America's Bitter Pill

by Steven Brill

  I was surprised that when I asked Kushner about that he did not push back. Oscar’s goal, he said, had always been “to be the front door for consumers to navigate a system that is unfriendly and has all kinds of obstacles.” That was why he was encouraging his team to perfect Oscar’s concierge service. The goal is for customers to contact an Oscar concierge first—and get a real person—to discuss an encounter they might be planning with an otherwise difficult system. “We can help them and save money, if we can direct them to the right care and explain costs and our network to them in advance,” he explained. “We want to be that entryway. And then we want to be their guide, by reminding them to fill prescriptions or go for their annual checkup.”

  And, he added, “We have already talked to a few hospital systems about helping them do that.”

  BUT WHAT ABOUT THE THOUSAND-DOLLAR PILL?

  As I began to frame the Corwin, Steele, Gottlieb, Cosgrove regulated oligopoly idea, a drug called Sovaldi burst onto the scene. It was an in-your-face reminder that America’s healthcare cost crisis was not just about getting hospitals and doctors off the fee-for-service treadmill and aligning their interests with those who pay for healthcare. There was also the problem of costs that have nothing to do with the services hospitals or doctors provide.

  Of the big issues that Obamacare did not address, chief among them was the uncontrollable cost of drugs. Pharmaceutical companies have been steadily boosting profit margins by taking a tougher stance on pricing in the United States—so much so that Bloomberg Businessweek reported in the spring of 2014 that “since 2007, the cost of brand name medicines has soared, with prices doubling for dozens of established drugs that target everything from multiple sclerosis to cancer, blood pressure and even erectile dysfunction.”

  Beginning in the spring of 2014, Sovaldi, sold by a relatively obscure company, took the issue up several levels in visibility.

  In March, Henry Waxman, the California Democratic congressman and pharmaceutical company nemesis, had begun to attack the pricing set for Sovaldi, sold by a pharmaceutical company called Gilead Sciences. Gilead was considered something of a lone wolf in the industry. It was not even a member of PhRMA, the pharmaceutical lobbying group, but its conduct put all pharmaceutical companies on the defensive.

  Sovaldi, it seemed, was a miracle cure for the potentially deadly hepatitis C liver virus. When it began marketing the drug in early 2014, Gilead priced it at $1,000 a pill. It took eighty-four pills, or $84,000 over the twelve-week, pill-a-day treatment period, to rid the patient of hepatitis C.

  Millions of Americans have chronic hepatitis C, which often becomes debilitating or life threatening.

  The press took the story and ran with it. Sarah Kliff, the former star Washington Post Wonkblog healthcare reporter who had moved on to Vox, calculated that “California … might have to spend more on buying Sovaldi for its Medicaid beneficiaries than it currently does on all K–12 and higher education.”

  Or as the Kaiser Health News service pointed out, if every hepatitis C patient took the drug, the country would spend $300 billion on it—doubling the country’s current bill for all prescription drugs.

  Karen Ignagni, the head of America’s Health Insurance Plans, the insurance lobby, began issuing almost daily press releases and studies, using Gilead’s Sovaldi as the poster child for drug prices run amok.

  Meantime, Wall Street analysts touted Gilead’s soaring stock price and pointed out that its CEO’s holdings had made him an overnight billionaire.

  The exact price Gilead chose for Sovaldi said something in and of itself about the nonexistent regulatory environment drug companies knew they faced in the United States. Rather than set the price at, say, $989, or $1,021—at least to create the impression that it was based on some calculation other than “Let’s charge whatever we want”—the company had chosen a simple round number, $1,000. At the same time, it was charging far less in countries outside the United States that regulated drug prices.

  Yet Sovaldi, itself, wasn’t the problem. The thousand-dollar pill was just an attention-getting example—fueled by the company’s brazenness in selecting that fat round number—of what was to come. Why couldn’t another company charge $2,000 for another lifesaving drug next year?

  “This is the tip of the iceberg,” Steven Pearson, president of the nonprofit Institute for Clinical and Economic Review, which tracks the effectiveness of new treatments, told the Kaiser Health News service. “We have about a year or two as a country to sort this out before more specialty drugs hit the market.”

  Patents for drugs, as well as expensive medical devices, are government grants of monopoly. The need to control how these monopoly products are priced is clear. Drug and medical device price controls belong on any list of necessary reforms that Obamacare missed and that have to be put in place if healthcare bills aren’t going to continue to cripple the rest of the economy.

  TRAGIC CHOICES

  There is something about healthcare that I came to understand better during my hospital stay—something that overlays all of these considerations of costs and savings. It’s what makes dealing with these issues so politically difficult.

  When it comes to our health, we don’t care about cost-benefit analyses; we care only about maximizing the benefit.

  Suppose you’re shopping for a car, and Consumer Reports convinces you that in terms of reliability, safety, and everything else, the Chrysler model you are considering is 90 percent as good as the Ford you are also looking at. Suppose also that the Chrysler cost only 60 percent as much as the Ford. You would likely buy the Chrysler.

  But what if your surgeon told you that one type of patch he was going to use on your aorta was 90 percent as good as another, but costs only 60 percent as much? Which one would you choose? Obviously, the costlier model. No amount of savings is worth a 10 percent discount on your life.

  And that analogy assumes that you have as much information about the comparative effectiveness of medical treatments and devices as you do about cars, which you don’t. It also assumes that you will believe that the cheaper product is almost as good or just as good—which, when it comes to medical care, you either won’t believe, or you’ll be scared enough not to take the chance.

  A law professor of mine, Guido Calabresi, co-authored a profound book in 1978 called Tragic Choices, which analyzed how societies fumble around when allocating scarce resources, ranging from who should be drafted to fight a war to who should receive a kidney transplant. The basic message of the book is that even in societies that try hard to be fair or to appear to be fair, the combination of politics, emotion, and unequal distribution of power rarely makes these decisions rational or satisfying to many on the receiving end of them.

  Medical care, especially as it has evolved in the United States since Professor Calabresi pinpointed these issues, involves the ultimate allocation of scarce resources. When I started reporting this book, a congressman mentioned to me, cynically, that “every body part, every disease has a lobby of victims, often funded by the industry.” Each of those body part or disease lobbies, he explained, roams the halls of the Capitol looking for more research money, or for a dispensation so that Medicare will pay for this experimental drug meant to cure skin cancer or that new medical device meant to alleviate back pain. It is no surprise, then, that groups of hepatitis C sufferers have been contesting any attempts by insurers or Medicare to limit the distribution of Sovaldi to those whose condition the insurers decide has reached the most urgent stage.

  I was reminded of that primer on medical lobbying when I saw my surgeon for a follow-up visit. He casually mentioned that if everyone got an MRI, as I had, no one would die from aortic aneurysms because they would all be caught like mine was.

  I checked later that day and found that, according to the federal Centers for Disease Control and Prevention, 10,431 people died from aortic aneurysms in 2011, the latest year for which the data had been tabulated.

  The chargemaster bill for my
MRI had been $1,950, which my insurance company knocked down to $294.

  My doctor had sent me for the test because he became suspicious when he took my pulse during a routine checkup. However, most doctors aren’t skillful enough or cautious enough to weed out possible victims that way, nor is taking a pulse anything close to a foolproof way to find an aneurysm. So let’s suppose we spent $300, through private insurance coverage or Medicare and Medicaid, to test all 240 million American adults to see if they had aortic aneurysms growing in their chests. That would cost $72 billion.

  Suppose we economized and tested everyone only every four years. That would average out to $18 billion a year. Yet it would potentially save more than three times as many Americans as were lost in the September 11, 2001, attacks, which we have spent hundreds of billions to prevent from happening again, even trillions if you count foreign wars. So, would an aortic aneurysm lobby, consisting perhaps (if I had not been saved) of my widow or children (and backed by the MRI lobby), be so unreasonable in demanding that the country spend the $18 billion?

  Then again, wouldn’t it be crazy to spend all that money to find the fraction of a fraction of a percent of people—10,000 out of 240 million—who are susceptible to that, rather than spend it on general preventive care or on cancer research?

  Put simply, money is a scarce healthcare resource. We have left it to Washington to allocate it based too often on who has the best lobby or the hottest fund-raising campaign. And anyone who tries to rationalize those tragic choices faces a firestorm of political opposition. Which was why Obamacare’s thousands of pages of law and follow-on regulations were filled with all kinds of goodies—or necessities, depending on your view—pushed by the most effective body part and disease lobbies. It’s also why figuring out how to deal with Sovaldi is impossible absent price controls.

  Skill is also a scarce resource. That was driven home to me when I checked in with Tom and Viola Brown in Kentucky in July 2014 and Viola told me that one of her doctors had discovered a severe heart problem. For the next several months the doctor was going to monitor her to see if medication would suffice. However, Mrs. Brown told me, open-heart surgery was likely going to be necessary at some point.

  Before cardiothoracic surgeon Leonard Girardi operated on me I was able to check him out, because the New York State Department of Health posts data online tallying the outcome of all cardiac surgeries by all of the state’s heart surgeons.

  The stats for Girardi, a soft-spoken, fifty-one-year-old graduate of Harvard College and Cornell Medical School, were as good as the word of mouth about him. In 2011, the last year for which records were available, Girardi had performed 238 operations of the type he was going to perform on me. He had lost no one, earning him the highest rank in the state, which factored in the condition of the patient being operated on and the complexity of the procedure. Girardi had averaged between 500 and 600 heart surgeries of any kind (including my type) a year over the past fifteen years. He had rarely lost a patient, and the few he lost were far advanced in years or had arrived near death in the emergency room. You wouldn’t know it from his modest, friendly bedside manner, which exuded the opposite of surgeon-as-God arrogance, but in New York cardiology circles Girardi was considered among the best of the best.

  There are no analogous publicly available statistics kept in Kentucky. In the more general national and state quality ratings that CMS and Kentucky publish related to cardiac surgery, Louisville’s Jewish Hospital and St. Mary’s HealthCare–where Viola Brown told me she would have her surgery if it became necessary—ranks as “average.” However, the data is limited, and the hospital is reputed to have one of the best cardiac care centers in the region. That Viola Brown, thanks to Barack Obama and Steven Beshear, had had her condition discovered and could now be treated for it there, was, of course, a great benefit for her.

  But the hospital doesn’t rank as high or have the same reputation as New York–Presbyterian.

  The actual skill of the people treating Mrs. Brown is not the point. The point is that skills will vary—and that the data transparency movement is now likely to make those variations clearer than ever, as data like New York’s becomes more complete and consumer friendly, and as other states offer the same information. So those at the top of the rankings will increasingly present yet another scarce resource forcing another type of tragic choice.

  Let’s suppose we could get an exact—or what would purport to be an exact—quality rating for Viola Brown’s doctor to compare to Leonard Girardi’s. Let’s further suppose he or she ranked in the 60th or 75th or even 85th percentile, while Girardi was up at 99-plus.

  Who wants number 85 instead of number 99?

  What’s the fair way to allocate the scarce resource called Girardi once the transparency movement makes his and everyone else’s comparative status clear? Who will make that tragic choice?

  All of these issues related to scarce resources are only going to intensify. That’s true here and around the world, because of a catch-22 about advances in medical care. These advances will generally mean that everyone lives longer. With older populations everywhere, every country’s healthcare needs and expenses as a percent of their overall economy are destined to rise.

  Compared to the rest of the world, the United States is staring into that future from a ditch. We already spend 50 to 100 percent more as a portion of our gross domestic product on healthcare than our competitors do. Obamacare is not likely to change that. Indeed, by making the deals he made—by making the right tragic choice and giving healthcare to people like Viola Brown—Barack Obama likely dug us deeper into the ditch.

  The best prospect for digging out is that now that we have paid the ransom the industry demanded in Washington to get coverage for Viola Brown in Kentucky, perhaps the resulting sticker shock, exacerbated by renegades like the makers of Sovaldi, will cause us to demand real change on the cost side, too.

  Maybe all the new customers created by the Obamacare exchanges will set off a fiscal crisis that will force us to rethink how we pay for healthcare.

  Maybe it will make us throw aside the lobbyists and allow drug companies to reap healthy profits but not Sovaldi-sized, screw-you profits.

  Maybe it will force Democrats to defy the trial lawyers and allow sensible tort reform.

  And maybe it will force us to allow doctors like Corwin, Steele, Gottlieb, and Cosgrove, helped by industry disrupters like the Oscar team, to have a toughly regulated shot at revolutionizing the system by aligning the interests of those who provide care with those who pay for it, while cutting out the middleman insurance companies.

  Maybe putting them in the driver’s seat on a well-policed highway will allow us to junk the old jalopy and stop rewarding those who want to keep pumping gas into it.

  * * *

  *25. There were lots of variations across the country, but generally premiums seem to have been raised 6 to 12 percent from the 2014 to the 2015 coverage year, with deductibles also increasing. A study by the PricewaterhouseCoopers consulting firm put the average increase at 8.2 percent. However, in some states, such as Florida, the increases were much higher. When Oscar filed its rates for 2015 on June 13, 2014, its average price increase was 5.3 percent.

  *26. At the time, because the company I had started had been purchased by RR Donnelley, Donnelley was the provider of my UnitedHealthcare policy. Donnelley self-insured, meaning UnitedHealthcare processed the claims, but Donnelley reimbursed United for them.

  *27. I was later told by someone on Hemsley’s staff that because a pharmacy benefit manager handled prescription payments for UnitedHealthcare, United, for some reason, did not record it as an amount billed to the insurer and, therefore, with no further explanation, put zero in as the “amount billed” in those situations. This explanation also didn’t shed light on why an amount billed was listed on the Explanations of Benefits United sent me related to many of the other drugs.

  *28. I am defining operating profit as the excess of revenue
over expenses (in this case, $269.6 million), plus the amount listed as a depreciation expense (in this case, $234.8 million) because depreciation is an accounting charge, not an actual cash expense.

  To Cynthia

  ACKNOWLEDGMENTS

  AS I EXPLAIN IN THE TEXT, I GOT INTERESTED IN THE ECONOMICS and politics of healthcare as a novice in mid-2012. That was when I became curious about why healthcare costs so much more in the United States than anywhere else and decided to use the bills of actual patients to find out. The result was a twenty-four-thousand-word article that no conventional magazine editor would publish.

  Richard Stengel, who was then editing Time, defied convention and published “Bitter Pill” as an unprecedented Special Report. His gutsy decision to dispense with Time’s usual editorial package—as well as the matching enthusiasm and editing skill of his then-deputies, Nancy Gibbs and Michael Duffy—are the reason this book happened. The popular reaction to Time’s Special Report spurred me to write more on a subject that I now realized deeply touched most Americans but often left them frustrated and mystified.

  The fight over Obamacare, the struggle to implement it, and its impact, or lack thereof, on our broken healthcare system then became the obvious subjects that would enable me to tell the larger story of healthcare in America.

  Although this book is about Obamacare and that larger story, it is a story best told in the context of how the American healthcare system works or doesn’t work, both for patients needing care and for those who profit in the marketplace where that care is provided. Therefore, portions of that original Time article have made their way into this book, usually paraphrased and in expanded or updated form, but sometimes word for word. The same is true of four subsequent articles I wrote for Time, including a cover story chronicling the rescue of the HealthCare.gov website. I estimate that in all about 15 percent of this text is derived in some way from material previously published in Time.