Defensive Medicine: A Non-Factor in Escalating Health Care Costs?

When analysts and commentators go through their laundry list of what ails the hopelessly overpriced US health care system, one of the most commonly cited reasons is the cost of “defensive medicine” meaning both the cost of medical malpractice policies to doctors, plus the costs of extra tests and procedures to provide doctors with cover in case a malpractice claim arises.

A new study suggests that these issues are greatly overstated as a culprit in America’s burgeoning medical costs. Despite the considerable (and very visible to doctors) cost of malpractice insurance, it appears that the savings of the threat of litigation (for instance, some of those “defensive” tests actually turn up real problems; the threat of lawsuits keeps doctors and hospitals on their toes) is underestimated). Put more simply, lawsuits appear to be a check on a system that otherwise runs the risk of having inadequate protections of patients otherwise.

This study pegs the cost of defensive medicine at 2.4% of total health care expenditures. By contrast, administrative costs for US healthcare are much higher in the US than in other advanced economies. From the New York Times:

One thing Americans do buy with this extra spending is an administrative overhead load that is huge by international standards. The McKinsey Global Institute estimated that excess spending on “health administration and insurance” accounted for as much as 21 percent of the estimated total excess spending ($477 billion in 2003). Brought forward, that 21 percent of excess spending on administration would amount to about $120 billion in 2006 and about $150 billion in 2008. It would have been more than enough to finance universal health insurance this year.

The McKinsey team estimated that about 85 percent of this excess administrative overhead can be attributed to the highly complex private health insurance system in the United States. Product design, underwriting and marketing account for about two-thirds of that total.

That puts the additional costs at a considerably higher level than what this study found for medical malpractice. Some analyses contend the administrative cost differentials are even greater).

This writeup comes via Joe Paduda (hat tip reader Francois T):

A new study [abstract only] reported in this morning’s Health Affairs makes a compelling case for the latter view, and adds valuable insight into what is a politically-charged issue, one rife with misinformation and sloppy math.

The study found “Overall annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion in 2008 dollars, or 2.4 percent of total health care spending.” [emphasis added]

Recall total system costs are in excess of $2.2 trillion. While $55 billion is a lot of money, compared to total system costs of $2.3 trillion, it, well, isn’t much.

In fact, costs would be much higher if the real toll of medical malpractice – lousy care, incompetent providers, poorly managed facilities, was adequately accounted for. Solid research indicates the vast majority of medical malpractice problems are never litigated. One study indicated that the cost of ‘adverse events approached 5% of total health care costs; over a hundred billion dollars in today’s world.

The med mal reform issue has been raised by opponents of health reform, who contend the failure to include med mal reform in the Accountable Care Act was a missed opportunity to significantly reduce costs Of note, the study estimated the most significant cost associated with medical malpractice was defensive medicine, which accounted for $45.6 billion of the total, most of which was spent on hospital services.

In an email conversation, I asked the study’s principal author, Michelle M. Mello, PhD, to clarify the study’s findings re the impact of med mal on defensive medicine – the theory that physicians change the way they practice to protect themselves against medical malpractice by prescribing more tests and studies.

Here’s Dr Mello’s response.

There are two ways to measure defensive medicine. One is to ask physicians, using surveys, how often they order extra tests, procedures, and referrals primarily because of liability pressure. We didn’t use this method because it has two major shortcomings: (1) physicians may consciously or unconsciously overreport defensive practices because they want to help build the case for taking action to solve what they perceive as a problem with the liability environment; and (2) they may not be able to separate out different motivations they have for ordering services. In many cases, they may feel that ordering an extra test is a good idea both because it’s in the patient’s best interest and because it helps them reduce their liability risk.

The other method — the one we used — is to compare rates of health services that we think are indicative of defensive medicine in areas of high and low liability risk. If rates are higher in high-liability areas, and we can rule out other explanations for the differences, we can conclude that there is an association between liability and physician practices. The main challenge associated with this method is adequately controlling for other factors that could explain the differences. Researchers have extensively documented that physicians in different geographic areas have different practice styles, and it is believed that this is due to many factors, of which liability concern may be one.

We based our defensive medicine estimates for hospital services on previous analyses by Dan Kessler & Mark McClellan. Having reviewed the literature extensively as it has evolved over the past decade, our firm belief is that the Kessler & McClellan analyses provide the best available figures. Their statistical design enabled the researchers to control for other sources of variation in physician practices.

The main weakness of the Kessler & McClellan analysis, as we discuss in the paper, is that it was based on a narrow range of health services (cardiac care services) provided to a specific type of patient (Medicare beneficiaries). Is it appropriate to generalize from these data to all services provided to all patients? We have some concern about that, and consequently characterize the quality of the evidence supporting our defensive medicine estimate as low. Other kinds of health services may be less subject to physician discretion over treatment intensity than the cardiac services that Kessler & McClellan studied, so it’s possible that extrapolating to all services yields an estimate of defensive medicine costs that is too high. Nevertheless, we believe Kessler & McClellan’s analysis of the strongest one available.

The paper provides additional background on the methodology used, and the challenges with that methodology. While it isn’t perfect, one has to compare it to the methods used by others who contend the tort system is a major driver of health care costs. Those ‘methods’ are rather less rigorous.

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  1. tyaresun

    Very true. Obama could have tried to just focus on creating a govt. run health care IT/Admin system and saved enough to cover the 40M uninsured.

  2. mikkel

    Based on my wide sample survey of physicians I believe that this study is greatly underestimating the impact. That said I find the clear explanation from the lead author about what they did and the shortfalls to be refreshingly pointed. I’ll have to look at the paper later but I expect it will be a good one for its methodology.

    That said it is really easy to make the argument like they did that it’s nearly impossible to separate specific defensive tests vs. overuse of tests in best practices. For example I had appendicitis that was classic: vomiting, localized sharp pain, fever, high white blood cell count, etc. and even with being 98% sure they gave me a ct scan that cost nearly as much as my surgery + inpatient cost combined. Why? It was just standard practice, partially because if they had done surgery and there were complications they could have been liable if I hadn’t actually had appendicitis.

    So I guess it depends on how you define “defensive medicine” because the doctors I have spoken with have complained about standard over testing and how a lot of that is driven by fear of lawsuit.

    All of that said, it is a *fact* that malpractice payouts have been flat for a long time. There are larger payouts per incident but more incidents are getting tossed out, which could have a minor adverse effect on premiums (especially if the insurance companies were small) but in reality the profits taken in by the malpractice insurance companies have just skyrocketed. The industry is taking advantage of the fear and risk to individual doctors to do things that there is no justification for, so that is the primary driver of this issue.

    1. koshem Bos

      my wide sample survey of physicians is a clear statement. Mikkel, did you talk to many physician, did you form a scientific sample and then surveyed it? Do rely on the physician “feeling” or number they supplied you?

    2. alex

      While the CT scan was likely unnecessary (I had a similar thing a few years ago) another good question is why the CT scan costs so much. Yes, I know CT scanners are expensive, but they crank a lot of patients through one. A scan only takes a few minutes. How much does it cost per patient to amortize the (multi-million dollar?) capital cost of the CT scanner?

      In medicine, more than in any other field, what it costs to perform a procedure and what they charge for it have no relation to each other. It’s a pure “charge what we can get away with” for each procedure and hope that the sausage comes out in the black.

      1. MG

        Because the cost of a 64-slice CT scanner is generally much more expensive in the US than other countries. Just ask GE Healthcare or Philips.

        1. DocMoe

          As a doctor and an expert witness in malpractice cases, let me comment on the statement made. If the doctors in this case made an educated guess and performed the surgery without a CT scan, that is called judgement, not malpractice. If they did a CT scan and it was negative, would they then NOT do the surgery with a fever, elevated white count, etc.? Also, radiologists practice defensive medicine by always adding to their reports, “cannot rule out xyz; if clinically indicated, suggest…” Doctors have the greatest defensive medicine tool at their disposal-discussing their care plan with the patient and letting the patient make an informed decision.

  3. Tao Jonesing

    My current hypothesis regarding skyrocketing healthcare prices is that the health insurers’ emphasis on reducing their “medical loss ratios” has led to healthcare providers bearing the costs of legitimate claims that are denied by the insurers. This creates a self-reinforcing feedback loop in which the insurers raise their premiums in anticipation of increased healthcare costs, while still seeking to reduce their MLRs by denying legitimate claims, which in turn causes the healthcare providers to increase their costs. Etc.

    What we’re seeing is the manufacturing of health insurer profits by the socialization of costs they agreed to bear.

    1. PQS

      Good point. I’ve always thought that one of the discussions we really need to have in America is why some industries think that they “need” to have profits at such astronomical rates. In my business, commercial, private construction, actual profit is usually in the 5-10% range, and that is in the Great Years. Many years it is more like 3-5%.

      Yet I know from discussions with others in other industries that some sectors won’t even touch an idea unless they can make 30% on it. Why this huge disparity? I realize the issues of complexity, overhead, R&D, etc., but really, what is a “reasonable” profit? Can we even have this discussion in America anymore?

      I suspect that the Insurance Industry is more on the 30% range, which is why their costs are so high. In my state, there is a stark contrast between the non-profit health insurance co-op and the private insurance companies’ rates. Like 50% higher costs in the private sphere. Sure does pay for a fancy website.

      1. Tao Jonesing

        I’ve been digging into the health insurance balance sheets. A lot of people like to point to their allegedly low average operating profits compared to other industries, but that’s not the metric that the industry itself uses to understand relative success among peers, which is the “medical loss ratio.” You also need look at return on equity compared to other industries, which is very high.

        A recent health insurance scam that I’ve discovered is their building and maintaining reserve levels far above those required by state regulations. They invest the extra premium money to create additional “free” profits.

    2. attempter

      So you’re zeroing in on a particular detail of the basic fact, that the main driver of gratuitous costs is the very existence of the purely parasitic health insurance rackets.

      “Health insurance” doesn’t even make sense conceptually, and there’s no conceivable way you can have a pool based on privateering which doesn’t automatically set up an immutable conflcct of interest between the racket and its “customers”, and the public interest.

      This is one of the true no-brainers of our time: If we want to control health costs and impose rationality, practicality, and morality on the system, we need single payer at the minimum, and the priavte health rackets must cease to exist.

      That last’s year’s disaster played out along completely different debate lines from the inception is a hideous gauge of the top-down criminality of the Democratic machine and the rank-and-file idiocy and depravity of liberals.

      The fact will remain true for the rest of American history, to the infinite disgrace of almost everyone involved: If everyone who had claimed to want refomr had simply demanded single payer, we’d have had it easily, and have taken a real step toward that reform.

      Instead we ended up with something far worse than the Stamp Act, a feudal indenturing mandate to buy an expensive, worthless piece of paper from pure gangsters. The mafia’s eating its heart out.

      1. PQS

        I’ve been considering how to organize a mass action of middle aged people just showing up at the Medicare offices across the country and demanding that they be signed up, checkbooks in hand.

        I just haven’t worked out the details yet!

  4. mikkel

    tyaresun: yes, based on RAND projections, within 10 years a smart increase in IT would save $150-$200 billion a year. The issue is that it’s not just on the insurance side, it’s also on the hospital device and EMR side and all of those are purposefully locked down and inefficient so the companies can charge a ton in “servicing.” I have sketched out a system that would solve most of the communication issues and by my estimation save $50 billion in itself, and even though I have convinced several groups of the technical feasibility, they say that it’ll never be accepted by the device companies. On the hospital admin side that could potentially force the device companies they are just idiots that don’t understand anything and operate on 2 year budgeting that precludes any long term investment.

    The end result is that the digitalization of health care is a waste of money that is providing no benefits and just making more of a hassle for the nurses and doctors. All of that is easily fixed so it’s tragic.

  5. FrancoisT

    21% v 2.4%

    Blimey! That’d be a ration of…hmmm…8.75 to 1.

    Hence, for every dollar saved in avoiding lawsuits, 8.75 dollars could be saved in avoiding administrative costs.

    Yet, the reichpubliscums want to keep the system full of administrative costs, but prevent lawsuits regardless of the merit.

    And there will be a lot of cats voting for these guys in November, while these same cats are raging about the deficits?

    I see! Since this has nothing to do with common sense or simple logic, I’ll have to assume it has something to do with this concept of American Exceptionalism.

    Unless…these same cats have guaranteed health care insurance. In which case, we’re talking about yet another case of SYIGMA.

    (You don’t want me to decode this acronym…trust me!)

  6. Chester Genghis

    I don’t know what all was defined as administrative costs in coming up with the 21% estimate, but it sounds low-ball.

    If you define admin costs as everything that doesn’t provide direct value to patients, administrative costs are over 30%. (This definition includes CEO salaries & profits, as well as marketing, underwriting, accounting, billing, etc.)

    In Canada (a single payer, non-profit system) admin costs are 1%.

    Admin costs are just one reason that we spend $7300 per capita on healthcare and achieve only slightly better outcomes than Mexico –which spends $840 per capita.

  7. Debra

    French medecine, which y’all like to call socialist medecine (well, lots of people like to call it socialist medecine…) is facing pretty much the same trends.
    I vote for the responsibility of ballooning costs coming from.. NOT defensive medecine, but… ballooning administrative costs associated with 1) the industrialisation of medecine, and the transfer of decision making processes about procedures AND RUNNING THE SYSTEM from doctors to professional administrators who are NOT DOCTORS. And the multiplication of the administrator CASTE, while we’re at it. (A boon for EMPLOYMENT, huh ??)
    The French government thought that by taking outright control of the health care system, and giving it a prefixed envelope structure they would be able to control spiraling costs. But no go, and government control has not contained costs at all.
    The demise of CHEAP clinical medecine that does not entail so many.. INDUSTRIAL costs is upping cost too.
    And.. doctors are GETTING USED TO the idea that being a GOOD doctor means prescribing lots of tests.
    Because… those tests constitute “scientific” proof.
    Well, maybe they constitute “scientific” proof, but they sure as hell cost a lot of filthy lucre. MAYBE WE COULD DISPENSE WITH ALL THAT PROOF ? (or at least… some of it…)

    1. PQS

      “ballooning costs coming from.. NOT defensive medecine, but… ballooning administrative costs associated with 1) the industrialisation of medecine, and the transfer of decision making processes about procedures AND RUNNING THE SYSTEM from doctors to professional administrators who are NOT DOCTORS. And the multiplication of the administrator CASTE, while we’re at it. (A boon for EMPLOYMENT, huh ??”

      Behold the creation of the HMO system. Remember under HilaryCare how that was supposed to “create value” and “save money” and etc. etc. ad nauseum?

      Let’s see: adding a middleman will Save Money, exactly How? Must be that New Math/Quantum Physics.

      The other thing is, think of all the great things America COULD be doing with her riches if we didn’t have so many clerks running around padding the payroll of the F500. I thought for a while during the HC”R” negotiations that one of the primary reasons that Big Insurance was so resistant and got support in their resistance was because nobody in the OA wanted to be seen throwing people out of work, which, let’s face it, would happen on some scale if we all signed up for Medicare tomorrow.

      1. Tao Jonesing

        I thought Nixon was the person who brought us the HMO.

        And didn’t HillaryCare go down to defeat?

        1. PQS

          I thought the HMO was the compromise that arose from the defeat of HillaryCare. Big Insurance agreed to do that instead of HillaryCare.

          I never heard the phrase HMO until after that.

        2. MG

          Yup. HMO Act of 1973. It basically out of some of the guys at Stanford including Enthoven but how it was legislated and implemented was quite different from how it was envisioned as just about every health care wonk idea has been over the past 35 years.

  8. anon

    I’ll tell you a little bit about where some of the money goes in the medical system, and I may have a little different perspective. Let me say, it isn’t preventive medicine or malpractice insurance or development that is making the costs skyrocket. It is the same problem that is destroying every other sector our economy right before our eyes, yet no one seems to want to pay attention or care.

    I work in North Carolina – and for many years was a higher-end freelance contractor for many companies associated with the medical trades here in RTP. Pharma, insurance, hospitals etc. I worked closely with CEOs, sales staff, hospital management etc. for many years. Spend a few years around these folks and you will see where the money is going.

    We can start with the Pharmas, and this is just one aspect… you just cannot imagine the amount of money they spend on getting people to sell their stuff. First, they higher the best and the brightest our of college. Mostly beautiful girls but a few dashing men as well, age 23-27 with great looks, quick wit, and penchant for social interaction. Then they pay them about $150k a year + bonuses if they meet sales results. Then they fly them to exotic resorts all over the country and have lengthy holidays where they are trained on interacting with doctors. And what better way to train them than to pay several actual, practicing, influential doctors to come to the get-away and hang out with them all week. They go through sales seminars that are about the drugs, and also the social interaction of the sale. They hang out with the doctors and go over and over any objections or bad report that might exist about the drugs/compounds. They drink, eat, do activities that the company pays for – they are taught how to flirt, laugh is a way that will put a grin on your face, and make any doctor feel like they are a 25 year old resident again. They get laptops, cars, blackberries – what they do not get is tough questions about whether or not the drugs work better than existing drugs, answers about their cost effectiveness, info about bad studies that show the drugs might be dangerous. Each pharma company does this for thousands and thousands of employees annually and bi-annually. The VP of this company hauls his Porsches to campus on the weekend and has photographers take pictures of the in front of the fountains etc.

    Next, Insurance… I worked extensively with a not-for-profit Insurer in NC. This is the big one – that insures all the state employees, etc across the state. They were making so much money on the backs of the government workers, group sales, and individual sale – that they started doing the same thing as the Pharma folks. They would try to spend all the excess before the end of the year, so they wouldn’t have to report the profit. They would rent out some of North Carolina most expensive resorts… notice I didn’t say rooms, that is because that would rent the whole place. Also, their CEO was on salary at $2 million and made $4 million with his annual bonus for doing so well AT A NON PROFIT! They were making so much money at one point that they tried to go to for profit, but the state said no. They had a private jet, gym in the office, and a huge call center that was there to screw poeple – hard working people who didn’t make much working for the state – out of their benefits. My cousin, who was insured by this insurer, has a ruptured appendix one night. He had to go to the hospital and have emergency surgery. They fought it for six months because he didn’t go to an “in network” doctor and they were not sure the process was necessary.

    I could go on and on – but here’s the secret… they don’t give a rats a** about you, or your disease, or your heath care, or your insurance premium. All actions take place to enhance the bottom line and the CEO’s pay, PERIOD. Sit through a few years of the training and you will see that 90% of the meetings are about business, sales, being a better worker… not the business of wellness.

    The money they are spending is going to buy ads on TV, or put a glossy in that magazine – see the woman on the page, doesn’t she look happy? – or to the Porsche dealership to get another car – because really, can you have too many? – or to train that pretty girl, or to gas up the plane to fly up to K-Street or that sales conference in Hawaii.

    That’s the problem with health care folks.

    1. charcad

      their CEO was on salary at $2 million and made $4 million with his annual bonus for doing so well AT A NON PROFIT! They were making so much money at one point that they tried to go to for profit, but the state said no. They had a private jet, gym in the office, and a huge call center that was there to screw poeple…That’s the problem with health care folks.

      And with a great many other bottom feeders living fat off of 501c3 funded “non-profit” entities. “Non-profit”: translated this means management is effectively unaccountable to anyone for their behavior. If these cesspools of self-dealing and backscratching are “non-profit” then so is the Mafia.

      The structural problems in this country are massive. Three vast barnacle encrusted sectors have barely been scratched yet in the current “Crisis”. These are Law, Medicine & Education.

      1. KFritz

        Like your analysis w/ additions & caveats. The oppressive sectors are Finance, Law, Medicine, and HIGHER education. I hope you don’t include public education K-12 in the ‘education’ sector. Overpaid CEOs are a class, not a sector. All of these groups are ‘rentiers.’ I’ve never seen an analysis of the cost of attorneys and legal systems nation by nation, but would have to guess that the US is out in front.

    2. mg

      Nicely said.

      The priorities of our nation are tied up in wealth accumulation regardless of the deleterious effects to the citizenry. Shortsighted in the extreme until it shifts into a new society that no one wanted.

    3. Scott W

      Go ahead and name the company–Blue Cross Blue Shield of North Carolina. I have a private policy with this company, and my premiums have doubled in less than 10 years. Can’t wait for this year’s premium increase letter in which they blame the new healthcare legislation for causing a huge increase. Of course, there will be no mention that this legislation does not go into effect until 2014. Gougers to the end.

    4. DocMoe

      Anon, get your blankie and a warm glass of milk and have a time out. First, pharma costs-even with all the excesses add only 10-11% of health care costs. Those pharma costs include meds like vaccines, cancer drugs, anti transplant rejection drugs, and oh yeah drugs for ulcer therapy that cut surgeries for ulcers-now known to be unneccessary-by 80+ percent. Also the days of the bimbo drug rep and the C student frat boy are over in pharma; just ask the 100+k reps laid off in the past few years. Next time you are at yor doctor’s office, just refuse to take the “poison” from the overpriced drug company…

      1. anon

        Sorry Doc, but it sounds like you have a vested interest here… if people had any idea how much money was being spent on marketing, sales, training (not related to anything medical whatsoever), ineffective drugs (that doctors get kick-backs to prescribe and may not be more effective that the old ones), upper management pay schedules (I have been to their houses, so I know what I am talking about) they would simply weep. I understand that (often unnecessary) defensive medicine is real and a cost contributor, however I spent years working up close and personal with the waste, fraud, and shameless compensation of the pharma, insurance, and hospitals – and frankly thinking about it now makes me wish a blanket and glass of milk could make me forget.

  9. Tony

    We don’t need to estimate the effects, we have natural experiments in our laboratories of democracy.

    Ohio capped tort damages in 2003, and it didn’t do a thing. Not a danged thing.

  10. PJ

    I have been to Mexico too many times to admire their health care system. My dog has more access to quality health care than most Mexicans have in Mexico. Anyone who has spent much time in Mexico knows that Mexican health care is abysmal for most Mexicans. Americans can go to Chetumal and receive good quality care for half the USA cost because talented physicians in Mexico do not involve themselves in the Mexican government health system, it does not pay. Mexicans and Central Americans cross the border illegally and go to Hospital Emergency rooms to receive cancer treatment (free) in hospitals in Arizona and New Mexico. No wonder Mexico pays so little per capita. Canada may have adequate health care for most people, but don’t get ill in Mexico unless you have cash.

      1. fresno dan

        Perhaps it due to the fact that health care has little affect upon life expectancy

        A significant amount of health care spending occurs in the last year of life – which, by definition is rather useless as you die anyway.

        A better question is, if we spent the same amount per capita on healthcare, how much would the life expenctancy decrease? I doubt it would be a year.

    1. Chester Genghis


      FYI – The comparison I cite ($7300 in the US vs. $840 in Mexico) is based on all health-related spending –public and private. So, at least in theory, cash transactions are part of the calculation in both countries.

      I think the comparison between the U.S. and Mexico is especially apt because they are the only two countries in the study without universal health coverage. Here’s a link:

  11. Robert

    If the focus is on testing, I wonder what the total cost of all tests is? It would be interesting to see a breakdown of costs by admin, testing, treatment, consultation. I would also like to see the costs broken out by age demographic and last year of life.

  12. Francois T

    BTW, let’s not forget the astonishing growth in executive compensation now infecting the health care sector with a vengeance:,0,7954079.story?page=1,0,373861.htmlpage

    I’d be remiss not to mention that salary is just a part of the piggish grab fest of these REMFs:,0,3121681.column

    Close to a dozen had personal dues for ‘social clubs’ financed by your charitable donations, tax dollars and health insurance premiums. Many enjoy lavish and opaque executive retirement plans that also put upward pressure on the medical costs that threaten government budgets and the economy.

    It should be obvious by now that these people, now endowed with wealth, shall do everything they can to keep it. Can anyone doubt these asshats will shell out some moolah toward some lobbyists, just in case a representative would start to have strange ideas about the common good and all these “socialist” notions?

    That should be enough to feel sick.

  13. Nimrod

    The problem is not so much defensive medicine as therapeutic/diagnostic overkill. Doctors use expensive, high-tech treatments even when an old-fashioned, inexpensive one would be equally or more effective. For example, my wife once had blood in her stools. It was a one-off event. I told her that I wouldn’t worry about it if didn’t recur but she wanted to go to a doctor. She saw her primary care provider (cost $100) who referred her to a gastroenterologist (cost of consultation: $300+). He recommended a colonoscopy (cost $4,000 assuming no tissue biopsied) “if your insurer will cover it.” At the time, my wife was considerably younger than the recommended age for onset of colonoscopy screenings. We ended up doing nothing because of the cost (which our insurance wouldn’t cover) but why couldn’t the doctor had done, say, a sigmoidoscopy?

  14. c

    ” It would be interesting to see a breakdown of costs by admin, testing, treatment, consultation…” I am sure that digitizing medical records will facilitate reporting like this. It will standardize records so all doctors will have to report statistics, much in the way banks report hmda data to hud.

  15. Tosca

    New Zealand has a better health system than USA for a fraction of the price per person. All drugs are subject to an usefulness and economic audit. The best drug at the cheapest price gets the OK. The drug companies hate it but we have reduced our drug bill by many many percent. Medical care is free. Specialist care can be paid for if need be. The major problems we have are our nurses and doctors going overseas to Australai and the USA for higher pay.

    1. DocMoe

      “The major problems we have are our nurses and doctors going overseas to Australai and the USA for higher pay.” Not having providers to deliver health care? Yeah I would say that is a MAJOR problem…

  16. Francois T

    Here’s another equation that contributes to health care costs:

    PAC Money + drugs packaging + workers comp + regulations loopholes = Higher health care costs.

    The history of absolutely abhorrent sleaze and greed underlying this equation can be found here:

    Once again, this comes courtesy of the excellent blog Managed Care Matters authored by Joe Paduda.

    Warning: Read only if you can keep your auto-defenestration compulsion under control.

    Joe’s post is reproduced in its entirety below:

    It’s amazing what you can find out about a company these days. After my post ( on drug repackager Automated Healthcare Solutions last week, a couple calls inspired me to do a bit more checking.

    First, how does AHCS make its money? Simple – by taking advantage of a loophole in workers comp drug fee schedules to bill exorbitant amounts for drugs, bills insurers and employers are required to pay.

    An audit ( of Miami-Dade County Public Schools’ workers comp program determined AHCS-affiliate Prescription Partners, LLC was paid over a quarter million dollars for drugs in 2008. That’s a lot of money, but even more striking is the average cost per script; Prescription Partners; average script was $423.25, by far the highest per script cost of any supplier. Miami-Dade’s PBM had an average cost of $188.52.

    Let’s talk specifics. An analysis of pharmacy data indicated Prescription Partners, LLC (AHCS billing entity) bills from 125% to 720% of fee schedule for the same drugs, with an average of about 175%. Yes, that’s right – AHCS was paid up to 6 times more than the fee schedule amount. The loophole lies in the way prices are set for drugs. As a repackager, AHCS can set its own price for drugs; repackagers are considered ‘manufacturers’ by the rate publishers and thus determine what the Average Wholesale Price is for the medications they sell.

    FT here: How’s that for a license to mint money? I used to be a Family Physician. According to this loophole, I could’ve been labeled a dermatologist and rake in the dough big time. Talk about a case of bad incentives!

    In theory, AHCS, and other repackagers for that matter, could set their prices at a million bucks a pill. Given the rampant greed exemplified by some (again, not all) of these folks, it’s a bit surprising this hasn’t happened yet.

    Its not as if AHCS or the physician practices dispensing their drugs are adding six times’ more value to the injured worker. While there is some benefit in ensuring the patient gets their drug quickly, it’s hard to see how that is worth the huge extra cost. Unless you happen to be one of AHCS’ owners, that is.

    Turns out a Boston-based private equity firm bought a minority stake in AHCS earlier this year. I don’t know the folks at ABRY Partners, but I’m kinda wondering if they did their due diligence before plopping down their millions.

    For example.

    Gerald Glass advertises himself as a ‘medical doctor’. Which he isn’t. Glass, Founder and ‘Co-CEO’, claims he got a medical degree from Windsor University, a Caribbean academic institution. However, I found no evidence that Glass had ever been licensed as a physician in the US…

    A little more investigation confirmed that AHCS was a major, if not THE MAJOR, contributor to the GOP in Florida. (this may well have occurred after ABRY’s investment) An article ( in the Florida Independent noted the following:

    ” June 16, three LLCs — Durable Medical, Orthopaedic Fellowship Group and Green Solar Transportation — with the same managers as the founders and co-CEOs of Automated Healthcare, Paul Zimmerman, M.D., and Gerald Glass, M.D., donated $500,000 to the Florida Liberty Fund. On June 22, $487,000 was transferred to the Florida First Initiative. Automated Healthcare LLC also donated $100,000 to the Florida Liberty Fund on Aug. 3; on Aug. 5, $124,000 was transferred to FFI. (Automated Healthcare did not respond to a request for comment.

    H.B. 5603, a bill vetoed by Gov. Crist but supported by Florida CFO and Democratic candidate for governor Alex Sink, included provisions aiming to reduce the cost of prescription drugs in the state’s worker-compensation program. Automated Healthcare opposes the legislation, since it would likely cut into their business.”

    So, less than a month after Crist vetoed a bill that would have killed AHCS’ business in Florida, AHCS contributes $600,000 to a PAC that supports Crist.

    Loyal readers may recall my article last week noted AHCS gave a hundred thousand bucks to the Florida Liberty Fund; shame on me for not knowing the total was much closer to six hundred thousand dollars…

    What does this all add up to?

    Some repackagers are raping the system. This is nothing less than legalized theft. It is growing rapidly, and payers, and most importantly regulators, have to act.

    Kind of ironic to find out that Congressional GOP were clamoring for more clamp down in Medicare fraud when Florida GOP is engaging in helping contributors in gaming the work comp system. And I’m ready to bet my last ryal that there is deep bipartisanship in these matters: greed is universal.

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