Code Blue: Inside America’s Medical Industrial Complex

Healthcare is eating up more and more of our money. Over the past 20 years, our compensation has gone up 121% but our income has gone up a mere 2%. The rest went to healthcare. That matters whether you are concerned about the military or education, are sick and struggling with high deductibles, or simply trying to figure out how you will afford a home. For many people, if they have savings at all, it’s for two weeks max. Because healthcare in America takes so much. It’s not a market; it’s crony capitalism.

Mike Magee tells us how we arrived at this sorry end and what we can do about it. Through data and human stories (including his own) he recounts the history of the Medical Industrial Complex. A monstrosity “supported by three powerful pillars—the drug companies, the insurance companies, and hospitals—which share and exchange and compete for resources.”

Ask yourself how did pharma know which doctors would prescribe opioids? The American Medical Association (AMA) told them. Or, as Magee puts it, “Every medical student in the United States is assigned a lifetime medical number at the onset of training. Whether an AMA member or not, each new physician’s identifying number becomes the property of the AMA. The AMA not only controls the Physician Masterfile database of 900,000 physicians but, for a healthy sum, licenses the information to a company that tracks physicians’ prescription profiling, ‘unless an individual physician contacts the AMA and specifically opts out.’ The company then sells that information to every drug company in the US. Sales and royalties for proprietary data of this sort accounts for nearly 50% of AMA’s revenue.”

How do the feds set rates for medical procedures to begin with? Short answer: they don’t. The AMA does. “The AMA issues the Relative Value Scale Update, advising the CMS on appropriate billing amounts for medical procedures. In this instance, the AMA, which throughout its history railed against government involvement in healthcare, helps the government determine how much to pay its own members, providing the basis for allocating roughly $70 Billion a year for physicians’ services.” No wonder American doctors get paid so much more than doctors anywhere else. The AMA makes sure they are.

But Magee doesn’t stop with the AMA or the opioid crisis. He explains how, in the 1990s, when pharma did not have new drugs to sell, the Medical Industrial Complex came up with a great investment strategy: each other. Which is how the pharmacy benefit managers (or PBMs) came to be. PBMs are how all the players (except us, obviously) up the spoils (aka our money). “PBMs are now the Grand Central Station of the legal trade of drugs and the primary processors of patient and insurance enrollee data. They negotiate the deals for each and every drug with pharmaceutical companies, the placement of those drugs on insurers’ and employers’ tiered insurer formulary drug lists, and the integration and management of utilization and cost strategies with pharmacies, insurers, and hospitals nationwide. Their cutouts and givebacks to both the drug and insurance industries, and negotiations with hospital systems, share the profits and are nontransparent. Nearly everyone is in on the deal—except the patient.” That’s all the PBMs do; they certainly aren’t getting drugs to hospitals and patients. “Breaks in the supply chain are common enough that they support an army of gray-market price gougers—off-line distributors functioning as commodity traders outside the normal supply chain, which try to predict coming shortages, rush in to buy up supply, and then resell it at exorbitant prices to desperate hospitals and pharmacies.”

This is not sustainable. We have, as Magee points out, become like the Soviet Union in 1980. The Soviets dedicated 22 percent of their economy to the military industrial complex and, when Reagan sped up the arms race, 27 percent. Their society came apart as a result. Deaths of despair, declining birth rates, stagnation, decreasing life expectancy. All because one sector of the economy was getting all the money and human needs were neglected. Does this sound familiar? You can’t sink this much money into one sector of the economy and not have that happen.

And there is no reason for it. We have great educational institutions training amazing health professionals, “an incredibly dedicated network of public health schools and practitioners, a well-distributed but under-utilized group of pharmacists anxious to contribute to their full potential, and a rapidly expanding primary-care army of nurse practitioners and physicians….a first-class and highly profitable research and discovery community that could well stand on its own without diverting resources from health planning or patient care, and an enormous number of health system middlemen currently involved in non-real work who could be redirected toward strengthening services that would contribute positively to the social determinants of health.” To make it work—to make sure every American has healthcare as a right of citizenship—we need to do is spend our money better. We don’t need to spend more money on it. The $4 Trillion we spend now is plenty.

All we need to do is let everyone buy into a public option, Medicare, or Medicaid, or some new thing and use international reference pricing of pharmaceuticals. Pay an average of what ten comparator nations pay for drugs. That will bring healthcare costs down and deprive the PBMs of their raison d’étre. Not only will that heal our healthcare system, it may heal our broken nation. For as RAND said (in evaluating the Marshall Plan, when we helped the Germans and Japanese rebuild their universal healthcare systems): “Nation-building efforts cannot be successful unless adequate attention is paid to the health of the population. The health status of those living in the country has a direct impact on the nation’s construction and development, and history teaches us it can be a tool in capturing the goodwill of the nation’s residents.”

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