Plenty of smoke clouds the future of legalized pot in Washington

SEATTLE — Customers have been drifting into Jay Fratt's alternative pipe and tobacco shop, Smokin J's, in the days since Washington state's marijuana law took effect, wondering when cannabis would take its place on the shelves next to the handblown glass pipes.

Hold on, he told them. Fratt is, before anything else, a businessman, and he quickly realized there was a lot of smoke in the details.

First of all, the law setting up the nation's first legal regulatory system for retail pot won't allow sales until next year. And the federal government still considers marijuana illegal.

Then there are the taxation provisions: Can legal retailers compete with the black market when they have to pay over 25% in taxes? What about the provision that says marijuana shops can't stock anything but pot and pot supplies? What would happen to the Vancouver, Wash., shopkeeper's tie-dye baby jumpsuits, his "Stoner" trivia games, his meditating Buddha tapestries?

The euphoria that accompanied the debut of the initiative making it legal in Washington for adults to possess an ounce or less of marijuana faded shortly after midnight Thursday, when about 150 people gathered at the base of the Space Needle in Seattle to toke up in celebration.

By Friday morning, the bureaucrats, the lawyers and the suits from Wall Street were pulling into town as state regulators began setting up what could become a $1-billion industry, built precariously on a product whose possession the federal government considers a felony.

State officials estimate that pot will soon be selling legally for about $12 a gram, with annual consumption of 85 million grams — a potential bonanza in state tax revenue of nearly $2 billion over the first five years.

"I'm telling my clients, if I had a collective and I knew that legalization was coming and I knew they were going to be licensing people and I was already in the business, I'd be one of the first people going to apply for a license," said Jay Berneburg, a Tacoma, Wash., lawyer who held a seminar recently about getting into the retail trade.

"You could make a million dollars in five days. There's going to be people lined up to buy marijuana, just because they can," he said.

Venture capitalists are moving in. Brendan Kennedy and Michael Blue, two Yale University MBA graduates with backgrounds in Silicon Valley, have raised $5 million through their private equity firm, Privateer Holdings, believed to be the first in the nation to focus strictly on marijuana-related companies.

"We realized this was and is the biggest opportunity we think we'll probably see in our lifetimes," Blue said.

Their first acquisition was Leafly.com, a website that rates strains of marijuana for their medicinal properties. Users can plug in their ZIP codes and find out which products available in their areas produce the effects they're looking for, from "giggly" to the ability to treat migraines.

Vaporizers are another product they're looking at — anything that doesn't directly involve buying or selling marijuana. Privateer is offering investors the chance to make money in an arena most venture capitalists can't touch under standard partnership agreements, which normally spell out that investments not in compliance with federal law are prohibited. That means, they figure, an opportunity for stunning profits with little competition from other investment firms — though one has to listen to a lot of Bob Marley at trade shows.

"I've studied a lot of industries. I've never seen one that had this unique set of circumstances," Kennedy said. "It's highly fragmented, it's very unstructured, there's no leaders, there's no standards. The entire topic is taboo, and there's no involvement by Wall Street ... which is a unique opportunity, right?"

The state Liquor Control Board is asking for a staff of 40 to help set up a network of possibly 300 or more state-licensed retail stores. The board must also figure out how to regulate growers and packagers.

That process will take much of the next year. Though it has been legal since Thursday for adults to use small amounts of marijuana away from public view, they can't buy it, sell it or grow it until regulations are in place. Exemptions remain for medical users under existing law.

"Nowhere in the nation, or in the world, have they set up a regulatory system for recreational marijuana use. I think that's where we're kind of charting new ground," said Pat Kohler, director of the board.

"There will have to be a set of regulations set up on how much they can grow, what kind of security they need to have, can they grow it indoors — all these things need to be discussed."

In part, Kohler said, Washington will be looking to Colorado — where voters approved a similar statute that goes into effect in January — which has in place regulations for medical marijuana more comprehensive than Washington's laissez-faire approach.

She said it would also be logical to model regulations on rules governing the liquor industry. Until this year, when alcohol sales were privatized, hard liquor in Washington was sold at state-licensed stores that, like those to be set up under the marijuana law, sold nothing but alcohol under tight regulation and taxation.

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U.S.-Mexican singer Jenni Rivera dies in plane crash

MEXICO CITY (Reuters) – Mexican-American singer Jenni Rivera died in a plane crash after the small jet she was travelling in went down in northern Mexico, her father said on Sunday.

A spokesman for the state government of Nuevo Leon said investigators had found the remains of Rivera’s Learjet, which disappeared from the radar 62 miles from the northern city of Monterrey at about 3:30 a.m. local time/4.30 a.m. EST.

Speaking after the wreckage was discovered, the singer’s father, Pedro Rivera, told Telemundo television all seven of the people on board the plane, including two pilots, had died.

“Everyone was lost,” Rivera said, flanked by two sons.

Investigators are still searching the crash site in the municipality of Iturbide, south of Monterrey. The transportation and communications ministry said the wreckage was strewn so far and wide that it was hard to recognize anything.

It was not clear what caused the crash.

Rivera, 43, was heading for the city of Toluca in central Mexico after a concert in Monterrey on Saturday night.

Born in Long Beach, California, to Mexican immigrants, Rivera sold some 15 million records in her career, won several awards and received Grammy nominations, her website said.

A mother of five, Rivera was a renowned performer of the Nortena and Banda musical styles.

(Writing by Dave Graham; Editing by Philip Barbara and Stacey Joyce)

Music News Headlines – Yahoo! News

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Interest Groups Push to Fill Margins of Health Coverage

The chiropractors were out in force, lobbying for months to get their services included in every state’s package of essential health benefits that will be guaranteed under the new health care law.

“We’ve been in constant contact with our state chapters, just telling them, ‘Look, you’ve got to get in the room,’ ” said John Falardeau, senior vice president of government relations at the American Chiropractic Association.

The acupuncturists were modest by comparison, ultimately focusing on a few states, like California, where they had the best odds of being included.

“Our profession really didn’t have a million dollars to spend on a lobbyist,” said Jeannie Kang, the immediate past president of the American Association of Acupuncture and Oriental Medicine. Instead, they mobilized 20,000 acupuncturists and their patients in a letter-writing campaign.

Both efforts seem to have shown results. Most of the roughly two dozen states that have chosen their essential benefits — services that insurance will have to cover under the law — have decided to include chiropractic care in their package. Four states — California, Maryland, New Mexico and Washington — included acupuncture for treating pain, nausea and other ailments. It is also likely to be an essential benefit in Alaska and Nevada, according to the Department of Health and Human Services.

“To me, six is huge,” said Ms. Kang, an acupuncturist in Los Angeles, who helped coordinate the lobbying effort.

The main goal of the health care law has always been to guarantee medical coverage to nearly all Americans, but as states finalize their benefits packages, it is becoming clear that what is received will depend partly on location.

According to proposals that the states have submitted to the Department of Health and Human Services, insurance plans will have to cover weight-loss surgery in New York and California, for example, but not in Minnesota or Connecticut. Infertility treatment will be a required benefit in Massachusetts, but not in Arizona.

Over all, the law requires that essential health benefits cover 10 broad categories, including emergency services, maternity and newborn care, hospitalization, preventive care and prescription drugs. But there is room for variation in those categories. Whether insurance will pay for hearing aids, foot care, speech therapy and various medications will vary significantly by state.

The Obama administration originally planned to impose a single set of essential benefits nationwide, so groups like Ms. Kang’s lobbied federal officials at first. But last year, amid accusations that the health care law was too rigid, it decided to allow each state to choose its own guaranteed benefits within the 10 broad categories.

The law stipulates that starting in January 2014, the essential benefits will have to be covered by insurance plans offered in individual and small-group markets. These are the plans that people will shop for to comply with the law’s mandate that almost everyone have health coverage or pay a penalty. They will be available through health insurance exchanges, online markets where the uninsured can shop for coverage, often with federal subsidies to help pay for it.

The essential benefits will not be guaranteed to people who get coverage through large employers, but such plans already tend to be relatively generous. In comparison, many plans currently sold on the individual market do not cover maternity care, for example, or mental health services.

For the most part, states are defining their essential benefits as those provided by the largest health plan in their small-group insurance market. In Washington State, for example, that plan covers 12 acupuncture visits and 10 chiropractic visits per year. It does not cover in vitro fertilization, weight-loss programs or routine foot care for anyone except diabetics.

“Everybody really was conscious of the cost impact that the plan was going to have,” said Stephanie Marquis, a spokeswoman for the state’s insurance commissioner. “That’s something we’re working very hard at keeping an eye on and making sure we’re not adding benefits unnecessarily.”

Alan Weil, executive director of the National Academy for State Health Policy, said that while the essential benefit packages vary at the margins, they are similar over all. Every state’s package will cover visits to primary care doctors and specialists, for example, and diagnostic tests like X-rays and blood work.

“To people who care about particular diseases or conditions or provider groups, these don’t feel like the margins,” Mr. Weil said. “But at the end of the day, the core benefits are very standardized, and the differences are at the periphery.”

Some states have declined to choose an essential benefits package, saying that the law does not give them enough latitude. In those states, the default will be the largest plan available in their small-group insurance market, according to the Department of Health and Human Services.

Gov. Dave Heineman, Republican of Nebraska, chose an insurance plan with a high deductible as his state’s benchmark, reasoning that such lower-cost plans were popular in the state. But the Obama administration recently informed him that the plan did not meet the requirements of the law, he said.

“The point we were trying to make is that the minimum coverage should not be above what people need,” Mr. Heineman said. “The overriding concern is that the cost will be too great.”

Other states delayed choosing a benchmark plan on the grounds that the Obama administration had not provided enough guidance. Last month, the administration published a proposed rule that sought to answer outstanding questions.

The rule makes clear, for example, that insurers can substitute one covered service for another as long as they are in the same broad category and “substantially equal.” It clarifies that pediatric services, one of the 10 required categories, must be provided to everyone 18 and under.

States can still change or choose a benchmark plan, but they are running out of time. They generally have until Dec. 26, when the comment period for the proposed rule will end. So far, 23 states and the District of Columbia have chosen plans, according to Avalere Health, a consulting company.

Interest groups that did not succeed in getting a particular service covered may have another chance to do so. States will most likely be able to change their benchmark plans after 2015. So groups like the Obesity Action Coalition will keep making their case.

“There’s going to be a great deal more effort on this issue,” said Chris Gallagher, a policy consultant for the coalition. “At a minimum, if plans are going to try to exclude obesity treatment services, there must be some kind of exception for medically necessary treatment. It’s a serious medical condition that affects one in three Americans.”

Likewise, Ms. Kang’s group will keep presenting state decision makers with patient testimonials and research studies on the benefits of acupuncture. Its next targets are New York and Florida, which have more licensed acupuncturists than any state except California.

The chiropractors, meanwhile, are focused on California, where the essential benefits package that Gov. Jerry Brown signed into law in September does not include chiropractic services. Mr. Falardeau said the American Chiropractic Association was still hoping for a change.

“We’re ready, if we have to, to go to war on it,” he said.

This article has been revised to reflect the following correction:

Correction: December 10, 2012

An article on Thursday about the way in which benefits under the new health care law will vary from state to state, using information from the Department of Health and Human Services, misidentified a state that has proposed making infertility treatment a required benefit. It is Massachusetts, not New Hampshire.

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Bloomberg Weighs Making a Run for Financial Times

Not long ago, The Financial Times would have been the crown jewel of any media company, instantly conferring prestige and influence on its owner. Now, given the likely bidders, one of the world’s most respected and distinctive financial newspapers could end up as a trophy to help sell more computer terminals.

Michael R. Bloomberg is weighing the wisdom of buying The Financial Times Group, which includes the paper and a half interest in The Economist, according to three people close to Mr. Bloomberg who spoke on the condition of anonymity to divulge private conversations.

Mr. Bloomberg has long adored The Economist, and his affinity for the paper, at least as a reader, has deepened lately. Its bisque-colored pages, once rarely seen in the thick stack of newspapers Mr. Bloomberg carries under his arm all day, have become a mainstay. Friends say he favors its generally short, punchy and to-the-point articles, which match his temperament.

In October, Mr. Bloomberg visited the London headquarters of The Financial Times, a few blocks away from Bloomberg L.P.’s giant new London complex, which is still under construction. When an editor asked if he would buy the paper, Mr. Bloomberg replied, “I buy it every day.”

He has spoken openly with friends and aides about the potential benefits and pitfalls of making such a costly acquisition in an industry he admires deeply as a reader but sneers at as a businessman, these same people said. And he has recently taken to rattling off circulation figures and “penetration” rates for the paper.

“It’s the only paper I’d buy,” he has said to one associate. “Why should I buy it?” he has asked another.

His ambivalence speaks to the troubles facing the newspaper business, and to the complex motivations of the mayor himself. Drawn to power and prominence, Mr. Bloomberg is wrestling with his affection for the paper as its potential publisher and his wariness of an investment that could mar his company’s reputation for achieving outsize profits. Pearson, the parent company of The Financial Times Group, does not break out separate financial results for the paper, but analysts estimate that it loses money. A spokesman for the mayor declined to comment on his conversations about the paper.

For Thomson Reuters, the other likely bidder, the calculation is somewhat different. Unlike Mr. Bloomberg, who started his financial information company in 1982, James C. Smith, president and chief executive of Thomson Reuters, came up through Thomson’s regional newspapers and has ink in his veins. A replica of an old-fashioned printing press is on display in his corner office overlooking Times Square.

But the company has been hurt financially after its newest desktop terminal product struggled to catch on. In the first nine months of 2012, the company reported revenue of $9.88 billion, a 3 percent decrease from the period a year earlier. A company spokesman declined to comment.

The Financial Times could expand the Thomson Reuters brand and give its reporters additional exposure since, unlike Bloomberg, which bought Businessweek in 2009, the company does not own a regular magazine. Thomson Reuters, partly a British company, and The Financial Times also have large footprints in Asia.

But first, the paper needs to be put on the block. Pearson is about to lose two of its top executives, raising speculation the paper could be for sale. Analysts value The Financial Times Group at about $1.2 billion, well within the reach of Bloomberg L.P., which in 2011 had revenue of $7.6 billion, and Thomson Reuters, which posted revenue of $13.8 billion.

The paper has a successful digital strategy, and analysts have said that its strict online pay wall is considered a financial success. But like most newspapers, it is struggling in an industrywide decline in print advertising revenue. In the three months ending Oct. 1, the paper’s total paid circulation exceeded 600,000, more than half of which was from digital subscriptions. In its most recent earnings report, Pearson said it expected profit to decline because of a sluggish advertising market and “the shift from print to digital.”

Marjorie Scardino, Pearson’s longtime chief executive, who once said the paper would be sold “over my dead body,” is departing on Dec. 31. Rona Fairhead, chief executive of The Financial Times Group, will leave at the end of April. Both executives had championed the print businesses. A successor to Ms. Fairhead has yet to be named, though one person close to the company pointed to John Ridding, the chief executive of the paper.

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Juan Manuel Marquez KOs Manny Pacquiao

By Times staff

December 8, 2012, 10:05 p.m.

Juan Manuel Marquez of Mexico lands a hard right as Manny Pacquiao of the Philippines was moving forward, knocking out the former welterweight champion. Marquez, a 39-year-old who improves to (55-6-1 with 40 knockouts, had lost two fights and earned a draw in another against Pacquiao, who is 33 and is now 54-5-2.

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Orlando Bloom’s Legolas returns to Middle Earth in 2014′s “There and Back Again”

LOS ANGELES (TheWrap.com) – Legolas was a fan favorite in Peter Jackson‘s “Lord of the Rings” trilogy, but J.R.R. Tolkien enthusiasts won’t see the warrior Elf return to Middle Earth until 2014 when “The Hobbit: There and Back Again” hits theaters.

Entertainment Weekly published the first image of Orlando Bloom reprising his role and he looks pretty much the same, with the exception of his very blue eyes (weren’t they brown before?).

It’s true that the character is not featured in the book this trilogy is being adapted from, but luckily for Bloom’s bank account, his father is.

“He’s Thranduil’s son, and Thranduil is one of the characters in ‘The Hobbit,’” Jackson explained. “And because elves are immortal it makes sense Legolas would be part of the sequence in the Woodland Realm.”

If you don’t recognize the man standing next to Legolas, it’s because he’s a new face in the franchise. Bard the Bowman – played by Luke Evans – is a heroic human Laketown warrior who (if you couldn’t tell by his name) is also quite the marksman. He’ll come into the picture when “The Hobbit: The Desolation of Smaug” lands in theaters on December 13, 2013.

Movies News Headlines – Yahoo! News

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New Taxes to Take Effect to Fund Health Care Law

WASHINGTON — For more than a year, politicians have been fighting over whether to raise taxes on high-income people. They rarely mention that affluent Americans will soon be hit with new taxes adopted as part of the 2010 health care law.

The new levies, which take effect in January, include an increase in the payroll tax on wages and a tax on investment income, including interest, dividends and capital gains. The Obama administration proposed rules to enforce both last week.

Affluent people are much more likely than low-income people to have health insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.

To help finance Medicare, employees and employers each now pay a hospital insurance tax equal to 1.45 percent on all wages. Starting in January, the health care law will require workers to pay an additional tax equal to 0.9 percent of any wages over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.

Ruth M. Wimer, a tax lawyer at McDermott Will & Emery, said the taxes came with “a shockingly inequitable marriage penalty.” If a single man and a single woman each earn $200,000, she said, neither would owe any additional Medicare payroll tax. But, she said, if they are married, they would owe $1,350. The extra tax is 0.9 percent of their earnings over the $250,000 threshold.

Since the creation of Social Security in the 1930s, payroll taxes have been levied on the wages of each worker as an individual. The new Medicare payroll is different. It will be imposed on the combined earnings of a married couple.

Employers are required to withhold Social Security and Medicare payroll taxes from wages paid to employees. But employers do not necessarily know how much a worker’s spouse earns and may not withhold enough to cover a couple’s Medicare tax liability. Indeed, the new rules say employers may disregard a spouse’s earnings in calculating how much to withhold.

Workers may thus owe more than the amounts withheld by their employers and may have to make up the difference when they file tax returns in April 2014. If they expect to owe additional tax, the government says, they should make estimated tax payments, starting in April 2013, or ask their employers to increase the amount withheld from each paycheck.

In the Affordable Care Act, the new tax on investment income is called an “unearned income Medicare contribution.” However, the law does not provide for the money to be deposited in a specific trust fund. It is added to the government’s general tax revenues and can be used for education, law enforcement, farm subsidies or other purposes.

Donald B. Marron Jr., the director of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, said the burden of this tax would be borne by the most affluent taxpayers, with about 85 percent of the revenue coming from 1 percent of taxpayers. By contrast, the biggest potential beneficiaries of the law include people with modest incomes who will receive Medicaid coverage or federal subsidies to buy private insurance.

Wealthy people and their tax advisers are already looking for ways to minimize the impact of the investment tax — for example, by selling stocks and bonds this year to avoid the higher tax rates in 2013.

The new 3.8 percent tax applies to the net investment income of certain high-income taxpayers, those with modified adjusted gross incomes above $200,000 for single taxpayers and $250,000 for couples filing jointly.

David J. Kautter, the director of the Kogod Tax Center at American University, offered this example. In 2013, John earns $160,000, and his wife, Jane, earns $200,000. They have some investments, earn $5,000 in dividends and sell some long-held stock for a gain of $40,000, so their investment income is $45,000. They owe 3.8 percent of that amount, or $1,710, in the new investment tax. And they owe $990 in additional payroll tax.

The new tax on unearned income would come on top of other tax increases that might occur automatically next year if President Obama and Congress cannot reach an agreement in talks on the federal deficit and debt. If Congress does nothing, the tax rate on long-term capital gains, now 15 percent, will rise to 20 percent in January. Dividends will be treated as ordinary income and taxed at a maximum rate of 39.6 percent, up from the current 15 percent rate for most dividends.

Under another provision of the health care law, consumers may find it more difficult to obtain a tax break for medical expenses.

Taxpayers now can take an itemized deduction for unreimbursed medical expenses, to the extent that they exceed 7.5 percent of adjusted gross income. The health care law will increase the threshold for most taxpayers to 10 percent next year. The increase is delayed to 2017 for people 65 and older.

In addition, workers face a new $2,500 limit on the amount they can contribute to flexible spending accounts used to pay medical expenses. Such accounts can benefit workers by allowing them to pay out-of-pocket expenses with pretax money.

Taken together, this provision and the change in the medical expense deduction are expected to raise more than $40 billion of revenue over 10 years.

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Financiers Bet on Rental Housing

DAVID N. MILLER, a master of bailouts, steps to the dais and coolly explains how the financial world went crazy.

It is February 2010. The anger behind Occupy Wall Street is building. Flicking through slides, Mr. Miller, a Treasury official working with the department’s $700 billion Troubled Asset Relief Program, lays out what caused the housing bubble: easy credit, shoddy banking, feeble regulation, and on and on.

“History has demonstrated that the financial system over all — not every piece of it, but over all — is a force for good, even if it goes off track from time to time,” Mr. Miller tells a symposium at Columbia University in remarks posted on YouTube. “As we’ve experienced, sometimes this system breaks down.”

But, it turns out, sometimes when the system breaks down, there is money to be made.

Mr. Miller, who arrived at the Treasury after working at Goldman Sachs, described himself as a “recovering banker” in the video.

Today, he has slipped back through the revolving door between Washington and Wall Street. This time, he has gone the other way, in a new company, Silver Bay Realty, which is about to go public. He is back in the investment game and out to make money with a play that was at the center of the financial crisis: American housing.

As the foreclosure crisis grinds on, knowledgeable, cash-rich investors are doing something that still gives many ordinary Americans pause: they are leaping headlong into the housing market. And not just into tricky mortgage investments, collateralized this or securitized that, but actual houses.

A flurry of private-equity giants and hedge funds have spent billions of dollars to buy thousands of foreclosed single-family homes. They are purchasing them on the cheap through bank auctions, multiple listing services, short sales and bulk purchases from local investors in need of cash, with plans to fix up the properties, rent them out and watch their values soar as the industry rebounds. They have raised as much as $8 billion to invest, according to Jade Rahmani, an analyst at Keefe Bruyette & Woods.

The Blackstone Group, the New York private-equity firm run by Stephen A. Schwarzman, has spent more than $1 billion to buy 6,500 single-family homes so far this year. The Colony Capital Group, headed by the Los Angeles billionaire Thomas J. Barrack Jr., has bought 4,000.

Perhaps no investment company is staking more on this strategy, and asking stock-market investors to do the same, than the one Mr. Miller is involved with, Silver Bay Realty Trust of Minnetonka, Minn. Silver Bay is the brainchild of Two Harbors Investment, a publicly traded mortgage real estate investment trust that invests in securities backed by home mortgages.

In January, Two Harbors branched out into buying actual homes and placed them in a unit called Silver Bay. It offered few details at the time, leaving analysts guessing about where it was headed.

“They were not very forthcoming,” says Merrill Ross, an analyst at Wunderlich Securities. As of Dec. 4, Two Harbors had acquired 2,200 houses. Ms. Ross says she couldn’t find out how much Two Harbors paid or the rents it was charging. Two Harbors shares, which recently traded at $11.66, are up about 25 percent in 2012.

Two Harbors now plans to spin off Silver Bay into a separately traded public REIT. The new company will combine Silver Bay’s portfolio with Provident Real Estate Advisors’ 880-property portfolio. Silver Bay will focus on homes in Arizona, California, Florida, Georgia, North Carolina and Nevada, states where prices fell hard when the bottom dropped out.

In a filing with the Securities and Exchange Commission last week, Silver Bay said it planned to offer 13.25 million shares at an initial price of $18 to $20 a share. But it’s no slam dunk. While home prices nationwide have begun to recover — they were up 6.3 percent in October, according to a report last week from CoreLogic, a data analysis firm — prices could fall again if the economy falters anew. Millions of Americans are still struggling to hold onto their homes and avoid foreclosure.

“Recent turbulence in U.S. housing and mortgage markets has created a unique opportunity,” Silver Bay said in an S.E.C. filing. The company, which will be the first publicly traded REIT to invest solely in single-family rental homes, says its investment plan will help clear foreclosed homes from the market, spruce up neighborhoods and renovate vacant homes, presumably while enriching its new shareholders. Its portfolio will be managed by Pine River Capital Management, a hedge fund in Minnetonka that has reportedly been buying bonds backed by risky subprime mortgages. Mr. Miller is a managing director at Pine River and chief executive of Silver Bay.

Mr. Miller, through a spokesman, declined to comment for this article, citing the pending stock offering.

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Surgeon infected patients during heart procedure, Cedars-Sinai admits

A heart surgeon at Cedars-Sinai Medical Center unwittingly infected five patients during valve replacement surgeries earlier this year, causing four of the patients to need a second operation.

The infections occurred after tiny tears in the latex surgical gloves routinely worn by the doctor allowed bacteria from a skin inflammation on his hand to pass into the patients' hearts, according to the hospital. The patients survived the second operation and are still recovering, hospital officials said.

The outbreak led to investigations by the hospital and both the L.A. County and California departments of public health. The federal Centers for Disease Control and Prevention was also consulted.

Hospital officials called it a "very unusual occurrence" probably caused by an unfortunate confluence of events: the nature of the surgery, the microscopic rips in the gloves and the surgeon's skin condition. Valve replacement requires the surgeon to use thick sutures and tie more than 100 knots, which can cause extra stress on the gloves, they said.

Nevertheless, the hospital's goal is to have zero infections, said Harry Sax, vice chairman of the hospital's department of surgery. "Any hospital-acquired infection is unacceptable," he said.

The infections raise questions about what health conditions should prevent a surgeon from operating and how to get the best protection from surgical gloves. Surgeons with open sores or known infections aren't supposed to operate, but there is no national standard on what to do if they have skin inflammation, said Rekha Murthy, medical director of the hospital's epidemiology department. She added that there were also no national standards on types of gloves used, whether to wear double gloves or how many times surgeons should change those gloves during a procedure.

Healthcare-acquired infections are very common throughout the United States. Each year, infections cause 99,000 deaths in the country, including about 12,000 in California. Hospitals in the state are required to report certain infections to the California Department of Public Health. That reporting makes the public more aware of the quality of care provided at local hospitals and is an important tool for reducing infections, said Debby Rogers, deputy director of the department's Center for Health Care Quality.

Cedars-Sinai has low rates for hospital-acquired infections compared with the state and national average but has not performed as well on other surgical quality measures recently, according to the Leapfrog Group, an employer-backed nonprofit focused on healthcare quality. The organization gave the hospital a C rating last month on its national report card, down from an A in June, though it was not related to the infection outbreak.

"Clearly this hospital is making attempts to reduce infections, but they have more work to do," said Leah Binder, Leapfrog's chief executive.

Cedars-Sinai Medical Center conducts about 360 valve replacement surgeries each year and said infections occur in fewer than 1% of its cases — lower than the national average.

The hospital learned about the problem in June after three patients who had undergone valve replacement surgery showed signs of infection. Doctors diagnosed the patients with an infection called endocarditis. Concerned there might be a connection among the cases, epidemiologists analyzed the bacteria, staphylococcus epidermidis, and determined that it was an identical strain and therefore must have come from a single source. "It led to the question of gee, I wonder where it came from?" Murthy said.

Epidemiologists homed in on the surgeon with the skin inflammation. The bacteria matched, and then they made a surprising discovery: microscopic tears in the gloves typically worn by surgeons after performing valve replacement surgery. The surgeon, whose name was not released, was not allowed to operate again until he healed. He is still a member of the medical staff but no longer performs surgeries at the hospital.

The hospital soon found the same infection in two more patients. Officials also reached out to 67 patients who had heart valve replacements with the same surgeon but didn't find any other cases. One of the five infected patients was treated with antibiotics, and the other four had new valve replacement surgeries. Sax said the hospital apologized to the patients and has continued to monitor their health. The hospital has also covered the cost of their care, including follow-up treatment and all the related surgeries.

All surgeons doing valve replacements are now required to change gloves more frequently, officials said. Some surgeons are wearing double gloves during the operations, Sax said.

Following the outbreak, Cedars-Sinai did the proper follow-up to ensure the safety of their patients, said Dawn Terashita, a medical epidemiologist with L.A. County, who was notified in September. What occurred at Cedars-Sinai was an unintentional consequence of the surgery, she said.

"There is no way to keep a room entirely sterile and all the people in it sterile," she said. "You will always have risk of infection."

anna.gorman@latimes.com

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