Thursday, August 18, 2005

The US Health Insurance Industry


Health insurers, a.k.a. Harry & Louise, are a bane. Their profits are an extraction from the public health of this country. Their mission is to deny care, not to provide it. Their executives derive their golden parachutes from the millions of uninsured and underinsured, by delaying the delivery of care and hastening the end of lives. Their actuaries, underwriters, sales staff and, especially, their claims departments, are making their collective living (with benefits) from institutions that exist solely to discriminate as to the rendering of life or death services.

Why do I think this? How do I know?

Read on!

For starters, read yesterday’s email (below).

It's a letter to my congressman's campaign manager, explaining my reasons for concern upon learning of a fundraiser for the congressman (whom I admire greatly) that would prominently feature the state's leading health insurer.

Date: Wed, 17 Aug 2005 07:11:53 -0700 (PDT)

From: "Richard Wolfe" (

Subject: Fwd: Join Tom Allen to Discuss Health Care: Aug. 31



Thank you for hearing me out when I called the Campaign today to express my concerns about this meeting.

I promised you an explanation of my concerns, but first, I would like to convey my appreciation to Tom for the letter I received from him just a few days ago. In the letter, he responded very thoughtfully to what were, on my part, probably very overblown concerns about the direction and intent of the current Administration with regard to civil rights and liberties. I cannot think of another instance of a busy congressional representative being more diligent and responsive.

Regarding the August 31 meeting, I feel that the combination of the agenda, the list of attending organizations, and, above all, the fundraising element, is just not right and crosses a line.

In addition to being effectively exclusionary (a real surprise, coming from Tom), the invitation also makes it appear as if the campaign's stand on the issue of health care is subsidiary to its fundraising needs. At the very least, the invitation should make clear which of the participating organizations have contributed to the campaign and in what amount.

The list of attending organizations is not inclusive. For one thing, it does not include Consumers for Affordable Health Care (based in Augusta). (I have contacted them and forwarded the invitation to them.)

The inclusion of the state's major health insurer (Anthem), though it may seem innocuous, is not a welcome sight for individuals such as myself. Health insurers have a vested interest in the health coverage status quo, which, even with the advent of Dirigo, is making for very difficult times for the many thousands in Maine without employer-sponsored coverage.

The suggested donations, albeit optional, create a deterrent to attendance which further contributes to the exclusionary character of this event. Someone who's without employer-sponsored coverage and is paying hundreds of dollars a month to Anthem (or to Dirigo, which is administered by Anthem) is very likely going to delete an email that sets up such a hurdle (especially if their employment situation, like that of a great swath of the Maine work force, is not much above the minimum wage).

Based on what I have heard Tom say about the way health care coverage is provided in this country, especially the way that the 1994 reform attempt was squelched in Washington, I would think that a health insurance company, if present at a health care discussion, would not be a sponsor (especially in view of the fundraising element) but rather an adversary.

If I am wrong about Tom's thinking with regard to the private health insurance business, then I refer you to a recent series of New York Times columns on health care by Paul Krugman (Princeton University economist): April 15, 22, 29, May 6 and 13th. The April 22nd column begins with the following passage:

"The United States spends far more on health care than other advanced countries. Yet we don't appear to receive more medical services. And we have lower life-expectancy and higher infant-mortality rates than countries that spend less than half as much per person. How do we do it?

An important part of the answer is that much of our health care spending is devoted to passing the buck: trying to get someone else to pay the bills.

According to the World Health Organization, in the United States administrative expenses eat up about 15 percent of the money paid in premiums to private health insurance companies, but only 4 percent of the budgets of public insurance programs, which consist mainly of Medicare and Medicaid. The numbers for both public and private insurance are similar in other countries - but because we rely much more heavily than anyone else on private insurance, our total administrative costs are much higher.

According to the health organization, the higher costs of private insurers are 'mainly due to the extensive bureaucracy required to assess risk, rate premiums, design benefit packages and review, pay or refuse claims.' Public insurance plans have far less bureaucracy because they don't try to screen out high-risk clients or charge them higher fees.

And the costs directly incurred by insurers are only half the story. Doctors 'must hire office personnel just to deal with the insurance companies,' Dr. Atul Gawande, a practicing physician, wrote in The New Yorker. 'A well-run office can get the insurer's rejection rate down from 30 percent to, say, 15 percent. That's how a doctor makes money. ... It's a war with insurance, every step of the way.'"

Dirigo is a pioneering effort, and Anthem is the administrator (except for the sliding scale part of it), but if that means that it's expedient, even in a Tom Allen public forum, to make them a sponsor, then I say, "The fox is in the hen house."


Richard Wolfe
Cumberland Center, Maine

"Mike Cuzzi, Campaign Manager" <> wrote:


From: "Mike Cuzzi, Campaign Manager" <>

Subject: Join Tom Allen to Discuss Health Care: Aug. 31

Date: Tue, 16 Aug 2005 11:27:41 -0500

American Hospital Association
Maine Hospital Association
Anthem Blue Cross and Blue Shield of Maine
Maine Medical Association
Maine Health Care Association
Maine Osteopathic Association
cordially invite you to join
Congressman Tom Allen
Wednesday, August 31st
6pm – 8pm
Portland Regency Hotel
20 Milk Street, Portland
Suggested donation
$100 per individual
$1000 per PAC
Call or e-mail to put your name(s) on the guest list:
774-9696 or
Please make personal checks payable to: Tom Allen for Congress
or call the office at 774-9696 if you wish to use a credit card.
Federal law requires Tom Allen for Congress to collect and report the name, mailing address, occupation and name of employer of individuals whose contributions exceed $200 in a calendar year. Contributions are not tax deductible for federal income tax purposes.
Tom Allen for Congress Committee PO Box 17766 Portland, ME 04112-8766(image placeholder)

Now that you have caught up to me as of 24 hours ago, read my next "protest email" to The Wall Street Journal, which I fired off upon reading today's article trumpeting Aetna's supposed exposé of doctors' "true" costs.

Date: Thu, 18 Aug 2005 07:59:18 -0700 (PDT)

From: "Richard Wolfe" (

Subject: Aetna's new price list


Dear Ms. Fuhrmans:

re:"Insurer Reveals What Doctors Really Charge",,SB112432102051916089,00.html?mod=home%5Fwhats%5Fnews%5Fus

You are not reporting the whole picture. This makes me think that you are being spoon-fed information, which you simply take at face value.

When we get a hospital or doctor's bill, it shows the charges submitted to the insurer. Then, the "explanation of benefits" comes back from the insurer -- with the majority of the charges disallowed! This has happened over and over again, for years and years, with different insurers, different hospitals, different doctors (and lab services). The bigger the bill, the greater the portion that's disallowed. And yet none of this is reported by you -- only what Aetna tells you.

What happens next? Who gets stuck with all of those disallowed charges? We have learned not to get too worried when we see the insurer is only going to pay, say $800 out of a $3,000 claim. We simply wait, and, sure enough, a bill arrives from our doctor, with an amount due that has suddenly shrunk to accommodate the new, $800 "reasonable and customary" amount.

If our copayment is 20%, then, to continue the foregoing example, the doctor (or hospital) would now be asking us only for 20% of $800, or $160.

Does this seem like a non-issue to you? An inflated bill to the insurer, followed by the "real" bill? Well then, I ask you, what about all the people with high-deductible, individual policies, or whose insurers cite an exclusion and completely deny the claim, or all the people dependent on charity care? What are they going to do with the inflated initial bill, especially if they are not, like me, a reader of the fine print (or are frightened that they won't get the next step of their treatment if they don't pay the hospital/doctor right away)? Aren't some of these patients going to think that's the amount they actually have to pay?

And furthermore, why are doctors and hospitals submitting inflated bills? Could it be that, as any doctor will tell you, what comes back as "reasonable and customary" isn't reasonable at all? That they have gradually been bludgeoned by insurers into what amounts to a posturing process, in which whatever they submit is going to be drastically cut down or refused outright? That they are reacting to what is basically bad faith on the part of insurer claims departments by trying to recover as much of their real costs as they possibly can?

You've completely missed all this, and I submit to you that your reporting represents nothing more than the tip of the iceberg. I notice you don't have a by-line; perhaps you are a recent hire. I hope you will do the thorough job you were educated to do and not just do what you are told.


Richard Wolfe
Cumberland Center, Maine

There now, for an introduction, I think that will do.


Blogger Jim H said...

I'll have to do a little investigation to support my initial reaction to your post, which is that I'd rather have insurers as the enemy than the government.

But first a question: what is the significance of the reference to Dirigo (which to me sounds like a Cirque du Soleil show). Those of us who do not live "down East" are in the dark.

August 24, 2005 12:27 PM  
Blogger Richard Wolfe said...

To make your investigation easier, read this:

Dirigo is a pilot program developed by the state government to get more of the uninsured covered.

August 26, 2005 11:26 AM  
Blogger Richard Wolfe said...

TO: Alessandro A. Iuppa, Maine Superintendent of Insurance

RE: Anthem Blue Cross / Blue Shield Rate Increase (Consolidated Docket No. INS-05-820)

I oppose Anthem's proposed rate increase on the grounds that (1) they have already raised rates several times since the year 2000, (2) they unfairly apply onerous reductions to valid claims, and (3) their general business practices are dishonest and in bad faith.

First, with regard to claims reductions:

1. On October 5, 2002, my wife went through a surgical procedure at Maine Medical Center. Her physician billed $700 for the procedure. Anthem applied the charge to the $15,000 deductible on our policy; however, Anthem did not apply the entire $700 to our deductible. Instead, Anthem credited our deductible for only $274, calling that “what your health plan’s allowance is for this procedure.” We were then rebilled, but this time, the bill was for only $274. What is the price? $700 or $274? Was the physician trying to fool Anthem? Why is Anthem’s “allowance” less than 40% of the physician’s charges? Is there some other Anthem “health plan” that has a higher “allowance” … for the same procedure??? To illustrate that last point, would, for example, chemotherapy (which is the real reason why I maintain a $15,000 deductible policy), be reimbursed at a higher “allowance” if the patient is covered by a corporate HMO plan???

2. On April 5, 2003, my son was treated for a broken arm. The physician’s charges for the treatment, including follow-up, were $1,565. Anthem paid $801 of that amount pursuant to our policy’s accident rider; however, I only paid $20. My question: what was the cost of this treatment? $1,565 or $801? (Or $801 plus $20?) Did Anthem cover the true cost, or did Anthem make my son’s physician eat almost half his costs?

3. On August 8, 2003, I had surgery at Maine Medical Center. My surgeon’s bill of $1,855 was submitted to Anthem and came back at $483, a 74% reduction. My surgeon had estimated upwards of $2,000 for the procedure, but Anthem seems to have an entirely different idea. What’s the price? If Anthem’s price is correct, then why did my surgeon provide such a radically higher estimate? Are there some people who actually pay $1,855 out of pocket? What have we to say to those people? What do you, their commissioner, have to say to them??

These are just the more prominent of one family’s recent medical expenses. I have looked over all of my family's medical expenses for the past four years, and in every case but one, Anthem reduced the physician’s charges, citing the same limitation on the “allowance” for the “procedure,” even when the “procedure” was just a consultative visit. (Even the price of a consultation is unknown?) The one case that did not get Anthem’s haircut: drugs. Apparently, Anthem chooses not to quibble with the large corporations that manufacture prescription drugs. Non-profit hospital corporations are not so lucky, and practicing physicians get the royal treatment: their bills get hacked by more than half.

I think you will agree that there is nothing unusual about even the more prominent of my family’s medical expenses of the last few years. Other families surely have endured far more suffering from health problems than we have, and their doctor bills have surely been far greater than ours. How must they feel, in what must be a very difficult time for them, to see Anthem clipping their doctor for more than half of the doctor’s estimated cost of the “procedure?” Do some of them simply pay up out of fear that their doctor won’t perform the next procedure that’s required for their course of treatment? Is that how the doctors make up for Anthem’s “allowances,” by collecting from scared and unwitting patients? I wonder how much in premiums those patients paid to Anthem for the privilege of having 74% of their bills disallowed?

What do you think about this? Do you think about it? Or do you attribute this to “high-deductible” policies and therefore not relevant to corporate employees covered by HMOs? What about the uninsured, who don’t even have the high-deductible policy? What do they do when they get these bills? Do the doctors send them the same bill, or do they bill uninsured patients according to Anthem’s “allowances”?

Actually, I already know the answer to the last question, because I got fed up with Anthem and dropped my $15,000 deductible policy. I have since restored the policy, having been shamed into it by relatives who thought it “not the best course” to be without coverage, i.e., I wasn't being a good family man. The bills and charges from physicians were exactly the same, whether before, during or after my interval of being uninsured. Furthermore, I enrolled my son in the state’s Medicaid program (formerly known as “Cub Care”) and soon it became apparent that the physicians were billing at the exact same rates and that Medicaid was paying, or somehow taking care of the charges. How is it that only Anthem has a radically different idea of what it costs to render these services?

All in all, I must say that I disagree with my relatives who counsel the prudence of paying $250 to $300 per month to “insure” one’s self with Anthem. If I get chiseled every time, because of Anthem’s “allowance” for the given “procedure,” then how am I ever going to make the $15,000 deductible? Isn’t it really a $30,000 deductible or a $40,000 deductible?

The reason I have the policy is obviously for protection in the event of a catastrophic health issue. But if I or another member of my family were ever to require a course of treatment costing tens of thousands, wouldn’t that mean that Anthem would simply disallow tens of thousands? For example, if a family member’s course of treatment came to $75,000, based on Anthem’s historical behavior, shouldn’t I expect that say, $40,000 would be disallowed? And isn’t that $40,000 part of what the physicians would estimate for the course of treatment, would charge an uninsured person for it, would bill to Medicaid for it? What possible meaning or value attaches to a $15,000 deductible under such circumstances?

Anthem is the administrator of Dirigo, and yet Anthem is threatening to bill extra if Dirigo is successful in reducing costs (presumably, also reducing Dirigo premiums). Why did Anthem become the administrator if it then turns around and seeks to undermine the program? That seems dishonest.

Anthem is asking for a 15.5% rate increase. At the same time, the company professes its concerns for individual subscribers such as myself. Looking more closely at the tables for the proposed increase, it turns out that our $15,000-deductible coverage is going to increase by 23.5%, not 15.5%. To keep the increase to “only” 15.5%, I have to ante up for the “Optional Preventive Care & Supplemental Accident” rider. That doesn’t seem honest to me. Somehow I doubt their concern for individual subscribers is genuine.

Anthem’s mailing includes a page called “The facts on the 2006 HealthChoice rate filing.” Anthem compares costs in the year 2000 vs. 2004, but nowhere in “The facts” does Anthem disclose that it has made interim rate increases between 2000 and 2004. I was almost ready to conclude that Anthem had held prices steady the last five years – until I got out my old bills. There were at least two increases that I know of during that period, and one of them was almost 10%. In Anthem’s “fact sheet,” 2000 vs. 2004 cost figures, up between 22% and 31%, appear to justify a 15.5% rate increase (which is really a 23.5% increase). Does this seem like “The facts” to you? Does this seem honest? Or does it seem like a whitewash that’s masquerading as “The facts?”

The bottom line is, why should I trust people who behave the way Anthem does? And I am trusting them. Every time I let them debit me another month’s $246 (soon to be $286), I’m trusting them. I’m paying them now so that they’ll take care of us later. But why should I believe they’re really going to take care of us when one of us is terribly, terribly sick? (Remember, it’s only when someone’s terribly sick that a $15,000-deductible policy has any chance of paying out a benefit.) If every single claim is disallowed in part, and the larger the claim the more that’s disallowed (up to, in my experience, a 75% disallowance), then what happens when I really need them? If they publish a defense of themselves that purports to be the facts that in reality wouldn’t stand up to the kind of analysis given to every business proposition by every Fortune 500 corporation, then why should I believe them when they put out a policy that lists the coverages I will have after I (somehow) meet my $15,000 deductible? As a consumer, with all of these reasons to wonder whether I’ve bought a pig in a poke, I am telling you that, having dropped this coverage once, I’m on the verge of dropping it again. I feel like a fool forking over money to these people. I feel like they’re chuckling all the way to the bank. The rate increase letter was signed by James Buccheri, who gave his title (Vice President), but no means of contacting him, not even a location – is he even here in Maine, or is he in Indiana?

These are not the people that I would want to do business with. But then, that’s not your problem is it? You have your state-employee health coverage, don’t you? And it’s certainly not James Buccheri’s problem. He not only has his coverage, he has his share of Anthem’s profits.

Richard Wolfe
Cumberland, Maine
October 7, 2005

October 08, 2005 6:52 PM  
Blogger Richard Wolfe said...

Following in my footsteps, the New York Times published a piece today that amplifies my rage over health insurer billing practices in Amerika, land of managed care.

I like in particular the following passage:

"Dr. Michael Mustille, associate executive director of the Permanente Federation in Oakland, Calif., said that medical paperwork often delivers 'a double psychological whammy.'

'People get these things that look expensive that they can't understand,' he said, 'and then there's the worry that the people they've paid for insurance may decline to assume responsibility for it.'"

October 12, 2005 7:43 PM  
Blogger truejim said...

I've recently had some first-hand experience with outlandish, even criminally fraudulent, medical billings practices. I represented a client whom one of our major California hospitals attempted to victimize and exploit in that manner. So far, they appear to have surrendered to my threatening letter, which I copy below, with identifying name details, etc. redacted to protect both the innocent and the guilty!

Jim Braden

Law Offices of 44 Montgomery Street
Suite 1210
James M. Braden San Francisco, California 94104
(415) 398-6865
Fax (415) 788-5605

TO: ___________________________

FAX NO.: ___________________________

Cc: ___________________________


DATE: July 26, 2005

RE: ______________________________


Dear Mr. _____________:

I apologize again for the delay in getting back to you with the full information I promised about your client ______________Hospital (_______ _______)’s gross and egregious misconduct in the matter of its preposterous bill to my client _____________ _____________. As I stated to you when we last spoke on the phone a couple of weeks ago, the delay is entirely the responsibility of my office and in no way Mr. _____________’ responsibility. As I told you, my associate attorney is on vacation for the full month of July, and I myself was on vacation for a shorter _____________e earlier this month. Thus, we fell behind on the _____________ matter and several others as well.

You will note, as I told you, that I received the full analysis by our expert _____________ _____________ back on June 22, 2005. That full analysis follows immediately after this cover letter. Thus, our delay had nothing to do with gathering our evidence, but, as I have said, was strictly due to temporary conditions here in our office, conditions that no longer will pertain after the end of this week.

In addition to Mr. _____________’s detailed report that simply devastates _______General’s outlandish bill for this simple, uneventful, and routine emergency room visit by Mr. _____________, I also attach a number of interesting items that our research turned up which demonstrate that your client’s utterly fraudulent bill to my client is not some type of mistake, some unusual aberration, but instead appears to be usual custom and practice, business as usual, at ______________Hospital and indeed at the larger _______ _______ organization generally. From everything we have learned, both in regard to Mr. _____________’ specific case, and in regard to Marin’s and _______’s business practices generally, your client appears to be engaged in a deep and chronic pattern of civil fraud, unfair business practices, and even criminally fraudulent billing practices.

Mr. _____________, in the ordinary course of things, if ______________had not been so outrageously greedy, if it had in the first place simply sent a bill for what Mr. _____________’s analysis suggests might have been a fair price for the services rendered -- $ 4,733.84, plus some small charge for “routine med/surg bed” – then my client Mr. _____________ might consider paying such a bill. Even that amount is, I think, on the high side, and it appears that Mr. _____________ has been generous to the Hospital even in suggesting that that amount of the $ 30,531, which is around just 15% of the total, is legitimate. For the services actually rendered to Mr. _____________, and moreover that he actually needed, a fair price would, in my view, be no more than half of $ 4,733, i.e. around $ 2,500.

However, it is now long since a moot point whether Mr. _____________ might have been willing, as Mr. _____________’s report concludes he should be -- and here we part company with Mr. _____________’s otherwise outstanding report -- to pay an initial bill of $ 4,733.84. That is because the Hospital’s misconduct in generating the absurd $ 30,531 bill in the first place has already forced Mr. _____________ to spend well more than $ 4,733 on my law firm’s legal fees and on _____________ _____________’s expert services. Because the Hospital has thus damaged Mr. _____________ in an amount greater than any fair amount of billing to which it might be entitled, the Hospital’s claim for any payment at all is, as a matter of law, completely extinguished.

But there is more. Because the fraudulent bill that the Hospital sent violates numerous unfair business practices statutes, and I believe criminal statutes as well, and constitutes the commission of several actionable civil torts, Mr. _____________ has cross-claims against your client that are worth far more than any legitimate amount the Hospital might be entitled to for the services it actually rendered to him. Indeed, Mr. _____________’ cross-claims are worth more even than the original, fraudulent $ 30,531 bill. However, Mr. _____________ is willing to be generous and give ______________this one opportunity to avoid pursuing his cross-claims if the Hospital will show the good sense to cancel this bill in total while it still can.

If ______________(and _______) are too stubborn, too stupid, too arrogant, or some combination of all three, to take this favorable, zero balance “walkaway” deal now, then Mr. _____________ has more civil options than just pursuing valuable cross-claims. He also can, and will seriously consider, lending his example, his evidence, his support, and his testimony, to the ongoing class action lawsuits against _______ _______ that are being pursued by the Lieff Cabraser law firm and by other law firms. On the other hand, if your client is smart enough to take the walkaway, which should be memorialized in a written mutual settlement agreement and release, Mr. _____________ is willing to commit in that writing to maintain absolute confidentiality, silence, and non-cooperation with any such class action lawsuit or any other proceeding or investigation involving the Hospital, excepting, in the customary manner, only his being compelled by subpoena to testify.
Yours very truly,

Jim Braden

October 13, 2005 8:49 AM  
Blogger Richard Wolfe said...

A withering blast, truejim, a withering blast! And more, much more, grist for the mill.


It's the insurers that are the culprits. Most of our hospital system is non-profit. As such, it is bound to provide care. That means charity care, if you're uninsured or can't meet your deductible.

I have a first-hand familiarity with charity care, a.k.a. uncompensated care, and also a second-hand familiarity as a sometime hospital debt analyst, where I learned about:

"The Hill-Burton Free Care Program"

“In 1946, Congress passed P.L. 79-725, the Hospital Survey and Construction Act, sponsored by Senators Lister Hill and Harold Burton, widely known as the Hill-Burton Act. It was the Nation's major health facility construction program under Title VI of the Public Health Service Act. Originally designed to provide Federal grants to modernize hospitals which had become obsolete due to lack of capital investment throughout the period of the Great Depression and World War II … In return for Federal funds, facilities agreed to provide free or reduced charge medical services to persons unable to pay (my emphasis).”


In effect, those words (boldfaced), established universal health care in the US.

It’s just that, to get charity care, you had to be pretty much down to your last dime.

Health insurance doesn’t have to do with getting health care, at least not directly. Health insurance has to do with shielding your assets from the cost of health care.

Thanks to our national conceit about “individualism,” it has been anathema to construct a system along the lines of everyplace else in the developed world, in which it is the government that shields individuals’ assets from the costs of health care.

And now we reap the consequences of our conceit: an administrative burden three times that of the rest of developed world, our largest manufacturing corporation about to go under because of that burden, not to mention my own little billing stories, your client's, and those seen in yesterday’s NY Times.

I might add that the burden of our private health insurance system, calling for an ever-greater allocation of limited financial resources, is surely tied to our dismal performance versus the rest of the developed world in terms of basic health statistics (especially infant mortality rates and life expectancies).

Yes, it is true that in the case of your client, it was the hospital that was the culprit. But I would urge you to view that as the consequence of the private asset-protection racket in which hospitals are compelled to operate. Like the doctors that I have cited, the hospitals are engaged in a battle to preserve their solvency from the infringements of the asset “protectors” i.e. the insurers.

What a hospital bills for any given service to the party of the first part (say, a private individual) has to be what they bill to the party of the second part (such as an insurer). Private individuals, like the elderly lady in New York and the child with neuroblastoma (in the Times article), as well as your client, are simply bystanders who are being slaughtered in the struggle between the health care providers and the health care asset protectors.

The “protectors,” in this country, are profiting from the service they provide, and it’s leading to worse, not better, efficiency in the provision of asset-protection services (and worse, not better, care).

Faced with these circumstances, there’s only one answer. Get rid of the profit-making asset protectors. Private enterprise doesn’t work in every sector of the economy. The evidence is staring us in the face.

October 13, 2005 11:44 AM  
Blogger Jim H said...

And when the government is in charge, instead of insurance companies:

Valued Lives
Britain Stirs Outcry by Weighing
Benefits of Drugs Versus Price
Government Arm Finds Pills
For Alzheimer's Too Costly,
Angering Patients, Pfizer
Ms. Dennis, 80, Joins Protest

November 22, 2005; Page A1

LONDON -- Millions of patients around the world have taken drugs introduced over the past decade to delay the worsening of Alzheimer's disease. While the drugs offer no cure, studies suggest they work in some patients at least for a while.

But this year, an arm of Britain's government health-care system, relying on some economists' number-crunching, said the benefit isn't worth the cost. It issued a preliminary ruling calling on doctors to stop prescribing the drugs.

The ruling highlighted one of the most disputed issues in medicine today. If a treatment helps people, should governments and private insurers pay for it without question? Or should they first measure the benefit against the cost, and only pay if the cost-benefit ratio exceeds some preset standard?

The U.S. generally follows the first course. Even the most cost-conscious insurers say they'll pay the price if a drug works and there aren't other options. Britain openly and unapologetically adopts the second course. If a drug or type of surgery costs a lot and helps only a little, it says no.
[Spending Gap]

"There is not a bottomless pit of resources," says Phil Wadeson, finance director for the National Health Service unit that oversees hospitals and doctors' offices in Liverpool. "We reached the point a while ago where there is far more medical intervention available than any health-care system can afford."

The decision on the Alzheimer's drugs has sparked protests from pharmaceutical companies including Pfizer Inc. and Eisai Co., which co-market the leading Alzheimer's drug, Aricept. They say Britain is using a flawed economic model and will end up spending more on nursing-home care. More than 8,000 patients and caregivers sent angry letters to the National Institute for Health and Clinical Excellence, or NICE, which made the cost-benefit analysis.

NICE "has this strange mathematical formula they put heaven knows how many numbers into and out comes: 'Yes, it's affordable,' or 'No, it isn't,' " says Antony Dennis, a Web-site designer in the village of Ramsbury whose mother takes Aricept. "Things like the relationship my mum has with her grandson are probably not easy to put into that formula."

NICE's decision, first announced in March and reaffirmed in June, applies only to new Alzheimer's patients and isn't final. Following the protests, the institute set a meeting for next month at which drug makers will try to show that the Alzheimer's drugs are cost-effective in at least some patient groups. Until then a previous directive from January 2001 that recommended the drugs remains in force.

NICE doesn't have the power to force a doctor to prescribe in a certain way. Its decisions are officially just guidance.

But in practice, if the institute chooses in December to reject the Alzheimer's drugs, it is likely to choke off prescriptions for new patients across the United Kingdom (except Scotland, which has its own health system). That's because most British doctors are employees of local units of the National Health Service such as Mr. Wadeson's in Liverpool. The local units must keep costs within an annual budget. When NICE says a drug doesn't pass muster, doctors are under pressure to avoid it and let the local funds be used elsewhere.

Since NICE was founded in 1999 it has reviewed 93 drugs, surgical procedures and other treatments, starting with those it feels are most in need of a rigorous cost-benefit analysis. In eight cases it has called on doctors to stop prescribing treatments because their benefits were judged not to be worth the cost. Rejected treatments include Kineret, a drug from Amgen Inc. for rheumatoid arthritis. In 57 cases it has recommended restricting use of a treatment. It said Eli Lilly & Co.'s Evista should be prescribed only for osteoporosis patients who can't take another class of drugs.

In 28 cases NICE encouraged full use of a treatment, even if it costs more. Andrew Dillon, NICE's chief executive, says this demonstrates that the institute's aim isn't to save money but to make spending more effective.

Still, Britain spends far less than the U.S. on drugs, not only because of usage restrictions but also because the government sets limits on the profits drug companies are allowed to make in the U.K. In 2004, the National Health Service's drug bill, including Scotland, came to about $17 billion. Even after adding in out-of-pocket costs, Britain's per-capita drug bill is less than half of that in the U.S. -- about $340 a year per Briton versus about $800 per American based on IMS Health figures.

In Britain, the Alzheimer's drugs cost about $1,500 a year per person. The total cost to the National Health Service is a little over $100 million a year. The money goes mainly for three drugs: Aricept, Exelon from Novartis AG, and Reminyl from Shire Pharmaceuticals Group. All three are available in the U.S. and covered by most plans under the new Medicare drug benefit. Reminyl is sold in the U.S. by Johnson & Johnson under the name Razadyne.

Underlying Cause

The drugs are thought to work by maintaining supplies of a chemical involved in the brain's information processing. Since Aricept went on the market in 1997, the drugs' global sales have risen above $3 billion a year, according to IMS Health. However, they don't address the still-unknown underlying cause of Alzheimer's, which gradually destroys a person's memory and ability to reason and carry out daily activities. Ultimately the disease is fatal.

While studies aren't clear-cut or unanimous, they generally suggest the drugs have a short-term effect in delaying the worsening of the disease and may even improve cognitive function temporarily for a minority of patients. Over several years, the effect seems to wear off. One study published this year showed that patients with mild cognitive impairment who took Aricept had a lower risk of progressing to full Alzheimer's disease than patients taking placebo during the first year of the trial. But after three years the Aricept patients were no better off.

For British health authorities, the combination of high cost and apparently limited efficacy made the Alzheimer's drugs a natural target of a detailed investigation by NICE, the institute charged with determining whether drugs are worth the money. NICE had already done a cost-benefit analysis and concluded in January 2001 that the drugs were worth paying for. This time it used different methodology and took into account new clinical-trial data.

Last year NICE hired a group of health economists at Southampton University to create a financial model. Using data from clinical trials, the model sought to measure how much benefit patients taking medication would receive over a five-year period compared with those not taking medication. It looked at some of the main benefits medicated patients received -- improved cognition, improved quality of life, and a delay in the need for nursing-home or other full-time care.

Following NICE's standard procedure, the economists then converted those benefits into what is called a "quality-adjusted life year." This measure, known as a QALY or "kwah-lee," is used by health economists around the world including in the U.S. A QALY assigns a score between zero and one to a person's health. A person at zero is dead. A person at 1.0 is in perfect health. If a drug that costs $1,000 extends a person's life in perfect health for one year and then the person dies, the drug's cost per QALY is $1,000.

Toting up all the numbers, the economists concluded that the Alzheimer's drugs each cost more than $100,000 per QALY. Typically, NICE believes that drugs shouldn't cost more than $50,000 or so per QALY, although it doesn't set a firm line.

Data in hand, the institute convened a panel of doctors and other medical professionals in January of this year to make a recommendation. The panel was sharply divided. Patients' families and drug companies were arguing that the Southampton University team failed to include some intangible benefits in its analysis such as the reduced burden on caregivers. Patients taking the drugs, they said, were more sociable and less dependent.

Ultimately the panel voted 12-8, with one abstention, to reject the drugs. It concluded that they were "outside the range of cost effectiveness that might be considered appropriate for the NHS." The decision was announced in March.

Mr. Dillon, NICE's chief executive, calls it a "very difficult decision" but defends the process of measuring how much an improvement in someone's life is worth in monetary terms. "NICE has got a responsibility to act on behalf of the whole community, to make decisions about the best way to allocate a finite resource," says Mr. Dillon. "We have to step back and look at just how much benefit is being obtained from the money the health-care system would have to pay."

Mobilizing Patients

Within weeks of the NICE ruling in March, the Alzheimer's Society, a patient-advocacy group that receives drug-industry funding, mobilized more than 500 patients and their families to protest discrimination against dementia sufferers. Across from the Houses of Parliament in London, they assembled around a giant inflatable elephant -- the society's symbol -- and shouted: "They say cut back, we say fight back!"
[Joan Dennis]

Among the protesters was the Dennis family, who traveled by train from a village in Wiltshire. Joan Dennis, 80, began taking Aricept after being diagnosed with Alzheimer's in January 2003. She hasn't improved since then, but her doctor and family credit the daily doses of the drug with staving off further decline.

"Without them we are totally convinced that mum would not be in a state to look after herself at all," says her 43-year-old son, Antony, whom she calls "Ant." Ms. Dennis will be able to keep taking Aricept because any NICE ruling would only apply to new patients.

Chatting in Antony's kitchen on a recent afternoon, Ms. Dennis couldn't remember whether she had eaten breakfast that morning. But she is still able to live on her own, in a row house a five-minute walk away, and cooks her own meals and pays her own bills.

Little signs posted around her house help her keep life on track. After forgetting a pan of ground beef on the stovetop last year and burning it to a crisp, she taped several pieces of paper to the wall: "Make sure cooker is switched off." Another sign stuck to a kitchen cabinet above the phone says, "Don't call Ant unless it's pretty urgent." Before she posted that reminder, Joan says she would sometimes call Antony dozens of times a day to ask about "silly" things she was worried about.

Antony believes the drugs have given his mother the energy to spend time with her youngest grandson, Toby, who is 3. She often reads to him from a brown velvet sofa in her living room. During the protest march in London, Toby carried a placard that said, "I love my Grandma."

In June, NICE gathered its panel of experts again. They heard officials from the Alzheimer's Society give the results of a survey of 4,000 patients and caregivers. The survey found 73% of them felt the drug treatments had worked in their cases. The committee declined to change its decision. Later, though, it scheduled another meeting for Dec. 20.

A Hard Case

Pharmaceutical companies will have a chance at the December meeting to argue that their drugs offer especially significant benefits for some groups of Alzheimer's patients. However, that is a hard case to make because studies offer little evidence for what type of patient does best on the medication. The panel may decide to issue a final rejection of the drugs at that meeting. Companies or patients could still appeal the decision to a separate appeals commission.

Some doctors say they'll continue prescribing the drugs until local officials force them to stop. "As someone who's actually seen patients -- unlike the epidemiologists and health economists who see this as an incredible waste -- I know these drugs work," says David Wilkinson, a doctor who treats dementia patients in southern England. "If the drug companies hadn't priced them as they have we wouldn't be in this bloomin' argument."

Pfizer says it and its partner, Eisai, reduced the price of Aricept by 7% on Jan. 1, 2005, under an agreement with Britain's Department of Health. Paul Hooper, managing director of Eisai in the U.K., points out that the drugs are the "same price as a pint of beer" per day.

Mr. Dillon, the NICE chief, notes that doctors were on the committee that declared the drugs not cost-effective. "This isn't a bunch of technocrats in an office block in London making a decision," he says.

November 22, 2005 1:00 PM  
Blogger Richard Wolfe said...

Jim H:

I think you should elaborate on this. Tell us what's your take on it. I kind of get it that you're worried about too much power in the hands of government, but the WSJ article isn't making that point. The article might be taken as evidence supporting that point of view, but it does not by itself make that argument. If you do want to make a case against entrusting government with a universal health care system (more formally, in my view, a universal, governmental indemnity that protects private assets against health care costs), then I think you have to weigh the evidence from the WSJ article against evidence that I have presented (for example, life expectancy and infant mortality). You also really need to deal with the administrative cost burden. Medicare's administrative costs are 2% of Medicare spending. (This from the West Wing live "presidential" debate of a couple of weeks ago, featuring Jimmy Smits as the Democratic candidate and Alan Alda as the Republican.)

November 23, 2005 2:45 PM  

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