By Doug Gentry, on December 5th, 2011
The pharmaceutical giant, Pfizer, watched its main source of revenue and profits, Lipitor, lose its patent protection this week, and now faces competition from generic equivalents. In 2010 Lipitor was the second highest selling prescription drug with $5.2 billion in sales in the U.S. alone. (source: Drugs.com). Now, in the next year, prices of the generic drug, Atorvastatin, should drop dramatically. The Lipitor saga gives us an opportunity to see market forces in action, but it also points out the problems when insurance coverage is involved.
 Lipitor Brand  Generic Lipitor Like most first world countries, the United States uses the patent system to encourage research and development. If a pharmaceutical company can develop a new drug, they can maintain a government approved monopoly on the sale of that drug for up to 17 years. Monopolies drive higher prices, which helps the inventor, Pfizer in this case, recoup their research costs, and return a handsome income to their shareholders. Once the patent runs out, other manufacturers can apply to produce the drug. This increased competition then quickly drives down prices. So far, this is a classic example of market forces at work.
Pfizer has been planning for this day for a number of years, and with annual sales figures like those in 2010, this is vital to the company’s fortunes. The company has triggered a number of legal and regulatory efforts to delay the arrival of generic equivalents. For a compilation of news articles on Lipitor, see this page in The New York Times.
Two particular strategies twist prescription drug coverage in favor of the brand name. Many prescription drug plans have incentives to encourage patients and their physicians to use generic drugs. Often this is done with a lower co-payment on the part of the patient. The lower co-payment provides an incentive for the patient to accept a generic equivalent, and the insurance plan saves money by paying the lower, generic price. Pfizer (and other drug companies facing similar out-of-patent challenges) is trying to subvert this incentive. Here’s a hypothetical example.
These figures are illustrative – made up – but make the point.
Typical Brand vs. Generic Comparison for a Drug Plan
Brand: Patient Copay: $30 – Total Cost of Drug: $200 – Insurance Pays: $170
Generic: Patient Copay: $10 – Total Cost of Drug: $50 – Insurance Pays: $40
Now Pharmaceutical Company Offers a Copay Discount
(Pfizer discounts its price of the brand drug to cover reduced copay)
Discount Brand: Patient Copay: $8 – Total Cost of Drug: $178 – Insurance Pays $170
With this discount arrangement the patient is happy, the drug store doesn’t lose any money, but the insurance company still pays the larger cost. This puts upward pressure on insurance premiums.
Another strategy – Pfizer offers a significant discount on the price of brand name Lipitor to pharmacy chains as long as they agree to not provide generic equivalents. The chains save money, and can pass some of that on to patients, but the insurance plans that pay for the drugs don’t enjoy any savings.
Is this legal? The second, discounting strategy with pharmacies, smells a lot like restraint of trade/anti-trust concerns to me. The earlier example, offering a discount on copays, seems legal. Are either of these good social policies? Not a chance.
These creative approaches illustrate one of the problems that insurance introduces into a market. In healthcare, patients have enough discretion that they can alter their buying behavior, based on prices they face. Yet the patients don’t see or feel the full price of their purchase decision. In a regular market the patient balances the benefit of the purchase against the price, and makes a good decision on allocating resources. That good decision helps society. With insurance the patient sees only a small fraction of the total price, and may make a decision that is not socially optimal. This breakdown in market forces is one of the challenges our healthcare reform goals face. Ideally we would like patients to be full partners in the decisions made about their care. Insurance blunts that participation.
By Christopher Briem, on October 14th, 2011
Some new data out on Small Area Health Insurance Estimates from the census folks.
They have a tool there you can use to look this up yourself, but what I get is that for children (age 18 and under) in Pennsylania, Allegheny County is tied with Montgomery for the lowest percentage without health insurance at 3.9%. The highest: 10% in Lancaster County. Data is for 2009.
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By Rok Spruk, on June 10th, 2010
Greg Mankiw (link) and David Leonhardt (link) have opened a debate on whether govenrment policymakers should levy a tax on soda and other soft drinks as an attempt to reverse the growing trend of obesity among the U.S. population. The idea of taxing soda has become popular as governments around the world have recorded high budget deficits and revenue shortfall. The real question is what would be the effects of taxing soda and, if so, would the introduction of the tax contribute to the reversal of the obesity pattern, especially among the child population.
There is a decent amount of empirical studies and health policy analyses on the patterns and causes of obesity. Obesity and the risk of premature death resulted from high blood pressure and the potential heart attack is the most individual cost of fast-food consumption. For a long period of time, we assumed that these costs at the individual level could be internalizied and, thus, raise no cost to the society. In the article published in Sunday’s edition of NY Times Greg Mankiw drew parallels between soda and tobacco tax. If individuals consume a lot of cigarettes at home, there is, presumably, no negative externality shifted onto the society. The logic could be applied to soda taxation. However, there is a flip side to the argument. Taxing soda, tobacco and other goods with a negative impact on bystanders is an answer to the growing cost of health care delivery to the individuals who consume these goods. The adverse impact levied on other individuals is seen through higher health insurance premiums and total cost of health care.
John Cawley published an extensive analysis of the causes of early childhood obesity (link), suggesting greater government intervention and various cost-effectiveness measures to mitigate the adverse impact of childhood obesity on other members of the society. A study by Jason M. Fletcher, Daniel Frisvold and Nathan Tefft (link) has been one of the first attempts to measure the effect of vending machines restriction on childhood obesity. The authors concluded by suggesting higher tax rates and soft drink access restrictions in schools to fight the on-going increase in childhood obesity.
As Kelly Brownell of Yale Rudd Center for Food Policy and Obesity mentioned, the link between sugary drinks and obesity is stronger than the link between obesity and any other kind of food (link). The evidence suggests that distance from fast-food restaurant is a significant feature of childhood obesity. A study conducted by Janet Currie et. al (2009) has shown that among children in the 9th grade, a fast-food restaurant within 1/10 of the mile in school is associated with at least 5.2 percent increase in obesity rates (link). The study found that the direct impact of distance from the fast-food restaurant is significantly larger for less educated African-American and less educated women.
The question is whether taxing soda and other kinds of fizzy drinks could potentially reduce and/or reverse the growing trend of obesity. The basic question to start with, is what is the elasticity of demand for soda drinks. The estimates suggests that price elasticity of demand for the majority of soda drinks ranges from -0.8 to -1.0. For example, -1.0 elasticity coefficient suggests that a 10 percent increase in the price of soda would – ceteris paribus – lead to 10 percent decrease in soda drink consumption. The price elasticity of demand for soda drink is relatively high considering that coefficients of price elasticity of demand for other kinds of food ranges from -0.2 to -0.5. If policymakers considered the introduction of a tax on soda consumption, the relevant question is who would bear the burden of the tax? Given elastic demand, the tax would be beared by consumers. However, high price elasticity of demand suggests that there is a widely availible range of close substitutes with potentially negative adverse effects for the individuals. So it is not unlikely that children would switch to other kinds of fast food with equally negative impact on obesity, blood pressure and quality of living.
Given the lack of experiments and availibility of household surveys, it is difficult to estimate the consumer response to the introduction of tax on soda. The estimate of price elasticity of demand suggests that part of the tax would be beared by the consumer. However, it also suggests that a change in the relative price of soda would induce children to consume other varieties of fizzy drinks. Experimental studies by health policy experts suggests different approaches to tackling the adverse impact of soda drinks and other kinds of fast food. The most notable approach is the restriction of vending machines in school districts. However, restricting the access to vending machines would encourage the consumption of fast food outside school districts. A general tax on soda would be preferable to the restrictions of access of vending machines. There is absolutely no doubt that a tax would discourage consumption of soda and other kinds of fast food. Estimates suggest that soda and other kinds of fast food such as hamburgers, donuts and cakes are complementary. Assume, the cross-price elasticity of demand for burgers is -0.9 Thus, if the price per unit os soda increases by 10 percent, the demand for donuts, burgers and cakes decreases by 9 percent (0.9×10 percent). Since a tax on soda would raise the relative price of soda, the consumption of these kinds of fast food would diminish, resulting in less adverse impact of fast food consumption on the individuals. I would disagree with the statement that negative externalities from soda and fast food consumption are internalized by the individual. For example, an article by Trasande, Liu, Fryer and Weitzman (2009) published in Health Affairs (link) investigated the annual cost of childhood obesity in the U.S. between 2001 and 2005, based on the nationally representative data from U.S. hospitals admissions. The authors found that from 1999 to 2005, obesity-related hospitalizations doubled. In addition, costs related to hospitalization, treatment and diagnosis of obesity increased from $125.9 to $237.6 million, an 88.7 percent increase. The cost is partly beared by Medicare while the rest of the total cost is beared by the private insurance premiums.
Given the perverse system of employer-provided health care and implicit subsidizing of health insurance suppliers by the federal government, the periodic increase in obesity-related health care costs indicates a further rise in Medicare expenditures and health insurance premiums. In such conditions, there is little incentive for children and parents to reverse the consumption of soda drinks and fast food. Taxing soda and complementary fast food is a step in the right direction. But it should be noted that the introduction of a tax on soda should be compensated by a corresponding decrease in personal income tax. However, without the parent-guided awareness of the adverse impact of fast food on obesity, it would be difficult to reverse the increasing pattern and cost of childhood and adult obesity. Therefore, much of the obesity-related health care risk in childhood can be solved within the household. It would be irrational and foolish to believe that a tax on soda and government paternalism could solve the obesity puzzle and mitigate its neighborhood effects on bystanders.
By Dan McLaughlin, on November 9th, 2009
A few years ago, Arnold Kling, an economics professor at George Mason University, presented an interesting description of the type of health care system that Congress is planning to impose on all Americans. With Medicare’s unfunded liabilities in the multiple tens of trillions of dollars, it is like the Titanic sailing full speed ahead with icebergs all around. It is ultimately going to sink. There is no avoiding it on the current path. The proposed health system will add many trillions more in unfunded liabilities. It is the equivalent of adding more passengers to the Titanic and more icebergs to the freezing water.
The utopian vision underlying the plan is a world where everybody can have everything without paying the price. Dr. Kling described an “iron trilemma” in healthcare, but I think that it can be modified and generalized for any type of social program. It is like a three legged stool that needs all three legs to stand. The first leg in the modified version is access. The system must be designed so that nobody is excluded. The second leg is the goods. Participants must be able to get the latest, greatest and best quality stuff available. The third leg is cost. The overall financial burden of the system must be minimized.
It is obvious that you cannot have all three legs at one time. If everybody has access to everything, including the most expensive procedures, goods and services, then the cost will be sky high. If everybody has access and the overall costs are minimized, then, necessarily, expensive goods and services must be cut out, no matter how much some individuals desire them. If, instead, the system provides the expensive goods and services, then in order to keep the overall costs low, some people must be excluded from access to those services. Whichever pair is chosen, the stool must fall over. The three legs, universal access, unlimited consumption and low cost, cannot exist together. The claim that the proposed system will increase the number of people covered without decreasing quality and availability of medical goods and services to each and, at the same time, significantly cut the cost of health care in America is absurd. It is an impossibility. Something has to give.
One of the assumptions is that, under the government plan, waste and fraud will be cut out and greedy profiteers will be reined in. An obvious question comes to mind. If the government is able to root out waste and fraud and greed, why has it not done so with Medicare/Medicaid, the government monetary system, the military, banking, the education system, the bailout fiasco, cash for clunkers, and on and on. Politicians have not done so, and will not in the future, because they benefit greatly from fraud, waste and greed. Saying that government cuts waste and corruption is either a blatant attempt to distort the facts or it is an indication that they are totally out of touch with reality. Either one of those characteristics in our leaders does not bode well for the American people.
The overall cost of the present system is very high because of the interaction of the legs of the trilemma. Employer based insurance and government insurance programs cover a significant portion of the population. There is significant access. Government mandates on insurance plans have forced them to cover a host of very expensive treatments for uninsurable events and diseases. New, expensive treatments are being developed all of the time, which participants, insulated from the true cost, strenuously demand. The participants get the goods. Government’s injection of hundreds of billions of dollars into the health system has caused a rapid inflation in the prices of health services, and has distorted the supply and demand for them. The overall costs, the third leg, must be high.
The central planner’s paradigm is the fundamental error in the present health care discussions, the idea that some smart person can and should design a universal system which will fit every person in the country. In reality, health care is merely a market for goods and services. Nobody plans a market. It is made up of the billions of interactions of the participants as they attempt to achieve what they value the most. Since nobody can know what each individual values most, what sacrifices he or she is willing to make for the things desired, what goals they have for themselves and their families and the assumptions they make about the present and future environment, nobody can make decisions for them better than they can make for themselves. Individuals make tradeoffs every day about what they want and the costs they are willing to incur. The cost tradeoff must be on an individual basis. The aggregated cost of the system is absolutely irrelevant. When people make their own decisions, markets work; they attempt to get the most value for what they give. They try to maximize benefits and minimize costs.
Think about it. Our food supply system is incredibly complex, involving hundreds of millions of people with widely varying tastes and budgets, hundreds of thousands of separate farmers, merchants, traders, and restauranteurs, all with their own objectives and needs, and vastly different geographic areas. No central busy-body plans our meals for us, yet Americans get fed every day at a very reasonable price. The overall cost is low because individuals are responsible for their own expenses and decisions. The same could happen with health care if all of the government induced distortions were removed, including pretax employer based insurance plans that get dropped when changing employers, mandated coverage for all insurance plans, which eliminates low cost alternatives to consumers, anti-competitive and monopolistic government programs, and the use of hundreds of billions of dollars of tax money, which inflates prices and distorts the true markets beyond recognition.
Many people bring up the fact that there are families who are so poor that they cannot afford health care, and conclude that the health care system should make special provision for them. They are appropriate targets for the charity of individuals and charitable organizations, and through the centuries, those charitable people and organizations have cared for poor, the disabled, the destitute. Charity is most certainly important, and it is right and good for individuals and organizations to help the poor. Health care and charity, however, are vastly different entities. Mixing them confuses the issues of both and hurts the poor more than it helps.
Our three legged stool in health care is tipping over because it cannot possibly stand over time. If health care in America is to stand strong again, we must throw out the stool and the socialist ideals that support it. We must let Americans stand on their own two feet and take individual responsibility to pay for whatever level of health services and/or insurance that they desire and can afford.
By Thomas Knapp, on October 8th, 2009
To quote Nancy Reagan, “just say no”.
Specifically, just say no to this:
[U]nder my plan, individuals will be required to carry basic health insurance — just as most states require you to carry auto insurance. Likewise — likewise, businesses will be required to either offer their workers health care, or chip in to help cover the cost of their workers. There will be a hardship waiver for those individuals who still can’t afford coverage, and 95 percent of all small businesses, because of their size and narrow profit margin, would be exempt from these requirements. But we can’t have large businesses and individuals who can afford coverage game the system by avoiding responsibility to themselves or their employees. Improving our health care system only works if everybody does their part.
To forestall immediate descent into partisan Obama bashing, a brief digression: Obama cribbed the “individual mandate” described above from “conservative” Republican Mitt Romney, who signed it into law as governor of Massachusetts and then bragged about / defended it (rather than vetoing it as he did eight other provisions of the law, including an “employer mandate” similar to the one described above) in 2006. So please … don’t try to turn this into a “left/right” thing.
The insurance companies are drooling over this, of course, and their water carriers in Congress from both major parties will support it (while quietly gutting the “unicorns and ice cream for everyone” restrictions on pre-existing condition refusal, payment caps, etc.) if they can get away with supporting it.
So, the first thing to do is let your congresscritter know that (s)he can’t get away with supporting it.
The second thing? Obey little, resist much.
It just so happens that I am, at this particular moment, insured. And while I’m glad, at this particular moment, to be insured (I have dental coverage, and that coverage is saving me about $1200 on the mass extraction/denture procedure I’m getting ready for — for those who have been following the saga, I got the molds made last week and should get the teeth yanked some time in the two to four weeks), I’ve lived a good part of my life without insurance.
If the proposal described in President Obama’s speech is passed and signed into law, I’ll be returning to uninsured status ASAP — and giving anyone who comes calling to collect a fine a close-up look at my middle finger when I hold out my hands for them to put the cuffs on.
Anyone who’s in a position to do likewise, should.
By David Barr, on September 18th, 2009
Efforts to fix our health insurance system have found no found shortage of critical flaws in the “market”. I have yet to hear a coherent argument for the continued existence of private health insurance. Health care differs in three critical ways from traditional markets. Taken together I doubt that it is even conceivable for a private market to exist for health insurance.
In a true free market those who got sick and couldn’t afford care would be left to die or suffer the consequences of their conditions. This is a rational, yet morally abhorrent policy. Even the most die hard free marketers don’t advocate this. The unwillingness to condemn the poor to preventable death is the first significant obstacle to a functioning private health insurance market.
The second critical obstacle is the great variation in expected health care costs. Insurance markets are designed to protect individuals from significant deviations from expected costs. Consider auto insurance, every driver faces some risk or an accident, but few expect to total their car in a given year. By pooling risk, the small percentage of drivers that do suffer serious crashes can avoid financial ruin.
But this logic in no way applies to health insurance. Many people suffer conditions that have high known costs. If you are HIV positive or have Diabetes or are paraplegic medical costs are not an unexpected catastrophe, they are a known expense of life. Only the richest individuals can cover these costs out of pocket. Insurance can’t solve this problem only subsidies can.
Timing is the third critical difference between health insurance and traditional health markets. For insurance to function a claim must be tied to a specific instance. A fire, a car accident, a death are all discrete events that can be placed at a specific moment in time. The bulk of health care spending is spent treating chronic conditions. Who’s to say exactly when a person developed high blood pressure or depression. Furthermore, health conditions incur costs that continue long beyond the length of an insurance contract.
Efforts to twist private insurance around these three restraints are destined to produce warped markets and twisted incentives. The regulations currently oozing through congress will make life better for many people, but they do not address the fundamental incoherence of private health insurance.
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By J.C., on November 3rd, 2008
If you are at the age where you qualify for Medicare, then you undoubtedly understand how difficult it may be to manage your medications and prescriptions. The government’s Medicare program is a terribly complicated thing comprised of four parts – A, B, C, and D. Medicare Part A is for hospital care. Medicare Part B is for physician visits, outpatient care, and durable medical equipment. Medicare Part C, also know as Medicare Advantage, is actually a special plan that covers most medical services and prescription drugs. Medicare Part D is the part of medicare that covers drug benefits. Medicare patients can voluntarily enroll in Part D and depending on the plan administrator may need to pay a premium or a deductible. Essentially, it is the government’s insurance plan for drug benefits that is administered by various other insurance carriers.
One problem with Medicare Part D is that it is difficult for patients to organize their medications, shop for different medications, and coordinate their overall drug benefits. I happened to find a relatively new company called Destination Rx that is trying to make managing the prescription drug benefit much easier for patients. I do not have a financial interest in the company nor do I use the company. But in the spirit of investigating this topic, I thought it may be worthwhile to point out some of the newer companies out there that may be of benefit to readers. It is interesting also to see how technology can empower the patient.
This is a company that essentially allows the patient to create an account and manage their prescriptions drugs. It is a free site that provides online shopping comparison for prescription drugs. If you are not yet enrolled in Medicare Part D their site allows you to do so. If you already take medication you can find out if there are lower cost drugs such as generic brands as well as mail-order and retail pharmacy prices. They have created what they call a “Medicine Cabinet” to allow you to manage your prescriptions. You can even look up medical conditions and find out what treatments are available so you can initiate a discussion with your physician about treatments.
Although I am sure that many sites and services like this will appear, it seems to me to be a great idea. I’m not sure how much traction it has had or whether enough Medicare-age patients are savvy enough to use the internet or have the resources to access the internet for this kind of service. However, what I like about this type of service is the tremendous cost savings that it might bring Medicare recipients. If retailers and pharmacy resellers are forced to lower prices do to competition and increased efficiency in drug selection, healthcare costs can decline.
By J.C., on October 21st, 2008
The theme of my last several posts has been the profit motive inherent in the medical system. Many parties appear to be responsible for this including industry and the physician’s lobby. I submit that the most responsible party is the consumer. The consumer is the one who demands the most advanced procedure, the best medicine, and the “best” doctor. The consumer is the one who demands the best prognosis and a return to the highest function possible.
One example of this is the cyberchondriac who comes in demanding the latest medicine or implant that they have seen on television. You explain to the patient that you feel that the generic medicine is just as good and is cheaper and that you are most comfortable with prescribing it because you are familiar with its side effects. However, they have seen the commercials and they have heard of the snazzy brand name. Additionally, they do not mind paying the exorbitant price of the brand name.
It is not unusual to also have the healthy young asymptomatic patient who would like a routine work up of all of his labs. My feeling is that if you are young and have no symptoms you should have the most inexpensive tests done, if any tests at all. If they are normal then you shouldn’t have anything done for a while. These patients are the kind of patients that want to stay on top of their healthcare and come in for unnecessary tests.
Sometimes there is a patient with knee pain without a history of trauma. The patient wants an MRI when there is ample evidence that the majority of knee pain resolves within six to eight weeks of conservative therapy including icing, NSAIDS, and activity modification. The MRI costs about a thousand dollars, but the patient doesn’t care because his insurance pays for it. Thus he insists to have one and if one is ordered there is a reasonable chance that it might show an equivocal signal in the mensicus. Then an expensive Orthopedic referral is made. If the surgeon is unscrupulous or if the patient insists on having surgery, an arthroscopic procedure is done. And the chain of expensive events goes on and on in this manner, costing the health system a lot of money for an issue that probably would have resolved on its own.
The underlying theme driving the demand of healthcare by the patient is a sense of entitlement. We in the United States don’t understand that if you travel halfway across the globe there are thousands of people dying everyday of disease caused from lack of basic sanitation. But when we have an annoying pimple or wrinkle on our forehead we want to pay several hundred dollars to have it zapped. When we have pain we want and expect our healthcare system to fix us. If we are not fixed then we blame the doctor and the system.
In the end, the most expensive thing is human resources. If we as patients make people work to improve our health it is going to cost money. That cost is worth it when the situation is dire. When it isn’t, the cost is wasteful. As a patient and consumer it is important to understand this concept–making the healthcare system work for you costs everybody a lot of money and makes the system more expensive. We are all intertwined in this manner, whether we want to believe it or not.
By Anthony Luafalealo, on October 16th, 2008
Former nurse and retired attorney S.J. Robinson, author of The Price of Death, has practiced law dealing with medical malpractice and insurance companies over the last 30 years. Her book focuses on issues such as health insurance reform, oversight for prescription drug production, and the growing power of healthcare conglomerates. For more information about Robinson and The Price of Death, visit www.sjrobinson.com. (Interview conducted by R. C. Anderson and Dr. J.C.)
In a capitalist healthcare system focused on profits, what is the most effective reimbursement structure to reward providers for care while also managing costs?
We need a regulated system – a private/public partnership [that…involves payment to the government for healthcare and government-monitored, private health insurance companies administering payment to privately employed doctors and privately run hospitals]. Over the last 20 years, we have been depending on the free enterprise system to bring costs down. Over that time, healthcare costs have risen faster than the rate of inflation. That is because we don’t really have a free enterprise system. The free market is skewed by politics. The large healthcare companies have huge amounts of money to pass along to Congress via lobbyists, who influence Congress to pass laws that benefit big business healthcare.
What we are not cognizant of is the tremendous amount of profit realized by these companies, healthcare insurance, managed care, and pharmaceutical companies. These companies drive up our healthcare costs. We have the most expensive healthcare in the world, spending 17% of our GDP. France, Italy, Germany, Japan, and Taiwan spend roughly 8-9% of their GDP on healthcare, cover everyone, and have extremely happy patients.
We are told that the only alternative to the system that we have is the Canadian style system. That is a false story put out by the beneficiaries of our current system, primarily the insurance companies.
One obvious consequence of bringing down big pharma and device companies is that they will no longer spend the huge R&D on blockbuster drugs if there is no capital reward via reimbursement. Thus one clear consequence of making healthcare more affordable is a slowing of discovery and advancement. How can we incentivize advancement in medicine while controlling costs?
Big pharma spends 10-15% of its profit on research and development and 30-40% on marketing. Professor Karl Lauterbach of Germany said in a PBS interview on Frontline, titled Sick Around the World, “I don’t know of a single economist who would buy into that argument. I think this is a lobbyist argument. A market works best if there are no inefficiencies, and higher-than-necessary prices are inefficiencies. And the drug companies now spend more for marketing the drugs than for innovating the drugs. This clearly is an artifact which comes across with this system of subsidized and too-high prices.”
Do you think that class-action lawsuits by providers against insurance companies are a good solution to balance the inequity of power insurance companies wield in the current healthcare climate? Or does this merely clog the judicial system and become a distraction from what providers should be doing: helping patients?
Class actions and lawsuits in general are very wasteful of resources because the outcome is extremely uncertain and the suits are very costly in time and money. They would take time away from healthcare and possibly put health care workers in an unfavorable light vis-à-vis the public. As I said, the outcome of lawsuits is uncertain, and I think they should be used as a last resort. The better approach in this case is to influence the public and Congress for the development of a new healthcare system: a public/private partnership which eliminates the excessive profits of health insurance companies, big pharma, and managed care.
In your August newsletter, you describe the many and varied problems the U.S. has had with contaminated or improperly supervised drugs coming from China. Would it not solve a lot of the U.S.’s problems as well as poor patient outcomes if we simply stopped accepting drugs from China and instead paid a bit more for drugs that are properly supervised in countries that care to ensure it? What do you think it would take to reduce consumerism from China, especially given that drugs are not the only problems we have had, but also melanin contaminated products and lead contaminated toys?
I don’t think it likely that world trade is going to be turned back, and it may not even be a good idea. We already pay two to three times more for pharmaceuticals than other developed countries, for example Canada. We have been told that we must pay more in order to safeguard our drug supply and promote the development of new drugs.
U.S. drug companies are making record profits but still want to make more. They are having their drugs made in China to increase profits. Because we pay a premium for pharmaceuticals, I believe that we are a target for counterfeit pharmaceuticals, not more protected. Counterfeiters have no compunction about who they kill and want to make the most money. In my book, The Price of Death, I discuss the point of view of the Chinese on counterfeiting. Because this administration has actually reduced funding for the FDA despite the fact that world trade has increased, we are at great risk. At its current rate, the FDA will be able to inspect the 700 plants now open in China in the next 40-50 years. What we should do is require importers to pay a government fee to have their imports inspected. There is no reason that they should be making record profits and putting the consumer at risk as they are.
There was a problem with Baxter International heparin earlier this year, which, according to the FDA, probably came from China. The FDA says that the manufacturer used oversulfated chondroitin sulfate (OCS) instead of chondroitin sulfate (CS). The relative cost of the bogus chemical was only $9 per unit vs. $900 for the correct ingredient. There had also been a reduction in the availability of other materials to make heparin because it comes from pigs, and there was a pig epidemic in China. While it is difficult to prove, one can speculate why the plants would have substituted the new ingredient when stocks of other ingredients fell short and became more expensive. I say that it is difficult to prove partly because the Chinese government had not admitted that the OCS was the cause of the problem even though the FDA has indicated so on its website. The bogus chemical fooled the standard tests [about the protein content of the product], impeding immediate discovery of the problem.
Now Here’s Your Chance to Ask the Questions (and Win One of Three Copies of The Price of Death, Too!)
Do you have a question that we didn’t ask? Here’s your chance to pick S.J. Robinson’s brain. Submit your questions for her in the comments section, and she’ll be available for a week to answer them. Also, by submitting your question, you will be automatically entered into a drawing next week in which three winners will receive a free copy of her book. (Sorry, you must be a U.S. or Canada resident to participate in the drawing.) Please see our Book Giveaways information page for complete details and ask away!
By J.C., on October 15th, 2008
I previously wrote about the EOB and how insurance companies try their many tricks to decrease reimbursement to physicians. Most physicians do not fight back. Some do. Medical Economics has highlighted the plight of one physician who has been fighting back. Their story is about a Chicago ENT surgeon who brought a lawsuit against an insurance company for bundling and downcoding claims. Apparently, the insurance company settled with him for $140,000.
As I mentioned in a previous post, bundling is when insurance companies downcode or combine multiple codes into one in order to reimburse the provider less. In this physician’s case, the insurance company was bundling endoscopies with office visits and was reimbursing for the least costly services only. Additionally, the insurer downcoded several codes based on software it uses and tried to say that the lowered reimbursement was a “negotiated write-off” as though the physician’s practice had agreed to it. This is exactly the type of thing I was referring to when I said that insurance companies “force” physician’s to accept lower payment. As this insurance company’s logic shows, failure to fight downcoding and bundling is equal to “acceptance” by the physician. Thus, if you do not correct it, it is assumed that you accept it.
Interestingly, the practice in question has a threshold for when to trigger legal action. When denials reach over $50,000 by one insurer, it triggers the next step in legal action.
Details are not given as to who actually pays for all of these legal costs. However, you can be sure that the addition of an attorney to your practice is probably prohibitively expensive. But when the potential windfall is large – this practice says that several hundred thousand dollars are collected each year via denial appeals – it may well be worth the investment.
If any reader out there knows of any stories like this, I would be interested to hear about them. It is not often that you find a provider willing to sue an insurer over downcoding. But I anticipate to see this gain popularity in the future.
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