America's Bitter Pill

by Steven Brill

  Just after midnight, Park went home, and Dickerson went back to his room at the Doubletree. He would not return to Google until January 5. He spent the days after Christmas helping to organize a new crew of pit bosses who would cycle in and out of the operations center—which would look calm and whose video dashboards would all display a remarkably stable system when I visited there in mid-February 2014. (By then, one screen would report that the current average response time—once a ridiculous eight seconds per page—was down to .343 seconds.)

  “Jeff was good at pumping us up, and so was Todd,” recalled one of the team members, referring to Zients and Park. “We even got to meet McDonough, the chief of staff, and that was good. But we really didn’t need to be pumped up much. This is what we do. And this job had special meaning.”

  That may be why none of the group—even those, like Dickerson, who had worked for President Obama during one or both of the campaigns and had gotten to meet him multiple times at campaign headquarters—would express surprise or regret that the group that had rescued the president’s signature policy initiative did not get to meet Obama (who spent Thanksgiving 2013 at the White House) or even get a thank-you phone call. “I’m sure he’s got a lot of other things to do,” said Jini Kim, chuckling.

  On December 29, the Obama administration announced the last-minute surge of enrollments. There were now 1.1 million people enrolled through the federal exchange, 975,000 of whom had enrolled in December alone, following the tech team’s rescue.

  They still had a long way to go to meet the target of seven million enrollees by March 31 that the CBO had set and that the press was fixated on. Yet getting close now looked possible.

  In Kentucky, Carrie Banahan and her team closed out the year with 175,000 enrollees, nearly 30 percent of the state’s 630,000 uninsured. Of those, 140,000 were enrolled in Medicaid for free.

  A BARGAIN IN BROOKLYN

  One of those who waited to sign up until almost the last minute before the December 24, 2013, deadline was Gretchen Barton, thirty-two, who ran a small film production company with her husband in Brooklyn.

  Barton enrolled in Oscar on the New York exchange just before Christmas.

  She had first bought health insurance about nine years before after she cut her foot on a piece of glass and had to pay all the bills herself. “I realized, I was twenty-three, and it’s time,” Barton told me.

  But the insurance premiums for Barton and then for her and her husband had climbed steadily from an initial $121 a month. In early December Blue Cross Blue Shield notified her that the monthly premium for 2014 would be $913. She need not do anything, the notice said, and her policy would be continued at the new rate.

  Barton and her husband had decided instead that they should look for alternatives. Barton had gone onto the New York State website in November, but she was unable to make a decision—except that she didn’t think she was interested in this company called Oscar, because she had never heard of it. However, after a second visit to the exchange, where none of the other options appealed to her (though most were cheaper than $913), she got curious about Oscar and Googled the company.

  “It seemed different,” she later recalled. “It seemed like a bunch of smart young guys who were doing something new and different. It resonated with me.… Then my husband and I called their customer service line, and within a minute we were on the phone with this smart, amiable guy—an actual person—on the phone.… It was so nice.… I loved the idea of the telemedicine.… And he was able to answer all of our other questions.”

  The next day Barton and her husband signed up for an Oscar silver plan at $766 a month. However, it cost them $500 because they were entitled to a $266 subsidy.

  Within days, Barton would get a call from another of Oscar’s “real” people confirming her order. About a week later, in early January, she would use the telemedicine hotline to have a doctor call in a prescription for a generic drug that cost her nothing. Soon, she was talking up Oscar at a Brooklyn beauty salon (which is how I found her, because one of the people who heard her extolling Oscar worked at Oscar).

  The only trouble Barton would still have with insurance companies was the seven calls she would have to make before Blue Cross Blue Shield stopped pulling $913 a month out of her checking account and refunded it.

  CHAPTER 23

  THE FINISH LINE

  January 1–April 15, 2014

  ALTHOUGH THE OBAMACARE WEBSITE HAD NOW OBVIOUSLY RECOVERED there was still no smoothly functioning electronic link connecting the exchange to the insurance companies so that someone signing up would actually be enrolled automatically by the insurer. Instead, CMS had to send the forms over to each insurer through a separate process that often required the insurance companies to enroll their new customers manually. Worse, in many cases the information contained in the sign-ups was getting garbled.

  Barack Obama had learned his lesson. In conversations with his staff about this in December, Obama, wanting to make sure he was not burned by another exchange-related crisis, repeatedly asked about this. How could they be sure that when people showed up at a local drugstore on New Year’s Day to fill prescriptions with the insurance that they thought they had bought on the exchange, they would actually have a verified insurance card or, failing that, would at least have a valid policy on file that the druggist could check?

  Everyone on the Obama staff now had visions of news cameras and tweets recording the newest fiasco—hordes of angry customers being stopped from getting their drugs or turned away from being treated at some clinic. Obama drilled down, wanting more this time than bland assurances. The staff brought him the details from HHS and CMS about exactly what was being done. “We failed at … launch,” President Obama later told me. “We learned from that and worked hard to pull ourselves out of the hole we put ourselves in before the end of open enrollment.”

  On January 1 and through the first week of 2014, there were sporadic reports of problems, but no new crises. The CMS policy and technical people, aided by the remaining tech surge team, had worked through the holidays with the insurance companies to make the jerry-rigged manual process mostly work.

  BACK TO BUSINESS: A $7 BILLION STOCK DEAL

  Through the first half of January, Obamacare seemed to be settling into the rest of the healthcare landscape as something that was here to stay, for better or worse. While David Simas and his White House messaging group plugged away at boosting sign-ups ahead of March 31, 2014, when the enrollment period would be over until the fall, healthcare news coverage returned to more of the conventional fare.

  On January 2, IMS Health Holdings, a company you’ve never heard of, caused a buzz in the industry when it began an initial public offering of its stock. The company collected and sold, according to its prospectus, “one of the largest and most comprehensive collections of healthcare information in the world, spanning sales, prescription and promotional data, medical claims, electronic medical records and social media.”

  When the IMS stock went on sale in April, the price paid resulted in a valuation of the company of nearly $7 billion.

  EMERGENCY ROOM INCENTIVES

  On January 13, 2014, the Department of Justice announced that it was joining in litigation brought by eight whistle-blowers alleging that Health Management Associates, a chain of seventy-one for-profit hospitals, billed Medicare and Medicaid “for medically unnecessary inpatient admissions from the emergency departments at HMA hospitals and paid remuneration to physicians in exchange for patient referrals.”

  The government alleged that a scorecard was kept to track emergency room admission rates. Doctors who hit a target of admitting 50 percent or more of patients sixty-five years old or over to the hospital would get a color code of green.*21

  The charges came as HMA was about to be bought by another hospital chain, Community Health Associates, which would create the nation’s second largest collection of for-profit hospitals. The merger would be completed by the end of the month.
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  The company’s slide presentation for investors the following month would say that the newly merged chain was “well-positioned to participate as a network provider on various health insurance exchanges,” with “hospitals located in 26 of the top 30 highest uninsured states.”

  Seven weeks later, another giant hospital chain, Tenet Healthcare, would announce that it expected Obamacare to boost its cash flow in 2014 by $50 million to $100 million.

  A “VIRAL” HEALTH INSURANCE COMPANY?

  The same day that the Justice Department announced the suit against the hospital chain, the giant annual show-and-tell for everyone who is anyone when it comes to the money side of healthcare convened in San Francisco—the J. P. Morgan Healthcare Conference 2014.

  Dozens of pharmaceutical, insurance, biotech, data analytics, insurance, and other companies in fast-developing healthcare fields presented slide shows to investors. Some, such as WellPoint and Walgreens, were established names. Others were start-ups in genomic analysis or “digital medicine.” All reported in one way or another that Obamacare was going to advance their fortunes.

  And then there was Joshua Kushner from Oscar, who told the investor crowd that Obamacare had enabled his company to exist. Kushner presented a thirteen-slide deck that depicted his ads—“Health insurance that won’t make your head explode. And if it does, you’re covered”—and that emphasized Oscar’s “Our World vs. Old World” look and feel. There were no cost, enrollment, or revenue projections. No numbers at all.

  The J. P. Morgan audience was silent.

  “It was depressing. We were like aliens there,” Kushner told me when I caught up with him about two weeks later. “Someone asked what our exit strategy was, and I said we were trying to change the industry, not sell the company.” Someone else asked how Oscar could protect itself from being mimicked by bigger competitors. “I told them that I hope the industry copies us.”

  Kushner could have presented some good numbers had he wanted to. By the time we talked on January 29, Oscar already had 5,413 members. Given what everyone expected to be a flood of last-minute sign-ups, it now seemed that the team would easily exceed its target of 7,500 by the time enrollments ended on March 31.

  The key was word of mouth. “We are creating the first viral health insurance company, how weird is that,” the partners began to joke, according to cofounder Mario Schlosser.

  In October, 80 percent of Oscar’s modest number of enrollees had come directly from the state insurance exchange website (though they, too, might have heard of Oscar because of the company’s cool-looking ads and social media buzz). However, by January only 20 percent of the much larger number of enrollees had started on the state exchange website. The other 80 percent had been directed there after going to the hioscar.com website or contacting Oscar by phone or email.

  Schlosser said that the first week following January 1 when coverage went into effect had been “a little scary.” Several seriously ill patients had immediately sought treatment. Although Schlosser and his partners had expected some pent-up demand from those previously uninsured, seeing people, mostly with cancer, actually start racking up five- and six-figure bills was still head turning. “But,” said Schlosser, “we’re not sitting there saying, ‘Oh, shit, she’s got cancer.’ That’s the business we chose to be in. People here are excited to take care of someone. And,” he added, “we want her to go to Sloan Kettering because it may be more expensive in the short run, but she’ll get better care, which will be better for her and probably for us in the long run.”

  Beyond that, Kushner and his partners and their now forty-two employees seemed as exhilarated as they had been the week before their launch—in fact, more so because the dashboards lighting the wall were reporting real numbers in real time that continued to be encouraging.

  Their customers were already heavily engaged with Oscar. Ninety-eight percent had created online accounts, and 57 percent had already searched for doctors and other providers on Oscar’s easy-to-use website.

  Perhaps most encouraging was that 65 percent had entered their health profiles, which would now be supplemented every time they went to a doctor, used the telemedicine service, or were prescribed a drug. These real-time profiles would enable Oscar, for example, to send emails reminding them when a prescription had to be refilled, and, of course, to feed Schlosser’s data analytics machine.

  Kushner and his partners could tell how many patients were using the telemedicine service or taking advantage of the free generics. They liked what they saw when comparing the cost of all that to what the data said they had saved in more expensive care and gained in the goodwill their patient feedback reports said they were accumulating. Which in turn was fueling the data on where their new business was coming from: word of mouth and social media referrals to their website.

  Another dashboard tracked member calls to the customer service center or to the telemedicine doctors (ten to fifteen calls a day). Three or more calls from the same patient to either service in a seven-day period created an alert, which someone higher up at Oscar had to investigate.

  That system had given them a heads-up on their first screwup, a woman who had been mistakenly denied a mammogram because the outsourced service that vetted radiology procedures had mislabeled her request.

  OBAMA ON THE ATTACK

  On January 28, 2014, Obamacare was back in the headlines. The president devoted a portion of his State of the Union address to it, attacking House Republicans for now having voted repeatedly and fruitlessly to repeal it. “Now, I don’t expect to convince my Republican friends on the merits of this law,” he said. “But let’s not have another forty-something votes to repeal a law that’s already helping millions of Americans.… The first forty were plenty.… We all owe it to the American people to say what we’re for, not just what we’re against.”

  Then Obama introduced a guest in the House of Representatives gallery: “If you want to know the real impact this law is having, just talk to Governor Steve Beshear of Kentucky, who’s here tonight. Kentucky’s not the most liberal part of the country, but he’s like a man possessed when it comes to covering his commonwealth’s families. ‘They are our friends and neighbors,’ he said. ‘They are people we shop and go to church with … farmers out on the tractors … grocery clerks … they are people who go to work every morning praying they don’t get sick. No one deserves to live that way.’ Steve’s right. That’s why, tonight, I ask every American who knows someone without health insurance to help them get covered by March thirty-first.”

  In the Republican response that night, Congresswoman Cathy McMorris Rodgers of Washington State cited a constituent whose policy had been canceled and was about to be forced to pay $700 a month more in order to comply with the mandate. The Spokesman-Review newspaper in Spokane, Washington, quickly reported that the policy the woman could buy to replace her canceled insurance might cost $400 or $500 more, not $700, and would provide much more complete coverage.

  However, the congresswoman was right, in the sense that Obamacare had its share of winners—like the cancer-afflicted Sean Recchi, or the Brown family in Beshear’s Kentucky—and losers. That was inevitable. “No gay couple is going to want to pay for insurance that has maternity coverage,” PhRMA’s Billy Tauzin complained to me. Maybe, but for years, women have had to buy insurance that included treatment for prostate cancer.

  OBAMACARE’S CLEAREST WINNERS

  Throughout the first weeks of 2014 there did seem to be one clear group of winners—the healthcare industry. The day Obama delivered his State of the Union speech, Amgen chief executive Robert Bradway hosted a conference call with stock analysts to discuss his year-end results. Amgen is the pharmaceutical company with the master lobbyist who had been so concerned about how biologics would be protected. And CEO Bradway had been part of Tauzin’s PhRMA executive committee that oversaw PhRMA’s negotiations with Baucus’s staff.

  On the conference call, Bradway reported that his company’s operating in
come had grown by 24 percent, and that the dividend was being increased 30 percent, after having been increased 31 percent in 2013.

  As for the first year when the Obamacare mandate would be in place and the exchanges up and running—“we expect solid growth in revenues and adjusted earning per share during 2014,” Bradway said.

  An Amgen executive vice president provided a window on how pharmaceutical companies like his have used television and print advertising—allowed in the United States but not in Canada or Europe—to generate rapid growth and defend the company from other brands, including less expensive generics. Referring to Enbrel, an Amgen arthritis and psoriasis drug, he noted, “Our investment in direct-to-consumer advertising with [pro golfer] Phil Mickelson continues to drive brand awareness, which is important as physicians continue to honor over 90 percent of Enbrel patient requests. We remain the value share leader in both rheumatology and the dermatology segments and we’re confident in Enbrel’s potential growth.… In the U.S., our direct-to-consumer campaign has been very successful.”

  He noted that another Amgen brand, Prolia, “is now the most requested brand by new postmenopausal osteoporosis patients. We are launching a new campaign with [actress] Blythe Danner in the next few weeks to continue raising patient awareness.”

  In 2013, Amgen spent $5.18 billion on what its annual report called “selling, general and administrative” expenses, much of which would have been advertising and marketing. The same year it spent $4.01 billion on “research and development” and $3.35 billion to produce its products. It reported operating income of $5.87 billion.

  INEFFECTIVE COMPARATIVE EFFECTIVENESS