Imagine a society that lets its automakers oversee crash tests on new models, allowing the industry to report results, as it sees fit, to government and consumers. Sometimes, an automaker might not reveal the outcome of a test that turned out badly, deciding that the dummies in the vehicle were too short--no wonder their chests were crushed!

In other cases, a company might postpone reporting on crash test results for a year or two, hoping that later trials would turn out better. In these cases dozens of trials might be required in order to achieve the desired outcome. The car maker would, of course, pass along the additional cost, in the form of higher sticker prices. In this society, crash tests are not run and paid for by an independent entity like our National Highway Traffic Safety Administration (funded by taxpayers) or the Insurance Institute for Highway Safety (funded by auto insurers). Instead, the auto industry itself finances and controls the trials. Automakers also provide most of the funding for the government agency that rules on car safety. Finally, under this system, head-to-head comparisons of cars in a similar weight class are frowned upon. Such trials would create winners and losers--and who wants to be a loser? Instead, each company tests its own cars, and when outcomes finally are published, they tend to be excellent.

Probably you already have guessed where I'm heading. The system I have sketched comes pretty close to describing how we try to assure the safety of the prescription drugs and medical devices sold in the U.S. This may be the only country in the developed world that allows the companies that manufacture and peddle medical drugs and devices to control what we know about their products.

The industry also provides much of the funding for the Food & Drug Administration (FDA), the agency responsible for weighing the risks and benefits of their products. Little wonder that the FDA doesn't insist that manufacturers test their products against similar, less expensive products already available in the marketplace. Instead, the FDA only asks drug-makers to test their new entry against a placebo--demonstrating that it is "better than nothing."

And when it comes to pricing, in our health care system, drug makers are the price-makers; desperate patients are the price-takers.

Quite naturally, lobbyists for the pharmaceutical industry are happy with the status quo. For-profit insurers also are content with our present system--as long as they can pass sky-high prices along to their customers in the form of ever-rising premiums. Some hospitals and even some physicians are equally pleased that health care in America has become such an enormously lucrative "growth" business--at least for certain surgeries and specialties. And they, too, hire lobbyists.

What they forget is that while more health care equals more profits, it does not necessary lead to better health. Quite the opposite. While the U.S. spends twice as much as the average developed country, per capita, on care, a study published in the Jan/Feb '08 issue of Health Affairs reveals that when it comes to avoiding "preventable deaths" from diseases such as diabetes, intestinal infections, whooping cough, childhood respiratory problems and leukemia with "timely and effective care" we rank last, worldwide.

We just are not getting good value for our health care dollars. This is why we need health care reform--not merely to control costs, but to lift the quality of U.S. healthcare.
~~~~~~~~~~~~~~~~~~~~~~~~
Let me back up to explain that is the third post of a four-part series titled "Obstacles to Healthcare Reform." In part one I suggested that we need to confront the Realpolitik of healthcare reform: the problem of getting the votes in Congress. This means facing the obstacles to reform head-on.

In that post, I focused on the first major problem: a lack of social solidarity. The French are willing to fund high quality healthcare for all of their citizens because they believe that nothing is too good for another Frenchman. Unfortunately, we do not feel that way about each other. In general, conservatives and people earning over $75,000 rate reducing the "cost" of health care as significantly more important than making sure that everyone has coverage. And many Americans are worried that reform will mean higher taxes.

.
In the second post, I acknowledged that they are right to be concerned about cost. The truth is
that covering the uninsured and underinsured will be expensive, at least in the short term. Many people in this group haven't seen a doctor in a long time. Catch-up care will be costly. Reformers also recognize that we need to pay doctors and hospitals and doctors who take Medicaid patients as much as we pay those who care for Medicare patients. This, too, will be expensive. Finally, almost everyone agrees that we need healthcare information technology and that the government will have to help pay for it.

Long-term, reformers can reap enormous savings--if they use a scalpel (not an axe) to carefully excise the waste from our health care system. In a recent report aptly titled "How Many More Studies Will it Take?" the New England Healthcare Institute documents what the cognoscenti of the health care world have known for some time: about 30 percent of the $2.2 trillion that we, as a nation, spend on health care is squandered. When I talk about "cutting the waste," I am not talking about rationing needed care because it is too expensive. I'm underlining the need to eliminate unnecessary, ineffective and potentially dangerous care.

But won't the lobbyists I mentioned above protest anything that might affect their profits? Absolutely.

Here, in this third post, I describe the status quo that the lobbyists are si desperate to protect.

Click to Read Part 1 and Part 2 of this series. Part 3 Continued:

Drug-Makers Realize that there is No Limit On Pricing

Health care lobbyists spent $445 million on federal lobbying in 2007 -- more than any other sector of the economy. Pharmaceutical companies ranked first, shelling out $227 million.

So let's start with the big-spenders, the drug-makers.

Back in June of 2006 an upbeat story in The New York Times pointed out that big pharmaceutical companies were taking a new interest in cancer drugs. The Times noted that, a few years earlier, companies like Pfizer, Glaxo and Wyeth had relatively little interest in what they saw as a "niche market." While a great many people die of cancer, the disease takes so many different forms that each market is relatively small. Big Pharma would rather focus its research on diseases with a broad base, the Times explained. Drug-makers also prefer drugs that customers can be counted on to take for many years. (There is a saying in the pharmaceutical industry: "A pill that cures is good. A pill that you take every day is better.")

Cancer patients tend to "die within months," the Times observed, curtailing profits. But then, someone in the pharmaceutical industry had an epiphany: it doesn't matter how small the market is if there is no limit to what you can charge.

"Companies have discovered that some patients will tolerate prices of tens of thousands of dollars a year," the Times reported, "making drugs for even rare cancers into big moneymakers. Gleevec, which is used primarily for two obscure cancers--chronic myelogenous leukemia and gastrointestinal stromal tumor--had sales last year of $2.2 billion."

About nine months later, The Wall Street Journal reported that the biotech industry was leading the way in this area, producing cancer drugs that fetched astronomical sums and generated huge profit margins. Indeed, prices had skyrocketed to a point that a prominent Wall Street analyst was worried. According to the Journal, Morgan Stanley's Dr. Steven Harr was urging Genentech to pare what it was asking for Avastin; at that point the drug was commanding roughly $47,000 for an average 10 month course of treatment for colorectal cancer. Harr feared that patients wouldn't be able to afford such prices, and that if drug-makers didn't show some restraint, the government might intervene, and begin regulating prices.

As the Journal explained, while market forces can keep prices at reasonable levels in many sectors of the economy, this is not how the market for essential health care products works. In other sectors, if consumers find prices too high, they'll postpone buying until competitors come forward offering lower prices. But when it comes to cancer, Harr acknowledged, consumers don't have that option: "market structure effectively provides no mechanism for price control in oncology other than companies' goodwill and tolerance for adverse publicity."
Since then, the pharmaceutical industry has demonstrated that, when it comes to tolerating "adverse publicity" it can be quite stoic.

"Bespoke Knees" and other Cutting-Edge Medical Devices

Device-makers also set prices based on "what the market will bear" and they have found that if you know how to market a product, it will bear quite a bit. Consider, for example, the "bespoke" artificial knee, created to fit the "unique anatomy" of a woman which I wrote about on HealthBeat last fall the FDA approved the second knee-for-women only

Will the new device allow women to function better? "In theory, yes, but the evidence isn't there," Dr. Kimberly Templeton, an associate professor of orthopedic surgery at the University of Kansas Medical Center and a spokesperson for the American Academy of Orthopaedic Surgeons told U.S. New & World Report.

Sheryl Conley, Zimmer's chief marketing officer explained that "seven studies now underway will look at patient satisfaction and range of motion. Preliminary data will be available in a year or so." But why wait for medical evidence? The FDA let Zimmer bring the gendered knee to the marketplace, where it is doing a brisk business while fetching twice the price of a plain-vanilla knee--thanks, in part, to an extremely clever direct-to-consumer ad which you can view here. (Once the FDA approved it, Medicare --i.e. taxpayers--agreed to pay full price for the product.)

Less than two weeks ago, a Johns Hopkins Health Alert confirmed that "at this point, there [still] is no actual scientific evidence that the "Gender Solutions" knee is superior to other types of artificial knees when implanted in women."

Just as Morgan Stanley analyst Steve Harr worries that Big Pharma has become too greedy, some in the medical device industry have expressed concern that device-makers have been overreaching. Rat Elliott, chief of Zimmer Holdings, the world's largest manufacturer of knee and hip implants, startled investors at a Bank of American conference a couple of years ago when he warned: "There's [been] a lot of bell-and-whistle stuff in this industry over the last five or six years where you got pretty good money for stuff that was pretty fluffy . . " But at some point, hospitals will become weary of over-paying Elliott warned: "If you think that," in the future, "you're going to [be able to] take a device, paint it red, and add $1,000 to [the price]. . . it's not going to happen any more."

Nevertheless, according to Frost & Sullivan, a global growth consulting company, the U.S. medical devices industry is going full speed ahead. In 2006, it racked up revenues of $75.57 billion--and is projected to reach $138.99 billion in 2013--despite the fact that, "there have been extensive product recalls and reports of device-related deaths." (As for Zimmer, as of January the company was humming along, reporting profits up 13 percent above analysts' estimates. Perhaps it should come as no surprise that Ray Elliott is no longer CEO; he retired in the fall of 2007.

Typically, hospitals buy medical devices, and then include the cost in the patient's bill. Who decides which devices they choose? Often, hospitals leave this decision to the surgeons who will be using the product. On the face of it this make sense because only the surgeon can know which device he is most comfortable using.

But, too often, it's not a simply a matter of being familiar with the product. It's a matter of how much the device-maker will pay the surgeon in so-called "consulting fees" if he agrees to use its most expensive product. Last year, four leading makers of artificial joints agreed to pay $310 million in fines to settle civil charges that they had paid $800 million in kickbacks to hip and knee surgeons.

This is one reason why health care reformers talk about requiring head-to-head comparisons of drugs and devices, forcing manufacturers to show that we're getting value for our healthcare dollars before we buy their wares. Keep in mind that spending on drugs and devices accounts for as much as 16 percent of the total $2.2 trillion that we, as a nation spend on healthcare. (The cost of the drugs that we buy "retail" in a pharmacy adds up to 11 percent of the $2.2 trillion, the price of drugs that we pay for as part of a hospital or doctor's bill after they are administered in a hospital or in a physicians office equals another 2 percent of the $2.2 trillion, while spending on devices totals 3 percent of the $2.2 trillion pie.)

Doctors Agree: "We Do Too Many Procedures"

We don't just over-pay for drugs and devices, we also over-pay some specialists for certain procedure, and that can encourage them to "too much." On this, doctors agree, observes Dr. Jim Sabin, a physician who is also a clinical professor in the departments of Ambulatory Care/Prevention and Psychiatry at Harvard Medical School. Writing on his blog, Heatlh Care Organizational Ethics, Sabin confides : "Over the years I have posed this question to physicians I respect in a wide range of medical specialties - 'if you were the czar of your field and your orders were cheerfully followed, how much money could you save with no loss of quality?' No one ever said less than 25%. Lots said more. Many commented that quality could be improved at the same time."

Few doctors believe that they themselves are doing too many procedures. But in virtually every specialty, many agree that someone out there is doing too many angioplasties, by-passes, caesarians, back surgeries, MRIs, and futile rounds of chemo. The way we have structured our fee-for-service healthcare system rewards doctors who practice the most aggressive, intensive, and expensive care: "Doctors' fees are skewed to reward highly paid specialists for doing as many expensive tests and procedures as possible," Dr. Marcia Angell, former editor of the New England Journal of Medicine recently explained in The American Prospect's Special Report, The Path to Universal Health Care.

Thus, physicians who cut you or irradiate you (neurosurgeons, orthosurgeons, urologists, radiologists, cardiologists) are much better compensated than family doctors, internists, hospitalists, pediatricians and palliative care specialists who practice what some call "thinking medicine"--listening to you, talking to you, diagnosing you, coordinating your care, and making sure that you are not in pain.

Pediatricians can be found at the bottom of the income ladder, where they start out at $115,000 according to Merritt, Hawkins & Associates, a national health care search and consulting firm that specializes in recruiting physicians. By contrast orthopedic surgeons begin at $250,000 and can look forward to making $650,000--or more. You'll find a chart of base salaries in various specialties here.

Who decides how much specialists should be paid for various services? Just as drug-makers set their own prices, specialists determine their own fees.

Here is how the system works: A Medicare advisory committee called the RVS Update Committee (or RUC) regularly reviews the schedule of what Medicare pays for some 600 procedures. Medicare's price-list is important because it has become the basis for most private insurers' payments as well. RUC flies under the radar; most people don't know it exists. And they certainly don't know who sits on the committee: 23 of RUC's 30 members are appointed by "national medical specialty societies."

Not surprisingly, the specialists who dominate the RUC put a much higher value on a specialist's half hour than on a family doctor's. Here's a quick example from the June 2007 Annals of Internal Medicine: in 2005, if a patient with a "complex medical condition visited a primary care physician in Chicago for a typical 25- to 30-minute office visit, Medicare shelled out $89.64. By contrast, if a gastroenterologist in the outpatient department of a Chicago hospital performed a colonoscopy (which also takes about 30 minutes) Medicare paid $226.63. And if the specialist performed the procedure in his own office, where he pays for equipment and nursing time, he could charge Medicare $422.90 for his thirty minutes.

Keep in mind that the gastroenterologist spent more time training in his specialty, and in that sense it is fair that he should be paid more. But should he be paid that much more per half hour? And, assuming he practices medicine for twenty-five or thirty years, at what point (if ever) do you stop paying him 2 ½ times as much for every 30 minutes that he works? There are no easy answers.

Medicare has been trying to keep a lid on doctors' fees, but many physicains responded by seeing more patients more often. As a result, from 2000 to 2005, Medicare's total fee-for-services payments to physicians jumped by 73 percent.

This is why Congress is now talking about slashing the amount Medicare pays physicians this summer by 10 percent, across the board--and by another 15 percent over the next two or three years. Politically, this is a non-starter. Many doctors would stop taking Medicare patients.

Nevertheless, reformers agree that we need to re-examine how much we pay for some the most aggressive, intensive procedures--particularly if there is medical evidence revealing that many patients receiving the treatment derive no benefit. Simultaneously, we need to raise payments to family doctors and others who can create a "medical home" for the patient, helping him manage a chronic disease so that he won't need surgery later. And clearly specialists who have a financial stake in Medicare's fee schedule should not be deciding how much their services are worth. The Medicare Payment Advisory Commission (MedPac) has suggested that specialists who work on salary, at places like the Mayo Clinic or Kaiser, should be reviewing Medicare's fees--not doctors who work fee-for-service.

But this would be only a temporary fix. Ultimately, many members of MedPac realize that Medicare must move away from fee-for-service, a payment system that encourages doctors to "do more," rewarding them for the quantity rather than the quality of their work.

Deciding What to Cover Based on the Quality of the Product or Procedure

If we are going to rein in runaway health care inflation and simultaneously lift the quality of care, we need to focus on the medical effectiveness of the drugs, devices and treatments that we are buying.

This is why liberal presidential candidates have all called for a Comparative Effectiveness Agency that would offer an unbiased assessment of the benefits of various products and procedures, weeding out those that are ineffective, too risky for most people or no better than less expensive treatments. (This would not lead to one-size-fits-all medicine. Countries that do this type of research often approve covering a drug or procedure for a particular group of patients who need it---while making sure that it is not over-prescribed.)

Under our current system, as blogger Merrill Goozner recently testified before an Institute of Medicine (IOM) panel, medical research is rife with conflict of interest. Goozner, who is director of the Integrity in Science project at the Center for Science in the Public Interest pointed out that for-profit manufacturers control what the average practitioner knows about new developments in medical technology. In the U.S., half of a physician's continuing medical education is financed by suppliers. Even worse, Goozner told the IOM, "about a quarter of outside advisers sitting on the Food and Drug Administration's advisory committees require waivers of the nation's conflict-of-interest laws because of ties to industry."

Apologists for this conflicted system will argue that it is all but impossible to find experts who have not taken money from the companies sponsoring products that they are supposed to judge. But this simply isn't true. Granted, some of the biggest names in various specialties have become well-known in part by becoming highly-paid consultants to industry, but this does not mean that they are more knowledgeable than other physicians.

Meanwhile, more and more doctors are becoming uncomfortable with financial ties that might even appear to influence how they practice medicine. Recently, The New York Times reported that "some prominent academic scientists have made a decision that was until recently all but unheard of. They decided to stop accepting payments from drug and medical device companies. No longer will they take pay for speaking at meetings or for sitting on advisory boards," the Times reported. "They may still work with companies. It is important, they say, for knowledgeable scientists to help companies draw up and interpret studies. But the work will be pro bono."

The usual "rationale" for allowing industry to share a bed with those who review research and set guidelines, Merrill Goozner notes, is that "it will foster innovation." Yet as he points out, innovation in medicine, as measured by the number of new drugs and biologics using new active ingredients, "has fallen fairly steadily over the past decade, a time marked by a growing financial interaction between these two ostensibly independent spheres."

This is why so many reformers call for a Comparative Effectiveness Agency where panels of disinterested, well informed physicians and researchers who have no financial interest in the outcome could rate the quality of products and procedures and then draw up guidelines (not rules) for "best practice."

Cynics argue that that this can never happen. Given the power that the health care industry's lobbyists enjoy in Congress, any government agency that attempts to oversee quality will find itself operating at the pleasure of special interests. Look at what happened, they say, in 1995, when the Agency for Healthcare Research and Quality (AHRQ) released a set of "best practice" guidelines that discouraged the use of surgery in treating lower back pain.

"A number of politically active surgeons took offense," recalls Dr. George Lundberg, who was then the editor of The Journal of the American Medical Association, "and aggressively lobbied members of Congress, demanding that the agency back off... At the time there was talk of eliminating AHRQ entirely, but Congress finally settled the matter by slashing its budget." Knee-capped, the agency still hasn't recovered.

In my next and final post in this series, I'll describe how we can create a new federal agency that focuses on the quality of the care that we are buying-- and insulate that agency from both industry and Congress. The first step, I'll suggest, is to focus on Medicare.