Seriously ill? Need costly drugs? Go broke or die

Has the financial tipping point of life vs. death finally arrived? Do you now need to be financially healthy (meaning rich) to ease suffering from or survive diseases such as multiple sclerosis, rheumatoid arthritis, hemophilia, hepatitis C and some cancers (such as metastatic breast cancer)?

The lead story in the print edition of today’s New York Times reports this chilling fact:

Health insurance companies are rapidly adopting a new pricing system for very expensive drugs, asking patients to pay hundreds and even thousands of dollars for prescriptions for medications that may save their lives or slow the progress of serious diseases.

With the new pricing system, insurers abandoned the traditional arrangement that has patients pay a fixed amount, like $10, $20 or $30 for a prescription, no matter what the drug’s actual cost. Instead, they are charging patients a percentage of the cost of certain high-priced drugs, usually 20 to 33 percent, which can amount to thousands of dollars a month.

Simply put: For some drugs, you no longer pay a fixed amount as a co-pay; you pay a percentage of the drug’s cost (up to a certain amount, under some plans).

For the past decade, those who can afford health insurance (47 million people don’t have it) or have it provided by employers have become used to drug formularies and three-tier pharmaceutical benefits. For example, my provider requires:

• a $7 co-pay for Tier 1 drugs: generics, over-the-counter and certain brand names.
• a $15 co-pay for Tier 2: other “preferred” brand-name drugs.
• a $40 co-pay for Tier 3: all other drugs; i.e, drugs not listed in the providers formulary.

Increasingly, notes The Times, insurers have added Tier 4 and Tier 5 co-pays, following the lead of Medicare drug plans (you know, those plans in which the government bargained away its ability to get bargains?).

Now Tier 4 is also showing up in insurance that people buy on their own or acquire through employers, said Dan Mendelson of Avalere Health, a research organization in Washington. It is the fastest-growing segment in private insurance, Mr. Mendelson said. Five years ago it was virtually nonexistent in private plans, he said. Now 10 percent of them have Tier 4 drug categories.

The drugs covered by these Tier 4 and Tier 5 categories are expensive. So if these tiers charge a percentage of the cost rather than a flat co-pay, it can become ruinously expensive.

If you’re suffering from the relapsing-remitting (RRMS) form of multiple sclerosis, you may be taking Copaxone to reduce the relapse rate. The drug may cost nearly $2,000 a month. Your co-pay might have been a flat-fee $25 a month in a three-tiered plan. Under Tier 4 or 5, the co-pay may be a percentage of the whole cost.

At 25 percent of Copaxone’s cost, your co-pay could hit $500 a month (unless capped at a specific amount). That’s a life-altering 1,900 percent increase.

Why do insurers do this? Reports The Times: “Insurers say the new system keeps everyone’s premiums down at a time when some of the most innovative and promising new treatments for conditions like cancer and rheumatoid arthritis and multiple sclerosis can cost $100,000 and more a year.” [emphasis added]

That’s like taking on a second mortgage, which people may, in fact, have to do to ease their suffering or prolong their lives. They might indeed ask: What’s the point of having insurance in the first place? Wasn’t it intended to prevent financial ruin by spreading the risk across an enormous pool? Again, from The Times:

But the new system sticks seriously ill people with huge bills, said James Robinson, a health economist at the University of California, Berkeley. “It is very unfortunate social policy,” Dr. Robinson said. “The more the sick person pays, the less the healthy person pays.”

Traditionally, the idea of insurance was to spread the costs of paying for the sick.

“This is an erosion of the traditional concept of insurance,” Mr. Mendelson said. “Those beneficiaries who bear the burden of illness are also bearing the burden of cost.” [emphasis added]

This is beyond my pittance of knowledge of health economics to figure out. But generally, I smell a rat. Rather, two rats.

I find it difficult to separate Big Pharma (on which we depend for life-saving drugs); Big Insurance (on which we depend to help us pay for those drugs without driving ourselves into bankruptcy); and the decade-long, dramatic rise of out-of-pocket costs for health care (particularly for life-saving drugs) through higher and higher co-payments.

For Big Pharma, which does the research and development for the medications that heal us and save our lives, there’s this question:

Why do you charge so much for these Tier 4 and 5 drugs? (This is not the same question as this: What factors account for the real wholesale costs of these drugs?)

For Big Insurance, there’s this:

Why have you shed the traditional concept of sharing the risk across a large pool of insurees? The subhed of The Times‘ story is telling: Insurers shift burden. Why? Here’s the industry’s stock answer:

Private insurers began offering Tier 4 plans in response to employers who were looking for ways to keep costs down, said Karen Ignagni, president of America’s Health Insurance Plans, which represents most of the nation’s health insurers.

So Big Insurance blames employers, saying they want lower costs. But isn’t that leaving out a bunch of other factors? Why has the cost of health care (and insurance to cover that cost, particularly drugs) become so high that employers complained about the cost? Big Insurance is not being wholly honest in blaming employers.

Meanwhile, I observe the following trends.

According to a 2002 report by the Government Accountability Office:

[P]harmaceutical companies spent $30.3 billion on research and development and $19.1 billion on all promotional activities, which includes $2.7 billion on DTC advertising, in 2001. Pharmaceutical companies have increased spending on DTC advertising more rapidly than they have increased spending on research and development. Between 1997 and 2001, DTC advertising spending increased 145 percent, while research and development spending increased 59 percent. Promotion to physicians accounted for more than 80 percent of all promotional spending by pharmaceutical companies in 2001. Total promotional spending was equivalent to 12 percent of drug sales in the United States in 2001. [emphasis added; DTC = direct-to-consumer]

According to another study using 2004 data, Big Pharma spent almost twice as much on promotion as it does on research and development:

The researchers’ estimate is based on the systematic collection of data directly from the industry and doctors during 2004, which shows the U.S. pharmaceutical industry spent 24.4% of the sales dollar on promotion, versus 13.4% for research and development, as a percentage of US domestic sales of US $235.4 billion.

Big Pharma lobbies Congress extensively and increased its lobbying in 2007 more than any other industry. According to the Center for Responsive Politics:

[T]he pharmaceuticals/health products industry outspent all industries by shelling out $227 million for lobbying services, or an average of $1.4 million for the 164 days that the 110th Congress met in 2007. The drug industry has spent $1.3 billion on federal lobbying over the last 10 years, more than any other industry. Its reported lobbying increased 25 percent in 2007. [emphasis added]

Overall, the entire health industry spent early $445 million on lobbying in 2007.

Since 1990, Big Pharma has made about $152 million in campaign contributions to candidates for federal office. (Health services and HMOs have given nearly $54 million since 1990.)

Big Insurance (which obviously covers more than health-related insurance) spent about $138 million on lobbying in 2007 and more than $1 billion since 1998. Since 1990, Big Insurance has made more than $287 million in campaign contributions.

What a frickin’ mess. Industries have carved out new social policy. So we ought to be asking some basic questions:

What is the priority of Big Pharma? How does that priority fit into social policy as articulated by the legislative and executive branches of government?

What is the priority of Big Insurance? How does that priority fit into social policy as articulated by the legislative and executive branches of government?

What is the relationship between Big Pharma and Big Insurance? How does that relationship fit into social policy as articulated by the legislative and executive branches of government?

Now, if we can persuade our presidential candidates to stop caterwauling about minutiae in “he said/she said” language, perhaps they’ll address questions like this before we have to vote for one of these feckless dolts in November.

And we might ask our members of Congress what impact those hundreds of millions of dollars in campaign contributions and lobbying expenses have on their ability to set social policy that doesn’t leave people financially bereft of hope and at risk of life when struck by serious illness.

20 replies »

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  2. I, too, saw the story in the New York Times. It scares the hell out of me. I suffer from neurosarcoidosis and have found that the only drug that provides any relief is Remicade. Fortunately, Remicade has always been covered under my health plan. If this were to change, I’d be in deep, deep trouble. Each infusion of Remicade costs approximately $11,000. Multiply that by 10 infusions a year…. the math is pretty simple. Even if I had to cover 25%, that comes to nearly $30,000 out of pocket.

  3. Wow. Nice work Doc. It’s a little tough for me to know where to begin. I think you have the basics pretty much right, but let me just add a few clarifications, tweaks, and the like you may (or may not) find useful.

    First off, it probably is employers who are demanding this change. My years working with experts in this field and attending meetings at large companies gives me some insights:

    1. Most really large organizations don’t insure their health care costs with an insurance company. I know you’ll find that hard to believe, but it’s true. Instead, they self-insure, paying for health care costs as they go, because it’s generally (but not always) cheaper than using an insurance company. You probably think your university insures with an insurance company because you have a card with the insurance company’s name on it, but that’s window dressing. What that means is that the insurance company has an ASO contract (adminstrative services only) with the university. The university puts money in an account and the insurance company administers paying claims out of that account for, say, 3% of anticipated health care costs for the year.

    2. Both the NY Times and the insurance companies are correct when the Times refers to “cost shifting” and the insurance companies say that what they do reduces premiums for everyone. Every health plan design conversation I’ve ever seen has centered around the question “who pays”? Premiums are what everyone pays in common to create a funding pool to help those who are ill or injured. You’ve got that right. But then the issue becomes, where does the other money come from? There are copays, coinsurance, and deductibles, for instance, which shift costs to those who actually use the services. Generally, this cost-shifting is limited by a “stop loss” provisions that says, essentially, “once you’ve paid x much money out of your pocket, we pay the rest.” Some stop losses are limited by lifetime maximums ranging from $500,000 to $2 million and, oddly enough, often reset each year.

    3. The funny thing is, I know you must remember the day when there were no copays. Instead, you’d have something called an “indemnity plan” from someone like Blue Cross/Blue Shield that required you to pay a deductible before the plan paid anything, then somewhere between 20% to 0% of all other costs until you hit an “out-of-pocket-maxium,” at which point the plan would pay 100%. Those plans went away, for the most part, when managed care emerged.

    It sounds like they’re coming back, but they’re not nearly as rich as they were.

    Oh, almost forgot. I’m sure your number on Big Pharma research dollars are correct, but the structure has changes. Once upon a time, Big Pharma did it’s onw R&D from the beginning. They don’t do that anymore. Now, small companies begin the research and, if a drug looks promising, Big Pharma buys the company and takes the drug through development and the FDA process. The R&D costs are still there. They’re just hidden in the purchase prices of the small companies they buy.

  4. @ JS O’Brien:

    Thanks for laying that out so well. Most hospitals are self-insured, and so employee health information is most definitely shared with their employers – so much for HIPAA. the self insured employers get very detailed information about diagnoses via coding and submitted claims and reimbursed claims data. The smaller the employer, the easier it is to pinpoint just who is a large user of resources for self or dependents. And don’t think for a moment that these people aren’t targeted for termination.

    The WSJ had an op-ed today speaking to the insurance industry as parasitic, a term I’ve been using for awhile. I blogged about it (link at my name). Frontline tomorrow is examining several other countries’ health care systems, and we should be paying close attention to viable models since we have catastrophically failed in the health care arena.

    Dr. Denny, you asked about the priorities of the Big Insurance and Big Pharma industries: both exist to maximize profits to investors (shareholders). They are entirely untethered from having any aim to improve the health of consumers of their products.

  5. JS:

    Really good explanation. I was surprised at the costs of medicine when my lovely wife was sick. There were little bottles of chemo medicine that cost thousands of dollars for 100 ml of medicine. All in all, her illness cost $150,000+. Being insured, somebody still had to pay. That being said the medical business, medical insurance business, and pharma business is one big clusterF#*k.



  6. Annie,

    Yep, your employer knows everything about your health care usage. I have been in meetings where we went over printouts of what drugs were being used most and who was using them. I can’t say that I ever heard of anyone being terminated because of health care use. HR generally doesn’t have that much power and there’s usually confidentiality within HR, so that the health care administrators don’t share info with anyone else in HR, other than the bosses.

    I’m not saying it doesn’t happen, but I’ve never seen it happen.

    Some time, I should do a piece on how I’ve seen all this change since the 80s, and how discussions at the highest level in some of the US’s largest companies changed around it.

  7. Really big organizations ‘self-insure’ because it is the most cost-effective way to go. Self-insurance also gives a large organization the power to negotiate health care costs downward. It makes sense in the business world. America, as a society, should follow this ‘free market’ example and self-insure on a national scale: socialized medicine. Failure to do so means that Americans, compared to other industrialized countries, are paying more for less.

  8. JayGee: You’re not alone. I have friends with MS who are worried as well. While it may be wise corporate policy, it is bad social policy.

    JS: Thanks. I knew you’d come to rescue of this economic illiterate.

    Jeff: I know you feel this keenly in light of recent events. Cancer is the second-leading cause of the death in the US — more than half a million people. Many more than that are diagnosed with cancer in a given year.

    Yet it cost your family $150,000. It continues to amaze me that cancer, despite its high standing on this list, remains a financially devastating disease for those who suffer from it and their families. Yes, research is costly. Yes, the drugs are costly.

    But why has that situation remained so for so long?

    Annie, Orangutan: Thanks, too, for your comments. I know little about this arena, and I’m glad to have your help in understanding it.

  9. this doesn’t surprise me at all; what is actually surprising however, is the new openness about it – the fact that they’re not even trying to hide the changes, or slide them out to insurers & the general public without a squeak; nope, here it is, we’re just gonna charge you more if you dare get sick, because we want the money, plain & simple.
    (these costs could likely be easily defrayed if corporate officers & lobbyists were paid minimum wage, but that’s another story altogether……)

  10. No one cares about the patient. As long as corporations make money and the gov’t grabs their tax monies, nobody cares. After all, corporations and gov’t are merely quid-pro-quo whorehouses sold to the highest bidder. When the gov’t needs illegal wire-taps, Verizon and Sprint allow them secret rooms to listen in on calls. When Haliburton (and KBR) need more revenue, the gov’t hands out no-bid contracts. When the gov’t dislikes literature, Amazon and Wikipedia ban the book “America Deceived”. We The People had our gov’t *and our health) sold out from beneath us.
    Final link (before Google Books caves to pressure and drops the title):

  11. Ultra-illuminating post. Comments most helpful too.

    What is unspeakably frustrating to me is that in spite of spending $870 on health insurance (a company plan) for a family of three, every time we have a hospitalization or health crisis, we can’t seem to avoid digging into our own pocket and bank account for some costs you can’t anticipate.

    This last time we actually had to work out a plan to pay it off.

    We also pay $40 a month for cancer insurance, but if it’s got as many holes as the regular policy, I wonder how much help it will be in case I need it.

  12. Russ:

    I’m self employed. Medical and dental insurance for my family of four comes to about $1,100/month. It’s really going off the charts.

  13. Your article is not totally accurate. As mentioned above your assessment of R&D is incorrect. Big Pharma is outsourcing a lot.The significant increases in DTC (Between 1997 and 2001, DTC advertising spending increased 145 percent, while research and development spending increased 59 percent. ) Is also due to the fact that there was NO DTC until recently. So of course it would rise significantly as they got their feet wet and saw what the impact would be. DTC advertising also has been responsible for many people going to the doctor and being proactive for their health. That always seems to be forgotten. Maybe the insurance companies shouldn’t spend so much on advertising so they could cut their rates.

  14. I am astounded at the cost of drugs. Some one paying $100000 for drugs to relieve the symptoms of disease is conned like the whole of the medical fraternity deceives every citizen full time.
    What is wrong with spending your $100000 buying proper food so your body can make it’s own medicine? We are poisoned big time by he plastics industry, the food industry,the public utility companies at the insistence of the regulating agencies.
    Get your heads out of the sand people and look after yourself instead of being told by self serving professionalsl to buy drugs KNOWINGLY keeping you ill.
    As a nation we are treated like sheep and the fences are already in place to herd you in the planned death camps. It soon will be cheaper to bury you than to feed you.


  15. Sen Obama sent a letter to OPM.

    I have the Kaiser permante federal health plan,

    Interferon went from 30$ a month to 300$ a month.

    sat april 19 I got a fed ex from Kaiser saying (OOPS! we messed up!)

    they are sending back the 900$.

    The insurers need to be put on notice… first do no harm.

  16. I’m on Enbrel for Ankylosing Spondylitis and can barely afford the co-pay after all my other health expenses. There is no way I could afford 30%! All for what, so the guy next to me who even if he was dying wouldn’t see a dr can save $10 on his insurance? Not only am I the one paying more, but having to live with a disfiguring disease in itself sucks. This is what insurance is for, so we can help each other.

    On a message board a woman told us she went to a school board meeting and they told the crowd that two teachers have cancer and because of these two teachers taxes will be going up. I’m not sure how legal that is, at least they didn’t name them, but what a horrible thing to do!

  17. Call your senators and congress NOW. A one payer systems was taken off the table last week by both sides, bribed by the health insurance firms. The old “socialist” argument.

    The facts are 33% of all health care costs go into bogus administration overhead that can easily be cut by a one-payer system. That is enough saivng to INSURE EVERY SINGLE AMERICAN.

    Just like the huge companies, self-insure, the US government would simply self-insure and have the power to push down costs and drive an efficient market.

    What we have today is NOT A FREE HEALTH MARKET but a market control by big-pharma and big -insurance. A FREE MARKET would be great, but it is not going to happen so a “socialist” health care plan is actually a step in the right direction and better then what we have today.

    To me, it comes down to what kind of society do you want to live in? Say you go a government job with cheap health and your neighbor is dying because she cannot afford some treatment, happening all over America, is the what you call “capitalism” does it matter? is that the society you want to live in?