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

by Elisabeth Rosenthal

Anyway, blind people with Non-24 are likely not the primary target of the company’s ads. As Dr. Czeisler noted at the approval meeting, disturbed circadian sleep cycles—aka jet lag—are a huge problem for frequent fliers and that is a much bigger target market. By 2016 the company was conducting trials for that indication. Once a drug is approved for one use, doctors can prescribe it for others, as they see fit. Vanda is endeavoring to expand the boundaries. The things Vanda says you should consider before “talking to your doctor about whether Hetlioz is right for you” are as general as “I have trouble falling asleep or staying asleep.”

(The conversion to inhalers with new propellants was not bad business for the Food and Drug Administration either, because each new application brought in millions of dollars in application fees. The FDA says the fees, permitted under the 1992 Prescription Drug User Fee Act, allow it to staff up to keep drug reviews moving expeditiously through the approvals system. Critics say the half a billion dollars in fees it collects annually makes the FDA beholden to pharma.)

few patients could afford that (including Ms. Chapman, who had switched to a less demanding job, with a lower salary, to accommodate her condition). 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. A direct payment by the drug company could be considered a kind of bribe, so foundations with noble-sounding missions like “ending healthcare disparities” were often created to cut the checks. On paper, these charities are among the most generous in the country. The AbbVie and Johnson & Johnson Patient Assistance Foundations each “give” more than $700 million each year. 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.) It costs the U.S. healthcare system huge amounts of money.

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. Following similar logic, Medicare forbids its beneficiaries from accepting pharmaceutical co-pay offers. But private insurers had a hard time saying no to programs that were advertised to sick patients. Novartis asked: “How does a $0 prescription co-pay sound to you? Most eligible people paid a $0 prescription co-pay for GILENYA.” If a commercial insurer didn’t allow patients to take advantage of the offers, its customers would leave in droves for a competitor that did.

Patient Access Network doesn’t have any more MS funding this year.’ Or maybe you get a notice that, yes, you’ve been covered for the year, and you’d relax. But the whole thing is crazy and super unnerving.” On its IRS Form 990, the Patient Access Network defines its mission as “a society where every individual can access needed medical care.” It describes its method as “helping underinsured patients access needed medical treatment through copay assistance.” PAN brags that it does almost no fund-raising, but it received more than $300 million in donations in 2013. PAN does not disclose its donors, but says they include “pharmaceutical companies, medically related organizations, individuals and foundations.” Four gave more than $25 million and one over $100 million. It is administered by the Lash Group, a healthcare consultancy whose major clients are pharmaceutical companies. 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. Donors are permitted to earmark funds for particular diseases—presumably the ones their drugs treat. PAN’s financial report shows that 85 percent of its “grantees” are on Medicare, which means they can’t legally accept co-pay assistance directly from a pharmaceutical firm’s foundation. Pharmaceutical firms are skirting the spirit if not the letter of the Medicare antikickback law. The Patient Access Network even asked the ...

And some executives of companies making generics discovered a newfound ability to do what the brand makers had gotten away with for years: to charge whatever the highly dysfunctional U.S. market would bear.

One of my readers, who feared having her name associated with drug trafficking, obtains diabetes medicine over the border: “Januvia is more than $300 per month—$6 a day—and I cannot afford to buy it in the United States. Therefore, I travel twice a year to San Diego, walk across the border to Tijuana where the IDENTICAL pill of Januvia costs about 40 CENTS—thanks to Mexican government regulation of pharmaceutical companies and drugs!”

For some devices customers have only one option. Stryker, Zimmer Biomet, DePuy Synthes, and Smith & Nephew make virtually all knee and hip implants available in the United States. Experts jokingly call them “the cartel.”

Advanced Medical Technology Association (AdvaMed, started in 1975) or the Medical Device Manufacturers Association, (MDMA, created in 1992). That’s partly why the idea of including a medical device tax in the ACA was anathema to the industry, shining a spotlight on a dark, highly lucrative corner of medicine that had previously escaped any attempt at cost control or scrutiny. One analyst who tracks devices for investors worried that price pressure from the ACA would “hamper the growth of the growth” that device makers had long enjoyed.

Zimmer Biomet, the largest orthopedic device maker, was established in 1926, when Justin Zimmer, a salesman for an Indiana company that made wooden splints, decided to strike out on his own and manufacture instead with aluminum.

In 1976, amendments to the 1938 Food, Drug, and Cosmetic Act defined three different classes of devices that needed various levels of approval to ensure their effectiveness and safety before sale. Class 1 included equipment like tongue depressors that required little if any scrutiny. Devices whose impact was “life-threatening or life sustaining” or that “present[ed] unreasonable risk of illness or injury, and required extensive testing,” such as pacemakers, were included in class 3. Class 2 devices were those in between, which were governed by a new program called 510(k). To gain access to the market via the 510(k) route, companies had only to claim that their new device was “substantially equivalent” to a product already sold in the United States and used for the same purpose. The program defined “substantially equivalent” in vague terms that device company lawyers would come to love and exploit: “Not intended to be so narrow as to refer only to devices that are identical to marketed devices, nor so broad as to refer to devices which are intended to be used for the same purposes as marketed products.” The boundaries of the three device categories seemed easier to define four decades ago, and the government likely never anticipated a world in which those categories would be gamed for profit. The revolutionary Starr-Edwards heart valve had a relatively simple ball-and-cage design. There was no microprocessor, no genetic engineering, no Internet. But as the device industry g...

Ms. Baxter’s Stryker Rejuvenate implant is not mentioned by name. Nor does the letter mention that the Stryker Rejuvenate had been recalled six months earlier, which Ms. Baxter only later discovered on Google. The company was under no legal obligation to notify patients; the letter, she noted, “does not even say ‘we’re sorry.’”

But other orthopedists, disgruntled by the pricing, simply found a way to reap more of the profit themselves. A number of group practices formed physician-owned distributors (PODs), a new type of company to cut out the layers of middlemen. Then they bought implants and resold them to the hospitals and surgery centers where they practiced, where they installed them in patients for twice as much, yielding a hefty, predictable profit. An active practice of orthopedic surgeons could do $4 million to $5 million in implant sales a year.

Uninsured and underinsured Americans often get less testing and fewer services than they need. Poor Americans are less likely to get crucial recommended screenings for colon cancer and blood pressure. But well-insured Americans suffer often from too much treatment—particularly as they age—with tests and services meted out not for health but for money.

Trade groups representing billers and coders like to tout the centuries-old pedigree of their profession, but that is a half-truth: the historical purpose of coding was strictly epidemiologic—to classify and track causes of death and prevent the spread of infections among populations that spoke different languages.

Medical coding systems originated at the time of the bubonic plague. In the 1890s the French physician and statistician Jacques Bertillon further systematized death reporting by introducing the Bertillon Classification of Causes of Death, which was adopted and modified in many countries. It became an official global effort, which was periodically revised by an international commission. During the first half of the twentieth century, the number of entries naturally increased with improved understanding of science, and many countries began tabulating not just causes of deaths but also the incidence of diseases. In 1948 the World Health Organization took over stewardship and gave Bertillon’s system a new name to reflect a new broader focus: the International Statistical Classification of Diseases, Injuries and Causes of Death (ICD). The codes became an invaluable tool, a common language for epidemiologists and statisticians to use when tracking the world’s afflictions. But in the United States, the codes gradually took on a bedrock financial function as the basis for medical billing. In 1979 the U.S. government decided to use ICD codes in adjudicating Medicare and Medicaid claims, with some modifications added specifically for that business purpose, so the U.S. version is called ICD-CM. Other insurers followed. In multiple volumes, the U.S. version not only categorized and number-coded diagnoses but also introduced codes for procedures.

Suddenly coding meant big bucks and a new industry thrived. For-profit colleges began offering medical coding degrees, and required internships soon followed. There are three different alphanumeric coding languages—CPT, HCPCS (Healthcare Common Procedure Coding System), and ICD—and each is as different from the other as Chinese is from Russian and Russian is from French. As a result, different degree tracks were necessary, along with professional exams, certifications, and licensure offered by competing professional organizations.

The latest iteration of international disease codes, ICD-10, was completed in 1992 and has been used by the rest of the world for decades. Why did it take the United States until 2015 to fully deploy it? The problem was that the United States’ medical billing system, and how to game it, evolved based on ICD-9. Changing to the new system, which identifies medical conditions more specifically using new numerical codes, was good for international epidemiology—but terrible for the business of American medicine. Physicians’ groups mocked the new system, noting that it contained codes like W56.22, “struck by Orca”; or V91.07, “burn due to water-skis on fire”; or W55.21, “bitten by cow.” (Remember, in most of the world this is primarily a scientific system for tracking disease, injuries, and deaths; codes were unconnected to practice and finance.) Because adopting the new system in the United States would require new billing software and require every coder to go back to class, the medical industry convinced Medicare to delay adopting ICD-10 year after year. Doctors’ groups warned that switching to the new system would lead to a “catastrophic” number of “unpaid Medicare claims.” When it finally came into use—uneventfully—in late 2015, it created some headaches for doctors and a burst of new business for coding consultants.

The chain of for-profit businesses now involved in precertification magnifies the basic indignity and the errors made. As Dr. Hayes’s office manager tried to get approval for the nuclear medicine stress test, the insurer’s Web site said Dr. Hayes was in the Blue Cross network, but CareCore said he was not. Dr. Hayes himself had to get on the phone to request a peer-to-peer review with a CareCore doctor. After more than a half hour of waiting, and relaying a dozen pieces of information (patient’s name, test code, provider’s code, facility or doctor’s office, diagnosis of chest pain, electrocardiogram finding, lab tests, ICD code, and more), the office manager got approval for an hour-long test, for which Dr. Hayes would be paid anywhere from $600 to $1,200. These wasteful bureaucratic processes have been a lucrative job creator for the business of healthcare. They also siphon hours away from what patients want from their doctor and what good doctors want to provide: human contact.

Ten years ago, Dr. Faustman—with the support of Lee Iacocca and a dedicated band of volunteers—raised $9 million to fund a Phase I “proof of concept” trial, which suggested that even people with long-standing diabetes had started to make some insulin after receiving BCG.

Moreover, between 2010 and 2015, the cost of insulin and other products used to manage diabetes skyrocketed, despite few significant advances in treatment. The recommended wholesale price of different forms of insulin rose between 127 and 325 percent. The monthly wholesale price of Humulin, the most popular insulin, has risen to nearly $1,100, up from $258 for the average patient between 2012 and 2015. (See Rule 4: As technologies age, prices can rise rather than fall.)

The mind-set and mission of many disease foundations underwent a sea change in 2014, when the Cystic Fibrosis Foundation (CFF) received a $3.3 billion windfall as the result of its decision to invest over the years in a small Massachusetts biotech firm. A total of $150 million invested in Vertex Pharmaceuticals ultimately helped produce Kalydeco, the first blockbuster drug against cystic fibrosis (CF), which was approved by the FDA in 2012. Two years later, the foundation sold its rights to drug royalties to a venture capital firm and received over $3 billion in an instant, about thirty times the amount the foundation had typically raised in a year.

By 2015 JDRF had twenty-eight industry partners listed on its Web site. It had given Medtronic $17 million to develop a glucose sensor, partnered with Tandem Diabetes Care to make a new dual chamber pump, and invested $4.3 million in BD, a New Jersey–based medical device manufacturer, to fund projects like creating smaller needles that reduced pain. In late 2013 JDRF announced that it was “going the equity route,” joining with PureTech Ventures, a for-profit venture capital firm, to create a fund to fuel new diabetes start-ups.

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,” said Dr. Michael Brownlee, the Anita and Jack Saltz Chair in Diabetes Research Emeritus at the Albert Einstein College of Medicine in the Bronx, a JDRF critic who himself has type 1 diabetes. Today, every piece of good work in medicine, it seems, needs a promising business model.

In 2014 a luxurious three-bedroom, 2,600-square-foot condominium at the Ayer Building in downtown Philadelphia was put up for sale for just under $2 million. The owner of this property was the foundation of the American Board of Internal Medicine (ABIM), an offshoot of the nonprofit back-office group whose official task is certifying medical doctors. In 1998 the American Board of Internal Medicine declared $17 million in revenue. By 2015 its revenues had increased to $58 million, almost all of it earned by testing and certifying physicians. Each year, a hefty chunk of that revenue was passed on to its affiliate, the ABIM Foundation (the condo’s owner), a nonprofit foundation that the nonprofit ABIM created around 2000 to promote “medical professionalism.” It has become common in the world of healthcare that nonprofit hospitals and medical societies set up secondary nonprofit foundations. These foundations sometimes do good works: the ABIM Foundation initiated a campaign called “Choosing Wisely” to encourage doctors to be more judicious in their use of expensive and unneeded medical interventions. But they often seem like outposts for vanity projects or just places to keep cash. The officers of the ABIM and the officers of its foundation were the same, and received salaries from both organizations. The exact details of how the money is earned and spent are opaque, said Charles Kroll, a forensic accountant who investigated the links, because the two Philadelphia-based nonpro...

In the face of cost-cutting healthcare reform, and realizing that doctors were fighting the forces of big business, medical societies started becoming much more aggressive about knocking on politicians’ doors. “The societies recognized that the hospitals and pharma were spending a lot on the Hill and we wanted to be the person the congressman turns to when they have a question about a bill,” said Dr. Alexandra Page, an orthopedist in San Diego, who is chair of the American Academy of Orthopaedic Surgeons Health Care Systems Committee.

It seemed like a shoo-in when Illinois state representative Daniel Burke proposed a bill in 2012 requiring physicians to inform patients whether they were in a patient’s insurance network before rendering treatment to avoid surprise out-of-network charges. It didn’t pass. A parade of doctors, called into action by the Illinois State Medical Society, blocked the legislation, testifying that it would burden office staff and “could harm patients as care would often times have to be delayed.” In the same legislative session, the Illinois State Medical Society helped defeat acts that would allow physical therapists to treat patients without a doctor’s referral and psychologists to prescribe medicine, as well as another that would effectively protect physicians from enhanced scrutiny for Medicaid fraud. On the other hand, 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.

Orthopedists felt that cartilage injuries in aging knees should be treated with arthroscopy to “clean up” the joint space.

By 2014, 52 percent of overdue debt on credit reports was due to medical bills and one in five Americans had medical debt on their credit record, impacting their ability to get a mortgage or buy a car.

Hemophilia is a rare disease, but pricing for factor VIII is symptomatic of a nearly ubiquitous problem: we—and our employers and insurers—are shopping for healthcare in a market where everything is monetized to the maximum, without much regard for the implications for patient health. No wonder that by 2016, even some of the country’s most admired, judicious health plans, like that offered by Pennsylvania’s Geisinger Health System, were asking for some rate increases of 40 percent.

Even the well-intentioned provisions that managed to survive the tortuous congressional negotiations over the ACA have been in practice diluted and perverted, as providers find ways to maximize revenue by gaming its rules.

For example, the ACA barred insurers from denying insurance or treatment to people with preexisting conditions. Before the ACA, insurers had lowered the bar for their definition of “preexisting condition” to include a distant abnormal pap smear, a history of occasional allergic asthma, or the use of an antidepressant. The ACA banned lifetime limits on insurance payouts, which had been potentially deadly for patients with chronic illness. Its policies capped annual out-of-pocket spending per person (at $6,850 in 2016) as long as the patient stayed in network, in an effort to avoid the extreme duress of bankruptcy. It defined a list of “essential health benefits” that every insurance policy had to cover, including maternity care—which many policies had previously excluded—and the provision of free screening for certain conditions. The ACA did little directly, however, to control runaway spending. President Obama had initially included several ideas in the bill that would have done so—like national negotiation for pharmaceutical prices. To get a healthcare bill passed and to win support from powerful groups like PhRMA, the AMA, the American Hospital Association, and America’s Health Insurance Plans, the administration had to cave on anything that would directly limit the industry’s ability to profit. Given those political constraints, the ACA promoted some programs that might render the practice of medicine more cost-effective. It used financial incentives to encourage the fo...

Most of the plans offered through the ACA are so-called high-deductible plans, and the law has helped spread this type of coverage. In the decade from 2006 to 2015, the number of Americans enrolled in such plans rose from 10 to 50 percent. Insurance doesn’t kick in until the patient has paid a hefty sum, thousands of dollars. But a 2015 study found that when patients were switched into a high-deductible health plan, they didn’t become smarter, more cost-conscious shoppers for medical care. The exorbitant prices demanded by the U.S. healthcare system meant that they mostly just avoided any interactions with medicine at all.

Business consultants offered advice about “Seizing Opportunities Provided by the ACA,” as one article in Physician’s Weekly indelicately put it. “As health insurance exchanges go live, hospitals and emergency providers should take advantage of the protections provided by the ACA,” the article maintained, finishing with a phrase that has seemingly displaced “First do no harm” as medicine’s mantra: “Providers should not leave money on the table.” But the small financial incentives to encourage good behavior and coordinated medical care often paled compared to the profit that could be garnered by creative or aggressive billing that tested the boundaries of the law. Physical exams had to be free, for example, but not all the attendant blood tests a doctor might order. As Ms. Ciszewski discovered, the ACA benefit that required no-cost preventive screenings was distorted as doctors perverted the meaning of “preventive” and “covered” and “no cost” to no end. There is no Supreme Court of the ACA to parse its original intent. The doctor’s fee was covered, but the room rental or the anesthesiologist’s charges were not. Fifty percent of colonoscopies involve removing a polyp, but if one was removed many doctors said it was no longer a free screening procedure. Logically, of course, the Affordable Care Act didn’t mean that tests were no longer free if something was found and removed for scrutiny. That’s the whole point. Connecticut’s Office of the Healthcare Advocate said that getting...

THIS U.S. HEALTHCARE SYSTEM gradually evolved sector by sector, hospital by hospital, doctor by doctor. What the players are doing is, technically speaking, perfectly legal. Participants in the marketplace respond to the incentives and opportunities a market allows. That’s what they’re supposed to do. Each component of the system is genuinely convinced that it’s not so bad, not responsible for our $3 trillion medical bill. Someone else is more to blame. Drug spending is only 10 percent of the national health budget! Nursing homes are only responsible for 5 percent of health costs! Payments to doctors only 20 percent! Dermatology accounts for only 4 percent of Medicare expenditures! Each segment of our medical system is convinced that its charges are reasonable. But put all the little excesses together and you get healthcare that is much worse and much costlier than the sum of its parts. We, the patients, are stuck in the middle, and it seems we’ve reached critical condition.

1. Fee schedules and national price negotiations: Many countries—Germany, Japan, Belgium, and more—set national fee schedules for some combination of medical encounters or supplies and medicines. Those fees are negotiated by some combination of doctors, hospitals, governments, and academics; they can’t be gamed or changed. If that sounds complicated, remember this is what Medicare already does. It’s no more complicated than hundreds of millions of Americans and hundreds of thousands of doctors and their staff collectively wasting years haggling with insurers over individual payments and ending up with usurious rates. National fee schedules inevitably yield prices that are far lower than those in the United States because a nation has far greater negotiating clout than a single insurer or an individual. But also because such a system doesn’t waste time haggling over proper charges and bills. It is efficient. In the United States, doctors now spend one-sixth of their time on administration and medical practices to hire extra staff to wrangle with insurers. A sonogram of the heart costs anywhere from $1,000 to $8,000 in the United States. The 2014 negotiated fixed price in Japan and Belgium was under $150. A national fee schedule doesn’t preclude a private insurance market or a competitive industry. Japan and Germany have hundreds of insurers. In the Netherlands—where the government sets caps for some basic medicines and hospital services—everyone is required to buy private i...

According to the World Bank in 2014 Singapore spent only 4.9 percent of its GDP on healthcare compared with the United States’ 17.1 percent. Meanwhile, Singapore ranks sixth in the World Health Organization’s assessment of health system performance while the United States ranks thirty-seventh.

1. Is the practice owned by a hospital or licensed as a surgery center? If the answer is yes, you (or your insurer) may find yourself paying those outrageous facility fees—or caught in a battle about whether they’re justified. You can ask specifically if such a fee will be added and how much it will be; however, many doctors’ offices may not be able to answer the question correctly, because their bills come from the hospital or an outside biller.

2. Will you refer me only to other physicians in my insurance network, or explain why in advance if you can’t? Many primary care doctors have long-standing relationships with specialists to whom they refer patients—a reflection of trust but also a type of business arrangement. If a doctor is employed by a hospital, there may be extraordinary pressure for him or her to refer patients to that hospital or its medical group. A doctor should take the time to look at your insurance network’s list and pick someone he or she trusts within it.

3. If I need blood work or radiology testing, can you send me to an in-network lab? Blood processing is highly mechanized, so it doesn’t matter where the tests are performed, but the prices at hospital labs can be one hundred times higher than at commercial labs like LabCorp and Quest. Electronic ordering programs keep such profitable testing in-house, when a few extra clicks of a mouse or a fax from the doctor’s office can direct testing to cheaper outside providers. Any doctor should be able to do it, but will yours?

4. Will there be charges for phone advice or filling out forms? Is there an annual practice fee? It’s good for you to know in advance about extra charges, and how your doctor vi...

5. If I’m hospitalized, will you be seeing me in the hospital? What is your coverage on weekends? These services are an essential part of being a good doctor and most patients around the world expect to receive them. In the United States, despite physicians’ high salaries, many practices have outsourced them. You don’t want a doctor whose off-hour backup advice is t...

In Your Doctor’s Office Here are some questions every doctor or healthcare provider should be able to answer for you at a doctor’s appointment: 1. How much will this test/surgery/exam cost? “I don’t know” or “It depends on your insurance” is not an answer. The doctor should give you a ballpark range or the cash price at the center where he or she refers. Many things that sound like simple little tests are now priced at many thousands of dollars. Before you schedule anything major, use one of the price calculators in appendix A to get a ballpark range of what your test or treatment should cost in your area. You may also want to consult one of the resources in appendix D that offer an independent evaluation of the scientific evidence behind your doctor’s recommendation.

2. How will this test/surgery/exam change my treatment? If the answer is “It won’t, but it might be good to know,” take a pass. Doctors likely feel the need to do something or order something if you have a complaint, especially at a time when office visits can cost over $500. When a doctor begins a suggestion with “Why don’t we just . . .” there’s often no compelling reason for the test at all. 3. Which blood test are you ordering? What X-ray? Why? When doctors order blood work, they are frequently just ticking off boxes on a long electronic checklist, with no awareness of how much any might cost. Your questions alone will make them more discerning. 4. Are there cheaper alternatives that are equally good, or nearly so? If you go to a pharmacy or a lab and encounter a high price, call your doctor’s office and tell him or her about it. Force your doctor to learn. He or she likely didn’t know. 5. Where will this test/surgery/exam be performed—at the hospital, at a surgery center, or in the office—and how does the place impact the price? Doctors often practice and do procedures in different places on different days of the week. If you go on a Thursday and that happens to be your doctor’s day at the hospital, it could double the price of your biopsy or colonoscopy. If he or she refers you to an ambulatory surgery center, ask, “Are you an owner?” A little shaming might encourage better behavior. 6. Who else will be involved in my treatment? Will I be getting a separate bill from...

For example, MRIs of many middle-aged people with no back pain at all show bulging disks or some arthritis. These “abnormal findings” become a “disease” and a “diagnosis,” which leads to treatment in the form of surgery or a steroid injection. The rate of spine surgery in the United States is about double that in Canada and Europe and five times that in Great Britain, calculates Richard Deyo of Oregon Health & Science University. One nationally renowned and respected back surgeon, who gets frequent requests for second opinions from patients who’ve been told they need an operation, told me that three-quarters don’t need surgery at all.

GoodRx.com, a Web site and mobile app, will give you the cash price of every medicine at pharmacies in your area and provides coupons for discounts (the