Drug and device makers: Obscene profits and kickback -- a big part of why our "healthcare" costs so much

 

Drug companies are greedy parasites. This is well-known to everyone. Even the shock troops of the Republican right know about and decry it.

The drug companies start with the capitalist model – sell something at a profit – and take to an extreme: make as much profit  as possible no matter who it hurts (as long as it doesn’t hurt them).

They have a great business plan: people need their medicine, they (or mostly their insurance companies, including government insurers Medicare and Medicaid) are willing to pay for it, even if truculently, and they’ll pay whatever is asked.

While we are all shocked periodically by stories of individual dramatic greed, such as Mylan and its CEO Heather Bresch jacking up the price of EpiPen® to over $600 (Epi-Pen® and Predatory Pricing: You thought our health system was designed for people’s health?, Sept 3, 2016) or Martin Shkreli and his company Turing brazenly raising the price of Daraprim® from $13.50 to $750 (Drug prices and corporate greed: there may be limits to our gullibility, Sept 27, 2015), the fact is that this is the standard business model of pharmaceutical companies. Think of colchicine, an anti-gout drug first used by ancient Egyptians at least since 1500BC, having its price jacked up from $4/mo to $5/pill (VISA and colchicine: maybe the banks and Pharma really ARE in it for the money!). 

Or, to get to one of the biggest scandals of all, the price of insulin!  Should there be anyone who does not know, insulin was one of the most important drugs ever discovered. Unlike the newest drugs that I have recently discussed, which sell for thousands (or tens of thousands) of dollars a month, insulin is not for a niche market. It is for diabetes, one of the most common diseases. For people with Type 1 diabetes, who produce no insulin of their own, it is simply an absolute requirement for life. For the larger group of people with Type 2 diabetes, it is often a critical part of controlling their disease. It was discovered by Canadians Banting and Best in the 1920s, who sold the patent to Eli Lilly and Co. for -- $1! (Not sure if that was a US or Canadian dollar.) This drug – the impact of which is HUGE – now is over $100/month for the cheapest generic forms if you have a coupon, and, depending upon the formulation, can be hundreds!

So, we have predatory pricing on products people absolutely need for their lives. Check.

We have outrage among millions of people of all political stripes. Check.

We have the ability to control these prices, starting with the largest payer in the US, Medicare. Check.

We have done what we can, as a government and a society, to address this issue. Um, uncheck. Nope.

In fact when Congress passed the Medicare Drug Plan, (MMA, Part “D”) in 2003, it specifically forbade Medicare from negotiating drug prices. Good deal for the drug companies! Guaranteed payment and no ability for the purchaser to negotiate the price! Where can you or I get that deal? Nowhere, of course. We do not have huge piles of $$ for paying Congressmen. Every time the drug manufacturers suggest that they need their profit to pay for Research and Development (R&D), we need to note how much MORE they spend on Marketing (including lobbying and contributions). It is also worth noting that contrary to their propaganda, MOST drugs are not developed in the US. It is the large plurality, but Japan and Western Europe also contribute a lot. (see, e.g., Light and Lexchin Pharmaceuticals as a market for “lemons”: Theory and practice and Pharmaceutical research and development: what do we get for all that money?, also for another take US Pharmaceutical Innovation in an International Context) More important, perhaps, is that most of the basic (high-cost, high-risk) research is funded by you, the taxpayer, through National Institute of Health (NIH) grants; drug companies most often buy the patents only after the original research shows promise.

Of course, in recent years, there has been a change. In labeling. Some expenditures that used to be included as marketing are now included as R&D. Not that the amount that they spend on lobbying, political contributions, marketing to physicians, and direct marketing to consumers has changed. And of course we have the FDA approving incredibly expensive and profitable drugs against the recommendations of their scientific panels (FDA approves Alzheimer's drug against the recommendation of its scientific panel. Be very concerned, June 21, 2021). This is corruption, this is your government selling you down the river to increase the profits of an industry that everyone, justifiably, hates.

And then, of course, we need to consider the device makers. You know, the companies that make stuff that is stuck into your bodies by surgeons, from artificial hips to cardiac defibrillators. Just to make sure that they do not continue to fly under the radar, getting cover from the excesses of the drug manufacturers. This is important; unlike drugs, if it turns out that your  implant  is not the best choice, or is not working well, or is really inferior, or is harming you, it is not as easy to just stop and put a new one in. That artificial hip? They opened you up, cut out the top part of your thigh bone (femur), and part of where it inserts into the pelvis (ilium) and put in this new hardware. Replacing it is a big deal. So getting the best one available is important. Usually, this decision is left up to the surgeon. So how do you get surgeons to use your device if you are a device manufacturer? Marketing! Telling them how great it is! Showing them testimonials from other surgeons!  Oh, yes, and, of course good old kickbacks, paying them for using your product! This is reported on in a recent piece in Medscape, “Device Makers Have Funneled Billions to Orthopedic Surgeons Who Use Their Products”, June 17, 2021. That is how you wanted your surgeon to choose the new part that is going to replace part of your hip, or spine, or knee, right? Bribery?

Of course, it is not listed as bribery on the companies’ balance sheets, and I’m sure that the individual surgeons do not report it on their income tax under “kickbacks”. Back in 2012, surgeon and writer Atul Gawande, in an article in the New Yorker called “Big Med” (discussed by me in Quality and price for everyone: Bigger may be better in some ways, but not all, Aug 24, 2012) reported on an effort in a Harvard-affiliated hospital to standardize the hardware used by orthopedic surgeons. Rather than having each surgeon pick their own favorite and having the hospital have to stock several – or sometimes more than 10 – versions of, say, an artificial hip, a committee researched the quality and the hospital stocked 1 or 2 of the best, and each surgeon had to use them. This improved outcomes. There was no suggestion that the surgeons were, at that time, getting kickbacks, but it is certain that the manufacturers whose products were not chosen were not happy about it.

It is not hard to see why the American people distrust the healthcare system, and the hugely profitable drug and device industries that supply it, and the healthcare “providers” – hospitals – that deliver it, and, sadly with news like these kickbacks, even the doctors and other clinicians caring for them. And I haven’t even gotten into  (today) the insurance companies! As in so much else, it often appears that both our major political parties are the parties of Corporate America, although one is at least making some efforts to limit those corporations. The other is, like the drug companies, totally shameless.

It is not hard, but it is sad. And worse, destructive to our health, as individuals and as a society. 

Kickbacks, corruption, and graft are not models for efficiency in health care

‘The Trump administration has labored zealously to cut federal regulations, but its latest move has still astonished some experts on health care: It has asked for recommendations to relax rules that prohibit kickbacks and other payments intended to influence care for people on Medicare or Medicaid.’

So begins the article ‘Trump Administration Invites Health Care Industry to Help Rewrite Ban on Kickbacks’ by Robert Pear in the NY Times, November 24, 2018. The next sentence provides the ostensible motivation for the rule change: ‘The goal is to open pathways for doctors and hospitals to work together to improve care and save money,’ but the sentence immediately after goes to the meat of the issue: ‘The challenge will be to accomplish that without also increasing the risk of fraud.’

The reason that there are anti-kickback laws in any industry is, of course, to prevent fraud. It is bad enough when we discover that a supposed impartial reviewer of a film or a book, or an item we may want to purchase like a car or a computer, is in fact being paid by one manufacturer to recommend their product. It is even worse if it turns out that the product that they are recommending is us, and that someone that we have trusted with our lives and our health, like a doctor, is being paid to send us to a particular lab or x-ray facility or hospital or specialist. Maybe the one we are being referred to is the best one, but it is hard to trust that if we discover that the doctor has a financial interest in that facility, or is receiving a kickback for those referrals. Most people are afraid of this and thus support anti-kickback laws; the exception is always those within the industry who stand to benefit. Surprise! And, it should be noted, it seems to be a core part of the business model of the Trump Organization.

But what about that middle sentence? The one that says that ‘the goal is to open pathways for doctors and hospitals to work together to improve care and save money’? Isn’t that a worthwhile goal? And both the American Medical Association (AMA) and American Hospital Association (AHA) are supporting the proposals. Am I saying that they are crooks or corrupt? Doesn’t it make sense that there can be not only savings but enhanced quality from the efficiencies that can come from such arrangements? How can we realize the efficiencies if doctors and hospitals are prevented from coordination of care?

The answer, as I see it, is “yes, but..”. There should not be unreasonable restrictions to care coordination, provided that they are upfront and obvious to the consumers (patients) such as in health maintenance organizations (HMOs) and the like which use limited panels of doctors, or public hospitals where care is often provided by employed physicians. The core issue, in health care, is to ensure that these arrangements are truly for the benefit of the health of patients, and not mainly to make more money for the providers. When your physician, Dr. Smith, refers you to a particular specialist (Dr. Jones) because they know them and think they are smart, competent and do good work even though another physician across town may have better results by some measures, it may be good or bad but it is honestly being done by Dr. Smith for your benefit. But if you discover that Dr. Jones is paying Dr. Smith for referrals, you might well be chary of the motivation.

There are several important things to remember in this discussion:

1.     Not everyone is, or is likely to become, a crook. There are many, maybe most, individual health care providers (like doctors) who actually care more about people’s heath than profit. There are even some institutional health care providers, hospitals and health systems, that may.

2.     There will always be people and institutions who “push the envelope”, and game the system. They will do everything that is legal, even if it violates the spirit and intent of the law, if it makes them more money. “Give them an inch and they’ll take a mile”.

3.     The looser the rules, the more these people and institutions will game it. There is no reason to suspect that money-grubbing cheaters will be satisfied if given a little more. Think about those (maybe me and you) who routinely feel ok about driving 5-10 MPH above the speed limit on a highway. If the speed limit is 65, we may drive 70 or 75. But if it is 75, we drive 80 or more. Raising the limit on what constitutes corruption will not obviate it.

4.     Carrots don’t work very well to change such behavior, although sticks might work a little better.

Don McCanne recently discussed a study from RAND called ‘Effects of Health Care Payment Models on Physician Practice in the United States’ which described the many different models being employed by various health systems and physician groups in the US, but alertly appened a reference to a NY Times article on October 27, 2018 by Alfie Kohn titled ‘Science Confirms It: People Are Not Pets: Research on the efficacy of rewards tells us that we can’t bribe others into doing what we want’. It reviews the psychological science that there is a difference ‘between intrinsic motivation (wanting to do something for its own sake) and extrinsic motivation (for example, doing something in order to snag a goody). The first is the best predictor of high-quality achievement, and it can actually be undermined by the second. Moreover, when you promise people a reward, they often perform more poorly as a result.’ Indeed, Kohn shows that sticks are not that effective either at changing behavior; I advocate them to some degree because at least they can put the biggest violators in jail!

The Pear article on kickbacks, trying to describe what its supporters see as the good side of loosening restrictions on them, says: ‘‘Federal law generally prevents insurers and health care providers from offering free or discounted goods and services to Medicare and Medicaid patients if the gifts are likely to influence a patient’s choice of a particular provider. Hospital executives say the law creates potential problems when they want to offer social services, free meals, transportation vouchers or housing assistance to patients in the community. Likewise, drug companies say they want to provide financial assistance to Medicare patients who cannot afford their share of the bill for expensive medicines.’ First of all, this is not “likewise”; drug companies who want new customers (and fend off efforts to regulate prices) are different from a hospital or provider offering free or discounted services; extra benefits to attract patients (as opposed to, say, free lunches to attact doctors) are quite different,  provided that these are really free, and the cost is not passed on to Medicare or Medicaid!

There is, in fact, a difference between ‘coordinated care’ and ‘graft’.

Pear also writes ‘‘The Justice Department in April accused Insys Therapeutics of paying kickbacks to induce doctors to prescribe its powerful opioid painkiller for their patients. The company said in August that it had reached an agreement in principle to settle the case by paying the government $150 million. The line between patient assistance and marketing tactics is sometimes vague.’

Vague? This is not vague at all. Creating efficiencies to improve care to patients, and reduce costs, especially to patients, is fine. Kickbacks and graft are not.