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May. 18 2010 — 10:22 am | 118 views | 0 recommendations | 0 comments

The Other Foreclosure Menace

Mortgage Paid Off, Woman Loses Home Over a Small Water Bill

By Fred Schulte, Ben Protess and Lagan Sebert
Huffington Post Investigative Fund

A version of this story appeared in The Baltimore Sun.

One raw day in early February, Vicki Valentine stood by helplessly as real estate investors snatched her West Baltimore home over what began with an unpaid city water bill of $362.

As snow threatened to fall, she watched a work crew hired by the new owners punch out the lock on her front door. A sheriff’s deputy was on the scene while Valentine and her teenage son piled whatever they could into a borrowed car.

Running out of time, Valentine scrambled to pack up clothing and mementos. The home had been her family’s for nearly three decades, and her father had paid off the mortgage in 1984. “It’s hard to say goodbye to this house,” she said. “It’s like someone forcing you out of something that belongs to you. I don’t get it.”

Valentine lost the two-story brick row home after the city sold her debt to investors through a contentious and byzantine legal process called a “tax sale.” This little-known type of foreclosure can enrich investors as growing numbers of property owners struggle to pay their bills.

These foreclosed homeowners are not the families making headlines for taking on mortgages they could ill afford. Families ensnared in the tax sale sometimes are unable to overcome relatively small debts owed to local tax collectors.

Vicki Valentine

Vicki Valentine is evicted from her Baltimore home after failing to pay off her city water bill and property taxes.

Rather than collect the overdue money they are owed, many local governments are selling tax liens. Buyers range from behemoths such as JPMorgan Chase & Co, and some regional banks and law firms, to small-fry investors lured by late-night television commercials promising quick riches. Investors generally bid in an auction for the right to collect delinquent taxes and other municipal debts on property owners, sometimes by paying only a few hundred dollars. When owners can’t pay, investors can pick up property at bargain prices.

It can be a good deal for everyone except the property owner. Selling the debts to investors can help governments efficiently ease budget woes without having the added expenses of debt collection, foreclosing and being a landlord.

Investors, meanwhile, can rake in hefty profits. That’s because they can tack on fees and steep interest rates, which can amount to 18 percent annually in Baltimore.

In Valentine’s case, legal fees and other charges climbed past $3,600 nearly 10 times her original bill.

Investors purchased an estimated $30 billion of real estate tax debt held by governments across the country in 2009, double the amount a year earlier, according to the Florida-based National Tax Lien Association. Altogether, 29 states and the District of Columbia can sell tax lien debt to investors.

Lien sales in Baltimore have nearly doubled since the housing bubble of 2006. On Monday, the city sold 12,689 liens – a probable record. Properties ranged from boarded-up shells and vacant lots to row homes in gentrified neighborhoods and some commercial buildings.

City records show that one in five of these liens on properties is for unpaid taxes or other municipal bills amounting to $1,000 or less. If Baltimore’s 2009 tax sale is any indication, hundreds will stem from delinquent water bills; there were 666 such liens last year.

Although the brisk tax lien trade thrives beneath the radar, largely unnoticed, it has occasionally drawn scrutiny from law enforcement authorities.

Some of Maryland’s most prominent tax sale investors have been swept up in a criminal investigation into bid rigging at the sales. Federal prosecutors allege that those investors agreed in advance which properties to bid at some auctions, improperly reducing the money earned by municipalities.

So far, Justice Department prosecutors have secured three convictions in the ongoing investigation. At a May 4 sentencing hearing for two of the defendants, a witness for the government was lawyer John Reiff, part-owner of the company that currently owns Valentine’s lien. He was not charged in the case.

Investing in liens can be risky, with profit on a particular property anything but certain. Investors generally compensate for such uncertainty by buying in large volumes, sometimes at a clip of thousands of liens each year.

Two of the investors who pleaded guilty in the bid rigging case made at least $10 million from fees and other costs collected from owners of some 6,000 property liens they bought over six years, according to federal prosecutors.

Prosecutors said in court filings they suspect bid-rigging occurs in other areas of the country. A JPMorgan subsidiary called Xspand and at least two other companies received grand jury subpoenas last year as part of a Justice Department anti-trust investigation in New Jersey, according to Bloomberg.

‘Unintended Consequences’

VIDEO: Vicki Valentine’s Eviction Day
Last February, Vicki Valentine was evicted when she couldn’t pay $3,603.41 to rescue her Baltimore home. Valentine’s wasn’t a typical foreclosure — the mortgage was paid off. But when she failed to pay a $362.28 water bill, the city auctioned her debt off in a tax lien sale. An investor now owns her home.

Some state lawmakers have questioned the fairness of the tax sale foreclosure process, which often sticks homeowners with thousands of dollars in legal fees and other costs. But cities and counties in Maryland earlier this year fended off an effort to keep water bills out of the tax sale, arguing that without the threat of losing homes many people would fail to pay their bills.

Revenue collectors defend their tax sales as a necessary, if sometimes distasteful, means for feeding the public treasury. In aging cities such as Baltimore, there’s also hope that new owners will rehab decaying or abandoned properties, restoring them to the tax rolls.

Investors say they aren’t the bad guys – they’re providing a service that helps plug holes in municipal budgets. Homeowners should face consequences for failing to pay their bills, they argue, noting that people faced with losing property have many opportunities to redeem it. The mounting fees, they say, reflect the costs involved in navigating complex legal requirements, tracking down property owners and taking them to court to enforce the liens. In Valentine’s case, they noted, a judge approved the fees.

“We are essentially the city’s bill collector,” said lawyer and tax lien investor Reiff.

Critics of tax sales question the morality of government tax collectors acting to enrich private investors at the expense of property owners with low incomes or facing hard times. They ask whether it’s the best way to compel people to honor their debts — especially involving relatively paltry public utility bills.

After all, when water bills go unpaid, some cities and counties simply shut off service. In Baltimore, officials often leave it on. Another alternative would be to have private collection agencies track down debtors.

“This is a case where good intentions have led to severe unintended consequences,” said Debra Gardner, of the Public Justice Center in Baltimore, a non-profit advocacy group for minorities and the poor.

Asked about Valentine’s story, David Vladeck, director the Federal Trade Commission’s Bureau of Consumer Protection in Washington, said it was “just horrifying to me.”

While noting that his comments did not reflect agency policy, Vladeck said he believed more recession-wracked homeowners across the country could face a similar plight. “It’s beyond tragic that this poor woman lost her home.”

Pleas – and More Fees

Valentine was incredulous when the price to keep her property shot past $3,600. Jobless and lacking the savings to pay, she said she could do little to stave off the day of reckoning.

That day arrived on February 3, when a Baltimore City Sheriff’s Department deputy served her with a court-issued “writ of possession” stripping her claim to the home.

Valentine, a former mental health counselor and rehab specialist with four children, said she moved back to her childhood home about a decade ago to care for her ailing father, Charles L. Turner. A retired brewery worker, he had Alzheimer’s disease.

As his condition worsened, he tended to hide bills from the family. (City records confirm that Turner often fell behind in meeting his obligations during the final years of his life and nearly wound up in the tax sale as early as 2000 over unpaid water bills and property taxes.)

When her father died in 2003, Valentine took over the home and stayed there with her son, Dimitrian, now 17. She said she fell into a serious depression in the wake of her father’s deteriorating health and death, and was unable to work or pay her bills on time. She has worked only sporadically since his death. Though she made partial payments on the water and sewer account in 2006, she acknowledges her failure to pay a bill of $462.28 in full. She went down to city hall and paid $100, but never took care of the balance.

When the deadline passed for paying up, the city added 2005-2006 property taxes of $287.92, interest and city tax-sale processing charges. That brought the total she owed to $710.57, according to city records.

The City of Baltimore washed its hands of Valentine’s debt in May 2006 when it sold the lien to Sunrise Atlantic LLC, an arm of the BankAtlantic in Fort Lauderdale. The Florida bank has bid on tax liens in a range of states, from Florida to Illinois, though it has largely sold off its Maryland lien portfolio and is not implicated in the bid-rigging case. BankAtlantic did not return phone calls seeking comment.

Unlike mortgage foreclosures initiated by banks, there’s no appealing a tax sale debt once it is sold off; a property owner has no option other than to abide by the investors’ terms and pay the fees. The lien holders also have little incentive to be flexible about repayment terms.

Maryland law gives property owners six months to redeem a tax lien with only minimal added costs. But if they don’t pay by then, lien holders can sue to seize the property and stick the homeowner with a slew of fees, including legal bills incurred in taking the matter to court. Sunrise Atlantic filed such a case on Valentine’s home in Baltimore City Circuit Court in December 2006, records show.

More than a year later, the court awarded the property to Sunrise Atlantic.

At that point, Valentine sent a handwritten letter to the court, begging for mercy and more time to repay.

In the letter, dated Feb. 9, 2008, Valentine described being unable to work because of depression and other problems. “For now, this is the roof over my son and my head. I am trying to get the money together to catch up on my delinquent bills.” She added: “Please allow more time to pay all bills connected with the foreclosure of said property.”

But the longer she waited and the more she protested, the more legal fees and other charges she incurred.

In 2008, Baltimore attorney Anthony De Laurentis, who represented Sunrise Atlantic, submitted itemized charges to the court: $305.91 in interest on the lien; a $1,500 bill for responding to Valentine’s requests to cut the fees and other legal work; more than $1,000 in assorted expenses, including $325 for a title search of the property and $79 for photocopies, according to court records.

The price list passed muster with a judge, who on Sept. 19, 2008 ordered that Valentine pay $3,603.41 – or forfeit her property.

She asked for another hearing, which delayed the process for more than a year.

While the case dragged on, the Florida bank started divesting its tax lien certificates from Maryland, eventually transferring the lien on Valentine’s home to a firm called Montego Bay Properties. Part of the firm is owned by a trust set up to benefit members of the family of lawyer De Laurentis. Reiff, one of De Laurentis’ law partners, also owns part of the firm.

In an interview in their Baltimore office, De Laurentis and Reiff said 90 percent or more of property owners eventually pay whatever is necessary to keep their homes.

They said most of the properties they take over are vacant and thus nobody is displaced. They also said they had repeatedly tried to settle the matter with Valentine and showed Investigative Fund reporters a thick file of court papers and other records as well as notes of more than a dozen contacts with her to make arrangements to clear the debt.

“We bent over backwards for her,” Reiff said, adding that his staff had tried for more than two years to “work something out” to no avail.

Feds Say Bids Rigged

Though Valentine had no way of knowing it, some investors rigged the 2006 Baltimore tax sale auction that led to her eviction, federal prosecutors alleged in court.

The roots of that conspiracy run deep, prosecutors said. For years, a handful of Baltimore real estate lawyers and their investment partners quietly dominated Maryland tax sale auctions, with few questions asked about their bidding tactics or collection policies.

That changed after The Baltimore Sun used city records and court filings to report in March 2007 that hundreds of mainly low-income city residents had been kicked out of their homes over small unpaid bills, ranging from water and sewer charges to minor environmental citations. Some people were driven from family property because they couldn’t afford to pay thousands of dollars demanded by lien holders.

The Baltimore newspaper also documented for the first time that while dozens of parties bid in Baltimore tax auctions in 2006 and 2007, just three investment groups had won about two-thirds of the liens.

Prosecutors went on to charge three men with conspiring to rig bids at 21 auctions in Baltimore and four other jurisdictions, including Montgomery and Prince George’s counties in the suburbs of Washington D.C. between 2002 and 2007. All three have since pleaded guilty. No other charges have been filed.

Another investment group involved in the conspiracy was DRT Fund, according to court filings by federal prosecutors. DRT is owned in part by De Laurentis and Reiff. DRT participated in a dozen of the 21 fixed auctions, though not the Baltimore City auction in 2006 in which Valentine’s lien was sold, according to court filings.

The Justice Department filed no charges against DRT, which came forward in the fall of 2007 and “fully and truthfully reported their own wrongdoing and that of their co-conspirators and terminated their part in the conspiracy,” prosecutors wrote in court papers filed last month.

DRT went on to sign an amnesty agreement with the Justice Department that commits it to “pay restitution to any person or entity injured as a result of the bid-rigging activity being reported in which it was a participant,” court records state.

Neither De Laurentis nor Reiff would discuss DRT’s settlement with the Justice Department.

Water Bill Woes

Some lawmakers have tried for years, with modest success, to rein in the tax-sale fees that can steamroll low-income homeowners. Maryland legislators passed a bill in 2008 that raised the minimum lien sold from $100 to $250. But a bill to prohibit cities and counties from selling delinquent water bills to investors failed in the state Senate earlier this year by a single vote.

Legislators also rejected a bill that would have prevented the sale of any lien of less than $750, as happens in some other locales outside of the state.

Both bills failed, lawmakers said, largely due to fierce opposition from tax collectors and officials in Baltimore, which conducts the largest tax sale in the state.

Andrea Mansfield, of the Maryland Association of Counties, testified that the tax sale process provides “a much-needed device to ensure that property owners remit payment for their fair share of taxes and charges connected to public services.”

Eliminating water bills from the tax sales would result in more “deficient accounts,” and lead to “increased rates on citizens who properly pay,” she wrote.

Sen. James Brochin, a Democrat from Baltimore County who co-sponsored the legislation that would have banned the sale of delinquent water bills to investors, vehemently disagrees. “It’s just disgusting. It’s highway robbery. It’s dead wrong. It’s immoral,” he said.

While city officials publicly defend the practice, he said, in reality “they’re humiliated and embarrassed by it. Deep down they know how immoral it is.”

Baltimore’s mayor, Stephanie Rawlings-Blake, declined requests for an interview on the topic with the Investigative Fund.

City officials were more talkative earlier this year when they sought to block lawmakers from banning the sale of water bill liens. Mary Pat Fannon, a lobbyist for the mayor’s office, said in prepared testimony for a February 5 hearing that the city had begun offering repayment plans for water bills to help homeowners avoid tax sale.

She said that the 666 water bill liens sold by Baltimore City in 2009 was way down from the 1,129 sold to investors the previous year and credited the repayment plans for the reduction.

And she went further, testifying that nobody had lost a home due to an unpaid water bill from either sale in 2008 or 2009. What Fannon neglected to mention: Because of the lengthy transfer process in the courts, it was too early for those groups of property owners to begin losing their homes. Most tax sale lawsuits have taken longer than two years to resolve through the courts.

Fannon also said that without the tax sale, the city would need to file debt collection lawsuits against each delinquent property owner, which she said “would be very expensive, time consuming and flood the courts.”

Two days before Fannon’s testimony at the state capital, Valentine stood watching as her belongings piled up on the sidewalk in Baltimore.

A Neighborhood’s Decline

More than three years after Valentine’s small debt drew her into the tax sale, neither the city nor the investors seem to have won much.

The property is unlikely to be fixed up any time soon. Instead, it adds to a sense of decay that permeates some parts of urban Baltimore. On Valentine’s old block in the Sandtown neighborhood, all but a handful of houses, abandoned long ago, are boarded up.

Such decline has summoned other ills. “Drugs moved in and replaced the good with the bad,” said Valentine, who is living temporarily with her mother. Many of her possessions are in storage.

De Laurentis and Reiff now hold a “writ of possession” for a property that’s in need of substantial repair. Though the home is assessed at $46,000, in such dilapidated condition the investors said they probably would have trouble selling it for more than $16,000.

In addition, investors could be on the hook for a $7,000 water bill of their own. Just how that happened is unclear; there may have been an undetected leak in Valentine’s home. Last month, the city finally turned off the water.

If the investors take the final step to secure a deed to the property, they would have to pay the city roughly $6,300, which the city is then supposed to turn over to Valentine. The law entitles original property owners to receive at least some compensation.

De Laurentis and Reiff say they’re still willing to work with Valentine to resolve the matter. Reiff said he gave her a key to the new lock so she could have more time to remove her belongings as a good faith gesture.

“We’ll definitely work something out with her,” Reiff said.


Apr. 22 2010 — 3:43 pm | 30 views | 0 recommendations | 1 comment

Medication Mix-ups? Missing Lab Results? Share Your Tips, Stories on Health IT

Federal Advisers Recommend Stronger Oversight of Patient Safety, Health Information Technology

Amid concerns about patient safety, a consensus is emerging: The government needs a way to monitor the safety of health information technology it is encouraging hospitals and doctors to buy with $27 billion in economic stimulus.

But how to keep track of possible problems, especially those that could jeopardize patient safety? It’s up to the feds to figure out.

That is the essence of a federal advisory committee’s April 21 recommendation that the government find a way to oversee problems with the technology that includes creation of a central database to track problems ranging from potential hazards to serious injuries or death.

While the federal advisers offered few suggestions on how to make this system come together, Paul Egerman, a software entrepreneur who led development of the committee’s recommendations, tells us that he envisions something akin to oversight for the airline industry.

The advisors also have outlined several key elements a health IT safety monitoring system should have: A way to investigative serious incidents, a way to protect anyone filing a report from facing retaliation or litigation, and a way to issue alerts of potential hazards across the country.

As we’ve pointed out in stories earlier this week, there’s a lack of a reliable and systematic method for tracking problems and responding to them. There’s little policing of systems despite instances of consequences to patients who were injured or died.

The Investigative Fund compiled a database of 237 instances of deaths, injuries and malfunctions reported to the FDA’s “adverse events” database. But as one FDA official said, those reports might represent “the tip of the iceberg” of safety issues tied to the implementation of health information technology.

So we’re trying to do a little tracking of our own: We want to hear from doctors, software companies and patients who have had experience with these devices. Some complications could include incorrect medication dosages ordered electronically, missing data in a patient’s electronic records or test results accidentally swapped for another patient’s or entered incorrectly.

If you have a tip or personal story, please share it with the Huffington Post Investigative Fund. Or sign up for future citizen journalism assignments with this project.

Apr. 21 2010 — 9:59 am | 308 views | 0 recommendations | 2 comments

As Doctors Shift to Electronic Health Systems, Signs of Harm Emerge

Reports Link System Malfunctions to Injuries, Deaths

By Fred Schulte and Emma Schwartz
Huffington Post Investigative Fund

One day in March 2009, hospital workers misread small print on a computer screen, causing them to dispense 10 times the prescribed dose of a drug. Result: The patient has a heart attack.

Another time, a computer fails to alert doctors and nurses when a patient is moved from intensive care to their ward. Left unattended during the night, the patient suffers seizures for hours.

In December 2009, there’s a report of a software glitch that delays a patient’s medical treatment, causing a disabling injury. “Breakdowns of this magnitude endanger hundreds of patients simultaneously,” warns a report on the incident.

Scores of reports on file with the Food and Drug Administration detail consequences to patients when an electronic medical record system fails. Those reports, reviewed by the Huffington Post Investigative Fund, show that a central function of the record systems, known as computerized provider order entry, or CPOE, has been linked to instances in which patients died or suffered serious injuries.

While the data obtained by the Investigative Fund affords only a small glimpse at problems with the system, it could suggest a much larger challenge as the nation’s medical establishment swiftly moves from paper medical files to digital ones.

The safety concerns raised by the reports “may represent the tip of the iceberg,” said Jeffrey Shuren, who directs the FDA’s Center for Devices and Radiological Health. Shuren, who made the remark at a gathering of government officials and safety experts in late February, did not disclose details from the reports, which the Investigative Fund obtained through an FDA database.

The CPOE system is pivotal to the success of government plans for spending billions of dollars in economic stimulus money to entice doctors, clinics and hospitals to switch from paper medical files. Government officials and many safety specialists argue that the system will revolutionize medicine by minimizing errors, cutting costs and protecting patients.

But some of those same experts also worry that the prospect of stimulus funding – an estimated $5 million or more per hospital – encourages hospitals to install systems prematurely, possibly exposing patients to harm associated with software glitches and other system bugs.

DATABASE: Explore ‘Adverse Event’ Reports Submitted to the FDA »
The FDA’s Manufacturer and User Facility Device Experience (MAUDE) database is the nation’s largest repository of adverse events related to medical devices. Using the system, the Huffington Post Investigative Fund identified 237 reports related to health information technology filed with the agency since January 2008.
Reports by Type

Altogether, the Investigative Fund identified 237 reports of “adverse events” associated with health information technology reported to the FDA over the past two years. Most problems involved computerized medical ordering software or systems that supply the software with vital information, such as recommended doses of medicine or test results. Most of the adverse events recorded in FDA files were blamed on software malfunctions, user error or the system’s lack of user friendliness.

While the reports open a rare window into troubles involving computerized records, much is still not known. Locations, names of institutions and the identities of patients are redacted from FDA data obtained by the Investigative Fund. Many reports don’t say what ultimately happened to the patients and could not be independently verified by the Investigative Fund.

There’s no way to know how often these problems arise. Most reports to the FDA are submitted voluntarily by health professionals, so the reports provide only a random snapshot of the problem. Meanwhile, the FDA itself is largely in the dark; it lacks a reliable, systematic method of tracking the safety of health information technology.

Justin Starren, a physician who oversees technology at the Marshfield Clinic in Wisconsin, lays out the dilemma starkly: “Computers are strong medicine. Done well, they are wonderful; done poorly they can kill people,” he said.

David Blumenthal, who oversees stimulus payouts as the government’s national coordinator for health information technology, said that he hasn’t seen evidence that “merits a lesser commitment to implementing CPOE.”

He said the CPOE devices can greatly help doctors make better decisions in treating patients. Medical experts advising the government have been “virtually unanimous” in concluding that on balance CPOE “improves the safety of care,” Blumenthal told the Investigative Fund when asked about its findings.

Even so, he acknowledged concerns, saying, “We are looking at this issue closely.”

Since late December, 18 reports received by the FDA involved one manufacturer, Cerner Corp., which sells CPOE devices and other electronic record systems.

One patient died after an “unplanned hospital wide CPOE and electronic record breakdown,” which in turn resulted in late or missed doses of medicines, according to one report. “Considering the size of the institution, it is possible that other patients were adversely affected by comparable delays and omissions,” stated the report.

Most of the reports filed by physicians alleged malfunctions or poor designs of Cerner’s CPOE equipment. One criticized “user unfriendly interfaces” and screens with a small font size and “extraneous and distractive” information that had led pharmacists to overlook changes in medication orders.

Another report described how health care personnel had trouble reading orders on the computer screen – causing a “life threatening acute asthma attack” in a patient given the wrong drug.

Gay Johannes, Cerner’s vice president and chief quality officer, said in a prepared statement that the company maintains an “internal process” for resolving complaints about its products. “We continue to follow this process that has been in place for many years and investigate all claims Cerner receives or are filed with the FDA.” [Click for the full statement.]

She said that Cerner also voluntarily reports incidents to the FDA because the company “believes such disclosures provide much-needed transparency into the successes and challenges of these types of systems.” The company did not respond to requests for comment on individual reports.

The FDA also wouldn’t discuss the reports or say what action agency officials or manufacturers took in response.

‘Systems Do Fail’

Taken as a whole, the FDA reports show that making the complex systems work properly involves far more than simply transferring paper records into a digital format.

Health professionals use CPOE to type in orders for prescription medicines, diagnostic tests and the patient’s treatment plan. The information then is shared electronically throughout the hospital.  Drawing on computer databanks, the systems can warn doctors of harmful drug interactions and help guide their medical decisions—functions that Obama administration officials promise will significantly improve health care delivery.

Citing this potential, the Obama administration wants to spend as much as $27 billion in economic stimulus funds to help doctors and hospitals adopt the systems and create a digital medical record for every American by 2014. To qualify for the first phase of funding, which starts later this year, hospitals must install the CPOE systems and use them in at least one in every 10 transactions with patients.

But many health information technology experts say past experience at hospitals indicates a need to phase in the systems gradually. Without greater attention to safety, several experts said in interviews, the stimulus plan might backfire, eventually discouraging their use, as risks and costs eclipse advertised benefits.

“Simply pushing CPOE as an unalloyed good has a great potential to negatively influence quality and increase cost,” said Starren, of the Marshfield Clinic. Experts generally expect successful installation to take the average hospital several years. Three is “about the fastest CPOE can realistically be implemented effectively,” said Starren. “Most places take longer.”

Other experts said that many successful CPOE installations have been “home grown” by university hospitals and research institutions and perfected over many years of hard trial and error. Though they strongly believe that the electronic systems will prove far safer than relying on paper files, they worry that federal officials aren’t doing enough to keep tabs on hundreds of tech companies aggressively marketing new versions of the complex software.

“These systems have lots of potential to improve safety but if they aren’t implemented correctly they might worsen safety,” said David Classen, an informatics professor at the University of Utah School of Medicine.

Classen points to his recent research testing CPOE systems at 62 hospitals, which found that the systems caught medication errors only about half the time, including some that would have resulted in serious injuries and possible death. Systems from the same manufacturers performed better at some hospitals than others.

“These systems do fail,” he said.

Alerts are ‘a joke’

A number of studies have documented that CPOE can significantly reduce medication errors that stem from sloppy physician handwriting on prescriptions. Yet others have found that CPOE can also create new hazards. One of the earliest critical  studies was done by Ross Koppel, a University of Pennsylvania professor, who reported in 2005 that the systems can introduce a litany of errors. Koppel also found CPOE systems often flood doctors with warning alerts that are of no consequence, leading many physicians to habitually ignore them – a syndrome so commonplace it even has a name: alert fatigue.

The automated warnings aren’t taken seriously. “They are a joke,” Koppel told the Investigative Fund. He blames manufacturers for producing systems that rely on what he called “not ready for prime time software.”

Others remain optimistic that the systems eventually will live up to their potential. Blumenthal said in an interview that CPOE alert and “decision support” features make doctors better, and he cited his own medical practice in Massachussetts. He said the computerized system helped him decide whether to order X-rays, and what type, based on a patient’s symptoms entered into the computer. In some cases, the computer was able to locate results of a previous test, sparing the patient needless exposure to radiation.

“The interaction between me and the computer is emblematic of what’s possible to accomplish,” Blumenthal said.

Government officials note that phasing in CPOE is vital to achieving broad health reform goals. That view is shared by an influential coalition of consumer groups and labor unions. The coalition, which includes the older Americans’ lobby AARP, argues that the systems promote safety and efficiency and will grant patients a greater say in their medical care.

Blumenthal said that CPOE is critical to the success of the electronic health records initiative. “We need to support it and make sure it happens,” he said. “How fast and in what form remains to be seen.”

Related Story » Amid Digital Surge, a Lack of Policing by FDA

As federal officials encourage the rapid expansion of electronic medical records to help doctors improve care and cut costs, they lack a reliable and systematic method for tracking the safety of these products, agency data and audits show.


Mar. 30 2010 — 10:33 am | 364 views | 0 recommendations | 4 comments

Will Health Care Bill Ban Rescissions? Gaps In Legislation Raise Doubts

The new health care overhaul is a political victory for the Obama administration, but potential gaps in the legislation are raising doubts about whose health coverage will improve.

On Monday, Health and Human Services Secretary Kathleen Sebelius warned insurers not to act on an interpretation of the bill that would allow them to avoid providing coverage for children with serious pre-existing conditions like diabetes, leukemia, and asthma.

And despite a flurry of news reports that the bill bans a controversial practice where insurers retroactively cancel the health coverage of patients — known in the industry as rescission — the law has not changed. Federal law already outlaws rescission, except in the case of fraud. But the law only applies to about 14 million people who buy their own individual coverage. Still at risk are about 150 million people who are covered by employer-based group policies.

On Friday, the Huffington Post Investigative Fund reported the story of Heather Galeotti, a young woman whose story raises for the first time questions about retroactive cancellations in the group market.

Galeotti was hit by a car in February 2007 and lay in a coma for nearly six months. Her family told the hospital that she was covered by her father’s employer-based plan with Kaiser Permanente, the nation’s largest nonprofit health plan. The hospital confirmed her status with Kaiser and proceeded to treat her. Then her medical bills began to pile up to more than $4 million.

Five months into Galeotti’s treatment, Kaiser stunned the family with a letter that the family would have to find another way to pay the bills. Based on information received from her father’s employer, Kaiser said that the young woman’s coverage had not been in effect when she was hit. The case was shifted to Medicaid, where Galeotti’s bills would be covered by taxpayers.

The hospital quickly complained to California regulators. Ten months later, those regulators ordered Kaiser to cover Galeotti’s care, saying that the insurer had no basis for denying payment “other than to achieve a significant financial windfall” at the expense of her family, the hospital and the state’s Medicaid program.

Kaiser eventually paid the bill. Kaiser spokesman, Won Ha, emphasized that the Galeotti case involved an “unusual and complex sequence of events.” Still, he said, “Kaiser should have handled the processing of this claim better.”

Peter Harbage, former assistant secretary for the California state health department, said retroactive cancellations or denials should not be treated differently in group policies than in individual plans.

“The family thought they had coverage. Their insurer told them they had coverage, but then suddenly it’s like they never had that coverage, and they’re left with the bill,” Harbage said.

It’s worth noting that President Obama’s new health care bill does not change the law for group or individual policies with regard to rescission. It simply reiterates existing law against rescissions for patients in the individual market.

Meanwhile, we’ll be continuing to dig into the health insurance industry to shine a light on the claims process. Can you help us investigate? Tell us your story or sign up with our Citizen Assignment Desk for updates and voluteer opportunities on this project.

This post was updated Tuesday, March 30, at 10:17 a.m.

Mar. 26 2010 — 2:04 pm | 255 views | 0 recommendations | 2 comments

Family’s Struggle Highlights Retroactive Decisions by Health Insurers, Employers

Heather Galeotti

Heather Galeotti (above, during and after her recovery) lay in a coma for nearly six months before her health insurer, Kaiser Permanente, informed her family that it would not cover $4 million in medical bills. (Photos courtesy Heather Galeotti)

With her heart set on a career as a chef, Heather Galeotti enrolled in a San Francisco culinary school. One winter night, her life took a near-fatal turn when she was hit by a car. The 22-year-old lay in a coma for nearly six months.

Galeotti’s shaken family told the hospital that she was covered by her father’s health care plan with Kaiser Permanente. The hospital confirmed her status with Kaiser and proceeded to treat her. Medical bills piled up to more than $4 million.

Then in July 2007, five months into Galeotti’s treatment, Kaiser stunned the family with a letter. The Galeottis would have to find another way to pay the bills. Based on information received from her father’s employer, Kaiser said that the young woman’s coverage had not been in effect when she was hit.

“We were just blindsided,” said her mother, Maureen Galeotti. “There was no way we could afford it.” The case was shifted to Medicaid, where Galeotti’s bills would have to be covered by taxpayers.

Ten months later, California insurance regulators ordered Kaiser to cover Galeotti’s care, saying that Kaiser had no basis for denying payment “other than to achieve a significant financial windfall” at the expense of her family, the hospital and the state’s Medicaid program.

Like many insurance disputes, the Galeotti case has its share of miscommunication, bureaucratic wrangling and missing documents. But it remains a stark example of a murky practice by some insurance companies and employers – cutting off coverage retroactively for some patients with expensive medical claims.

The new health care reform bill bans retroactive decisions by insurers in policies sold to individuals, except in cases of fraud. However, as it stands the ban would not apply to group policies, such as the one held by the Galeotti family, which cover some 150 million Americans.

Galeotti case raises questions about retroactive termination of health insurance.

Heather Galeotti’s story, reported here for the first time, came to the Huffington Post Investigative Fund through its citizen journalism project, which seeks to shed light on the inner workings of the insurance industry. Former and current employees at Kaiser responded to the Fund’s online requests for help from insiders. Their tips led the Investigative Fund to identify the Galeotti family and obtain records of the case, including internal Kaiser e-mails.

Major insurers in California, including Kaiser, agreed in 2008 to stop retroactively cancelling coverage – a practice known in the industry as rescission. At the time, Kaiser announced that it had not rescinded anyone’s coverage since 2006. But the new agreements and increased regulatory scrutiny only applied to patients buying their own individual coverage, not to group policies.

Even so, Kaiser may have violated state law in the Galeotti matter. While declining to comment on an individual case, Lynne Randolph, spokeswoman for the Department of Managed Health Care in California, said that a retroactive cancellation of coverage through an employer is “permissible only when the coverage is cancelled for non-payment of premiums.” The Galeottis continued to pay their premiums throughout their daughter’s medical crisis.

Despite the state order, officials at Kaiser, the nation’s largest nonprofit health plan, continue to maintain that the insurer’s actions in the Galeotti case should not be considered a retroactive termination of coverage. That’s because — according to Kaiser officials — a month before the car hit Galeotti, the employer’s group plan notified the family that her coverage had lapsed on Dec. 31, 2006. Kaiser was never informed, so it initially agreed to pay the bills, Kaiser officials said. However, that account is strongly denied by the Galeotti family. The family’s lawyer said they never received such a notice, and Kaiser said it does not have a copy in its records. Lawyers for the group plan declined repeated requests for interviews.

Kaiser acknowledged that it made an error by not paying Galeotti’s bills, but blamed the mistake on the late notification from the group plan and “a lack of coordination” among departments inside the insurer. Spokesman Won Ha pointed out that Kaiser provides approximately 40 million patient services each year and he described the circumstances presented by the Galeotti matter as rare, with “no regular frequency over the long run.”

But because insurance companies are rarely required to report to state or federal regulators how many times they have denied claims or canceled coverage — let alone to justify why – only the industry knows the statistics.

Records and e-mails obtained by the Investigative Fund suggest that retroactive decisions might not be isolated incidents in group plans. A senior official in Kaiser’s regulatory services, referencing the Galeotti matter, wrote in a May 2008 e-mail to senior-level staff: “This type of case comes to special services 3-5 times a month.”

Peter Harbage, former assistant secretary for the California state health department, said retroactive cancellations or denials should be treated no differently in individual or group policies.

“Call it whatever you want. It’s not different to the family,” said Harbage, now a health policy consultant and analyst for the New America Foundation. “The family thought they had coverage. Their insurer told them they had coverage, but then suddenly it’s like they never had that coverage, and they’re left with the bill.”

Harbage added: “If you’re not safe in the group market with an insurer as well-respected as Kaiser, then you’re not safe anywhere. There’s no such thing as an isolated case.”

California Enforcement

The practice of retroactively cancelling individual health policies garnered some national attention in 2008 when Rep. Henry Waxman (D-Calif.), then chair of the House Oversight and Government Reform Committee, held hearings that highlighted the consequences for patients and their families.

The hearings followed a 2006 series in the Los Angeles Times, which explored how insurance companies were looking for ways to cut costs under pressure from shareholders, policyholders and the government. In some cases, the newspaper reported, certain expensive illnesses could automatically trigger an insurer to investigate whether a patient should have been deemed eligible for insurance in the first place.

California health officials began investigating improper retroactive cancellations after the newspaper reports, but only for people with individual policies.

The state’s managed health department recently declared that its 2008 agreements with insurers “to halt illegal rescissions have been comprehensive, swift and binding.” Still, some consumer advocates and state lawmakers have questioned the strength of enforcement. A recent report by the Institute of Health Law Studies at the California Western School of Law found that fewer than 300 out of 6,000 people who had been retroactively dropped by their insurer had been reinstated under terms of the agreements.

The health care bill signed Tuesday by President Obama bans rescission in individual health insurance policies, except when insurers can prove fraud on the part of the policyholder.

Still, only about 14 million people hold individual health insurance policies. Experts have argued that patients are more protected in a group: There are usually no requirements for patients to fill out medical history surveys and insurers do not want to risk angering an employer and losing the entire group.

As the Galeotti case shows, however, even people with group policies can be vulnerable.

A Question of Eligibility

San Francisco General Hospital admitted Galeotti on Feb. 27, 2007. She had been run over by a large sport utility vehicle in an incident that police described as a fight between two romantic rivals. “I was conscious enough to hear my friend saying ‘Don’t die on me, hon, don’t die on me,’” Galeotti said in a recent interview.

At first, Kaiser informed the hospital that Galeotti was covered. Its case managers closely monitored her progress and the cost of her treatment. As a student, she came under the policy her father, a custodian, held through the General Employees Trust Fund in Daly City, Calif. Since the young woman was hospitalized she could not attend classes at the California Culinary Academy, meaning that her coverage would eventually lapse without an extension under the policy’s incapacitated child clause. The hospital encouraged the family to contact the Trust Fund.

That is when the problems began.

In June 2007 the Trust Fund sent the Galeotti family a letter denying the application, saying inaccurately that their daughter had already graduated from school and was no longer eligible. The family appealed the denial, saying that the graduation date had been pushed back because she had taken medical leave — a fact confirmed to the Investigative Fund by school officials.

The Trust Fund did not reverse its decision. According to Kaiser, a hospital social worker then mentioned to a Kaiser representative that Galeotti’s eligibility was in question. Kaiser contacted the Trust Fund, which on July 23 sent the insurer a one-line fax stating that Galeotti was “last eligible Dec. 31, 2006″ under her father’s plan. Kaiser officials said that the Trust Fund told the insurer that it had sent the family a letter in January alerting them that their daughter was no longer covered and offering to let her buy continuing coverage, but the family’s lawyer said no such letter arrived.

Two days after receiving the one-line fax, Kaiser informed the Galeottis that it had been directed to terminate the young woman’s health coverage, effective Jan. 1, 2007 — almost two months before she had been admitted to the hospital. Kaiser told the family that if Galeotti wanted to restore her coverage retroactively, she could buy into a new plan.

In interviews and in a written statement, Kaiser’s Ha said it was not up to the insurer to verify whether Galeotti should be covered. “The group employer — not Kaiser Permanente — makes all decisions about canceling or starting coverage for its plan participants based on its eligibility determinations,” he said.

The Trust Fund’s lawyers declined comment on the Galeotti matter.

The Hospital’s Complaint

The case would have stayed off the regulators’ radar if not for officials at San Francisco General.

Under Medi-Cal, the state’s Medicaid program, the hospital was not getting paid the full amount of its charges for Galeotti’s care. So hospital officials began exploring the reasons she was dropped by Kaiser. They filed a complaint with state regulators.

For months, records show, the insurer debated Galeotti’s coverage with the state Department of Managed Health Care. In May 2008, after she had been on Medicaid for nearly a year and was re-learning how to walk, the regulators faxed a stern letter to Kaiser, documenting her “improper termination.” The letter said, “Given the Plan’s significant financial obligation to SF General, and the fact that the Plan continued to receive premium on the Family Account, Kaiser’s motives… are suspect.”

In September 2008, the insurer paid the hospital. The regulators did not issue a fine.

Even with the payments from Kaiser and some coverage from Medicaid, the Galeotti family said it still owes about $1 million for rehab, medications and other fees.

For Galeotti herself, the recovery has been difficult. She has been living with her parents and undergoing physical therapy since September 2007, re-learning how to walk and talk. “There are good days and bad days,” she said. “I still don’t walk normally and I’ll be in and out of a wheelchair for the rest of my life. I’m frustrated. But I’m here.”

Kaiser said it has made “minor adjustments” in its procedures to avoid similar problems with processing claims. Spokesman Ha emphasized that the Galeotti case involved an “unusual and complex sequence of events.”

Still, he said, “Kaiser should have handled the processing of this claim better.”



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