Monday, July 23, 2012

Medicare’s Corporate Welfare

On Friday, the Washington Post published a lengthy front-page expose regarding the billions of dollars Medicare spent on anti-anemia drugs that studies eventually determined had “wildly overstated” benefits and “potentially lethal side effects, such as cancer and strokes.”  The story reads like a case study of the influence of the healthcare-industrial complex in putting its own interests ahead of patients:

Unlike medications that a patient picks up at the store, drugs administered by a physician, as these were, can yield a profit for doctors if there is a “spread” — a difference between the price they pay for the drug and the price they charge patients.

In this case, drugmakers worked diligently to make sure that doctors had an incentive to give large doses — that the spread was large.  They offered discounts to practices that dispensed the drug in big volumes.  They overfilled vials, adding as much as 25 percent extra, allowing doctors to further widen profit margins.  Most critical, however, was the company’s lobbying pressure, under which Congress and Medicare bureaucrats forged a system in which doctors and hospitals would be reimbursed more for the drug than they were paying for it.

The markup that doctors, clinics and hospitals received on the drugs given to Medicare patients reached as high as 30 percent, according to the Medicare Payment Advisory Commission, a group that advises Congress.

In other words, high-priced lobbyists, drugmakers, and physicians gamed the political system in order to perpetuate their gravy train of fat profits at taxpayers’ expense.  The story continues:

The industry’s success at beating back attacks by the Medicare bureaucrats to rein in costs would be repeated again and again.  It wasn’t just the drugmakers who were advocating for the drugs, either.  On Capitol Hill, the nation’s dialysis clinics, which were receiving as much as 25 percent of their revenue from using the drugs, were sometimes a key ally of the drugmakers.

One of the nation’s largest dialysis chains, in fact, in 2004 offered bonuses to its chief medical officer if he blocked efforts to reform the payment system.  According to a financial filing, Charles J. McAllister, chief medical officer of DaVita, the dialysis company, was to receive a $200,000 bonus if the rules for the drugs’ use being considered by regulators were dropped or delayed.  He was to receive an additional $100,000 if the then-new legislation, known as the Medicare Modernization Act, didn’t cut into the company’s revenue.  The Medicare proposal was “deeply flawed,” DaVita spokesman Skip Thurman said in a recent statement, because it limited dosing levels “without regard to the patient.”

At times, the companies would even enlist the patients to lobby on their behalf.  For example, in what may have been the drugmakers’ largest lobbying push, the companies sought to undo a Medicare proposal in May 2007 to restrict the use of the drugs in cancer patients.  The company spent millions trying to turn back this effort, including developing a Web site,, that solicited testimonials from patients and instructed them on how to contact officials.  Johnson & Johnson set up a similar one called

Amgen lobbying expenditures and political efforts jumped that year.  The company ranked as the largest contributor to the campaign of House Speaker Nancy Pelosi (D-Calif.), which got $42,050.

Eventually, research proving the anti-anemia drugs produced serious side effects was enough to force regulators to limit the use of the drugs; Congress eventually stepped in to modify Medicare payment rules in a way that eliminated hefty price markups.

But the real scandal here involves far more than anti-anemia drugs.  It’s about the system that allowed this fiasco to happen for years – a system which Obamacare did very little to change.  Friday’s story was entirely predictable – Harvard’s Regina Herzlinger predicted it in a work five years ago, in fact.  And Herzlinger and others have identified the real culprit: Third party payment empowers bureaucrats, not patients.  In Medicare’s case, it gives federal officials at CMS, Members of Congress – and the high-priced lobbyists that try to influence both – a disproportionate impact on the health care decisions of millions of seniors.

Obamacare does nothing to change this government-centric culture; all it does is set up yet another board of bureaucrats to oversee the same centralized health system.  In the wake of Friday’s news story, liberals argued that the law’s new board of bureaucrats will succeed in wringing these kinds of abuses out of Medicare.  It’s a predictable response from the Left – government created the problem, so more government will “fix” it.  But any system fundamentally controlled by government is almost by definition subject to the political and lobbying pressures that created the scandal profiled by the Post.  The real solution is to empower patients, not bureaucrats.

President Obama continues to make clear that he wants no part of a solution that empowers patients.  So the story in Friday’s Post is likely to be repeated yet again, with another scandal costing taxpayers money, and harming more patients.  It’s not a question of if, but when.  And this broken-down, government-centric health care system is not change, and it’s not something the American people should believe in.