. At least one of the liberals threatened to vote with Republicans against the financial reform bill if it restricted payday lenders.

“The payday lenders have done a lot of work,” House Financial Services Chairman Barney Frank (D-Mass.) said in an interview. “They’ve been very good at cultivating Democrats and minorities.”

Now the industry has turned its attention to the Senate and the reform bill being assembled by Senate Banking Chairman Christopher Dodd (D-Conn.), who is offering to abandon the quest for a new independent agency to protect consumers, instead giving the Federal Reserve new policing powers that could extend to payday companies.

Spokesmen for payday lenders say that attempts to rein in their business are misplaced. Short-term cash loans were not a cause of the financial crisis, they say, and as lenders of last resort they claim to provide a critically needed service in an economic downturn.

To convey their message, payday lenders have hired some of the lobbying industry’s top guns. Trade groups have financed studies to underscore the small profit margin on each loan. The groups also have created a database of more than a half-million customers who can be quickly mobilized to persuade specific politicians. The persuasion often takes the form of personal, handwritten accounts from constituents about how quick cash helped them during times of financial need.

Steven Schlein, a spokesman for an industry trade group, the Community Financial Services Association, said the industry’s victory in the House against the proposed amendments was hardly final.

“We were worried,” said Schlein. “But we worked it hard. We have lobbyists, and they made their point. The banks worked it hard, too. But we’re still in the middle of what could be a big fight.”

22,000 Storefronts

Payday loans got their name because many of the small, unsecured loans are made as advances on a borrower’s next paycheck. Operating from some 22,000 storefronts, the lenders specialize in instantly available short-term loans that typically require repayment within two weeks. While interest rates vary, typical fees are $15 to $25 for every $100 borrowed. In Virginia, someone who borrows $200 from one big lender, Advance America, must come up with $247.80 within 14 days; the fee is equivalent to a 623 percent annual rate.

Lenders range from small bodegas in Albuquerque or Miami to the chain stores of publicly traded corporations such as Cash America International Inc. and Advance America Cash Advance Centers Inc. The financial crisis has been good for their bottom lines. Advance America, for example, reported $54 million in net income in 2009, a 41 percent increase over the previous year.

Most families who took out payday loans in the years leading up the financial crisis used them to cope with emergencies or to pay for rent, utilities and food, according to a February 2009 study by the Federal Reserve Board.

Customers taking out multiple loans can face a cascading series of fees. “Some people borrow $500 and end up owing $3,000,” said Jan Zavislan, a deputy attorney general in Colorado, which placed some limits on payday lenders in 2000. “Without our state regulation of this industry, payday lending would be usurious.”

The financial reform bill passed by the U.S. House would create an independent Consumer Financial Protection Agency to oversee mortgages, credit cards and loans by almost all banks, savings and loans, credit unions and payday lenders. For the Senate version, Dodd and Republicans now appear close to an agreement that would jettison the notion of a stand-alone agency, which Republicans and moderate Democrats argued was unnecessary.

The activity in Congress led the industry to spend $6.1 million lobbying Washington last year, more than twice what it spent a year earlier, according to an Investigative Fund analysis of lobbying reports. The total is about equal to what JPMorgan Chase &Co. spent on lobbying in 2009. The Community Financial Services Association alone increased its spending by 74 percent, to $2.56 million.

Industry representatives say they are tracking 178 different pieces of legislation around the country – 101 of which they oppose. In response, in 34 states and the nation’s capital, the industry and its companies have 40 of their own in-house lobbyists, while paying another 75 outside lobbyists.

Meanwhile, an analysis of federal elections records shows payday-linked political contributions are streaming into the campaigns of members of Congress. At the current rate — $1.3 million since the start of last year — the amount of money spent before the 2010 midterm elections could easily surpass the industry’s spending during the 2007-2008 presidential campaign season.

Some of the industry’s biggest lobbyists in Washington have experience resisting regulation of riskier forms of lending.

Wright Andrews, whose lobbying shop Butera & Andrews earned $4 million in fees for coordinating the subprime industry’s lobbying between 2002 and 2006, now represents the payday industry. Records show his firm earned $240,000 from the Community Financial Services Association in 2009.

Another lobbyist hired by the trade group, Timothy Rupli, is one of the best-known and most prolific hosts of fundraisers on Capitol Hill. He has sponsored at least 94 since 2008, according to invitations tracked by the Sunlight Foundation, a Washington-based nonpartisan group. Politicians and donors gather at Rupli’s townhouse on New Jersey Avenue only two or three blocks from the offices of members of Congress. Beneficiaries of the fundraisers have included members of the House Financial Services Committee. [Update 3/03/10: Clarification: Invitations collected by the Sunlight Foundation show that 96 fundraisers were held at Rupli's townhouse since the beginning of 2008. Of those, 29 invitations listed Rupli as a host. Hosts are not always specified on fundraising invitations.]

Since 2005, Rupli and his wife, Linda, have contributed $220,349 directly to lawmakers in Washington. During that time, Rupli earned $4.9 million in lobbying fees from the financial services association, according to lobbying disclosure reports.

States of Influence

Payday lenders also contribute millions to candidates in state elections, making them among the dozen or so top donors when figures for state and federal campaign contributions are added together. That puts them in the same influential ballpark, for instance, as unions, the gaming industry and real estate interests.

In Wisconsin alone, efforts to establish an interest rate ceiling of 36 percent mobilized at least 27 registered lobbyists against it. On Feb. 16, Wisconsin lawmakers adopted a bill that could lead to regulation of payday lenders for the first time, but not before rejecting the interest rate limit. The debate garnered more than the usual public attention when the state assembly’s speaker acknowledged having a romantic relationship with a payday industry lobbyist.

In Arizona and Ohio, the industry spent $30 million in 2008 campaigning for ballot initiatives that would have wiped out laws curtailing payday lending operations. By contrast, reform groups reported spending only $475,000.

Although the industry doesn’t always win, “there’s no way you can outspend them,” said Jennifer J. Johnson, senior legislative counsel to the Center for Responsible Lending, a prime nemesis of the payday lenders.

The industry argues that more oversight — especially from Washington — isn’t necessary. Among the most active trade groups making the case is Hackensack, N.J.-based Financial Service Centers of America, or FiSCA. “Financial service centers had absolutely no role in the nation’s financial crisis,” said Joe Coleman, chairman of the group, which represents half of the nation’s purveyors of check cashing, money transfers, money orders, bill payments and small dollar, short-term loans.

In fact, payday lenders contend their services are needed now more than ever. “Who’s going to make that kind of credit available to working people besides us?” asked Schlein, the spokesman for the other major trade group, the Community Financial Services Association.

The industry’s critics, who include several state attorneys general, say that the industry buries too many people in debt. Meaningful restrictions and policing of the industry are long overdue, they argue.

“Payday lending is like needing a life preserver and being in front of an anvil,” said North Carolina attorney general Roy Cooper, a former legislator who worked to eliminate major payday lenders from the state and succeeded in 2006.

Unlikely Allies

Even in states that have successfully imposed limits on payday lenders, the companies sometimes find inventive ways around the rules. State and federal agencies often lack clear and consistent authority; in some states, lenders have responded to tougher regulations by moving operations to tribal lands or onto the Internet.

After Virginia’s legislature tried to restrict fees in 2009, lenders switched to making car-title loans, with automobiles as collateral. In Ohio, payday lenders are working around a new 28 percent rate cap by invoking two older laws governing installment loans that appear to permit higher rates. In Colorado, some lenders have skirted limits on the number of consecutive loans they can make to a customer by adding five-day periods between loans.

Last October, Colorado was the site of an industry conference aimed at mobilizing hundreds of companies specializing in providing rapid access to money through payday loans and other services. The meeting at the luxurious Broadmoor Hotel, sitting on 3,000 acres of golf courses and rolling forest at the foot of the Rockies, was sponsored by the trade group FiSCA.

PowerPoint presentations, handouts, and interviews with participants suggest an industry that is growing more anxious and methodical in countering threats to its business model. Featured presentations included topics such as, “Organizing a Grassroots Effort.” One PowerPoint underscored the broader range of tactics needed to defeat the industry’s enemies. Stated the slide: “The days of just lobbying are forever gone.”

Another slide, from a presentation by Kevin B. Kimble, a vice president of Cash America, the nation’s largest supplier of pawn loans, and William Sellery Jr., a top FiSCA lobbyist, warned: “Payday lending now in play.” They characterized the industry’s strategic response as an “aggressive, multi-pronged defense” of payday lending, including not just traditional means of influence but creation of organizations such a “Coalition for Financial Choice” to counter the image of payday lenders as debt traps. The group’s Web site, www.coalitionforfinancialchoice.org [2], describes financial services as a “fundamental right” and urges supporters to refer to themselves as “pro consumer choice.”

The industry has reached out to seemingly unlikely allies. A luncheon speaker at the conference was Marc Morial, chief executive of the National Urban League, one of the nation’s oldest civil rights organizations. Morial, a former mayor of New Orleans, has been among participants in a so-called  “Small Dollar Loan Dialogue Program.”  The program involves inviting civic leaders and consumer advocates to unpublicized FiSCA-sponsored gatherings in hotel conference rooms to hash out differences over regulatory proposals.

‘Turned Heads on the Hill’

As part of its congressional strategy, FiSCA commissioned a study last year that concluded that payday customers fare better and lenders fare worse than is commonly thought. According to the report, prepared for the trade group by the accounting firm Ernst & Young, a payday lender earns a average fee of $15.26 on a $100 loan and keeps only $1.37 as profit because of high costs and the need to absorb bad debts.

Last fall, as Congress began debating financial reform, the Ernst & Young study was being distributed along with fact sheets to a number of Capitol Hill aides. Two of them acknowledged privately to the Investigative Fund, on condition that neither they nor their bosses were identified, that the report changed their perceptions of the industry.

During discussions about consumer protections within the reform bill, key members of the financial services and rules committees of the House also received scores of handwritten letters from customers who were listed in the industry’s database.  Some got calls from managers of payday lending locations in their districts, according to interviews with congressional aides and industry representatives.

The tactics helped, said William P. Murray, a key industry strategist hired by FiSCA. “They absolutely opened eyes and turned heads on the Hill,” said Murray. “Many customers don’t feel empowered. To a large degree, what we’ve created has empowered them.”

In the House Financial Services Committee, the industry’s efforts bore fruit. Rep. Jackie Speier (D-Calif.), offered an amendment to limit payday interest rates to the annual equivalent of 36 percent. It never got traction.

Rep. Luis Gutierrez (D-Ill.), chairman of the subcommittee with authority over consumer credit issues, had once advocated extending to all Americans an effective ban on payday lending for military personnel that Congress passed in 2006. By last year he had scaled back, urging an amendment that would have limited to six the number of loans a borrower could receive in a year.

Gutierrez’ less-restrictive amendment died when Democrats including Rep. Alcee Hastings (D-Fla.), threatened to vote against the entire consumer protection act if the payday provision was included. It also faced opposition from Rep. Joe Baca (D-Calif.), who countered Gutierrez with an amendment the industry regarded as favorable because it had the potential to open payday lending to new markets. Baca said in a statement last year that while “fly by night lenders” should be banned, he wanted to “ensure that students, blue collar workers, teachers, police officers and others have access to legitimate payday advance loans if needed.”

All of the lawmakers – as well as many of their colleagues on the House Financial Services Committee – have received campaign contributions from the industry, its executives, employees and lobbyists. Since 2006, Gutierrez has received $38,550, Baca $16,250 and Hastings $13,500. Almost all of Baca’s contributions were reported during the last half of 2009, as the financial reform bill took shape. Chairman Frank has received $12,300 from the industry’s political action committees since 2006, and last year even Speier received some donations from the payday industry’s PACs: $3,500.

Gutierrez, Baca and Hastings declined requests to be interviewed for this story.

Schlein, the payday trade group spokesman, said what really made a difference with some members of Congress was the letters from customers and data underscoring the industry’s small profit margin on each loan.

“I wouldn’t say we brought Baca aboard, but he understands now,” said Schlein. “He doesn’t come out against the industry with unfounded vitriol. The reason is we showed him, and he did the math.”

So did committee chairman Frank, who tallied more support for Baca than for Gutierrez. He quickly nixed any payday amendments at all. “I felt if we went to votes on the floor, we’d be likely to get a bad amendment rather than a good one,” Frank said in the interview.

Following their victory in the House, payday industry lobbyists have joined dozens of others paid by the financial industry to make sure the Senate does not vote to create an independent Consumer Financial Protection Agency.

Selected senators have already received handwritten letters. One woman wrote to Sen. Lindsey Graham (R-S.C.) to explain how she’d been out of work for two weeks when her daughter fell ill with pneumonia. Rapidly, “bills fell behind, and I still had a family to feed,” she wrote. A quick cash loan “helped me through some difficult times.”

For the payday industry, an end to difficult times in Washington could be in sight:  Without an independent agency, the companies may be more likely to escape national policing. None of the existing agencies that oversee financial institutions have jurisdiction over them.

Investigative Fund intern Adele Hampton contributed research for this story.

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PAYING FOR INFLUENCE
Over the last decade, lenders specializing in short-term loans, along with company executives and others associated with them, have spent millions of dollars to win influence in Congress, according to an analysis of campaign finance data and lobbying records. Editor’s note: Data for 2009-10 as of Feb. 1, 2010.

SOURCES: Federal Election Commission records, U.S. Senate lobbying disclosure data, Center for Responsive Politics. CREDITS: Adele Hampton, Huffington Post Investigative Fund

By Chad Terhune and Keith Epstein

As the health reform fight shifts this month from a vacationing Washington to congressional districts and local airwaves around the country, much more of the battle than most people realize is already over. The likely victors are insurance giants such as UnitedHealth Group, Aetna, and WellPoint. The carriers have succeeded in redefining the terms of the reform debate to such a degree that no matter what specifics emerge in the voluminous bill Congress may send to President Obama this fall, the insurance industry will emerge more profitable. Health reform could come with a $1 trillion price tag over the next decade, and it may complicate matters for some large employers. But insurance CEOs ought to be smiling.

Executives from UnitedHealth certainly showed no signs of worry on the mid-July day that Senate Democrats proposed to help pay for reform with a new tax on the insurance industry. Instead, UnitedHealth parked a shiny 18-wheeler outfitted with high-tech medical gear near the Capitol and invited members of Congress aboard. Inside the mobile diagnostic center, which enables doctors to examine distant patients via satellite television, Representative Jim Matheson didn’t disguise his wonderment. “Fascinating, fascinating,” said the Democrat from Utah. “Amazing.”

UnitedHealth on Capitol Hill

Impressing fiscally conservative Democrats like Matheson, a leader of the House of Representatives’ Blue Dog Coalition, is at the heart of UnitedHealth’s strategy. It boils down to ensuring that whatever overhaul Congress passes this year will help rather than hurt huge insurance companies.

Some Republicans have threatened to make health reform Obama’s “Waterloo,” as Senator Jim DeMint of South Carolina has put it. The President has fired back at what he considers GOP obstructionism. Meanwhile, big insurance companies have quietly focused on what they see as their central challenge: shaping the views of moderate Democrats.

The industry has already accomplished its main goal of at least curbing, and maybe blocking altogether, any new publicly administered insurance program that could grab market share from the corporations that dominate the business. UnitedHealth has distinguished itself by more deftly and aggressively feeding sophisticated pricing and actuarial data to information-starved congressional staff members. With its rivals, the carrier has also achieved a secondary aim of constraining the new benefits that will become available to tens of millions of people who are currently uninsured. That will make the new customers more lucrative to the industry.

Matheson, whose Blue Dogs command 52 votes in the House, can’t offer enough praise for UnitedHealth, the largest company of its kind. “The tried and true message of their advocacy,” he says, “is making sure the information they provide is accurate and considered.”

Representative Mike Ross, an Arkansas Democrat who leads the Blue Dogs’ negotiations on health reform, also welcomes input from UnitedHealth. “If United has something to offer on cutting costs, we should consider it,” says Ross, a former small-town pharmacy owner. “We need more examples that work, and everything should be on the table.”

DEMOCRATIC WELCOME

Fifteen years after the insurance industry helped kill then-President Bill Clinton’s health-reform initiative, Ross is frustrating the Obama White House by opposing proposals for a government-run insurance concern that would compete with private-sector companies. The President argues that without a public plan, premiums and medical bills will remain prohibitively high. Ross and Matheson have given strong voice to the industry’s contention that such a public insurer would actually reduce competition by undercutting private plans on price and driving them out of business. “We have concerns about a public option if it’s not done on a level playing field,” Ross says.

Obama launched his Administration vowing to extend coverage to all Americans and help pay for it by reining in insurance costs. Seven months later, insurers and pharmaceutical manufacturers that appeared vulnerable to a regulatory crackdown have been welcomed to the negotiating table by the President’s own party.

The several competing bills pending in Congress would guarantee all Americans access to health coverage, addressing the plight of the 47 million who are now uninsured. Congress plans to achieve that by expanding Medicaid, the government program for the poor and disabled; requiring insurers to accept all applicants regardless of their health; and mandating that everyone purchase coverage. Government subsidies would make the obligatory coverage more affordable. The legislation would do little, however, to slow spending by Medicare, the public program for senior citizens, or cut overall medical costs. Congress is considering taxes on the wealthy and on benefits now provided to many white-collar workers.

During the UnitedHealth road show in July, Democrat after Democrat clambered into the company’s promotional vehicle beneath a sign declaring: “Connecting You to a World of Care.” Judah C. Sommer, who heads the company’s Washington office, looked on with satisfaction. “This puts a halo on us,” he explained. “It humanizes us.”

And that Democratic proposal to tax insurance companies? It seems to be fading after the industry said it would raise rates for workers and their families.

UnitedHealth’s relationship with Democratic Senator Mark R. Warner of Virginia illustrates the industry’s subtle role. Elected last fall, Warner, a former governor of his state and a wealthy ex-businessman, received a choice assignment as the Senate Democrats’ liaison to business. The rookie senator landed in the center of a high-visibility political drama—and in a position to earn the gratitude of a health insurance industry that has donated more than $19 million to federal candidates since 2007, 56% of which has gone to Democrats.

UnitedHealth has periodically served as a valuable extension of Warner’s office, providing research and analysis to support his initiatives. Corporations and trade groups play this role in all kinds of contexts, but few do it with the effectiveness of the insurers. In June, Warner introduced legislation expanding government-backed Medicare and Medicaid coverage for hospice stays for the terminally ill and other treatment in life’s final stages. The issue isn’t a top UnitedHealth priority. But the corporation wanted to help Warner with his argument that in the long run, better hospice coverage would save money. UnitedHealth prepared a report for lawmakers finding that 27% of Medicare’s budget is now spent during the last year of older patients’ lives, often on questionable hospital tests and procedures. Expanded hospice coverage and other services could save $18 billion over 10 years, UnitedHealth asserted.

When Warner went to the Senate floor on June 15 to offer his bill, he cited those exact figures. He thanked the company for its support and put a letter from UnitedHealth applauding him in the Congressional Record.

Warner acknowledges in an interview that he worked on the hospice-care legislation with UnitedHealth executives. But he stresses that he has long experience with health issues and has formed his own views. The senator echoes UnitedHealth’s contention that a so-called public option could be a “Trojan horse for a single-payer system,” meaning government-run medical care. Warner has heard from some of UnitedHealth’s largest employer clients, such as Delta Air Lines. Delta CEO Richard H. Anderson, a former UnitedHealth executive, has told Warner and other lawmakers that big companies don’t want government to limit their flexibility in crafting employee health benefits.

ACTUARIAL ASSUMPTION

Obama’s promise to boost competition and lower costs by having the government play a much broader role in health coverage has been steadily compromised because of the resistance of such Democrats as Warner. “There are different ways to skin this and get competition” in the insurance market, Warner says.

Warner and other opponents of a public plan have relied on an estimate by John Sheils, an actuary who says that 88 million people, or 56% of those with employer-provided coverage, would desert private insurance for a government-run program. That would destabilize the marketplace and potentially kill the private insurance industry, according to Sheils, who works for the Lewin Group, a corporate consulting firm in Falls Church, Va.

UnitedHealth lobbyists routinely cite Lewin’s work, as do Senator Orrin G. Hatch (R-Utah), the second-ranking Republican on the Senate Finance Committee, and Eric Cantor (R-Va.), the House Republican Whip. Left out of these testimonials or buried in the fine print is that a UnitedHealth unit owns the Lewin Group and thus is ultimately responsible for Sheils’ paycheck. In an interview, Sheils says UnitedHealth gives him and the Lewin firm complete independence: “We call it like we see it,” he adds.

Some Democrats differ. Says Representative Pete Stark, the liberal California Democrat who chairs the House Ways & Means health subcommittee: “The Lewin Group’s so-called analysis is suspect.” The nonpartisan Congressional Budget Office has stated that the Sheils-Lewin figure is far too high.

UnitedHealth brings a mixed record to its role helping to guide health reform. The company has repeatedly hit smaller employers and consumers with double-digit rate hikes in recent years, far greater than the overall rate of inflation. An investigation last year by New York’s Attorney General will force the company to stop running two huge databases used widely within the insurance industry. By allegedly setting medical reimbursements too low—that is, skewing statistics in favor of insurers by understating “usual and customary” physician fees—the databases had resulted in the overcharging of consumers by billions of dollars nationwide. In January, UnitedHealth agreed to resolve the situation by paying $400 million in a pair of agreements with the New York Attorney General and the American Medical Assn., although it didn’t admit any wrongdoing.

In a separate case last year, UnitedHealth was forced to stop selling “limited benefit” plans with capped payouts under the imprimatur of the senior citizen group AARP. It turned out that the policies provided very modest coverage, catching many customers off guard, according to Senator Charles E. Grassley (R-Iowa), who helped bring the practice to light. Grassley pointed out that UnitedHealth paid as little as $5,000 toward surgery costing several times as much.

Despite such episodes, UnitedHealth is generally well received in legislative circles in Washington. In late May its in-house point man on reform, Simon Stevens, hand-delivered a report to key senators detailing ways to save an estimated $540 billion in federal spending over 10 years. A week later, on June 4, Stevens accompanied UnitedHealth’s chief executive, Stephen J. Hemsley, to a meeting with Senator Kent Conrad (D-N.D.), an influential moderate member of the Senate Finance Committee. Conrad has since led an effort to create nonprofit medical cooperatives that would operate much like utility co-ops as a substitute for a federally run plan. With less heft than a proposed national plan, the state medical cooperatives would pose a far weaker competitive threat to private insurers.

Conrad says in an interview that the co-op idea evolved independently of any industry input. Skirmishing over the public plan could jeopardize efforts at reform, he warns. Co-ops, he argues, are “the only alternative that’s got much of a shot” to gain sufficient votes in the Senate.

BRITISH EXPERIENCE

UnitedHealth followed up on June 30 with another report for lawmakers pinpointing $332 billion in savings through better use of technology and administrative simplification. If enacted, those changes would potentially benefit UnitedHealth’s Ingenix data-crunching unit. Ingenix, with annual revenue of $1.6 billion, is poised to establish a national digital clearinghouse to ensure the accuracy of medical payments and provide a centralized service for checking the credentials of physicians.

UnitedHealth's Stevens

Stevens, an Oxford-educated executive vice-president at UnitedHealth, once served as an adviser to former British Prime Minister Tony Blair. In that capacity, Stevens tried to fine-tune the U.K.’s nationally run health system. Today he tells lawmakers that the U.S. need not follow Britain’s example. Concessions already offered by the U.S. insurance industry—such as accepting all applicants, regardless of age or medical history—make a government-run competitor unnecessary, he argues. “We don’t think reform should come crashing down because of [resistance to] a public plan,” Stevens says. Many congressional Democrats have come to the same conclusion.

UnitedHealth has traveled an unlikely path to becoming a Washington powerhouse. Its last chairman and chief executive, William W. McGuire, cultivated a corporate profile as an industry insurgent little concerned with goings-on in the capital. From its Minnetonka (Minn.) headquarters, the company grew swiftly by acquisition. McGuire absorbed both rival carriers and companies that analyze data and write software. Diversification turned UnitedHealth into the largest U.S. health insurer in terms of revenue. In 2008 it reported operating profit of $5.3 billion on revenue of $81.2 billion. It employs more than 75,000 people.

In 2006, McGuire lost his job after getting caught up in the manipulation, or “backdating,” of company stock options. UnitedHealth was forced to restate earnings over a 12-year period to reflect the extra compensation it had granted McGuire and other executives. McGuire’s chief lieutenant, Stephen Hemsley, took over as CEO in December 2006. Two independent inquiries concluded that Hemsley wasn’t involved with the backdating. Nevertheless he forfeited $190 million in past stock compensation and unrealized gains to resolve the matter.

CEO Hemsley

Hemsley, a former chief financial officer of the now-defunct Arthur Andersen accounting firm, generally shuns the spotlight. But when health reform became a central issue in the runup to the last Presidential election, company executives say they realized UnitedHealth needed to go on the offensive. Hemsley met with White House officials on May 15 and May 22 to promote his company’s prescription for cutting federal health spending.

In August 2007, the company hired Sommer, who previously headed global lobbying for Goldman Sachs (GS). He quickly built a new Washington team of former congressional aides and other K Street operatives. One key acquisition: Cory Alexander, former chief of staff for House Majority Leader Steny Hoyer (D-Md.), an influential moderate Democrat. Alexander had been lobbying for the huge mortgage financier Fannie Mae (FNM). Today, Sommer directs a team of nearly 50 people from UnitedHealth’s spacious Washington office on Pennsylvania Avenue, equidistant between the Capitol and White House. The company spent more than $3.4 million on in-house and outside lobbying in the first half of 2009.

Sommer has retained such influential outsiders as Tom Daschle, the former Democratic Senate Leader who now works for the large law and lobbying firm Alston & Bird. Daschle, a liberal from South Dakota, dropped out of the running to be Obama’s Secretary of Health & Human Services after disclosures that he failed to pay taxes on perks given to him by a private client. He advised UnitedHealth in 2007 and 2008 and resumed that role this year. Daschle personally advocates a government-run competitor to private insurers. But he sells his expertise to UnitedHealth, which opposes any such public insurance plan. Among the services Daschle offers are tips on the personalities and policy proclivities of members of Congress he has known for decades.

Conceding that he doesn’t always agree with his client, Daschle says: “They just want a description of the lay of the land, an assessment of circumstances as they appear to be as health reform unfolds.” He says he leaves direct contacts with members of Congress to others at his firm.

What people in Washington tend not to discuss, at least on the record, is the open secret that insurers are minimizing their forecasts of the eventual windfall they will enjoy from expanded coverage for Americans. UnitedHealth has given certain key members of Congress details about its finances and tax liability—both historical numbers and figures projected under various cost-sharing scenarios. But some on Capitol Hill are skeptical. “The bottom line,” says an aide to the Senate Finance Committee, “is that health reform would lead to increased revenues and profits [for the insurance industry]. … There will be [added] costs [to the companies], but we’re not sure the revenues and profits will be as low as they say.”

A fundamental question about the health overhaul is what minimum standards will apply to the coverage all Americans will be required to have. UnitedHealth has been exchanging a high volume of information on the topic with members of the Senate Finance Committee and their staff. Stevens, the former British health aide, regularly scans PowerPoint presentations generated by the committee staff that attempt to calculate the actuarial value of proposed benefit packages. Senators stung by the projected $1 trillion price tag are winnowing down the required coverage levels to cut costs.

This is good news for UnitedHealth, which benefits when patients pick up more of the tab. In late spring, the Finance Committee was assuming a 76% reimbursement rate on average, meaning consumers would be responsible for paying the remaining 24% of their medical bills, in addition to their insurance premiums. Stevens and his UnitedHealth colleagues urged a more industry-friendly ratio. Subsequently the committee reduced the reimbursement figure to 65%, suggesting a 35% contribution by consumers—more in line with what the big insurer wants. The final figures are still being debated.

Stevens says UnitedHealth and its corporate clients want to steer Congress toward benefit levels and cost sharing that can help control overall health spending: “We are providing another resource of actual modeling and advice on how proposals in the committees are structured and some potential unintended consequences of going down certain routes.”

Perhaps more than any other insurer, UnitedHealth is poised to profit from health reform. Its decade-long series of acquisitions has made the company a coast-to-coast Leviathan enmeshed in the lives of 70 million Americans.

United’s AmeriChoice unit is the largest government contractor administering state Medicaid programs for the poor and federally sponsored plans for children. AmeriChoice’s revenue rose 34% last year, to $6 billion, and it has 2.7 million people enrolled. Those numbers should continue rising under reform since congressional Democrats are proposing an expansion of Medicaid to help achieve universal coverage. More of the working poor would qualify for Medicaid, and AmeriChoice can sell itself to states as the leading service provider.

HEALTH COACH AT THE OFFICE

Another of the big beneficiaries among UnitedHealth’s stable of subsidiaries is OptumHealth. It’s the company’s one-stop shop for managing the chronically ill, offering wellness programs and guiding consumers on treatment options. Even before the reform debate, these services were growing in demand as big employers, state and local governments, and others tried to curb health-care spending by supervising patients more aggressively.

OptumHealth provides a broad range of services, from a 24-hour hotline where nurses can suggest the best hospital for a transplant to “health coaches” who dole out meal plans, to-do lists, and motivational messages. Some OptumHealth clients bring coaches into the office or onto the factory floor to teach about diet and exercise. Many of the cost-containment strategies Democrats are pushing call for more of the preventive care that OptumHealth sells.

“We are extremely well positioned for a much broader adoption,” says Dawn Owens, OptumHealth’s chief executive. Her division, based in Golden Valley, Minn., already boasts $5.2 billion in annual revenue.

Stevens argues that while UnitedHealth will likely benefit financially from health reform, the company will also aid the cause of reducing costs. He cites what he says is its record of “bending the cost curve” for major employers.

During a media presentation in May in Washington, Stevens said medical costs incurred by UnitedHealth’s corporate clients were rising only 4% annually, less than the industry average of 6% to 8%. But that claim seemed to conflict with statements company executives made just a month earlier during a conference call with investors. On that quarterly earnings call, UnitedHealth CEO Hemsley conceded that medical costs on commercial plans would increase 8% this year.

Asked about the discrepancy, Stevens says the lower figure he is using in Washington represents the experience of a subset of employer clients who fully deployed UnitedHealth’s cost-saving techniques, including oversight of the chronically ill. “These employers stuck at it for several years,” he says. “We are putting forward positive ideas based on our experience of what works.”

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Questions About Golden Rule

A UnitedHealth subsidiary draws heat on the Hill

By Chad Terhune and Keith Epstein

Even as UnitedHealth Group has helped shape the reform debate, some lawmakers have accused it of harming consumers. Several members of the House Energy & Commerce Committee chastised UnitedHealth during hearings on June 16 and July 27 for the conduct of its Golden Rule Insurance subsidiary.

Acquired by UnitedHealth in 2003, Golden Rule has sold individual and family policies for more than 60 years. State regulators have repeatedly fined and disciplined Golden Rule for allegedly deceptive practices. In 2002 it resolved a nine-state investigation by paying $660,000, but it denied wrongdoing. Since taking over, UnitedHealth has let Golden Rule continue one of its most controversial methods: selling individual policies through a nonprofit group. This gives some buyers the misimpression they are getting group coverage and better value, regulators allege. But states have only rarely taken formal action.

House members scolded Golden Rule and other insurers for allegedly rescinding coverage entirely after sick policyholders make credible claims. Richard Collins, Golden Rule’s CEO, defended such cancellations, prompting Representative John Dingell (D-Mich.) to say: “This is precisely why we need a public option [to compete with private insurers].”

Collins responded that rescissions, used sparingly, root out fraud by dishonest consumers. That’s only fair, he added, to families who play by the rules.

Plain Dealer – Feburary 28, 1993

SERIES: DEADLY DELAYS: RED TAPE COST LIVES

Part One of a five-part series.
by KEITH EPSTEIN

PLAIN DEALER REPORTER

WASHINGTON

In swirling snow, USAir’s Flight 405 pulled away from the terminal at New York’s LaGuardia Airport, bound for Cleveland. The two men at the controls had taken the usual winter precautions, checking for ice and having the wings sprayed with antifreeze.

Moments later, as they waited for takeoff, they wished their Fokker F-28 could get a last-minute shower of de-icing chemicals the way jets do in Denver and at many European airports.

“The only sure-fire safe way,” the pilot said to his co-pilot.

They didn’t realize just how precarious their situation was.

The federal government knew for seven years.

U.S. safety officials repeatedly had pinpointed the cause of nine crashes of planes with wing designs similar to that of Flight 405 – the wing’s high vulnerability to trace amounts of ice.

Yet Washington had done nothing to require simple, proven remedies advocated for years, such as checking the wings by hand or spraying with a stronger antifreeze just before takeoff.

As a result, the pilots of Flight 405 last March were forced to use outmoded methods of coping with ice on wings. The plane barely lifted before flipping into Flushing Bay in a fiery crash that claimed 27 lives.

Passenger Denise Miller watched her father die in the final burst of flames. Miller, who now must use a wheelchair, asks: “How many plane crashes have to occur? How many people have to die, before somebody finally does something?”

These deadly delays by the federal bureaucracy are not limited to air travel.

A Plain Dealer investigation found that long after wreckage is examined for clues, causes determined and solutions urged – thousands of Americans still risk death or injury in accidents because the causes weren’t fixed.

Motorists have died because many big trucks have faulty brakes – while for 14 years the government failed to require proven solutions such as anti-lock brakes and automatic brake adjusters costing only $204.

Children trapped in school buses when front or rear doors jammed were drowned or burned – while for 19 years the government failed to require an extra emergency exit costing $557. One manufacturer has offered emergency side doors as an option since the 1950s.

Passengers have died in commuter airliners that crashed on routine approaches to airports – while for 18 years the government failed to require the same low-altitude alarms it mandated for large jets. It would seem to be a bargain for commuters even at $14,600 for each $3 million aircraft.

Engineers and conductors have died in collisions on freight trains – while for 22 years the government failed to require automated warning systems to help keep trains apart.

Pilots and their passengers died in planes whose single engines choked, sputtered and crashed – while the government failed to require $655 remedies for carburetor flaws identified in 1963 and despite efforts of the manufacturer to alert owners.

And this year more than an estimated 100 motorists will be decapitated on the nation’s highways when their vehicles slide under the rear of big trucks – while for 25 years the government failed to require a $112 protective guard.

“We know when we investigate an accident we’re going to see it again,” said Jim Burnett, former chairman of the National Transportation Safety Board.

Train crews die and poisonous gases turn neighborhoods into ghost towns because of defective track, federal safety records show. Even on the ground at the nation’s airports, commercial jets repeatedly ram one another for want of a ground radar system advocated for 20 years. Planes have collided on runways 175 times since 1982, claiming 56 lives.

“The same stupid stuff keeps happening,” observed retired federal aviation accident investigator Rudolf Kasputin, who first urged the ground radar in 1972. “It’s not just frustrating. It makes me want to throw up.”

Federal agencies have acted on only two of 18 long-ignored safety improvements identified by the safety board in 1990 as urgently needed safety improvements that could save nearly 3,000 lives each year.

Transportation Department policy makes “safety … the top priority.” Yet regulators acknowledge their increasing inability to take prompt action, even when it would save lives.

“Everything takes too long nowadays,” said Anthony J. Broderick, the Federal Aviation Administration’s associate administrator.

Transportation experts describe a bureaucracy increasingly paralyzed by fear of lawsuits from regulated industries, hobbled by conflicts with other agencies, buffeted by meddling members of Congress and political appointees, and crippled by weak leadership unable to choose priorities or stick to deadlines.

“If the average American knew how things work here, they wouldn’t believe it,” said Fred Emery, former director of the Federal Register, the official publication of government rules. “They’d think it’s a God-awful mess.”

—————–

Other stories from this series:

Ice on Jets – Recurring Risk, Tolerated for Years – Despite pinpointing causes of multiple commercial airliner crashes, Washington does nothing to require simple, proven remedies advocated for years

Flight 405: The Story of Four Passengers- Strangers on a plane, going about the routine business of flying, trusted that commercial aviation had become as safe as airlines and the government could make it.  They were wrong.

Killer Trucks – Why the Slaughter Won’t Stop – Trucks with self-adjusting brakes would have fewer accidents, causing less damage and saving hundreds of lives.  Yet the government dawdled in requiring them.

While Grownups Squabbled, Children Died – Battles between automakers and regulators for more than a decade stalled development of safer child seats.

Feds Shrug Off a Life-Saver for Commuter Planes – Commuter airline flights crashed repeatedly into the ground for lack of a simple device  urged for years by federal safety officials. The  FAA declined. Planes kept crashing.

Cessnas Crash, but Agencies Do Nothing -  For decades, Cessnas chocked from a carburetor flaw known to the manufacturer and the government. Yet pilots had never heard of the problem, and the government required no fix.

Yellow Coffins – Modern school buses are among the safest means of transport. Yet when accidents occur, children are often trapped. Still, the government for years allowed preventable tragedies to recur.

Safety Board Has No Teeth – The National Transportation Safety Board is widely known for investigating accidents. What many people don’t realize is that it’s powerless – a toothless tiger.

Presidential brother makes hay from education reform

BusinessWeek – October 16, 2006

By Keith Epstein

Across the country, some teachers complain that President George W. Bush’s makeover of public education promotes “teaching to the test.” The President’s younger brother Neil takes a different tack: He’s selling to the test.

The No Child Left Behind Act compels schools to prove students’ mastery of certain facts by means of standardized exams. Pressure to perform has energized the $1.9 billion-a-year instructional software industry.

Now, after five years of development and backing by investors like Saudi Prince Alwaleed Bin Talal and onetime junk-bond king Michael R. Milken, Neil Bush aims to roll his high-tech teacher’s helpers into classrooms nationwide. He calls them “curriculum on wheels,” or COWs. The $3,800 purple plug-and-play computer/projectors display lively videos and cartoons: the XYZ Affair of the late 1790s as operetta, the 1828 Tariff of Abominations as horror flick. The device plays songs that are supposed to aid the memorization of the 22 rivers of Texas or other facts that might crop up in state tests of “essential knowledge.”

Bush’s Ignite! Inc. has sold 1,700 COWs since 2005, mainly in Texas, where Bush lives and his brother was once governor. In August, Houston’s school board authorized expenditures of up to $200,000 for COWs. The company expects 2006 revenue of $5 million. Says Bush about the impact of his name: “I’m not saying it hasn’t opened any doors. It may have helped with some sales.” (In September, the U.S. Education Dept.’s inspector general accused the agency of improperly favoring at least five publishers, including The McGraw-Hill Companies, which owns BusinessWeek. A company spokesman says: “Our reading programs have been successful in advancing student achievement for decades; that’s why educators hold them in such high regard.”)

The stars haven’t always aligned for Bush, but at times financial support has. A foundation linked to the controversial Reverend Sun Myung Moon has donated $1 million for a COWs research project in Washington (D.C.)-area schools. In 2004 a Shanghai chip company agreed to give Bush stock then valued at $2 million for showing up at board meetings. (Bush says he received one-fifth of the shares.) In 1988 a Colorado savings and loan failed while he served on its board, making him a prominent symbol of the S&L scandal. Neil calls himself “the most politically damaged of the [Bush] brothers.”

While hardly the first brother to embarrass a President — remember Billy Carter’s Billy Beer or Roger Clinton’s cocaine? — Neil could be the first to seek profit from a hallmark Presidential crusade. And also that of a governor: Jeb makes school standards a centerpiece in Florida, too.

Neil says he never talks shop with his brothers. He attributes his interest in education to his struggles with dyslexia. His son, Pierce, also had difficulties in school, he says. “Not one of our investors has ever asked for any kind of special access — a visa, a trip to the Lincoln Bedroom, an autographed picture, or anything.”

BusinessWeek Cover Story

February 12, 2009

By Brian Grow, Keith Epstein and Robert Berner

The bad mortgages that got the current financial crisis started have produced a terrifying wave of home foreclosures. Unless the foreclosure surge eases, even the most extravagant federal stimulus spending won’t spur an economic recovery.

The Obama Administration is expected within the next few weeks to announce an initiative of $50 billion or more to help strapped homeowners. But with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years, the Obama plan—whatever its details—can’t possibly do the job by itself. Lenders and investors will have to acknowledge huge losses and figure out how to keep recession-wracked borrowers making at least some monthly payments.

So far the industry hasn’t shown that kind of foresight. One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges.

The industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell BusinessWeek . “We were like the Dutch boy with his finger in the dike,” says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. Some admit that, in retrospect, their clients, which include Bank of America, Citigroup, and JPMorgan Chase, would have been better off had they agreed two years ago to address foreclosures systematically rather than pin their hopes on an unlikely housing rebound.

In public, financial institutions insist they’ve done their best to prevent foreclosures. Most argue that giving bankruptcy courts increased clout, known as cramdown authority, would reward irresponsible borrowers and result in higher borrowing costs. “What we’re trying to do now is target the bill to make it as narrow as possible,” says Scott Talbott, a lobbyist for the Financial Services Roundtable. On the defensive, the industry nevertheless benefits from one strain of popular opinion that home buyers who took on risky mortgages—even if the industry pushed those loans—don’t deserve to be rescued.

AN INDUSTRY IN DENIAL

However the skirmish ends, the industry’s contention that it has done as much as possible to limit foreclosures seems hollow. Some statistics it cites appear to be exaggerated. Even pro-industry figures such as Steven C. Preston, a Republican businessman who headed the Housing & Urban Development Dept. late in the Bush Administration, concede that many lenders have dragged their heels. “The industry still has not stepped up to the volume of the problem,” Preston says. One program, Hope for Homeowners—which Bush officials and banks promised last fall would shield 400,000 families from foreclosure—has so far produced only 25 refinanced loans.

Meanwhile, an already glutted market sinks beneath the weight of more foreclosed homes. Borrowers whose equity has evaporated have nothing to tap into if the recession costs them their jobs. Some lawmakers and regulators are calling for a foreclosure moratorium. “People are falling through the cracks,” Preston says. “That’s bad for communities, bad for the individuals losing their homes, and bad for investors.”

In early 2007, as overextended borrowers began to default on too-good-to-be-true subprime mortgages, housing experts sounded an alarm heard throughout Washington. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, wanted to push a bill requiring banks to modify loans whose enticingly low “teaser” interest rates soon give way to tougher terms. But he knew that with Republicans strongly opposed, he lacked the muscle, according to Senate aides. So Dodd did what politicians often do. He convened a talkfest: the Homeownership Preservation Summit.

A who’s who of banking executives gathered on Apr. 18, 2007, behind closed doors in an ornate hearing room in the marble-faced Dirksen Senate Office Building. Dodd told them they needed to get out in front of the foreclosure fiasco by adjusting loan terms so borrowers would continue to make some payments, rather than stopping altogether. Foreclosure proceedings typically cost banks about 50% of a property’s value. That’s assuming the home can be resold—not a certainty when empty houses multiply in a neighborhood. “What are you doing?” Dodd asked the executives. “What do you need me to do to help you modify loans?”

Some from the industry denied a foreclosure problem existed, including Sandor E. Samuels, at the time chief legal officer of subprime giant Countrywide Financial. They vowed to continue selling loans with enticing introductory rates as well as those requiring minimal evidence of borrowers’ income. “We are going to keep making these loans until the last second they are legal,” Samuels later told a fellow participant.

On May 2, 2007, Dodd’s office issued a “Statement of Principles” stemming from the summit. It outlined seven vaguely worded industry aspirations, such as making “early contact” with strapped borrowers and offering modifications that could include lowering loan balances. The principles had no effect, some summit participants now concede.

Senate Banking chairman Chris Dodd

Much of Dodd’s attention shifted to his campaign for the Democratic Presidential nomination. Senate Banking Committee spokeswoman Kate Szostak says Dodd aggressively pursued the foreclosure issue, but “both the industry and the Bush Administration refused to heed his warnings.” The lawmaker accepted $5.9 million in contributions from the financial-services industry in 2007 and 2008.

Asked about his role at the summit, Samuels confirmed in an e-mail that he “did speak—formally and informally—about the performance” of subprime loans. But he declined to elaborate. He now works as a top in-house lawyer for Bank of America, which acquired Countrywide in July 2008.

A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs (GS) in January. A desire to postpone this devastating situation helps explain lenders’ intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns.

By mid-2007, Bush Administration officials were deeply worried about the financial industry’s unwillingness to confront the growing catastrophe. Even banking lobbyists say they realized that their clients had lapsed into denial. The K Street representatives agreed that Treasury Secretary Henry Paulson needed to step in, says Erick R. Gustafson, then the chief lobbyist for the Mortgage Bankers Assn. “It was like an intervention,” he says. “We had to get Treasury involved to get the banks to give us information.”

That summer, Paulson, a former CEO of Goldman Sachs, summoned industry executives to the Cash Room, one of Treasury’s most elegant venues. There, beneath replica gaslight chandeliers, Neel T. Kashkari, a junior Goldman banker whom Paulson had brought to Treasury, urged industry leaders to move swiftly to keep more consumers from losing their homes. Bankers know how to adjust interest rates, extend loan durations, and, if necessary, lower principal, said Kashkari, who has temporarily remained in his post. A couple of months later, Paulson summoned the executives again, this time to his conference room. “We told them we need to get over the goal line,” recalls a former top Treasury official. “Cajoling is a euphemism for what we did. We pounded them.”

One product of the Treasury conclaves was the Hope Now Alliance, a government-endorsed private sector organization announced by Paulson on Oct. 10, 2007. Lenders promised to cooperate with nonprofit credit counselors who would help borrowers prevent defaults. Faith Schwartz, a former subprime mortgage executive, was put in charge.

WINDOW DRESSING?

The alliance got off to a shaky start. An early press release contended that there had been more foreclosures nationally than the Mortgage Bankers Assn. was conceding at the time. “We looked like the Keystone Kops,” says an industry lobbyist. Soon it became apparent that the program was primarily a public-relations effort, the lobbyist says. “Hope Now is really just a vehicle for collecting and marketing information to the Treasury, people on the Hill, and the news media.”

In a press release last Dec. 22, Hope Now said it had prevented 2.2 million foreclosures in 2008 by arranging for borrowers to catch up on delinquent payments and, in some cases, easing terms. But the data don’t reveal how many borrowers are falling back into default because many modifications don’t, in fact, reduce monthly payments. The alliance doesn’t receive this information from banks, says Schwartz.

There’s reason for skepticism. Federal banking regulators reported in December 2008 that fully 53% of consumers receiving loan modifications were again delinquent on their mortgages after six months. Alan M. White, a law professor at Valparaiso University, says the redefault rates are high because modifications often lead to higher rather than lower payments. An analysis White did of a sample of 21,219 largely subprime mortgages modified in November 2008 found that only 35% of the cases resulted in lower payments. In 18%, payments stayed the same; in the remaining 47%, they rose. The reason for this strange result: Lenders and loan servicers are tacking on missed payments, taxes, and big fees to borrowers’ monthly bills.

Consider the case of Ocbaselassie Kelete, a 41-year-old immigrant from Eritrea who called Hope Now last fall. Kelete, a naturalized U.S. citizen, bought a $540,000 townhouse in Hayward, Calif., in November 2006 with no down payment and 100% financing from First Franklin Financial, a subprime unit of Merrill Lynch. At the time, he and his wife earned $108,000 a year from his two jobs, with a pharmacy and an office-cleaning service, and hers as a janitor. Kelete says First Franklin and his realtor convinced him that he could afford a pair of mortgages, one with a 7.5% initial rate that would rise after three years, and a second with a fixed 12% rate. His monthly payment would total $3,600.

“WORK WITH ME”

“The realtor said, ‘Just make sacrifices for two years. Home prices will go up, and you can refinance at a lower rate,’ ” Kelete recalls. He regrets signing a mortgage he couldn’t afford—a mistake many people made during the subprime craze. Home prices didn’t go up. He lost his office-cleaning job. First Franklin modified his loans, but added on property taxes it had failed to collect earlier. Kelete’s monthly bill rose to $3,900. In October 2008, he called Hope Now. A counselor set up a conference call with First Franklin. The lender’s representative said Kelete should get another job or give up the house, the borrower says. Kelete responded that he’d already lost his second job cleaning offices and couldn’t find another in a faltering California economy. “Why don’t you work with me?” he asked First Franklin. The lender declined. The Hope Now counselor said there was nothing more to do. “Foreclosure is the only future I see,” Kelete says. A spokesman for BofA, which acquired Merrill in December, declined to comment, citing the borrower’s privacy. After BusinessWeek‘s inquiries, however, First Franklin contacted Kelete about lowering his monthly payments.

Hope Now’s Schwartz acknowledges she is fighting an uphill battle. By her calculation, 45% of the borrowers her organization advises still end up in foreclosure. “If I seem frustrated,” she says, “it’s because we are dealing with nothing but an exploding problem.” She has a full-time staff of four in Washington; 500 counselors participate in the industry-funded hotline. “You shouldn’t take it lightly, what we have achieved,” Schwartz says. She bristles at suggestions that the statistics she disseminates are misleading. “I print what I know,” she says, noting that some of her bank members aren’t forthcoming about loan modifications. “It’s like herding and juggling cats.”

By early 2008 it was obvious that Hope Now wasn’t halting a significant percentage of foreclosures. Democrats in Congress began gathering ideas for a government-sponsored remedy. Many of those ideas came from the industry. Lobbyists and congressional aides referred to one concept as “the Credit Suisse plan.” Another, “the Bank of America plan,” would allow borrowers to refinance mortgages with loans guaranteed by the Federal Housing Administration. Representative Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, had solicited BofA’s advice via an old Boston acquaintance, Anne Finucane, the bank’s chief marketing executive and a politically active Democrat. He assigned several aides, including Michael M. Paese and Rick Delfin, to work out the details.

Francis Creighton, a Democratic former staff member on the Financial Services panel who had gone to work as a lobbyist for the Mortgage Bankers Assn., negotiated with Paese and Delfin. Creighton’s Republican colleague Gustafson huddled with aides to such GOP lawmakers as Representative Spencer Bachus and Senator Richard Shelby, both of Alabama.

Before long, the anti-foreclosure provisions were being altered in ways the industry favored. Shelby, the ranking Republican on the Senate Banking Committee, along with other Republicans insisted on the pro-industry language in exchange for their support, aides say.

In the end, the program included stiff up-front and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property’s value—all of which made it much less attractive to borrowers. Moreover, the banks’ participation was made entirely voluntary; there was no way to pressure them to cooperate.

Congress approved Hope for Homeowners on July 26, 2008, as part of a larger measure imposing restrictions on the mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE). At the Mortgage Bankers Assn., lobbyists gathered in Gustafson’s corner office to lift plastic cups of wine in celebration.

Those familiar with Hope for Homeowners anticipated that its fine print would discourage all but a few borrowers. “We knew it was likely to have limited appeal,” says Preston, the former secretary of HUD, which oversees the FHA. George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans “useless” because of the onerous details.

BROKEN BILL

Shelby, for his part, never expected Hope for Homeowners to accomplish much, according to Republican Senate aides. He agreed to it to gain Dodd’s support for greater regulation of Fannie and Freddie—and only when assured the program wouldn’t drain tax dollars. “My consistent aim throughout this crisis has been to protect the American taxpayer,” Shelby told BusinessWeek in a statement. He accepted $565,000 in contributions from the financial-services industry in 2007-2008.

Frank, whose industry contributions totaled $948,000 over the same period, says he became skeptical Hope for Homeowners could achieve its initial goal of helping 1 million people. But he expected much more progress than the mere 25 refinancings that have occurred so far, according to HUD. He blames Republicans and the industry for undercutting his legislation. “I didn’t have the votes to do more,” he says.

The Massachusetts liberal hasn’t given up hope of repairing Hope for Homeowners. He is working on changes that would cut borrowers’ up-front fees and provide bonus money for mortgage servicers that agree to participate in the voluntary program. Frank aides Paese and Delfin aren’t assisting with the fixes: They have left their congressional staff positions for lobbying jobs with the Securities Industry & Financial Markets Assn. in Washington. They say they are observing the one-year federal ban on speaking with their former boss about business they did on the Hill.

In the first days of 2009 it appeared that progress might be possible on a different front. A slumping Citigroup came back to the Treasury Dept. for a second round of bailout money. Bowing to pressure from regulators, Citi broke ranks with its rivals and dropped its opposition to bankruptcy cramdown.

Senator Dick Durbin (D-Ill.), who since 2007 had led unsuccessful efforts in Congress to give bankruptcy judges authority to modify home loans, dispatched his senior economic policy adviser, Brad J. McConnell, to talk with lobbyists for JPMorgan Chase and Bank of America. “Each agreed to take [the idea] back to their folks to see what they could do,” says a person familiar with the talks. Citi’s concession, the imminent Obama inauguration, and intensifying public hostility toward big banks contributed to an atmosphere Democrats assumed would be conducive to compromise.

TALKING POINTS

By the time McConnell talked to the JPMorgan and BofA representatives the next day, however, “they had gone on full defense mode and started to complain about how lousy a deal Citi had struck,” says the person familiar with the exchanges. Bank opposition, Durbin says, “was very shortsighted in light of the mess they have created in our economy.”

In the following weeks, banking lobbyists launched a renewed attack on the cramdown legislation, enlisting as an ally Republican Representative Lamar Smith of Texas, among others. Apart from Citi, “the industry remains united in that bankruptcy cramdown would destabilize the market” by creating widespread uncertainty about the value of numerous troubled mortgages, says Steve O’Connor, senior vice-president for government relations at the Mortgage Bankers Assn. His group is distributing talking points to key congressional aides laying out reasons why “Congress should defeat bankruptcy reform legislation.” These include the argument that if lenders can’t be confident that loan terms will survive, they will raise rates and reject riskier borrowers. Industry lobbyists are organizing home state bankers to pressure moderate Democrats they hope will be receptive to limiting the kinds of loans eligible for cramdown. One target: Senator Evan Bayh of Indiana.

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the help of a bankruptcy court if they are to keep the subdivision home they bought for $579,000 in November 2005. Stefanie, 37, a university human resources coordinator, and James, 40, a federal law enforcement agent, borrowed the entire amount in two subprime loans that required a total monthly payment of $3,000. A representative of their lender, Countrywide, told them not to worry, says Stefanie: They would be able to refinance in a year.

By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed.

But now they are struggling to pay the higher amount. Countrywide’s parent, BofA, declined to comment, citing the Smiths’ privacy. After BusinessWeek‘s questions, though, Countrywide called them to discuss cutting their payments.

“We knew when we bought that the payments would be a stretch,” says Stefanie. She regrets assuming they would be able to refinance at a lower rate. “We are not deadbeats,” she adds. “All we want is a mortgage we can afford.”

(Text to come)

THE PLAIN DEALER
Sunday, February 28, 1993

an excerpt from DEADLY DELAYS:
RED TAPE COSTS LIVES

By KEITH C. EPSTEIN

They were four strangers going about the routine business of flying – in a hurry to get home.

Like the two million people passing through airports every day, they trusted that nearly 90 years after Kitty Hawk, commercial aviation had become as safe as the government and the airlines could make it.

But this time, these four people – Kendra St. Charles, Joan Forshew, Bart Simon, and Denise Miller – were wrong.

Their trip on Flight 405 from LaGuardia Airport would change their lives forever.

Jacksonville, Fla.,
March 22, 1992, 4:47 p.m.

As Denise Miller and her father, John Stanko, head for the gate, her  brother keeps the videocamera running. His baby is crying and the elderly  Stanko, pushed in a wheelchair, is laughing into the camera.

Stanko, at 72, thinks this might be the last time he sees his son, a Navy  seaman about to leave on another seven-year tour of duty.

Denise thinks how good it feels to be close like that, a family. She feels better about herself, too, for losing 30 pounds during workouts at the “Y”  before the trip and for bringing her father to Florida.

At the gate marked “Flight 405 LaGuardia” the USAir ticket agent assigns  Denise and her father seats 8A and 8B.

“Wait,” says Denise. A Euclid travel agent, she knows the layout of the  Fokker F-28. “Isn’t that an emergency exit row?”

Her elderly father can’t move around easily, she explains, and in an  emergency, might get in the way. She asks for seats near the bathroom in the  back.

The ticket agent wonders if Joan and Frank Forshew, who are assigned to row 13, are willing to swap.

“Oh, I’d trade in 13 any day,” says Joan, who is returning to her Bath  Township home after a break in Florida.

“That’s fine with me,” says Denise. “I’m not superstitious.”

LaGuardia Airport, 4:50 p.m.

Cleveland business executive Bart Simon has had a good weekend at a  regional trade show, pitching his company’s hair brushes to beauty supply reps from across the country.

When the show winds down, he checks the forecast; the afternoon will turn wintry. He knows that usually means delays, so he tries to get on an earlier flight. It’s booked. He heads for LaGuardia anyway.

Once there, instead of having his usual antidote to airport boredom – a  martini – he eats dinner.

Inside LaGuardia terminal,
6:30 p.m.

At last, as she approaches her 40th birthday, Kendra St. Charles feels as  if she has achieved it all. A decade after her divorce, she senses she can  support a daughter and be a good mother.

She has climbed quickly in her profession, selling high-fashion eyeglass  frames to optometrists. What excites her is that the firm has chosen her to  represent it at an optical convention.

After four days in New York, Kendra longs to get back to her home in Akron and her 16-year-old daughter. While waiting to board, she makes three calls to Tracy.

Approaching LaGuardia, 7:49 p.m.

As the flight from Jacksonville descends through the clouds, Joan Forshew  can see snow in the plane’s landing lights, so different from Florida, where  she and her husband, a gifted hand surgeon, attended a medical convention. The thick snow makes her uneasy.

The plane lands, and after passengers not continuing to Cleveland leave the plane, she asks if she can take a walk. A trim, athletic woman often mistaken  for somebody younger than her 49 years, she is always walking.

The pilot speaks of gridlock. Pointing out the window, he says, “No rush. I don’t think we’re going anywhere.”

Gate 1, LaGuardia, 8 p.m.

Fifty-one men and women find their seats on Flight 405 as snow falls just  beyond the windows.

When Kendra St. Charles finds her assigned seat, 5D, someone else is in it. So she settles into another. Eventually, she has to give that up, too.  Finally, she lands in a third seat, 6B.

Gate 1, 8:40 p.m.

Just as the plane is ready to pull away from the gate, a de-icing truck  gets stuck, blocking the flight. “We have an unusual situation,” the pilot  announces.

Joan Forshew looks out the window, then at her watch. She thinks: We’re not even leaving and we’re supposed to be in Cleveland already.

At her side, Frank remains calm, engrossed in his paperback, “The Firm.”

Technically gifted, he is one of the first doctors in Northeastern Ohio to  do microsurgery – reassembling severed limbs.

So painstaking is the work that  he sometimes operates for 15 hours.

Frank, meticulous, almost fanatical about proper procedure, never rushes.  As she checks her watch again, Joan wishes she had his patience.

In the row behind, Kendra St. Charles can hear a commotion. Another  passenger, having pushed the flight attendant button, is kicking up a fuss.

“You are going to de-ice again, aren’t you?” other passengers hear the  woman say. Her husband seems embarrassed.
It unsettles Kendra a bit, but she comforts herself with this thought: They wouldn’t let us fly if it weren’t safe.

Gate 1, 8:55 p.m

Again, the flight is delayed. Joan Forshew, looking through the window,  watches a crew de-ice the plane a second time.

They are on a ladder, out in  the blowing snow atop the wings, spraying back and forth.

Restless, John Stanko switches to the row just behind, leaving his daughter in row 13. As Denise watches the second de-icing, her father munches happily  on some candy and jokes with the flight attendant.

In the cockpit, 9:08 p.m.

As the snow continues to fall, the plane begins to taxi. Capt. Wallace  Majure and his co-pilot, John Rachuba, talk about a new de-icing station at  the end of the runway in Denver, where planes awaiting takeoff can get a  last-minute dousing of de-icing chemicals. Such pads are common in Europe, yet in the United States only Denver has them.

“Zip, zip, zip man, just you know, put it on the tab,” says Rachuba. “Just  cruise out and take off.”

Agrees Majure: “That’s really the only sure-fire safe way to do it.”

Rachuba jokes that they should pull up behind a large jet, allowing the  heat of its exhaust to “keep our wings clear for us.”

They laugh.

Near Runway 13, 9:15 p.m.

Denise Miller thinks to herself, If they don’t de-ice again, I’m getting up out of my seat. She has heard planes get de-iced every 20 minutes. Also, it’s  an instinct from traveling so often.

Her father notices her anxiety. “What’s wrong, Denise?”

She shrugs her shoulders. She doesn’t want to tell him she thinks the plane shouldn’t take off.

On the runway, 9:31 p.m.

After a backup on the taxiway, it is almost Flight 405′s turn.

“Ladies and gentlemen,” Rachuba announces. “We’re now No. 1 for departure  and we’d like our flight attendants to please be seated.”

Denise Miller can no longer contain her anger.

“Denise,” says her father. “What’s wrong?”

She starts to unfasten her belt buckle so she can stand up to protest. She  considers marching up that aisle to scream at the pilot: Don’t take off!

Meanwhile, Joan Forshew reaches across the empty seat for her husband’s  hand. “Good luck,” she says. “This is going to be an experience. Here we go.”

He doesn’t reply; ever-calm, he remains glued to his paperback.

Takeoff, 9:34 p.m.

“USAir 405 runway one-three cleared for takeoff,” says the ground  controller.

The engine’s whine rises as the plane rolls down the runway. From the  cockpit, you can hear the wheels thumping, gauges clicking. The craft lifts  slightly.

Suddenly, alarms sound, beepers go off, warning of a stall. The plane  drops, dipping to the left.

“Oh my God! Oh my God!” Denise screams.

“We’re gonna crash,” Joan Forshew says, squeezing Frank’s hand and putting  her head in her lap. Over in row six, Kendra St. Charles puts her head down  too.

Majure swerves. Five seconds before slamming into a pump house and flipping over into Flushing Bay, he utters one last word: “God.”

Then everything goes black.

In the cockpit, still strapped in, co-pilot Rachuba regains consciousness.  Water is rushing in up to his chin. The window is stuck.

When he cries out to Capt. Majure for help, he gets no answer. He sees only a mass of twisted metal.

As water rushes in, he thinks: I’ve awakened and gone to hell.

He calls out to Jesus, to God.

Somehow, Rachuba finds himself outside the plane.

In the water, 9:50 p.m.

Bart Simon can’t seem to get out of his seat, though the seat itself ripped from the fuselage. He hears water lapping at the plane, which looks as if it  cracked like an egg. In a panic, he tries to press the button on his seat  belt.

He thinks: I’m alive. I survived this crash, but now the plane is going to  blow up and I’m not going to get out of here.
Then he remembers: It’s not a car seat belt, there’s no button. You pull it open. He jumps into the water, manages to swim, thankful that he skipped his  usual martini.

Denise Miller tries swimming but, disoriented, sees only darkness. She  pivots, spots the lights of the runway and the fire, begins swimming toward  it. Jet fuel spreads on the water.

She looks to her right, and sees her father, his seat still attached to the bathroom wall. She can just make out the dark shape of the flight attendant,  too, with whom her father had been joking moments ago.

He can’t seem to get his seat belt undone.

“Hold on, Dad,” she screams. “I’ll be there in just a minute.”

Then, when Denise feels the bottom of the bay and tries to climb slippery  rocks encrusted with ice, it happens: The tail end of the plane explodes.  Flames shoot into the snowy sky.

Joan Forshew is still in the wreckage. She feels something mushy at her  feet. For an instant she thinks: Maybe that’s Frank. That’s it. I’ve just  buried my husband.

“Hey, lady!” another passenger yells at her. “You have to get out of  here!”

“I can’t move,” she pleads. “My leg’s caught.”

Somebody rips her sweater, eases her leg out, tells her to go toward a  light. That’s all she seems able to focus upon: a light. She falls out of the  plane into the dark icy water.

Kendra St. Charles becomes conscious. She is still strapped into seat 6B,  the seat she was forced to move to. She does not know it, but the passengers  in the two other seats have not survived.

She seems to be upside down in the cold water. She manages to right herself and spots the lights of the runway. A rib has punctured her lung; she has  trouble breathing. But the cold, the terrible cold, seems to overwhelm the  pain.

In the water, 9:55 p.m.

Denise Miller can’t feel her legs, unable to move. Fire from the tail  section is spreading, lapping at the jet fuel leaking into the water – heading toward her on the rocks. She can’t get away from it. It rushes closer. It  flares at her, then shoots up her body. She becomes a screaming ball of fire.  She thinks: I’m going to burn to death.

A stranger runs over, at first keeping his distance.

She tries running back into the water, but stops. Then the man grabs her  and rolls her on the icy rocks to extinguish the flames. It works.

When he sees she can’t stand, he runs for help.

“No!” she screams after him, looking at the flames still spreading nearby.  “Please don’t leave me!”

Bart Simon crawls through the water and sees Joan Forshew on the edge of  the embankment. Blood streams down her face.

She has no idea how she got there, and she can’t seem to see, but now all  she can think is: I’m cold, so cold.

“Go help that woman!” somebody yells at Simon.

He thinks: What am I gonna do? Shocked, he doesn’t move at first. Then,  somehow, he edges closer.

“It’s gonna be all right,” he reassures her. “Hang in there.”

Unable to walk, she is carried to an ambulance. “My husband,” she says. “Do you see my husband? I don’t think he made it.”

Kendra St. Charles sees a man when she comes to the edge of the water. “I’m so cold,” she tells him. The snow pricks her face like so many needles.

“Just lean on me,” he says. “You’ll be OK.”

She passes out.

Cleveland, shortly before 10 p.m.

Denise Miller’s husband, Peter, over at her mother’s house, is on hold with USAir, trying to find out when the plane is due at Cleveland Hopkins  International Airport. As he waits, a recording repeats that all lines are  busy. On TV, a news flash spells out USAir Flight 405 crashes in N.Y.

“Oh my God,” cries her mother, Mary. “I can’t believe my baby is dead.”

Denise’s husband slides off his wedding ring, looks inside, where it says  today, tomorrow and always, and breaks down.

He has always depended on  Denise.

He asks aloud: “Now what am I going to do, Ma?”

Bellevue Hospital Center,
Manhattan, 11:45 p.m.

A psychiatrist asks Denise Miller what she’s most afraid of.

“My husband not wanting me because I’ll be disfigured.”

Her long hair is gone. It came out, on a brush, in a smelly dark clump. She has third-degree burns on her hands, arms and face. She still can’t feel her  leg.

A little later, the psychiatrist returns, having telephoned Denise’s  husband.

“He has a message for you,” the doctor says. “He says he loves you very  much and can’t wait to be with you.”

Injuries

Joan Forshew: Four-inch gash in her head. Badly fractured pelvis. Large  three-way puncture wound to the thigh. Burns on her face, ears, hands and  feet. Her hair is, as she puts it, “like a frayed Brillo pad full of jet  fuel.”

Kendra St. Charles: Six broken ribs, one of which punctured her right lung. Unable to breathe on her own, she is put on a respirator for four days. Her  lips remain caked with blisters, and she is unable to eat. Torn ligaments in  leg. Burns on face, ankles, feet, knee and hands. She has no eyebrows or  eyelashes.

Bart Simon: Seven stitches on his head and he is a free man. The crash was  on a Sunday. He flies out of LaGuardia the next day and is back at work  Tuesday morning.

Denise Miller: Broken nose. Swallowed jet fuel. Badly fractured bones in  her left leg, from the knee down, so crushed that doctors at first decide to  amputate. “No way,” insists her husband when he arrives. “She’s too young. She’s only 30.”

They get a second opinion. A specialist will attempt to “transfer” a muscle from her stomach and the bone from her right leg into her left leg. It sounds  miraculous. She thinks of him as “a surgeon from heaven at the hospital from  hell.” ‘

But nobody knows if it’s going to work.

It is just the kind of microsurgery that distinguished Joan Forshew’s  husband.

For six days, Denise Miller stays in intensive care. Since she is unable to talk, her husband points to a board with letters on it. She blinks her eyes  once if he points to the letter she wants, twice meaning no.

“Am I going to die?” she spells once.

And another time: “Where’s Dad?”

Her husband doesn’t answer.

Life after the crash

In November, Bart Simon flies to the Far East. Every takeoff conjures up  images of that night. In Taipei, he checks his ticket for the number of the  flight to Hong Kong.

It’s 405.

He thinks: Somebody must be testing me.

“This whole thing has sobered me up,” he says. “I don’t want to, but  sometimes I can’t help thinking about death and dying, about how close I was,  why I survived and somebody else didn’t.”

Joan Forshew wonders what her relationship with Frank would have been if  they had both survived. She has learned to slow down.

Denise Miller remains in a wheelchair. On the rare occasions when she  leaves home, it is usually to see doctors or for physical therapy. She is  gaining back the 30 pounds she lost before the crash. She is laid off from her job; “It’s like a slap in the face.”

The fear of going to sleep keeps her awake. “I don’t want to relive it  again,” she says. “I don’t want to see his body burn again.

“I’m still working on myself. I’m not ready to mourn my Dad yet.”

A moment later, she is crying. “It was supposed to be just a little  vacation.”

Kendra St. Charles’ hands are burned so badly she is unable to bend her  fingers or open a door. For months she is unable to button a blouse or a  jacket. It will take more months of rehabilitation before she can make a  fist.

She is supposed to wear special gloves to push down the scar tissue. Her  hands sometimes tingle, sometimes sting, and she feels as if they might crack  open at any time. When she takes off her gloves, she can see where her watch  and ring were.

After a family visit in the fall, Joan Forshew takes her daughter, Heather, to the airport, to catch a plane back to Charleston, S.C. Forshew is in for a  shock.

Heather’s plane is a USAir Fokker F-28.

“Heather!” she says.

Joan decides to confront her fear. “I really want to be able to get on  again,” she tells Heather.

She gets permission to board and follows Heather. Once inside, she looks  back at the doorway, and is overtaken with uncontrollable shivers.

Quickly, she hugs her daughter and rushes off the plane. She runs to the  observation deck. She wants to be alone, though it is foggy and raining, to  see how she is doing. She seems fine.

She walks back to her car. That’s when it hits her.

“I absolutely shivered from top to bottom. I didn’t know whether I’d be  able to walk. I started to shake. I got back to my car, got in, and just cried and cried.”

At Christmas, she goes to Florida again – by car.

—————-

Other stories from this series:

Deadly Delays: Bureaucracy is Killing Us – Long after wreckage is examined for clues, causes determined, and solutions urged – thousands of Americans still risk death or injury in similar accidents. (The Plain Dealer)

Ice on Jets – Recurring Risk, Tolerated for Years – Despite pinpointing causes of multiple commercial airliner crashes, Washington does nothing to require simple, proven remedies advocated for years

Flight 405: The Story of Four Passengers- Strangers on a plane, going about the routine business of flying, trusted that commercial aviation had become as safe as airlines and the government could make it.  They were wrong.

Killer Trucks – Why the Slaughter Won’t Stop – Trucks with self-adjusting brakes would have fewer accidents, causing less damage and saving hundreds of lives.  Yet the government dawdled in requiring them.

While Grownups Squabbled, Children Died – Battles between automakers and regulators for more than a decade stalled development of safer child seats.

Feds Shrug Off a Life-Saver for Commuter Planes – Commuter airline flights crashed repeatedly into the ground for lack of a simple device  urged for years by federal safety officials. The  FAA declined. Planes kept crashing.

Cessnas Crash, but Agencies Do Nothing -  For decades, Cessnas chocked from a carburetor flaw known to the manufacturer and the government. Yet pilots had never heard of the problem, and the government required no fix.

Yellow Coffins – Modern school buses are among the safest means of transport. Yet when accidents occur, children are often trapped. Still, the government for years allowed preventable tragedies to recur.

Safety Board Has No Teeth – The National Transportation Safety Board is widely known for investigating accidents. What many people don’t realize is that it’s powerless – a toothless tiger.