State lawmakers passed sweeping changes in the 1990s that consigned association health plans to near extinction. The Trump administration aims now to revive them.
Just a few decades ago, small businesses in California often banded together to buy health insurance on the premise that a bigger pool of enrollees would get them a better deal.
California’s dairy farmers did it; so did car dealers and accountants.
But after a string of these “association health plans” went belly up, sometimes in the wake of fraud, state lawmakers passed sweeping changes in the 1990s that consigned them to near extinction.
Now, President Donald Trump wants to promote a renaissance of these health plans and make it easier for them to operate across state lines — with less regulation. In a recent executive order, Trump directed the Department of Labor to look into ways to “allow more small businesses to avoid many of the [Affordable Care Act’s] costly requirements.”
Because the plans would do business in more than one state, they could “figure out a way to pull back some authority states have,” said Kevin Lucia, senior research professor at Georgetown University’s Center on Health Insurance Reforms.
That does not sit well in California, where key state policymakers warn that weaker regulation of these plans could destabilize the small-employer and individual markets, which have gained important consumer protections under the ACA and state health laws — including minimum benefit levels.
“President Trump is trying to loosen those rules, and return us to the bad old days” that were disastrous for consumers, said California Insurance Commissioner Dave Jones. Tens of thousands of consumers were “left in the lurch” without insurance when their associations folded, and millions of dollars in medical claims went unpaid, he said.
In the 1980s and 1990s, association plan failures hit a number of small businesses, affecting employees across industries. Thousands of farmworkers suffered when a plan created by Sherman Oaks-based Sunkist Growers collapsed. When Irvine-based Rubell-Helms Insurance Services went out of business, it reportedly left $10 million in medical claims unpaid.
In 1995, California banned a common form of health care associations known as multiple employer welfare arrangements, or MEWAs, in which small businesses jointly purchased health coverage in the same way Trump is now proposing. The plans that already existed at the time could remain in business as long as they met certain financial requirements.
That ban followed “decades of bad experience,” said Jones.
But some business groups say that these plans offer companies flexibility in the face of state regulations that add cost and administrative burdens.
“Small-business owners are being pummeled,” said Tom Scott, California director of the National Federation of Independent Business. The looser regulations could save businesses thousands of dollars a year, he said.
Still, California lawmakers said they will do everything they can to prevent these plans from bypassing state regulations.
State Sen. Ed Hernandez (D-West Covina), chairman of the Senate Health Committee, said he will consider legislation to ban the sale of policies that don’t meet minimum benefit requirements.
“I’m committed to do everything I can to make sure we don’t go backward to having skinny plans in the state,” he said. Consumers need to be guaranteed coverage with robust health benefits and a cap on out-of-pocket expenses, he added.
Policy experts say the impact of Trump’s plan will depend on the precise details, which are still being considered by the Department of Labor. But Trump has suggested he wants the association plans to be treated the same as large-employer insurance, which would free them from regulations that govern the benefits they offer.
Supporters of the idea argue that the greater flexibility on benefits, plus the bargaining clout that comes with size, would lower the cost of these plans, providing relief to small employers hit by rising health care costs and state taxes.
“It’s very, very easy and it’s very competitive,” said Jack Stoughton, CEO of Los Angeles-based Stoughton Printing Co., which produces 12-inch record jackets for vinyl records by bands such as Led Zeppelin and Wilco.
His workers receive health benefits through one of the few remaining MEWAs in California.
The plan “saves me money; it certainly saves me time,” he said.
But Beth Capell, a longtime health care consumer lobbyist, said these cheaper plans compromise the quality of health coverage for small-business employees and individuals.
“There was a fairly concerted outcry” to get rid of association health plans in the 1990s, and they should not be resurrected, Capell said. “They were a bad idea then; they are a bad idea now. It [feels] like déjà vu all over again.”
Deborah Kelch, director of the Insure the Uninsured Project in Sacramento, said state officials banned new MEWAs in the 1990s because they feared the associations would siphon off healthy people, leaving many small businesses with sicker and costlier enrollees — and higher premiums. The legislative changes from the 1990s helped ensure that the remaining MEWAs stayed afloat, she said.
Today, only four MEWAs remain in California, covering about 150,000 employees and their dependents. The enrollees say the model works.
Stoughton’s employees have received health benefits through a MEWA since the mid-1990s.
His roughly 50 workers have a choice of three insurance carriers — Kaiser Permanente, Health Net and Blue Shield — and the association acts as an intermediary between the employees and the insurers. (Kaiser Health News is not affiliated with Kaiser Permanente.)
The Printing Industries Association Inc. of Southern California, a trade association for printers, administers the insurance for Stoughton’s business. That allows him to limit his human resources staff to half of a full-time employee, he said.
“We want to be able to concentrate on what we do. We don’t want to shop around” for health insurance, he said.
The greatest number of association health plan members in California are in agriculture. Two farm trade groups, UnitedAg and Western Growers, offer farmers health care that they say caters to their unique workforce, which includes a large number of Spanish-speaking immigrants.
Kirti Mutatkar, CEO of UnitedAg, which covers 700 agricultural businesses and 43,000 members through its association, says her company doesn’t offer “cookie-cutter” health coverage.
UnitedAg offers free telemedicine and 10 free clinic visits in some of its plans, she said. It has bilingual customer support services and a network of doctors in Mexico. The members of the board include UnitedAg health plan enrollees, who have a say in what their health coverage looks like.
“This model works unbelievably well for us,” said A.J. Cisney, general manager of Rancho Guadalupe, which grows fruit and broccoli on California’s Central Coast. “If UnitedAg could take their brand of administering health care to other areas, I can’t see the downside.”
But that would be anathema to actuaries and health insurers, who worry about competing with more lightly regulated plans. They say the proliferation of such plans could undermine consumer protections and increase the potential for the kind of health insurance fraud that plagued many of the old association plans.
But Scott, of the National Federation of Independent Business, does not believe past is necessarily prologue.
The violations were 'widespread, systemic in nature,' and they posed a 'serious threat to members' health and safety,' according to an internal report.
In early October, an executive at one of the nation’s largest physician-practice management firms handed her bosses the equivalent of a live grenade — a 20-page report that blew up the company and shook the world of managed care for poor patients across California.
For years, she wrote, SynerMed, a behind-the-scenes administrator of medical groups and managed-care contracts, had improperly denied care to thousands of patients — most of them on Medicaid — and falsified documents to hide it.
The violations were “widespread, systemic in nature,” according to the confidential Oct. 5 report by the company’s senior director of compliance, Christine Babu. And they posed a “serious threat to members’ health and safety,” according to the report, which was obtained by Kaiser Health News.
Days later, someone sent the report — labeled as a “draft” — anonymously to California health officials. Within weeks, state regulators had launched an investigation, major health insurers swept in for surprise audits, the company’s chief executive announced the firm would close and doctors’ practices up and down the state braced for a tumultuous transition to new management.
Jennifer Kent, California’s health services and Medicaid director, said her agency received the whistleblower’s report Oct. 8 and, working with health plans, confirmed “widespread deficiencies” at SynerMed, which manages the care of at least 650,000 Medicaid recipients in the state.
“I think it’s pretty egregious actions on the part of that company,” Kent said in an interview this week.
In a Nov. 17 order issued to insurers, state Medicaid officials said “members are currently in imminent danger of not receiving medically necessary health care services” due to SynerMed’s conduct. The state ordered insurers to determine how many enrollees experienced delayed or unfulfilled services.
Consumer advocates expressed alarm at the whistleblower’s findings and questioned why these problems went undetected for so long. Some said it underscores a lack of accountability among companies involved in Medicaid managed care — which receive billions in taxpayer dollars and have expanded significantly under the Affordable Care Act.
Linda Nguy, a policy advocate at the Western Center on Law and Poverty in Sacramento, called the situation “outrageous.”
“It raises questions about oversight by the state and the health plans,” she said.
Many states face regulatory challenges as they increasingly outsource Medicaid, handing over vast sums of public money to the private sector. Nationally, about 55 million Medicaid patients are enrolled in managed care, which represents nearly 75 percent of total enrollment, according to consulting firm Health Management Associates.
Besides managing care for Medicaid patients, SynerMed also oversaw managed care services for people on Medicare and commercial insurance — 1.2 million patients in all. Physician groups it managed have contracts with most of the state’s largest insurers, such as Health Net, Anthem and Blue Shield of California.
SynerMed, founded in 2001 and based in the Los Angeles area, served as a key middleman in the managed-care industry between health plans and independent physician practices, and its role only grew after Medicaid was expanded under the ACA. Most, if not all, of the patients whose care it managed were in California.
Under Medicaid managed care, the government pays a fixed rate per patient to health plans, whose job is to coordinate patient care effectively and efficiently. In this case, health plans passed a share of their money — along with the financial risk of a fixed budget — to physician practices under SynerMed management.
As is typical in the managed-care industry, SynerMed and the physician practices could pocket whatever money they did not spend on patients and other expenses.
The whistleblower’s report does not address what the motivation was for falsifying denial letters to patients — except to note that the small team of employees felt intense pressure from their supervisors to clear a backlog of paperwork dating back months.
But Babu made clear that this was not a rogue operation. The methods they used were outlined in written training materials and knowledge of the procedures extended at least as high as a senior vice president, she wrote. After her investigation, other top executives were informed of her findings.
According to the report, she became aware of the problems in late September when a compliance manager heard about an employee falsifying a patient letter for an upcoming health plan audit.
Through interviews with sometimes tearful staffers, Babu wrote, she learned that an overworked team routinely fabricated denial letters without supervision from doctors or others with clinical training. The report suggested some cases were reviewed by medical personnel, but “staff members who are not clinicians could drastically misrepresent the medical director’s instructions.”
Some employees interviewed said they did not know what they did was wrong and said they were fearful of their bosses. One supervisor told Babu that these practices at SynerMed had persisted for many years and “that it had become normal for her,” according to the internal report.
Patients in Medicaid managed care and commercial plans are entitled to a written denial notice within two business days of the decision, giving them the ability to appeal to their health plan and then to regulators. Industry-wide, treatment denials were overturned in nearly 70 percent of all medical review cases handled by the state last year.
But the compliance department found that affected patients were not properly informed, and the violations “resulted in thousands of members unaware of their appeal rights going back years past. As such, members may experience delays in care, lapse in coverage, delay in access to care and or financial hardship.”
The denial letters fabricated by employees to satisfy auditors often were not sent to patients, according to Babu’s internal investigation. Employees also used software to backdate faxes to doctors’ offices to suggest physicians were informed promptly and properly about the denials.
The compliance investigation focused on activities at SynerMed and didn’t address what occurred at physician offices, so it is unclear what doctors knew and what patients actually were told when care was not authorized.
Babu said that “the severity of the conduct is magnified by the fact that a large number of SynerMed’s patient population is low-income, and likely unable to afford medical services not covered by their insurance.”
In her report, Babu said she felt threatened and pressured to drop the matter during conversations with her boss, the general counsel and chief compliance officer. That person is identified elsewhere in the report as Renee Rodriguez.
During a meeting in her office on Oct. 3, Babu said “it seemed as if [Rodriguez] was trying to convince me to drop the case.”
The following day, Babu wrote “there is a likelihood that they [leadership of SynerMed] would terminate me. … I indicated that I would not stop fighting for what is just, and that I was prepared to involve the authorities as I now felt uneasy about everything.”
Babu couldn’t be reached for comment. Rodriguez didn’t return calls.
In a Nov. 6 email to employees, SynerMed’s chief executive, James Mason, said the company was shutting down. In a statement Wednesday to Kaiser Health News, apparently in reference to Babu, he said: “It is unfortunate that one of our employees jumped the gun and disclosed confidential information regarding our clients and members.”
Mason said the company suspended “this individual immediately so we could investigate exactly what information was transmitted,” including whether it included confidential patient information. That person and others were later laid off, he said, as health plan auditors stepped in and the company's operations wound down.
He said the company took the allegations seriously and quickly investigated them.
In a separate statement, SynerMed’s chief medical officer, Dr. Jorge Weingarten, did not directly address whether rules were broken. Instead he emphasized that the company had protocols in which "all denials on the basis of medical necessity must be made by licensed physician or a licensed health care professional who is competent to evaluate the specific request."
Health plans that contract with SynerMed’s medical groups condemned the alleged wrongdoing and said they were committed to helping any patients who may have been affected.
“There was a pattern of deception this organization was willing to engage in that raises integrity questions about the entire operation,” said John Baackes, chief executive of L.A. Care Health Plan. “For them it was better to cheat than follow the rules. We take it extremely seriously, particularly when lives are at stake in terms of getting timely access to care.”
Anthem Blue Cross, the nation’s second-largest health insurer, said some physician groups will be terminating their contracts with SynerMed due to the allegations. The company said it’s working closely with state officials and physicians “to ensure a smooth transition for all of our members affected by these changes.”
State Medicaid officials said health plans, at their own cost, also must collectively hire an independent firm to monitor activities at SynerMed during its shutdown to ensure an orderly transition and “retention of records.”
Nearly 11 million people in California’s Medi-Cal program, or 80 percent, are enrolled in managed-care plans, rather than the traditional fee-for-service system.
SynerMed billed itself as “one of the largest Medicaid/Medicare management service organizations in the nation.” Given its size and growing stature, insurers, doctors and regulators were caught off guard by the company’s sudden change of fortune.
“SynerMed has been at the forefront in how Medicaid expansion has moved forward in California,” said Bill Barcellona, senior vice president for government affairs at CAPG, a national trade group for physician organizations.
Unlike in private health insurance and Medicare Advantage, Barcellona said, Medicaid managed care is more dependent on smaller physician groups that are less organized.
“SynerMed figured out they could create scale to provide some of the necessary infrastructure,” he said. “It has grown tremendously, and this has been a shock and a real setback.”
The trend of converting hospitals to new uses has accelerated as real estate values have soared in many U.S. cities. Demand for inpatient beds, meanwhile, has declined.
When Laura Kiker rented a new apartment in September a few blocks from the U.S. Capitol in Washington, she knew she was moving into a historical neighborhood.
She had no idea, though, that her new home at 700 Constitution Ave. Northeast was a former hospital dating back nearly a century.
Today, she loves living in what used to be a patient room, in a four-story building with wide hallways, high ceilings and restored post-World War II-style architecture. A spacious rooftop deck, yoga studio and indoor dog wash are added bonuses for Kiker, and her dog, Stella. “There is so much history in this town, it's nice to live in a place that has its own,” said Kiker, 30, a management consultant.
Across the country, hospitals that have shut their doors are coming back to life in various ways: as affordable senior housing, as historical hotels and as condos, including some costing tens of millions in the heart of New York’s Greenwich Village.
A wing of Specialty Hospital Capitol Hill found new life as an apartment house at 700 Constitution Ave. Northeast — reflecting its storied architecture. (Courtesy Borger Management)
The trend of converting hospitals to new uses has accelerated as real estate values have soared in many U.S. cities. At the same time, the demand for inpatient beds has declined, with the rise of outpatient surgery centers and a move toward shorter hospital stays.
As health systems consolidate for financial reasons, they might prefer that patients visit their flagship hospital while buildings related to smaller hospitals in their orbit get sold off — especially if the latter have a disproportionate share of indigent patients.
David Friend, chief transformation officer at the consulting firm BDO in Boston, noted that real estate is one of urban hospitals’ most valuable assets. “A hospital could be worth more dead than alive,” he said.
The number of hospitals in the U.S. has declined by 21 percent over the past four decades, from 7,156 in 1975 to 5,627 in 2014, according to the latest federal data.
Even when the conversions make medical sense, they pull at the heartstrings of communities whose residents have an emotional attachment to hospitals where family members were born, cured or died. But they sometimes create health deserts in their wake.
St. Vincent’s Hospital in New York treated survivors of the Titanic’s sinking in 1912, the first AIDS patients in the 1980s and victims of the 9/11 terrorist attacks in 2001, went bankrupt and closed seven years ago. Developer Rudin Management bought it for $260 million and transformed it into a high-end condo complex, which opened in 2014. Earlier this year, former Starbucks CEO Howard Schultz reportedly bought one of the condos for $40 million.
New York's St. Vincent's Hospital, a Greenwich Village institution for 160 years, closed permanently on April 30, 2010, after an unsuccessful search to find a way out of its estimated $700 million debt. It was transformed into luxury town homes. (Photo by Mario Tama/Getty Images)
Developers turned the old St. Vincent’s Hospital site into town houses, some of which sell for tens of millions of dollars today. (Courtesy of Greenwich Lane)
Jen van de Meer, an assistant professor at the Parsons School for Design in New York, who lives in the neighborhood, said residents’ protests about the conversion were not just about the optics of a hospital that had long served the poor being repurposed. “Now, if you are in cardiac arrest, the nearest hospital could be an hour drive in a taxi or 20 minutes in an ambulance across the city,” van de Meer said.
St. Vincent’s is one of at least 10 former hospitals in New York City that have been turned into residential housing over the past 20 years.
What’s next, a pet-icure? Leo gets pampered at the indoor dog wash at 700 Constitution, a hospital-turned-apartment house in Washington, D.C. (Phil Galewitz/KHN)
Closing a hospital and converting it to another use is not exactly like renovating an old Howard Johnson’s, said Jeff Goldsmith, a health industry consultant in Charlottesville, Va. “A hospital in a lot of places defines a community — that’s why it’s so hard to close them,” said Goldsmith, who noted that after Martha Jefferson Hospital closed its downtown facility in 2009 to move closer to the interstate highway, an apartment building took its place.
But many older hospitals are too outmoded to be renovated for today’s medical needs and patient expectations. For example, early 20th-century layouts cannot accommodate large operating room suites and private rooms, said Friend.
Real estate investors say the location of many older hospitals — often in city centers near rail and bus lines — makes them attractive for redevelopment. The buildings, with their wide hallways and high ceilings, are often easy to remake as luxury apartments.
Spurring Development
In some circumstances, a conversion provides a much-needed lift for the community. New York Cancer Hospital, which opened on Central Park West in 1887 and closed in 1976, was an abandoned and partially burned-out hulk by the time it was restored as a condo complex in 2005. Developer MCL Companies paid $24 million for the property, branded 455 Central Park West.
“The building itself is fantastic and a landmark in every sense of the word,” said Alex Herrera, director of technical services at the New York Landmarks Conservancy. He noted that it retained some of its original 19th-century architecture.
The Eastern Dispensary Casualty Hospital, shown here in 1936, was founded in 1888 in southeast Washington, D.C. It eventually was developed into Specialty Hospital Capitol Hill. (Courtesy Library of Congress)
Nicky Cymrot, president of the Capitol Hill Community Foundation in Washington, D.C., a neighborhood group, said that when Specialty Hospital Capitol Hill sold off a little-used 100,000-square-foot wing of its facility that became 700 Constitution, neighbors weighed in with concerns about aesthetics and traffic. The building was first known as Eastern Dispensary Casualty Hospital, which opened in 1905.
But by the time the condominium opened early this year after a five-year, $40 million renovation, the response was positive.
Sophie White, 28, who moved into 700 Constitution this summer, watched the building’s transformation and renovation from a rental property a few blocks away. “It used to be a blight on the neighborhood with unsavory people milling around it,” she said. “Now, it’s a bright spot and with its dog park out front, it's really a cool place to live.”
Nearly half of the 139-unit building, where one-bedroom apartments rent for nearly $2,600 per month, is already leased. Asked why former hospitals are being bought and redeveloped as housing: “It’s all about location, location, location,” said Terry Busby, CEO of Arlington-based Urban Structures.
Columbia Hospital for Women, in the heart of Washington, D.C., was built in 1915 and shuttered in 2002. (Courtesy of Library of Congress)
The developer paid more than $30 million for the old hospital property and turned it into an upscale 225-unit luxury condominium community near George Washington University. (Courtesy of Trammell Crow Company)
Likewise Columbia Hospital for Women, which had delivered more than 250,000 babies since it opened shortly after the Civil War, closed in 2002 and reopened in 2006 as condos with a rooftop swimming pool in the city’s fashionable West End.
Some former hospitals are used for purposes other than housing.
In Santa Fe, N.M., St. Vincent Hospital moved into a new facility in 1977 and the old structure downtown was reborn as a state office building. Later, it was abandoned and locals listed it as one of the spookiest places in town. In 2014, the building reopened yet again as the 141-room Drury Plaza Hotel.
‘A Building With Tremendous History’
After Linda Vista Community Hospital, in L.A.’s Boyle Heights neighborhood, closed in the 1990s, the abandoned six-story building fell into disrepair — its empty patient rooms, discarded medical equipment and aging corridors serving as sets for movies such as “Pearl Harbor” and “Outbreak.” Amcal Multi-Housing Inc. bought the property in 2011 and redeveloped it into a low-income senior apartment house called Hollenbeck Terrace.
In 2011, the six-story Linda Vista Community Hospital in East Los Angeles was transformed into apartments for seniors. (Courtesy Amcal Multi-Housing Inc.)
The developer aimed to preserve some of the historical charm of the old hospital building in the Hollenbeck Terrace design. (Heidi de Marco/KHN)
“They really rescued a building with tremendous history … while providing really needed low-income senior housing,” said Linda Dishman, CEO of the Los Angeles Conservancy, a group dedicated to preserving and revitalizing historical structures. “It is such an iconic building in the neighborhood.”
Every November, like clockwork, she gets the same letter, said Dr. Lindsay Irvin, a pediatrician in San Antonio.
It’s from the drug company Pfizer Inc., and it informs her that the price tag for the pneumococcal vaccine Prevnar 13 is going up. Again.
And it makes her angry.
“They’re the only ones who make it,” she said. “It’s like buying gas in a hurricane — or Coke in an airport. They charge what they want to.”
The Advisory Committee on Immunization Practices (ACIP), a consultatory panel to the federal Centers for Disease Control and Prevention, recommends Prevnar 13 for all children younger than 2 — given at 2, 4, 6 and 15 months — as well as for adults 65 and older.
It protects against pneumonia as well as ear and other infections. Many states require proof that children have received the vaccine in order to attend school.
The vaccine’s formulation has remained mostly unchanged since its 2010 federal approval, but its price continues creeping up, increasing by about 5 or 6 percent most years. In just eight years, its cost has climbed by more than 50 percent.
It is among the most expensive vaccines Irvin provides her young patients.
Doctors and clinics purchase the vaccine and then, once they inject patients, they typically recoup the cost through patients’ insurance coverage. In most cases there are no out-of-pocket costs.
But the steady rise in prices for branded drugs contributes indirectly to rises in premiums, deductibles and government health spending, analysts say.
A full pediatric course of the vaccine typically involves four shots. In 2010, a single shot cost about $109, according to pricing archives kept by the CDC. It currently costs about $170, according to those archives. Next year, Pfizer says, a shot will cost almost $180.
“Pfizer and other drug companies are raising their prices because they can,” said Gerard Anderson, a health policy professor at Johns Hopkins University who studies drug pricing. “They have a patent, and they have a CDC recommendation, which is a double whammy — and a strong incentive for price increases.”
The company disagrees — arguing vaccine pricing supports research for new immunizations, along with ongoing efforts to keep products safe and to improve effectiveness. For instance, Prevnar 13’s shelf life was extended from two years to three years this year. Pricing also doesn’t affect access.
“Thanks to comprehensive health authority guidelines, Prevnar 13 is one of the most widely available public health interventions, supported by broad insurance coverage and innovative federal programs that guarantee access to vulnerable populations,” Pfizer spokeswoman Sally Beatty said in an email.
But such arguments don’t justify the pattern of “consistent price increases,” suggested Ameet Sarpatwari, an epidemiologist and lawyer at Harvard Medical School, who studies drug policy.
“Does that explain what’s going on? Probably not,” he said. “The onus should be on them to show us why this is needed.”
Consumers are not likely to feel a pinch from these increases directly. The Affordable Care Act requires that ACIP-recommended vaccines are covered by insurance, with no cost sharing.
There are other implications, though.
Higher vaccine prices make it harder for physicians to stock up, noted Michael Munger, a family doctor in Overland Park, Kan., and president of the American Academy of Family Physicians.
They have to buy immunizations in advance to provide them for patients. Insurance will eventually reimburse them — typically at cost — but it can take months for that to come through, which is an especially tough proposition for small practices on tight budgets.
“You’ve got to keep track of your inventory, and make sure you don’t have any waste, and are going to get adequate reimbursement,” he said. “The cost of vaccines is definitely something in primary care we worry about, because we’re on thin margins. … You don’t want to provide a service you lose money on, even if it’s as important as immunization.”
Gardasil, the HPV vaccine, has also seen its price climbing. And, in a similar response, OB-GYNs are providing it in smaller numbers.
A vaccine like Prevnar 13 is harder to make than older vaccines that are much cheaper, said William Moss, a professor at Johns Hopkins Bloomberg School of Public Health who specializes in vaccines and global children’s health. It provides immunization for 13 different variations of pneumococcal infection. That makes it a more effective vaccine, but also one that requires greater investment.
Critics, however, note that those investments were made by another company, Wyeth Pharmaceuticals. Pfizer bought Wyeth in 2009, along with the rights to the vaccine.
About 40% of the nation's hospitals are participating in the drug discount program. A planned cut to its funding could shutter some of them, advocates warn.
A 25-year-old federal drug discount program has grown so big and controversial that it faces a fight for survival as federal officials and lawmakers furiously debate the program’s reach.
The program, known as 340B, requires pharmaceutical companies to give steep discounts to hospitals and clinics that serve high volumes of low-income patients.
The Centers for Medicare & Medicaid Services struck a blow to the program this month announcing a final rule to cut Medicare payments for hospitals enrolled in the program by 28 percent, or about $1.6 billion. The American Hospital Association, the Association of American Medical Colleges, America’s Essential Hospitals and others filed suit on Nov. 13, arguing that the agency lacks the authority to slash the payments and that the rule undermines the intent Congress had when creating the program.
Several federal reports in recent years from the Medicare advisory board, as well as the Government Accountability Office and the Office of Inspector General, have evaluated 340B’s explosive growth. About 40 percent of the hospitals in the U.S. now buy drugs through the program, according to the 2015 GAO report.
Richard Sorian, of the hospital lobbying group 340B Health, said that for some small, rural hospitals the funding cut “could actually be the difference between staying open and closing.”
Northeast Ohio’s largest safety-net hospital, MetroHealth System in Cleveland, said it would see an $8 million cut in Medicare reimbursements.
In trying to explain the importance of that funding, Dr. Benjamin Li, a MetroHealth cancer surgeon, said that if the 340B program were to disappear “some of our cancer patients will not be able to have lifesaving care.”
In contrast, those supporting the cut, including drugmakers, argue that the program has grown beyond its original intent because hospitals have pocketed the discounts to pad profits — not to help indigent patients.
Stephen Ubl, president of the drug industry group PhRMA, said the program “needs fundamental reform” and that the latest rule change is merely a good first step. His group, which has deep pockets and an advertising campaign geared at pinpointing the program’s flaws, has a list of changes that Congress and the Trump administration could tackle. Those include limiting which hospitals should be eligible for 340B price breaks and making sure needy patients benefit when hospitals buy discounted drugs.
The day after the hospital groups filed suit, Joe Grogan, director of health programs at the White House’s Office of Management and Budget, called 340B “really screwed up,” according to Politico, and said the Trump administration isn’t afraid to take on the program. “We are not wimps.” Grogan led a White House task force last summer that proposed scaling back the program.
The hospitals — often the biggest employers in a congressional district — are ready for a fight. The American Hospital Association launched an advertising campaign. And hundreds of members of Congress signed a letter defending the program. On Nov. 14, two House lawmakers introduced a bill that would prevent CMS from implementing the proposed rule.
Under 340B, named after the section of the Public Health Service Act that authorizes it, eligible hospitals buy drugs at a discount from the pharmaceutical companies and then are reimbursed for those purchases from Medicare. The drugs are purchased under the Part B program, which covers expensive chemotherapy and other treatments in a hospital, doctor’s office and clinics.
The hospitals make money on the spread, using it to improve the financial stability of the hospital.
In comment letters to federal officials, a range of hospitals from St. Cloud, Minn., to Kalamazoo, Mich., said the new rule would cost them hundreds of thousands of dollars.
Yet, even as concerns arise around the impact of the cuts and a legal battle plays out, Congress has heightened scrutiny of the program. The House Energy and Commerce Committee held two hearings over the past few months, examining how hospitals use money made on 340B drugs. A key question for lawmakers was how much the patients benefited.
The new rule, according to CMS Administrator Seema Verma, addressed that concern — albeit indirectly.
While the actual price of drugs will not be lower under the rule, Verma said beneficiaries will save an estimated $320 million a year on copayments. Medicare patients typically are responsible for a percentage of coinsurance on their prescriptions. The lowered Medicare reimbursement means that an enrollee’s coinsurance would be lower at 340B hospitals because Medicare would pay hospitals less for the drug.
In one example the administration provided, if Medicare reimburses a participating hospital $2,000 a month for an individual drug, a beneficiary would save over $100 on their out-of-pocket share.
Dr. Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York, agreed.
“If Medicare reduces the reimbursement amount, that will directly reduce what the patients pay,” Bach said. “Patients will see lower prices.”
Allan Coukell, senior director for health programs at the Pew Charitable Trusts, said the change in how Medicare spends its money may have broader, unintended consequences for the health care system. Patients may change providers, seeking lower copays. Or, conversely, hospitals may drop out of the program because of lower reimbursements.
“The long-term impact of such a shift is unknown,” Coukell said, adding that one thing is certain: Fewer hospitals participating in the program simply “transfers the 340B revenue from the provider to the manufacturer.”
The 340B program wasn’t always so controversial. The bill, signed by Republican President George H.W. Bush in 1992, once had bipartisan support.
“Everyone loved the program. That’s why Congress expanded it on three separate occasions,” recalled William von Oehsen, who helped lobby for the initial law and is a founder of the hospital group 340BHealth. Most recently, the program was expanded under the Affordable Care Act in 2010.
“There was never any concern about its size until, basically, pharma decided it had gotten too big and started investing in a public relations and lobbying campaign to reform it,” von Oehsen said, adding, “We just don’t have the money they have, and it’s kind of discouraging.”
State laws passed to protect consumers in some situations largely ignore ground ambulance rides, which can stick patients with bills in the hundreds or even thousands of dollars.
One patient got a $3,660 bill for a 4-mile ride. Another was charged $8,460 for a trip from one hospital that could not handle his case to another that could. Still another found herself marooned at an out-of-network hospital, where she’d been taken by ambulance without her consent.
These patients all took ambulances in emergencies and got slammed with unexpected bills. Public outrage has erupted over surprise medical bills — generally out-of-network charges that a patient did not expect or could not control — prompting 21 states to pass laws protecting consumers in some situations. But these laws largely ignore ground ambulance rides, which can leave patients stuck with hundreds or even thousands of dollars in bills, with few options for recourse, finds a Kaiser Health News review of 350 consumer complaints in 32 states.
Patients usually choose to go to the doctor, but they are vulnerable when they call 911 — or get into an ambulance. The dispatcher picks the ambulance crew, which, in turn, often picks the hospital. Moreover, many ambulances are not summoned by patients. Instead, the crew arrives at the scene having heard about an accident on a scanner, or because police or a bystander called 911.
Betsy Imholz, special projects director at the Consumers Union, which has collected over 700 patient stories about surprise medical bills, said at least a quarter concern ambulances.
"It’s a huge problem," she said.
Forty years ago, most ambulances were free for patients, provided by volunteers or town fire departments using taxpayer money, said Jay Fitch, president of Fitch & Associates, an emergency services consulting firm. Today, ambulances are increasingly run by private companies and venture capital firms. Ambulance providers now often charge by the mile and sometimes for each “service,” like providing oxygen. If the ambulance is staffed by paramedics rather than emergency medical technicians, that will result in a higher charge — even if the patient didn’t need paramedic-level services. Charges range widely from zero to thousands of dollars, depending on billing practices.
The core of the problem is that ambulance and private insurance companies often can't agree on a fair price, so the ambulance service doesn’t join the insurance network. That leaves patients stuck in the middle with out-of-network charges that are not negotiated, Imholz said.
This happens to patients frequently, according to one recent study of over half a million ambulance trips taken by patients with private insurance in 2014. The study found that 26 percent of these trips were billed on an out-of-network basis.
That figure is "quite jarring," said Loren Adler, associate director for the USC-Brookings Schaeffer Initiative and co-author of recent research on surprise billing.
The KHN review of complaints revealed two common scenarios leaving patients in debt: First, patients get in an ambulance after a 911 call. Second, an ambulance transfers them between hospitals. In both scenarios, patients later learn the fee is much higher because the ambulance was out-of-network, and after their insurer pays what it deems fair, they get a surprise bill for the balance, also known as a “balance bill.”
The Better Business Bureau has received nearly 1,200 consumer complaints about ambulances in the past three years; half were related to billing, and 46 mentioned out-of-network charges, spokeswoman Katherine Hutt said.
While the federal government sets reimbursement rates for patients on Medicare and Medicaid, it does not regulate ambulance fees for patients with private insurance. In the absence of federal rules, those patients are left with a fragmented system in which the cost of a similar ambulance ride can vary widely from town to town. There are about 14,000 ambulance services across the country, run by governments, volunteers, hospitals and private companies, according to the American Ambulance Association.
(Heidi de Marco/KHN)
For a glimpse into the unpredictable, fragmented system, consider the case of Roman Barshay. The 46-year-old software engineer, who lives in Brooklyn, N.Y., was visiting friends in the Boston suburb of Chestnut Hill last November when he took a nasty fall.
Barshay felt a sharp pain in his chest and back and had trouble walking. An ambulance crew responded to a 911 call at the house and drove him 4 miles to Brigham and Women's Hospital, taking his blood pressure as he lay down in the back. Doctors there determined he had sprained tendons and ligaments and a bruised foot, and released him after about four hours, he said.
After Barshay returned to Brooklyn, he got a bill totaling $3,660 — which is $915 for each mile of the ambulance ride. His insurance had paid nearly half, leaving him to pay the remaining $1,890.50.
"I thought it was a mistake," Barshay said.
But Fallon Ambulance Service, a private company, was out-of-network for his UnitedHealthcare insurance plan.
“The cost is outrageous," said Barshay, who reluctantly paid the $1,890.50 after Fallon sent it to a collection agency. If he had known what the ride would cost, he said, he would at least have been able to refuse and "crawl to the hospital myself."
"You feel horribly to send a patient a bill like that," said Peter Racicot, senior vice president of Fallon, a family-owned company based outside Boston.
But ambulance companies are "severely underfunded" by Medicare and Medicaid, Racicot said, so Fallon must balance the books by charging higher rates for patients with private insurance.
Racicot said his company has not contracted with Barshay's insurer because they couldn't agree on a fair rate. When insurers and ambulance companies can't agree, he said, "unfortunately, the subscribers wind up in the middle."
It's also unrealistic to expect EMTs and paramedics at the scene of an emergency to determine whether the company takes a patient's insurance, Racicot added.
Ambulance services have to charge enough to subsidize the cost of keeping crews ready around-the-clock even if no calls come in, said Fitch, the ambulance consultant. In a third of the cases where an ambulance crew answers a call, he added, they end up not transporting anyone and the company typically isn’t reimbursed for the trip.
In part, Barshay had bad luck. If the injury had happened just a mile away inside Boston city limits, he could have ridden a city ambulance, which would have charged $1,490, according to Boston EMS, a sum that his insurer probably would have covered in full.
Very few states have laws limiting ambulance charges, and most state laws that protect patients from surprise billing do not apply to ground ambulance rides, according to attorney Brian Werfel, consultant to the American Ambulance Association. And none of the state surprise-billing protections applies to people with self-funded employer-sponsored health insurance plans, which are regulated only by federal law. That's a huge exception: 61 percent of privately insured employees are covered by self-funded employer-sponsored plans.
Some towns that hire private companies to respond to 911 calls may regulate fees or prohibit balance billing, Werfel said, but each locality is different.
Insurance companies try to protect patients from balance billing by negotiating rates with ambulance companies, said Cathryn Donaldson, spokeswoman for America's Health Insurance Plans. But "some ambulance companies have been resistant to join plan networks" when insurance companies offer Medicare-based rates, she said.
Medicare rates vary widely by geographic area. On average, ambulance services make a small profit on Medicare payments, according to a report by the U.S. Government Accountability Office. If a patient uses a basic life support ambulance in an emergency, in an urban area, for instance, Medicare payments range from $324 to $453, plus $7.29 per mile. Medicaid rates tend to be significantly lower.
There's evidence of "waste and fraud" in the ambulance industry, Donaldson added, citing a 2015 study from the Office of Inspector General at the U.S. Department of Health and Human Services. The report concluded Medicare paid over $50 million in improper ambulance bills, including for supposedly emergency-level transport that ended at a nursing home, not a hospital. One in 5 ambulance services had "questionable billing practices," the report found.
Most complaints reviewed by Kaiser Health News did not appear to involve fraudulent charges. Instead, patients got caught in a system in which ambulance services can legally charge thousands of dollars for a single trip — even when the trip starts at an in-network hospital.
Devin Hall of Brentwood, Calif., is fighting a $7,110 bill from American Medical Response for an out-of-network ambulance ride. He has spent months calling the hospital, his insurer and the ambulance provider trying to resolve the matter. “These charges are exorbitant — I just don’t think what AMR is doing is right,” Hall says. (Heidi de Marco/KHN)
That’s what happened to Devin Hall, a 67-year-old retired postal inspector in Northern California. While he faces stage 3 prostate cancer, Hall is also fighting a $7,109.70 out-of-network ambulance bill from American Medical Response, the nation’s largest ambulance provider.
On Dec. 27, 2016, Hall went to a local hospital with rectal bleeding. Since the hospital didn’t have the right specialist to treat his symptoms, it arranged for an ambulance ride to another hospital about 20 miles away. Even though the hospital was in-network, the ambulance was not.
Hall was stunned to see that AMR billed $8,460 for the trip. His federal health plan, the Special Agents Mutual Benefit Association, paid $1,350.30 and held Hall responsible for $727.08, records show. The health plan paid that amount because AMR's charges exceeded its Medicare-based fee schedule, according to its explanation of benefits. But AMR turned over his case to a debt collector, Credence Resource Management, which sent an Aug. 25 notice seeking the full balance of $7,109.70.
“These charges are exorbitant — I just don’t think what AMR is doing is right,” said Hall, noting that he had intentionally sought treatment at an in-network hospital.
He has spent months on the phone calling the hospital, his insurer and AMR trying to resolve the matter. Given his prognosis, he worries about leaving his wife with a legal fight and a lien on their Brentwood, Calif., house for a debt they shouldn’t owe.
After being contacted by Kaiser Health News, AMR said it has pulled Hall’s case from collections while it reviews the billing. After further review, company spokesman Jason Sorrick said the charges were warranted because it was a “critical care transport, which requires a specialized nurse and equipment on board.”
Sorrick faulted Hall’s health plan for underpaying, and said Hall could receive a discount if he qualifies for AMR’s “compassionate care program” based on his financial and medical situation.
“In this case, it appears the patient’s insurance company simply made up a price they wanted to pay,” Sorrick said.
In July, a California law went into effect that protects consumers from surprise medical bills from out-of-network providers, including some ambulance transport between hospitals. But Hall’s case occurred before that, and the state law doesn’t apply to his federal insurance plan.
Hall, a retired postal inspector in Northern California, receives radiation treatment for his stage 3 prostate cancer in October 2017. (Heidi de Marco/KHN)
Given his prognosis, Hall says he worries about leaving his wife with a legal fight and a lien on their Brentwood, Calif., house for a debt they shouldn’t owe. (Heidi de Marco/KHN)
The consumer complaints reviewed by Kaiser Health News reveal a wide variety of ways that patients are left fighting big bills:
An older patient in California said debt collectors called incessantly, including on Sunday mornings and at night, demanding an extra $500 on top of the $1,000 that his insurance had paid for an ambulance trip.
Two ambulance services responded to a New Jersey man’s 911 call when he felt burning in his chest. One charged him $2,100 for treating him on the scene for less than 30 minutes — even though he never rode in that company's ambulance.
A woman who rolled over in her Jeep in Texas received a bill for a $26,400 "trauma activation fee" — a fee triggered when the ambulance service called ahead to the emergency department to assemble a trauma team. The woman, who did not require trauma care, fought the hospital to get the fee waived.
In other cases, patients face financial hardship when ambulances take them to out-of-network hospitals. Patients don’t always have a choice in where to seek care; that’s up to the ambulance crew and depends on the protocols written by the medical director of each ambulance service, said Werfel, the ambulance association consultant.
Sarah Wilson, a 36-year-old microbiologist, had a seizure at her grandmother’s house in rural Ohio on March 18, 2016, the day after having hip surgery at Akron City Hospital. When her husband called 911, the private ambulance crew that responded refused to take her back to Akron City Hospital, instead driving her to an out-of-network hospital that was 22 miles closer. Wilson refused care because the hospital was out-of-network, she said. Wilson wanted to leave. But “I was literally trapped in my stretcher," without the crutches she needed to walk, she said. Her husband, who had followed by car, wasn't allowed to see her right away. She ended up leaving against medical advice at 4 a.m. She landed in collections for a $202 hospital bill for a medical examination, which damaged her credit score, she said.
Ken Joseph, chief paramedic of Emergency Medical Transport Inc., the private ambulance company that transported Wilson, said company protocol is to take patients to the "closest appropriate facility." Serving a wide rural area with just two ambulances, the company has to get each ambulance back to its station quickly so it can be ready for the next call, he said.
Patients like Wilson are often left to battle these bills alone, because there are no federal protections for patients with private insurance.
Rep. Lloyd Doggett (D-Texas), who has been pushing for federal legislation protecting patients from surprise hospital bills, said in a statement that he supports doing the same for ambulance bills.
Meanwhile, patients do have the right to refuse an ambulance ride, as long as they are over 18 and mentally capable.
"You could just take an Uber," said Adler, of the Schaeffer Initiative. But if you need an ambulance, there's little recourse to avoid surprise bills, he said, "other than yelling at the insurance company after the fact, or yelling at the ambulance company."
According to the emails between Halford and the patients and extensive interviews with the participant, Halford did not procure written informed consent as required by federal law when testing a live virus on humans.
Three years before launching an offshore herpes vaccine trial, an American researcher vaccinated patients in U.S. hotel rooms in brazen violation of U.S. law, a Kaiser Health News investigation has found.
Southern Illinois University associate professor William Halford administered the shots himself at a Holiday Inn Express and a Crowne Plaza Hotel that were a 15-minute drive from the researcher’s SIU lab. Halford injected at least eight herpes patients on four separate occasions in the summer and fall of 2013 with a virus that he created, according to emails from seven participants and interviews with one participant.
The 2013 experiments raise further questions of misconduct by Halford, who pursued a herpes vaccine for years while working at Southern Illinois University, which claims to have been unaware of his unorthodox research practices.
Halford, who died this summer from cancer, ran a clinical trial out of a house on St. Kitts in 2016 to test the experimental vaccine and did not alert U.S. or St. Kitts and Nevis authorities.
Following a KHN report that Halford completed the 2016 trial with no independent safety oversight, the Department of Health and Human Services demanded the university account for the research.
SIU, in an initial response to U.S. authorities, said the university’s institutional review board found “serious noncompliance with regulatory requirements and institutional policies and procedures.”
SIU, like many universities receiving federal research funds, pledged to follow U.S. standards for all clinical trials.
In 2013, Halford, who was a microbiologist not a physician, noted a need for secrecy in one email to a participant, writing that it would be “suicide” if he became too public about how he was conducting his research.
Many email exchanges with participants in 2013 — asking them to send photographs of rashes, blisters and other reactions — were sent from Halford’s university email account. He used the university phone for communication and he referred to a graduate student as assisting in the experiment and to using the lab.
“Furtive unregulated live virus vaccine injections in a Holiday Inn? This is really, really out there,” said Jonathan Zenilman, a doctor and an expert on sexually transmitted diseases at Johns Hopkins University. “Someone in the university had to know that this stuff was going on. If they didn’t, they should have.”
According to the emails between Halford and the patients and extensive interviews with the participant, Halford did not procure written informed consent as required by federal law when testing a live virus on humans. Medical researchers, such as Halford, may not inject patients without oversight by a physician or a nurse practitioner, Zenilman said.
SIU refused to comment on revelations about Halford’s 2013 experiments.
It has previously said it had no role or responsibility for Halford’s work in 2016 in the Caribbean. The university has maintained it didn’t know about the offshore trial because he pursued that through Rational Vaccines, a company the professor co-founded in 2015.
But criticism has been raised about the university’s ties to Halford’s commercial venture.
SIU, based in Springfield, Ill., shared in a patent on the prospective vaccine with Rational Vaccines, which was formed to market and research the product. The university promoted Halford’s vaccine research on its website. And when a company owned by Peter Thiel, a supporter of President Donald Trump’s, invested millions of dollars into the research this April, SIU publicly trumpeted Halford and Rational Vaccines.
The Food and Drug Administration, which oversees the safety of vaccine research in the U.S., declined to comment on the 2013 experiments. It previously declined comment on the 2016 trial.
Since Halford’s death in June, several participants who received the vaccine in 2013 and 2016 have told KHN they have informed the university about what they fear may be side effects from the vaccine.
One participant who says he received the injections in Illinois fears that the vaccine, which contains a live virus, may have given him a new and different type of herpes he did not have, a scenario that experts who reviewed his medical details for KHN said was possible.
In recent weeks, that participant from Texas and a woman from Colorado who took part in the St. Kitts trial have separately electronically reported to the FDA their possible side effects, also known as “adverse events.”
They said SIU and the FDA have not adequately addressed their inquiries.
“It makes me angry that Halford went ahead with the offshore trial anyway,” said the man from Texas who did not want to be publicly identified because of the sensitive nature of his disease. “I hope more people weren’t hurt.”
Rational Vaccines has vowed to proceed with the research. The company, founded by Halford and Hollywood filmmaker Agustín Fernández III, has said it considers the 2016 trial a success — though it is unclear what data it used to support that claim. In a statement, Rational Vaccines said that Fernández was not involved with Halford’s work before the company was formed but that Fernández was aware of “individuals who experienced positive outcomes from the vaccine.”
“Their stories are what sparked Mr. [Fernández’] future involvement,” the company stated. It did not address specific questions from KHN about the 2013 injections.
A representative for billionaire PayPal co-founder Thiel did not respond to questions about his investment in the vaccine. Thiel and other backers share libertarian political views that are critical of the FDA’s regulations.
The 2013 emails and interview with a participant show Halford began unregulated human experiments while working as an associate professor in the medical school’s department of microbiology.
The Texas patient said he first learned of Halford’s work through a members-only Facebook account. According to the emails, one woman helped Halford recruit patients and organize injections. This woman identified herself to KHN in an email as a herpes patient who was injected with Halford’s vaccine. She claims she was cured as a result.
KHN attempted to contact the other participants who received injections in 2013. They either declined to comment or did not respond.
In the emails, Halford describes some of his methods, including that he was varying the doses — as well as the number of shots. He communicated regularly with participants using a familiar tone.
“Just wanted to pass along that I immunized someone with the higher dose of the HSV-2 vaccine on Monday, and I attach the photos of the injection site at 48 hours to give you and everyone else an idea of what to expect …” he wrote on Sept. 19, 2013. “This individual requested that I give him two immunizations to double the effect … one immunization per leg.”
“Everyone’s vaccines contained ~150 million infectious units of the HSV-2 vaccine strain …” Halford wrote four days later, on Sept. 23, saying the first injection of the group represented about a thirty- to fortyfold increase over what others had received in August 2013.
In the same email, Halford said he believed the experiments were important to demonstrating that his vaccine worked.
“Saturday Sept. 21 definitely represents a milestone in my career,” he wrote. “Don’t know how it will turn out, but I undoubtedly feel like this was a real test of the (a) safety / tolerability of the HSV-2 vaccine and (b) an opportunity to see if it has any therapeutic potential.
“I am indebted to all of you.”
Halford also refers to using his university’s resources in the emails.
“My lab currently consists of myself and 1 graduate student and anything I do with you guys or your blood is extra and on top of what I get paid to do …,” he wrote in a Nov. 3, 2013, email. “If my graduate student gets to it before I do, I will pass along the results.” Attempts by KHN to reach the graduate student, who was not named in the email, were unsuccessful.
When discussing the possible effects of the vaccine in emails dated Oct. 2, 2013, Halford openly speculated about possible results, calling his analysis “nothing more than an educated guess.”
“The proof is in the pudding … let’s see if your problems with outbreaks dial back or not.”
The participants treated Halford with deference and were eager to receive the injections, the emails show.
The Texas man said he did not know how the trial was financially supported, adding that Halford wouldn’t accept money from participants because, as he told them, “it would get him in more trouble if he was ever caught.”
But Halford told participants they could donate money to SIU for his research, the Texas man said. SIU has confirmed that it set up a business account for donations to Halford, but the university has refused to say how the money was used.
In the emails, the participants, who ranged in age from their 20s to 50s, were enthusiastic about the potential for the vaccine and freedom from often excruciating chronic symptoms. “I do believe [it’s] safe,” the Texas man wrote Halford on Sept. 15.
But months later, on Feb. 24, 2014, he said, he was frightened by a reaction to the vaccine, after his second shot. “I got a large rash on my leg and it burned and swelled,” he wrote to Halford. “… then a blister popped up.”
The Texas man has HSV-1, which usually emerges in sores on the face. Halford’s vaccine was a weakened version of HSV-2, which is genital herpes, according to descriptions he uses in the emails. “I did not think the HSV-2 vaccine strain would be capable of reactivation, but perhaps I will have to reconsider that,” Halford wrote in response in an email.
Anna Wald, a leading herpes expert at the University of Washington, said Halford should have informed the Texas man before testing that he was vulnerable to having side effects because he had a different herpes virus type than the vaccine Halford prepared.
Wald said Halford’s research — without oversight — jeopardized the patients.
“We’re not allowed to do this to guinea pigs in this country let alone human subjects,” Wald said.
But Wald said she could understand the participants’ desire for a chance at a cure. “People underestimate how desperate people with genital HSV are,” she said. “This is what drives even the possibility of a study such as Halford’s.”
SIU continues to be under scrutiny. Jerry Kruse, the dean of SIU’s medical school, responded to the HHS inquiry into the 2016 trial on Oct. 6 and indicated that the university has more to discover.
In his letter, obtained by KHN under the Freedom of Information Act, the dean said “if deemed necessary, SIU will develop an effective corrective action plan.” Some of the letter is redacted.
Several participants from both trials told KHN they have asked SIU for help.
The Colorado woman from the 2016 trial who reported a possible side effect from the vaccine to the FDA said she found university officials “dismissive.”
One participant, a Californian in his 30s, said he wanted the university to continue the vaccine work with safety oversight while “taking responsibility” for any improprieties.
SIU did not adequately address his questions, and he said: “It was obvious they want nothing to do with us.”
In the absence of new federal policies to tame break-the-bank drug prices, Massachusetts’ state Medicaid program hopes to road-test an idea both radical and market-driven. It wants the power to negotiate discounts for the drugs it purchases and to exclude drugs with limited treatment value.
“This is a serious demonstration proposal,” said Sara Rosenbaum, a health policy expert and professor at George Washington University. “They’re not simply using [this idea] as an excuse to cut Medicaid. They’re trying to take a step toward efficiency.”
If the Department of Health and Human Services approves the Bay State’s plan, others will likely take similar action. According to the most recent federal data, Medicaid spending on prescription drugs increased about 25 percent in 2014 and nearly 14 percent in 2015.
Currently, state Medicaid programs are required to cover almost all drugs that have received Food and Drug Administration approval, including multiple drugs from different manufacturers used for the same purpose and in the same category. In exchange, manufacturers must discount those drugs — typically based on a set percentage of the list price, specified by federal law. The idea is Medicaid’s vulnerable beneficiaries get medications they need and the state doesn’t go broke paying for them.
As drug prices soar, states say, those fractional rebates no longer suffice to defray the burden of rising costs.
Take, for instance, the hepatitis C cures released in recent years. The price tags come in tens or even hundreds of thousands of dollars and — even after rebates — have cost Medicaid billions. In turn, some states tried to restrict access, so only the sickest patients could get the drugs. Advocates filed suit in response and won based on the argument that such limits violated Medicaid’s statutory drug benefit.
State officials contend that the current Medicaid rebate system may encourage drug price inflation, since a set percentage of a higher price yields a greater profit. Also, the legal requirement to cover most prescriptions leaves little wiggle room to negotiate a better price.
So, Massachusetts wants to go a different route, requesting a federal exemption known as a Section 1115 waiver, which is meant to let states test ways of improving Medicaid. It wants to pick which drugs it covers based on most beneficiaries’ medical needs and which medicines demonstrate the highest rates of cost effectiveness.
It says it will be able to negotiate better prices as a result, saving public dollars while maintaining patients’ access to needed therapies.
The federal Centers for Medicare & Medicaid Services, which will ultimately approve or reject Massachusetts’ proposal, has no deadline for its decision. A Massachusetts spokeswoman said officials are pushing for an answer by year’s end.
Already, though, the pitch is turning heads.
“This is absolutely something a lot of other states are looking very closely at,” said Matt Salo, executive director of the National Association of Medicaid Directors.
If the request is approved, agreed Jane Horvath, a senior policy fellow at the National Academy for State Health Policy, other states would follow suit “in about five minutes.”
Critics worry this change could make it harder for low-income people to get needed medications, without necessarily providing them an alternative. In the past decade, though, it has become commonplace for people with commercial insurance to have limited drug choices — meaning only those medicines listed on a plan’s formulary are covered.
The Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry’s trade group, has already lodged its displeasure, saying this would limit consumer access and is unnecessary on top of the rebates Medicaid programs receive.
“The pharmaceutical industry has a reputation for being litigious. This would be a big deal for them,” said Andy Schneider, a Medicaid expert at Georgetown University, who worked at CMS under the Obama administration. If CMS approves the waiver, analysts said, the industry would likely sue, though PhRMA wouldn’t comment on potential legal action.
But federal approval is no sure thing.
On one hand, the Trump administration has encouraged states to test changes that would run Medicaid more like a private insurance plan. Through that frame, Massachusetts’ approach seems a logical fit. Though a formal strategy has not been released, President Donald Trump has said his administration intends to bring drug prices “way down.”
On the other hand, analysts said, CMS’ decision-making regarding waivers has proven unpredictable. The agency declined to comment beyond confirming it was reviewing Massachusetts’ request.
It’s clear why states are interested. On average, between 25 and 30 percent of state budgets go to Medicaid, and program directors across the country identify rising drug costs as a major contributor to spending increases, according to a recent survey by the Kaiser Family Foundation. (Kaiser Health News is an editorially independent program of the foundation.)
In Massachusetts, Medicaid accounts for about 40 percent of the state’s budget. Prescription-drug spending has in the past seven years more than doubled — from about $917 million in 2010 to about $1.94 billion last year, according to figures provided by the state health department.
If the waiver is approved, the state’s Medicaid program would cover at least one medication per therapeutic class — that is, per specific medical need.
It also would have an appeals process for people to get their off-formulary drugs covered, if they’re medically necessary.
Number crunchers say it’s hard to estimate what this would save. It depends on how the state negotiates, how industry responds and what the program covers. The potential result is significant, though.
“You’d have to be foolish not to consider this,” said Ameet Sarpatwari, an epidemiologist and lawyer at Harvard Medical School, who studies drug pricing and related legislation.
But consumer groups worry about Medicaid’s low-income beneficiaries, even as they acknowledge that rising drug costs are unsupportable for state budgets.
“The Medicaid population is different from the commercially insured — they’re more vulnerable and have a lot more going on in their lives, and are generally poorer. So they have fewer resources to try to get the services and prescription drugs they need,” said Suzanne Curry, associate director of policy and government relations at Health Care For All, a Massachusetts-based advocacy group.
Although Massachusetts, a state with a long history of innovation, has committed to making sure patients get needed medicine, “you have to ask what will real-world implementation looks like,” said Benjamin Sommers, an associate professor of health policy and economics at Harvard’s public health school. Appeals processes, he noted, can be onerous or restrictive.
And even if Massachusetts receives federal approval, it still couldn’t challenge the cost of certain expensive drugs that are the only offering in their therapeutic class. For instance, Spinraza, which treats the rare but debilitating disease of spinal muscular atrophy, has a price tag of $750,000 for an initial year of treatment. With no therapeutic equivalent, it would still have to be covered.
But states are desperate to push back in new ways and however they can. “We have seen in the past year … drugs that have almost bankrupted state budgets,” Sarpatwari said. “There will be many other states that will be interested in following this lead.”
Sutter Health intentionally destroyed 192 boxes of documents that employers and labor unions were seeking in a lawsuit that accuses the giant Northern California health system of abusing its market power and charging inflated prices, according to a state judge.
In a ruling this week, San Francisco County Superior Court Judge Curtis E.A. Karnow said Sutter destroyed documents “knowing that the evidence was relevant to antitrust issues. … There is no good explanation for the specific and unusual destruction here.”
Karnow cited an internal email by a Sutter employee who said she was “running and hiding” after ordering the records destroyed in 2015. “The most generous interpretation to Sutter is that it was grossly reckless,” the judge wrote in his 12-page ruling.
Sutter, which has 24 hospitals and nearly $12 billion in annual revenue, said the destruction was a regrettable mistake.
Employers and policymakers across the country are closely watching this legal fight amid growing concern about the financial implications of industry consolidation. Large health systems are gaining market clout and the ability to raise prices by acquiring more hospitals, outpatient surgery centers and physician offices.
"It’s stunning what Sutter did to cover up incriminating documents in this case," said Richard Grossman, the lead plaintiffs’ lawyer representing a class of more than 1,500 employer-funded health plans.
In April 2014, a grocery workers’ health plan sued Sutter and alleged it was violating antitrust and unfair competition laws. The plaintiffs began requesting documents related to contracting practices, such as "gag clauses” that prevent patients from seeing negotiated rates and choosing a cheaper provider and "all-or-nothing” terms that require every facility in a health system to be included in insurance networks.
Sutter disputes the broader allegations in the lawsuit over its market conduct and said its charges are in line with its competitors'.
The judge said that in 2015 Melissa Brendt, Sutter’s chief contracting officer in the managed-care department, and an assistant general counsel, Daniela Almeida, authorized Brendt’s executive assistant to destroy 10 years' worth of managed-care documents going back to 1995. The company earlier had scheduled the documents to be destroyed in 2035 — 20 years later.
The executive assistant, Sina Santagata, testified in a deposition she wasn’t aware of any other time in her 17 years at Sutter when the managed-care department destroyed records held in storage.
In his Nov. 13 ruling against Sutter, the judge singled out an email by Santagata as "particularly noteworthy.”
The executive assistant emailed Brendt, the chief contracting officer, on July 30, 2015, after sending the order to destroy the records. She wrote, "I’ve pushed the button … if someone is in need of a box between 3/15/95 & 11/23/05 … I’m running and hiding. … ‘Fingers crossed’ that I haven’t authorized something the FTC will hunt me down for.”
The Federal Trade Commission (FTC) enforces antitrust laws in health care to prevent hospitals, drugmakers and other industry players from engaging in anti-competitive behavior that could harm consumers.
Santagata testified that she was being "sarcastic” in her email, and Sutter told the judge that the FTC reference was just a "joke.”
Karnow saw no humor in it. "There are infinite topics for jokes, and the choice of this one is strong evidence” in the plaintiffs’ favor, he wrote in his order Monday.
As part of his sanctions against Sutter, the judge ordered the health system to examine email backup tapes covering 2002 through 2005 to search for documents on some of the same topics as the destroyed records. Also, Karnow said he will consider a plaintiffs’ motion for issuing jury instructions that are adverse to Sutter in light of the document destruction. The trial is scheduled for June 2019.
"The record shows that Sutter’s conduct was more than just an inadvertent error,” Karnow wrote.
Sutter spokeswoman Karen Garner said the incident was a "mistake made as part of a routine destruction of old paper records” and the Sacramento-based health system disclosed the error as soon as it was discovered.
"We regret that as part of a routine archiving process we failed to preserve some boxes of decades-old hard-copy documents,” Garner said.
The United Food and Commercial Workers and its Employers Benefit Trust initially filed the case against Sutter in 2014. The joint employer-union health plan represents more than 60,000 employees, dependents and retirees. The court certified the case as a class action in August, allowing hundreds of other employers and self-funded health plans to potentially benefit from the litigation.
In addition to its 24 hospitals, Sutter’s nonprofit health system has 35 surgery centers and more than 5,000 physicians in its network. It reported $11.9 billion in revenue last year and income of $554 million.
Grossman, the plaintiffs’ counsel, said he welcomed the judge’s ruling. But he said much of the evidence is irreplaceable, particularly handwritten notes from negotiating sessions and meetings involving key Sutter executives.
He said those records covered a critical period in the early 2000s when there was a "sea change in Sutter’s contracting strategy” and it implemented provisions that insulated the health system from price competition.
"This was groundbreaking in the industry,” Grossman said. "Until we address the anti-competitive behavior of entities like Sutter, we will not solve the problem of high costs in health care.”
The plaintiffs are seeking to recover hundreds of millions of dollars from Sutter from what it claims are illegally inflated prices. The lawsuit alleges that an overnight hospital stay at Sutter hospitals in San Francisco or Sacramento costs at least 38 percent more than a comparable stay in the more competitive Los Angeles market.
A study published last year found that hospital prices at Sutter and Dignity Health, the two biggest hospital chains in California, were 25 percent higher than at other hospitals around the state. Researchers at the University of Southern California said the giant health systems used their market power to drive up prices — making the average patient admission at both chains nearly $4,000 more expensive.
"Sutter is a pretty extreme case of market power, but health care consolidation has become a really important issue across the country,” said Kathy Hempstead, a health care researcher at the Robert Wood Johnson Foundation. "It’s been on the back burner somewhat because of the debate over the Affordable Care Act, but there is bipartisan interest in tackling this.”
TORONTO — Ask people in Canada what they make of American health care, and the answer typically falls between bewilderment and outrage.
Canada, after all, prides itself on a health system that guarantees government insurance for everyone. And many Canadians find it baffling that there’s anybody in the United States who can’t afford a visit to the doctor.
So even as Canadians throw shade at the American hodgepodge of public plans, private insurance, deductibles and copays, they hold in high esteem a little-known Affordable Care Act initiative: the federal Center for Medicare & Medicaid Innovation (CMMI).
It was a hot topic on a reporter’s recent visit to Toronto to study the single-payer health care system.
Wonky as it seems, the center’s mission — testing innovations to hold down health care costs while increasing quality — has gotten noticed. Researchers and clinicians talk about its potential to foster experimentation and how it has led the United States to think out of the box regarding payment and reimbursement models.
“It is gaining traction in many circles here,” said Robert Reid, who researches health care quality at the University of Toronto.
“There have been some good efforts … they have tried more things than we have,” agreed Dr. Kaveh Shojania, a Toronto-based internist who studies health care quality and safety.
Despite the praise emanating from north of the border, the program doesn’t get the same love on the homefront.
Through the ACA, CMMI is armed with $10 billion each decade and sponsors on-the-ground experiments with doctors, health systems and payers. The idea is to devise and implement payment approaches that reward health care quality and efficiency, rather than the number of procedures performed.
Since taking office, though, President Donald Trump has rolled back its reach.
Canada has its own reasons for seeing potential in this sort of systemic test kitchen.
Health care’s growing price tag — and a payment system that doesn’t necessarily reward keeping people healthy — is hardly just an American problem. The vast majority of Canadian doctors are paid through what Americans call the “fee-for-service” model. And Canadian policymakers are also looking for strategies to curb health care costs — which, while greater in the United States, are a big budget here, too.
“The whole world is confronting the same issue, which is, ‘How do you pay and incentivize doctors to keep people out of the hospital and keep them healthy?’” said Ezekiel Emanuel, a former adviser to President Barack Obama who pushed for the center’s initial development. “Different places are looking at how to break out of that system, because everyone knows its perversions. This is one place where … we are in the world among the most innovative groups.”
Emanuel added that he wasn’t surprised to hear of the center’s appeal in Canada. He has received similar feedback from health ministers in Belgium and France, he said.
And, so far, the Trump administration has reduced by half the size of one high-profile Obama administration project that would have bundled payments for hip and knee replacements — so that the hospitals performing those were paid a set amount, rather than for individual services. It also canceled other scheduled “bundling” projects targeting payment for cardiac care and other joint replacements.
CMS Administrator Seema Verma wrote in The Wall Street Journal in September that the Innovation Center was going to begin moving “in a new direction.”
A follow-up “request for information” from the federal government suggested that the center would emphasize cutting health care costs through strategies like market competition, eliminating fraud and helping consumers actually shop for care. It also suggested the Innovation Center would favor smaller-scale projects.
At least for now, it’s hard to interpret what this means, said Jack Hoadley, a health policy analyst at Georgetown University who has previously worked at the Department of Health and Human Services.
Limiting CMMI’s footprint would be problematic, Emanuel argued, while discussing CMMI’s status in the U.S.
The footprint in Canada, though, seems to be growing.
“We definitely looked to it as a model as something we can do. Like look, this happened, and why can’t we do the same thing here?” said Dr. Tara Kiran, a Toronto-based primary care doctor who also researches health care quality.