America's Bitter Pill

by Steven Brill

  How would people who did not have Internet access be able to buy insurance on the exchanges? That would require another contract for a vendor to process paper applications—a $114 million job that would not be awarded until July 1, 2013, more than two years later.

  At a June 11 meeting, the White House healthcare reform and economic staffs and representatives of the multiple agencies involved in the launch worried that it was now clear that the procurement process was going much too slowly. On top of that, the man who had run the OCIIO had resigned because he didn’t want to run a CCIIO. So the work was lagging there, too.

  Yet someone had to decide what was needed to build the exchange website and support services before a contractor could be chosen to deliver on those requirements. What capacity or security requirements should they require? How could rules be written to spell out exactly what was needed in terms of the look of the website and its customer friendliness? The CMS procurement team—with input from the other CMS offices and the demoted center, yet insisting that it had the final say—slaved all summer over a dense statement of work that would have to spell all that out for contractors who wanted to bid on the project.

  “WORLD CLASS IT SERVICES” AND “A FIRST CLASS CUSTOMER EXPERIENCE”

  Finally, on September 30, 2011, the CMS procurement office announced that a company named CGI Federal had been chosen to build the federal insurance exchange—the one intended as the backup for states that did not build their own. This “backup” would end up being the exchange for thirty-six such states, evidence that “Obamacare” had become a dirty word in red states and was seen as an implementation challenge even in some blue states. With the target date for the launch set at July 1, 2013, CGI had less than two years to deliver on the contract it had just won.

  No one in the White House or in any senior capacity at the Department of Health and Human Services or its CMS unit had anything to do with the choice of CGI. Non–civil servants are walled off from choosing contractors as a protection against cronyism or corruption. Rather, a team of civil servants at the CMS Office of Acquisition and Grants Management—part of a corps of more than twenty-six thousand government contracting officers—had made the decision. They chose CGI from among a half dozen government contractors who were on a list of those who were prequalified to fulfill what was called an indefinite-delivery, indefinite-quantity (IDIQ) task.

  An IDIQ contract produced a hunting license for companies seeking work from the government. Getting on the list was a process that took lots of time and money and, therefore, made sense only for companies focused on trolling for government contracts. It was not something that more entrepreneurial enterprises, especially those outside Washington, were likely to bother with.

  Even if the CMS procurement people had been inclined to cast a wider net, which they usually weren’t, they became compelled to use this prebaked list because they had missed their deadline for issuing a Request for Proposals and had not gotten it out until the end of June. That delay required a shortened process that could consider that IDIQ group only.

  CGI had delivered the best response to CMS’s fifty-nine-page statement of work, which listed everything that would be required to complete the job. There were thousands of details, but broader requirements, too, including “world class IT services,” “a first class customer experience,” and “seamless coordination” between multiple government databases. The contract was set at $93 million. It would later become $293 million.

  THE USUAL SUSPECTS

  The blurb at the top of the government contracts page of the CGI website proclaimed, “Trust us: Technology is not the hard part.” By which, the firm explained, it meant that CGI knew the technology cold, but that the real value it added was in designing and building user-friendly, efficient technology systems and websites for complicated government programs.

  The other teams working in the administration on Obamacare were assured by the CMS procurement officials that CGI was the smart choice. The firm had handled other CMS contracts well and had won high marks for its work creating a database to monitor the massive spending associated with the economic stimulus program in 2009.

  What they were not told was that CGI—a Canadian-based company—had purchased another Washington-area contractor whose work on several government projects had resulted in a variety of mishaps and disputes, and that CGI had bungled a healthcare-related project in Canada.

  While CGI’s bona fides may have been unclear, what was clear by now to Aneesh Chopra, the chief technology officer at the White House, and to Todd Park, who had that title at HHS, was that CGI was one of those usual-suspect government contractors that, as they had discussed nearly two years earlier, should not be used on a project like this.

  Moreover, CGI wasn’t really in charge. CMS was signing dozens of other multimillion-dollar contracts—ultimately there would be fifty-five of them—to complete various tasks other than building the elements of the federal website for which CGI would be responsible. For example, a firm called QSSI, which was a subsidiary of a subsidiary of giant health insurer UnitedHealthcare, got a $68 million contract to connect the website to the various federal agency databases to verify income, citizenship, and other elements of the application process.

  In a situation like this, where there are multiple contractors, the lead contractor—in this case, CGI—would usually be designated as the general contractor to be in charge of all the others. Or a wholly different company would be hired to supervise everyone else—and bear the blame if all that work didn’t mesh. However, Henry Chao and the staff at the CMS Office of Information Services had decided that they would be the general contractor. To Chopra and Park, the White House and HHS chief technology officers, that was the biggest threat to the launch.

  Chopra and Park tried to talk about all that to Sebelius and to Marilyn Tavenner, a former Virginia secretary of health and human resources, who was about to be appointed the acting administrator of CMS. They were told that everything was in hand, that CMS was used to doing big data projects.

  However, the big data that CMS handled had to do with vetting and paying masses of Medicare bills. It didn’t involve a complicated e-commerce offering containing hundreds of various insurance products and requiring a spaghetti plate full of connections to those insurers and to government agencies. CMS, in fact, did not even have a website that handled inquiries about Medicare claims or allowed people to sign up electronically.

  Chopra and Park tried to go to meetings about the project, the government’s biggest consumer technology undertaking ever. Lambrew told the two chief technology officers they weren’t needed, that everything was on track. DeParle backed her.

  Having fought off the efforts by the economic team to bring in seasoned executives to run the launch, Lambrew and DeParle were now firmly in charge. Bob Kocher and Zeke Emanuel—left without their rabbis Summers and Orszag, who had resigned—were similarly excluded. They, too, soon left the White House for jobs outside government.

  For her part, Kathleen Sebelius, the former Kansas governor who had been appointed health and human services secretary when Daschle had to bow out, devoted whatever time she spent on the launch mostly to looking in on the process of drafting the rules that would govern the insurance sold on the exchanges and to encouraging the large insurers to participate. This, rather than technology or e-commerce, was a natural focus for a former state insurance commissioner.

  Nonetheless, according to notes taken at a July 1, 2011, White House meeting convened by DeParle, “the insurance companies were going bananas” because of the delays in issuing the regulations governing the products they would have to create, run through their actuarial models, establish prices and marketing messages for, and then launch into the exchange market by July 1, 2013—which in the summer of 2011 was still the target launch date.

  When a set of preliminary insurance rules for the industry to comment on was finally issued on July 15, 2011, the launch date had been changed to October 1,
2013.

  By the end of 2011—after the “comment” period on the preliminary rules had to be extended because the insurers complained about so many ambiguities, gaps, and impractical provisions—the process for getting the vitally important final insurance rules out the door would be severely, perhaps irredeemably, behind schedule.

  CHAPTER 15

  MEANTIME, OUTSIDE THE BELTWAY …

  January-December 2011

  THE STRUGGLES AND INTERNAL BATTLES IN WASHINGTON DURING THE summer of 2011 over launching the exchange played out under the radar. And with the Obama administration now in a defensive crouch when it came to Obamacare, there was no sign of Stephanie Cutter’s “SWAT Teams” out there telling the story of the new law’s glories.

  But outside the Beltway, fixing healthcare had not become any less of an issue for millions of Americans for whom the law promised great relief—if the work to implement it could get done.

  STEVEN AND ALICE’S DEATH PANEL

  In early January 2011, a patient I’ll call Steven D. learned the hard way what being underinsured means.

  Soon after he was diagnosed with lung cancer on January 3, Steven and his wife, Alice, who lived in Northern California, knew that they were only buying time. The question was how much was the time worth. As Alice, who was making about $40,000 a year running a child care center in her home, explained, “[Steven] kept saying he wanted every last minute he could get, no matter what. But I had to be thinking about the cost and how all this debt would leave me and my daughter.”

  Sarah Palin’s attacks aside, there was no Obamacare “death panel” that governed that decision. Steven’s wallet did.

  By the time Steven would die at his home in Northern California the following November, Alice had collected bills totaling $902,452.

  $77 FOR GAUZE PADS

  The family’s first bill—for $348,000, which arrived when Steven got home from Seton Medical Center in Daly City, California—was full of all the usual chargemaster profit grabs: $24 each for nineteen niacin pills that are sold in drugstores for about a nickel apiece, and four boxes of sterile gauze pads (available on Amazon for $5.38 each) for $77 a box.

  None of that was considered part of what was provided in return for Seton Medical Center’s facility charge for two days in the intensive care unit at $13,225 a day, twelve days in the critical care unit at $7,315 a day, and one day in a standard room. The room charges totaled $120,116 over fifteen days. There was also $20,886 for CT scans and $24,251 for lab work.

  I asked Alice how she felt about the obvious overcharges for items like the gauze pads: “Are you kidding?” she responded. “I’m dealing with a husband who had just been told he has stage-four cancer. That’s all I can focus on.… You think I looked at the items on the bills? I just looked at the total.”

  Hospital billing people typically consider the chargemaster to be an opening bid. They use it to negotiate with insurance companies and often even with the uninsured if a patient without insurance is willing to negotiate a quick cash payment. But Steven and Alice didn’t know that. No medical bill ever says “Give us your best counteroffer.”

  The couple knew only that the bill said they had maxed out on the $50,000 payout limit on a UnitedHealthcare policy they had bought through a community college where Steven had briefly enrolled a year before.

  That insurance policy, with that $50,000 claims limit, was exactly the kind that Obamacare, under Jeanne Lambrew’s regulations, would now outlaw, despite the president’s promise that if “you like your insurance you can keep it.”

  Alice and her husband had, indeed, liked their plan, she had told me—until they realized how little $50,000 buys at an American hospital.

  “We were in shock,” Alice recalled, remembering the moment she opened the envelope containing the first bill. “We looked at the total and couldn’t deal with it. So we just started putting all the bills in a box.”

  Robert Issai, the CEO of the Daughters of Charity Health System, which owned and ran Seton, declined to respond to requests for comment on his hospital’s billing or collections policies.

  Senator Grassley’s provisions in the Obamacare bill that prohibit tax-exempt hospitals from charging chargemaster rates to patients needing financial aid would have restricted the Daughters of Charity in this situation. That part of the law was intended to take effect immediately once Obama signed the bill and his administration wrote the regulations to implement it. However, although the more complicated and arguably less important (though politically easier to market) MLR rules that Stephanie Cutter blogged about had been completed, these hospital billing regulations still had not been written when Steven D. fell ill, nearly ten months after the East Room signing ceremony.

  A PAKISTANI RUG MARKET

  Four months into her husband’s illness, Alice by chance got the name of Patricia Stone of Menlo Park, California. Stone was one of fifty to a hundred “medical billing advocates” who by 2011 had made a cottage industry out of helping people deal with one of the abiding ironies of America’s largest consumer product: completely inscrutable healthcare bills and equally opaque insurance company Explanations of Benefits.

  In talking to a half dozen of them while researching the Time article, I discovered that the advocates had settled on two basic strategies, neither of which spoke well for the sophistication of the biggest industry in the world’s most celebrated free market economy.

  First, in dealing with insurance claims, they had found that if they called an insurer and got an unsatisfactory answer, they could wait and call the same insurer back again with the same question—and often get a different, more favorable answer. There was no consistency. Everything was so complicated that they often could get the response they needed just by calling the customer service line a few times and finding someone who had a different read on the same issue. One billing advocate in Connecticut told me how she got a better response, worth nearly $10,000 to her client, simply by re-calling an insurer’s customer service line twenty minutes after her first call.

  Second, when dealing with a hospital chargemaster, the advocates would treat the process like the proverbial Pakistani rug market. They would call and offer to pay 30 to 50 percent of the bill. The hospital would settle for 50 or 60 percent in a matter of minutes, maybe 70 or 80 percent if it had a hard-nosed billing department. One advocate told me that it was so easy to get a $15,000 emergency room bill down to $10,000 with one call that she often kept clients waiting a week or two to make it seem like it had been harder for her to earn her $300 or $400 fee.

  The advocates’ effectiveness was more illustrative of the market in which they worked than it was any kind of a global solution to the market’s dysfunction. Each seemed to handle forty to seventy cases a year for the uninsured and for those disputing insurance claims. That would be only about five thousand patients handled by all of the advocates in a year, out of what must have been millions of Americans facing these issues—a gap in help dealing with these bills that had to be part of the reason why 60 percent of the personal bankruptcy filings the year Obamacare was passed related to medical bills.

  $902,000 FOR ELEVEN MONTHS OF LIFE

  Advocate Patricia Stone’s typical clients are middle-class people having trouble with insurance claims. Stone felt so bad for Steven and Alice—she saw the blizzard of bills Alice was going to have to sort through—that, Alice told me, Stone “gave us many of her hours,” for which she usually charges $100, “for free.”

  Stone was soon able to persuade Seton Medical Center to write off most of its $348,000 portion of Steven’s overall $902,000 bill. Her argument was simple: There was no way Steven and Alice could pay it all now or in the future, though they would immediately scrape together $3,000 as a show of good faith and promise to pay the rest of the written-down amount later.

  But other bills would keep piling up. Sequoia Hospital—where Steven was an inpatient, as well as an outpatient—sent twenty-eight bills, all at chargemaster prices, includi
ng invoices for $99,000, $61,000, and $29,000. Sequoia is part of the giant, ostensibly nonprofit Dignity Health hospital chain, which had more than $9 billion in revenue in the year Steven was treated.

  Doctor-run outpatient chemotherapy clinics wanted more than $85,000. One outside lab wanted $11,900.

  Stone organized these and other bills into an elaborate spreadsheet—a ledger documenting how catastrophic illness in America unleashes its own mini gross domestic product.

  The spreadsheet produced the family’s own death panel sessions. “We started talking about the cost of the chemo,” Alice would later tell me. “It was a source of tension between us.… Finally the doctor told us that the next [chemotherapy session] scheduled might prolong his life a month, but it would be really painful. So he gave up.”

  Alice would end up paying out about $30,000. Even after all the deals she got because she was lucky enough to find a billing advocate, she would still owe $142,000 one year after her husband’s death. Ultimately, she would have to sell a family farm she inherited to pay it all off.

  When the Obamacare insurance exchanges, with their premium subsidies, took effect in 2014, Steven and his wife could have bought a plan with no limits on how many treatments he could have had and, of course, no accounting for his preexisting condition. Because of the subsidies offered to people with low incomes, they would have paid less than the $400 a month Steven had paid for his now-inadequate insurance that Obamacare was going to cancel.

  Nonetheless, if Steven was healthy at the time and if he didn’t know about the subsidies—polls would show that most people didn’t*13—he might have complained that Obama was breaking his promise by taking away the insurance Steven liked and forcing him to buy something else that was more expensive.