What use could healthcare have for someone who makes things up, can't keep a secret, doesn't really know anything, and, when speaking, simply fills in the next word based on what's come before? Lots, if that individual is the newest form of artificial intelligence, according to some of the biggest companies out there.
Companies pushing the latest AI technology — known as "generative AI" — are piling on: Google and Microsoft want to bring types of so-called large language models to healthcare. Big firms that are familiar to folks in white coats — but maybe less so to your average Joe and Jane — are equally enthusiastic: Electronic medical records giants Epic and Oracle Cerner aren't far behind. The space is crowded with startups, too.
The companies want their AI to take notes for physicians and give them second opinions — assuming they can keep the intelligence from "hallucinating" or, for that matter, divulging patients' private information.
"There's something afoot that's pretty exciting," said Eric Topol, director of the Scripps Research Translational Institute in San Diego. "Its capabilities will ultimately have a big impact." Topol, like many other observers, wonders how many problems it might cause — like leaking patient data — and how often. "We're going to find out."
The specter of such problems inspired more than 1,000 technology leaders to sign an open letter in March urging that companies pause development on advanced AI systems until "we are confident that their effects will be positive and their risks will be manageable." Even so, some of them are sinking more money into AI ventures.
The underlying technology relies on synthesizing huge chunks of text or other data — for example, some medical models rely on 2 million intensive care unit notes from Beth Israel Deaconess Medical Center in Boston — to predict text that would follow a given query. The idea has been around for years, but the gold rush, and the marketing and media mania surrounding it, are more recent.
The frenzy was kicked off in December 2022 by Microsoft-backed OpenAI and its flagship product, ChatGPT, which answers questions with authority and style. It can explain genetics in a sonnet, for example.
OpenAI, started as a research venture seeded by Silicon Valley elites like Sam Altman, Elon Musk, and Reid Hoffman, has ridden the enthusiasm to investors' pockets. The venture has a complex, hybrid for- and nonprofit structure. But a new $10 billion round of funding from Microsoft has pushed the value of OpenAI to $29 billion, The Wall Street Journal reported. Right now, the company is licensing its technology to companies like Microsoft and selling subscriptions to consumers. Other startups are considering selling AI transcription or other products to hospital systems or directly to patients.
Hyperbolic quotes are everywhere. Former Treasury Secretary Larry Summers tweeted recently: "It's going to replace what doctors do — hearing symptoms and making diagnoses — before it changes what nurses do — helping patients get up and handle themselves in the hospital."
But just weeks after OpenAI took another huge cash infusion, even Altman, its CEO, is wary of the fanfare. "The hype over these systems — even if everything we hope for is right long term — is totally out of control for the short term," he said for a March article in The New York Times.
Few in healthcare believe this latest form of AI is about to take their jobs (though some companies are experimenting — controversially — with chatbots that act as therapists or guides to care). Still, those who are bullish on the tech think it'll make some parts of their work much easier.
Eric Arzubi, a psychiatrist in Billings, Montana, used to manage fellow psychiatrists for a hospital system. Time and again, he'd get a list of providers who hadn't yet finished their notes — their summaries of a patient's condition and a plan for treatment.
Writing these notes is one of the big stressors in the health system: In the aggregate, it's an administrative burden. But it's necessary to develop a record for future providers and, of course, insurers.
"When people are way behind in documentation, that creates problems," Arzubi said. "What happens if the patient comes into the hospital and there's a note that hasn't been completed and we don't know what's been going on?"
The new technology might help lighten those burdens. Arzubi is testing a service, called Nabla Copilot, that sits in on his part of virtual patient visits and then automatically summarizes them, organizing into a standard note format the complaint, the history of illness, and a treatment plan.
Results are solid after about 50 patients, he said: "It's 90% of the way there." Copilot produces serviceable summaries that Arzubi typically edits. The summaries don't necessarily pick up on nonverbal cues or thoughts Arzubi might not want to vocalize. Still, he said, the gains are significant: He doesn't have to worry about taking notes and can instead focus on speaking with patients. And he saves time.
"If I have a full patient day, where I might see 15 patients, I would say this saves me a good hour at the end of the day," he said. (If the technology is adopted widely, he hopes hospitals won't take advantage of the saved time by simply scheduling more patients. "That's not fair," he said.)
Nabla Copilot isn't the only such service; Microsoft is trying out the same concept. At April's conference of the Healthcare Information and Management Systems Society — an industry confab where health techies swap ideas, make announcements, and sell their wares — investment analysts from Evercore highlighted reducing administrative burden as a top possibility for the new technologies.
But overall? They heard mixed reviews. And that view is common: Many technologists and doctors are ambivalent.
For example, if you're stumped about a diagnosis, feeding patient data into one of these programs "can provide a second opinion, no question," Topol said. "I'm sure clinicians are doing it." However, that runs into the current limitations of the technology.
Joshua Tamayo-Sarver, a clinician and executive with the startup Inflect Health, fed fictionalized patient scenarios based on his own practice in an emergency department into one system to see how it would perform. It missed life-threatening conditions, he said. "That seems problematic."
The technology also tends to "hallucinate" — that is, make up information that sounds convincing. Formal studies have found a wide range of performance. One preliminary research paper examining ChatGPT and Google products using open-ended board examination questions from neurosurgery found a hallucination rate of 2%. A study by Stanford researchers, examining the quality of AI responses to 64 clinical scenarios, found fabricated or hallucinated citations 6% of the time, co-author Nigam Shah told KFF Health News. Another preliminary paper found, in complex cardiology cases, ChatGPT agreed with expert opinion half the time.
Privacy is another concern. It's unclear whether the information fed into this type of AI-based system will stay inside. Enterprising users of ChatGPT, for example, have managed to get the technology to tell them the recipe for napalm, which can be used to make chemical bombs.
In theory, the system has guardrails preventing private information from escaping. For example, when KFF Health News asked ChatGPT its email address, the system refused to divulge that private information. But when told to role-play as a character, and asked about the email address of the author of this article, it happily gave up the information. (It was indeed the author's correct email address in 2021, when ChatGPT's archive ends.)
"I would not put patient data in," said Shah, chief data scientist at Stanford healthcare. "We don't understand what happens with these data once they hit OpenAI servers."
Tina Sui, a spokesperson for OpenAI, told KFF Health News that one "should never use our models to provide diagnostic or treatment services for serious medical conditions." They are "not fine-tuned to provide medical information," she said.
With the explosion of new research, Topol said, "I don't think the medical community has a really good clue about what's about to happen."
For two decades, patients and physicians eagerly awaited a lower-cost version of the world's bestselling drug, Humira, while its maker, AbbVie, fought off potential competitors by building a wall of more than 250 patents around it.
When the first Humira biosimilar — essentially a generic version — finally hit the market in January, it came with an unpleasant surprise. The biosimilar's maker, Amgen, launched two versions of the drug, which treats a host of conditions including rheumatoid arthritis. They were identical in every way but this: One was priced at about $1,600 for a two-week supply, 55% off Humira's list price. But the other was priced at around $3,300, only about 5% off. And OptumRx, one of three powerhouse brokers that determine which drugs Americans get, recommended option No. 2: the more expensive version.
As Murdo Gordon, an Amgen executive vice president, explained in an earnings call, the higher price enabled his company to give bigger rebates, or post-sale discounts, to Optum and other intermediaries. Most of that money would be passed on to insurers, and patients, he said. Gordon did not mention that the higher-priced option would leave some patients paying much more out-of-pocket, undermining the whole rationale for generic drugs.
The Optum-Amgen announcements perfectly elucidated why, after years of thundering against drugmakers, Congress and the administration have now focused on regulating the deal-makers known as pharmacy benefit managers, or PBMs. Sen. Bernie Sanders' health committee grilled a panel of PBM and pharmaceutical executives Wednesday in preparation for a vote on PBM legislation, expected Thursday.
The three biggest PBMs — OptumRx, CVS Caremark, and Express Scripts — control about 80% of prescription drug sales in America and are the most profitable parts of the health conglomerates in which they're nestled. CVS Health, the fourth-largest U.S. corporation by revenue on Fortune's list, owns CVS Caremark and the insurer Aetna; UnitedHealth Group, a close fifth, owns Optum; and Cigna, ranking 12th, owns Express Scripts. While serving as middlemen among drugmakers, insurers, and pharmacies, the three corporations also own the highest-grossing specialty drug and mail-order pharmacies.
"John D. Rockefeller would be happy to be alive today," said David Balto, a former Federal Trade Commission attorney who represents clients suing PBMs. "He could own a PBM and monopolize economic power in ways he never imagined."
Drug manufacturers claim that exorbitant PBM demands for rebates force them to set high list prices to earn a profit. Independent pharmacists say PBMs are driving them out of business. Physicians blame them for unpredictable, clinically invalid prescribing decisions. And patients complain that PBMs' choices drain their pocketbooks.
With PBMs driving prices, competition has had the opposite effect from what economic theory predicted Medicare patients would spend out-of-pocket on drugs, one large study showed. Over a five-year period, patients were paying 50% more for branded drugs that had competitors than for those that didn't.
All this makes the PBMs ripe targets for politicians of both parties. Yet the complexity and obscurity of their role in the drug marketplace have skeptics wondering whether legislation advancing in the House and Senate will actually help patients or lower prices at the pharmacy counter.
"We may try to make things better and actually make things worse," Sen. Rand Paul (R-Ky.) said at Wednesday's hearing.
The PBMs pass along most of their rebates to health plans, which will bear a larger share of patient drug costs in coming years under Medicare changes that are part of the 2022 Inflation Reduction Act. It's likely that pressure on insurers will be passed along to PBMs and result in even more aggressive limits on physician prescription decisions, said Troyen Brennan, an adjunct Harvard University professor who was chief medical officer for CVS Health from 2008 to 2022.
Several congressional bills target drug company rebates to PBMs and what's known as "spread pricing" — the extra money PBMs collect from insurers over what they pay pharmacies for drugs.
But those aren't the big PBM revenue sources anymore, Brennan said. PBMs today mostly make money by owning mail-order and specialty pharmacies and from the government's 340B program, created to help hospitals that treat a disproportionately elderly and poor population. Medicare requires drugmakers to provide big discounts to participating hospitals and the growing rosters of affiliated physician groups they own, and some of those discounts end up with PBMs.
Employers and the federal government decide where most of the rebate money goes, PBM leaders testified Wednesday — and health plans decide what out-of-pocket costs their covered members will pay.
In other words, drug companies blame PBMs for high drug counter prices, PBMs blame insurers, and insurers blame the drug companies, all part of a health care system that hinges on an unspoken bargain: Make life comfortable for some — mostly the upper and middle classes — at the expense of lower-income and poorly insured people who get what they get.
PBMs' extraction of money from patients in the name of "copayments" at the pharmacy counter "reintroduces medical underwriting" that was stripped away by the Affordable Care Act, Craig Garthwaite, a health care researcher at Northwestern's Kellogg School of Management, told a Senate panel last year. Insurers can no longer pick and choose whom to insure, as they could before the landmark 2010 health law. But they are finding ways to make the sickest pay.
"People with expensive conditions are paying more for insurance so healthy people can pay less," he said.
PBMs Evolve From Minnows to Whales
In 1967, a year before the first PBM was founded, spending on prescription drugs outside of a hospital in the U.S. totaled around $3.3 billion, compared with more than $600 billion in net payments last year. By 2005, when Medicare expanded to include coverage of outpatient drugs, government and private insurers depended on PBMs' negotiating power to keep rising drug prices in check.
The Federal Trade Commission and Justice Department allowed the largest PBMs to gobble up competitors and merge with insurers during the Bush and Obama administrations on the grounds that bolstering their powers might rein in prices. The FTC fought state investigations of anti-competitive behavior, saying that pressure on PBMs would benefit consumers.
The FTC under President Joe Biden has switched course, at least partly because of the arrival of Chair Lina Khan, a vigorous proponent of antitrust policy who launched an investigation of the PBMs last June.
It came partly at the request of independent pharmacists, who rely on PBM reimbursements for the drugs they purchase and provide consumers. Thousands of pharmacists complained to the FTC that PBMs force them to accept unfairly low reimbursements — then slam them with opaque rules requiring them to pay back some of the money months later. Pharmacists returned $12.6 billion to PBMs in 2021, according to a recent Medicare Payment Advisory Commission report.
During a recent week, said Ashley Seyfarth, who owns Kare Drug in Aztec, New Mexico, a PBM reclaimed money from one prescription because the paperwork was faxed. It clawed back cash from another sale because Kare had kept the drug on the shelf an extra day, beyond the PBM's time limit, to accommodate a patient delayed getting to the store.
And her reimbursements are "beyond low," Seyfarth said. She laughed when asked whether contract terms with the PBMs were negotiable. "You aren't negotiating anything," she said. "It's take it or leave it."
PBMs "have the right to audit whether contract terms are agreed to," Angela Banks, vice president of policy at the Pharmaceutical Care Management Association, the PBM trade group, said at a recent conference. "A lot of the complaints about PBMs come from two parties from whom we are extracting money: manufacturers and pharmacists."
PBM pricing decisions are often murky. According to a recent study, in 2018 Medicare spent $2.6 billion more through PBMs for a year's worth of 184 generic drugs than they would have cost at Costco. Doctors and hospitals find PBM formularies baffling, with dozens of variations depending on a patient's health plan.
When Philadelphia-area internist Amy Davis writes a prescription, she has no idea what the pharmacy will bill her patients, she said, or whether a PBM has decided the drug needs prior authorization. Sometimes she doesn't find out until a patient returns months later saying they skipped the drug because it was too expensive.
"We physicians are completely in the dark," she said. "And it's designed that way."
The PBMs' growing use of proprietary pharmacies, including mail-order operations, can interfere with the care of patients like Jasmine St. Clair, a 45-year-old restaurant manager and mother of six in Mount Juliet, Tennessee.
In October 2021, St. Clair's treatment for a rare, non-smoking-related lung cancer was delayed three weeks after PBM giant Express Scripts insisted her prescription be filled by Accredo, the mail-order pharmacy it owns.
In the meantime, her fatigue and lower-back and neck pain became so bad "I couldn't pick up my daughter, who was 2," St. Clair said. "And I was really getting scared."
After St. Clair started the four-pills-twice-a-day regimen, her tumor rapidly shrank. But in January, her husband's insurance changed and the medications didn't arrive on time. When she called Accredo to see what was wrong, "they said, ‘You owe $8,000. Would you like to pay by card?'"
The pharmacy attached to her oncology practice straightened out the payment issue and ensured her continued use of the drug, St. Clair said. Her oncologist, Johnetta Blakely, said these are daily occurrences in her practice.
"The problem with the PBMs and the specialty pharmacies they own is that they are so complicated and intertwined it's hard to figure out what the heck they are doing," Blakely said. "All this bureaucratic stuff is a distraction and takes away from things I could be doing, like asking Jasmine about her kids."
What's the Remedy?
Bipartisan House and Senate bills would require PBMs to reimburse pharmacies serving Medicaid patients based on an authorized price list, rather than using standards that allegedly allow PBMs to lowball pharmacies. The Congressional Budget Office has estimated the bills would save the federal government $1 billion over 10 years. Another Senate bill would require PBMs to report more of their earnings to the FTC, and would ban deceptive and unfair fees.
But PBMs have shown themselves adept at finding ways around regulation. A federal rule scheduled to take effect next year would curtail PBM "clawbacks" on independent pharmacies. But PBM contracts sent out to pharmacies in recent weeks get around that by lowering reimbursement fees and putting a percentage of their payments to pharmacies into a kind of escrow, said Douglas Hoey, CEO of the National Community Pharmacists Association.
When the Trump administration considered banning brand-name drug rebates in 2017, PBMs set up companies in Ireland and Switzerland to take over the negotiations and purchases. Doing so offered a tax advantage and allowed the PBMs to avoid scrutiny of the quantity and nature of those deals. Recently, Express Scripts set up another company to purchase generic drugs, in the Cayman Islands.
And PBMs appear adept at moving money from one pocket to another. "Yesterday's rebates are today's fees and potentially tomorrow's something else," said John O'Brien, CEO of the pharmaceutical industry-funded research group, the National Pharmaceutical Council.
Every arrangement that PBMs make with manufacturers, employers, and insurers is secret and proprietary, said Barak Richman, a Duke University Law School professor. This makes it nearly impossible to examine what kind of deals PBMs are making.
Antitrust law could be brought to bear on the PBMs, Richman said. And the Biden administration has shown an eagerness to possibly reverse mergers that have increased PBM clout. The Justice Department has taken similar steps.
But federal officials will have to move fast to slow the PBMs. Insurers that don't have PBMs as part of their business have been shrinking in recent years because of the growing clout and buying power of the companies.
"I predict that any health insurer that doesn't have a PBM is going to disappear in 10 years," said Neeraj Sood, a professor at the University of Southern California Sol Price School of Public Policy. "Otherwise, there is no way to compete with the big three."
WESLEY CHAPEL, Fla. — In BayCare Hospital Wesley Chapel's 86 private rooms, patients can use voice-activated Alexa devices to dim the lights, play music, or summon a nurse.
BayCare boasts some of the latest high-tech equipment. Yet, the company said, its $246 million facility that opened here in March doesn't provide any healthcare services beyond what patients could receive at a hospital just 2 miles away.
BayCare Wesley Chapel's luster as the newest hospital in this fast-growing Tampa suburb of 65,000 people won't last. Another general hospital is on the way — the third within a five-minute drive.
"It's kind of crazy," said Pat Firestone, who works at Macy's in an upscale shopping area close to the hospitals. "It's good to know there is a hospital nearby, but I'm not sure all of this is needed, especially when other areas lack any hospitals."
Wesley Chapel is just one scene in a hospital-building boom across Florida unleashed almost four years ago, when the state dropped a requirement that companies obtain government approval to open new hospitals.
Florida is among the states that have abandoned a decades-old regulation meant to keep medical costs in check. The requirement, used nearly nationwide until the 1980s, allowed new hospital construction only if a state issued a "Certificate of Need," or CON. The process involves would-be hospital builders applying to the state and the state government evaluating need based on criteria such as population growth and existing hospital capacity.
About two-thirds of states still require a CON. But several, including Georgia, Kentucky, and South Carolina, have this year debated whether to scrap or loosen restrictions. West Virginia relaxed its rules in March.
Critics of the CON process say it stifles competition and limits access to care. But the hospital industry often defends the process, which protects facilities from would-be rivals.
In most industries competition drives down prices, but more hospital beds and services can actually boost the cost of patient care as pressure to recoup all that investment spreads through the system.
When there's excess medical capacity, doctors may overprescribe — for instance, by ordering a pricey CT scan instead of a cheaper X-ray, said Steve Ullmann, a University of Miami health policy professor.
"All that construction has to be paid for somehow," said Allan Baumgarten, a Minnesota-based consultant who analyzes healthcare markets.
Competition can also bid up labor costs, which contribute to health costs.
Meanwhile, more hospitals could leave medical teams at any one hospital performing fewer complex procedures and dilute quality, some experts say.
What's more, as Wesley Chapel shows, new construction doesn't necessarily favor the areas that need it most. Hospitals tend to follow the money — to relatively affluent markets instead of underserved rural or urban communities.
While dozens of new hospitals are planned for Florida, none are going up between Jacksonville and Pensacola, a more than 300-mile swath of largely rural counties spanning two time zones.
Republican Gov. Ron DeSantis signed a law eliminating Florida's approval process in 2019. From 2020 through 2022, companies announced plans to build at least 65 hospitals in Florida, according to state data. Many are in South Florida, the Tampa area, and the Orlando area.
In contrast, from 2016 to 2018, the state approved just 20 new hospitals. Florida has about 320 hospitals in all.
Those tallies include not just general "acute care" hospitals but also inpatient facilities specializing in rehabilitation, psychiatric care, and emergency medicine, among others.
The school system for Pasco County, where Wesley Chapel is located, welcomed the new construction. Mary Martin, who oversees benefits for school employees, anticipates it will shorten wait times and give patients more options while strengthening health plans' hands in price negotiations with hospitals.
"This is a big win for our employees," Martin said.
Yet, health experts say residents could get stuck with bigger healthcare bills.
"It's inflationary to have so many hospitals," said Linda Quick, former president of the South Florida Hospital & Healthcare Association.
"If you don't have enough people using it, then the fixed costs have to be made up by the number of people that do," Quick said.
Patients tend to go where insurers allow and where doctors send them instead of shopping around and comparing prices. When an insurer is footing the bill, a patient may not balk at the cost.
Insurers pass costs to patients by raising premiums and deductibles and restricting coverage by, for example, requiring members to use narrow provider networks, Ullmann said.
In South Carolina, the legislature has debated killing or reforming its CON regulation for years. A state report last year highlighted high costs and long delays that hospital companies experience while seeking state approval. In September 2022, a hospital opened in Fort Mill, outside Charlotte, North Carolina — more than 15 years after it was proposed.
Before Fort Mill's hospital opened last year, residents often drove 45 minutes for care, according to Fort Mill Mayor Guynn Savage.
The shorter drive will help in emergencies, Savage said.
The South Carolina Senate passed a bill in February that would essentially repeal the CON requirement, but the bill faces an uncertain future in the House.
While South Carolina hospitals favor some relaxation of the regulations, they oppose full repeal.
That irks South Carolina Sen. Larry Grooms, a Republican, who is pushing for full repeal.
Hospital leaders favor retaining the law to protect "their own turf," Grooms said. "That's not how capitalism works. That's not how free markets work."
The Florida Hospital Association fought efforts to repeal the regulation for new hospitals but acquiesced when it no longer had the votes in an increasingly conservative legislature.
Today, Florida hospital officials say they are merely expanding to keep up with a growing population.
Yet, hospitals are also looking to grow in markets that can yield the highest profits. They tend to avoid building where many people are uninsured or on Medicaid, the government health insurance program for low-income people.
In addition, hospital systems are trying to broaden their geographic footprint, which gives them greater leverage when negotiating reimbursement rates with private insurers. The hospital systems' increased bargaining power can lead to higher premiums for consumers, said Baumgarten, the Minnesota-based consultant.
BayCare, which owns 15 other hospitals in the Tampa Bay area and central Florida, had opposed efforts to eliminate Florida's regulation, worried that ending it would allow competing hospitals to enter BayCare's turf and siphon off its highest-paying patients and scarce staff, said Keri Eisenbeis, BayCare's senior vice president of corporate relations.
The company, based in Clearwater, Florida, bought property in Wesley Chapel in 2006. It applied to build a hospital here in 2012 but was turned down when the state approved a competing application from Adventist Health System, a hospital chain now called AdventHealth.
Until March, AdventHealth Wesley Chapel was the Florida community's only hospital. Soon it will have two competitors in the Tampa suburb, all within a five-minute drive of one another.(Phil Galewitz / KFF Health News)
BayCare applied again in 2018 and the state granted approval. But AdventHealth appealed the decision, and the appeal threatened to keep the issue in litigation for years. When the state lifted its CON requirements in 2019, BayCare moved forward with its original plan.
In addition, in 2022, Orlando Health unveiled plans to build a 300-bed hospital in Wesley Chapel. Construction has yet to begin. And PAM Health announced plans in January of this year to build a rehabilitation hospital in Wesley Chapel.
Rebecca Schulkowski, BayCare Wesley Chapel president, predicts BayCare patient rooms will fill quickly given the number of young families and retirees moving to new housing developments.
One big challenge Schulkowski faces is hiring enough staff. That includes luring doctors and other health workers to the town instead of just hiring employees away from rival AdventHealth.
Though BayCare argued the town needed more hospital beds, AdventHealth's Wesley Chapel hospital often has had plenty of empty beds. According to the most recent annual data posted by the state, in 2021 its occupancy rate was 66%.
Even with the state's growing population, "none of these communities have a shortage of inpatient care," said Quick, referring to suburban areas like Wesley Chapel. "What we have is a shortage of sick people."
In 2014, Lisa French had spinal surgery. She was told she would have to pay $1,337 in out-of-pocket costs and that her insurance would cover the rest. However, the hospital ended up sending French a bill for $229,000. When she didn’t pay, it sued her.
A New York-based bariatric practice spends millions each year on advertisements featuring patients who have dropped 100 pounds or more.
This article was published on Thursday, April 20, 2023 in Kaiser Health News.
By Fred Schulte
Seven months after Lahavah Wallace's weight loss operation, a New York bariatric surgery practice sued her, accusing her of "intentionally" failing to pay nearly $18,000 of her bill.
Long Island Minimally Invasive Surgery, which does business as the New York Bariatric Group, went on to accuse Wallace of "embezzlement," alleging she kept insurance payments that should have been turned over to the practice.
Wallace denies the allegations, which the bariatric practice has leveled against patients in hundreds of debt-collection lawsuits filed over the past four years, court records in New York state show.
In about 60 cases, the lawsuits demanded $100,000 or more from patients. Some patients were found liable for tens of thousands of dollars in interest charges or wound up shackled with debt that could take a decade or more to shake. Others are facing the likely prospect of six-figure financial penalties, court records show.
Backed by a major private equity firm, the bariatric practice spends millions each year on advertisements featuring patients who have dropped 100 pounds or more after bariatric procedures, sometimes having had a portion of their stomachs removed. The ads have run on TV, online, and on New York City subway posters.
The online ads, often showcasing the slogan "Stop obesity for life," appealed to Wallace, who lives in Brooklyn and works as a legal assistant for the state of New York. She said she turned over checks from her insurer to the bariatric group and was stunned when the medical practice hauled her into court citing an "out-of-network payment agreement" she had signed before her surgery.
"I really didn't know what I was signing," Wallace told KFF Health News. "I didn't pay enough attention."
Dr. Shawn Garber, a bariatric surgeon who founded the practice in 2000 on Long Island and serves as its CEO, said that "prior to rendering services" his office staff advises patients of the costs and their responsibility to pay the bill.
The bariatric group has cited these out-of-network payment agreements in at least 300 lawsuits filed against patients from January 2019 through 2022 demanding nearly $19 million to cover medical bills, interest charges, and attorney's fees, a KFF Health News review of New York state court records found.
Danny De Voe, a partner at Sahn Ward Braff Koblenz law firm in Uniondale, New York, who filed many of those suits, declined to comment, citing attorney-client privilege.
In most cases, the medical practice had agreed to accept an insurance company's out-of-network rate as full payment for its services — with caveats, according to court filings.
In the agreements they signed, patients promised to pay any coinsurance, meeting any deductible, and pass on to the medical practice any reimbursement checks they received from their health plans within seven days.
Patients who fail to do so "will be held responsible for the full amount charged for your surgery, plus the cost of legal fees," the agreement states.
That "full amount" can be thousands of dollars higher than what insurers would likely pay, KFF Health News found — while legal fees and other costs can layer on thousands more.
Elisabeth Benjamin, a lawyer with the Community Service Society of New York, said conflicts can arise when insurers send checks to pay for out-of-network medical services to patients rather than reimbursing a medical provider directly.
"We would prefer to see regulators step in and stop that practice," she said, adding it "causes tension between providers and patients."
That's certainly true for Wallace. The surgery practice sued her last August demanding $17,981 in fees it said remained unpaid after her January 2022 laparoscopic sleeve gastrectomy, an operation in which much of the stomach is removed to assist weight loss.
The lawsuit also tacked on a demand for $5,993 in attorney's fees, court records show.
The suit alleges Wallace signed the contract even though she "had no intention" of paying her bills. The complaint goes on to accuse her of "committing embezzlement" by "willfully, intentionally, deliberately and maliciously" depositing checks from her health plan into her personal account.
The suit doesn't include details to substantiate these claims, and Wallace said in her court response they are not true. Wallace said she turned over checks for the charges.
"They billed the insurance for everything they possibly could," Wallace said.
In September, Wallace filed for bankruptcy, hoping to discharge the bariatric care debt along with about $4,700 in unrelated credit card charges.
The medical practice fired back in November by filing an "adversary complaint" in her Brooklyn bankruptcy court proceeding that argues her medical debt should not be forgiven because Wallace committed fraud.
The adversary complaint, which is pending in the bankruptcy case, accuses Wallace of "fraudulently" inducing the surgery center to perform "elective medical procedures" without requiring payment upfront.
Both the harsh wording and claims of wrongdoing have infuriated Wallace and her attorney, Jacob Silver, of Brooklyn.
Silver wants the medical practice to turn over records of the payments received from Wallace. "There is no fraud here," he said. "This is frivolous. We are taking a no-settlement position."
Gaining Debt
Few patients sued by the bariatric practice mount a defense in court and those who do fight often lose, court records show.
The medical practice won default judgments totaling nearly $6 million in about 90 of the 300 cases in the sample reviewed by KFF Health News. Default judgments are entered when the defendant fails to respond.
Many cases either are pending, or it is not clear from court filings how they were resolved.
Some patients tried to argue that the fees were too high or that they didn't understand going in how much they could owe. One woman, trying to push back against a demand for more than $100,000, said in a legal filing that she "was given numerous papers to sign without anyone of the staff members explaining to me what it actually meant." Another patient, who was sued for more than $40,000, wrote: "I don't have the means to pay this bill."
Among the cases described in court records:
A Westchester County, New York, woman was sued for $102,556 and settled for $72,000 in May 2021. She agreed to pay $7,500 upon signing the settlement and $500 a month from September 2021 through May 2032.
A Peekskill, New York, woman in a December 2019 judgment was held liable for $384,092, which included $94,047 in interest.
A Newburgh, New York, man was sued in 2021 for $252,309 in medical bills, 12% interest, and $84,103 in attorneys' fees. The case is pending.
Robert Cohen, a longtime attorney for the bariatric practice, testified in a November 2021 hearing that the lawyers take "a contingency fee of one-third of our recovery" in these cases. In that case, Cohen had requested $13,578 based on his contingency fee arrangement. He testified that he spent 7.3 hours on the case and that his customary billing rate was $475 per hour, which came to $3,467.50. The judge awarded the lower amount, according to a transcript of the hearing.
Dr. Teresa LaMasters, president of the American Society for Metabolic and Bariatric Surgery, said suing patients for large sums "is not a common practice" among bariatric surgeons.
"This is not what the vast majority in the field would espouse," she said.
But Garber, the NYBG's chief executive, suggested patients deserve blame.
"These lawsuits stem from these patients stealing the insurance money rather than forwarding it onto NYBG as they are morally and contractually obligated to do," Garber wrote in an email to KFF Health News.
Garber added: "The issue is not with what we bill, but rather with the fact that the insurance companies refuse to send payment directly to us."
'A Kooky System'
Defense attorneys argue that many patients don't fully comprehend the perils of failing to pay on time — for whatever reason.
In a few cases, patients admitted pocketing checks they were obligated to turn over to the medical practice. But for the most part, court records don't specify how many such checks were issued and for what amounts — or whether the patient improperly cashed them.
"It's a kooky system," said Paul Brite, an attorney who has faced off against the bariatric practice in court.
"You sign these documents that could cost you tons of money. It shouldn't be that way," he said. "This can ruin their financial life."
New York lawmakers have acted to limit the damage from medical debt, including "surprise bills."
In November, Democratic Gov. Kathy Hochul signed legislation that prohibits health care providers from slapping liens on a primary residence or garnishing wages.
But contracts with onerous repayment terms represent an "evolving area of law" and an alarming "new twist" on concerns over medical debt, said Benjamin, the community service society lawyer.
She said contract "accelerator clauses" that trigger severe penalties if patients miss payments should not be permitted for medical debt.
"If you default, the full amount is due," she said. "This is really a bummer."
Online ads for bariatric surgery appealed to Lahavah Wallace. She said she turned over checks from her insurer to the New York Bariatric Group and was stunned when the medical practice hauled her into court citing an "out-of-network payment agreement" she had signed before her surgery.(Jackie Molloy for KFF Health News)
'Fair Market Value'
The debt collection lawsuits argue that weight loss patients had agreed to pay "fair market value" for services — and the doctors are only trying to secure money they are due.
But some prices far exceed typical insurance payments for obesity treatments across the country, according to a medical billing data registry. Surgeons performed about 200,000 bariatric operations in 2020, according to the bariatric surgery society.
Wallace, the Brooklyn legal assistant, was billed $60,500 for her lap sleeve gastrectomy, though how much her insurance actually paid remains to be hashed out in court.
Michael Arrigo, a California medical billing expert at No World Borders, called the prices "outrageous" and "unreasonable and, in fact, likely unconscionable."
"I disagree that these are fair market charges," he said.
LaMasters, the bariatric society president, called the gastrectomy price billed to Wallace "really expensive" and "a severe outlier." While charges vary by region, she quoted a typical price of around $22,000.
Garber said NYBG "bills at usual and customary rates" determined by Fair Health, a New York City-based repository of insurance claims data. Fair Health "sets these rates based upon the acceptable price for our geographic location," he said.
But Rachel Kent, Fair Health's senior director of marketing, told KFF Health News that the group "does not set rates, nor determine or take any position on what constitutes ‘usual and customary rates.'" Instead, it reports the prices providers are charging in a given area.
Overall, Fair Health data shows huge price variations even in adjacent ZIP codes in the metro area. In Long Island's Roslyn Heights neighborhood, where NYBG is based, Fair Health lists the out-of-network price charged by providers in the area as $60,500, the figure Wallace was billed.
But in several other New York City-area ZIP codes the price charged for the gastrectomy procedure hovers around $20,000, according to the databank. The price in Manhattan is $17,500, for instance, according to Fair Health.
Nationwide, the average cost in 2021 for bariatric surgery done in a hospital was $32,868, according to a KFF analysis of health insurance claims.
Private Equity Arrives
Garber said in a court affidavit in May 2022 that he founded the bariatric practice "with a singular focus: providing safe, effective care to patients suffering from obesity and its resulting complications."
Under his leadership, the practice has "developed into New York's elite institution for obesity treatment," Garber said. He said the group's surgeons are "highly sought after to train other bariatric surgeons throughout the country and are active in the development of new, cutting-edge bariatric surgery techniques."
In 2017, Garber and his partners agreed on a business plan to help spur growth and "attract private equity investment," according to the affidavit.
They formed a separate company to handle the bariatric practice's business side. Known as management services organizations, or MSOs, such companies provide a way for private equity investors to circumvent laws in some states that prohibit non-physicians from owning a stake in a medical practice.
In August 2019, the private equity firm Sentinel Capital Partners bought 65% of the MSO for $156.5 million, according to Garber's affidavit. The management company is now known as New You Bariatric Group. The private equity firm did not respond to requests for comment.
Garber, in a September 2021 American Society for Metabolic and Bariatric Surgery webinar viewable online, said the weight loss practice spends $6 million a year on media and marketing directly to patients — and is on a roll. Nationally, bariatric surgery is growing 6% annually, he said. NYBG boasts two dozen offices in the tri-state area of New York, New Jersey, and Connecticut and is poised to expand into more states.
"Since private equity, we've been growing at 30% to 40% year over year," Garber said.
In 2017, the Centers for Disease Control and Prevention published multiple reports analyzing health disparities between rural and urban populations.
That effort pleased researchers and advocates for improving rural health because the dozen or so examinations of rural health data provided important details about the 46 million Americans who live away from the nation's population centers. It began to fill a gap in the information used by those who study and address the issues that affect people in rural communities.
But those reports, the Morbidity and Mortality Weekly Report rural health series, began and ended in 2017. And though the CDC has addressed rural health in other weekly reports and data briefs, the agency hasn't examined it in such depth since.
That's one reason rural health advocates successfully pushed for the CDC to extend its rural health focus by creating an Office of Rural Health at the agency. The office is operational as of March 2023, and advocates hope the agency will commit to rural health research and provide analyses that lead to good public health policies for rural communities.
"What we're seeing is rural continually getting left behind," said Alan Morgan, CEO of the National Rural Health Association, which urged Congress to fund the office. "They're communities at risk, communities that may not be employing public health safety measures, and we are flying blind," he said.
"What's needed is an ongoing look at rural communities, their populations, to better direct both state and federal efforts to address health disparities," he said.
The omnibus appropriations bill signed by President Joe Biden in December 2022 gave the CDC $5 million for the 2023 fiscal year to create the Office of Rural Health inside the agency, which has a $9.3 billion budget this year. Congress directed the CDC to sharpen its focus on public health in rural areas with the new office, after COVID-19 had an outsize impact on rural America.
Though the CDC is a data-driven public health agency, it's unlikely the new office will solve preexisting rural data challenges. But CDC officials have said in-depth rural health initiatives that require collaborations across the CDC — like the Morbidity and Mortality Weekly Report rural health series — could become more common practice at the agency.
"Instead of comparing rural and non-rural, it was looking within rural," said Diane Hall, acting director of the office, about the 2017 reports. "That MMWR sort of laid out some things that we can be thinking about doing more of so that within rural variation, [there's] better understanding of how race and ethnicity play out in rural communities."
In addition to ethnic disparities, the series examined illicit drug use, causes of death, and suicide trends, among other things. Those topics are already part of what the CDC tracks, but typically the agency compares rural data for those topics with urban data rather than creating a stand-alone analysis.
Hall said having an Office of Rural Health will also help the CDC continue collaborating with the Federal Office of Rural Health Policy, part of the Health Resources and Services Administration. That office has existed since 1987 and has been the primary federal office dedicated to rural health care. But its focus is on increasing access to health care rather than monitoring public health.
At the CDC's Office of Rural Health, "we're more likely to be focusing on prevention," Hall said.
What the office is unlikely to do, she said, is create new surveys and collect data that the CDC does not already track. It would be a "pretty costly" undertaking, she said. "I think what would be more impactful is to work with the people that are already doing that and help them better understand that rural context."
Rural data analysis poses challenges because of the smaller size of rural population centers compared with the larger populations of urban areas. For instance, small communities might not have adequate response rates to surveys, which can limit the conclusions researchers can make about the data.
Michael Meit, co-director of the Center for Rural Health Research at East Tennessee State University, said the 2017 series helped to mitigate the "small numbers" challenge, wherein samples aren't large enough to be properly analyzed because rural areas have smaller populations.
Each of the series' reports outlined data limitations such as small numbers and their effect on the analysis, which shows the CDC was "already pushing forward and trying to bring voice to these issues," Meit said. "I think that by itself is huge."
Hall, the acting director, said there isn't a simple solution to challenges like small sample sizes but that the "CDC's Office of Rural Health can work to highlight creative solutions being developed, such as our PLACES project." PLACES, or Population Level Analysis and Community Estimates, is a collaboration among the CDC, Robert Wood Johnson Foundation, and CDC Foundation that releases data for smaller cities and rural areas. (KFF Health News receives funding support from the Robert Wood Johnson Foundation.)
Another challenge with rural health data is that small numbers can make it possible to identify who in a particular community is included in data. But the CDC has restrictions in place to prevent that from happening.
Sometimes, though, the agency does allow researchers to access files containing details like "race or ethnicity for small and highly visible groups" and "extreme values of income and age."
Keith Mueller, director of the Rural Policy Research Institute, hopes the Office of Rural Health will make it easier for researchers to access that more detailed data.
"There would be somebody at the agency who can get at the data, who can help us answer the research question," he said. "Collaborative work between people in the field and people in the agency who have the direct access to the data is far more readily available or likely to happen with this new office."
Since the office is based in the CDC's new Public Health Infrastructure Center, which launched in February, Hall said it's well positioned to partner with researchers. The center manages the agency's partnership grants, which are awarded to organizations that plan to improve public health services.
Hall said the office's most immediate priorities, though, are to grow the staff beyond its current three members and to develop the CDC's strategic plan for rural health.
Competition to claim a $100 billion market for drugmakers has triggered a wave of advertising that has provoked public health concerns.
This article was published on Tuesday, April 18, 2023 in Kaiser Health News.
By Darius Tahir and Hannah Norman
Suzette Zuena is her own best advertisement for weight loss.
Zuena, the "founder/visionary" of LH Spa & Rejuvenation in Livingston and Madison, New Jersey, has dropped 30 pounds. Her husband has lost 42 pounds.
"We go out a lot," Zuena said of the pair's social routine. "People saw us basically shrinking." They would ask how the couple did it. Her response: Point people to her spa and a relatively new type of medication — GLP-1 agonists, a class of drug that's become a weight loss phenomenon.
But she's not just spreading her message in person. She's also doing it on Instagram. And she's not alone. A chorus of voices is singing these drugs' praises. Last summer, investment bank Morgan Stanley found mentions of one of these drugs on TikTok had tripled. People are streaming into doctors' office to inquire about what they've heard are miracle drugs.
What these patients have heard, doctors said, is nonstop hype, even misinformation, from social media influencers. "I'll catch people asking for the skinny pen, the weight loss shot, or Ozempic," said Priya Jaisinghani, an endocrinologist and clinical assistant professor at New York University's Grossman School of Medicine.
Competition to claim a market that could be worth $100 billion a year for drugmakers alone has triggered a wave of advertising that has provoked the concern of regulators and doctors worldwide. But their tools for curbing the ads that go too far are limited — especially when it comes to social media. Regulatory systems are most interested in pharma's claims, not necessarily those of doctors or their enthused patients.
Few drugs of this type are approved by the FDA for weight loss — they include Novo Nordisk's Wegovy. But after shortages made that treatment harder to get, patients turned to other pharmaceuticals — like Novo Nordisk's Ozempic and Eli Lilly's Mounjaro — that are approved only for Type 2 diabetes. Those are often used off-label — though you wouldn't hear that from many of their online boosters.
The drugs have shown promising clinical results, Jaisinghani and her peers emphasize. Patients can lose as much as 15% of their body weight. Novo Nordisk is sponsoring research to examine whether Wegovy causes reductions in the rate of heart attacks for patients with obesity.
The medications, though, come at a high price. Wegovy runs patients paying cash at least $1,305 a month in the Washington, D.C., area, according to a GoodRx search in late March. Insurers only sometimes cover the cost. And patients typically regain much of their lost weight after they stop taking it.
Hype Is Driving Demand
But patients are not necessarily coming to doctors' offices now because of the science. They are citing things they saw on TikTok, like Chelsea Handler and other celebrities talking about their injections. It leads to the questions "how come she can get it" and "why can I not," said Juliana Simonetti, a physician and co-director of the comprehensive weight management program at the University of Utah.
The excitement — which doctors worry may cause some patients to use medications inappropriately — is coming also from business interests. Some are doctors promoting their venture-capital-backed startups. Others are spas hawking everything from wrinkle-smoothing and lip-plumping to, yes, weight loss benefits of semaglutide, the active ingredient in Wegovy and Ozempic; their prices, often in the hundreds of dollars, are well below what consumers would pay if picking up the prescription at a pharmacy.
In the U.S., the FDA has oversight over ads from the pharmaceutical industry, which must acknowledge risks and side effects of drugs. But ads from people who write prescriptions don't necessarily have the same restrictions. FDA regulations apply if the prescriber is working on behalf of a regulated entity, like a pharmaceutical manufacturer or distributor.
"The FDA is also committed to working with external partners, including the Federal Trade Commission (FTC), to address concerns with prescription drug marketing practices of telehealth companies on various platforms, including social media," agency spokesperson Jeremy Kahn emailed KFF Health News.
Pharma firms run campaigns to educate health care professionals or raise "awareness" that may indirectly tout drugs. Novo Nordisk has an ongoing internet campaign to redefine and destigmatize how Americans think of obesity — and, left unmentioned, the drugs that treat it.
KFF Health News also found that, beyond the industry group's examination, at least two otherentities were promoting Novo Nordisk products in the United Kingdom.
Australian regulators have taken down nearly 1,900 ads as of early March for improperly plugging various GLP-1 agonists, an agency spokesperson told KFF Health News. Novo Nordisk says it didn't put up the ads, the majority of which were for their product Ozempic. The regulators are declining to say who's involved.
Doctors are also sounding alarms about the publicity. They believe patients will be driven to use these medications off-label, obtain unreliable forms of these drugs, or exacerbate other health conditions, like eating disorders. The drugs act in part as an appetite suppressant, which can dramatically reduce calorie intake to a concerning degree when not paired with nutritional guidance.
Elizabeth Wassenaar, a regional medical director for the Eating Recovery Center, believes the drugs and associated advertising buildup will inadvertently trigger eating disorders. KFF Health News found ads showing thin patients measuring themselves with a tape measure and stepping on the scale, with accompanying captions goading viewers into going on GLP-1s.
"They're being marketed very, very pointedly to groups that are vulnerable to experiencing body image dissatisfaction," she said.
Remi Bader, a curve model and TikTok creator specializing in documenting her "realistic" clothing buys, told one podcast her story of coming off a "few months" on Ozempic. She said she gained twice the weight back and that her binge eating disorder got "so much worse." One study, published in the journal Diabetes, Obesity and Metabolism, found two-thirds of lost weight came back after discontinuation of semaglutide.
But social media users and influencers — whether with white coats or ordinary patients — are hopping on every platform to spread news of positive weight loss outcomes. There are those, for instance, who had gastric bypass surgery that didn't work and are now turning to TikTok for guidance, support, and hope as they begin taking a GLP-1. There's even a poop-centric Facebook group in which people discuss the sometimes fraught topic of the drugs' effect on their bowel movements.
Commercialism and Compounding Spark Excitement and Concern
Some have been so delighted by their medication-assisted weight loss they have become brand ambassadors. Samantha Klecyngier has dropped at least 58 pounds since she started on Mounjaro. She heard of the drug and her telemedicine weight loss program, Sequence, on TikTok. She and many others who have experienced considerable weight loss since starting the medication regimen point to its positive impact and their improved quality of life. Now she officially promotes the company on the app.
Though Klecyngier, a mother of two from the Chicago area, is not diabetic, she uses Mounjaro. When she was growing up, her parents had Type 2 diabetes and other chronic diseases that led them both to have open-heart surgery. Her father lost his life to complications of diabetes. She wants to avoid that fate.
But Klecyngier's story — combining a personal journey with a profit-making entity — is symbolic of another trend on social media: commercialism. There's a spate of startups eyeing big money matching pharmaceuticals and related support with patients. (Sequence, the company Klecyngier pitches, just got acquired by WW, also known as WeightWatchers.)
Some doctors use social media to educate viewers about the drugs. Michael Albert, chief medical officer of telehealth practice Accomplish Health, says offering information to his more than 250,000 followers has helped point patients to the medical practice. It's received thousands of patient inquiries, more than the clinic can take on.
Companies like Accomplish — startups with well-credentialed doctors — are the glossy side of this social media boom.
But there are others — like many spas and weight loss centers — that offer the drugs, sometimes without much medical support, often alongside Botox and dermal fillers. Obesity doctors worry such marketing is creating unrealistic expectations.
Some spas and telemedicine operators claim to have "compounded" semaglutide. But compounding — when pharmacies, rather than drug manufacturers, prepare a drug — is a risky proposition, doctors caution. "The risks are enormous," Simonetti said, warning of potential contamination from poor compounding practices. "The risks of getting bacteria," she warned, "the risks include death."
Weight loss clinics also frequently tout unconventional additions to semaglutide, including vitamin B12 and amino acids. Some patients incorrectly believe the former helps with nausea, Jaisinghani said; other clinics tout greater weight loss.
Novo Nordisk spokesperson Allison Schneider told KFF Health News in an email that the company shares doctors' concerns about compounding and that it's begun sending letters warning "certain Health Care Providers" about the related risks.
Some operations defend their use of often-cheaper compounded drugs. LH Spa & Rejuvenation, founded by Zuena, offers a compounded semaglutide formulation from QRx Weight Loss for $500 over four weeks. The spa learned about the regimen from a doctor. "I'm purchasing it," Zuena said. "It comes next-day air in legitimate vials with lot numbers, expirations." Patients' injections and dosages are overseen by on-site medical staff.
Most operators in this burgeoning industry are keen to emphasize their products' high quality or their company's good works, as they seek money. Ro, a telehealth firm offering GLP-1s, said its marketing campaign in the New York City subway "aims to start an important, sometimes difficult, conversation focused on de-stigmatizing obesity as a condition."
This widespread tactic is nothing short of maddening for pharma industry critics. "They talk about trying to destigmatize obesity at the same time they're talking about losing weight. They're co-opting the concept," said Judy Butler, a research fellow at PharmedOut, a Georgetown University Medical Center project focusing on evidence-based practices for drugs. "They're trying to sell a weight loss drug."
Horizon says it has 20 drugs under development, in its 15 years of existence it has yet to license a product it invented.
This story was published on Thursday, April 13, 2023 in Kaiser Health News.
By Arthur Allen
The new drug looked so promising — except for that one warning sign.
At the American College of Rheumatology's annual meeting in 2008, Duke University's Dr. John Sundy proudly announced that pegloticase, a drug he'd helped develop, was astoundingly effective at treating severe gout, which affects perhaps 50,000 Americans. In about half of those who had taken it, the drug melted away the crystalline uric acid deposits that encrusted their joints to cause years of pain, immobility, or disfigurement.
But Sundy also disclosed an unsettling detail: In one clinical trial, patients who got the drug were more likely to develop heart problems than those who didn't. The day after Sundy's talk, the stock price of Savient Pharmaceuticals, which developed the drug with Duke scientists, plunged 75%.
That danger signal would disappear in later studies, and the FDA approved pegloticase, under the trade name Krystexxa, two years later.
But the small biotech company never recovered. In 2013, Savient was sold at auction to Crealta, a private equity venture created for the purpose, for $120 million.
Two years later, a young company now called Horizon Therapeutics bought Crealta and its drug portfolio for $510 million.
Even at that price, it proved a good deal. Krystexxa brought in $716 million in 2022 and was expected to earn $1 billion annually in coming years.
Although Horizon says it now has 20 drugs under development, in its 15 years of existence it has yet to license a product it invented. Yet the company has managed to assemble a war chest of lucrative drugs, in the process writing a playbook for how to build a modern pharmaceutical colossus.
As the White House and both parties in Congress grapple with reining in prescription drug prices, Horizon's approach reveals just how difficult this may be.
Horizon's strategy has paid off handsomely. Krystexxa was just one of the many shiny objects that attracted Amgen, a pharmaceutical giant. Amgen announced in December that it intends to buy Horizon for $27.8 billion, in the biggest pharmaceutical industry deal announced in 2022.
Horizon's CEO, Tim Walbert, who will reportedly get around $135 million when the deal closes, has mastered a particular kind of industry expertise: taking drugs invented and tested by other people, wrapping them expertly in hard-nosed marketing and warm-hued patient relations, raising their prices, and enjoying astounding revenues.
He's done this with unusual finesse — courting patients with concierge-like attention and engaging specialist clinicians with lunches, conferences, and research projects, all while touting his own experience as a patient with a rare inflammatory disease. Walbert's company has been particularly adept at ensuring that insurers, rather than patients, bear the costly burdens of his drugs.
A federal prosecutor in 2015 began examining allegations that Horizon's patient assistance program had worked with specialty pharmacies to evade insurers' efforts to shun Horizon's expensive drugs. A separate probe opened in 2019 over alleged kickbacks to pharmacy benefit managers, companies that negotiate to get Horizon's drugs covered by insurers. Those investigations appear to be no longer active, Horizon spokesperson Catherine Riedel said. The company this year disclosed a third probe, concerning methods the company allegedly used to get prior authorization of its drugs. Justice officials did not respond to requests for comment on the investigations.
An Injection of Marketing
To help sell its drugs, Horizon blankets specialist physicians with marketing and peer-to-peer appeals. Its payments to physicians for things like consulting, speeches, and meals totaled $8.7 million in 2021, compared with the $10 million it paid them for research, federal records show. By contrast, Seagen, a biotech company of roughly the same size, paid doctors a total of $116 million, with nearly $112 million of that pegged for research. Riedel said Horizon's marketing and educational approaches were "necessarily unique" because of the challenges of treating rare and neglected diseases.
Walbert launched Horizon in 2008 in the Chicago area by combining and refashioning generic drugs into single pills. Duexis, Horizon's first drug, is a mixture of generic Motrin and Pepcid. Its Vimovo combines generic Aleve and Nexium. In a 2017 article, a ProPublica reporter described being prescribed Vimovo for a shoulder injury. It cost him nothing, but his insurer was billed $3,252 for pills that together cost about $40 for a month's supply in generic form. Horizon sold more than $57 million worth of Vimovo that year.
In 2014 and 2015, respectively, Horizon picked up two relatively new drugs that had no generic versions: the immunosuppressant Actimmune and Ravicti, which treats a rare genetic disorder. Soon Horizon was charging more than $50,000 a month for each, placing Actimmmune fourth and Ravicti second on GoodRx's 2020 list of the most expensive U.S. drugs.
Horizon's net sales soared from $20 million in 2012 to $981 million in 2016; Walbert's pay package followed suit, topping an astronomical $93.4 million in 2015 in salary and stock. Stock analysts questioned the long-term soundness of a strategy of simply selling old drugs for mind-boggling prices, but Walbert was using the cash to refashion the company as a rare-diseases franchise.
His approach would make Walbert a darling of pharmaceutical investors and his board, which lavished him with over $20 million in compensation each of the past three years. While most biotechs and startups borrow heavily from venture capital to do science and have no idea how to develop and market a drug, Walbert got cash coming in quickly. "He did it backwards," said Annabel Samimy, an analyst at Stifel Financial Corp. "Horizon built commercial platforms before they got into drug development."
Generating "robust sales of what sounded like not very interesting drugs" allowed Walbert "to start a company on not very much," said Oppenheimer analyst Leland Gershell. All the while, Horizon fundedand cultivated the patient advocacy groups that can help lobby for a drug to be approved by the FDA and placed on insurers' formularies, the lists of drugs health plans cover for patients.
Capitalizing on His Own Illness?
As Walbert and his spokespeople often point out, Walbert and his youngest son suffer from a rare disease, and Walbert also has an autoimmune disease. Walbert won't name the diseases, but has said he's taken the anti-inflammatory injectable Humira since 2003 — the year he led that drug's commercial launch as a vice president at Abbott Laboratories. Humira has become the bestselling drug in history, with about $200 billion in all-time global sales.
In 2014, Walbert moved Horizon's headquarters to Ireland, which nearly halved its tax rate. A year later it gained control of Krystexxa, and in 2017 it bought, for $145 million, a failing company that produced Tepezza, a drug for thyroid eye disease, which causes unsightly eye bulging and pain.
Tepezza quickly became a blockbuster, with $3.6 billion in total sales in 2021 and 2022. The company conducted additional clinical research on both Tepezza and Krystexxa, but it also spent heavily promoting these and other drugs to specialists who could prescribe them.
Horizon's publicity emphasized the company's sensitivity to patients, and its constant contact with disease advocates.
"Our scientists are attuned to the unmet needs of patients, their diagnostic and therapeutic journey," Bill Rees, Horizon's vice president for translational sciences, told KFF Health News. "It's the marrying of the basic clinical science with a focus on the needs of the patient that differentiates us."
To make sure patients keep using its drugs, clinicians say, Horizon staffers negotiate with insurance carriers, and the company offers drug discounts to lower-income patients while swaddling them with attention from its medical staff.
"Horizon has a nurse talk to each and every patient before every appointment," said Dr. Brigid Freyne, who treats around half a dozen patients each year with Krystexxa at her Murrieta, California, rheumatology clinic. "The patients who come in here are highly motivated to get their IV. They get the message that it's very important and they are fortunate to get the medicine."
None of the manufacturers of her other infusion drugs shower patients with this kind of attention, she said.
While at Abbott, Walbert pioneered direct-to-consumer advertising for specialty drugs like Humira, a trend that aggravated insurers, who anticipated, correctly, that they would soon be shelling out billions for expensive drugs.
Horizon's marketing plan for Krystexxa includes direct-to-consumer ads aimed at driving patients to specialists. The drug is designed for recalcitrant gout patients, who often have large lumps on their fingers, feet, and kidneys. Many, though not all, are heavy drinkers of beer or soda sweetened with high-fructose corn syrup, which can increase the buildup of uric acid, the cause of gout, said Dr. Robert McLean of Yale University.
While Krystexxa can help patients with advanced gout, the American College of Rheumatology views it as a drug of last resort, with plenty of cheaper, early intervention alternatives available.
"I prescribe it maybe once a year," McLean said. "From a cost-effectiveness standpoint, it warrants questioning."
Horizon recently started a publicity campaign addressed to all gout sufferers, urging them to see a rheumatologist or a nephrologist — the specialists it has targeted with Krystexxa educational materials — before the disease does too much harm.
"Horizon would like you to say, ‘Everyone with serious gout should be started on Krystexxa,'" said Dr. James O'Dell, a rheumatologist at the University of Nebraska Medical Center. The Horizon pitchmen he deals with are "nice guys, but we don't believe that's the best way."
The company defends its marketing practices. "We learn what matters most to patient communities and act. This approach has been validated by independent third-party research," said Riedel.
The Federal Trade Commission said in January it was seeking more information on the Amgen-Horizon merger. Sen. Elizabeth Warren (D-Mass.), citing high prices for Horizon and Amgen drugs, urged the agency to nix the deal.
Hospitals argue that facility fees are needed to pay for staff and overhead expenses, particularly when hospitals don’t employ their own physicians. But consumer advocates say there’s no reason hospitals should charge more than independent clinics for the same services.
When Brittany Tesso’s then-3-year-old son, Roman, needed an evaluation for speech therapy in 2021, his pediatrician referred him to Children’s Hospital Colorado in Aurora. With in-person visits on hold due to the covid-19 pandemic, the Tessos met with a panel of specialists via video chat.
The specialists, some of whom appeared to be calling from their homes, observed Roman speaking, playing with toys, and eating chicken nuggets. They asked about his diet.
Tesso thought the $676.86 bill she received for the one-hour session was pretty steep. When she got a second bill for $847.35, she assumed it was a mistake. Then she learned the second bill was for the costs of being seen in a hospital — the equipment, the medical records, and the support staff.
“I didn’t come to your facility,” she argued when disputing the charges with a hospital billing representative. “They didn’t use any equipment.”
This is the facility fee, the hospital employee told her, and every patient gets charged this.
“Even for a telehealth consultation?” Tesso laughed in disbelief, which soon turned into anger.
Millions of Americans are similarly blindsided by hospital bills for doctor appointments that didn’t require setting foot inside a hospital. Hospitals argue that facility fees are needed to pay for staff and overhead expenses, particularly when hospitals don’t employ their own physicians. But consumer advocates say there’s no reason hospitals should charge more than independent clinics for the same services.
“If there is no change in patient care, then the fees seem artificial at best,” said Aditi Sen, a Johns Hopkins University health economist.
At least eight states agree such charges are questionable. They have implemented limits on facility fees or are moving to clamp down on the charges. Among them are Connecticut, which already limits facility fees, and Colorado, where lawmakers are considering a similar measure. Together, the initiatives could signal a wave of restrictions similar to the movement that led to a federal law to ban surprise bills, which took effect last year.
“Facility fees are simply another way that hospital CEOs are lining their pockets at the expense of patients,” said Rep. Emily Sirota, the Denver Democrat who sponsored the Colorado bill.
Generally, patients at independent physician clinics receive a single bill that covers the physician’s fee as well as overhead costs. But when the clinic is owned by a hospital, the patient generally receives separate bills for the physician’s fee and the facility fee. In some cases, the hospital sends a single bill covering both fees. Medicare reduces the physician’s payment when a facility fee is charged. But private health plans and hospitals don’t disclose how physician and facility fees are set.
Children’s Hospital Colorado officials declined to comment on the specifics of Tesso’s experience but said that facility fees cover other costs of running the hospital.
“Those payments for outpatient care are how we pay our nurses, our child life specialists, or social workers,” Zach Zaslow, senior director of government affairs for Children’s Hospital said in a February call with reporters. “It’s how we buy and maintain our imaging equipment, our labs, our diagnostic tests, really all of the care that you expect when you come to a hospital for kids.”
Research suggests that when hospitals acquire physician practices and hire those doctors, the physicians’ professional fees go up and, with the addition of facility fees, the total cost of care to the patient increases, as well. Other factors are in play, too. For instance, health plans pay the rates negotiated with the hospital, and hospitals have more market power than independent clinics to demand higher rates.
Those economic forces have driven consolidation, as hospital systems gobble up physician clinics. According to the Physicians Advocacy Institute, 3 in 4 physicians are now employed by hospitals, health systems, or other corporate entities. And less competition usually leads to higher prices.
One study found that prices for the services provided by physicians increase by an average of 14% after a hospital acquisition. Another found that billing for laboratory tests and imaging, such as MRIs or CT scans, rise sharply after a practice is acquired.
Patients who get their labs drawn in a hospital outpatient department are charged up to three times what they would pay in an office, Sen said. “It’s very hard to argue that the hospital outpatient department is doing that differently with better outcomes,” she said.
Hospital officials say they acquire physician practices to maintain care options for patients. “Many of those physician practices are not viable and they were having trouble making ends meet, which is why they wanted to be bought,” said Julie Lonborg, a senior vice president for the Colorado Hospital Association.
Along with Colorado and Connecticut, other states that have implemented or are considering limits on facility fees are Indiana, Minnesota, New Hampshire, Ohio, Texas, and Washington. Those measures include collecting data on what facility fees hospitals charge, prohibiting add-on fees for telehealth, and requiring site-neutral payments for certain Medicaid services. A federal bill introduced in 2022 would require off-campus hospital outpatient departments to bill as physician providers, eliminating the possibility of charging facility fees.
Connecticut has gone the furthest, banning facility fees for basic doctor visits off-campus, and for telehealth appointments through June 2024. But the law’s application still has limitations, and with rising health care costs, the amount of facility fees in Connecticut continues to increase.
“It hasn’t changed much, partly because there’s so much money involved,” said Ted Doolittle, who heads the state’s Office of the Healthcare Advocate. “They can’t just painlessly take that needle out of their arm. They’re addicted to it.”
The Colorado bill would prohibit facility fees for primary care visits, preventive care services that are exempted from cost sharing, and telehealth appointments. Hospitals would also be required to notify patients if a facility fee would apply. The ban would not apply to rural hospitals. The bill was scaled back from a much broader proposal after criticism from hospitals about its potential consequences.
Rural hospital executives, like Kevin Stansbury, CEO of Lincoln Health, a small community hospital in the eastern Colorado town of Hugo, had been particularly worried about the impact of a fee ban. The state hospital association estimated his hospital would lose as much as $13 million a year if facility fees were banned. The 37-bed hospital’s netted $22 million in patient revenue last year, resulting in a loss. It stays open only through local taxes, Stansbury said.
“This will still harm access to care — and especially essential primary and preventive care that is helping Coloradans stay healthier and out of the hospital,” Lonborg said of the revised approach. “It will also have a detrimental impact on access to specialty care through telehealth, which many Coloradans, especially in rural parts of the state, have come to depend on.”
The Colorado bill presents particular challenges for health systems such as UC Health and Children’s Hospital, which rely on the University of Colorado School of Medicine for staffing. For outpatient appointments, the medical school bills for the doctor’s fee, while the hospital bills a facility fee.
“The professional fee goes solely to the provider, and, very frequently, they’re not employed by us,” said Dan Weaver, vice president of communications for UC Health. “None of that supports the clinic or the staff members.”
Without a facility fee, the hospital would not receive any payment for outpatient services covered by the ban. Weaver said the combination of the clinicians’ and facility fees is often higher than fees charged in independent clinics because hospitals provide extra services that independent physician clinics cannot afford.
“Prohibiting facility fees for primary care services and for telehealth would still cause significant problems for patients throughout our state, forcing some clinics to close, and causing patients to lose access to the care they need,” he said.
Backers of the Colorado bill disagree.
“The data on their costs and their revenue paints a little different picture of their financial health,” said Isabel Cruz, policy manager for the Colorado Consumer Health Initiative, which backs the bill.
From 2019 through 2022, UC Health had a net income of $2.8 billion, including investment gains and losses.
The Colorado market is dominated by large health systems that can dictate higher rates to health plans. Plans pass on those costs through higher premiums or out-of-pocket costs.
“Unless the employers and patients that are incurring the prices are raising the alarm, there really isn’t a strong incentive for health plans to push against this,” said Christopher Whaley, a health care economist with the nonprofit think tank Rand Corp.
Consumer complaints helped pave the way for the federal No Surprises Act, which protects against unanticipated out-of-network bills. But far more people get hit with facility fees — about half of patients compared with 1 in 4 hospital patients who receive surprise bills, Whaley said.
Dr. Mark Fendrick, a University of Michigan health policy professor, said facility fees are also generally surprises but don’t fall under the definition of the No Surprises Act. And with the rise of high-deductible plans, patients are more likely to have to pay those fees out-of-pocket.
“It falls on the patient,” Fendrick said. “It’s a tax on the sick.”
Tesso held off paying the facility fee for her son’s visit as long as possible. And when her pediatrician again referred them to Children’s Hospital, she called to inquire what the facility fee would be. The hospital quoted a price of $994, on top of the doctor’s fee. She took her son to an independent doctor instead and paid a $50 copay.
Dr. Jacqui O'Kane took a job with a hospital in southern Georgia in 2020, as the lone doctor in a primary care clinic in a small town that's a medically underserved area. She soon attracted nearly 3,000 patients.
But she said the hospital pressed her to take more new patients, so she had to work nights and weekends — not ideal for the mother of two young daughters. She thought about opening her own practice in town, which would give her more control over her schedule.
The problem was that her three-year contract included a noncompete clause barring her from practicing within 50 miles of the hospital for two years after it ended.
So, she has decided to join a practice in South Carolina. That means she and her husband will sell their house, move hundreds of miles, and enroll their children in a new school.
"It sucks," she said. "I know my patients very well, and I feel like I'm being forced to abandon them. But I can't stay in this job because it's unhealthy for me to work this much."
In January, the Federal Trade Commission proposed to end predicaments like O'Kane's by prohibiting noncompete clauses in employment contracts. "The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," said Lina Khan, the FTC chairperson.
The proposed rule would prohibit employment contract provisions that block employees or contractors from working for a competing employer when they move on, or from starting a competing business. Such contracts typically bar people from working within a certain geographic area for a period after the job ends.
The FTC estimates that 30 million workers are bound by noncompete clauses. It says ending those provisions would boost economic competition, reduce prices, and increase workers' earnings overall by up to $296 billion a year.
Eliminating noncompete contracts would allow doctors to practice wherever their services are needed, which would improve patients' access to care. They say it would free them to speak out about unsafe conditions for patients, since they wouldn't have to worry about getting fired and not being able to continue working in their community.
But the FTC's proposal faces resistance from employers in all industries, including hospitals and private equity-backed medical groups that employ thousands of physicians, nurse practitioners, and other medical professionals.
It's about money for them, too. They say eliminating noncompetes would drive up the cost of hospital care because hospitals would have to pay physicians more to keep them. They also say noncompete clauses are necessary to protect proprietary information and investments in employee training, and to prevent employees from taking clients and patients with them when they leave.
Business and hospital groups are likely to sue to block the rule, arguing that Congress hasn't authorized the commission to regulate noncompete clauses. While there is bipartisan support in Congress for legislation that would restrict noncompete clauses and authorize FTC action, the bill hasn't advanced; similar legislation stalled in past years.
Health care industry groups hope to block any change with the argument that the FTC lacks statutory authority to regulate nonprofit, or tax-exempt, hospitals, which account for nearly 60% of all U.S. community hospitals. In the proposed rule, the FTC acknowledged that entities not conducting business for profit may not be subject to the rule because they are exempt from coverage under the Federal Trade Commission Act, the law that gives the agency its authority.
"The rule would create an unlevel playing field because we compete with nonprofit and public hospitals that wouldn't be subject to it," said Chip Kahn, CEO of the Federation of American Hospitals, which represents for-profit hospital systems.
But other experts aren't sure the FTC lacks authority over nonprofits. While the FTC Act exempts nonprofits, the commission has acted many times under the Sherman Act and the Clayton Act, federal antitrust laws used to block anti-competitive conduct by nonprofit hospital systems. It's not clear whether the FTC will clarify this issue before it finalizes the rule.
"We fully support having the noncompete ban apply to all hospitals," said Dr. Jonathan Jones, president of the American Academy of Emergency Medicine, half of whose members are bound by noncompetes.
California, North Dakota, and Oklahoma already ban enforcement of noncompete clauses for all employees, while six other states prohibit enforcement of noncompete clauses for physicians. Even in states without bans, judges have invalidated noncompetes when they found them to be overbroad or unreasonable.
But it can cost tens of thousands of dollars in legal fees to challenge a noncompete clause, and other employers may not want to take the risk of hiring a person in the middle of a legal fight, said Luke Campbell, a Seattle attorney who represents physicians.
The FTC rule also would bar the use of nondisclosure or training repayment agreements in employment contracts if they functioned as de facto noncompetes.
Hospitals often require nurses to sign training repayment agreement provisions, called TRAPs, which nursing groups say lock nurses into jobs by demanding they pay as much as $20,000, for what's essentially job orientation, if they leave before two years. National Nurses United, a labor union, wants the FTC to explicitly prohibit TRAPs.
As of last year, nearly three-quarters of all U.S. physicians were employed by hospital systems or other companies, with many working under noncompete agreements. A 2018 survey found that nearly half of primary care physicians in California, Illinois, Georgia, Pennsylvania, and Texas were bound by noncompetes.
Private equity-owned staffing firms such as TeamHealth, Envision Healthcare, and Sound Physicians, which provide emergency physicians and other medical professionals to work in hospitals, commonly use noncompete provisions. None of those three companies agreed to talk about their employment contracts. As for-profit employers, noncompete clauses in their contracts clearly would be barred even if their employees were working in nonprofit hospitals.
Hospitals, insurers, and physician-owned medical groups also use noncompetes in employing doctors and other medical professionals.
Hospital-based doctors — emergency physicians, anesthesiologists, hospitalists, radiologists, and pathologists — refute the industry's argument that they would take patients or proprietary information with them.
"We don't have any trade secrets and we don't have the capability of stealing patients because we don't have our own patient referral base," said Dr. Robert McNamara, the chair of emergency medicine at Temple University.
Instead, he said, noncompetes are a way for the physician staffing firms to lock in their contracts with hospitals. "The private equity group can say to the hospital, ‘You might not like what we're doing, but if you get rid of us, every single one of your doctors must be replaced,'" McNamara said.
Dr. Vanessa Urbina, a general practice physician in central Florida, also worries about the impact on patients. She left a corporate-owned medical practice in Altamonte Springs last year because of what she said was an abusive environment. Hobbled by a noncompete agreement she signed forbidding her from practicing within 15 miles of the clinic, she opened her own primary care clinic in rural Mount Dora, 19 miles away.
She had to stay in the area because of a child custody agreement. Fighting the noncompete cost her $25,000 in legal fees and lost income. Even though she now must drive farther to transport her daughter to school and back, she's happier in her new practice. But she's angry she can't take care of her former patients.
"They forced me to abandon my patients," she said. "Now they have to wait three months for an appointment. Noncompetes should be illegal."