Consumer Demand:
We Americans add fuel to the fire of out of control costs by insisting on having a CT or an MRI for chronic back pain when the indications are not present; the desire and the decision does not come from evidence-based-medicine but from anecdotal and media driven information. In general we insist upon–and providers cave into those demands to keep the peace–costly procedures because insurance or the government will pay. We demand cosmetic products and procedures and lifestyle health measures and demand that they be included in insurance packages; so, the financial burden can be shared. Without knowledge of the true costs, most Americans are willing to consume more and to allow the costs to escalate. Without personal visible consequences and controls that directly impact such consumers they will not stop. Employers paid 80% of health insurance premiums for their employees in the 1980s and 1990s which has declined to 70% today, but these contributions act to hide the true costs from the individual consumer. The costs are becoming staggering to employers, many of whom are opting out of providing such benefits, or now limit the number and quality of services to less attractive options, or hire more part-time (unfunded) employees; or some simply give up and go out of business and put their employees out of work–in ever increasing numbers.
We, The People, overuse medications, such as antibiotics and expensive pain killers, at our health and financial peril. Prescription drugs account for 10% of the national health expenditure. Doctors are weak in denying antibiotics for such things as viral infections when faced with a demanding, often angry, and unreasonable patients who take up an inordinate amount of “throughput” time.
Courts and Judicial System:
Courts and the judicial system are creating an ever-increasing burden for medical care in the form of the American penchant to sue—described by some attorneys as the poor man’s easiest way to win the lottery; There have been confiscatory rises in medical malpractice insurance rates of 250-400% for some specialties in the past decade–an astronomical rise compared to even the most liberal measurements of inflation. Some estimates suggest that as much as 40% of the total cost of medical care can be traced to defensive medicine. Fear of lawsuits is resulting in early retirements on the part of our most experienced physicians, and many providers opt not to engage in necessary but risk laden procedures for self-protection. The law of supply and demand applies here as elsewhere: scarcity breeds increased prices. Even if one accepts the conclusion by the Utah Medical Insurance Association (UMIA) that the most common cause in Utah for filing a malpractice suit is actual malpractice, the damage payments, especially for punitive damages, drive medical costs up seriously; and no plan to curb costs can ever fail to address tort issues. Perhaps the worst (and politically based) flaw in the PPACA is that it completely ignores the impact of tort issues or tort reform. It is my studied opinion—an opinion shared by many other physicians, attorneys, politicians, and health care companies—that the PPACA will never achieve its hoped for potential and may well fail on the tort reform issue alone.
Government Regulations and Programs:
Governmental regulations at all levels—laws, monitoring, and mandates—all carry a cost which in the end is passed on to the consumer. According to Dr. Blair, “It is estimated that the Health Insurance Portability and Accountability Act of 1996 (HIPAA) alone accounts for over $15 billion to manage and maintain.” Even with all of the regulations and gate keeping, government is inefficient and costly. Medicare lowers the fees paid to physicians every year until many physicians just give up and opt not to care for the elderly. Unless bills in Congress supporting pay cuts to physicians serving Medicare are regularly defeated, physicians will see a 10% decrease in their Medicare payments. Many care providers will simply bow to the inevitable and drop Medicare or leave medical practice altogether. We do not have enough physicians; we cannot produce enough more in the future to make a meaningful difference; and we are losing too many because of the craven political decision to short change health care providers. Some Medicare recipients across the United States are beginning to find it more and more difficult to find a physician. Despite that bit of penny pinching, Medicare is far from frugal. A non-Medicare recipient with chronic respiratory illness, for example, usually purchases the equipment at retail prices and pays about $100 a month for oxygen tanks with deliveries for three years–about $3,600. However, Medicare rents the equipment and oxygen for 3 years at a cost of around $8,280—a cost borne largely by American tax-payers. The cumulative cost for such equipment was $1.8 billion in 2006. During the same year the system put out $21 billion on pumps for disabled and elderly men to obtain erections. Medicare paid $450 for the equipment which is easily available online for $100. A walking cane can be purchased online for about $11, but Medicare pays $20. Another example of waste is $20 million which is incurred in the federal Vaccines for Children program by failure to refrigerate the vaccines properly (hundreds of thousands of doses). Beyond the financial waste, this forces large numbers of children to have their vaccinations a second time.
Attempts to correct these inequities have failed thus far due to industry lobbyists who also enlist the unpaid services of their elderly clients as co-lobbyists. Politicians cannot anger their Medicare constituents; that is one of the third rails of politics; so, nothing changes. Physicians’ groups, device manufacturers, insurance companies, and allied businesses, and vulnerable patients constitute a formidable lobbying bloc, and, as long as the present system exists, the lobbyists will prevail.
The United States health care system is capitalism and democracy in action and is as messy as those two entities can be. Services are duplicated; redundant and unnecessary tests are regularly performed. Physician shortages, especially in fields such as psychiatry and family practice, and critical nurse shortages drive wages up, and there is no end in sight. Dr. Blair informs us that in Utah 38% of physicians are over age 50 and many of them are looking to retirement from a profession that is no longer satisfying. In states with high litigation rates, that percent is even higher. A study involving 5,000 physicians was conducted by The Doctor’s Company revealed that 90% of those doctors would not recommend health care as a profession. (Bulletin of the American College of Surgeons, June, 2012). Commenting on that study , Paul H. Jordan, M.D., F.A.C.S., who graduated from medical school 58 years ago, reflected on his own experiences and asked the seminal question: “Is medicine still a good profession?” This elderly surgeon acknowledged the many impediments that exist to the enjoyment of a career in medicine, but was philosophical in his answer. The great advancements in medicine make this a golden era, not unlike many golden eras that preceded it, and that makes up for the drawbacks. Not all physicians are so sanguine. There is a deficit in the number of physicians in training to replace the physicians who are leaving. Among the things Dr. Jordan found to be detractions to a medical career are increased supervision by institutional review boards, expanded use of patient consent forms, overzealous peer review of manuscripts submitted to journals, and governmental regulations that interfere with patient care and physicians’ earnings. Workforce issues should not just be a concern for providers and their professional organizations.
Medications and the Pharmaceutical Industry:
Medications improve at a dramatic rate in the United States, and the costs escalate geometrically. Treatment of mental illness is a major driver of health care inflation and is second only to heart disease. Antidepressives among health care treatments contribute heavily to that cost inflation. According to the journal, Health Affairs in 2004, pharmacists filled more than $146 million worth of antidepressive SSRI medications alone.
Pharmaceutical companies pass on the costs of their research and development, governmental regulation costs, and advertising to We, The People. In 2007 medications were 11% of the cost of care, and that figure is expected to rise to 14% by 2010. Investors in pharmaceutical companies average profits of 19% per year. The pharmaceutical industry and all other sectors of the health care industry, except for physicians, receive yearly funding increases from the Medicare Economic Index, which was created to cover the cost of delivering medical care.
According to Dr. Elizabeth Whelan of the Business and Media Institute, consumer prices for prescribed pharmaceuticals increased at an annual rate of 2.3% over all; for branded products the rise was 3.4% per year. Pharmaceuticals are regularly listed as the nation’s most profitable industry by the annual May Forbes 500 ranking of top industries. The costs of producing medications are staggering. Before a new chemical can reach a pharmacy shelf, its company must proceed through an 11 year series of hoops required by the FDA, according to the Tufts University Center for the Study of Drug Development, to prove both efficacy and safety. The drug vetting process costs from $500 million to as much as $2 billion depending on the therapy or the developing firm, according to MarketWatch. The costs are factored with adjustment for inflation and when the losses for the many other chemicals that were tested and failed are considered. Consumer advocacy groups such as Public Citizen take exception to those estimates and state that the actual cost is more nearly $200 million.
Only one out of 5000 compounds discovered ever reaches a pharmacy shelf. A branded drug has a 10-15 year life, and it takes several years of sales build-up for even the eventually commercially successful drugs to reach full potential. Public Citizen puts the cost of compliance with FDA regulations at 29% of the start-up amount. The marketing costs are mind-boggling: drug companies spend around $19 billion in the US on promotions and advertising. They employ 100,000 sales representatives in the US to pursue 120,000 prescribers in the US. Drug companies also have significant cycles of loss—dry years. In 1993 Syntex, Merck, and Bristol-Meyer-Squibb (BMS) recorded 10,000 job losses Advertising costs per drug are astronomical—Prilosec, $4.19 billion and Prozac, $2.57 billion in 1993, for example. (Source-MM&M IMS America Business Watch, Top 200 drugs, Pharmacy Times.). The profits can be titanic: Pfizer’s Lipitor, the best-selling drug in the world, has brought in $12.9 billion for the company. Estimates of global spending for drugs vary depending upon whether the information is promulgated by an industry advocate or a critical citizens’ lobby. The low figure for 2006 was $600 billion, and the high figure $2.95 trillion. CEOs and other senior executives of the 10 largest manufacturers in 1999, the most recent year when full information was available, were paid salaries and bonuses ranging from $2.1 million (AMGEN) to $31.4 million (BMS) for the CEOs. The salaries were paltry in comparison to the unexercised stock option packages for the same executives: $104,506,000 (AMGEN) and $159,691,000 (BMS). The sweepstakes winner of the group of well-favored executives was the CEO of Warner-Lambert with unexercised stock options of $250,559,000.
Several advocacy groups that are critical of the pharmaceutical industry demand stringent price control policies. Drug companies insist that price controls would cripple innovation and research and development thereby delaying or failing the discovery of new “miracle drugs” and improvements in existing ones. The companies argue that limiting price increases to the inflation rate plus one percent would yield a $1.2 billion per year savings which would amount to a decrease in cost to the consumer of about seventy-five cents for a prescription. “Although 60% of Americans have no insurance coverage for drugs, for most the average out-of-pocket cost of pharmaceuticals is less than the cost of one year of cable television,” stated Robert Goldberg in 1993. It is a tricky balancing act to limit prices while preserving the capital markets and entrepreneurship of the pharmaceutical companies which produce the innovation that saves lives. Still, it is food for thought that more reasonable compensation for pharmaceutical executives and company stock investors and a substantial diminution in advertising expenditures would lessen the bite being suffered by American consumers. “A billion here, and a billion there can add up to real money,” as Senator Everett Dirksen once said of federal spending.
To be continued…
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Carl Douglass – Author
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