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 The drug was ultimately withdrawn after a study showed it was associated with approximately 60,000 deaths.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.

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
March 1, 1993

an excerpt from DEADLY DELAYS
Part Two of a five-part series

March 10, 1989. Dryden, Ont. 12:11 p.m. : Air Ontario flight 1363, carrying 65 passengers prepares for takeoff.

In seat 7C, Nancy Ayer, a bubbly woman with a loud laugh, is excited about joining her husband in Winnipeg to celebrate his job transfer to a new sales territory.

The plane lifts slightly, the engines grinding with more power, but it fails to gain height and crashes into a dense forest.

Struggling to escape, survivors clamber over one another, Nancy Ayer runs from the plane in flames, her arms flailing. “Help me,” she cries.

Dazed, she stumbles back into the wreckage. A fellow passenger grabs and rolls her in the snow to douse the flames.

She hangs on long enough to get to a hospital where her husband, John, awaits her.

“I’m not in good shape, am I?” she asks.

“No,” he tells her. “You’re going to die.”

“You’re kidding,” she says.

“I love you,” he says.

“I love you,” she says.

Six hours later, Nancy Ayer is dead. Total fatalities: 24

Cause: “Ice and snow adhering to the upper surfaces of the wings.”

By KEITH C. EPSTEIN

WASHINGTON
It’s 1985. Ice on the wings had already caused three airline crashes.

“A hazard exists,” federal safety officials write in a confidential memo. Certain types of planes are “more sensitive” to accumulations of ice too small for pilots to spot.

But the government does nothing and, in succeeding years, other ice-sensitive planes fall from the sky, killing 81 people.

Seven years after the memo, USAir’s Flight 405 became the 10th such plane  to crash, plunging into icy waters just beyond the runway at New York’s  LaGuardia Airport and adding 27 people to the deadly toll of bureaucratic  delay. Once again, the government’s failure to react to recurring accidents  involving wing ice on Dutch-made Fokker F-28′s and two older models of  McDonnell Douglas’s DC-9 led to tragedy.

Top officials in many federal agencies know such delays are common. Barry  L. Harris, the Federal Aviation Administration’s acting administrator,  acknowledges the government’s “lumbering lack of responsiveness.”

Charles O. Miller, a former top U.S. accident investigator, was helping the Canadians investigate the crash of the F-28 carrying Nancy Ayer and 64 other  passengers, when Flight 405 went down at LaGuardia. “I felt,” he said,   sighing, “like I’d come to in a time warp.”

By the time National Transportation Safety Board investigators drafted   their 1985 memo, they already knew wing icing had caused crashes of an Ozark  Airlines DC-9 series 15 in Sioux City, Iowa, in 1968; an F-28 near Izmir,   Turkey, in 1974; a Trans World Airlines DC-9 series 10 in Newark, N.J., in  1978; and an Airborne Express DC-9 series 15 in Philadelphia in 1985.

Before each accident, pilots had looked through their windows, checking for ice. Later, the pilot of Flight 405 also would check, but there was no way he  could have seen ice crystals possibly no thicker than 2 millimeters that   downed his F-28.

In 1985, Airborne Express pleaded with the safety board to investigate the  DC-9 accidents for a common thread.

The result was the 1985 memo, which urged  that flight manuals for the earlier versions of the DC-9 emphasize the unique  hazards of tiny amounts of ice on wings.

The internal memo also referred to a 1979 study by McDonnell Douglas’ chief engineer, Ralph E. Brumby, which found that the planes could become unstable   and stall from even “extremely small amounts of frost.”

Government officials, manufacturers and aviation experts long have   recognized that planes without slats – retractable mini-wings along the wing’s front edge – are vulnerable to small amounts of frost, snow or ice.

Pilots of most commercial jets, which have slats, can adjust them to   compensate for icy conditions and give planes extra lift and stability.

While planes with slats outnumber the others 10 to 1, during the last 24   years, only three of them crashed with ice on wings. But 10 F-28s and DC-9s   without slats crashed during the same period.

As early as December 1969, Fokker itself warned owners of its F-28 that ice on the wings was “particularly dangerous,” and could prevent the aircraft from lifting, sending it into an uncontrollable roll.

The safety board’s 1985 internal memo echoed these findings.

“A hazard exists,” the memo said.  “Aircraft without leading edge devices   are more sensitive to even light amounts of airfoil ice, which may not always  be visibly detectable and which may accumulate during pre-takeoff taxi   operations.”

Senior officials at the safety board refused to make the memo public and   failed to seek the changes suggested by their investigators. The safety board  can only suggest remedies, only the FAA can require them. Yet the safety board failed to give the FAA the suggestions in the internal memo.

“We didn’t feel we were on real solid ground,” said William G. Laynor,   deputy director of the safety board’s office of aviation safety. “More   research was needed. We were busy with other things. Plus, industry was   already taking action.”

He was right about industry. Independently, McDonnell Douglas had published new training material about wing ice hazards that might have helped if only   the government had required airlines and pilots to read it.

“Clearly, pilots weren’t getting the message,” said Brumby, the McDonnell   Douglas chief engineer. “It’s not like McDonnell Douglas and pilots talk   directly to each other. But it was so frustrating to see this happening to   Learjets and F-28s and DC-9s,” he said. “And then the Continental crash   happened.”

In November 1987, after de-icing, a Boise-bound Continental Airlines flight at Denver waited 27 minutes for takeoff. When the DC-9 series 10 crashed,   killing 28 people, the board no longer doubted the evidence.

Yet today the FAA still hasn’t acted on the board’s urgent pleas after the  Continental crash to force airlines to use a longer-lasting antifreeze and   end-of-runway de-icing pads common in Europe. Crashes due to wing ice have all but disappeared in Europe in the past two decades.

The jelly-like, glycol-based antifreeze lasts for 45 minutes, three times   as long as the weaker North American version. Many U.S. airlines object to the added cost. Spraying a Boeing 727 with the stronger substance adds about $200  to the cost, but the need to redo the job is less likely.

Nor did the FAA include information in flight manuals to help pilots of   planes without slats check for ice before takeoff.

More than a year after the Denver crash, the FAA said it “does not believe  there is anything unique” about planes without slats.

NTSB did nothing to counter that claim. The safety board’s Laynor   acknowledged the issue “fell through the cracks.”
Board member Susan M. Coughlin agreed. The board “should have communicated  its strong disagreement … swiftly and clearly,” she said.

Even so, if the FAA had at least complied with a 1981 request from the   safety board, the risk would have been less. The safety board had asked the   aviation agency to include specific warnings about ice and limitations of   de-icing fluids for each kind of aircraft.

The FAA refused, arguing it needed to improve weather forecasts first. The  FAA still had not distributed wing icing warnings when a Ryan International   Airlines DC-9 series 15 crashed in Cleveland in February 1991, another victim  of ice on the wings.

Such a warning, which would have included specific information for the   F-28, could have warned Flight 405 pilots John Rachuba and Wallace Majure that the de-icing fluid applied to their wings was good for only 12 to 15 minutes.  The jet sat on the runway for 35 minutes.

The Air Line Pilots Association, meanwhile, continued to hound the safety   board. “The system has failed,” the pilots union complained in a formal filing following the Continental crash in Denver. “Information documented in the   three previous DC-9-10 accidents foretold of the unique hazard.”

The similarities of “almost identical” crashes cannot be ignored, the union said. “The DC-9 series 10 aircraft … is more adversely affected … than   other DC-9s.”

The pilots association demanded that the airlines modify the planes, making them safer.

Neither the safety board nor the FAA was willing to go that far. NTSB   thought its other recommendations would be sufficient.

But the 1989 crash of Canadian F-28 with Nancy Ayer aboard should have   erased any doubt about the susceptibility of F-28s to wing icing. By the end   of the year, three other F-28′s had crashed in icy conditions, in Argentina,   Turkey and Korea. Fokker itself warned U.S. owners to take off within 15   minutes of being de-iced.

In Washington, nothing happened.

Then on Feb. 17, 1991, just after midnight, a light snow was falling at   Cleveland Hopkins International Airport. The two-man crew of Ryan   International Air Flight 590, a DC-9 series 10 cargo jet on a mail run to   Indianapolis, failed to have the plane de-iced, though it had been on the   ground 26 minutes. On takeoff, the plane lifted and stalled.

Both crewmen   died.

Cause: “Ice contamination on the airplane’s wings,” the safety board   concludes.

“We now find ourselves making the case once more for a safety issue that we were confident existed as early as 1985,” complained the safety board’s   Coughlin.

“The facts are disturbingly similar to previous accidents,” McDonnell   Douglas said in a private March 21 letter to some airlines, referring to all   DC-9 accidents to that point. The DC-9 series 10 and 15 wings are “sensitive   to small amounts of ice, snow, freezing precipitation and frost.” Crews should “taxi back for a second de-icing if a delayed takeoff … raises any question  of wing condition.”

McDonnell Douglas quietly decided it was time for a fix. Company insiders   described the remedy as an unimpressive set of five or six electrical relays,  two pressure switches, a couple of brackets, some tubes and wires – no more   than a few thousand dollars in parts.

Hot air would be conveyed from the engines to the wings using technology   available a quarter-century ago, when the company made the planes.   Retrofitting those older models would be easy.

Today, nearly two years later, it still isn’t required.

The evidence continued to pile up on the desks of aviation experts in   government and industry; the FAA, still unwilling to acknowledge the problem,  refused to act.

In June, a story in New York’s Newsday raised questions about the DC-9   series 10′s susceptibility to icing. The story was widely distributed at the   aviation agency and the safety board – but the FAA again took no action.

Concluding its investigation of the Cleveland crash, the safety board   blamed the FAA for “a lack of appropriate response … to the known critical   effect” of ice on DC-9s.

Early last year, the FAA finally agreed with one of the safety board’s   suggestions: to include a warning in flight manuals that “wings without   leading edge devices are particularly susceptible to loss of lift due to wing  icing,” and to recommend a hands-on check of the wing.

Still, nothing required crews to do what the manual suggested, or to use   the longer lasting antifreeze, and there was no mention of other,   ice-sensitive DC-8s and F-28s.

The FAA decided in February 1992 to conduct a survey to identify the other  planes – a task agency spokesman Fred Farrar said “probably” could have been   accomplished in a single afternoon.

The FAA was still working on its “survey” when USAir’s Flight 405 crashed.  The ice on its wings, too small for the pilot to see, “resulted in an   aerodynamic stall and loss of control,” the safety board officially determined Feb. 17.

But the safety board also faulted the airline industry and the FAA for   their `failure’ to establish de-icing safeguards for the crew.
This time, the FAA was convinced. Within a month of the crash, it admitted  the “difference between hard wings and slatted wings.”

Even so, Anthony J. Broderick, an FAA associate administrator, insisted:   “Until the tragedy of Flight 405, I know of no one who clearly recognized this factor.”

“I can’t understand what made him say that,” counters NTSB’s Laynor.”It’s been hard to miss.”
Within a month, the FAA even agreed to consider the easy remedy   contemplated by McDonnell Douglas. Price tag: $26,500 per airplane. The   airline industry opposed it, saying the $800,000 fix was too costly and the   matter died.

“That’s ridiculous,” counters Charles Eastlake, a professor of aerospace   engineering at Embry-Riddle Aeronautical University in Daytona Beach, Fla. The fix, he said, is both easy and inexpensive.

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.

THE PLAIN DEALER
Sunday, November 8, 1998

FIRST OF TWO ARTICLES

By KEITH EPSTEIN and BILL SLOAT
PLAIN DEALER REPORTERS

A legacy of medical exploitation, from secret Cold War radiation experiments to notorious syphilis studies on unwary blacks, has led the United States to adopt some of the world’s toughest protections for people on whom scientists test new drugs, devices and vaccines.
So firm is the underlying presumption that patients in experiments must be treated fairly and honestly that the protections of federal law apply not just to Americans but to any person, anywhere in the world, used in U.S.-financed research.

But federal and foreign records disclose that the nation with some of the world’s strictest research safeguards has flouted its own rules in dozens of countries, and has a history of “systemic deficiencies.”

On nearly every inhabited continent, the U.S. government has fashioned scientific partnerships with foreign officials and undertaken scores of medical research projects without obtaining basic agreements to avoid human rights abuses, as the law requires.

The contracts, known as “assurances,” serve as formal government-to-government accords that overseas scientists spending federal dollars are treating their patients as Americans would be treated. The contracts were missing in all 96 research projects conducted by the Centers for Disease Control and Prevention over the last decade.

The research alliances, most formed within recent years, have been sponsored by the Atlanta-based CDC, an agency with a storied reputation for protecting public health.

In these international collaborations, the United States provides money, manpower and the best available medical technology. The foreign partner provides whatever scientists it can muster and access to a vast living laboratory of human test subjects, often undereducated and desperate for medical care.
In a number of instances, drugs were given, samples taken and research completed without a written assurance of compliance with rules that patients be fully informed, monitored for safety, told of known treatments and free to refuse experimental drugs:

• On the Ivory Coast, pregnant women with HIV got dummy pills but were not told the drugs wouldn’t work.
• In Zambia and Malawi, children in a malaria project got medical treatment but their guardians weren’t told whether it was “standard” or “experimental.”
• In Niger, consent forms for parents of babies vaccinated for diphtheria and meningitis conveyed vital details but not in the local language. Consent forms for a rabies vaccine trial in Ethiopia also had not been translated.

Altogether, the CDC “was engaged in 96 active research studies in 32 countries” where it “did not have approved assurances” from foreign collaborators they would abide by U.S. ethics laws, Marjorie A. Speers, the CDC’s deputy associate director for science, wrote in a July 1997 memorandum.

At the time, that involved every foreign research project sponsored by her agency. Some of those projects had been going on for 10 years or more, Speers said in an interview last week. Most involved tuberculosis, HIV, malaria and syphilis.

“The volume of what was out of compliance is startling,” said Gary Ellis, director of the National Institute of Health’s Office for Protection from Research Risks, to which the CDC quietly confessed last year. He said the scale of failures was unprecedented in two decades of enforcing the regulations.

J. Thomas Puglisi, director of human subjects protections at OPRR, said the amount of research that had failed to abide by the regulations “bothered me greatly,” because it demonstrated that a handful of controversial CDC experiments on foreign mothers with HIV were not isolated incidents.

“The identification of numerous international studies where all the required protections for human subjects were not in place was an indication of a need for systemic improvement at the CDC,” Puglisi said.
Speers, while acknowledging the rules were violated, said the CDC was confident no foreign research subjects had been harmed.

“What was missing was the procedural requirement to have this written assurance,” she said, “a document where an institution is saying we will follow ethical principles and abide by the rules.” Speers also said that the CDC had had to correct some overseas consent forms to make them clearly disclose to patients that they were taking part in health research.

It wasn’t the first time OPRR, the government’s main internal investigative agency on human experimentation, uncovered “systemic deficiencies” at the CDC.

Documents obtained by The Plain Dealer reveal recurrent failures, bureaucratic upheaval and broken promises of reform at the Atlanta-based public health agency.

Among the reasons: The government’s inability to police itself. A recent report to a presidential advisory commission described OPRR, the enforcer of the rules, as virtually powerless, especially when it comes to the CDC.
The human protections bureau is too “small and weak” to compel the CDC to correct problems, concluded the report by John C. Fletcher, former chief of bioethics at the National Institutes of Health.

The U.S. regulations are plain: Researchers cannot camouflage the truth. They cannot omit vital information about risks. They must offer any appropriate alternative medication. Doctors must disclose what they know and don’t know – whether in Cleveland or Cairo.

“We’re ethically bound to observe our regulations in the U.S. and overseas – because they’re based on principles we all agree on. And there’s no ethical principle I’m aware of that says we can treat other people in another country differently than ourselves,” said Dr. William Freeman, president of the Applied Research Ethics National Association, the leading U.S. membership organization of scientists and others overseeing the ethics of research.

Freeman, also director of medical research at the U.S. Indian Health Service, which oversees experiments on America’s Indian reservations, noted the grossest examples occurred when researchers treated other people differently than they would treat themselves.

Most notable, he said, was a federal study beginning in 1932 at Tuskegee, Ala., where 412 poor, black men were allowed to sicken with syphilis without being told and without being offered a known and effective treatment. The argument in Alabama, as overseas today, was that the patients probably would have received no better treatment anyway – a rationale Freeman doesn’t buy.

“The rules aren’t just rules but an expression of our morality and sense of community that you should do unto others as you would have them do unto you. If you want to be respected when you’re dependent on others, you’d better show respect to people dependent on you. If you want to be told the truth when you don’t have any way of knowing whether it’s true, then you’d better tell the truth yourself. If you want to be given a chance to say no to something, you’d better offer that chance to others.”

Said OPRR’s Puglisi: “It’s not that researchers are bad people. But sometimes they get so caught up in their immediate goals and the sense of the goodness of what they’re doing that they fail to see the larger ethical implications of their actions.”

Speers said that overseas studies supported by the CDC often operate with lower standards than in the United States.
Among the projects lacking a legally binding promise from the foreign country to follow the rules was a tuberculosis prevention study in Uganda, in which 464 Africans in a control group were given a placebo, or fake pill, instead of an established and inexpensive U.S. medication for which the CDC had long found “strong evidence and substantial clinical benefit.”

In September 1997, the CDC’s Speers confirmed that “at the time the study was done” her agency lacked an agreement with Uganda to abide by U.S. rules.
“However,” she added, “we’ve been working on getting one for the past few months.”
By then, the study was finished and results had been published by the New England Journal of Medicine.

Ethical rules challenged

CDC officials in recent months have been arguing that U.S. ethical rules ought not to apply in many of the very nations where the agency failed to adhere to the regulations.

For instance, Speers said, language differences can make it extremely difficult to follow U.S. rules for getting a patient’s informed consent.

The CDC also argues that in countries where no better care is available, scientists need not live up to U.S. standards of care.

The CDC’s sister agency, the National Institutes of Health, has more than 700 assurances in place for research in more than 110 countries.

Those assurances are generally negotiated by universities receiving NIH grants.

But Speers said the CDC had had trouble obtaining assurances because other countries strongly object to having ethics rules imposed on them by the U.S. government.

“We shouldn’t be dictating a code of ethics for other countries. Telling them how things should be done is often viewed as imperialistic,” said Speers.

The CDC has been anything but imperialistic, federal and foreign records show. Sometimes, the health agency has chosen to play by the local rules in places where there are no clear rules, according to internal e-mail traffic, memoranda, directives, compliance audits and other government documents obtained by The Plain Dealer through the Freedom of Information Act.

In Kazakhstan in 1997, nobody could be found to approve or monitor the “Central Asian Infectious Disease Project.”
Referring to a requirement for the use of ethical review committees to monitor patients’ safety, a CDC epidemiologist noted that in Kazakhstan the committees “or anything resembling them simply do not exist.”

In the Slovak Republic, a study of children with allergic diseases, launched in 1996, had to be halted.
During the study, laboratory samples were being collected for unspecified “future research” – but the children and their parents were not told what it was about, or asked for their permission.

In Egypt in 1997, a study assessing blood lead levels in children included consent forms that neglected to mention the project was “research.”

In Sierra Leone, the problem wasn’t getting a foreign government to form an alliance with the CDC, it was finding the government.

“We cannot acquire a government signature at this time due to the fighting and disturbances in Freetown,” a CDC official wrote from Africa in June 1997. “The U.S. Embassy is evacuated and we have no way to communicate at this time or know who to address.”

In Washington last fall, the National Institutes of Health was dispatching directives to CDC-affiliated researchers around the world to comply with the rules or close down.

“If your review does uncover any questionable situations we request that all further collections of biological materials be suspended until such time as the necessary [ethical] assurances are obtained,” one directive stated.

An internal chronology compiled by human protections agency and obtained by The Plain Dealer reveals ethical lapses from February 1993 through May 1997 that recurred despite attempts at reform.

CDC promised it could do better. The lapses ought not to happen again.

“CDC officials pledge their commitment to ensuring full protections for human subjects in all research conducted or supported by CDC,” the agency promised in August 1993. “They further pledge … concrete actions.”

By October 1996, ethics managers were reshuffled and CDC took the step of assigning a top official – a deputy associate director, Speers – to oversee protection of human subjects on a daily basis.

Then, in 1997, Dr. Sidney Wolfe, the Cleveland native who works for Ralph Nader, went public with his discovery that in nine government studies, including two sponsored by the CDC in Thailand and the Ivory Coast, pregnant women in control groups were not offered an expensive form of AIDS treatment available in the United States.

That aroused the curiosity of OPRR’s director, Gary Ellis, who wondered whether the CDC had obtained the necessary written contracts to abide by the rules. At the suburban Maryland office building where he works, Ellis ensconsed himself in a room of file cabinets containing copies of more than 10,000 such contracts, mostly from universities and government agencies.
He could find none for the CDC studies, so he called the agency.

Three days passed without an answer.

He called Atlanta again – and guessed. He was right. The CDC hadn’t gotten any “assurances” the AIDS studies would follow the rules. The studies were halted immediately.

A few hours later, there was another call and another confession. The problem, the CDC reported, had somewhat larger dimensions. The agency was having trouble figuring out how many international alliances it had formed. Records were in disarray.

“It takes a long time to change a culture, but there are people at the CDC now who are getting it,” said Puglisi. “They’re learning. But we’ve also learned when it comes to human subject protections, one has to be ever-vigilant.”

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Related stories:

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“They Used Our Kids as Guinea Pigs.” Medical research records show the U.S. government is still in the business of conducting and paying for clinical trials on unsuspecting Americans.

Foreign Tests Don’t Meet U.S. Criteria The cycle of hype, hope and heartbreak surrounding clinical trials has become a chronic condition in the global pharmaceutical industry, which now initially tests two-thirds of all products for Americans overseas. The experiments often involve fraud, concealed side effects, improvised experiments and human rights abuses.

Living Proof: U.S.-Run Study Gave Ugandans Dummy Pills Instead of Treatment American researchers let tuberculosis worsen, unchecked by an effective drug, in a control group of 500 Ugandans with HIV, as they charted its deadly progression. Some thought “placebo” was a medication that would help them. In the U.S, the practice would have been unethical.