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The Price We Pay: What Broke American Health Care–and How to Fix It by Marty Makary MD
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I worked with my Johns Hopkins colleagues to estimate the percentage of medical care that is unnecessary by sending an anonymous survey to a sample of 3,000 doctors across America and had 2,100 respond. The doctors replied that, on average, they believe 21% of everything done in medicine is unnecessary.4 Breaking it down further, the doctors in that survey estimated that 22% of prescription medications, 25% of medical tests, and 11% of procedures are unnecessary.
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Leg artery procedures can generate $100,000 in one day when a doctor owns the facility. By comparison, I earn about $2,000 per day doing cancer surgery.
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We know the trigger words that steer patients. Every specialty has its phrases. For obstetricians, it’s saying something like, “It might be safer for the baby.” If an orthopedic surgeon is helping a patient decide between a knee replacement and a nonsurgical option, it’s mentioning the joint is “bone on bone.” The phrase “bone on bone” creates an image of grinding, like fingernails screeching on a chalkboard. Patients beg for it to stop. They choose surgery every time. And if a cardiologist tells a patient he has a “widowmaker” in his heart—an actual medical term used to describe a partially blocked artery—the patient does whatever it takes to address it. No one wants their spouse to become a widow.
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Consider the simple presentation of a patient with early appendicitis. Three trials recently published in top journals show that treating the condition with antibiotics rather than surgery works 75% of the time.5,6,7 And the evidence showed no increased risk of health problems for trying the antibiotic method.8,9,10 More than 300,000 appendectomies are done in the United States each year, each with a hefty price tag.
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Hospital officials confessed that they inflate bills more and more each year to generate more revenue since their insurance companies pay only part of the sticker prices. Insurers confessed they demand bigger and bigger discounts in their contracts with hospitals in order to keep up. Both acknowledged that they pass on higher hospital bills to the public in the form of higher insurance premiums.
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Dr. René Lerer, the president of the large insurance company GuideWell Florida Blue, silenced the room with his honesty: “Insurers fight for a bigger discount every time they renew a contract with a hospital. Then hospitals go around and inflate their prices. It’s a game.”
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From talking to enough people in the industry, I learned that the secret discount that an insurance company gets ranges from 4 to 90%. But if you’re paying cash, like Henri’s dad, no one will tell you the discount given to insurance companies.
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Most of the time, the insurance companies don’t let hospitals show their negotiated prices; they’ve made the hospital sign a nondisclosure clause in their operating agreement.
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Hospitals use software called the “chargemaster” that automatically inflates prices to achieve a desired margin.
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One study found that for every ten doctors, the average U.S. hospital has seven nonclinical full-time-equivalent (FTE) staff working on billing and insurance functions.13
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Dr. Keith Smith, an anesthesiologist and health care reformer, spoke these words to a grassroots gathering of doctors a few years ago. About 100 people from 10 states attended, at the historic Skirvin Hotel in downtown Oklahoma City. I had flown down to join them and learn more. This was the first medical “tea party” meeting of its kind, and the group later became what is now called the Free Market Medical Association.
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It’s ironic that the federal government already has a mandatory disclosure rule for the real out-of-pocket costs people incur at a vulnerable time in their lives. But it’s not a rule for health care—it’s for funeral homes. The Funeral Rule,18 enacted by the Federal Trade Commission in 1984, requires funeral providers to offer itemized pricing information to consumers before they purchase any services.
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They wanted to rally other students, doctors, nurses, and concerned citizens about these issues in an effort they referred to as the Restoring Medicine Project. Their website, RestoringMedicine.org, gives people ranging from doctors to community members the resources they can use to address predatory billing, suing, medical overscreenings, and other unfair health care practices in their communities.
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The president was moved by their stories, and even more so when I presented new research that half of U.S. women with stage 4 breast cancer are now being harassed by medical debt collectors. He called it a disgrace and instructed his staff to work hard on solutions that would provide relief for Americans gouged by overpriced and surprise bills. Shortly thereafter, his administration announced initiatives aimed at curbing egregious medical billing and increasing price transparency.
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In 2014, the IRS required nonprofit hospitals to have a written financial assistance policy that would clearly indicate exactly who was eligible for free or discounted care at their facility. The IRS mandated that nonprofit hospitals should not engage in “extraordinary collection actions” on unpaid debts until the hospital makes “reasonable efforts” to determine if an individual is eligible for financial assistance.
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Columbus Community Hospital. It’s a reminder that there are a lot of inspiring people who are keeping hospitals true to their great mission.
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For decades, hospitals charged reasonable prices for helicopter flights based on their true equipment, fuel, and personnel costs.
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Between 2007 and 2016 alone, the average price of an air ambulance transport charged by one company went from $13,000 to $50,000.
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The number of air ambulance companies increased by 1,000% from the 1980s to 2017.
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He and his colleague Jeff Frazier founded a company called Sentinel Air Medical Alliance. The company is committed to price transparency and to putting a stop to the air ambulance rip-offs.
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Eighty percent of the more than half a million air ambulance flights a year (1,300 per day) in the United States are not emergencies but are much more like routine transfers.
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Frazier’s Sentinel Air Medical Alliance fights the predatory tactics of the air ambulance industry in several ways. They have put together a network of air ambulance providers all over the country who are willing to bid for jobs so consumers can get a fair price. Most transports aren’t emergencies, so Sentinel’s staff can quickly make calls to get a reasonable rate. That’s how Sentinel Air guarantees that a customer can get anywhere in the United States, coast to coast, for a reasonable price, never to exceed $20,000.
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This doctor’s C-section rate wasn’t especially high on most days of the week. But on Fridays, it shot up to 80%.
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The RWJ Foundation had already funded the Choosing Wisely program, a national collaborative that challenged every medical specialty to list five tests or treatments that are usually unnecessary.
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The consensus recommendations can be found at ChoosingWisely.org.
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But today opioids are the leading cause of death in America of people under 50 years of age.1
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in 2015 alone (the last year for which national data is available) were only a tiny fraction of the country’s 249 million prescriptions filled that year. That means physicians gave out the equivalent of one opioid prescription for every American adult. And in that year, the U.S. pharmaceutical industry produced 14 billion opioid pills. That’s about 40 pills for every American citizen.
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The study showed that half of patients who did not take opioids on their last day in the hospital were still given a prescription for the potentially deadly painkillers when they went home.
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One of them pointed out that our electronic health record, EPIC, had an e-prescribing default that recommended a 30-day supply. An intern also explained, “Some chief residents will yell at us if we prescribe anything below 30 pills.” A different resident said prescribing too few could result in calls during off hours when it’s inconvenient to prescribe more. These reasons were frustrating to hear, but they were honest. I knew these unwritten rules from my “residency survival manual.”
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study from Dartmouth found that 70% of the opioid pills surgeons prescribe are never taken.3
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For each operation, a consensus was finally achieved. For many of the procedures, we recommended between 10 and 15 opioid pills, and we never recommended exceeding 20.
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Instead, we created a website called SolveTheCrisis.org, where the day after the expert panel concluded we posted our opioid prescribing guidelines.
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Nine months later, we also published the recommendations in a formal article in the Journal of the American College of Surgeons.4 It would be the first ever procedure-specific opioid prescribing guideline.
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Consider this simple fact: Last year, physicians prescribed a record 4.5 billion medications.2 That’s about double the number we prescribed just a decade ago.
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More than half of Americans are now on four or more medications, according to Consumer Reports.
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He had been disabled by one of his back operations for chronic pain. His words sent chills down my spine. “I can tell you, if you’re listening out there, stay away from back surgery,” Kerr said. “I can say that from the bottom of my heart. Rehab, rehab, rehab. Don’t let anyone get in there.” Stanford spine surgeon Dr. Robert Aptekar called what Kerr said “good advice.”5
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But overtreatment is pervasive in health care. A detailed report released by 21 Washington State physicians who are part of the nonprofit Washington Health Alliance found that 45% of Washington State health care services were unnecessary. In total, they found that 600,000 patients in Washington underwent medical services they didn’t need, costing an estimated $282 million in one year.6 Topping the list were frequent screenings and tests deemed irrelevant to care, such as unnecessary lab tests routinely performed before minor surgery.
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Fernandopulle, born in Sri Lanka, named the clinic after the iora, a small bird native to Sri Lanka known for its bright colors and loud whistle.
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In Phoenix, I learned more about how Iora works. They are hired by an employer or insurance company to take care of a population of people, such as a group of 10,000 seniors. Each person in that population is assigned an Iora doctor and an Iora health coach. The coach joins each patient for their doctor appointments. After the doctor leaves, the coach stays with the patient to go over next steps. Health coaches call patients to check in with them and help coordinate the other specialist doctors the patient may need to see.
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The health coach sat in on every doctor appointment, took notes, and followed up with the patient to coach them toward the goals the doctor recommended.
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I warned Dina, she would be given a famous form to sign. The single document was really two contracts blended together for a reason. It would get her to agree to two things with one signature. First, that she agrees to be treated. No problem there. Second, it would say she agrees to pay 100% of whatever is charged. That could be a problem. Federal law requires a hospital to care for urgent and emergent patients whether they agree to pay or not (the EMTALA law). Patients should obviously pay a fair price for their treatment, but too often this is a rigged game. The hospital charges don’t have to be reality-based. The amounts they accept from insurance companies don’t have to be disclosed.
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After a lot of commotion, they printed the form. Sure enough, it included a clause that said she would sign away her financial life before seeing any of the bills. She crossed out the clause and then signed.
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used a website called HealthcareBluebook.com, which shows the typical rates hospitals get paid for various common operations.
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I learned, in vivid detail, exactly how insurance brokers get kickbacks for selling health insurance and pharmacy benefit manager plans to employers, just as Contorno had explained to me. I realized that brokers are often the shepherds leading the sheep. They can convince an employer to buy an overpriced plan or a great value plan. They can convince an employer to switch insurance carriers, stick with their current carrier, go to the mat for a better price, or bypass health insurance and simply self-insure.
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he had regularly been offered hundreds of kickbacks from insurance companies, ranging from $30,000 to $100,000 (often referred to in the industry as “bonuses,” “overrides,” “persistency bonuses,” or “contingent income”). “Sometimes that money pushed me to put employers into plans that were way too expensive for them,” Phil admitted.
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That means the broker would be cut off from the gravy train—the 1 to 5% commission on every premium dollar the broker had brought to that company. That’s a few hundred dollars per employee going to the commission payout every year!
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I realized that one of my friends, Brandon Luckett, is in the business. He’s executive vice president of the benefits advising company Employee One.
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Over tandoori chicken and naan, Brandon told me he generally recommends that employers self-fund (self-insure) their benefits. That means the employer is the one who pays the health care bills, not an insurance company. Instead of paying premiums, the employer and employees pay into an escrow account that funds the plan. The employer hires a company called a third party administrator to manage the plans. Many traditional insurance companies offer administrative services. Brandon then makes sure that an employer has catastrophic insurance to cover any massive bills, maybe anything over $80,000 or $100,000.
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Chase created a credentialing process called Health Rosetta. His standards are principles for fair trade for the industry.
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Chase founded Health Rosetta to disrupt this business of employer-sponsored benefits. His mission is to educate employers on how to buy health insurance products based on value rather than broker kickbacks. Health Rosetta is a certification process for health insurance brokers and benefits consultants that uses principles of full transparency. Chase has brokers sign a code of conduct and agree to use a standard disclosure form that shows all the different ways they are being paid.
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can find it all at HealthRosetta.org.
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In recent years, faith-based sharing ministries have become more popular. Samaritan Ministries in Illinois and others are taking the Christian concept of sharing one another’s burdens quite literally. They pool the resources of their members to pay one another’s bills. Samaritan says its 250,000 members share more than $27 million per month in medical costs.
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One of the most important terms to understand the PBM world is “the spread.” “The spread” is the difference between what the PBM pays a pharmacy for a medication and what they invoice an employer or health plan for that same medication.
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The PBM is the middleman, so if the pharmacy charges $10 for the medication, the PBM might bill the employer $50 and pocket the extra $40—that’s “the spread.”
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The PBM keeps all or part of the pharma rebate for itself, for “administrative work.” This could also be called a “kickback.”
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In his presentation, Danny Toth enumerated so many schemes that I couldn’t keep up. There are so many that they add up to a lot of money. A 2018 study in the Journal of the American Medical Association showed that customers overpaid for one quarter of their prescriptions, with an average overpayment of $7.69 per prescription. Overpayments totaled $135 million during a six-month period.3
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It goes like this: A PBM figures out in their data that you, the patient, had a medication refilled. The PBM then calls you incessantly trying to get you to sign up for their mail order program, enticing you with a lower copay. But once you get on the mail order train, it’s hard to get off. All of a sudden, you’re getting stockpiles of medications you don’t want or need because the PBM is getting your doctor to sign a refill request even though you never asked for one. When the doctor’s office receives a refill request they often just sign it. I’ve done it myself.
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The PBM has a different spin. They report that they are increasing patient compliance. But then I have to ask: Does sending a medication to a patient’s house mean the patient actually took it?
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Toth and his colleagues at Timber Ridge Consultants have saved employers millions of dollars by renegotiating PBM contracts. For one employer, a city government in Georgia, Toth saved over $1 million.
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“In fact, many times they are co-owned.” Health insurance companies direct their business to their own PBMs, which increases their margins. For example, OptumRx, one of the big three PBMs, is owned by America’s largest health insurance company, UnitedHealth Group. Insurers may offer less expensive health insurance premiums. But then they use their PBM to achieve a greater profit margin.
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The PBM Express Scripts is now owned by the insurance company Cigna, and as I write this book, a merger between the PBM CVS Caremark and the insurer Aetna is being finalized. Together, the big three PBMs—OptumRx, Express Scripts, and CVS Caremark—control approximately 85% of the U.S. market and manage medication benefits for most people in the United States.
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For business leaders, get a second opinion on your pharmacy benefits contract from an independent consultant like Danny Toth, who is not being paid a kickback from a PBM or health insurance company. Ask them if they subscribe to the Health Rosetta code of ethics. Insist on a PBM contract where you, the business, are paying a $2.75 to $4.00 administrative fee per prescription above the price paid by the PBM. And demand full transparency in rebates and discounts.
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There is a growing recognition that surgical smoke is dangerous, maybe as dangerous as secondhand cigarette smoke. I was reminded of this risk when I learned that the young surgeon who wrote the book When Breath Becomes Air had died of lung cancer even though he never smoked.
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GPOs are behind-the-scenes organizations, yet they dominate health care. If you are treated in any American hospital or outpatient center today, chances are you have been treated with supplies or medications purchased through a GPO. According to the American Hospital Association, the percent of U.S. hospitals that purchase through a GPO went from 68% in 2000 to 98% by 2014. The nation’s largest GPO, Vizient Inc., claims to own 30% of the national market for all supplies, and collectively the four largest GPOs in the United States dominate 90% of the market.1,2 GPOs are like PBMs in how they operate in a fog of transactions, making value difficult for any buyer to ascertain.
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But in 1987, after intense lobbying by the industry, group purchasers were granted an exception to the antikickback law, known as a safe harbor exemption. It’s the same exemption that allows PBMs to receive kickbacks from the pharma companies they buy from.
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Fees collected by GPOs are directly shared with GPO member hospitals. One of the nation’s largest GPOs, Premier Inc., was paid $557 million in these “administration” (pay-to-play) fees in 2017—35% of that got passed on to their member hospitals, according to its annual report.3 The
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A 2016 GAO study concluded that there was a strong association between critical drug shortages and a decline in the number of drug suppliers.6 Furthermore, GPOs were a significant focus in a U.S. House of Representatives report on drug shortages that stated, “The GPO structure reduces the number of manufacturers producing each generic drug.”
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As a gastrointestinal surgeon and advocate for healthful foods, I’m well aware how this low-fat teaching is based on the medical establishment’s embarrassing, outdated theory that saturated fat causes heart disease. A landmark 2016 article in the Journal of the American Medical Association found that the true science was actually being suppressed by the food industry.4
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The wellness industry got a boost from a questionable number cited in a puff piece written by Harvard experts in Health Affairs.6 The article claimed that wellness programs have a 3.27-fold return on investment. The number had little scientific basis, but its timing was impeccable. The study came out just as the Affordable Care Act was being crafted, and the article quickly became a highly cited source as the legislation was being debated. As it turns out, the study’s coauthor was a political adviser to those drafting the ACA.
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Workplace wellness advocates hailed the support provided by the Affordable Care Act as a public health victory. Soon there were promises of lower rates of chronic disease and lower health care costs. Wellness companies began to pop up all over. Wellness programs began to require people to answer extensive questionnaires that delved into their privacy. Wellness programs provide only a modest profit, so companies began to sell their employees’ collected personal health data to third parties. That was a good business model. On the open market, health data is coveted.
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A Wellness Disrupter Al Lewis went from a wellness industry advocate to its foremost critic. He spent years in the industry but came to see its futility. He left and started his own company, Quizzify. The Boston-based company educates employees about overtreatment and dispels myths about healthy living.
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Other wellness programs have value. Some employers provide fitness club memberships, regular yoga classes, medical second opinion services (I advise one called Veza Health17), or on-call clinicians to answer health questions. Warren Buffett’s nonprofit wellness company Welcoa teaches accurate nutrition science and promote lifestyle treatments for illness. When I asked Welcoa’s CEO, Ryan Picarella, why his company is so different, he said it was because they were focused on what actually makes people healthier instead of soft stuff that doesn’t work.
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