Second Rate System

excerpted from the book

Critical Condition

how health care in America became big business - and bad medicine

by Donald L. Bartlett and James B. Steele

Broadway Books, 2006, paper


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Over the last few decades, American health care has radically changed. A system that was largely not-for-profit has become a field where the profit motive and market forces affect every decision. Publicly held corporations answerable to stockholders decide which doctor you may see, how much medication you can take, whether you can be evaluated by a specialist, whether you qualify for a test, how long you stay in a hospital, how many therapy sessions-physical or psychiatric-you may attend. Patients wait months for appointments that once could be made in days. Their medical condition is evaluated by clerks with no medical training. Patients who are so sick that they meet the strict criteria for hospitalization are discharged before they are well, despite the protests of their doctors.

And these are the lucky ones-the ones who have health insurance. Beyond them are forty-four million others, their numbers growing, who do not. They are working Americans who can't afford to pay the premiums, or who live in an area where there are no providers, or who are viewed by insurers as high-risk liabilities. These are the people who don't seek help unless they are critically ill, who postpone a test or a surgical procedure until their condition is acute, or who, because they are embarrassed by their inability to pay, put off treatment until it's too late. Of these, 18,000 die every year.

Beyond the forty-four million are tens of millions more who are underinsured. They have marginal coverage. Faced with serious illness or injury, they would be wiped out. And beyond them are tens of millions more who have what they believe is high-quality health insurance, but who in fact would lose their life savings and be forced into bankruptcy if they or a family member came down with a debilitating disease or chronic condition.

American health care has become a lottery. If you work for a large company that provides generous benefits, you win; if you work for a small company or as an independent contractor, you lose. You may be working hard at a job important to society-as a teacher's aide or as an assistant at a daycare center or a nursing home-but that doesn't mean a thing when you get sick. In health care, equal treatment doesn't exist.

Politicians love to say that the United States has the best health care system in the world. In truth, it doesn't come close. Certainly, no one disputes that the nation has many talented, highly trained professionals who work with the latest equipment, who are knowledgeable and capable of delivering first-rate care. But what kind of system shuts out forty-four million Americans? 'What kind of system excludes people with illnesses beyond their control? 'What kind of system insures a husband but denies coverage to his wife? 'What kind of system forces people to choose between risking financial ruin and risking their lives?

Much of the turmoil is a direct result of a national policy to run health care like a business, a misguided notion promoted by Washington over the last two decades that the free market and for-profit health care would restrain costs and bring high-quality care to all. On both counts, the experiment has failed miserably. In the meantime, tens of billions of dollars-money that could have gone into patient care-has been drained from consumers and corporate subscribers and transferred to investors, executives, and others who have a stake in perpetuating this myth.

... the United States spends more on health care than any other nation-15.3 percent of gross domestic product in 2003. That's a greater percentage than Germany, France, Japan, Italy, Canada, and other developed societies spend to cover all their citizens.

American health care mediocre? Not if you believe the people in Washington. In June 2003, President George W. Bush told seniors in Miami: "We live in a great country that has got the best health care ) system in the world, and we need to keep it that way." That sounded much like former president Clinton, who, although he wanted to recast portions of the system, said February 2000: "We do have the best health care system in the world. .."

This is one of America's most enduring myths, that the United States has "world-class health care." It doesn't. To be sure, it does offer the very best of care to some folks. It does offer world-class high-tech surgery and some space-age medical procedures. But these benefit 2 or 3 percent of the population at most, along with the richest citizens of other countries who come here for the highly specialized treatment. Overall, isolated pockets of excellence aside, the system is second-rate when it comes to meeting basic day-in, day-out medical needs of the population at large.

Many countries around the world take far better care of their people, achieve better results from their health care systems, and do it all with far fewer dollars. In 2001, per capita health care spending in the United States amounted to $4,887. That was 75 percent more than the $2,792 that Canada spent. Yet Canadians can expect to live two and a half years longer than Americans. The Canadian life span at birth: 79.8 years. The American: 77.1 years. U.S. spending was 205 percent greater than Spain's, yet the Spanish can expect to live 2.1 years longer. As for the Japanese, with a life span of 80.9 years, the world's longest, they can expect to live nearly four years longer than Americans. This even though Japan's per capita spending on health care is only 41 percent of U.S. outlays. In sum, Americans pay for a Hummer but get a Ford Escort,

On this scale, the United States does not even rank in the top ten. But the statistics are even grimmer when life span is counted in years of healthy living. A comparatively new yardstick devised by the World Health Organization (WHO), this formula subtracts from traditional life expectancy the number of years spent in poor health, the years when individuals are unable to engage in all the activities their peers do, when they are confined to beds in nursing homes and must be fed by someone else. By this measure, the United States in 2002 ranked a distant 29th among the countries of the world, between Slovenia and Portugal.

At birth, American males can anticipate 67.2 healthy years of life. But the men in Sweden fare better. They get another 4.7 years, even though the country spends less than half per capita what the United States does on health care. Italian women enjoy 74.7 years of healthy living at birth, while for American women it's 3.4 fewer years. The women in San Marino, an enclave in central Italy that bills itself as the world's oldest republic, do even better. They can plan on 75.9 years of healthy living-or 4.6 years longer than American women. Men in Iceland may expect a healthy life for 72.1 years, or 4.9 years longer than American men. This even though Iceland's per capita spending on health care is little more than half that of the United States.

The United States also compares poorly with other industrialized countries in infant mortality, with 6.9 deaths per 1,000 live births in 2000. In Japan, it was 3.2; in Sweden, 3.4; in France, 4.6; in Denmark, 5.3.

And in a more revealing WHO global ranking of health care, the United States placed even farther down the list at No. 37-between Costa Rica and Slovenia, nowhere near the top five countries, France, Italy, San Marino, Andorra, and Malta.

How is this possible, especially since the United States devotes 15.3 percent of its gross domestic product to health care-double that of many countries, triple of some? The WHO survey considered two factors the U.S. government and health care community ignore: Does everyone have access? Is the cost distributed equitably across all of society? WHO reasoned that "a fairly financed health system ensures financial protection for everyone. Health systems can be unfair by either exposing people to large, unexpected costs they must pay on their own or by requiring those least able to pay for care to contribute more, proportionately, than wealthier citizens." On that score, Americans have little competition. "The United States and South Africa are seen as the only prominent examples of industrialized countries that do not have comprehensive social health insurance." :'~hereby rests the second most enduring American myth: that all citizens have access to the highest-quality care if they really need it.

In the late 1940s and early 1950s, President Harry S. Truman advocated a universal health care system to cover everyone. The medical establishment-principally the American Medical Association (AMA) opposed it with such intensity that the idea went nowhere. The AMA's position drew strong support from those groups who saw the Red Menace everywhere. It was the Cold War era, and any proposal for government involvement on such a large scale was thought surely to be part of a Communist plot, although oddly no one seemed to pin the label on the nation's mandatory and publicly financed education system. Truman's successor, President Dwight D. Eisenhower, also opposed universal coverage for much the same reason, even though he personally had received government-paid health care for most of his life through the military and the Veterans Administration. Nonetheless, President Eisenhower recognized the dilemma. "We know that the American people will not long be denied access to adequate medical facilities. And they should not be," Eisenhower said in 1954. "We cannot rest content knowing that modern health services are beyond the financial or physical reach of many millions of our fellow citizens. We must correct these defects."

But not too hurriedly. It wasn't until 1965 that President Lyndon B. Johnson pushed through legislation creating the two largest federal programs to deal with some of the uninsured: Medicare to cover everyone over the age of sixty-five and Medicaid for all those individuals and families living in poverty. Medicare was financed entirely by the federal government with a payroll tax applied equally on all employers and employees. Medicaid's costs were shared by the federal government, out of general tax revenue, and the states.

Whatever their purpose, prescription drugs in the United States cost from 30 percent to 60 percent more than the exact same medications sold anywhere else in the industrialized world. That's because governments elsewhere do not consider drugs to be just another consumer item, like cars and clothing, but rather products vital to the health of their people. Although the process differs, each country has a mechanism to restrain the sticker price of prescription drugs to levels considered fair and reasonable, and still allow pharmaceutical companies a profit. France, for example, permits companies to sell their drugs at any price. However, according to a congressional study, if pharmaceutical companies want "the national health care system to reimburse patients for the cost of the drugs, the companies must agree to a lower, negotiated price."

Congress on the other hand, allows pharmaceutical companies to charge whatever they want, which ends up making the medication too costly for millions of Americans. Congress even prohibits Medicare, the largest buyer of prescription drugs, from negotiating a price, thereby sticking taxpayers with the inflated tab. This would be like permitting Boeing to put whatever price tag it wanted on the latest jet fighter it was selling to the Air Force.

The premium prices Americans pay have made the pharmaceutical companies the country's most profitable industry. In 2002, New York-based Pfizer Inc., the world's largest drug company, reported a return on sales of 28.4 percent. That was two and a half times better than the 10.7 percent return of General Electric Company, perennially ranked as America's best-managed business. It was nearly nine times better than the 3.3 percent return of Wal-Mart Stores, the country's largest and best-run retailer. And it was nearly thirty-two times better than the 0.9 percent of General Motors Corporation, America's largest J car manufacturer...

After several years of double-digit increases in prices during the 1990s, resourceful older Americans living on fixed incomes took the matter into their own hands by traveling to Canada and Mexico, where they could purchase the same medications for half or less their cost in the United States. Through word of mouth, their numbers grew. Eventually, senior citizens organized bus pilgrimages, especially to Canadian cities along the U.S. border...

As more stories surfaced in newspapers and magazines, and eventually spread to radio and television, the number of people joining drug-buying expeditions to Canada increased dramatically, alarming the drug industry and the U.S. Food and Drug Administration (FDA). Both conveyed the impression that Canadian drugs were unsafe. FDA officials were quoted over and over as saying such purchases were illegal, sometimes hinting that American buyers might face federal prosecution. As FDA Commissioner Jane Henney put it in July 1999:

"Either the active ingredient is different or some of the other materials in that drug are different, and that could have consequences for one's health. So we have primarily legal concerns here, but also some public health concerns as well."

Or as William K. Hubbard, associate commissioner for policy and planning, described the danger: "Drugs in the United States are treated very strictly in terms of safety and quality. These drugs that come from Canada do not have the same safety profile." In fact, there is no evidence that Americans have been harmed by drugs purchased in Canada, and the FDA itself admits it knows of no such cases. Drugs sold in Canada are identical to medications on sale in U.S. pharmacies. More than anything, the FDA's dire warnings have served to help the drug industry maintain its huge profits.

... After Congress blocked efforts to legalize drug purchases from Canada in 2003, more than a dozen cash-strapped state and local governments announced plans to go it alone and buy the lower-priced Canadian drugs for Medicaid patients, their own employees, and prisoners. Among the defiant: California, Wisconsin, Minnesota, Vermont, New Hampshire, and Oregon.

The FDA countered with warnings of lawsuits and angry attacks on state and local officials pursuing the Canadian strategy. As always, the agency insisted it was concerned only with protecting American consumers. ABC-TV News told viewers: "The FDA has warned that getting drugs from Canada is illegal and insists that it cannot guarantee the safety of those drugs."

In the face of the FDA's threats, some states backed down. Some went ahead.

The drug companies ... threatened to shut off supplies to Canadian pharmacies if sales to Americans continued. If necessary, the industry was prepared to deprive sick Canadians of their medicine to keep prices higher in the States. In a "Dear Pharmacy Owner/Pharmacist" letter to every Canadian pharmacy, Pfizer Inc., whose inventory includes a half-dozen drugs that bring in more than one billion dollars a year each, asserted its "commitment to safeguarding the integrity of the pharmaceutical supply system and protecting the supply of Pfizer medicines for Canadians. . ." Then came a warning:

We also reaffirm that Pfizer products purchased by you may only be sold in Canada ... You may not at any time, either directly or indirectly, export out of Canada any Pfizer products ... Should Pfizer have reason to believe that you are in breach of its terms of sale, pending completion of any investigations it chooses to carry out, Pfizer reserves the right, in its sole discretion, to suspend or refuse further sales to you...

In July 2001, Health Canada, the FDA's Canadian counterpart, issued a warning about the antidepressant nefazodone, marketed under the trade name Serzone by the Bristol-Myers Squibb Company. Health Canada said the drug was causing liver damage that "resulted in hospitalization, liver transplantation, or death."

... In the fall of 2003, Health Canada again led the way. After meetings with regulators, Bristol-Myers agreed to pull Serzone from the Canadian market. The reason: Now there were fifty-one reports of Canadian patients who suffered liver damage while taking the drug. Two patients had to undergo liver transplants. One died.

Back in the States, Public Citizen Health Research Group, a leading consumer organization headed by Dr. Sidney M. Wolfe, continued to press the case against Serzone by filing a supplement to its original petition to ban the drug. "We found almost as many deaths from liver failure reported in the last fourteen months we examined as in the seven previous years (nine vs. eleven)," Public Citizen said.

The FDA would not be stampeded. The agency so obsessed with products coming out of Canadian pharmacies was more tolerant of a domestic drug company. It allowed Bristol-Myers to keep Serzone on the U.S. market-far and away its most lucrative-and the company agreed to advise doctors and other health care professionals of the new concerns. In a warning letter dated October 2, 2003, Bristol-Myers said that in some cases liver damage occurred "as early as a few weeks" after patients began taking the drug, and in other instances after up to three years of continuous use. The company acknowledged that "to date, no risk factor to predict patients who will develop irreversible liver failure with nefazodone has been identified. Also no clinical strategy, such as routine liver function tests, could be identified to reduce the risk of liver failure." Translation: There was no way of knowing whose liver would fail after taking the drug to ease anxieties and depression.

Canada was not alone in its concern. Turkey also banned the sale of Serzone. So, too, did Spain. Sensing a trend, Bristol-Myers yanked it voluntarily across Europe, citing poor sales as the reason. As for the FDA, it continued to insist that U.S. consumers were adequately protected by a warning label advising them-if they read the fine print-that some would require a liver transplant and some would die. Perhaps most remarkable, patients were risking transplants and death for a drug whose benefits were at best questionable. In clinical trials, people who took placebos-in effect, sugar pills-reported about the same improvement as those who took Serzone.

In any case, with sales falling and the number of lawsuits by consumers claiming they were harmed by the drug rising, Bristol-Myers quietly removed Serzone from the U.S. market in June 2004.

Does it make any difference if Canadian authorities issue drug warnings before the FDA? It certainly did in the case of the drug Cordarone. Just ask Kenneth Krutz of Chicago, who in 1988 retired after more than four decades from his job as a plant superintendent at Acra Electric Corporation, a manufacturer of custom heating elements in Schiller Park, Illinois. In the years that followed, Krutz and his wife traveled and spent their newfound leisure time with their five children, eleven grandchildren, and two great-grandchildren. Active all his life, he continued to work on home-renovation projects, fish, and build miniature airplanes.

In February 1997, the seventy-three-year-old Krutz was in generally good health, except for an irregular heartbeat treated with medication. That month, his cardiologist started him on Cordarone. Within weeks, Krutz began to lose vision in both eyes. By June, he was legally blind. That same month, Wyeth-Ayerst Laboratories, Cordarone's maker, sent a letter to health care professionals advising of an expanded warning label:

LOSS OF VISION. Cases of optic neuropathy and/or optic neuritis, usually resulting in visual impairment, have been reported in patients treated with amiodarone [Cordarone's chemical name]. In some cases, visual impairment has progressed to permanent blindness. Optic neuropathy and/or neuritis may occur at any time following initiation of therapy.

For Krutz, the warning came too late. If he had lived in Canada, things might have turned out differently. Years earlier, Wyeth's parent, American Home Products, had issued a similar warning on Cordarone sold in that country. Wyeth's decision not to issue the same warning to Americans at an earlier time "was driven, at least in part, by financial concerns related to its ability to market the product," according to a court opinion. The court found that Wyeth "deliberately placed misleading information on its packaging in order to preserve sales."

Despite the Canadian action, the FDA did nothing to require a similar warning for the U.S. market. Instead, it merely directed Wyeth to stop promoting Cordarone for general usage, which was far beyond what it had originally been approved for in 1985-"a drug of last resort" to be given only to seriously ill patients. Wyeth's belated letter to physicians informing them that some patients who took Cordarone were going blind was sent four months after a Multnomah County, Oregon, jury awarded $21.9 million in compensatory and punitive damages to Douglas Axen, a former social studies teacher who also lost his eyesight after taking the drug. Wyeth appealed the jury verdict but lost all the way to the U.S. Supreme Court. Krutz also sued, and Wyeth settled for $10 million before going to trial, although the company continued to maintain that its drug did not cause the blindness.

To protect its interests and expand its influence, the health care industrial complex has done what all successful special interests do: It's become a big donor and a high-powered lobby in Washington. In the last fifteen years, HMOs, insurers, pharmaceutical companies, hospital corporations, physicians, and other segments of the industry contributed $479 million to political campaigns-more than the energy industry ($315 million), commercial banks ($133 million), and big tobacco ($52 million). More telling is how much the health care industry spends on lobbying. It invests more than any other industry except one, according to the nonpartisan Center for Responsive Politics. From 1997 to 2000, the most recent year for which complete data is available, the industry spent $734 million lobbying Congress and the executive branch. Only the finance, insurance, and real estate lobby exceeded that amount in the same period, with a total of $823 million. In contrast, the defense industry spent $211 million-less than one-third of the health care expenditure.

... the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which might more aptly be called the Pharmaceutical Company and Health Care Industry Welfare Act. In the fall of that year, when Congress enacted a Medicare prescription drug benefit for the first time, the White House point man on the half-trillion-dollar-plus taxpayer-funded program was Thomas A. Scully, administrator for the federal Centers for Medicare and Medicaid Services (CMS).

Before he became Medicare's top official, Scully was president of the Federation of American Hospitals, a 1,700-member trade association of for-profit hospitals "dedicated to a market-driven philosophy." Its business plan, it should be noted, depends heavily on federal tax dollars for Medicare patients.

Scully helped craft the final version of the Medicare bill, which blocked imports of low-cost drugs from Canada, a top priority of pharmaceutical companies. Also, bowing to the wishes of other industry lobbyists, the act provided billions of dollars in tax subsidies to HMOs, private insurers, and corporations to provide drug coverage. Thus, the congressional supporters of market-driven medicine were giving billions of tax dollars to private business to pretend the market system was functioning.

At the same time Scully represented taxpayers and the government, he negotiated to go back to work for the industry that would benefit from the bill he was overseeing. Scully's potential employers, according to an internal Health and Human Services Department (HHS) document, were "law firms, consulting firms, and health care investment firms" that had "substantial interests pending before the department."

Ordinarily, that would suggest a conflict of interest, but in the spring of 2003, before the Medicare bill negotiations got under way, Scully sought an official waiver from government ethics law from his boss, HHS Secretary Tommy G. Thompson. In an internal decision, Thompson ruled that Scully's job search in the private sector was not "likely to affect the integrity of the services which the government may expect from him."

Ten days after the bill was signed, Scully returned to the private sector. He left government to join the Washington office of an Atlanta law firm, Alston & Bird, and the investment banking firm of Welsh, Carson, Anderson & Stowe. Both had a long list of clients and interests in health care, including pharmaceutical companies, HMOs, and trade groups.

As it turned out, the Medicare drug law that Scully helped mold will be much more lucrative for the industry and much more costly to taxpayers than even its harshest critics realized. The Bush administration sold the legislation to skeptical lawmakers on the basis that it would cost taxpayers about $400 billion over ten years. The actual estimate was closer to $550 billion. But when Medicare's chief actuary, Richard Foster, sought to convey the real number to lawmakers while they weighed the bill, he was silenced by Scully, his boss.

Foster later told the House Ways and Means Committee that Scully "made it clear that we were not [to] respond directly to requests from Congress anymore but instead we were to give any such response to him and he would decide what to do with it." When Scully did not send the estimates to the Hill, Foster was upset. He told lawmakers later: "From a professional standpoint, I felt and believe there is an obligation, on behalf of the public, for my office to give you the best advice possible when requested." Foster said he thought about ignoring Scully's directive and sending the data to Congress, a move that he knew would almost certainly get him fired. He also considered resigning, but his staff talked him out of it, and he decided he would be "better off working inside the system."

After Congress passed the bill-the House did so by the narrowest of votes, 220 to 215-the Bush administration revised its cost estimate. The new figure was $534 billion-35 percent higher than the amount floated to win support for the program, and remarkably close to the estimates of Foster and his actuarial colleagues at Medicare. This meant the Medicare bill, the single largest corporate welfare bill in Congress's history, would almost certainly never have passed if lawmakers had known how much it was really going to cost.

Of course, Congress could repeal the act. But lawmakers would need to get it by Senate Majority Leader Bill Frist, the Tennessee Republican who played a pivotal role in pushing the Medicare bill through in the first place. The health care industry has no more ardent supporter in Washington than Frist, a heart surgeon and staunch advocate of free-market medicine. His father, Thomas F. Frist Sr., and his brother, Thomas F Frist Jr., founded what has become HCA Inc., the nation's largest hospital chain with nearly 200 hospitals and revenue of $21.8 billion in 2003. His brother held a variety of top HCA posts over the years and still is the single largest individual stockholder, with seventeen million shares. And it was the hospital chain that allowed Senator Frist to start his career as a millionaire, with many of the millions coming from a business built on the solid foundation of taxpayer money. Over the years, HCA derived about one-third of its revenue from the federal government's Medicare program and the joint state-federal Medicaid program.

In addition to owning the largest number of hospitals, HCA also can lay claim to one other distinction, albeit a dubious one. The company has defrauded Medicare, Medicaid, and TRICARE-the military's health care program-of more money than any other health care provider in America, no small achievement in a field where the competition is intense. In June 2003, HCA agreed to pay $631 million in civil penalties and damages growing out of false claims to the government health care programs. That came on top of $840 million in criminal fines, civil restitution, and penalties the company paid in 2000. That same year, the company agreed to pay $250 million to settle other Medicare overbilling claims. In all, HCA has paid $1.7 billion as a result of its fraudulent practices.

Critical Condition

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