An American Sickness: How Healthcare Became Big Business and How You Can Take It Back

by Elisabeth Rosenthal

Groups of pathologists, anesthesiologists, radiologists, and ER physicians (PARE) followed, creating limited liability companies (professional LLCs) and becoming corporate contractors who sold their “physician services” to their former employers. Many did so even as they continued to work within the hospital.

The game with the PARE specialists is that they began to refuse to contract with any plan or insurer,” said Dr. Seth Lewin, who was senior director of a health plan in central Massachusetts from 2008 through 2012. “These guys decide not to contract, so they can charge whatever they want. The patient is over a barrel.” Most insurance plans limit your financial liability only if you remain in the network of hospitals and doctors with which they have contracts.

But EMTALA doesn’t apply to physicians, who are free to pick and choose which patients to accept.

Physician extender is an umbrella term that refers to the trained ancillary personnel who help doctors and surgeons care for patients, including nurse-practitioners, surgical technicians, physician assistants, and midwives. In many countries they practice independently, but in most of the United States, according to law, they typically work under the auspices of an MD.

By billing for the work of extenders, a single MD could amplify his or her billing potential exponentially.

But the widespread use of extenders at the very least eroded the face time with doctors that had long inspired patient confidence.

When other drugmakers came up with similar but cheaper medicines, TAP devised a program to sell doctors discounted Lupron and even provided free “bonus” samples that the physicians could administer and bill for full charge. The company sent doctors promotional material called “the Lupron checkbook,” and calculated how many vials a urologist had to prescribe to earn as much money as from performing a surgical castration.

Ms. Bennion’s eye surgeon was asking patients with the means to pay nearly double or triple what government insurers in the United States and everywhere else in the world have determined is a reasonable price for the cataract operation.

This practice of comparing new drugs with placebos rather than other currently available treatments as a criterion for licensing has also led to both a plethora of expensive me-too drugs and a dearth of trials and published efficacy studies.

Once a drug is approved for one use, doctors can prescribe it for others, as they see

There proved to be endless ways to extend your product’s value through manipulating FDA policies and patent law.

Getting a patent costs only $20,000, and applications are unlimited. “If you’re persistent you can usually get one, so there’s a strong motivation for the drug companies to file weak patents,”

According to industry analysts, every six months of delay before generics hit the market can be worth billions in profits or added spending.

Since generics must be identical in dosage and form to the brand-name drug for a pharmacist to substitute, each move succeeded in delaying competition from generics for years.

Prescriptions are key to charging high prices (because insurers pay) and holding a pharmaceutical monopoly intact. In much of the world, products go over the counter when they are deemed safe enough to take without a doctor’s intervention. In the United States it is more of a business calculation.

An OTC switch makes products available to a wider audience of buyers. But manufacturers have to lower prices dramatically because insurance is no longer involved; they also have to establish brand recognition with consumers.

According to U.S. law, the same product cannot be on the market as both a prescription and an over-the-counter product.

So once Flonase was sold off pharmacy shelves, the generics manufacturers had six months to use up supply and close their factories, even though generic Flonase had been the market leader among steroid nasal sprays for years. Moreover, the FDA grants any company that takes a prescription drug to OTC status three years of market exclusivity for that sales route, during which other manufacturers are forbidden from making store-brand copies.

The number of pay-for-delay arrangements has increased dramatically since 2010, and the result is no generic drug competition to produce cheaper alternative versions for a growing number of brand-name drugs.

As pharmaceutical prices increased, insurers imposed co-payments that were a percentage of the bill to encourage the use of cheaper alternatives.

When yet another new drug, Tecfidera, entered the market with a price tag of $5,000 per month, the cost of all MS drugs, including the one Ms. Chapman was taking, moved up to that price point.

Many of the same drugs in Europe still cost $15,000 a year because countries there bargain with the pharmaceutical companies for a national price, which Medicare is not legally allowed to do.

As a result, drug companies invented “co-pay assistance,” a unique form of self-interested corporate charity to cover patients’ co-payments—a “donation”—so that the manufacturers can continue to submit bills for the full price of the drug to insurers.

By donating $1,250 to cover a patient’s 25 percent monthly co-payment on a $5,000 drug, companies are still making a hefty profit. (The $1,250 is also tax-deductible.)

Physicians are not permitted to waive patient co-payments because they are part of insurance contracts: if a doctor routinely “forgives” patients’ required 20 percent co-pay, insurance law considers that fraud.

The problem for Ms. Chapman, as for many people with progressive diseases, is that many end up disabled and insured by Medicare as their health declines, setting off a financial crisis because they can no longer accept drugmakers’ largesse.

According to a report by the U.S. Department of Health and Human Services (HHS), most of PAN’s funding is provided by manufacturers of the drugs covered by the foundation’s programs.

Pharmaceutical firms are skirting the spirit if not the letter of the Medicare antikickback law.

Today, there are only a handful of huge PBMs—Express Scripts, CVS Caremark, OptumRx—and they have enormous sway over your care.

Hired by many employers and insurers as middlemen to negotiate drug purchases with pharmacies, the PBMs occupy a place of business advantage.

The PBMs are for-profit companies that make money by pocketing a percentage of the discounts they negotiate.

By the early 2000s, many hospitals had hired yet another new type of middleman, called a group purchasing organization (GPO), to bargain with drugmakers on their behalf. Since GPO fees are based on a percentage of sales, they have little incentive to promote the use of the cheaper drugs because that decreases their revenues.

The explanation was simply the business strategy of one company, Amedra Pharmaceuticals, to corner a niche market for a pharmaceutical agent and then to raise prices for captive patients to once-unthinkable levels.

to really bring down prices through market competition, probably four or five generics would need to be on the shelves, and that level of competition was increasingly rare. As a result, after 2010 generics often settled into a price point just slightly lower than that of the brand-name drug.

But ambulance companies occupy an indispensable position in the hospital supply chain and one that proved easy to monetize: they bring in the paying customers.

By 2011 ambulance transport was no longer primarily a charitable service but such a good business that America’s two largest private sector providers, Rural/Metro and American Medical Response, were both bought by private equity firms that year.

But 2012 payments for patients in Medicare Advantage plans were in fact 8 percent higher per patient than in fee-for-service plans, where patients could visit any physician or hospital. That excess is likely at least in part the result of coordinated efforts to raise risk scores, extracting billions in dubious billing

The financial stakes in coding are high. If you code for “heart failure” (ICD-9-CM code 428) when you could code for “acute systolic heart failure” (code 428.21), the difference is thousands of dollars.

An investigation by the HHS OIG in 2005 found massive evidence of modifier 59 abuse. Forty percent of code pairs billed with modifier 59 in 2003 weren’t kosher, resulting in $59 million in overpayment.

“What Is Your Wish for the Future of Diabetes?” The words are mostly all the same: “A Cure.” But almost all of the dozens of exhibitors and sponsors who help underwrite the conference are focused on something else: selling ever-costlier treatments and supplies.

If the March of Dimes was operating according to today’s foundation models, we’d have iron lungs in five different colors controlled by iPhone apps, but we wouldn’t have a cheap polio vaccine,”

Today, every piece of good work in medicine, it seems, needs a promising business model.

But just fifteen years later the AMA is a multiheaded hydra that is, in many respects, as much a diversified corporation as a nonprofit professional group. Only 25 percent of doctors join.

the AMA no longer relies on dues or advertising in journals for income. It now has “seven, eight, nine different revenue streams,” the most lucrative of which involve business,

Most notably the AMA owns the copyright for those CPT codes, which are essential for billing. It sells books of the code to doctors, hospitals, and researchers. It requires companies that use the codes in their products—such as collection agencies—to pay royalties and licensing fees.

The AMA spends over $20 million on lobbying each year.

The AMA’s primary focus in the past ten to fifteen years has been medical finance—filing lawsuits against insurers over how to calculate “usual, customary and reasonable” and opposing Medicare’s public release of payments to physicians, for example. Its biggest single lobbying effort has been the two-decades-long fight against the sustainable growth rate, the government proposal to cut physician payments;

Collectively, the medical industry has become the country’s biggest lobbying force, spending nearly half a billion dollars each year.

Doctors fought to prevent drugstores from giving shots other than influenza vaccines. They required schools that stock epinephrine pens to follow protocols developed by a hired physician. In 2007 the North Carolina State Board of Dental Examiners wrote a cease and desist order to salons and spas offering teeth whitening using peroxide preparations, accusing them of the unlicensed practice of dentistry and asserting they could be subject to criminal penalties. What was good for patients often seemed to be an afterthought.

the society successfully championed legislation allowing doctors to supervise up to five full-time physician assistants and bill as if they delivered the care themselves. A doctor in Illinois can now be in six places at once.