OP-ED

American Healthcare Rackets: Monopolies, Oligopolies, Cartels and Kindred Plunderbunds

The Healthcare Dollar, the Healthcare Industry and the Healthcare System are shibboleths. All are parlance. All render terms such as Healthcare Profession, Service Profession, and Healthcare Professionals quaint. All drive linguistic determinism: if it’s labeled so, it must be so. Furthermore, all have become jingoistic. This is our dollar, our industry, our system and don’t dare tread on us.

These are shibboleths that engender considerable cognitive dissonance. If healthcare is no longer a service profession but an industry that transfers wealth in a systematic fashion, shouldn’t it comply with the legal constraints that tightly govern other industries including others that serve essential needs of the population?

For many such industries the states have an important degree of control over productivity and pricing. Insurance Commissions provide governance over the cost and scope of companies purveying homeowner’s, automobile and Workers’ Compensation insurance. Utility Commissions regulate the rates and services of private sector public utilities. Boards of Education perform similarly whether education is public or private. Federal statutes complement the states’ role in consumer protection. For example, attempts to construct monopolies are met with regulatory zeal.  Otherwise communication and energy monopolies would never have been “busted” and unconscionable pricing would be rampant. This form of check-and-balance relies on the consumers’ political leverage when they realize they are being ripped off.

The track record is far from perfect. Take the “military-industrial complex” (please), an industry charged with supplying armaments and whatever else is needed to support the proclivity of our species to seek violent solutions to disputes and violent means to assuage insatiable greediness. Historically, this was a cottage industry populated by craftsmen, farmers, and all manner of factotums. This cottage industry, like nearly all others, did not survive the industrial revolution. Thanks to unbridled growth in demand and in ingenuity a behemoth has superseded.  In FY 2017, total US government spending for defense (including military defense, veterans’ affairs, and foreign policy) is budgeted to be $853.6 billion, with ¾ for “defense.” This has represents about 5% of the GDP annually during the War on Terror. The expenditure was about 40% of the GDP during World War II and settles down near 1-2% between wars. The military-industrial complex is largely an oligopoly since very few companies are in the modern armaments business, or the business of providing supportive services for that matter. It is a peculiar empire with many an idiosyncrasy, including many that are tolerated despite ethical compromises. For example, the Pentagon typically contracts for goods and services on a “cost-plus” basis resulting in delays and overruns which may lead to penalties and subsequently to more costly contracts that factor in the penalties and promote recidivism. Many an advance in weaponry is initiated by the private sector in collaboration with government and military professionals. We are all aware of the notion of the “revolving door” which predisposes to bread buttering even if the butter must remain in cold storage for a regulated interval. We are all aware of abuses in pricing, such as the infamous air force ashtrays. We are all aware of “this dog won’t hunt” disappointments moldering somewhere without penalty for the manufacturers. We are all aware that the denizens of K Street include a great number of lobbyists for the military-industrial complex. These lobbyists have many agendas, not the least of which is to participate in the debates that define allies who are an appropriate primary or secondary market for armaments. We are also aware of the lobbyists whose agenda is domestic sales. We are awash in claims of our military’s ascendency based on incontrovertible outcome measures in the details of the violence that is wreaked and the intensity of the racket made by our rattling sabers. We are variously amazed and bemused by the mind-boggling transfer of wealth necessary to create corpses. It’s all business as usual. It’s all assumed or asserted to be a necessary evil. And it’s so well-funded and established that cries for reform are largely lost in the din of routine.

It’s so familiar a scenario that we can find it reasonable for the Healthcare Industry to operate on a similarly organized playing field. Before I detail the parallels, let me emphasize that I am not unleashing a diatribe against the players. I am targeting the playing field. I am also not writing a partisan screed. The playing field I decry is the home turf today for fee-for-service, ACA, single payer, block grant, and other reform advocates.

I do not excuse the players for the errors of their ways, but blaming them misses the forest for the trees. Many, if not most, of the leading players in the healthcare and military-industrial complexes are competent, well-meaning and doing the best they can. For example, most military leaders were the fine youngsters admitted to our service academies where they are imbued with traditions of honor and patriotism. The precedent for training leaders in medicine is more of a moving target. Unlike the military, healthcare survived the industrial revolution as a cottage industry and its practitioners as a guild well into the 20th C before it transitioned to “industry” statues. Nonetheless, most students enter medical school today brimming with talent and with sincerely held goals regarding the betterment of mankind. American medical schools are less likely to foster these goals than the service academies. The goals of the industry insinuate earlier. The unanticipated consequences of this insinuation become apparent in postgraduate life. That’s when the young doctor is disabused of any residual notion that the patient’s care and the people’s wellbeing are principle raisons d’être of the Healthcare Industry. These young practitioners have crossed the Rubicon and now their resilience is to be tested.

Connivance and Collusion

So much of what is reprehensible about American healthcare has been comprehensively documented by many authors – including me in the context of my writing to empower patients to ask telling questions. Here I will emphasize the enabling economic and organizational structures that would not be tolerated in a service profession but are well entrenched in the Healthcare System.

Foremost is rampant Regulatory Capture. The Nobel Prize winning economist, George Stigler, was one of the luminaries in the mid-century “Chicago School”. Stigler developed a theory of economic regulation by analyzing the positive and negative influences of public power on the economic status of industries and occupations. Regulatory capture recognizes the tendency for a regulatory agency, created to act in the public interest, to be dominated by the interests it was meant to regulate. In the Healthcare System captured agencies are seldom furtive; rather the capture is declared expedient if not necessary.

The FDA is our object lesson. The current director was appointed despite considerable misgivings relating to his career as a drug “trialist”, including his prior role as director of Duke’s Clinical Research Institute (CRI), a Clinical Research Organization (CRO.) He denies being on the payroll of any pharmaceutical entity although his compensation at Duke was noteworthy and the CRI itself brought Duke a pretty penny (in a law firm he’d be called a “rainmaker”). His predecessor at the FDA departed under something of a cloud relating to conflictual relationships between her husband’s financial firm and particular pharmaceutical firms. All this is innuendo at least, certainly unseemly, but it pales next to the institutionalized conflictual relationships that exist between the FDA and the pharmaceutical industry. Several are statutory or officially sanctioned. A substantial portion of the FDA’s budget is derived from users’ fees, income collected from the petitioning company as the price for determining whether any New Drug Application merits licensure. This tithe alone renders the relationship between the FDA and its clients unhealthy. The political climate keeps them in bed together; there are 6 healthcare lobbyists available to “help” each member of congress appreciate the value of the pharmaceutical industry and of its omnipresent advocacy organization, PHrMa. PHrMa is a behemoth on K Street shelling out far more largesse in 2012 than the lobbyists for the military-industrial complex and big oil combined. Of course, this budget is skimmed off the top of the cost of drugs, devices and potions.

There are other aspects of the licensure process for new drugs that should cause widespread discomfort and debate. Very few of the licensed new drugs are really “new” let alone major therapeutic triumphs. Most are either “me too” agents or afford very few patients more than very little benefit. On top of that, the rare drug that is really a breakthrough is a nearly always a triumph of academic investigators funded by federal dollars; the pharmaceutical firms co-opt the federally funded intellectual property, often gratis, and patent the therapeutic derivative. These are the hard realities of an industry that has largely overgrown its usefulness but not its avarice. And the avarice is facilitated by naiveté on the part of society and inadequacies of oversight. I can find little in the history of the pharmaceutical industry that speaks to originality in its business model, only exploitation. The industry backed onto its perch as an inviolate cash cow. One secret to this evolution is my friend and former colleague, the brilliant biostatistician Dennis Gillings. We were junior faculty together, co-authoring papers and co-editing a book in the 1970s, when Dennis discovered another personal skill and proclivity. Dennis was willing to consult with the pharmaceutical industry regarding the development of drug trials and the presentation of the forthcoming data in a fashion that satisfied the requirements for licensing new drugs or licensing old drugs for different indications. That proclivity became Quintiles Transnational and then the entire CRO industry. I have a great deal of respect and warmth for my Horatio Alger friend but no respect for the industry he spawned and the consequences of its success. Without CROs, I can’t imagine that total prescription drug spending would have exceeded $450 billion (16.7 percent of health care spending) by 2015 or be estimated to increase annually by 6.7 percent through 2025.

Here’s how the shell game works. CROs are the go-to for pharmaceutical firms when they are ready to subject a drug to a licensing trial. Since they anticipate that the drug will have little efficacy at best, affording slight benefit to most or more benefit to very few, the licensing trials are expensive, large, and sloppy (it’s hard to find appropriate subjects, harder to recruit them, and hardest yet to maintain adherence to the trial’s methodology.) CRO’s are contracted at great cost to undertake this exercise. If this was elegant science, equipoise would dominate the methodology, i.e. no one would have any preconception regarding the outcome. However, this is a business arrangement that inherently lacks equipoise: the drug company anticipates success and the CRO has reason to see their client emerge pleased with their contracting. Large sloppy trials seeking small effects lend themselves to all sorts of data massaging and data torturing in the subliminal (or not) quest for success. No wonder these trials are far more likely to demonstrate a statistically significant degree of efficacy if undertaken by a CRO than when the same drug is studied by trialists with federal funding.

So, the applications for the licensure of new drugs that appear in the FDA’s in-box, wrapped in user fees, are seldom overwhelmingly compelling. They tend to support the assertion that there is a statistically significant difference in efficacy between the active drug and the comparator although the magnitude of difference is debatable in terms of clinical meaningfulness. The FDA is not unaware of this “subtlety”. It convenes advisory panels of experts with relevant experience and often relevant conflictual relationships, which Congress deemed acceptable. Interestingly, when studied these experts are not predisposed to look kindly on drugs produced by companies for which they are paid consultants; rather, they are predisposed to disparage the competition. So me-too and small effect drugs are routinely licensed and heavily marketed with language often designed to mislead. For example, how often do we hear that some agent offers a 50% reduction in some outcome when we should have been told that if 400 patients took the drug for 6 months, only one would suffer an untoward outcome compared to 2 who didn’t take the drug (e.g. AstraZeneca’s Jupiter trial which turned Crestor into a “blockbuster” drug ). This is a ploy that plays out at great expense only in America. Direct-to-consumer advertising is not countenanced in any other country save New Zealand where the approach is, comparatively, very understated.

All this is business as usual, and I am not the sole critic. Recently, the FDA and CMS (Medicare Administration) have decided to collaborate regarding the clinical utility of the licensed interventions afforded the Medicare population, a collaboration offered with considerable sanctimony as if this is a novel agenda. It isn’t; it ignores precedents such as PCORI in the ACA, the clinical guidelines kerfuffle, and the machinations of the National Quality Forum (NQF) and the Institute for Healthcare Improvement (IHI). The NQF and the IHI started as advocacy groups that have grown into sizable organizations that capture many millions of dollars to push their agenda. For example, the NQF receives over $10 million annually from CMS (Medicare) to provide the performance measures CMS uses to monitor the quality of the services it purchases. NQF is still reeling from scandals. The first caused the dismissal of its Chair, Dr. Charles Denham, after the Department of Justice accused him of profiteering from kickbacks to the tune of $11.6 million. He was replaced by Dr. Christine Cassel, recruited in 2012 from the American Board of Internal Medicine (ABIM) which she had chaired for a decade. Her appointment to NQF raised a cloud of dust when it was learned that she was paid nearly a quarter of a million dollars by Premier, Inc., a Charlotte, North Carolina company that offers group purchasing and performance improvement consulting for nearly 3000 hospitals and thousands of nursing facilities. Premier clearly has a stake in the work of the NQF and Cassel has since seen wisdom in discontinuing her relationship with this and other similar entities.

The FDA is the object lesson I’ve focused on. But there is a wealth of object lessons all with their distinctive acronym: ACGME, ABIM, AHA, ABMS, ACS, CMS (MIPS, MACRA), HIPAA and there are many more in the alphabet soup. Others are known by their full name like The Joint Commission, a non-governmental agency that wields accreditation with power and authority causing some 20,000 health organization, particularly hospitals, to cringe and comply.  Acronym or not, all these bearers of standards beg critical analysis. All have regulatory influence and all have fallen victim to regulatory capture to some degree. Too often it’s to a degree that undermines benefits to be derived from adherence to standards and regulations. The overlapping of purview and the ubiquity of regulatory capture has created a regulatory establishment that requires ever more funding to support its unbridled reach. It has a life of its own which increasingly impedes the recognition of and response to the needs of the person who has turned to a physician for solace, support, wisdom and care. The American Healthcare Industry desperately needs to be healed of this affliction so that it can provide the infrastructure for America’s Service Professionals to practice according to their conscience and for America’s patients to be served with the uncompromised elegance that has finally become possible in the 21st C. The promotion and growth of a Healthcare Industry is social iatrogenesis at its worst.

Nortin Hadler emeritus professor of medicine and microbiology/immunology at the University of North Carolina, is the author of Worried Sick, Rethinking Aging, Citizen Patient, and By the Bedside of the Patient. 

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rmcnuttBarry CarolRichard Lippin Recent comment authors
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rmcnutt
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rmcnutt

Quite the accounting! Let me see if I get this. The GNP in 2015 was about 18000 billion, or about 30% of the entire worlds income. Medical care is about 20%. So, there is lots of money available for medical practitioners, correct? So, who thinks anyone getting $ from this bank account would want to change the bank account? It seems that a consequence of having all that money around, given that people in power like to get lots of money, that there will be many “industries” applying for access to the pot? So, all of these alphabet soups are… Read more »

Richard Lippin
Member

Proud to call myself a “Charter Hadlerian” Have read all of Nortin’s books and as many articles/interviews I can find. Nortin’s commencement address to The University of Michigan Medical School can be found on YouTube here https://www.youtube.com/watch?v=iknU6XpYG5Q

Allan
Member
Allan

Thanks for posting this video that places a more positive perspective on Medicine. As a retired Internist with a son that is a physician as well I can certainly say that Dr. Hadler provided those physicians with something they should all cherish. Physicians are not providers and not every problem deserves a medical solution. Patients are a lot smarter than we might believe, so give them leeway to run their own ship. That means freedom of choice in all aspects of healthcare delivery.

Nortin Hadler
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Nortin Hadler

Neil, I became convinced 25 years ago that our healthcare system had lost its moral compass and was hell bent on becoming irretrievably perverse. I started designing alternatives that might be feasible. False starts, bruises, a few editorials, and much wisdom resulted from pushing this boulder up the slope. Three years ago I found a chink in the “system’s” armor. I and a group of close and committed senior colleagues have been at this intensively. We are very close to legislation in another state that will allow a proof-of-concept with >3 million of an alternative healthcare system. I’ve been pushing… Read more »

Neil Quinn
Member
Neil Quinn

I shall peruse “Plan 9,” thanks. My breath is bated for the alternative healthcare system trial you’ve dangled.

Don Levit
Member

Nortin
Can you provide specifics of your alternative health care system?
In particular its design and the purpose for each provision

Member

I, too, am interested in your alternative(s) Dr Hadler. Technological progress, done right, is expensive but you get what you pay for. So it’s realistic to expect costs to grow *some*. But about the time HCA decided to do with hospitals what McDonald’s was doing for hamburgers retail healthcare prices began to accelerate. Prior to that American hospitals were all non-profit operations as were the Blues which were practically philanthropic in their missions — Blue Cross for hospitals and Blue Shield for professional care. When profits reared another hungry head and mouth to feed, hospital bills needed more non-medical padding… Read more »

Neil Quinn
Member
Neil Quinn

Strikingly on point my dear Dr. Hadler, and without the saccharine others would spoon over it. This is fine fodder for a Frank Capra screenplay, though an epiphanic change of moral compass by those coloring outside the lines is unlikely when the dopamine rush of the drug “Powney” (power + money) is so highly habit forming. Big agra, big energy, big pharma, big health care…lions and tigers and bears…and raptors. We need the brashness of a Burt Rutan or an Elon Musk in the health care space (pardon the pun), saying, “We can create a completely different system from the… Read more »

Member

If I fail to copy the following here it will bother me later. I spent too much time crafting it to forget about it. My ideas and suggestions can be stated briefly. * Insurance & health care are not the same. Both are risk management systems, but they manage different risks. Health care providers manage health care risks. Insurance providers manage financial/actuarial risks. Unfortunately, nearly all discussions fail to differentiate these two costs, treating them added together and calling the sum “the cost of health care.” Readers here are smart enough to know what I mean. No need to elaborate.… Read more »

Adrian Gropper, MD
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Adrian Gropper, MD

Thank you Hootsbudy, particularly for your reminder of how dental care works in the US. Our US system wastes $1 Trillion compared to others and gloats over small anecdotal differences in AAA mortality while millions lack basic dental services and healthcare is the largest cause of bankruptcy.

Allan
Member
Allan

“healthcare is the largest cause of bankruptcy.” I didn’t realize people still believed healthcare was the largest cause of bankruptcy. I guess the reason for the difference of opinion is definitional. Could one say, an overextended millionaire real estate investor went bankrupt due to bad investments while having $1,000 in uncovered medical bills and that the $1,000 was the cause of bankruptcy? Yes, according to Woolfhandler a co-author of the study that drew their errant conclusion. I wonder why the authors of the study decided to do a survey rather than go down to the bankruptcy courts and see for… Read more »

Barry Carol
Member
Barry Carol

Since homes are subject to foreclosure and cars can be repossessed, the biggest cause of individual, as opposed to business, bankruptcy is probably credit card debt beyond what the individual can handle while high interest rates keep either increasing the balance or preventing it from declining much as minimum payments are made. To the extent that medical debt charged to a credit card is a significant piece of the total debt, it’s likely that it was a contributing factor to many bankruptcy filings even if it isn’t the sole cause. That said even without the medical debt, many of these… Read more »

Allan
Member
Allan

There are easy ways to determine how many bankrupticies are due to medical care. Go to the courthouse. The bankruptcy data is there and even the individual credit card bills are there and the data can correct any of your misperceptions. This has been studied and I think the data showed medical debt was a major cause in 2-3% of bankruptcies. One of the interesting things noted in Woolhandler’s study was that a lot of people with insurance were included in their bankruptcy claims.

Member

This is all very interesting but mostly a distraction from the issue of health care costs. Fifteen percent of Americans living in poverty would be honored to have accumulated sufficient assets to declare bankruptcy. They have problems but credit card debt and poor investments aren’t on the list.

Allan
Member
Allan

You are right of course, but to make claims that are not true (“healthcare is the largest cause of bankruptcy”) prevents us from thinking sensibly about healthcare and its costs. However, that being said, even poor people go bankrupt and they do. The lack of assets you talk about is one of the reasons the poor may not choose to carry insurance in the first place.

Member

Powerful commentary, Nortin! Having been involved for the past 5 years in ONC technical workgroups on Health IT standards, I’ve seen firsthand how governmental regulatory capture obstructs the creative destruction (http://en.wikipedia.org/wiki/Creative_destruction) potential of disruptive innovation. This means that breakthrough innovations able to raise healthcare value are ignored or rejected for “business layer” (not technical) reasons. This political process maintains the status quo as it drives up complexity and cost. ONC goals that have achieved minuscule success after many years could have been accomplished in a fraction of the time and cost if regulatory capture were replaced by transparency and a… Read more »

pjnelson
Member
pjnelson

All sorts of creativity occurs when an industry has a business model based on spending 40% of all cash income on profit and promotion. This occurs because our nation’s healthcare industry functions on the basis of Parkinson’s Law: viz., “Work expands to use the resources available.” One notable out-lier is the Mayo Clinic and its hospital in Scottsdale. For many years, they didn’t accept Medicare insurance since a large number of their patients automatically pay the full charges. Since the State empowers the role of a physician and hospitals to function, you would think that each of these “institutions” would… Read more »

Nortin Hadler
Member
Nortin Hadler

Thank you Adrian. Yes, HIT floats to the surface of the “alphabet soup” I mention in the penultimate paragraph. I discuss this at length in “By the Bedside of the Patient” released earlier this year. I held up completing the Ms till I lived through “go live” and with EPIC in the clinic. It is unimaginably perverse but infuriatingly real.

Adrian Gropper, MD
Member
Adrian Gropper, MD

Thank you for an excellent treatise on the importance of Regulatory Capture. Your example from prescription drugs is good but it’s “only” 16.7% of health care spending. Regulatory capture of information technology impacts effectively 100% of healthcare spending by enabling the largest incumbents to avoid both quality and price transparency up and down the value chain. Post HITECH, consolidation of health IT parallels consolidation of provider networks and together their strategic information blocking keeps practice innovation – and pricing – under the incumbent’s control. The parallels to your prescription drugs example are clear. Substitute ONC FACAs for FDA advisory panels.… Read more »

Member

“social iatrogenesis at its worst.”

A thing a beauty, that.