Paying an Arm and a Leg for a Month of Life?

Imagine for a moment that you are an oncologist caring for a 53-year-old man with metastatic cancer, a person whose tumor has spread to lung and liver.

With standard chemotherapy, this man can expect to live around 12 months.  That standard treatment isn’t all that expensive in today’s terms, only $25,000 and his insurance company will pick up the entire tab since he is already maxed out on his yearly deductible and co-pays.

But wait!  Before prescribing the standard treatment, you find out there is a new chemotherapy on the market, one that costs $75,000 (in other words, fifty thousand dollars more than usual care) and has no more side effects than that standard treatment.

How much longer would patients like this have to live, on average, for you to feel that this new chemotherapy is warranted?

That’s not an easy question to answer.  But it’s not an impossible one either.  Clearly if the treatment would provide only, say, 1 day of additional survival on average, that would not amount to $50,000 well spent.  Just as clearly, if this man could expect 10 years of additional life, no one would deny him this new treatment.

So when, between 1 day and 10 years, does it become a tough call whether to prescribe this new treatment?

In a recent study published in Health Affairs, my colleagues and I presented Canadian and U.S. oncologists with a scenario very like the one I described above.  The median respondent to our survey indicated that the $75,000 drug would need to extend life expectancy by an average of 6 months to be worth prescribing, an answer that suggests that oncologists think that it is worth spending about $100,000 to extend patients’ lives for a year.  Of course, oncologists’ opinions were scattered widely.  Some said that a week or a month would be enough time to justify this drug.  Others thought that, with medical care being so expensive, we need to demand more out of expensive drugs—a year of survival, maybe even two.

An interesting result then:  No consensus among oncologists about the price of life, but a pretty strong sense that anything more than $100,000 for a year of life is starting to get a bit expensive.

But I’ve only told you about half of our study.  Because you see, when we mailed this survey to oncologists, we conducted an experiment.  In a second group of physicians, we said that the new chemotherapy costs $150,000.  This treatment, in other words, wasn’t a mere $50,000 more expensive than standard treatment; it was $125,000 more expensive.  With this much more money at stake, oncologists should demand even more out of this drug, right?

As it turns out, the median respondent to our survey once again indicated that they would prescribe the drug if it extended patients’ lives by an average of 6 months.  For these oncologists, in other words, it was worth spending about $250,000 for a year of life.

What’s going on here?

The oncologists responding to our survey were essentially insensitive to the price of treatments when telling us how they would think about new chemotherapies.

I spoke about this experiment with a pharmaceutical executive once, a man who ran the oncology division of a major pharmaceutical company.  He told me: “Oh yes, we know that oncologists are not very price sensitive.”  That’s one reason why his company is able to charge so much for its new treatments.

How much?  Six figure treatments are becoming common in oncology.  Some studies tout new drugs that cost more than $100,000 for a course of treatment, and which extend people’s lives by maybe 2 months on average.  That amounts to $600,000 per year of life.

I don’t pretend to know the price of life, or have unique insight into how we ought to decide whether expensive new treatments are worth their costs.  But I do know that at some point, we need to demand more from these ultra-expensive medicines or we are going to spend our way into fiscal oblivion.

Peter Ubel is a physician, behavioral scientist and author of Pricing Life: Why It’s Time for Health Care Rationing and Free Market Madness. He teaches business and public policy at Duke University. Peter’s new book, Critical Decisions will be available in the fall of 2012. You can follow him on his personal blog.

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110 replies »

  1. Its a tough issue to understand, making it a really complex problem to solve. It’s going to take everyone’s involvement to make these absurd prices reasonable.

  2. How can we even have this conversation without considering the pricing practices of the pharma company?

    How much of the $75K actually reflects the real cost of manufacturing the drug versus profit goals for the pharma company?

    And how much would the drug actually cost if the drug were open to other manufacturers so the pharma company doesn’t have exclusive right to charge whatever they feel like knowing competition won’t drive down the costs?

    And we’re willing to tell someone they can’t live that extra 6 months because the pharma execs need their bonuses?

    We can’t transform healthcare until we’re willing to consider all of the factors that make it expensive.

    Rationing of care or drugs can’t be considered until we tackle tort reform, pharma costs, etc.

  3. “First, the effect would be to shift the tax burden even more away from the wealthy and onto the middle class and lower middle class.”

    Depends how you tax consumption and what consumption you tax. I would exempt healthy food for example from all taxes. I would also tax cigs and alcohol at a much higher rate then everything else. Yachts would also be at a higher rate then cars. The things the poor should be buying would have a very low tax rate, the things they should not much higher. The key for me is everyone pays the same rate for the same item.

    29% tax assumes we keep spending as much as we do. I have hundreds of billions of in spending reductions to go along with it. Most spending would go back to the states where it belongs. How ever the states decide to tax is up to them.

    I rather see State ID cards that live up to a minimal national standard. Don’t trust national politicians.

    The NPI in theory should be the same as a national ID for providers billing we just treat it laxly and don’t care if they rob public healthplans. Banks are required to check ID, including SSN, when they open an account. All this fraudulent money is being deposited into some bank account, its not like they mail envelopes full of cash, so why can’t they go back and check the bank records and arrest these people? They just don’t care.

  4. Nate –

    I suspect that we will ultimately wind up with both a consumption tax and an income tax at the federal level. I’m not a fan of consumption taxes alone for a couple of reasons. First, the effect would be to shift the tax burden even more away from the wealthy and onto the middle class and lower middle class. Second, the size of the tax needed to replace the income tax and FICA taxes would be huge. The FAIR tax was billed as a 23% tax on most purchases but it’s actually 29.9% if calculated the way state sales taxes are. That is, if a $1.00 purchase includes $0.23 of tax, the FAIR tax proponents call that a 23% rate. However, if the pretax cost of the item is $0.77, the $0.23 of tax equals 29.9% of the pretax purchase price. As proposed it would apply to over 80% of GDP while the broadest based value added taxes in Europe apply to a bit over 40% of GDP at most. Then you still have state sales taxes on top of that. It wouldn’t work.

    I know a number of people who support consumption taxes as well. They generally grew up in middle class families, went to college, worked hard and became successful. They were lucky enough to have been born in America instead of, say, Bolivia. They were lucky to be born with brain wiring that gave them a skill set that pays off handsomely in our economy and society. Some were in the right place at the right time from a career standpoint. Their kids are healthy and don’t need any special help. The two main determinants of a life outcome are luck and effort. Effort includes not just hard work but also healthy behaviors and sensible choices.

    Plenty of people max out on effort but are unlucky in various ways and need some help. I don’t mind providing it paid for with progressive taxation within reason. At the same time, I think there is a lot more that we can do to fight fraud and system gaming across a host of government programs. That’s why I would also like to see everyone have a national ID card with a name, picture, and unique numeric and biometric identifiers. If you’re going to apply for government benefits, at least be prepared to prove that you are who you say you are and only apply under one name. If you’re billing Medicare and/or Medicaid, medical providers should have such ID cards as well.

  5. Nate, out of order because the comments are running on top of each other up there, I would like to request one thing.

    You keep referring to folks on welfare in most of your replies and since you have a low opinion of them it is easy to engage in hyperbole regarding free loading bums.

    I am not talking strictly about people on welfare. I am talking about the overwhelming majority of Americans who cannot possibly afford to pay out of pocket for cancer treatment when their time comes. Most of us are “poor” when you look at it this way, and these rationing schemes are intended for all, but the very few who coincidentally make the rules.

    So leave the welfare folks out of this one for a change.

    • “You keep referring to folks on welfare in most of your replies and since you have a low opinion of them it is easy to engage in hyperbole regarding free loading bums.”

      And you refer to rich people and payers as greedy in most of yours. What your asking is for me to stop demonizing free loaders so you can attack people that work for a living.

      The overwhelming majority of Americans don’t need to worry about paying for cancer treatment out of pocket because the greedy profitiers you despise provide them insurance. Private health insurance and those who work are not the problem. It is the public health insurance plans that are BK and dragging down the entire system.

      Welfare is the problem, just because you don’t want to deal with the problem doesn’t mean we should stop talking about it.

      I notice you still refuse to answere the simple question that will put it all in perspective;

      How much profit do all these people you hate make?

      How many months of your spending would that pay for?

      Answer those two questions and you will clealy see Welfare and Entitlements are the problem.

      • The entire premise of this post is that we should not pay an arm and a leg for a month of life.
        Are you suggesting that your payer buddies, who are not “providing” anything at all, except complexity and heartburn, are happy to cover one month of life regardless of costs for all currently paying customers?

        If so, we indeed need to have a different conversation.

        • “who are not “providing” anything at all, except complexity and heartburn”

          At least your not arguing hyperbolically. What is the job of payors? They accept claims from providers, verify eligibility, benefits, and legitimacy of claim then make payment. Your saying they don’t do that? You can’t even make logical arguments your grasping so desperately to support your failed dogma.

          “are happy to cover one month of life regardless of costs for all currently paying customers?”

          No I am not, not sure where you even get such a crazy idea. I’ll say it again clearly;

          Your demand to eliminate profits will not fund more then one month of the spending you demand we do on behalf of the 99%.

          The problem with our healthcare system starts and ends with people taking more out of the system then they contribute, our problem is Medicare/Medicaid not private insurance.

          People that do not work and contribute to society do not deserve the same healthcare as those that do, period. The exception being the truly disabled and kids, in the case of kids their parents are responsible.

          “administrative costs are also a fraction of what they are here. That’s how money is saved.”

          Studies have shown self funded plans have admin cost on par with any of the other OECD programs. Admin cost is not the difference in spending. You have to have a complete ignorance of Math to ignore that 80%+ of our spending goes to providers. If we spend twice as much as everyone else if you clicked your heels and eliminated ALL admin cost you would still be 50%+ over everyone else.

          Do the basic math. Admin is not and never has been the driving cause of our spending problem with the exception of public insurance fraud.

          “I get rid of the administrative nightmare created (purposefully) by private payers”

          What administrative nightmare do I purposefully make? Name even one?

          • Nate, as much as you would prefer to talk about redistribution of wealth as it pertains to health care services, this is not the question raised here. This is not about entitlements. It’s about 99% of Americans and it is about private payers as much as it is about public ones.

            Should people that work and do contribute to society be able to get that extra month if they so choose, or should “society” make that decision for them, if all their hard work and contribution did not translate into enough wealth to purchase the extra month on their own?
            These are folks with insurance, but you think its “crazy” to assume that insurance will pay for an extra month, which means that only the very wealthy amongst those who work hard all their lives will have a choice in the matter.
            I think this is blatantly wrong and also completely unnecessary at this point.

            My class warfare is not the welfare-poor against hard working Americans. It’s hard-working Americans against the greedy and selfish few at the top, and the government that now serves them.

          • “Should people that work and do contribute to society be able to get that extra month if they so choose,”

            If when they are healthy they buy insurance that covers the extra month of life and pay the premium for that right then yes they should receive everything they paid for.

            People should not be allowed to forgo insurance, not pay into the system, then demand that those that did the right thing buy them an extra month of life. Those on public healthplans should not get the extra month of life.

            “It’s hard-working Americans against the greedy and selfish few at the top,”

            Is everyone successful greedy and selfish?

            Is anyone in the 99% greedy and selfish?

            I have never seen you say anything that would imply no to the first and yes to the second.

        • at least your upfront that your practicing blatant class warfare. Just wish people like you would stop including me in your class. Only 20% or so of people agree with you, hardly a fight of or for the 99%.

  6. Nate –

    For the record, I would be willing to do away with the major tax deductions and preferences in exchange for lower marginal income tax rates on ordinary income. This includes: (1) the mortgage interest deduction, (2) the tax preference for employer provided health insurance, (3) the deduction for state and local taxes, (4) charitable contributions, (5) the personal exemption for the taxpayer and his or her spouse (but not the children) and (6) tax capital gains and qualified dividends at the same marginal rate as ordinary income or 28%, whichever is less. While I no longer benefit from #2 since I retired at the end of last year, I supported getting rid of it for years while I was still working. I also haven’t paid any mortgage interest since 1978 but I do currently benefit from the other four. Unlike most people, I’m willing to support changes in the law that could adversely affect my family because I think we need to get our debt and deficit under control.

    I would challenge every interest group to step up and answer the following simple question: What’s your contribution? That goes for both the federal debt and deficit imbalance and unsustainable healthcare cost growth.

    • Why would you keep a deduction for people choosing to have kids? They already get the advantage of free public education and all sorts of other support. If you choose to have kids you should pay for it, someone that chooses not to have kids shouldn’t be taxed more for not consuming more public resources.

      I think we need to ask what is your contribution and what is your burden.

      Ideally I would prefer we not tax work at all, much rather we tax consumption.

  7. Nate –

    While I’m no fan of President Obama’s policies, especially toward business, the main reason for his relatively low federal income tax rate is that he contributed $172K or over 20% of his adjusted gross income to charity. For what it’s worth, Governor Romney contributed close to that percentage of his $21 million of AGI to charity as well.

    I view charitable contributions as a voluntary tax that allows the donor to select the beneficiaries of his or her generosity.

    • they shouldn’t be tax deductible. To many sham charities meant to only enrich those that run them. If someone wants to be charitable do it post tax.

      • like this;

        Sen. Hillary Rodham Clinton and former president Bill Clinton have operated a family charity since 2001, but she failed to list it on annual Senate financial disclosure reports on five occasions.

        The Ethics in Government Act requires members of Congress to disclose positions they hold with any outside entity, including nonprofit foundations. Hillary Clinton has served her family foundation as treasurer and secretary since it was established in December 2001, but none of her ethics reports since then have disclosed that fact.

        The foundation has enabled the Clintons to write off more than $5 million from their taxable personal income since 2001, while dispensing $1.25 million in charitable contributions over that period.

        A lot of these will hire kids or family members that do nothing but get bloated salaries from the charity for their “work”

        Clean up the tax code and do away with all charitable write offs

  8. Yes, Barry, I am referring to Israel. Just because it’s small, it doesn’t mean that the principle cannot scale. We are now implementing changes in the US based on models that were tested in much smaller environments. If we can learn from Mayo and Kaiser, we should be able to learn from small countries too.

    As to Maryland and price negotiations in general, they keep disappointing because we do everything half way (trying to be polite here). Exempt payers from antitrust and exempt providers from antitrust and pharma and devices too. Get them all in one room, including the government, and let them negotiate, and make the proceedings public. How is that for transparency?
    Or just go to single payer and get this sorry game over with.

  9. To follow up on the MD all payer system, when it first went into effect in 1977, Medicare and Medicaid agreed to pay more than they did previously so private insurers could pay less. However, cost shifting to private payers was either still in its infancy back then so the gap wasn’t nearly as high as it is now. For Medicare and Medicaid to pay more today so private insurers could pay less would be a non-starter in the current federal and state fiscal environment.

  10. Regarding Maryland’s all payer system, I don’t think MD has done much better controlling healthcare costs than other states in recent years though their system has been in place since the late 1970’s. As you probably know, it only applies to hospital charges, not physician fees, drugs or other healthcare costs. I’ve heard Maryland doctors note that there is a crazy system now that allows hospitals to build facilities like imaging centers on an existing hospital campus but have it designated as “unregulated space.” Then we see the ridiculous site of a hospital inpatient being loaded into an ambulance, transported 100 yards to the imaging center on the same campus, getting the MRI and being transported back to the hospital, all so the image and probably the ambulance ride can be billed outside the scope of the all payer system.

  11. Margalit –

    Are you referring to Israel? It’s roughly the size of New Jersey in square miles and has 7.6 million people vs. 8.8 million for NJ. I don’t think it’s an apt comparison for the U.S. nor are the Scandinavian countries. Germany would be more appropriate from a healthcare system standpoint.

    If we want payers to negotiate more forcefully with providers, especially hospitals, then give them an anti-trust exemption for the purpose so they can negotiate as a group like the Swiss insurers do. If we want to see hospitals compete, let’s have disclosure of contract reimbursement rates and user friendly price and quality transparency tools available to both patients and referring doctors. Also, more people with tiered insurance networks would nudge them toward the most cost-effective high quality providers.

    If we want to get serious about fighting fraud, let’s require every provider with the authority to bill Medicare or Medicaid have a robust ID card with a picture, an address and both a numeric and biometric identifier.

    I think doctors will always expect to earn more money in the U.S. than their counterparts in other countries because the opportunity cost of higher earnings potential in other fields like finance and law among others are greater in the U.S.

    I don’t think it’s reasonable to cap by fiat what drug companies can charge for a specific drug. There are lots of costly research failures that never make it through clinical trials. Breakthrough drugs are especially expensive to develop as opposed to marginal improvements on existing therapies. Negotiate hard. Be prepared to say no, we won’t include it on our formulary. Without necessarily being precise about it, payers and drug companies need to develop a general consensus around a cost per QALY level that’s within the zone of reasonableness.

    I find it interesting that the parts of our economy that have the most government involvement as either payers or providing loans – healthcare and college costs are already super expensive and increasing faster than other parts of the economy. In both sectors, a focus on cost control and management is not a priority within those organizations and not a path to a rewarding and successful career.

  12. Bob,
    I use the term “negotiate” because I do believe manufacturers deserve a chance to be heard and explain their costs. I also used the term “an offer they cannot refuse”.
    I agree with you that prices should be set at a national level, and not just for drugs, but I think there should be sellers at the table were decisions are made, so we don’t make disastrous decisions.
    This model exists today in Maryland for hospitals and in other countries for most everything.

    I do believe pharma is different than Google and Microsoft because R&D is much more expensive and because Google makes most of its money from secondary uses of their consumer products. Secondary use of Google is very expensive (advertising).
    I am not interested in deterring research or putting pharma out of business, but there is plenty of room to cut prices before we reach a danger point.

  13. Good ideas above, but why do even left-wingers in America tend to use words like “negotiate” when they discuss drug prices?

    It is possible to find out the cost to manufacture a drug. (I consider research a sunk cost, just the way that Microsoft and the rest of American industry books it.)

    If the cost of production is $10 for a monthly supply and the drug company is charging $100, well, that is not unknown in American industry, and if competitors can come in for less then good for them.

    But if the drug company is charging $1,000 on a $10 drug and the patient has no choice, that is pure price gouging and should be illegal.

    I am not calling for the FDA or a similar board to set every actual price. But they can and should punish anyone who exceeds a maximum price for a patient who has no choice.

    As one of the Supreme Court justices once said in regard to pornography,
    “I cannot define it but I know it when I see it.” Same for price gouging.
    Negotiation is way too timid.

    I can hear the argument now, ‘who will do research’? One answer is to give the inventor of a new drug $10 million as a federal prize, then control the retail price after that.

    Another answer is that Google and Microsoft spend billions on research, yet charge relatively little for their products. Consumers not price gouged to pay for research.

    If pharma is that different from the rest of American industry, I am open to hear it.

    Bob Hertz, The Health Care Crusade

    • A $10 million prize may not be enough to pay for research on newer drugs. Besides, a fixed prize per drug would only encourage pharmaceuticals to simply generate as many new drugs as possible of questionable value with minimal research.

      A more useful prize system would set the prize amount based on the actual expected VALUE of the drug. If a new drug is expected to help N people add Y years to their lifespan, the prize value should by N x Y x V, where V is the implicit value of one year of life.

      But that is equivalent to just negotiating with the company and saying that the most that you are willing to pay for the drug per person is Y x V.

      Any way you cut it, there is an explicit or implicit value you attach to a person’s life.

    • It cost hundreds of millions if not more to get a drug through trials and into the market.

      It cost pennies to make it. You can’t ignore R&D. Not only R&D for that drug but you also need to factor in the failed drugs.

      For an accurate analysis take Pharma profit minus marketing and some excess salary and a portion of that is what could be cut out of the market.

      “Google and Microsoft spend billions on research, yet charge relatively little for their products.”

      Office cost over $300 and is full of bugs. Server and SQL cost in the 1000s. Compare MS and Google profit to the entire Pharma industry. Not a great comparison if your using them for the poster of reasonable profit.

      • Drug manufacturing costs are relatively low at only 17% of sales, but research and development investments are a higher percentage of sales than in virtually any other industry, including the electronics, aerospace, and automobile industries.[7]

        It is estimated that only one out of nearly 10,000 chemically synthesized molecules investigated as drug candidates actually becomes an approved drug.� During the 1990s, the average length of time required for drug development and government approval reached 15 years in the U.S.[10]� As the length time to bring a drug to market has increased, so have the costs, economic risks and uncertainties.� One study estimates the pre-tax cost of developing a drug introduced in 1990 to be $500 million

        That prize would need to be around 1 billion to make sense

  14. Margalit –

    Many of the big blockbuster drugs have either already gone off patent or will do so over the next several years including Lipitor and Plavix, the two largest sellers, by mid-2012. Lipitor is already off though still in its six month exclusivity period. The issue driving drug spending higher these days is the ultra high cost specialty drugs. I’ve heard drug companies claim that the price of these drugs is roughly the same in other developed countries as it is in the U.S. We already have an oligopoly of three drug wholesalers negotiating with the drug companies. If Medicare negotiated drug prices just on behalf of Medicare beneficiaries, they would be buying for fewer people that any one of the drug wholesalers. Moreover, there would then presumably be just one formulary for all beneficiaries whereas we now have hundreds of Part D plans for people to choose from. Each of those can establish their own formulary and drug tiers within it We like choice in this country even if it costs a bit more.

    One criticism I’ve heard foreign healthcare experts level at U.S. doctors and hospitals is that we don’t know when to stop. I said before that people in other countries are more accepting of death, in part, because they don’t want to burden their fellow citizens with unreasonable costs when the prognosis is dire to hopeless. I suspect that this is especially the case among those who have already lived a normal lifespan and then some. I don’t think it’s doing patients and families any favors when doctors hold out false hope rather than just gently say that there’s nothing more that we can do for you aside from keep you comfortable. In the case of cancer, doctors often know that the outlook is grim and the patient is dying well before they actually communicate that to the family. My earlier reference to practice pattern changes includes more honesty with respect to not only the prognosis but the quality of life implications of available options so the patient and family know exactly what they are signing up for if they opt for aggressive treatment.

    Finally, doctors and the big cancer centers are often anxious to enroll patients in clinical trials for the research value of what they might learn. While the drug undergoing trials is free to the patient because drug companies are not allowed to make a profit on drugs in trial, there are still substantial hospital and doctor charges that need to be paid, largely by insurers. I’m not looking for people to die quick cheap deaths; I’m looking for a complete and honest prognosis from providers and more realism on the part of patients and families.

    • Barry, having lived most of my life in one of those “socialist” countries, I can tell you with certainty that no one is “more accepting of death” and no one is concerned with burdening their fellow citizens when staring death in the face. It is a myth.
      I can also tell you with 100% certainty that what providers receive as compensation in those countries is only a fraction of what they receive here, (hospitals in particular), and that price variations are minimal and that administrative costs are also a fraction of what they are here. That’s how money is saved.

  15. Barry,
    I seriously doubt that magnanimity has anything to do with the VA drug pricing, and it has nothing to do with the prices negotiated by European countries for their citizens. It’s all about power in numbers. When you negotiate on behalf of 311 million people, you can make offers that cannot be refused by the other side.

    I do agree though that expensive drugs may turn out to be a net saving to the system overall, and I am not trying to vilify pharma. They do what a business needs to do, and we should do what we need to do.
    Besides, drugs as everybody mentioned above, are not a major component of expenditure, which calls into question the need to limit access to drugs based on all sorts of “value” schemes.

  16. Barry hit a health-economics sweet spot in his next to last post.

    Drugs have done an incredible job in shortening hospital stays. Someone with more medical knowledge than I could rattle off twenty examples in two minutes.

    In theory, and only in theory, that would reduce our spending on hospitals.

    If you can now get in and out of a hospital in 3 days for a kidney transplant,
    then hospitals should no longer get $300,000 for this surgery. Instead a hospital should get $2,000 a day or $10,000 overall, and even if the post-surgery drugs cost $50,000 we would be way ahead.

    Of course what has happened in the past 40 years is that spending has increased on both drugs and hospitals.

    There is no easy solution. Hospitals are the largest employer in many American cities, in fact some of them are wildly overstaffed. Hospital jobs have preserved the middle class, if you look at the many families where the husband-factory worker is laid off but his spouse-nurse now earns a good wage.

    The cure to high hospital costs may be worse than the disease. Which is another huge subject.

    But there is a defense for expensive drugs.

  17. Margalit –

    My understanding is that the VA formulary has only about one-third as many drugs on it as a typical Medicare Part D plan. I don’t think our elderly population which consumes about one third of prescription drugs would stand for that. I wonder how many of the newest cancer drugs our veterans have access to and whether their doctors can use them for off label indications after standard treatments have failed. Of course, most of the older vets are eligible for Medicare as well and the poorer ones may qualify for Medicaid too so they have someplace else to go if the VA can’t treat them. Perhaps some of the doctors out there could shed more light on the extent to which expensive specialty drugs are available and accessible to veterans within the VA healthcare system.

    Regarding price negotiations, it’s important to note that drug companies give the VA an extra discount not available to others because veterans are an especially sympathetic group due to the sacrifices they made for our country. Besides, there are only about 5 million of them who get at least some of their care through the VA and the World War II vets are rapidly dying off.

  18. Nate –

    You’re right about all the high selling brand name drugs going off patent over the intermediate term including Lipitor and Plavix in 2012. However, the biggest cost pressure in the pharmaceutical space is coming from the specialty drugs to treat cancer, MS and other diseases. Experts have told me that specialty drugs could account for as much as 35%-40% of all prescription drug spending by 2015 vs. 25% or so now. Moreover, even when a specialty drug ultimately goes off patent, producing a generic equivalent or so-called biosimilar is much more complex than duplicating a chemical compound. Since cancer is now our biggest killer, by a small margin vs. heart disease, of people under 65 years old, there are lots of cancer drugs in various stages of development. Heart disease is still our biggest killer overall including the elderly.

    Looking to the future, if the drug companies are ultimately successful in developing successful treatments for Alzheimer’s and dementia, it would be their Holy Grail. Drug spending would soar but we would presumably displace a lot of spending for skilled nursing facilities, assisted living and home healthcare. If that, in turn, increased our population’s health span (years of healthy life) as opposed to life span that would be a good thing even if overall healthcare spending rose somewhat as a percentage of GDP.

  19. I’ve commented several times in the past that net profit as a percentage of revenue is not a valid measure to compare profitability across industries because of huge differences in capital intensity. A large supermarket chain may need less than $0.30 in assets to support a dollar of sales while an electric or water utility might need $3.00-$4.00. I guarantee you that the utility will have a much higher ratio of net income to sales than the supermarket chain but it doesn’t mean it’s more profitable from a return on capital standpoint. Net profit as a percentage of sales is an easy concept for the average person to understand but it often leads to erroneous conclusions.

    The notion of profit relates to a return on invested capital after all business expenses, including labor costs, are paid. If an individual physician or a small group of doctors own their practice and their practice expenses excluding their own compensation total 50% of revenue, it doesn’t mean that their profit is 50% of revenue. They have a lot of latitude in determining how to allocate what’s left after practice expenses between their own compensation and profits to be reinvested in the business or distributed as dividends. If they choose to pay it all out in compensation, their profit will be technically zero but they may be extremely well paid. Ah, life can be complicated.

    • Interesting. I wish they showed their methods. Most doctor’s offices have zero profit, as the term is commonly used in industry. I guess they must be looking at bonuses, but that is not profit. Also, it is well known that pharma has been a leaders in profit percentages for many years.


      • Do some digging. See what NAICS Codes 6211 and 6214 include (hint: the breadth of specialists).

        And, are those “average pre-tax profits” weighted or unweighted? What are the min/median/max distribution characteristics (by strata).

        Private MD storefront entrepreneurs only, or muddled with employed docs? (Hint: the latter.)

        Re: 6212 Dentists. Inclusive of oral and periodontal surgeons? I know the payment-in-full-cash/check/credit card-two-weeks-in-advance guy that did my jaw bone graft surgery last year [ugh] isn’t missing any meals.

        My regular DDS is not likely making Ed’s kind of money, though.

        “No insurance”

        Uh, do we mean all of these people/firms were not 3rd party reimbursed? (Hint…)

      • Pharma ain’t what it use to be. The future is looking even worse. The inflation of brand cost has dropped noticeably and the next year or two are going to be a blood bath. Nexium, Lipitor and all sorts of big brands have gone generic or are going. No big name new block busters comming out. I wouldn’t expect to see them near the top for years to come.

        See if I can find the stat….

        The next 14 months will bring generic versions of seven of the world’s 20 best-selling drugs, including the top two: cholesterol fighter Lipitor and blood thinner Plavix.

        The magnitude of this wave of expiring drugs patents is unprecedented. Between now and 2016, blockbusters with about $255 billion in global annual sales are set to go off patent, notes EvaluatePharma Ltd., a London research firm. Generic competition will decimate sales of the brand-name drugs and slash the cost to patients and companies that provide health benefits.

  20. “why should we put pressure on drug manufacturers by denying treatment to people, who will die, instead of negotiating what they can charge in the first place so nobody has to die during our little game of invisible hands?”

    Margalit — When you negotiate a price with a drug company you are basically telling the drug company that you won’t pay more $X for a given drug. How do you determine what X is? It can’t be the same for all drugs. It can’t be based on the cost of production. For a patented drug, it has to be based on the value of the drug to the patient.

    If during negotiations you offer a price of X for a drug that increases lifespan by Y months, you are implicitly assigning a value of X/Y to one month of human life.

    And if you want to negotiate successfully, you have to be ready to accept that there will be times when X is deemed insufficient by the drug company and unfortunately some people will die as a result of that.

    • All true, Paolo, but I am not negotiating one drug here and one drug there separately and decide how the outcomes affect any one person.

      I generally negotiate the best possible price (like the VA, or better), and then negotiate with device manufacturers and then negotiate with hospitals and specialists and then I get rid of the administrative nightmare created (purposefully) by private payers and then I make an all out effort to minimize errors and profit driven over-treatment, and do everything on a national scale, so I can really put a dent in costs, and then, and only then, I look to see if it is still necessary to harm vulnerable people. My guess would be that it is not. But even if I’m wrong and after we squeezed out all the profiteering and waste, there is still a need to skimp on care, surely we will need to skimp less. So why not start there? Better yet, how dare we not start there?

      • “and then I get rid of the administrative nightmare created (purposefully) by private payers ”

        And replace it with what? The administrative simplicity of Medicare? The largest claim denier in the land. Not to mention the 10% fraud you just added wiped out all of the cost savings you just achieved. So know your paying more for poorer service, thats a great step forward.

        “and do everything on a national scale,”

        Ever wonder why Medicare is the most inefficient health system in the world?

        Can you name another country that has a single health system? Canada does by Province. UK does by 17? trust. Germany is broken up, france is broken up. And those are populations of 20-30 million that have found it more efficient to manage smaller trust or programs.

        And you want to create one uber plan of 330 milllion people modeled after that most inefficient system in the world? This is why you shouldn’t listen to liberals.

      • I don’t think anybody is suggesting setting up a health care tribunal that makes life or death decisions on a case by case basis. We are talking about having a reference value of life to be able to perform cost-benefit analysis on health care policy: how much money can we pay for a drug that extends life by X months? What funding do we give to NHS researchers working on disease Y? etc.

        Having a more efficient delivery system is great (and we can debate how to do that forever), but even if you still had the most efficient delivery system you still have to perform cost-benefit analysis.

        If you simply value life at infinity, then what prevents you from having a pharma company spend $1 billion on a custom drug that helps just 1 person and then expect to get paid for it?

        Even if you nationalized the entire health care industry and put everyone on a fixed salary (and completely removed all profits), you still need to perform cost benefit analysis to determine how to best improve people’s health using a fixed budget.

        And btw, if engineers had to value life at infinity, they wouldn’t be able to build bridges, airplanes, and automobiles.

        • We need not dabble in hypothetical situations of 1 billion dollar pills. If you look at the graph in the JAMA article I linked to above, you can see that fraud, pricing failure and administrative complexity are the major offenders. Addressing those should be more than enough, and it does not require overcoming any moral dilemmas. We don’t need to debate these things forever, we just need to do it.

          BTW, once QALYs are considered, you may not have formal tribunals, but you’ll be awfully close. We should not go there just because we’re too lazy to fix the paperwork.

  21. I think there are some misconceptions out there about how the prescription drug market works. First, about 75% of drugs by value are sold through retail pharmacies or pharmacy benefit managers (PBM’s). The other 25% are dispensed through institutions like hospitals and nursing homes or, in the case of certain cancer drugs that are infused in oncologists’ offices, are bought by the oncology practice and then billed to the payer at some presumably reasonable markup.

    The retail pharmacies, PBM’s and institutions buy their brand name drugs from drug wholesalers. There are three of those that control most of the business in the U.S. – Amerisource Bergen, Cardinal Health and McKesson. They’re the entities that negotiate with the drug companies. PBM’s, the large drug chains like Walgreen and CVS and the big retailers like Wal-Mart buy their generics direct from the manufacturer while the smaller retailers buy from the wholesalers.

    The drug benefit portion of most health insurance plans is carved out and handled by a PBM which negotiates payment rates with the retail drug chains, independent drug stores, supermarket pharmacies, wholesale price clubs and discount department stores. Medicaid works somewhat differently. The PBM’s also offer mail order delivery of generics which is one of the ways they make money. The others are administrative fees, rebates from drug companies, and the spread between what they pay the retail pharmacy and what they bill the employer.

    Payment for drugs dispensed in hospitals is usually factored into either the case rate or the per diem rate for the hospital stay though very expensive drugs may be carved out and handled separately. Drugs dispensed in nursing homes are billed to the patient if she’s private pay or to Medicaid or Medicare.

    At the end of the day, reimbursement rates for brand name drugs are heavily influenced by what the wholesalers can buy them for. Their markups are tiny (low single digits) but sales volume is huge. Perhaps Nate could add some additional color or correct any errors I made in my description.

  22. Margalit –

    Private payers already negotiate drug prices and do so as aggressively as they can. They don’t just agree to pay whatever the drug company wants. The drug wholesalers who buy brand name drugs from the pharmaceutical companies and resell them to the 65,000 plus retail pharmacies have limited leverage with the drug companies as do the insurers who ultimately pay most of the bills. The drug companies’ attitude toward the wholesalers and retail pharmacies is basically that if the docs are prescribing it, you have to carry it and the price is the price. Assuming there is no generic equivalents and no close brand name competitors in the therapeutic class and the drug is protected by patents, most of the leverage is with the drug companies. The main option for payers is to refuse to buy it or include it on their formulary. New to the market cancer drugs are expensive in every country where they earned the equivalent of FDA approval.

    When it comes to so-called orphan drugs, the Orphan Drug Act gave drug companies incentives to do the research to discover and produce drugs that will help a very limited number of patients with rare diseases and conditions. Those incentives allow them to charge high prices. The poster child in this category is probably Cerezyme produced by Genzyme to treat Gaucher’s Disease. It costs several hundred thousand dollars per year. The patient needs to take it forever and without it, he’ll die. There are about 6,000 people with Gaucher’s in the U.S. and 15,000 worldwide.

    By contrast, the market for generic drugs is intensely competitive and prices for those are actually cheaper in the U.S. than they are in other countries. There are multiple manufacturers for most of these and generics now account for over 70% of all prescriptions but only 10%-15% of the dollars spent on drugs. All drugs, including generics, account for 10%-12% of U.S. healthcare costs and about 20% of healthcare claims for a typical insurer. The other 80% of claims are split about evenly between hospital care (inpatient + outpatient) and physician fees, independent labs and imaging, PT, etc. It costs a lot of money to develop new drugs including the cost of all those that don’t make it through clinical trials.

    I’m all for eliminating waste elsewhere in the healthcare system as I’ve written about extensively and often as you well know. Those efforts can proceed on a parallel track with saying no to paying for drugs that drug companies are demanding too much money for.

    • Barry,
      In view of your last paragraph, I guess our disagreement is rather minor. I don’t think we should do these things in parallel because I believe doing one will obviate the need for the other, and because I am uncomfortable with telling people who want to be alive a bit longer that their lives are not worth my money, so they should just die. It would be different if all other options were exhausted first, but it would still be deeply disturbing.

      And by all other options, I mean “negotiating” prices nationally, for everything. I suspect we disagree on this one.

      • “I am uncomfortable with telling people who want to be alive a bit longer that their lives are not worth my money”

        So your health care reform is based on not wanting to be an adult and having to make grown up decisions? It’s just like the mother that spoils the child. Why do you think we have spending like we do, because people like you don’t want to have to make the hard decision to say when is enough. Of course you never do it with your own money, it’s always someone else that should be giving more which makes it all the more terrible. That guy should give up all of his money so you don’t feel bad.

        Obama pushing the buffet rule while he pays lower tax rate then his secratary due to sheltering $48,000 in income to his daughters.

        Elizabeth Warren saying the rich need to pay more while she doesn’t take advantage of the MA option for voluntary higher tax rate.

        Liberals are all the same, we need to spend more and do more just not with my money.

        How about this Margalit, when you give up all your creature comforts and live the life of a nun after donating all your money, then you start demanding others give up more of theirs.

        Besides demanding that others pay what have you really done for the poor person you can’t bear to tell their life isn’t worth your money, cause you do it every day when you spend your money on everything but them.

        • “So your health care reform is based on not wanting to be an adult and having to make grown up decisions?”

          No,it is based on my reluctance to play God, and a long history of catastrophic tragedies when people tried to do just that.

          • what do you think your doing when you take money and resources from one person and give them to another?

            Liberals played god with public housing and that was a disaster.

            Liberals played god with welfare and that was a disaster.

            Your right when humans play god it usually leads to terrible things….so why do you keep doing it?

        • “Obama pushing the buffet rule while he pays lower tax rate then his secratary due to sheltering $48,000 in income to his daughters.”

          This is completely untrue and worth refuting. Contributing a total of $48k to two 529 college plans does not lower your federal income tax. 529 plans allow you to make a contribution of up to $12k that is GIFT-TAX free. They don’t affect your INCOME TAX payments. Every responsible parent who can afford it should open a 529 plan for their kids.

          The reason Obama pays a slightly lower income tax than his secretary is that he gave 22% of his 2011 AGI to charity.

          • Did he release that or is it supulation that is where the gifts went? After spending far more time reading someone else’s taxes then I care for I couldn’t find it. In analysis by forbes, cnn, and others they say that might be what it was used for but nothing defnitive. Maybe I missed the itemizations but I didn’t see the write offs detailed either. i.e. 49K on his foreign income.

  23. Read the link from Peggy noonan in today’sWSJ and then figure out how I apply it here

    People in politics talk about the right track/wrong track numbers as an indicator of public mood. This week Gallup had a poll showing only 24% of Americans feel we’re on the right track as a nation. That’s a historic low. Political professionals tend, understandably, to think it’s all about the economy—unemployment, foreclosures, we’re going in the wrong direction. I’ve long thought that public dissatisfaction is about more than the economy, that it’s also about our culture, or rather the flat, brute, highly sexualized thing we call our culture.

    Now I’d go a step beyond that. I think more and more people are worried about the American character—who we are and what kind of adults we are raising.

    Every story that has broken through the past few weeks has been about who we are as a people. And they are all disturbing.

    A tourist is beaten in Baltimore. Young people surround him and laugh. He’s pummeled, stripped and robbed. No one helps. They’re too busy taping it on their smartphones. That’s how we heard their laughter. The video is on YouTube along with the latest McDonald’s beat-down and the latest store surveillance tapes of flash mobs. Groups of teenagers swarm into stores, rob everything they can, and run out. The phenomenon is on the rise across the country. Police now have a nickname for it: “flash robs.”

    That’s just the young, you say. Juvenile delinquency is as old as history.

    Let’s turn to adults.

    David Gothard
    Also starring on YouTube this week was the sobbing woman. She’s the poor traveler who began to cry great heaving sobs when a Transportation Security Administration agent at the Madison, Wis., airport either patted her down or felt her up, depending on your viewpoint and experience. Jim Hoft of TheGatewayPundit.com recorded it, and like all the rest of the videos it hurts to watch. When the TSA agent—an adult, a middle aged woman—was done, she just walked away, leaving the passenger alone and uncomforted, like a tourist in Baltimore.

    There is the General Services Administration scandal. An agency devoted to efficiency is outed as an agency of mindless bread-and-circuses indulgence. They had a four-day regional conference in Las Vegas, with clowns and mind readers.

    The reason the story is news, and actually upsetting, is not that a government agency wasted money. That is not news. The reason it’s news is that the people involved thought what they were doing was funny, and appropriate. In the past, bureaucratic misuse of taxpayer money was quiet. You needed investigators to find it, trace it, expose it. Now it’s a big public joke. They held an awards show. They sang songs about the perks of a government job: “Brand new computer and underground parking and a corner office. . . . Love to the taxpayer. . . . I’ll never be under OIG investigation.” At the show, the singer was made Commissioner for a Day. “The hotel would like to talk to you about paying for the party that was held in the commissioner’s suite last night” the emcee said. It got a big laugh.

    On the “red carpet” leading into the event, GSA chief Jeffrey Neely said: “I am wearing an Armani.” One worker said, “I have a talent for drinking Margarita. . . . It all began with the introduction of performance measures.” That got a big laugh too.

    All the workers looked affluent, satisfied. Only a generation ago, earnest, tidy government bureaucrats were spoofed as drudges and drones. Not anymore. Now they’re way cool. Immature, selfish and vain, but way cool.

    Their leaders didn’t even pretend to have a sense of mission and responsibility. They reminded me of the story a year ago of the dizzy captain of a U.S. Navy ship who made off-color videos and played them for his crew. He wasn’t interested in the burdens of leadership—the need to be the adult, the uncool one, the one who maintains standards. No one at GSA seemed interested in playing the part of the grown-up, either.

    Why? Why did they think this is OK? They seemed mildly decadent. Or proudly decadent. In contrast to you, low, toiling taxpayer that you are, poor drudges and drones.

    There is the Secret Service scandal. That one broke through too, and you know the facts: overseas to guard the president, sent home for drinking, partying, picking up prostitutes.

    What’s terrible about this story is that for anyone who’s ever seen the Secret Service up close it’s impossible to believe. The Secret Service are the best of the best. That has been their reputation because that has been their reality. They have always been tough, disciplined and mature. They are men, and they have the most extraordinary job: take the bullet.

    Remember when Reagan was shot? That was Secret Service agent Tim McCarthy who stood there like a stone wall, and took one right in the gut. Jerry Parr pushed Reagan into the car, and Mr. Parr was one steely-eyed agent. Reagan coughed up a little blood, and Mr. Parr immediately saw its color was a little too dark. He barked the order to change direction and get to the hospital, not the White House, and saved Reagan’s life. From Robert Caro’s “Passage of Power,” on Secret Service agent Rufus Youngblood, Nov. 22, 1963: “there was a sharp, cracking sound,” and Youngblood, “whirling in his seat,” grabbed Vice President Lyndon Johnson and threw him to the floor of the car, “shielding his body with his own.”

    In any presidential party, the Secret Service guys are the ones who are mature, who you can count on, who’ll keep their heads. They have judgment, they’re by the book unless they have to rewrite it on a second’s notice. And they wore suits, like adults.

    This week I saw a picture of agents in Colombia. They were in T-shirts, wrinkled khakis and sneakers. They looked like a bunch of mooks, like slobs, like children with muscles.

    Special thanks to the person who invented casual Friday. Now it’s casual everyday in America. But when you lower standards people don’t decide to give you more, they give you less.

    More Peggy Noonan

    Read Peggy Noonan’s previous columns

    click here to order her book, Patriotic Grace

    In New York the past week a big story has been about 16 public school teachers who can’t be fired even though they’ve acted unprofessionally. What does “unprofessionally” mean in New York? Sex with students, stalking students, and, in one case, standing behind a kid, simulating sex, and saying, “I’ll show you what gay is.”

    The kids in the flash mobs: These are their teachers.

    Finally, as this column goes to press, the journalistic story of the week, the Los Angeles Times’s decision to publish pictures of U.S. troops in Afghanistan who smilingly posed with the bloody body parts of suicide bombers. The soldier who brought the pictures to the Times told their veteran war correspondent, David Zucchino, that he was, in Zucchino’s words, “very concerned about what he said was a breakdown in . . . discipline and professionalism” among the troops.

    In isolation, these stories may sound like the usual sins and scandals, but in the aggregate they seem like something more disturbing, more laden with implication, don’t they? And again, these are only from the past week.

    The leveling or deterioration of public behavior has got to be worrying people who have enough years on them to judge with some perspective.

    Something seems to be going terribly wrong.

    Maybe we have to stop and think about this.

    Sorry, could not link the article normally from the iPod.

  24. Bob –

    Of course, I understand and empathize with the position that someone facing an end of situation cannot, with rare exceptions, pay for $100K or more for cancer therapy. Price controls are not the answer though. Recent changes in Medicare payment policy that sharply limits the profit margin that oncologists can make on generic cancer drugs they buy and then bill Medicare for resulted in shortages.

    At the same time, the FDA will approve drugs that are proven to be better than a placebo but are not necessarily better at extending life than other drugs already in use. They may have fewer side effects or can be taken orally rather than infused though. At any rate, we can’t just let drug companies charge whatever they want either. Otherwise, they might try to charge $1 million or $2 million instead of $100K. So, at some point, payers need to be prepared to refuse to pay for the drug and include it on their formulary. Since only a handful of wealthy patients would be able to pay, there would, in effect, be no market and drug companies would either charge less to get on the formulary or not develop the drug in the first place.

    This is essentially what the UK’s NICE does. It also means being prepared to quantify how much we are willing to pay per quality adjusted life year (QALY) and, if you multiply that number by the number of years in a normal life span, implicitly quantify how much a life is worth.

    As Nate noted, we already define how much a life is worth in areas like environmental regulation where cost-benefit analysis is done in connection with considering new rules and regulations. We’re not going to force utilities, for example, to spend $100 billion on air pollution control equipment in order to avoid one premature cancer death. The plain fact is that resources are finite and we need to set limits but we need to set them rationally and fairly. That includes refusing to pay for services, tests, procedures and drugs that either don’t work or cost more than they’re worth. The wealthy will always be able to self-pay if insurance won’t while the middle class and the poor won’t be able to.

    • Barry,
      Everything you write makes the utmost sense in a true emergency situation, such as say triage on the battlefield, when there is absolutely no choice other than prioritizing lives.
      In our situation, there are many things that can be done and should be done before we embark on systematic triage of who goes to the left and who is sent to the right.
      For exactly what those things are, see Dr. Berwick’s article in JAMA http://jama.ama-assn.org/content/early/2012/03/12/jama.2012.362.full.pdf

      My personal outrage is that we seem to find it easier to accept that poor people should die sooner, than it is for us to demand that corporations (of the manufacturer, payer and the provider type) curtail their obscene profit taking out of our health care dollars.

      For example, why should we put pressure on drug manufacturers by denying treatment to people, who will die, instead of negotiating what they can charge in the first place so nobody has to die during our little game of invisible hands?

      There is plenty of additional health care related stuff rich people can buy to make them feel superior. Life should not be one of them, and there is no valid reason that it should be.

      • there is also tons poor people can do before they go running around with their hand out demanding someone else pay their bills.


        Why should I sacrifice what I work for and earn so smoking, drinking, fat people can live linger spending my money? Why do you always expect someone else to give more?

        If they don’t have a chance to make obscene money why risk the billions to find a new drug?

        Which pharma companies do you want to BK, you keep attacking the industry as if there is no difference between the low margin generic makers and research oriented brands.

        What payers are making obscene profits, I’m a payer and far from rich. These aren’t solutions there pathetic class warfare rants. Add up all your claimed obscene profits and you can cover the poor for a couple weeks. Who do you want to rob to pay for the other 10 months?

        • What’s wrong with class warfare?
          The 1% class has been conducting class warfare since 1980.
          Surely a “class” has a right to defend itself after decades of being swindled by another “class”.

          It used to be that political ideologies battled each other, but both parties are now in your “class”, so we need to find another way, and we will.

          • Defend its self realy? The 99% doesn’t exist, majority of your swindled disagree with you. Food Stamps are up 70% how they are being swindled living off others. Unemployement pays for 99 weeks how are they being swindled?

            The only way your class can be swindled is if you start with the premis they are entitled to handouts from others and they are not receiving as much charity and wealth distribution as you think they are entitle to.

            Your 99% BS isn’t going anywhere, its a movement of smelly sexual molestors and worthless bums that don’t want to contribute to society, try calling it the 15%, which it really is.

  25. Barry is a very valuable contributor, but I cannot go along with his apparent acceptance of what he describes as ‘value pricing.’

    My whole point is that near the end of life, most people and their loved ones want anything that works. They are not making a value judgement at all. They have no idea what the care is worth. The price is essentially forced upon them.

    End of life care is what Michael Walzer calls a ‘trade of last resort’ or a ‘desperate exchange.’ (I think the book was called Spheres of Justice.)

    A mother who has no food for her children will sell her body for pennies, and it has happened in every war in history. This is a desperate commercial exchange, I suppose, but one we should try to regulate with the utmost severity. Same basic principle for end of life care. Get rid of all assumptions about economic choice and control the prices that are charged!

    (In Barry Graeber’s recent book on Debt, he has a couple of pages which describe how many prosperous economies have depended on force and monopoly and near-slavery at their core, and not free exchange. To some degree we have another one here in the end of life area.)

  26. At my last employer for whom I worked for 18 years, we always had a lifetime cap on our health insurance benefits. From late 1993 through the end of 2006, it was $1 million. After that, it was raised to $5 million. The insurer was Highmark Blue Cross — PPO.

  27. You’ve framed the issue well. And most will struggle with the ethic of physicians placing a price on life as well. The best solution is probably a requirement the best evidence be shared with the patient/family, coupled with a means based economic cost share that has no out-of-pocket max. Since our financial assets generally pass to family members, perhaps the best outcome would occur if members voluntarily chose to discuss their decisions amongst those they love, and moved forward accordingly.

  28. Ms. Berman (in the HA article) made her choice, and Mr. Prat here made his. Presumably both decided how to proceed to the best of their educated and informed ability. This is how it should be.

    All those vocally advocating that the government or corporations or “society” should be granted the right to summarily decide who lives and who dies, based on costs divided by some nebulously calculated benefit, should consider that following such abdication of liberty, there isn’t much left for the individual.
    I would also venture a guess that the advocates of commercialization of human life, have it well within their means to escape what they propose.

    Talking about “solidarity” and “social contracts” in a country where these concepts seem to apply only to poor people, asked to go without so that the rich can get richer, sounds a bit hollow I would say. How about we begin applying solidarity by having everybody pay their taxes, including our outstanding corporate citizens?

    There have been numerous studies and analyses written by many experts in many prestigious journals, and the health care problem always goes back to inflated pricing by providers and administrative chaos induced by payers, all of which is driven by corporate and personal greed.
    I second Bob Hertz: fix that first and if we still have a problem afterwards, we can discuss selling the poor and the elderly and the sick down the river later.

    • Margalit, are you saying that any patient should have the ability to purchase any health care service she wants at any time in any amount with no concern to cost or ability to pay? Is there any country that does this?

      • Any necessary health care service that has been approved by the FDA. Yes.
        ( I am not talking about botox and massages here, and neither am I talking about weird snake oil stuff…)

        I thought the US was a different kind of country….. Being different in a good way has not stopped us before, so why start now?

        • We used to be a different country, but in a way that would tend to head in another direction from what you are proposing. What you are proposing has never worked for more than a few years or for a large society – it has never worked in the entire history of civilization, and never will unless miraculously resources become unlimited. Philosophy apparently trumps reality – the reality in which there is always ineqality. There is nothing you can do to eliminate ineqality unless you adopt the draconian ideas that propose that, for the benefit of world society, a significant portion of the population needs to be eliminated and the remainder exist happily under one govenment. Utopia.

          • Dr. Mike, I am not suggesting an egalitarian system. I am suggesting a system where we place at the least the same value on the life of a pauper and the profits of a magnate.
            We are now suggesting rationing because we are uncomfortable asking the rich and powerful to take less profit in this particular domain. (See the JAMA link I posted a bunch of comments down the page.)
            I also happen to think that this crisis is temporary as breakthrough advances in curative medicine are long overdue and will materialize in a few decades or so, thus reducing both financial pressures and moral dilemmas.
            In the interim, I’d rather we don’t go down a path that future generations will live to regret.

        • Interesting. So what happens in your system when a private hospital decides to bill $100,000 for the administration of an FDA-approved aspirin to a homeless person? Somebody will just pay for it?

          • No. If you go up a few comments, you’ll see that I suggest that before you take away the aspirin from poor people, you should take away the right of others to exercise infinite, unadulterated and, in my opinion, criminal greed.
            If the aspirin is fairly priced, there is no need to withhold it.

          • Do the math Margalit, Government spends 1 trillion a year on healthcare. Medicare is already 40 trillion in debt. In order to fund a fraction of what you demand you would need to take all profits. Every last cent. There aren’t nearly enough greedy rich people, profits, or money in general to fund all the liberal spending dreams.

          • http://money.cnn.com/magazines/fortune/fortune500/2010/industries/21/index.html

            Roughly had the following profits in 2010

            Pharmaceuticals 61 Billion
            Insurance Stock 7 Billion
            Insurance Mutual 2 Billion
            Med Device 7 Billion
            Health Care Ins 13 Billion
            Health Care Facilities 1 Billion
            Health Care Rx Other 5 Billion

            Thats 96 billion. That is one month of public healthcare spending under our criminally greedy present system.

            Wave your magic liberal wand and take 100% of the profit and somehow keep these people working and inventing and everything else and your covered through January.

            What are you going to do for the other 11 months Margalit?

            Its time to kill Liberal class warfare. There is not enough greed to pay for your pipe dreams.

  29. And this is why so many sick people from Canada and England come to the United States for treatment. The moral of the story is you better be able to pay for your own health care and go to a country that doesn’t make the ultimate decision for you.
    I would ask SJ, why do we think that insurance companies are expected to make these decisions for patients. Insurance is not a medical decision making body. They underwrite a potential loss and they negotiate contracts. If an insurance company started making decisions based on probabilities (as England’s medical board) we are no longing dealing with insurance we are dealing with patient care.
    That may be what we end up with under national health care but it is certainly not what we have today.

  30. In response to R Prat, I would ask the opposite question..”Who are we to say yes?” Once responsibility in health is assumed by a provider and expected by the patient, additional reprehensibility go along with it (ie cost, suffering, quality of life etc.).

    • SJ, I think this implies a move to national health care where others are potentially paying for your treatment. Today, an insurance company is not in the treatment business but in underwriting potential costs and loss due to health issues. If and when we move to national health care, insurance companies will become administrators and not insurance providers.

  31. As someone that has survived stage 4 cancer (7 years), I can assure you that no one knows what end of life really is, and that is the real problem. My odds of survival where very small but I not only survived I am thriving. As a statistician I would have made the decision that the cost of my care and the probability of survival where out of balance. It would be a financial decision and not a human decision. Do we really say no? Who are we to say no.

    The opportunity is to bring down the cost of care so these decisions are not financial decisions. I have seen the cost of care more than double in the past 7 years.

    • Almost every person that dies of anything but a major car crash or dismembered can be put into a coma.

      American car-crash victim Terry Wallis is believed to have survived the longest coma, when, in 2003, he woke up after 19 years.

      He was 39 but thought he was still a teenager and didn’t recognize his mother.

      We can’t have tens of millions of people in comas for 19 years. It is not possible to reduce the cost of care to a point you can do everything or every body. Yes we do say no and yes that will mean death for people that would have miraculously recovered. It is much more compassionate to be honest about this and deal with it then pretend otherwise.

  32. For those with access to Health Affairs magazine, I suggest reading Amy Berman’s essay in the “Narratives” section of the current issue. It’s about her diagnosis of Stage IV inflammatory breast cancer in November 2010 at age 51. There is quite a contrast between her NYC oncologist who asked her about her goals in the course of determining how best to proceed and the famous specialist she saw in another city who basically said “this is what we’re going to do” without consideration of her goals and priorities. Everything I read about shared decision making, whether it relates to elective procedures like hip and knee replacement or care at the end of life, suggests that the more fully informed patients and families are, the more likely they are to choose more conservative treatment options.

    From a cost perspective, it looks to me like different diseases require different strategies. For dementia, Alzheimer’s and cancer treatment, I think the issue is physician practice patterns. There is a need to ensure that patients are more fully informed about their prognosis, their treatment options, the quality of life implications of each of those and the approximate cost even when insurance is paying all or most of the bill. For less immediately life threatening chronic conditions like CHF and COPD better hospital discharge planning and case management can reduce hospital readmissions and increase patient compliance with taking their medications and following their doctor’s recommended treatment approach. Everyone, at least among the middle aged and older, should also have a living will or advance directive.

    For those who would like to see us move to a Western European health system that includes universal coverage and progressive taxpayer financing, an implicit part of that bargain, as part of their “solidarity” concept is that individual patients don’t impose unreasonable costs on their fellow citizens. That means that they are more accepting of death when the end comes and they don’t insist on ultra expensive futile treatment to be paid for by someone else. Moreover, in Germany, the top 10% of the income distribution is free to opt out of the public system and purchase private coverage though not all of them do so.

    Bob Hertz – The high price charged for patented drugs and for some surgical procedures is based on a concept we in finance call value based pricing as opposed to some reasonable markup over the cost of production. If a potentially life saving or life extending treatment is perceived by enough people to be worth $100K even if it costs a tiny fraction of that to produce, that’s what will be charged. If it’s protected by patents, there won’t be competitors to drive the price down unless they can come up with an equally effective approach that doesn’t violate existing patents and are willing to charge less to gain market share.

  33. Good article, but like 99% of the writing on end-of-life-care it misses the real question.

    Does any treatment really cost $75,000? Is that a fair price to begin with?

    Has the price been bloated by stupendous drug company markups?

    Has the price been bloated by overpayments to surgeons?

    Is the price just a reflection of days in intensive care?

    Try this exercise with any life-saving care:

    — perform the care in a VA hospital with German drug prices and
    staff doctors……

    and then see if it still costs $75,000.

    Don’t make rationing decisions until we can push down the prices!

    Bob Hertz, The Health Care Crusade

  34. The logical thing to do here would be for society to decide on a reference cost of one year of life (which would also be adjusted based on quality of life issues described by Barry).

    Public insurance and basic private insurance would use this “price of life” to decide what treatments get covered. Individuals who want more coverage would pay for it themselves, either by paying the additional cost out-of-pocket or by purchasing premium insurance.

    Unfortunately, the country is not ready to make this kind of decision.

    • Interesting idea. We decide on the price of a poor person’s life, while the rich get to valuate their own priceless and unique lives. Didn’t we try this system already?

      And who decides how much a person should cost? Society? The country? What are these things? Right now everything is decided by monied interests. Our “representatives” are running fraudulent election campaigns, saying whatever it takes to get elected, and once elected, proceed to do whatever their true masters direct them to do.
      We wouldn’t even be discussing health care if it didn’t add 20 cents to the cost of designing an iPad.

      I can only hope that this “country” will never again be ready to make this kind of decision.

      • The rich have always and will always get whatever health care they can afford individually, even if it’s wasteful. Unless you confiscate their wealth that is not going to change.

        The poor have always and will always get whatever health care the society they live in can collectively afford. You can either allocate these limited resources with consistent, rational, efficient, and fair policies or you can continue to have an irrational non-policy, where some poor get unlimited and wasteful care and others get nothing.

      • Ms. Gur-Arie’s reasoning represents a sort of tunnel vision. If you spend all of your time thinking about health care, it’s easy to forget that resources used on health care are resources not used on something else, like education. Many people who use this type of reasoning will come back and use it again for education and other social goods. Clearly there needs to be some principle for distributing resources across different needs.

        The point of establishing a value of a life-year is not to say that a person is worth X amount. Instead, it is to establish the value at which you would make people better off by spending on something else (like education or housing).

        • I agree, fid72. The reasoning Margalit seems to be displaying here reminds me of a trope that drives me nuts in movies and TV. It’s especially common in Star Trek: the captain puts the lives of the entire crew or landing party in extreme jeopardy to try to save the life of one crew member. You know the plots: the captain hangs around an extra few minutes as the enemy closes in, or refuses to jump to warp as the bomb ticks out its final few seconds, so that if the rescue maneuver fails everyone dies.

          The reasoning is: a life is too valuable to waste; we cannot simply “let” someone die. And yet, apparently the many lives of the crew are not too valuable to waste if the extremely perilous mission goes wrong.

          We should be willing to take some risks and make some sacrifices for others, but there are always trade-offs and we shouldn’t pretend otherwise. Lives are harmed by spending limitless amounts on healthcare. It isn’t just that education and transportation infrastructure suffer. Those extra dollars for care translate into lives’ worth of work. If the average lifetime earnings of a person is one million dollars, then spending one million dollars to lengthen a gravely ill person’s life by one year means that the entire lifelong monetary product of an average person’s work is going to pay for one person’s additional year of life. Of course, with insurance this cost is distributed and doesn’t fall on a single individual, but multiply the costs for many very sick people and the incremental amounts can quickly add up. And it is not just the money that gets taken to pay for health care, but the time it took to earn that money because it was taken out of the person’s paycheck and could not go to other living expenses (or saving), so effectively longer hours had to be worked for the same standard of living. By taking away people’s time, you are effectively taking away a piece of their life (that they could have spent doing something more enjoyable, like being with their children, or retiring earlier). I am oversimplifying, but I hope all can recognize that this dynamic exists.

          • Americans will spend an average of 29% of their income on federal, state and local taxes in 2012, the Tax Foundation announced Monday. That’s more than the average family spends on food, clothing and housing combined, the organization said.

            And it means that the average American is going to be working 107 days into the year just to earn enough money to pay their taxes.

            Obviously we need to work some amount of our year to pay taxes but when 3-4 months are taken that is getting to long. Especially when I see millions of people not working at all or working very little and taking vacations or spending all day with their family not having to make the same sacrafices.

            This is the problem with progressive tax schemes, they are by definition discrimitory. They guarantee some people a better more enjoyable life not based on effort or contribution but popularity.

            I have read that the first person to live to 150 has been born, I haven’t seen what that does to our enetilement programs but imagine it can’t be pretty.

          • Jonathan, perhaps you should have a conversation with a Marine regarding the notion of leaving people behind.

            Regardless of that, the issue with your logic is that it is not realistic. We don’t have a problem in health care because of the so called “million dollar babies”. We have problems because of millions of small wasteful things and because we pay twice what we should pay to HC corporations.

            My suggestion is to put waste and corporate profit on the chopping block first instead of volunteering to sacrifice the lives of those who cannot afford the ransom. We can discuss rationing of lives, if necessary, after we deal with waste and price failure.
            All arguments to the contrary are based on calculations that assume the status quo, and frankly, are immoral.

          • How much profit do you think there is in the 2 trillion of spending that you can chop?

            Next question to ask is how much of your desired spending would that choped profit pay for?

            If eliminating all profit will fund 1 month of your spending it’s not the place to start. It’s an excuse to not make the hard decisions.

          • Let me know if this misrepsents your point, want to be fair.

            We need to stop honest hard working people from making a profit so these people who can’t “afford” the ransom don’t suffer?

            “The Grandma calls the Department of Child & Family Services, and states that the unemployed daughter is not capable of caring for all of her kids. DCFS agrees, and tells her the children will need to go into foster care. The Grandma then volunteers to be the foster parent, and receives a check for $1500 per child each month in Illinois.

            Total yearly income: $144,000 tax-free and nobody has to go to work! In fact, they get more if there is no husband/father/man in the home! Not to mention free healthcare (Medicaid), plus a monthly card entitling them to free groceries and a voucher for 250 free Obamaphone minutes each month. This does not include WIC and other welfare benefits…that they are “entitled” to.”

    • “Unfortunately, the country is not ready to make this kind of decision.”

      We already have for airline and auto accidents. For pollution and other public policy matters we have as well.

      The issue is people don’t want to take insurance companies off the hook, who would the politicians attack and blame all of this on if the insurance companies used a publicly accepted value of life?

  35. How about everybody gets to apply their opinions to themselves and not to other people’s bodies and lives?

    How about we actually practice patient-centered care (i.e. patient has “choice in all matters, without exception”) instead of just using the term to sell policy and misery to those who don’t have enough money to feed the “system”?

    How about we quit the insidious campaign to have the masses resign to painless, swift and cheap deaths, while the octogenarians in the 1% are getting PSAs and radiation treatment (I’m sure he has the best doctors in the universe)?

    And generally speaking, how about rich people stop making rules they don’t intend to follow, for the “benefit” of a society they are not part of?

    • And how would you achieve your egalitarian goal? By giving everyone unlimited purchasing power for health care? Or by limiting the health care purchasing power of the 1% so that everyone is rationed in the same way?

      • Insurance companies have been selling policies without lifetime limits for a very long time, and for not much more (if at all) than the ones with a few million dollars limits.
        Perhaps resources are not infinite, but neither is demand for medical services, not even close.
        The only thing that IS infinite in health care is greed, and greed is the only reason we need to sell the rationing Kool-aid to the masses.

        • “Insurance companies have been selling policies without lifetime limits for a very long time”

          Really? That’s news to me. Out of 300 million insured people in 2008 how many had one of these policies with no lifetime max?

          The ONLY ones I am aware of are HMOs which are able to do it by pushing the risk on the hospital. Oddly when the hospital is getting paid FFS claims don’t seem to go nearly as high.

          Unlimited lifetime max is not as easy as you think if you don’t understand insurance. How much would you be required to keep in reserves for an unlimited policy if your mandated by government to keep 20%? 20% of an unlimited amount is unlimited. The only way to manage it would be to cede that risk off to a company that doesn’t need to reinsure. Think AIG in its heyday.

          Are you really the person to be opining on Insurance Margalit?

          “The only thing that IS infinite in health care is greed, and greed is the only reason we need to sell the rationing Kool-aid to the masses.”

          That is how it appears through your liberal rose clolored glasses. Now look at it more thoughtfully, what is rationing? Rationing is a responce to the excessive consumption of healthcare, i.e. greed. Individuals’ greed for excessive healthcare begets rationing.

          Margalit you advocate individual greed at the expense of others while attacking those wishing to protect their own earnings as greedy. Anyone demanding to spend $600,000 of someone else’s money so they can live 6 more months is greedy. Period.

          • Actually, in 2008 a lot of people I know had PPOs with no lifetime max, including myself.

          • I have never had a policy with a lifetime limit, and I have never had an HMO. I had policies through small businesses, large businesses and individual market.

          • While not all health care plans have a maximum benefit amount, the majority of HDHP/SO and PPO plans have a maximum lifetime benefit. The majority of HMO and POS plans do not. It is estimated that 75 percent of all HMO plans have no maximum benefit limit.

            According to The Kaiser Family Foundation and Health Research and Educational Trust, on average, 45 percent of health care plans have no limit on lifetime maximum benefits. With an average of 55 percent of all combined health care policies having a lifetime maximum benefit, the majority of those reach the maximum allowed health insurance coverage at $2 million or more.

            Can’t tell if health plans means just that policies or actual people covered.

            HMOs have around 25% market pentration and if only 75% of those have no limit then only 18.75% of private insured have no lifetime limit. When you add in Medicare and Medicaid it is in the single digits.

            I would also question how the measure the POS as most of them I have seen have no lifetime limit on the HMO portion but do on the PPO and Non PPO portion. No lifetime limit on non ppo claims would be an acturial death wish

            which goes to show you either ration up front with aggresive management, i.e. HMOs or you ration on the back end with policy limits.

          • Interesting stat;

            “A coverage cap of $1 million in the 1970s would have had to grow to more than $10 million today to keep pace with rising costs, said Glenn Mones of the National Hemophilia Foundation.”

            For those arguing we need to eliminate caps I notice your also the ones complaining about cost. How do you suggest we control cost if you also demand we have unlimited spending?

            Doesn’t a cap help enforce what other changes it is you wish to make to reduce spending? It’s one thing to click your heels and wish for patient centered care, more efficient use of service, end of life planning, and another thing to say you better do these things as you have only $5,000,000 to spend. Which one of those two roads is more likly to lead to success?

          • Over the years, I’ve had PPOs with Cigna, Aetna, and BCBS with both large and small employers in the states of MA, NJ, and CA. I never had a lifetime or yearly cap.

          • I’m not against placing cost controls to enforce better use of health care resource. But simple lifetime caps are a pretty bad form of cost control. They might make the insurer’s life simpler, but it places all the risk burden on a patient who doesn’t even have a clue what that lifetime cap means or buys him.

            It makes little sense to direct a liver transplant patient to an expensive CC and then tell the patient after the transplant that his benefits have maxed out. It is better for everyone involved to instead direct the patient to a cheaper in-network provider where costs meet actuarial needs. Or eliminate paying for super-expensive drugs with little or no benefits. Or add pre-authorization requirements., etc.

            Cost controls have to help the patient make a better, more cost-efficient decision. Not just limit the insurer’s liability.

          • In my experience the problem was not directing them to the expensive hospital then telling them they maxed out but trying to get them to not go to the expensive hospital in the first place. If the member is going to pay their OOP either way and the hospital can write off any patient balance how do we get them to not pick the most expensive hospital not using lifetime cap?

            We aren’t allowed to use benefit caps any longer.

          • “how do we get them to not pick the most expensive hospital not using lifetime cap?”

            By giving that hospital an out-of network status and allocating a U&C fee that is below what that hospital charges. That way you provide an immediate financial incentive for the patient not to go to an expensive hospital (but they are still free to go if they want to pay extra). And you don’t expose the patient to a potentially-catastrophic outcome in the future.

          • Some health plans in MA are actually giving cash to customers who choose the cheaper option. This might work even better. A win-win for both patient and insurer.

          • Blue Cross PA. No limits. Had a discussion with one of their reps, and he claimed few people went over the $1 million limit that was an alternative at the time, so it wouldnt cost much more for unlimited.


  36. Excellent economics study on price sensitivity (or lack thereof) for end of life extenders (oncologists). Would be interesting to throw additional variables into the analysis to determine what exactly would increase price sensitivity for oncologists. What about throwing (as Barry suggests) consideration for quality of life or possibility of suffering. In addition, ask the same question of families and palliative care providers.

    I would suspect there would be a wide distribution of responses, hence the underlying problem.

  37. Why didn’t quality of life enter into your discussion and analysis? How would you characterize the quality of life with either the standard treatment or the expensive drug assuming they are similar? How long would the patient live with just palliative care? How much would that cost compared to the more aggressive treatment options? Would the quality of those remaining days be significantly better? Oncologists and their patients shouldn’t just be thinking about more days vs. fewer days. They should be paying a lot of attention to the quality of the patient’s remaining time as well and the patient should be fully involved in the decision making and fully informed about the quality of life implications of each treatment option as well as the likely cost even if insurance is paying the entire bill.

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