Now what? Hurdles for CBO and the governors
The state waivers will make it a lot harder to be sure what comes next.
Steven Brill is a contributor to Axios. He's a lawyer and journalist-entrepreneur who focuses on health care costs. His most recent book is "America's Bitter Pill."
Steve Cannon / AP
Here's what we ought to be looking for:
CBO has a different job: It can't be useful if it does its usual scoring, because the number of people likely to lose what it defines as comprehensive insurance depends wholly on which states, if any, opt to seek waivers to allow insurers to underwrite for pre-existing conditions and/or cut back on essential benefits. (The waivers were created by Rep. Tom MacArthur's changes to the first bill.)
Instead, it should provide a series of scores based on hypothetical scenarios of which states seek the waiver. For example, one score would guess that Texas, Florida, and other southern states would seek a waiver, perhaps by assuming that all those that opted not to expand Medicaid would allow the waiver.
Then it could project how many more people nationally would lose comprehensive insurance because they cannot afford the rates to be charged in the high risk pools, versus how many more healthy people would opt to get insurance because the rates in the regular pool get lower as a result of the sick being kicked out.
That would then also allow CBO to project how much lower those non-high-risk rates would be.
A second score would assume that no state opts to allow waivers (because the political pressure on governors not to pull the trigger — both from voters and the state's hospitals and doctors — is likely to be so strong).
A third score might assume that just the most conservative governors — perhaps Greg Abbott in Texas and Rick Scott in Florida — seek waivers.
The CBO faced a similar dilemma in July 2012, after the Supreme Court ruled that states could opt out of expanding Medicaid. In reissuing an estimate of how many people would now be covered by Medicaid and what it could cost, CBO declined to sketch multiple scenarios, or to predict which states would do what.
Instead the auditors vaguely cited "many factors that states are likely to take into account," and projected that only one third of the Medicaid-eligible population would end up being fully covered, half would end up being partially covered, and only a sixth would not get coverage at all.
This time, a state-by-state projection seems doable because the "factors" and the decision are so binary.
Besides, the CBO's post-Supreme Court estimate was simply an update to a law already passed, not guidance for how Congress should vote. They need to do better this time. If CBO doesn't do that multi-tiered estimate, the Kaiser Family Foundation or some other non-partisan group ought to.
Which reminds me: Why aren't reporters going state by state to see which governors, if any, will touch the new third rail of politics — eliminating the pre-existing condition restriction?
Which, in turn, demonstrates the illogic of the explanation some Republicans gave for switching their positions and voting for the bill because, they said, they were now satisfied that it would lower premiums and deductibles for most by putting those with pre-existing conditions into the high risk pools.
Does Republican John Faso of New York really think Democratic Gov. Andrew Cuomo is going to seek a waiver? If not, how does the new bill lower premiums and deductibles? Same question for New Jersey's Rodney Frelinghuysen. Did he switch his position because he thinks Chris Christie, who expanded Medicaid, is going to seek a waiver?
Mercy Health via YouTube
I owe Norman Roth an apology. Last week I wrote that that the $2.9 million that Greenwich Hospital paid him for running the small southern Connecticut unit of the Yale New Haven Health System — which amounted to $56.40 for every night someone spent in his hospital — was the highest pay per patient day of any hospital CEO I had ever seen.
Well, it was until a disgruntled employee of the Mercy Health System, based in Janesville, Wisconsin, wrote to tell me about Mercy CEO Javon Bea. His $8,044,000 earnings for the fiscal year ending June 30, 2015 (which covers the latest Mercy report on file with the IRS) to run the mid-sized Mercy system amounted to a whopping $72.02 per patient day.
Bea declined to be interviewed, but Mercy's spokesperson Barb Bortner said the per patient day metric is not a good measure because "patient days really mean nothing these days. We do so much more than that."
Which is true. This metric has its limits, but as I explained in the earlier article, it does seem to be a good relative measure for comparing the scope and responsibilities of health system CEOs.
Another often-suggested measure — looking at CEO pay as a percent of the system's revenue — would also make Bea a standout. Chief executives at health systems with multiples of Mercy's revenue, such as the Cleveland Clinic, Trinity Health, New York Presbyterian, or the Mayo Clinic are paid significantly less than Bea. However, I hesitated to use revenue as a measure because people running non-profit organizations are supposed to be in the business of providing public service, not maximizing revenue.
Bea makes more than 35 times as much as Janesville's most prominent non-profit leader, House Speaker Paul Ryan.
Bea's earnings have occasionally been the subject of scrutiny in local newspapers. In 2011 he assured the Janesville Gazette that his then-$3 million payday "has no effect on healthcare costs," and noted that "I've taken Mercy's gross revenues from $33 million to over $1 billion."
So for now, Mr. Roth of Greenwich drops to number two and Javon Bea is our champion — unless another reader chimes in.
Norman Roth has a great job. He's the CEO of the relatively small Greenwich Hospital in southern Connecticut, and for each night patients stayed at his hospital in 2015, he got paid $56.40.
That's the most extreme case I've seen in my years of writing about the health care economy, where executives are paid far more than they are in just about any other industry. But it's hardly the only case of sky-high hospital CEO salaries. And it's a good reminder that the debate over the future of Obamacare has to do with insurance to cover the costs of an industry that operates in a kind of alternate universe compared to the rest of the American economy.
That's why, to help Axios kick off its coverage of the health care economy, I've done the first research that allows us to see how much the CEOs of the biggest hospital systems got paid for each day a patient spends in their hospital. It's a new benchmark that lets us see not just how much they're making, but how much they're costing their patients.
Data: Patient Days: American Hospital Directory; CEO Salaries: latest publicly available IRS form 990 filed by each hospital. Note: Adventist Health System (FL), Mercy, Intermountain, Sutter and UnityPoint, have different CEOs as of January 2017. (These numbers are for 2015.) Chart: Andrew Witherspoon, Alex Duner / Axios
Greenwich Hospital is part of the Yale New Haven Health System. Although it's officially "non-profit," it's actually highly profitable.
Here's what I found in the tax-exempt hospital's latest filing with the IRS for the fiscal year ending September 2015:
(Roth actually was CEO only for the last nine months of the fiscal year 2015, which ended in September. We're assuming his salary didn't increase after that.)
Another way to look at Roth's earnings: It was more than twice the $1,187,000 paid to Peter Salovey, the president of Yale University, which is affiliated with Yale New Haven Health. (Salovey's salary reflects a fiscal year ending in June 2015.)
Salovey is responsible for an organization that has more than 12,000 students spread across its college, graduate schools, research centers and foreign study programs. The university had roughly 10 times the revenue of Greenwich Hospital — and 43% more than the entire Yale New Haven Health System.
Roth declined to be interviewed. Dana Marnane, the hospital's vice president for public relations, said that Roth's earnings in the report for 2015 fiscal year were "inflated" by a "big chunk" of longevity bonuses and deferred compensation. But many CEOs enjoy those same bonuses, which is why the IRS, and the SEC for publicly-held corporations, require disclosure of total annual compensation.
Marnane also declined to put the "big chunk" in perspective by revealing what Roth's total earnings were for 2016, which does not yet have to be publicly reported. In the year before Roth took the job, his predecessor earned $1,421,000, or $27.51 for every night someone stayed in his hospital, which is still the highest per-patient-day payout I have ever seen other than Roth's.
I first noticed Roth's outsized pay when I started looking at the alternate universe that is the American health care economy, in which everyone from executives to equipment sales people to PR teams gets paid much more than those in other sectors for jobs of seemingly commensurate responsibility.
For example, as at Yale, most major university presidents, their chief fundraising officers, and other executives -- who work in a non-profit sector also not known for reining in executive salaries to keep fees down -- are paid substantially less than chief executives and other key executives at the hospital they are affiliated with.
The exceptions are those who actually provide the health care. In 2015, physician incomes increased just 3.1% at the same time that hospital CEO salaries increased an average of 8.2%, according to the trade publication Modern Healthcare.
How we did this study: So I've put together a chart that I've always wanted to see. I've merged data about hospital operations, including patient beds and total patient days, from the American Hospital Directory with information filed with the IRS on what non-profit hospitals pay their bosses. The result is a list of the reported annual payouts to the CEOs of the 20 largest hospital systems (ranked by number of hospitals in their systems) divided by the annual number of patient days recorded at each hospital.
In other words, we can see how much the CEOs of the biggest hospital systems got paid for each day a patient spent in their hospitals. It's a good way to compare the relative scope of responsibilities of each CEO, because it's basically a measure of the number of patients served in each hospital and the extent of that service.
You'll see that the numbers for the big hospital systems vary widely, although none match Mr. Roth's payout.
The sweepstakes winner among the CEOs of the 20 largest hospital systems is Patrick Fry, of giant Northern California-based Sutter Health. He was paid $6.88 per patient day.
That's multiples less than Roth's $56.40, which reflects the fact that Fry's organization served so many more patients — it provided 18 times as many patient days. But it's well above the average or median for the CEOs of the top 20.
Fry retired as CEO at the end of 2015. Sutter spokeswoman Kami Lloyd declined to tell me how he could be reached for comment, or to make the new CEO, Sarah Krevans, available.
Another spokesperson, Karen Garner, pointed out that some of Fry's pay included "one-time payments associated with his retirement," and added, "The use of patient days, alone, is not a solid basis for comparison….[W]e are working hard to reduce patient days."
She's right. No metric provides a perfect measure for comparing CEO responsibilities. But total patient days provided in a year seems to be a good way to compare the relative scope of responsibilities of each CEO because it's basically a measure of the number of patients served in each hospital and the extent of that service.
Still, it doesn't account for the fact that all of these hospital systems have vast and rapidly expanding outpatient services and other operations, including walk-in clinics, labs, and physician practices. To the extent that some systems do relatively more outpatient work than others, using patient days will yield a skewed result.
Indeed, a CEO at a hospital that is effective in economizing by substituting outpatient treatments for overnight admissions, or by getting patients released sooner, will be "penalized" by these measures.
Nonetheless, I think it's the best shorthand relative measure available.
A second caveat: The years in this chart often do not match exactly because the American Hospital Directory patient day data is typically more current (for 2015) than the CEO salary filings. Because of lags in the hospitals' public filings with the IRS, many of the salaries are for 2014 (or in the case of Dignity Health, 2013), or for a fiscal year that is midway through 2015.
But, if anything, that lag in salary data probably understates the chief executives' pay for each patient day, because he or she would likely have gotten a raise the following year.
Sensitive subject: In many places, the CEO of these tax-exempt non-profits is the highest paid executive in town. And as hospital CEO salaries have continued to rise, they have become a touchy subject even for those whose relative earnings are the least generous.
One example: Richard Gilfillan, who runs Livonia, Michigan-based Trinity Health, earns 75 cents per patient day – the lowest ranking in the Top 20 hospitals. Yet Trinity spokeswoman Eve Pidgeon said her boss would also decline comment – although she added that his reaction when she told him he was lowest on the totem pole was, "That's great."
The other hospitals: It's also worth a look at a few of the hospitals that aren't in the top 20 — including Greenwich, since Roth's pay is so high, and some of the country's most well-known medical centers.
Data: Patient Days: American Hospital Directory; CEO Salaries: latest publicly available IRS form 990 filed by each hospital. Chart: Andrew Witherspoon, Alex Duner / Axios
Again, the payouts vary widely.
Despite these inconsistencies, the boards of major hospitals and hospital systems always offer the same explanation in their IRS filing of how they determine executive compensation. They say they examine a variety of financial and quality of care metrics, which are then used by one of the small network of compensation consulting firms that work for hospitals to recommend salaries by comparing the executive to his or her peer group. It's always about the peer group.
Yet, as Berkshire Hathaway's Warren Buffet has frequently complained, compensation consultants more often seem to be used to rationalize a pre-ordained result by cherry-picking the right peer group.
How else could these wide variations be explained?
Why would John Noseworthy, who runs the acclaimed Mayo Clinic Health System, be paid only $3.01 per patient day, while Steven Sayfer, who runs the Bronx-based Montefiore system gets $7.14? And why does Toby Cosgrove, the revered CEO of the Cleveland Clinic, get $4.26 while Thomas Priselac of Los Angeles-based Cedars Sinai earns $13.99?
Are Noseworthy and Cosgrove not Priselac's peers?
Through a spokesperson, Priselac declined an interview request. Cedars' only explanation for the huge variation in salaries: After being told about where her boss ranked compared to Noseworthy and Cosgrove, spokesperson Sally Stewart said the hospital board determines compensation based on "a rigorous review of each position's responsibilities and comparisons with other organizations for positions with similar responsibilities" and that "this review goes well beyond a comparison of in-patient days."
As I wrote yesterday, the drug industry is likely soon to be free of its restrictions on off-label promotions. But it's actually looking at a bigger prize than just sending doctors dense medical journal articles about the potential benefits of off-label uses. It wants to be able to express opinions about its drugs — to doctors and even consumers — and have them be protected as free speech.
If that happens, experts say, watch out — because that gets rid of any incentive to do safety or effectiveness studies at all.
So far, the drug and device industry have been careful to assure skeptics that they only want the freedom to communicate "truthful" or "non-misleading" data-heavy information. They want to send it to doctors and to the insurance companies and pharmacy benefit managers that need the information to decide whether a drug should be covered.
But information directed just at doctors or other professionals is not a limit that their lawyers have conceded in claiming their First Amendment rights.
At a November hearing held by the Food and Drug Administration, Coleen Klasmeier, a lawyer representing a coalition of drug and device makers called the Medical Information Working Group, said that information about the off-label uses of drugs could also be given to consumers through the kinds of ads we now see on television and in magazines. "If it's truthful, then the constitution is agnostic as to audience," she declared.
"What we can do legally is not necessarily what responsible drug companies will do," Klasmeier told me yesterday. "Responsible, research-based drug companies are not looking to eviscerate the FDA."
Perhaps, but Klasmeier conceded that some in the industry could head down that path. "Could some small player, do it? Sure," she said.
In fact, even unambiguously truthful is not necessarily a requirement. Industry lawyers have also argued that if their clients' opinion is that a drug may be effective for an off-label use, they should be allowed to communicate it.
In fact, industry lawyers fighting the restrictions argue that even if the FDA does not believe the drug is effective, the company's expression of a contrary opinion would be constitutionally protected as long as the statement is made in good faith and does not include any incorrect facts.
Martin Redish, a professor at Northwestern Law School, was the first legal scholar to make the case for corporate First Amendment rights. Now a revered godfather of corporate free speech rights whose initially-obscure 1971 article in the George Washington University Law Review is almost always cited whenever these issues are litigated, Professor Redish works on the side for drug companies through an affiliation with Sidley & Austin, the same firm where Klasmeier is a partner.
"Corporate speech should have the same protection as individual speech; you should be allowed to express your opinion," Redish told me recently. Or, as he wrote in a 2011 article, co-authored by Klasmeier, in the American Journal of Law and Medicine: "If the First Amendment means anything, it prohibits government from suppressing one side of a political debate because it fears that the public might be convinced to make 'the wrong' choice."
Joshua Sharfstein, a former FDA Principal Deputy Commissioner and Maryland Secretary of Health, fears what will happen if lay people are given that choice.
At the same post-election FDA hearing where Klasmeier spoke, Sharfstein, now associate dean at Johns Hopkins School of Public Health, reminded his former colleagues of the "Thalidomide era" that preceded the current rules and pleaded for caution. (Thalidomide is the European-made sedative and morning sickness drug that caused horrible birth defects in the late 1950's.)
"Off-label promotion," he argued, "reduces the incentives for research to know what really works. If companies can get products sold without ever doing the definitive studies, everybody loses."
Last fall, the FDA said any written comments on the issue had to be submitted by Jan. 9. But in January, the deadline was extended until April 9. By that time it's likely, according to a drug industry lawyer who consulted with a member of the Trump transition team, that a wholesale pullback on the restrictions will be in the works, if it hasn't been announced already.
Robert Zirkelbach, a spokesman for the Pharmaceutical Research and Manufacturers of America, declined to comment on what specifically his group is doing to advance the cause — but he acknowledged that pulling back the regulations is part of the lobbying group's agenda.
"As the move towards a value-driven health care system accelerates, patients, caregivers, health care professionals and insurers need more information about the safety, effectiveness and full value of new medicines," he said. "But federal regulations governing information-sharing about medicines have not kept up with this new reality."
Unlike fighting off Medicare price negotiations or Canadian imports, this may be one area where Zirkelbach and PhRMA can relax. With the coming of a Trump Supreme Court appointee likely to support the trend toward corporate free speech and a new business-friendly FDA commissioner, it's clear that they only have to let another "new reality" run its course.
The pharmaceutical industry has been fighting for years to end restrictions on how they can market drugs for off-label uses — and now, under President Trump, the end of those restrictions is a near-certainty.
That's partly because Trump is sure to nominate a business-friendly replacement for Supreme Court Associate Justice Antonin Scalia, and partly because of the long-standing support for off-label marketing by Scott Gottlieb, the new president's most likely choice to run the Food and Drug Administration. Read on for more details.
The last decade has seen eight of the 10 major drug companies pay billions in civil settlements and criminal plea bargains for violating restrictions on off-label marketing — promoting drugs for uses not approved by the FDA. Federal officials at the Department of Health and Human Services, the FDA, and the Justice Department in both the George W. Bush and Obama administrations have regarded these violations as major white collar crimes that endangered or even killed tens of thousands of people.
But even before Trump's election, a series of court decisions made it increasingly uncertain that these rules would continue to be enforced.
Those court decisions have been part of a trend toward granting corporations the same First Amendment rights as individuals, thereby casting doubt on the viability of a variety of restrictions on corporate speech. From barring spending on political advocacy (Citizens United) to restricting billboards to limiting the collection and sale of drug prescription data, the First Amendment has become an unlikely go-to weapon for corporations fighting regulation.
Where the rules came from: The regulations date to 1962, when the FDA was beefed up and given the broad powers it has today to vet and approve drugs. After a laborious series of tests and clinical trials, a drug can be marketed only with an FDA-approved label — a dense document that tells doctors what a drug is supposed to be used for, what side effects to look out for, and what the appropriate doses are.
The stringent approval and labeling process was pushed by Senator Estes Kefauver, a Tennessee Democrat. As I recounted in a series I wrote for the Huffington Post in 2015 about the disastrous effects of Johnson & Johnson's off-label promotion of the anti-psychotic drug Risperdal to young boys and the elderly, Kefauver worried that once a drug was approved for any reason, "the sky would be the limit and extreme claims of any kind could be made" about the drug's safety and effectiveness.
In other words, allowing off-label promotion would undermine the balance of benefits versus risks that the new law required the FDA to weigh. A drug might be worth the risk of significant side effects if it helped alleviate a schizophrenic's hallucinations or urge to commit suicide. But it might not be worth those risks if it was used to treat a restless nursing home patient or a child acting up in school.
Moreover, if the drug companies were not required to get a labeling change from the FDA before selling a product more widely, there would be little incentive to undertake the clinical studies necessary to test the safety of the drug when deployed for those new uses. Why test whether the drug is safe for children if you can market it to children anyway?
However, the FDA has no authority to regulate how doctors practice, including what drugs they prescribe. And the drug companies argue, persuasively, that prescribing drugs for off-label uses is not only widespread but regularly alleviates illness and saves lives.
So, if, as has frequently been the case, a drug approved to fight one kind of cancer seems to work against a different kind, why shouldn't the drug companies be able to communicate accurate information about that quickly to doctors and insurance companies and even consumers, rather than await a years-long new approval process? Wouldn't that be in the best interests of patients?
Besides, doesn't the First Amendment guarantee the right not only of the drug companies to speak, but of doctors and patients to receive this important information?
Obama dodges the fight: In the last two years of the Obama Administration, lawyers at the Department of Health and Human Services and the FDA deliberately avoided testing restrictions on off-label promotion in court, even though key Obama officials and lawyers strongly believed in the need to restrict off-label promotions.Two key points where they could have fought and didn't:
"Through all of last year, we figured we would wait 'til Merrick Garland or a Hillary [Clinton] appointee got there and then we would pick our case," says a key lawyer involved in the Obama administration's deliberations, referring to President Obama's pick to replace Scalia. "Now, of course, that road is blocked. I can't see how these regulations survive."
FDA under attack: Through the summer and fall of last year, the FDA engaged in a holding action of sorts, by declaring that it was considering a loosening of some of its restrictions, as it had done with the cholesterol drug. The agency even scheduled a two-day hearing at headquarters -- that began, ironically, the morning after Election Day -- to solicit comments from industry representatives and from those who opposed the industry's push for a free rein.
But by then it was clear to the industry lawyers who were there that Robert Califf, Obama's FDA commissioner, didn't matter. With a Scalia-like replacement now likely on the way, freedom from the FDA's restrictions seemed a foregone conclusion.
In fact, although lawyers who represent clients before the FDA are typically measured in expressing any disagreement with their all-powerful regulators, by mid-morning the gloves were off.
"In failing to address or even mention First or Fifth Amendment requirements, the hearing notice itself suggest that the agency does not appreciate or may be unwilling to accept the limits imposed by the constitution," Kelli Coombs, a lawyer representing a coalition of drug and device makers called the Medical Information Working Group, told Califf and other FDA senior officials assembled in the auditorium.
The FDA, Coombs said, doesn't get to decide what speech is OK and what isn't: "That is not how the constitution works."
Gottlieb sides with the drug industry: The man now thought most likely to take Califf's job is Gottlieb, a doctor and entrepreneur who is a resident fellow at the American Enterprise Institute. He has a long history of speaking out against the off-label promotion restrictions and the way the government had forced the drug makers to fork over billions in settlements.
As early as 2008, Gottlieb wrote this in an AEI white paper: "Those who pursue a rigid adherence to restrictions on the exchange of off-label information, and who fail to recognize that the sharing of scientific evidence can sometimes have important public health benefits, are guilty of pursuing a rigid standard that does not take measure of the consequences."
Then, in 2012, after asserting that "A fear of investigation has put many drug makers on the extreme defensive," Gottlieb wrote, "The restrictions on off-label use are premised on a belief that doctors will be misled by the scientific information. In highly specialized fields in which communication concerns truthful, non-misleading scientific material, physicians should be trusted to properly weigh a wide variety of information."The other FDA candidate, venture capitalist Jim O'Neill, hasn't made his views clear on off-label marketing. But given what he has said about loosening the rules for FDA approval of new drugs, it's hard to be believe he'd insist on keeping the off-label marketing restrictions.
J. Scott Applewhite/AP
If Health and Human Services nominee Tom Price survives the conflict of interest and insider trading charges swirling around him as his confirmation hearings start today, he will soon have the power to eliminate the Obama administration's cost-savings initiatives that have been bitterly opposed by the most powerful players in the health care industry.
Why this will happen and what it means:
Although Price declined through a spokesperson to say whether he will scrap the initiatives, his record as a Republican congressman from Georgia makes it clear that he'll do so quickly. In fact, the Obama administration already ended one program because, according to one administration official, it was obvious Price was going to kill it anyway. More details on the scope of the program and what will end below.
What's going to be thrown out: The cost-related experiments, or pilot projects, that he can now kill are housed in HHS's Center for Medicare and Medicaid Innovation, or CMMI. Lately, outgoing HHS secretary Sylvia Mathews Burwell has been initiating them with a vengeance.
One of those pilot projects is anything but tentative, small or voluntary. And it goes to the heart of Price's old job as an orthopedic surgeon from the Atlanta suburbs: It requires hospitals in 67 metropolitan areas (including New York and Los Angeles, but not Atlanta) to change the way they can charge Medicare for hip and knee replacements.
That's the experiment that has been in the news lately because Price tried to block it after buying stock in one of the leading manufacturers of replacement hips and knees.
Under the pilot plan, initiated last April, Medicare will pay hospitals one flat fee for the entire "episode of care" -- the cost of the artificial knee or hip itself, the surgery, the lab work, the hospital stay, even all care up to 90 days following the procedure.
That kind of payment structure — called "bundled payments" — has long been the mantra of health care reformers. Everyone involved in health care agrees that the old fee-for-service system — paying for every single thing doctors or hospital do, let alone any and all devices they decide to use — provides the incentive for them to provide more care, not necessarily better care.
Everyone agrees, that is, except the hospitals and doctors and other providers, for whom fee for service works out just fine.
Joint replacements are an especially rich target. Medicare pays $7 billion annually for about 400,000 such procedures, and the prices, which vary radically and irrationally across the country, are consistently multiples higher than they are in any other country.
Worse for the replacement industry: Medicare often provides a pathway for private insurers to push for their own cost-cutting reforms, and America spends $20 billion overall on artificial knees and hips, nearly double what Hollywood takes in at the box office.
Another major CMMI pilot project, which was supposed to start in 2018, would use the same kind of bundled payments for the treatment of heart attack or coronary bypass patients. With cardiac care costing $300 billion a year, this is a big deal.
Perhaps the most controversial announced pilot was one for drugs, mostly to treat cancer, administered at hospitals and doctors offices. It would have covered 50% of the country and threatened the business model of the powerful pharmaceutical industry.
This is the one that Burwell's team killed in mid-December in a clear act of euthanasia. It made no sense to keep working on the final regulations for the program if Price was going to kill it anyway.
Right now, hospitals and doctors are paid the average wholesale cost of the drug plus a profit margin, typically 6%. Many reform-minded cancer doctors, particularly Peter Bach of New York's Memorial Sloan Kettering Cancer Center, have argued that this encourages hospitals and doctors to use the most expensive drug that will yield the highest fee for them to administer.
Under the new program, doctors and hospitals would have been paid a flat fee plus a smaller profit percentage for each drug they infuse. The goal was to equalize the profits for different drugs, so there would have been less incentive to use the expensive one.
The Congressional Budget Office — the official scorekeeper for Congress — estimated the possible savings over 10 years to be $1.1 billion, although Bach told me that that was a "way too conservative guess." If it had been rolled out nationally, he put the savings at "multiples of that for the government, plus what beneficiaries will save in co-insurance."
Scary arguments: There's one immutable reality I discovered when I began writing about the exorbitant cost of American health care: It's an emotional political issue that allows the defenders of the health care industry's sky-high profit margins to scare people.
One example: GOP pollster Frank Luntz advised Republicans in 2009 to oppose Obamacare with phrases like "government takeover of health care" to describe a plan that was more conservative and more of a giveaway to the private sector than the one proposed by Richard Nixon in 1971.
Price was an early adopter of those kinds of phrases. But he not only opposed Obamacare the way most of his Republican colleagues did; he also took special aim at those elements of the law, watered down though they were, aimed at reining in costs.
Last September 7, Price, then the chairman of the House Budget Committee, held a hearing in which he attacked all of CMMI's experiments as a power grab that undermines congressional authority. Price does have a point: imposing a new financial model for knee and hip replacements on all hospitals in 67 metropolitan areas seems to contradict at least the spirit, if not the letter, of the law.
Price then fired off a letter co-signed by 243 House Republicans demanding that the Obama administration cancel the CMMI drug payment experiment.
They had plenty of company: Fourteen Republican members of the Senate Finance Committee sent a similar letter, as did 66 House Democrats and 12 Democratic members of the Senate Finance Committee --- providing new evidence of the drug lobby's enormous bipartisan clout. Even Charles Schumer, now the Senate minority leader, and House Minority Leader Nancy Pelosi signed on.
"The letters used numbers and arguments that were pure fiction," argues Bach, who published a point-by-point rebuttal to each letter. "It's so depressing."
It's also the kind of rhetoric that dominated Price's September hearing.
"We are talking about real people and their access to care; we are talking about whether or not seniors on Medicare are able to receive the medications or treatment options that their physicians believe are in the best interest of the patient," Price declared.
The CMMI experiments in no way block physicians from providing what they believe are the best treatments. The real issue is whether artificial knee and hip manufacturers — profit juggernauts like Johnson & Johnson and Zimmer Biomet (the company whose stock Price bought) — and the hospitals and doctors who implant them can continue getting paid the same, only-in-America high prices they've been getting for those treatments.
It's about whether the marketers of the most expensive miracle drugs — Amgen, Genentech, Celgene, AbbVie, and Merck, for example — will continue to be able to convince hospitals and doctors to prescribe the highest priced cures.
Or whether doctors being paid by taxpayers will be rewarded for providing quality care rather than for how many billable events they can tally.