Industry Profiteering

Not-for-Profit Hospitals

It's counter-intuitive, but many US not-for-profit hospitals have bigger profits than their for-profit counterparts.  Today, Kaiser Daily covered a Wall Street Journal article that discusses the growth of profits in the not-for-profit hospital sector and the welcome attention this is garnering from federal policymakers.  As reported, the combined net income of the 50 largest not-for-profit hospitals across the US increased nearly eight-fold from 2001 to 2006 to a staggering $4.27 billion.  77% of the 2,033 not-for-profit hospitals in the US routinely make money, compared with 61% of for-profit hospitals.

In return for their not-for-profit status and $12.6 billion in tax exemptions, these hospitals must provide a "community benefit".  Many people assume this means charity care, or free care for the uninsured and indigent, but the term is so loosely defined that some hospitals have been reporting the wages they pay to employees as a community benefit.  To shed light on not-for-profit hospitals and the community benefits provided, the IRS will require hospitals to break-down their community benefit contributions starting in 2009.  The new reporting standards are welcome, but minimum standards for providing charity care are a must next step.

What Can States Do? The Hospital Accountability Project, a strategic program from Community Catalyst, provides a panolpy of resources for advocates and lawmakers concerning community benefits and ensuring communities are getting value for the tax exempt status of not-for-profit hospitals.  Resources include:

• Model Ledgislation: Health Care Institution Responsibility Model Act and Commentary to the Model Act
• Model Legislation: The Patient Financial Assistance Act
• State Laws: Free Care: A Compendium of State Laws
• State Fact Sheets: New York State Requirements Relating to Community Benefits and Free Care
• Strategy: Guide to Negotiating with Providers to Improve Access to Health Care Services

Prescription Drugs

An illuminating 2005 report from the Center for Public Integrity reported that Pfizer, the world's largest drug company, made $11.3 billion in profits that year, out of $51 billion in sales.  The report goes on to show that more is spent in marketing than new drug development and shed's light on the expertise of the PhRMAceutical industry in lobbying Congress to ensure its huge profit margin.  Driving home this last point, a report from Congressman Henry Waxman showed that the drug industry increased its profits by more than $8 billion in the six months after the new Medicare drug benefit went into effect.  In 2003, the year Congress enacted the new Medicare benefit, the industry spent $113 million in lobbying.  Money, in their perspective, well spent; and which has increased in subsequent years to push back on attempts to improve the much -flawed Medicare drug benefit.

In 2007, the US spent $287 billion on prescription drugs, representing 14% of all health care spending.  Driving this expense, in part, is the pharmaceutical industry which spends $30 billion each year on marketing, often regardless of a drug's efficacy, including $7 billion targeted directly at phsyicians to influence their prescribing decisions. 

What Can State's Do? In case you missed it, you can still listen to last Friday's conference call with leading prescription drug reform experts and state legislative advocates.  Click here to listen.  As speakers made clear, states have a medley of options for reducing drug prices, saving state budgets millions of dollars without reducing access to medications, ensuring the quality and safety of prescriptions, and countering the cost-driving influence of the drug industry's marketing tactics. 

For a synopsis of presentations and links to model legislation and other best practices, click here. For our Stateside Dispatch - Focus on Prescription Drug Reform - please click here.

Speakers were:

• Maine State Rep. Sharon Treat, who is also Executive Director of the National Legislative Association on Prescription Drug Prices (NLARx) - Rep. Treat discussed cost-saving steps states can take right now that do not reduce access or adversely impact safety.  More details can be find here.
• New Hampshire State Rep. Cindy Rosenwald, who discussed passage of her first-in-the-nation law banning the industry marketing tactic called "data mining."  Data mining is the process by which drug industry marketers purchase the prescribing history of medical professionals and use it to target their marketing efforts, thereby driving up the cost of prescriptions.
• Washington State Rep. Jamie Pedersen, who discussed the high-stakes campaign waged by both proponents and opponents to his legislation banning "data mining."  The experience offers important lessons to other states considering such a ban.
• Ann Woloson, Executive Director of Prescription Policy Choices, who discussed state-based "academic detailing" programs which counter the cost-driving sales pitch of drug industry reps by sending medical professionals to doctors' offices with unbiased and scientific information concerning the effectiveness of certain medications.
• Pete Wyckoff of the Prescription Project, discussed their work to support the formation and advocacy of state Rx reform coalitions and their collaboration with academic medical centers to strengthen ethical standards within the medical community.

We want to thank our co-sponsors, the National Legislative Association on Prescription Drug Prices, Prescription Policy Choices, and The Prescription Project for their support and expertise.

Insurance Companies

Lest we forget, insurance companies are in the business of making money.  This was driven home yesterday in a Pittsburgh Post-Gazette report that health insurer Highmark enjoyed total revenue of $12.4 billion in 2007, growing its surplus to $3.5 billion despite a reduction in net profits.  The article goes on to report that several insurers are planning premium hikes over the summer because "per-share earnings" have not met projections, down from a forecasted $6.41 per share to a low of $5.76 in the case of the huge multi-state insurer Wellpoint.  Before you shed a tear for their financial woes, the Post-Gazette reports that Highmark's $3.5 billion surplus represents 734% of its risk-based capital - a measure of the money an insurer might need on hand in case of unforeseen claims.  The National Association of Insurance Commissioners, however, as reported by the Post-Gazette says that surpluses exceeding 250% of risk-based capital are troubling.  Troubling indeed.

To rein in insurance companies, several states are moving bills to ensure more of our premium payments go to medical care versus profits and administration, bring affordability to premium rates, require insurers to pay claims on time, and outlaw unfair business practices like rescinding coverage after a consumer experiences a costly medical event.  Efforts to watch, include:

• Colorado - As we wrote yesterday, legislative leaders are pushing a package of reforms that would (1) require insurers to justify premium hikes, allow the state to reject unjustifiable increases, and bring transparency to the rate process (2) impose penalties on insurers who improperly deny a claim and (3) HB 1228 authorizes the insurance commissioner to collect restitution for wrongful acts and holds insurers accountable for unfair business practices.  State Rep. Morgan Carroll, one of the lead authors and strategists for the reform effort, yesterday released information concerning the insurance industry's lobbying activity in Colorado, a sort of warning that the industry will spend mightily to defeat the new reforms.  As Rep. Carroll pointed out, lobbyists spent $188,000 in January and February this year, even before the insurance reforms were announced. 
• Washington State - Leaders in Washington already enacted legislation - SB 5261 - requiring insurers to seek prior approval for rate increases in the individual market and to maintain a medical loss ratio of 77% - the percentage of premiums that must be spent directly on medical care.
• Elsewhere, the Pennsylvania House passed a bill banning the use of health status as a factor in setting premiums, setting a loss ratio of 85% and rejecting insurers' premium hikes if they don't meet certain quality and efficiency standards, Connecticut is moving a bill to study medical loss ratios, West Virginia wants to create a permanent position for a consumer advocate in the insurance department, and California is moving a medley of reforms to, as we wrote, rein in the abusive business practices of insurance companies, from providing businesses to employees for rescinding coverage and recruiting doctors in canceling coverage.