Archive for the ‘Healthcare’ Category

False Claims and Other Frauds

Monday, September 26th, 2016

ViolationTracker_Logo_Development_R3The False Claims Act sounds like the name of a Donald Trump comedy routine, but it is actually a 150-year-old law that is widely used to prosecute companies and individuals that seek to defraud the federal government. It is also the focus of the latest expansion of Violation Tracker, the database of corporate crime and misconduct we produce at the Corporate Research Project of Good Jobs First. The resource now contains 112,000 entries from 30 federal regulatory agencies and all divisions of the Justice Department. The cases account for some $300 billion in fines and settlements.

Through the addition of some 750 False Claims Act and related cases resolved since the beginning of 2010, we were able to identify the biggest culprits in this category. Drug manufacturers, hospital systems, insurers and other healthcare companies have paid nearly $7 billion in fines and settlements. Banks, led by Wells Fargo, account for the second largest portion of False Claims Act penalties, with more than $3 billion in payments. More than one-third of the 100 largest federal contractors have been defendants in such cases during the seven-year period.

Among the newly added cases involving healthcare companies, the largest is the $784 million settlement the Justice Department reached last April with Pfizer and its subsidiary Wyeth to resolve allegations that they overcharged the Medicaid program. DaVita HealthCare Partners, a leading dialysis provider, was involved in the next two largest cases, in which it had to pay a total of $800 million to resolve allegations that it engaged in wasteful practices and paid referral kickbacks while providing services covered under Medicare and other federal health programs.

Wells Fargo accounts for the largest banking-related penalty and the largest False Claims Act case overall in the new data: a $1.2 billion settlement earlier this year to resolve allegations that the bank falsely certified to the Department of Housing and Urban Development that certain residential home mortgage loans were eligible for Federal Housing Administration insurance, with the result that the government had to pay FHA insurance claims when some of those loans defaulted.

Thirty-five of the 100 largest federal contractors (in FY2015) have paid fines or settlements totaling $1.8 billion in False Claims Act-related cases since the beginning of 2010. The biggest contractor, Lockheed Martin, paid a total of $50 million in four cases, while number two Boeing paid a total of $41 million in two cases.

The database has also added new search features, such as the ability to search by 49 different types of offenses, ranging from mortgage abuses to drug safety violations. Users can view summary pages for each type of offense, showing which parent companies have the most penalties in the category. Penalty summary pages for parents, industries and agencies now also contain tables showing the most common offenses. Users can add one or more offense type to other variables in their searches.

Among types of offenses, the largest penalty total comes from cases involving the packaging and sale of toxic securities in the period leading up to the financial meltdown in 2008. The top-ten primary case types are as follows:

  1. Toxic securities abuses: $68 billion
  2. Environmental violations: $63 billion
  3. Mortgage abuses: $43 billion
  4. Other banking violations: $18 billion
  5. Economic sanction violations: $14 billion
  6. Off-label/unapproved promotion of medical products: $12 billion
  7. False Claims Act cases: $11 billion
  8. Consumer protection violations: $9 billion
  9. Interest rate benchmark manipulation: $7 billion
  10. Foreign Corrupt Practices Act cases: $6 billion

We also added a feature allowing for searches limited to companies linked to parent companies with specific ownership structures such as publicly traded, privately held, joint venture, and employee-owned. That’s in addition to updating the data from the agencies already covered and increasing the size of the parent company universe to 2,165.

The uproar over the Wells Fargo sham accounts scandal is heightening the discussion of corporate crime. Violation Tracker hopes to be a tool in efforts to turn that discussion into lasting change.

Insurers Show Their True Colors

Thursday, August 4th, 2016

healthcare-profitsOne of the key building blocks of the Affordable Care Act was the notion that insurance companies would compete with one another to offer good deals to the uninsured once that population was required to purchase coverage. That captive market is not working out as well as hoped.

Just the other day, Aetna became the last of the five major national carriers to project a loss on ACA business for 2016 while announcing the cancellation of a planned expansion of its participation in the ACA state exchanges and a reevaluation of its current involvement. This came in the wake of recent news that UnitedHealth and Humana would also be cutting back on their exchange offerings.

These carriers attributed their moves to higher than expected medical costs among exchange participants. For all the talk about a reformed health insurance industry, the companies still operate according to a perverse dynamic. They make money when more people don’t seek healthcare services. The insurers can’t get away with many of the tricks they used in the past to deny coverage, but they can still walk away from certain market segments such as ACA plans when profits are not as high as they would like.

The steps by Aetna and the others will intensify what is already a dwindling amount of competition in some of the state exchanges. Several are in a situation in which only one insurer is expected to offer marketplace plans. The result is a kind of single payer situation, though not in the good sense.

All of this is happening while the major insurers have been trying to diminish competition in another way — by trying to merge with one another. Aetna has been seeking to acquire Humana, and Anthem wants to join forces with Cigna. The two proposed deals, totaling about $85 billion, would reduce the number of major players to three.

Last month, the Justice Department and multiple states filed challenges to the two proposed mergers. It is unclear to what extent Aetna’s announcement about a pullback in the exchanges is meant to put pressure on the Obama Administration to back off from its opposition to the Humana deal.

What is clear is that Aetna has a long history of using hard-ball tactics dating back to its purchase of the notorious HMO U.S. Healthcare two decades ago. Aetna tried to apply some of the worst features of managed care — including bare-bones policies — to its health insurance business and ended up with a wave of litigation and regulatory violations. An attempt by plaintiff lawyers to bring a massive tobacco-industry-type case against the industry failed, but Aetna did have to pay $470 million to settle a class-action suit brought by physicians over inadequate payments.

Aetna’s track record was one of the main pieces of evidence showing the folly of the decision by the Obama Administration and Congressional Democrats to shun single payer (or even the public option) and embrace the big insurers. That Faustian choice is coming back to haunt the Dems, who are now trying to resurrect the public option. It may be too late.

Manufacturing McJobs at Nissan and Elsewhere

Thursday, May 12th, 2016

Bring back manufacturing jobs: For years this has been put forth as the silver bullet that would reverse the decline in U.S. living standards and put the economy back on a fast track. The only problem is that today’s production positions are not our grandparents’ factory jobs. In fact, they are often as substandard as the much reviled McJobs of the service sector.

The latest evidence of this comes in a report by the UC Berkeley Center for Labor Research and Education, which has issued a series of studies on how the growth of poorly paid jobs in retailing and fast food have burdened government with ever-rising social safety net costs. Now the Center shows how the same problem arises from the deterioration of job quality in manufacturing.  The study estimates that one-third of the families of frontline production workers have to resort to one or more safety net program and that the federal government and the states have been spending about $10 billion a year on their benefits.

What makes these hidden taxpayer costs all the more galling is that manufacturing companies enjoy special benefits in the federal tax code and receive lavish state and local economic development subsidies, the rationale for which is that the financial assistance supposedly helps create high-quality jobs.

The Center’s analysis deals in aggregates and thus does not single out individual companies, but it is not difficult to think of specific firms that contribute to the vicious cycle. A suitable poster child, it seems to me, is Nissan. It is one of those foreign carmakers credited with investing in U.S. manufacturing, though like the other transplants it did so in a pernicious way.

First, it tried to avoid being unionized by locating its facilities in states such as Mississippi and Tennessee that are known to be unfriendly to organized labor. After the United Auto Workers nonetheless launched an organizing drive, the company has done everything possible to thwart the union.

Second, while boasting that its hourly wage rates for permanent, full-time workers are close to those of the Big Three domestic automakers, Nissan has denied those pay levels to large chunks of its workforce. Roughly half of those working at the company’s plant in Canton, Mississippi are temps or leased workers with much lower pay and little in the way of benefits.

It is significant that in the Center’s report, Mississippi — which has also attracted manufacturing investments from other foreign firms such as Toyota and Yokohama Rubber — has the highest rate of participation (59 percent) in safety net programs by families of production workers. The Magnolia State may have experienced a manufacturing revival, but many of those new jobs are so poorly paid that they are creating a burden for taxpayers.

At the same time, Mississippi is among the more generous states in dishing out the subsidies to those foreign investors. My colleague Kasia Tarczynska and I discovered that the value of the incentive package given to Nissan in 2000 will turn out to cost $1.3 billion — far more than was originally reported. Toyota got a $354 million deal in 2007, and Yokohama Rubber got a $130 million one in 2013.

There’s a lot of talk these days about bad trade deals and resulting job losses. We also need to worry about what happens when we gain employment from international investment but the jobs turn out to be lousy ones.

Johnson & Johnson’s Self-Inflicted Wounds

Thursday, May 5th, 2016

Baby powder, the product along with Band-Aids that for decades gave Johnson & Johnson a benign image, is now the latest symbol of its deterioration into one of the most unreliable of large corporations. Juries have recently awarded a total of $127 million to women with ovarian cancer who charge that their disease was caused by the talc in the company’s powder.

J&J, which disputes the allegations and is appealing the verdicts, faces some 1,400 additional similar lawsuits brought by plaintiffs’ lawyers armed with company documents they say show that J&J was concerned about a link between talcum powder and ovarian cancer as early as the 1970s. It is unclear what will happen with the litigation, but the lawsuits are part of a long string of scandals that have plagued the giant medical products firm during the past decade and forced it to pay out vast sums in civil settlements and criminal fines.

The most serious of those cases involved allegations that several of its subsidiaries marketed prescription drugs for purposes not approved as safe by the Food and Drug Administration, thus creating potentially life-threatening risks for patients.

In 2010 J&J subsidiaries Ortho-McNeil Pharmaceutical and Ortho-McNeil-Janssen had to pay $81 million to settle charges that they promoted their epilepsy drug Topamax for uses not approved as safe. The following year, J&J subsidiary Scios Inc. had to pay $85 million to settle similar charges relating to its heart failure drug Natrecor.

In 2013 the Justice Department announced that J&J and several of its subsidiaries would pay more than $2.2 billion in criminal fines and civil settlements to resolve allegations that the company had marketed it anti-psychotic medication Risperdal and other drugs for unapproved uses as well as allegations that they had paid kickbacks to physicians and pharmacists to encourage off-label usage. The amount included $485 million in criminal fines and forfeiture and $1.72 billion in civil settlements with both the federal government and 45 states that had also sued the company.

At a press conference announcing the resolution of the case, U.S. Attorney General Eric Holder said the company’s practices ”recklessly put at risk the health of some of the most vulnerable members of our society — including young children, the elderly and the disabled.”

Other J&J problems resulted from faulty production practices. During 2009 and 2010 the company had to announce around a dozen recalls of medications, contact lenses and hip implants. The most serious of these was the massive recall of liquid Tylenol and Motrin for infants and children after batches of the medication were found to be contaminated with metal particles.

The company’s handling of the matter was so poor that J&J subsidiary McNeil-PPC became the subject of a criminal investigation and later entered a guilty plea and paid a criminal fine of $20 million and forfeited $5 million.

J&J also faced criminal charges in an investigation of questionable foreign transactions. In 2011 it agreed to pay a $21.4 million criminal penalty as part of a deferred prosecution agreement with the Justice Department resolving allegations of improper payments by J&J subsidiaries to government officials in Greece, Poland and Romania in violation of the Foreign Corrupt Practices Act. The settlement also covered kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program.

All of this has been a humiliating comedown for a company that was once regarded as a model of corporate social responsibility and which set the standard for crisis management in its handling of the 1980s episode in which a madman laced packages of Tylenol with cyanide. While the company was then being victimized, the more recent crises have been largely of its own making.

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Note: This piece is drawn from my new Corporate Rap Sheet on Johnson & Johnson, which can be found here.

Dual Perils Confront the ACA

Thursday, June 18th, 2015

scylla-and-charybdis-bookpalaceThe Affordable Care Act is a Rube Goldberg-like contraption based on both private-sector competition and government subsidies. Both of those elements are in danger of collapse.

The disappearance of the federal subsidies that enable millions of lower-income people to purchase the coverage they are now required to have is, of course, a possible outcome of an imminent Supreme Court ruling. It is mind-boggling that the King v. Burwell case, a brazen effort by diehard Obamacare opponents to exploit an obvious drafting error in the ACA, has gone this far and might actually succeed. It says a lot about the mangled state of public policy in this country that we see a front-page story in the New York Times about the growing panic among conservatives that they might win and be held responsible for the ensuing chaos. Apparently, they forgot there is a difference between taking meaningless votes in the House and bringing a case to a high court with a significant contingent of Justices inclined to take ideological posturing seriously.

Also at risk is the system in which private insurance carriers are supposed to compete against one another to provide coverage in the exchanges to their expanded pool of captive customers. In many places, that competition was not very robust to begin with, but now it may become even more diminished.

According to reports in the business press, the biggest for-profit health insurance companies are looking to gobble up their slightly smaller rivals. The Wall Street Journal says UnitedHealth Group has its eye on Aetna, which in turn is said to be exploring some form of cooperation with Humana, whose success in selling supplementary insurance to Medicare enrollees is attractive. At the same time, the Journal reports, Anthem has been in negotiations with Cigna, which is also said to be talking to Humana.

We can see where all this is going. Unless antitrust regulators show some backbone, the current private health insurance oligopoly could turn into a duopoly. The non-profit portion of the market does not provide much help. The 37 independently owned companies that make up the Blue Cross and Blue Shield network are increasingly inclined to divvy up markets and avoid competing with one another, according to lawsuits now pending in federal court. The litigation charges that the behavior of the Blues, some of which are controlled by for-profits such as Anthem, is driving up premium costs for customers while at the same time pushing down payment rates for physicians and other healthcare providers. These predatory practices threaten both the ACA and traditional employer-provided plans.

In the eyes of the Administration, the big insurers are the good guys. Initially suspicious of the ACA, the companies came to accept the law and even turned into major boosters. They embraced ACA’s Medicaid expansion component, seeing opportunities for managed care business in some states, and supported the Administration’s position in King v. Burwell. A SCOTUS ruling in the other direction would take a big hit on their soaring stock prices.

That’s where mainstream healthcare reform has left us — caught between predatory insurance providers on the one side and nihilistic ideologues on the other.

Corporate Benefit Cutters Still Shifting Costs to Taxpayers

Thursday, October 9th, 2014

walmart_jwj_subsidiesWal-Mart’s recent announcement that it will snatch health coverage away from 30,000 part-timers is not just the latest in a long series of Scrooge-like actions by the giant retailer. It is also a sharp reminder of both the necessity of the Affordable Care Act and the deficiencies of that law.

If we think back to the time before Obamacare became a political lightning rod, we may recall that it was precisely the behavior of corporations such as Wal-Mart that created the need for healthcare reform.

In addition to paying low wages, Wal-Mart had long been criticized for providing inadequate benefits to its employees. In 2003 the Wall Street Journal published an article describing the various ways in which the company kept its spending on health benefits as low as possible. This was explored in more detail in an AFL-CIO study that came out about the same time.

This evidence, combined with reports that the company was encouraging its workers to apply for Medicaid and other government social safety net programs, prompted critics to argue that Wal-Mart was in effect shifting some of its labor costs onto taxpayers. In 2004, the Democratic staff of the House Committee on Education and the Workforce published a report estimating that the average Wal-Mart employee used federal safety net programs costing $2,103 per year.

Over the following few years, state governments were encouraged to reveal which employers accounted for the most enrollees (including dependents) in Medicaid, the State Children’s Health Insurance Program and other forms of taxpayer-funded health coverage. For those states that did disclose those lists, Wal-Mart was almost always at or near the top. My colleagues and I at Good Jobs First still maintain a compilation of these disclosures, though most of the data is now woefully out of date.

Healthcare reform should have put an end to all this, ideally by creating a system of Medicare for all funded with higher taxes on business. Of course, what we got was something else. Ironically, one of the most positive aspects of the Affordable Care Act – the expansion of Medicaid eligibility in some states – may be increasing the amount of hidden taxpayer costs generated by employers such as Wal-Mart. Yet that’s less important that the extension of those benefits to families desperately in need.

The ACA’s impact on the large portion of the workforce not enrolled in public programs is even more complicated. Although the law depends heavily on private insurance, it does not, strictly speaking, require employers to provide group coverage. Instead, what is often called the law’s employer mandate is a half-baked arrangement that will simply require larger companies (50 or more FTEs) that fail to provide adequate group coverage to pay a penalty.

That penalty is likely to be less than the cost of providing coverage and it will kick in only if at least one full-time employee of a company ends up getting federally subsidized coverage through the state or federal exchanges created by the ACA. It thus appears that companies such as Wal-Mart, Target and Home Depot that dump part-timers from their plans will be able to avoid the penalties, which in any event are not yet in effect as a result of several postponements by the Obama Administration.

While the ACA is helping more people get coverage, it does nothing to thwart low-road employers from continuing to shift what should be their health coverage costs onto taxpayers. It also appears to do nothing to help us discover which corporations are guilty of this practice, since there are no explicit provisions for making public the coverage reports that large employers will be required to file with the IRS.

Not only does the ACA fail to impose a meaningful employer mandate; it also misses an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage to all their workers.

Another Healthcare Website Contractor Mess

Thursday, October 2nd, 2014

big-pharma-pills-and-moneyThe Obama Administration’s struggle with healthcare information technology is once again on display, with the release of the first wave of disclosure mandated by the Affordable Care Act on payments by drug and medical device corporations to doctors and hospitals. These payments include consulting fees, research grants, travel reimbursements and other gifts Big Pharma and Big Devices lavish on healthcare professionals to promote the use of their wares — in other words, what often amount to bribes and kickbacks. The new Open Payments system is said to document 4.4 million payments valued at $3.5 billion for just the last five months of 2013.

This sleazy practice certainly deserves better transparency. Yet in announcing the data release, the Centers for Medicare & Medicaid Services (CMS) seemed to be sanitizing things a bit: “Financial ties among medical manufacturers’ payments and health care providers do not necessarily signal wrongdoing.”

Perhaps, but very often that is exactly what they signal. Let’s not forget that many of the big drugmakers have been prosecuted for making such payments as part of their illegal marketing of products for unapproved (and thus potentially dangerous) purposes. In 2009 Pfizer paid $2.3 billion and Eli Lilly paid $1.4 billion to settle such charges. Novartis consented to a $422 million settlement in 2010. That same year, AstraZeneca had a $520 million settlement. Illegal marketing inducements were among the charges covered in a $3 billion settlement GlaxoSmithKline consented to in 2012. The list goes on.

While the release of the aggregate numbers is useful, there are serious snafus in the rollout of the search engine providing data on specific transactions. As ProPublica is pointing out, the new site is all but unusable for such purposes. It is set up mainly to allow sophisticated users to download the entire dataset, yet even the wonks at ProPublica found that it did not function well in that way either.

Even if one overcomes these obstacles, the ability to analyze financial relationships between corporations and specific healthcare providers is limited by the fact that some 40 percent of the records — accounting for 64 percent of payments– are missing provider identities.

What makes the disappointing Open Payments rollout all the more infuriating is that it is being brought to us by the same infotech contractor, CGI Federal, that was primarily responsible for the much bigger fiasco surrounding the Healthcare.gov enrollment website a year ago. The contractor is part of Canada’s CGI Group, which as I noted in 2013, had a history of performance scandals both in its home country and in the United States.

Problems with the Open Payments site began even before its official public debut. Over the summer, the portion of the site through which providers could register to review the data attributed to them had to be taken offline during a critical period for nearly two weeks to resolve a “technical issue.”

As with Healthcare.gov, it is likely that the government bashers will succeed in putting most of the blame for the shortcomings of the Open Payments system on the CMS. Yet the real lesson of the websites, along with that of the U.S. healthcare as a whole, is that the dependence on for-profit corporations –whether they be pharmaceutical manufacturers, managed care providers or information technology consultants — is always going to generate bloated costs and plenty of inefficiency.

Religion Inc.

Thursday, July 3rd, 2014

samuel-alito-jr-2009-9-29-10-13-28Is Justice Samuel Alito really that clueless? During the 2010 State of the Union address, he nervously mouthed the words “not true” when President Obama warned that the Supreme Court’s Citizens United ruling would allow corporate special interests to dominate U.S. elections. A few days ago, Alito wrote an outrageous opinion in the Hobby Lobby case affirming the religious rights of corporations but insisting this would not do much other than prevent a few companies from having to include several kinds of birth control in their health insurance plans.

Alito’s claim about the narrow scope is already beginning to unravel. Although the written opinion suggested that only four types of contraception such as IUDs that religious zealots view as tantamount to abortion would be affected, the Court subsequently ordered lower courts to rehear cases in which employers sought to deny coverage for any form of birth control.

Business owners with other religious views contrary to federal policy will undoubtedly soon speak up. This is exactly what Justice Ginsburg warned about in her powerful dissent, calling Alito’s opinion “a decision of startling breadth” that enables “commercial enterprises, including corporations, along with partnerships and sole proprietorships, [to] opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.”

Alito was apparently so shaken by Ginsburg’s accusation that he felt a need to deny it at length. The denial is not only unconvincing, it is clumsy and takes Alito into some strange territory for a supposed business-friendly conservative.

In their religious zeal, Alito and the other conservatives on the Court apparently forgot that corporations have been trying for the past century to depict themselves as totally apart from religious and moral concerns. Business enterprises are amoral institutions, laissez-faire proponents such as Milton Friedman repeatedly told us—they exist only to maximize their profit. It has often been corporate critics who have brought religious and moral issues into disputes over business practices.

Alito seems to embrace the notion of corporate social responsibility (CSR) when he writes (p.23):

Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives.

Alito even makes reference to growing acceptance of the benefit corporation, which he describes as “a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners” (p.24).

It’s unclear whether Alito sincerely believes in the validity of CSR initiatives or is simply using this comparison to try to make his assertion of corporate religious rights more palatable. Oddly, he describes as “unlikely” the possibility that a large publicly traded company would ever make a religious claim, even though such firms are among the biggest promoters of CSR.

Whatever Alito really thinks, his reference to CSR does not make the ruling any more convincing. CSR is already problematic to the extent that its practitioners try to use their supposedly high-minded voluntary initiatives to discourage more stringent and more enforceable government regulation. But at least these corporations are simply trying to influence government policymaking rather than asserting an absolute right to be exempt because of supposed religious convictions.

As much as Alito tries to deny it, his ruling has the potential to cause a great deal of mischief. A religious component can already be seen in the climate crisis denial camp; what will prevent companies from asserting that their beliefs prevent them from complying with environmental regulations? Is it that hard to imagine that business owners holding a scripture-based belief that women should be subservient to men may claim they should not be subject to anti-discrimination and equal pay laws?

Alito seems to be opening the door to such aggressive stances when he insists that “federal courts have no business addressing” the question of whether a religious claim by a corporation is reasonable (p.36). It’s true that, in general, government should not be passing judgment on matters of faith, but that principle falls apart when special interests try to use religion to undermine democratically adopted public policies. It’s even worse when those interests are employers asserting their beliefs at the expense of their workers.

The Supreme Court has done considerable damage by elevating the free speech rights of corporations; now it is compounding the sin by giving those corporations special religious rights as well.

Will Big Pharma Cripple Healthcare Reform?

Thursday, April 24th, 2014

big-pharma-pills-and-moneyFor those of us who criticized the Affordable Care Act for not going far enough, a big part of the concern was the law’s reliance on the private insurance industry to handle much of the expanded coverage. That industry, with its history of denying coverage and inflated premiums, deserved to be phased out rather than being awarded a large new captive customer base.

It now looks like an even more serious problem for healthcare reform will be another industry with a checkered past: Big Pharma. The drugmakers are generating a growing crisis not only for Obamacare but also for more established programs such as Medicare and Medicaid.

When the federal government recently released data on Medicare billings by individual providers, many of the top amounts were linked to doctors who administer expensive drugs in their offices and thus include the cost of those treatments in their Medicare claims. For example, some 3,000 ophthalmologists billed an average of $1 million each (one billed $21 million by himself), reflecting heavy use of an expensive medication for macular degeneration injected into the eye.

Another challenge comes from Sovaldi, a new hepatitis C drug sold by Gilead Sciences with a list price of $1,000 per pill, or $84,000 for a typical course of treatment. The product is doing great things for Gilead, which recorded $2.3 billion in sales for the drug’s first full quarter on the market — a pharmaceutical industry record.

It is causing problems for those entities that have to pay for use of the drug, including state Medicaid programs, the Department of Veterans Affairs and private insurance companies. One of the largest of those companies, UnitedHealth Group, recently cited the cost of hepatitis C treatments such as Sovaldi as one of the reasons for a drop in its earnings in the first quarter of 2014.

Earlier, several members of Congress, including Rep. Henry Waxman of California, sent a letter to Gilead expressing concern about the price of Sovaldi, but it generated little concern on the part of the company or the rest of the industry. One pharma industry analyst was quoted as saying: “We just look at this letter as a little bit of noise.”

Unfortunately, the dismissive tone was justified. Congress has done little to rein in the cost of prescription drugs and even took the absurd step of barring the federal government from negotiating with pharmaceutical providers in the Medicare Part D program.

The cost problem will only get worse. Patents are expiring on many major drugs, and the industry is creating fewer new ones, prompting companies to squeeze everything they can out of their shrinking product lines.

That means higher prices and other shady practices such as promoting drugs for uses for which they have not been approved. Many of the industry’s largest companies have paid large amounts to settle illegal-marketing charges brought against them by the Justice Department, among them Eli Lilly ($1.4 billion relating to Zyprexa), GlaxoSmithKline ($3 billion relating to Paxil and Wellbutrin) and Pfizer ($2.3 billion relating to Bextra and other medications).

Illegal marketing is just one of the serious charges brought against Big Pharma in recent years. The $3 billion GlaxoSmithKline settlement also covered allegations that it withheld crucial safety data on its diabetes drug Avandia from the U.S. Food and Drug Administration. Merck paid the federal government more than $650 million to settle charges that it routinely overbilled Medicaid and other government programs and made illegal payments to healthcare professionals to induce them to prescribe its products. Eli Lilly paid $29 million to settle foreign bribery charges.

It remains to be seen whether these cases have prompted Big Pharma to clean up its act. I remain skeptical, especially in light of recent signs that the industry is engaged in more concentration designed to allow companies to narrow their focus and thus gain bigger market share in particular sectors.

More specialization will mean less competition, which in turn will mean fewer choices and rising prices. When it comes to drugs, the Affordable Care Act will have increasing difficulty living up to its name.

Healthcare Redlining

Thursday, February 13th, 2014

Protest-against-insurance-companies-in-Washington_3951547284_m-250x176Media coverage of the Affordable Care Act these days bounces back and forth between good news and bad. One day the Obama Administration signals that there are more problems with the employer mandate and once again changes the rules. Two days later, federal officials are bragging that ACA enrollment is booming and that even the Young Invincibles are signing up.

Yet perhaps the most significant recent development is the analysis just published by the Wall Street Journal on the limited range of plan options in the ACA exchanges. The newspaper found that in 515 counties across 15 states there is only one insurer selling coverage through the online marketplaces. In more than 80 percent of those counties, the sole insurer is a local Blue Cross/Blue Shield plan.

For the residents of those counties who seek coverage through the exchanges, the ACA is forcing them to do business with a de facto monopoly that can get away with charging inflated premiums. The Journal cites the example of rural, low-income Hardee County in Florida, where comparable exchange-based coverage can cost $200 a month more than in nearby Tampa.

The ACA is premised on the idea that competition would bring down costs and provide better coverage. The Administration and most Congressional Democrats bought into that notion so deeply that they were willing to exclude a public option as unnecessary. That decision looks increasingly bone-headed.

It is true that those who qualify for federal subsidies may be shielded from the cost differentials, but a substantial portion of the uninsured earn too much to qualify for that assistance but are still far from affluent.

A big part of the problem is that major for-profit insurers such as Aetna and UnitedHealth Group have been participating in the exchanges on a very selective basis. The Journal noted that Aetna, for instance, has “targeted areas with stable levels of employment and income to attract desirable customers to its marketplace offerings.”

This is, to put it mildly, infuriating. The ACA was supposed to put a stop to the tendency of Aetna and the other insurance giants to decline coverage to certain categories of people, usually because of pre-existing medical conditions. Now the insurers were supposed to take on all comers, with the federal government functioning in essence as their marketing arm.

It turns out that the national insurers had found another way of cherry-picking. They are simply choosing not to participate in the ACA market in less affluent parts of the country, where they apparently assume that residents are going to have too many medical needs. In a presentation to investors, Aetna admitted that it was participating in exchanges in fewer than one-third of the states.

The decision to limit the scope of their involvement does not result from any financial distress on the part of the major players. In recent weeks Aetna, Humana and Wellpoint have all reported healthy gains in profits for 2013. The big boys are also getting bigger. Aetna swallowed competitor Coventry Health Care, which added $14 billion to its annual revenue stream.

For those of us who advocated a single payer approach, or at least a public option, the behavior of the insurance companies comes as no surprise. These companies have always found ways to increase profits at the expense of coverage, and they always will. Now that they cannot discriminate explicitly against those in poor health, they will discriminate against communities in which think there is likely to be larger numbers of less healthy residents. It is an insidious new form of redlining.

It is disappointing that the Obama Administration, which is going to such great lengths to help businesses adjust to the ACA, seems to have little inclination to help individuals contend with the substandard offerings in some of the exchanges.  For them the Affordable Care Act may be far from affordable.