The Bear: Why Does Health Care Cost So Much? (Part 2)

In part two of this two-part Breaking Down Health Care conversation, John Hennessy, MBA, and Michael Kolodziej, MD, dig into the other main stakeholders in health care costs: pharmaceutical manufacturers and providers. They discuss how these entities contribute to the current high costs of care in the US and how they can help control those costs for patients.

Read the transcript:

John Hennessy, MBA: Welcome to Breaking Down Health Care. We'll be discussing evolving topics on health care in the United States. I'm John Hennessey; I'm a principal at Valuate Health Consultancy. And for this video series, I'll be in conversation with Michael Kolodziej, an oncologist and currently an advisor to ADVI and Canopy, an electronic patient-reported outcome startup. We're going to talk about his new Substack, Decoding Health Care. We're using our expertise to dive into some of the nuances of the health care industry in the United States.

So Mike, in part one of this two-part topic, we discussed how hospitals and insurers affect the cost of care for patients and some ways they could potentially lower those costs and still maintain a viable business. I mean, everybody wants to have a viable business. I get that. We get that.

But there are two other key stakeholders we wanted to talk about, thinking about the costs of patient care. Pharma—pharmaceutical manufacturers—and physicians. And we can make that, you know, a broader set of providers, APPs—advanced practice providers—therapists, all sorts of folks who are sort of the health care professionals.

So, let's talk about those two groups today. Let's start out with pharmaceutical manufacturers and sort of their role here, both as, you know, maybe folks who can contribute to cost containment but also are pushing back in other ways.

Michael Kolodziej, MD: Yeah. So, it's interesting because the pharmaceutical companies, although as we pointed out in our last discussion, are not usually the focus at the meetings that we attend. If you kind of look at a broader picture, at least the political landscape, pharmaceutical companies are like public enemy number one. And again, they've earned that.

We have this paradox. The paradox is that we love the innovation that has been brought to us by the pharmaceutical companies. But we think that they are literally cheating the heck out of us with drug pricing. And although I actually to some extent agree with that, let's just say it's complicated, right?

What do I mean by it's complicated? And we discussed this in the post. On the one hand, 90% of the prescriptions in America are generic. 90%! Amazing, right? And that's because there was a really interesting law passed in the 1980s, the Hatch-Waxman Act, that developed a pathway for the development of generics.

I don't know about you, but I'm old, so I got a few prescriptions. And four of the five prescriptions I take are generic. And they cost me less than a dollar when I go to the pharmacy. Less than a buck! Awesome.

But I'm not on insulin, and insulin has been a problem forever. Because over the last hundred years we've made small, incremental improvements in insulin. Those are important for us, they're good for us, but the price of insulin got wacky. Wacky! And ultimately, insulin is what caused the government—I will say, insulin is what caused the government to act and do something, meaningfully. And as I think you know, the Inflation Reduction Act set a ceiling on the max out of pocket for patients with diabetes who are on an insulin product, which is a really good piece of legislation.

But we love our generics, and we love to benefit, but in order to get to that generic stage, we need to have drugs constantly entering our lives for all the unmet needs. And I would say, because I'm a capitalist, we should probably reward the pharmaceutical manufacturers for getting those drugs to us. But the problem is that they name a price that they can't necessarily justify.

Now they say the same thing all the time. We price it based on the value that it brings. I don't know what the hell that means. We price it based on the value it brings. Other countries have decided they will quantify the value it brings, and they do a process called Health Technology Assessment. The best example of that is NICE [National Institute for Health and Care Excellence] in the United Kingdom.

Now, if you say NICE in America, you are in trouble. NICE is not politically correct because every pharmaceutical company in the world hates the idea that some third party, especially a government third party, is going to try to set a price based on some sort of measurable benefit. Oh my God, they go nuts.

But honestly, if you take a step back, what's wrong with that? It's a logical thing to do, right? It's a logical thing to do. But boy oh boy, the pharmaceutical companies hate that. And so, we have gone from new drugs that 20 years ago costing $50,000 at market entry for a year to new drugs costing $250,000 at market entry for a year.

And as you know, because you and I both work a lot in oncology, $250,000 ain't nothing. I mean, there's lots of drugs that are way more than that. And it's become a sore thumb. It sticks out. And something needs to be done about tying the benefit. And I don't mean we bring value to America. I don't want to hear that nonsense. Let's measure the value and let's decide on a price and then we can ratchet up the price if there's added value.

And that's what the Inflation Reduction Act started to do by negotiating Medicare negotiation of drug prices after the drugs have been on the market for a while. So, we'll see how that all ends up. But pharmaceutical firms right now can do whatever they want, and we just pay whatever they ask for.

I do want to add two other things about pharmaceutical companies. First of all, I would be a happy man if I never again saw a commercial during the Super Bowl for Keytruda. Now, I think Keytruda is an awesome drug. But I don't think there's an oncologist in America who doesn't know Keytruda is used to treat lung cancer. Do you? I don't.

So, honestly, we should eliminate that direct-to-consumer nonsense. And while we're at it, we should stop having the pharmaceutical companies pay ASCO [American Society of Clinical Oncology] for their meeting. Basically, they pay for the whole meeting. We should have pharmaceutical companies stop having these nice steakhouse dinners to "educate" physicians. Let's just get rid of that marketing budget. Probably cut 10% off the cost of the drug if we just got rid of that stuff.

And you know what? Listen, if I want a steak dinner, I can buy it. Most doctors I know can too. So, let's get rid of that nonsense.

Hennessy: As you were saying those things, Mike, I just went to a Best of ASCO GU 2024 with our old friend Kumar Atharajan, and he went through all the regimens they have now in prostate cancer. And it's a wealth of opportunities, but every single one of them was over $250,000 a year. That was cheap if you look at the annual budgets for those sorts of things.

And if you do want to find a meeting where pharma is the punching bag, I can take you out and we'll go to some better places, go to some self-funded employer meetings, and there's plenty of opportunity for that.

Let's talk about the fourth pillar here, which are providers—physicians, particularly physician-owned organizations. I know that physicians have influence within the hospitals that they may work in. We can have at least a beer over whether physicians employed by health plans have influence, but we both have friends who've worked for Kaiser in kind of a different type of organization. But talk about the physician's role in the cost of care and again, you know, opportunities to be, you know, advocates for controlling costs and maybe the other direction.

Dr Kolodziej: Yeah. So, it's funny because initially I wasn't going to write about physicians. And my wife, who I think many know is also a physician and is sort of my editor for these pieces, said to me, “You’ve got to talk about physicians.” So, I did.

So, first let's start with a statement of fact. Physicians in America make a lot more money than physicians in almost all of the world. I mean, they do, they make a lot more money. Now, I'm not saying they make too much money, I'm just saying they're well compensated. And, you know, you used to be a practice manager, so you'll laugh, right? I've never met a doctor who thought he was underpaid, and I never met a doctor who didn't think he was overworked. I mean, every single physician thinks that in America—every oncologist, at least, thinks that in America.

But the fact of the matter is that the system by which we reimbursed physicians, the resource-based relative value scale, has been around for a while, and physician reimbursement based on that hasn't changed very much over the last 20 years—10 years for sure.

It is true that if you do more you get paid more because you generate more value units, right? But most doctors don't make a million dollars a year. Those doctors who are making north of a million dollars a year, and it's only a small percent, they're operating in the shadows. They're out there in the margins. They're the entrepreneurs. They're the guys—the doctors who get together and decide they're going to build their own hospital, right, or their own surgicenter.

I mentioned in the blog, and this is honest to God, my wife needed cataract surgery. So, we went to the surgicenter owned by the ophthalmology group. And let's just say that they're doing good business. They're doing really good business. That place was packed. I don't think doctors should own hospitals. I don't think they should own hospitals. And actually, the Affordable Care Act pretty much stopped new hospitals. I don't think they should own surgical centers. I don't.

Now, I got a nasty email from a mutual friend saying that it's better the doctors do it than hospitals do it. That's not the point right there. This is a case where two rights do not make a wrong. So, I think entrepreneurship probably doesn't belong because the temptation to overutilize is unavoidable. Even the appearance that you're overutilizing is unavoidable.

The other thing that I approach in the post is something that's near and dear to both of our hearts, which is buy and bill in oncology. And I have been an outspoken critic of buy and bill for many, many years. I think the idea that oncologists purchase drugs and sell them at a markup, it's just not right. It's just not right.

Look, I'm not saying that oncologists give more drug to make more money. I'm just saying the appearance of impropriety is unavoidable. It would be way better if we found a way to pay the oncologist, let's call it a management fee, for delivering this very complicated, very risky, very high-cost therapy. Let's find a way to transition to that, and that's value-based care, of course.

But right now, irrespective of what you hear at the meetings we go to, oncologists are doing just peachy. They're making a lot of money. Why are they making a lot of money? They're giving more expensive drugs. They work, but they're more expensive, and so, they're making more money. And I think we should get comfortable with the idea that that's not the way it ought to be. It just shouldn't be that way.

Hennessy: You've worked with practices who had their feet in both sides, right? They're doing a little value-based care and they're doing a little bit of fee for service. Yeah, when I've talked to practices like that, I found it very hard to let go of that, that anchor, that thing that has always, you know, proven year after year to be successful.

Is that something that can happen, or do we have to have sort of a flash of lightning to have practice and be able to make that conversion? We've talked about reengineering practices. And to some extent maybe you have to have the sense that that's really where we're going. That we're not going to keep doing a pilot and going back, and reverting to status quo. Any thoughts on that?

Dr Kolodziej: Oh gosh, John, you know, I would agree with you. I hate to say it, but I think we need a flash of lightning. I think the problem is that it takes two to tango, and even if the practices want to do it—and we'll talk about this in a later episode—even if the practices want to do it, if you look at what the commercial health plans are doing in terms of value-based care, especially oncology, it's weak.

The Oncology Care Model and now EOM [Enhancing Oncology Model] are voluntary models. They're sort of nibbling it around the edges of approaching how we deliver and pay for care of the cancer patient. And they are layered on top of the traditional fee-for-service medicine. They're not a different way of doing it. So, yeah, we need the neutron bomb of care delivery and payment to really get there.

But there have been proposals, and I was talking to Barb McAneny, both of us know Barb, and she had submitted a proposal called MASON a couple of years ago. And MASON didn't eliminate buy and bill, but it eliminated the profit associated with buy and bill.

So, there are ways to do it. I'm not suggesting it'll be easy. But buy and bill, it's just—and this sounds like I'm trivializing it—but it's a bad look for oncology. It's a bad look. We should think about better ways to prove that we're doing a good job.

Hennessy: It's fascinating. You know, we played years ago with the idea of taking one of our practice sites and converting it to something like that and did the math to figure out what the hourly rate would be, and we got close, but we couldn't avoid that pull back into that traditional system that we'd been used to.

Anything else you'd like to add about the cost of health care, these four pillars we've discussed? We don't discuss this in a vacuum; this matters to patients. I mean, we know they are patients who can't get access, can't get an appointment, and even if they can, they can't afford it. People who are foregoing care because it's just too expensive. Anything else we want to talk about here or hold for later?

Dr Kolodziej: Only to say that nobody's innocent. You know, everybody's playing a role in this. And if we want access, we need to approach cost. Maybe next time we'll talk about Medicare for All because at the root of whether Medicare for All could possibly work is the fact that if we grant access, we'll pay so much in taxes it'll be unfathomable unless we can manage costs. And so, you can't have one without the other.

And as you say, at the end of the day, we want patients to get good care. And we don't want people to go bankrupt getting good care. So, we need to think about change. And we need to be open to the idea that everybody needs to give a little to get to the end, which is, I won't call it nirvana, I'll just call it a better health care system.

Hennessy: Thank you for watching this installment of Breaking Down Health Care. We hope you enjoyed the conversation and learned something you didn't know about health care and how it works in the United States. If you have questions or a topic you'd like Mike and I to discuss, you can use the Contact Us feature on the website. Tune in for future conversations because we're just getting started.